nep-pbe New Economics Papers
on Public Economics
Issue of 2005‒02‒13
thirty-two papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Viable Taxation By Perroni, Carlo; Scharf, Kimberley Ann
  2. Bigger and Better: A Dynamic Regulatory Mechanism for Optimum Quality By De Fraja, Gianni; Iozzi, Alberto
  3. Measuring Tax Efficiency: A Tax Optimality Index By Raimondos-Møller, Pascalis; Woodland, Alan D
  4. Endogenous Fertility Policy By Booth, Alison L; Sepulveda, Facundo
  5. Interregional Redistribution and Mobility in Federations: A Positive Approach By Hansen, Nico; Kessler, Anke
  6. Vertical versus Horizontal Tax Externalities: An Empirical Test By Brülhart, Marius; Jametti, Mario
  7. Incentives and Prosocial Behaviour By Bénabou, Roland; Tirole, Jean
  8. The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity: A Comment By Baldwin, Richard; Robert-Nicoud, Frédéric
  9. Trade Liberalization with Heterogenous Firms By Baldwin, Richard; Forslid, Rikard
  10. Fiscal and Monetary Interaction: The Role of Asymmetries of the Stability and Growth Pact in EMU By Eijffinger, Sylvester C W; Governatori, Matteo
  11. Political Institutions, Environmental Policy and Growth By Marsiliani, Laura; Renström, Thomas I
  12. Destination- versus Origin-based Commodity Taxation and the Location of Industry By Behrens, Kristian; Hamilton, Jonathan; Ottaviano, Gianmarco I P; Thisse, Jacques-François
  13. The Political Economy of Urban Transport System Choice By Brueckner, Jan; Selod, Harris
  14. Is There a Political Support for the Double Burden on Prolonged Activity? By Casamatta, Georges; Cremer, Helmuth; Pestieau, Pierre
  15. Effective Active Labour Market Policies By Boone, Jan; van Ours, Jan C
  16. Is There Regional Tax Competition? Firm Level Evidence for Belgium By Crabbé, Karen; Janssen, Boudewijn; Vandenbussche, Hylke
  17. Dividend Taxes and Corporate Behaviour: Evidence from the 2003 Dividend Tax Cut By Chetty, Raj; Saez, Emmanuel
  18. On the Optimal Timing of Taxes By Hassler, John; Krusell, Per; Storesletten, Kjetil; Zilibotti, Fabrizio
  19. Public Safety and the Moral Dilemma in the Defense Against Terror By Franck, Raphael; Hillman, Arye L.; Krausz, Miriam
  20. Does it Cost to be Virtuous? The Macroeconomic Effect of Fiscal Constraints By Canova, Fabio; Pappa, Evi
  21. What Do Deficits Tell us About Debts? Empirical Evidence on Creative Accounting with Fiscal Rules in the EU By von Hagen, Jürgen; Wolff, Guntram
  22. Pension systems and intragenerational redistribution when labor supply is endogenous By Alessandro, SOMMACAL
  23. Tax Progression in Imperfect Labour Markets : A Survey By Mathias, HUNGERBUEHLER
  24. Cooperative Models in Action: Simulation of a Nash-Bargaining Model of Household Labor Supply with Taxation By Bargain, Olivier; Moreau, Nicolas
  25. Structural Reform of Social Security By Martin Feldstein
  26. Social Security Privatization with Elastic Labor Supply and Second-Best Taxes By Kent Smetters
  27. Property Tax Limitations and Mobility: The Lock-in Effect of California's Proposition 13 By Nada Wasi; Michelle J. White
  28. House ownership and taxes By Torfinn Harding, Haakon O. Aa. Solheim og Andreas Benedictow
  29. The Social Cost of Government Spending in an Economy with Large Tax Distortions. A CGE Decomposition for Norway By Erling Holmøy and Birger Strøm
  30. Spousal Influence on Early Retirement Behavior By Zhiyang Jia
  31. The public investment rule in a simple endogenous endogenous growth model with public capital: active or pasive? By Gustavo A. Marrero
  32. Characterizing the Optimal Composition of Government Expenditures By Rafaela Mª Pérez Sánchez

  1. By: Perroni, Carlo; Scharf, Kimberley Ann
    Abstract: Taxation is only sustainable if the general public complies with it. This observation is uncontroversial with tax practitioners but has been ignored by the public finance tradition, which has interpreted tax constitutions as binding contracts by which the power to tax is irretrievably conferred by individuals to government, which can then levy any tax it chooses. In the absence of an outside party enforcing contracts between members of a group, however, no arrangement within groups can be considered to be a binding contract, and therefore the power to tax must be sanctioned by individuals on an ongoing basis. In this Paper we offer, for the first time, a theoretical analysis of this fundamental compliance problem associated with taxation, obtaining predictions that in some cases point to a re-interpretation of the theoretical constructions of the public finance tradition while in others call them into question.
    Keywords: government; public goods; taxation
    JEL: H10 H20 H30 H40
    Date: 2004–01
  2. By: De Fraja, Gianni; Iozzi, Alberto
    Abstract: Vogelsang and Finsinger’s seminal paper (Bell Journal of Economics, 1979) proposes a mechanism for price regulation with some desirable properties, such as convergence to a second best optimum. This mechanism applies to situations where quality is fixed: in practice, quality can be varied by the firm, and regulators have typically imposed constraints on the firm’s quality choice. This Paper lays a rigorous theoretical foundation to the inclusion of quality measures in the constraints faced by a regulated firm. We identify a potential pitfall in the approach taken in practice by regulators, and show that, in order to avoid it, the regulated firm should be subject to an additional constraint, which, loosely speaking, requires firms’ choices not to be too erratic.
    Keywords: price cap; quality; regulation; RPI-X
    Date: 2004–08
  3. By: Raimondos-Møller, Pascalis; Woodland, Alan D
    Abstract: This Paper introduces an index of tax optimality that measures the distance of some current tax structure from the optimal tax structure in the presence of public goods. In doing so, we derive a [0; 1] number that reveals immediately how far the current tax configuration is from the optimal one and, thereby, the degree of efficiency of a tax system. We call this number the Tax Optimality Index. We show how the basic method can be altered in order to derive a revenue equivalent uniform tax, which measures the size of the public sector. A numerical example is used to illustrate the method developed.
    Keywords: distance function; excess burden; tax optimality index
    JEL: H21 H41
    Date: 2004–08
  4. By: Booth, Alison L; Sepulveda, Facundo
    Abstract: In this Paper, we study the role of subsidies to fertility in ensuring the political viability of unfunded social security (SS). In our model, agents are heterogeneous in age and income. Young generations confront promises made previously by older generations, and in turn choose current levels of fertility subsidies, and future levels of social security benefits. We find that subsidies to the costs of children expand the set of equilibria, making social security viable where it would otherwise have to be abandoned. Moreover, the model successfully captures the observed evolution of social security and family support systems during the demographic transition. Our results indicate that the seemingly explosive evolution of SS taxes will be curbed once the underlying demographic transition is completed, after which the SS system will converge to a steady state lower than simple extrapolation of current trends would imply, and fertility will rebound with the aid of higher subsidy levels.
    Keywords: endogenous fertility; OLG models; political economy; redistribution; social security
    JEL: E62 H20 H30 H55 J13 J14
    Date: 2004–08
  5. By: Hansen, Nico; Kessler, Anke
    Abstract: The Paper studies the effects and the determinants of interregional redistribution in a model of residential and political choice. We find that paradoxical consequences of interjurisdictional transfers can arise if people are mobile: while self-sufficient regions are necessarily identical with respect to policies and average incomes in our model, interregional redistribution always leads to the divergence of regional policies and per capita incomes. Thus, interregional redistribution prevents interregional equality. As we show, however, it at the same time allows for more interpersonal equality among the inhabitants of each region. For this reason, the voting population may in a decision over the fiscal constitution deliberately implement such a transfer scheme to foster regional divergence.
    Keywords: fiscal federalism; interregional transfers; migration; redistribution
    JEL: H71 H73
    Date: 2004–08
  6. By: Brülhart, Marius; Jametti, Mario
    Abstract: We study taxation externalities in federations of benevolent governments. Where different hierarchical government levels tax the same base, one can observe two types of externalities: a horizontal externality, working among governments of the same level and leading to tax rates that are too low compared to the social optimum; and a vertical externality, working between different levels of government and leading to sub-optimally high tax rates. Building on the model of Keen and Kotsogiannis (2002), we derive a discriminating hypothesis to distinguish vertical and horizontal tax externalities based on observable variables. This test is applied to a panel dataset on local taxes in a sample of Swiss municipalities that feature direct-democratic fiscal decision making, so as to maximize the correspondence with the benevolent.governments of the theory. We find that vertical externalities dominate - they are thus an observed empirical phenomenon as well as a notable extension to the theory of tax competition.
    Keywords: fiscal federalism; horizontal externalities; Swiss tax system; tax competition; vertical externalities
    JEL: H10 H21 H25
    Date: 2004–09
  7. By: Bénabou, Roland; Tirole, Jean
    Abstract: We build a theory of prosocial behaviour that combines heterogeneity in individual altruism and greed with concerns for social reputation or self-respect. The presence of rewards or punishments creates doubt as to the true motive for which good deeds are performed, and this ‘overjustification effect’ can result in a net crowding out of prosocial behaviour by extrinsic incentives. The model also allows us to identify settings that are conducive to multiple social norms of behaviour, and those where disclosing one’s generosity may backfire. Finally, we analyse the equilibrium contracts offered by sponsors, including the level and confidentiality or publicity of incentives. Sponsor competition may cause rewards to bid down rather than up, and can even reduce social welfare by requiring agents to engage in inefficient sacrifices.
    Keywords: altruism; crowding out; D64; identity; motivation; overjustification effect; reputation; rewards; social norms; Z13
    JEL: D82 H41
    Date: 2004–09
  8. By: Baldwin, Richard; Robert-Nicoud, Frédéric
    Abstract: Melitz (2003) demonstrates that greater trade openness raises industry productivity via a selection effect and via a production re-allocation effect. Our comment points out that the set-up assumed in the Melitz model displays a trade off between static and dynamic efficiency gains. That is, although freer trade improves industry productivity in a level sense, it harms it in a growth sense. To make this point as simply as possible, we introduce a slight modification to the model that endogenises the growth rate of industry productivity and we show that liberalization slows growth.
    Keywords: dynamic versus static efficiency; endogenous growth; heterogenous firms; trade liberalization
    JEL: H32 P16
    Date: 2004–09
  9. By: Baldwin, Richard; Forslid, Rikard
    Abstract: This Paper details the positive and normative effects of reciprocal trade liberalization when firms have endogenously determined, heterogeneous productivity levels. We show that trade liberalization leads to: (i) an anti-variety effect (the number of varieties consumed drops) in contrast to the well-known Krugman variety effect; and (ii) a Stolper-Samuelson like result on factor rewards. We decompose the welfare impact into four partial effects. Three of these are unique to the model, namely, the Melitz anti-variety effect, the Melitz productivity effect, and the MacDonalisation effect. We show that the first effect tends to lower welfare while the other two tend to raise it. Overall, the four effects imply that the representative gains from trade liberalization. If we identify factor ownership with particular classes of consumers, we can say that freer trade implies unambiguous welfare gains for labourers and export-firm owners. Other firm owners gain if and only if spending on manufactured varieties is sufficiently high.
    Keywords: anti-variety effect; heterogeneous firms; Krugman variety effect; trade liberalization
    JEL: H32 P16
    Date: 2004–09
  10. By: Eijffinger, Sylvester C W; Governatori, Matteo
    Abstract: The Paper builds a simplified model describing the economy of a currency union with decentralized national fiscal policy, where the main features characterizing the policy-making are similar to those in EMU. National governments choose the size of deficit taking into account the two main rules of the Stability and Growth Pact on public finance. Unlike previous literature the asymmetric working of those rules is explicitly modeled in order to identify its impact on the Nash equilibrium of deficits arising from a game of strategic interaction between fiscal authorities in the union.
    Keywords: asymmetric fiscal rules; decentralized fiscal policy; EMU; stability and growth pact
    JEL: E61 H30 H60 H70
    Date: 2004–09
  11. By: Marsiliani, Laura; Renström, Thomas I
    Abstract: We analyse the impact of micro-founded political institutions on environmental policy and economic growth. We model an overlapping-generations economy, where individuals differ in preferences over the environment (as well as in age). Labour taxation and capital taxation is used to finance a public good and a public production factor, period by period. The underlying political institution is a parliament. Party entry, parliamentary composition, coalition formation, and bargaining are endogenous. The benchmark is when all decisions are taken in parliament. We compare this constitution with an independent regulator, elected in parliament. The regulatory regime causes lower pollution, but production inefficiency.
    Keywords: bargaining; comparative politics; endogenous growth; environmental policy; overlapping generations; taxation; voting
    JEL: D62 D72 E20 E62 H20 H55 O41 Q58
    Date: 2004–10
  12. By: Behrens, Kristian; Hamilton, Jonathan; Ottaviano, Gianmarco I P; Thisse, Jacques-François
    Abstract: This Paper studies the positive aspects of destination vs. origin principles of commodity taxation as well as tax harmonization, with an emphasis on the international implications of these measures when firms are mobile. We investigate the tax incidence of these two principles on price levels and uncover how taxes and trade costs interact. While under the destination principle an increase in the tax rate of a country always causes some firms to relocate to the other, this effect may get reversed under the origin principle when economic integration is deep enough, so that a tax increase leads to an inflow of capital.
    Keywords: commodity tax; destination principle; home market effect; origin principle; tax harmonization
    JEL: F12 H22 H87 R12
    Date: 2004–10
  13. By: Brueckner, Jan; Selod, Harris
    Abstract: This Paper analyses the political economy of transport-system choice, with the goal of gaining an understanding of the forces involved in this important urban public policy decision. Transport systems pose a continuous trade-off between time and money cost, so that a city can choose a fast system with a high money cost per mile or a slower, cheaper system. The Paper compares the socially optimal transport system to the one chosen under the voting process, focusing on both homogeneous and heterogeneous cities, while considering different landownership arrangements. The analysis identifies a bias toward over-investment in transport quality in heterogeneous cities.
    Keywords: income heterogeneity; multiple transport systems; over-investment in transport quality
    JEL: H41 R42
    Date: 2004–10
  14. By: Casamatta, Georges; Cremer, Helmuth; Pestieau, Pierre
    Abstract: In many countries elderly workers are subject to a double distortion when they consider prolonging their activity: the payroll tax and a reduction in their pension rights. It is often argued that such a double burden would not be socially desirable. We consider a setting where it would be rejected by both a utilitarian and a Rawlsian social planner. Furthermore, each individual would also reject it as a citizen candidate. We show that the double burden may nevertheless be (second-best) Pareto efficient and can be supported by a particular structure of social weights biased towards the more productive workers.
    Keywords: implicit taxation; pensions; retirement age
    JEL: H55
    Date: 2004–10
  15. By: Boone, Jan; van Ours, Jan C
    Abstract: We present a theoretical and empirical analysis of different types of active labour market policies (ALMP). In our empirical analysis we use data on 20 OECD countries covering the time period 1985-99. We find that labour market training is the most effective program to bring down unemployment. Public employment services have some impact while subsidized jobs are not effective at all. Our theory considers ALMP in the context of a search-matching model.
    Keywords: active labour market programmes; public employment services; subsidized jobs; training; unemployment
    JEL: H55 J65 J68
    Date: 2004–10
  16. By: Crabbé, Karen; Janssen, Boudewijn; Vandenbussche, Hylke
    Abstract: This is the first Paper that looks at regional tax competition within one single country. In many countries in Europe, regions within a country differ substantially in their economic development and attractiveness to firms. Belgium is a typical example of a country where the economic situation of its three regions is very different. Our findings are indicative of regional tax competition, with a lower Effective Tax Rate (ETR) in the peripheral region of Wallonia than in Flanders. In addition to location variables, our empirical model explaining firm level heterogeneity in ETRs includes firm characteristics, sector membership and variables capturing statutory tax breaks.
    Keywords: Belgian firms; company accounts; effective tax rates
    JEL: C50 F36 H25
    Date: 2004–10
  17. By: Chetty, Raj; Saez, Emmanuel
    Abstract: This Paper analyses the effects of dividend taxation on corporate behaviour using the large tax cut on individual dividend income enacted in 2003. Using data spanning 1980 to 2004-Q2, we document a sharp and widespread surge in dividend payments following the tax cut, along several dimensions. First, an unprecedented number of firms initiated regular dividend payments after the reform. As a result, the number of publicly traded firms paying dividends, after having declined continuously for more than two decades, began to increase precisely in 2003. Second, many firms that were already paying dividends prior to the reform raised regular dividend payments significantly. Third, special dividends also rose. All of these effects are robust to introducing controls for profits and other firm characteristics. Additional evidence for specific groups of firms suggests that the tax cut induced increases in total payout rather than substitution between dividends and repurchases. The tax response was confined to firms with lower levels of forecasted growth, consistent with an improvement in capital allocation efficiency. The response to the tax cut was strongest in firms with strong principals whose tax incentives changed (presence of large taxable institutional owners or independent directors with large share holdings), and in firms where agents had stronger incentives to respond (large executive ownership and low levels of executive stock-options outstanding). These findings show that principal-agent issues play a central role in corporate responses to taxation.
    Keywords: corporate governance; dividend taxation
    JEL: G30 H30
    Date: 2004–11
  18. By: Hassler, John; Krusell, Per; Storesletten, Kjetil; Zilibotti, Fabrizio
    Abstract: This Paper analyses the optimal timing of taxes on capital income. We show that the celebrated result that taxes should front-loaded with an initially high tax followed by a discrete jump to the steady state is knife-edge, hinging on capital having a constant depreciation rate. An empirically supported deviation from this case, involving depreciation rates that increase over the lifespan of the investment, implies that optimal taxes should oscillate. Furthermore, the optimality of fluctuating tax rates hinges on the government being able to commit to the path of future tax rates. Without commitment, optimal taxes may be smooth also under accelerating depreciation. In a calibrated example, we find that optimal taxes are oscillating under commitment and smooth without commitment.
    Keywords: capital depreciation; optimal taxation; tax dynamics; time-consistency
    JEL: D90 E61 H21 H30
    Date: 2004–11
  19. By: Franck, Raphael; Hillman, Arye L.; Krausz, Miriam
    Abstract: The economic theory of defense has traditionally described public safety as achieved through investments that deter adversaries. Deterrence is however ineffective, and preemptive defense is required, when a population of intended victims confronts supreme-value suicide terror. A moral dilemma then arises, since preemption may impose collective punishment, while, in the absence of preemption, the population of intended victims is exposed to acts of terror. We consider how a population of intended terror victims confronts the moral dilemma, and compare the threatened population’s response with the public-safety recommendations of external judges who are not personally affected by the threat of terror.
    Keywords: counter-terrorism; Defense economics; defensive preemption; international judges; profiling; terror
    JEL: D81 H56
    Date: 2004–11
  20. By: Canova, Fabio; Pappa, Evi
    Abstract: We study whether and how fiscal restrictions alter the business cycle features macrovariables for a sample of 48 US states. We also examine the ‘typical’ transmission properties of fiscal disturbances and the implied fiscal rules of states with different fiscal restrictions. Fiscal constraints are characterized with a number of indicators. There are similarities in second moments of macrovariables and in the transmission properties of fiscal shocks across states with different fiscal constraints. The cyclical response of expenditure differs in size and sometimes in sign, but heterogeneity within groups makes point estimates statistically insignificant. Creative budget accounting is responsible for the pattern. Implications for the design of fiscal rules and the reform of the Stability and Growth Pact are discussed.
    Keywords: budget restrictions; dynamic panels; fiscal policy transmission; policy rules
    JEL: E30 E50 H70
    Date: 2004–11
  21. By: von Hagen, Jürgen; Wolff, Guntram
    Abstract: Fiscal rules, such as the excessive deficit procedure and the stability and growth pact (SGP), aim at constraining government behaviour. Milesi-Ferretti (2003) develops a model in which governments circumvent such rules by reverting to creative accounting. The amount of this creative accounting depends on the reputation cost for the government and the economic cost of sticking to the rule. In this Paper, we provide empirical evidence of creative accounting in the European Union. We find that the SGP rules have induced governments to use stock-flow adjustments, a form of creative accounting, to hide deficits. This tendency to substitute stock-flow adjustments for budget deficits is especially strong for the cyclical component of the deficit, as in times of recession the cost of reducing the deficit is particularly large.
    Keywords: debt-deficit adjustments; ESA 95; excessive deficit procedures; fiscal rules; stability and growth pact; stock-flow adjustments
    JEL: E62 H61 H62 H63 H70
    Date: 2004–11
  22. By: Alessandro, SOMMACAL (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: It is usually thought that a Beveridgean pension system redistributes income more than a Bismarckian one, since it ensures replacement ratios that decrease with income. We check the validity of this result when the fact that pension systems can redistribute also through their effects on labor income is taken into account. Labor market institutions turn out to be crucial. First we study an economy with a competitive labor market : quite surprisingly, inequality is unaffected by a reallocation of funds towards the Beveridgean system. Then we introduce a minimum wage that creates unemployment on the unskilled labor market : in this case the Beveridgean system is proved to reduce inequality.
    Keywords: Social Security; Intragenerational redistribution; Basic Pension; Beveridgean pension system; Bismarckian pension system
    JEL: H55
    Date: 2004–03–24
  23. By: Mathias, HUNGERBUEHLER (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and ERMES, Université Paris II)
    Abstract: We look at the effect of tax progression in imperfect labour markets. The models considered are union models, an equilibrium search model with wage bargaining, an equilibrium search model with wage posting by firms and efficiency wage models. We find that in all basic models, an increase in tax progression leads to lower wages and higher employment. Extensions of the models can however change these results.
    Keywords: Tax progression; Redistribution; Labour Market Imperfections
    JEL: H42 J41 J42 J51
    Date: 2004–10–17
  24. By: Bargain, Olivier (IZA Bonn); Moreau, Nicolas (GREMAQ and LIRHE, University of Toulouse 1)
    Abstract: Several theoretical contributions, starting with McElroy and Horney (1981) and Manser and Brown (1980), have suggested to model household behavior as a Nash-bargaining game. Since then, very few attempts have been made to operationalize cooperative models of household labor supply for policy analysis. In this paper, we implement a Nash-bargaining model with external threat points (divorce) into the microsimulation of tax policy reforms in France. Following the suggestion of McElroy (1990) to achieve identification, we assume that the observation of single individuals can be used to predict outside options. Individual preferences in couples are allowed to display caring between spouses and are simulated in a way which guarantee consistency with the Nash bargaining setting, regularity conditions and observed behaviors. An extensive sensitivity analysis is provided in order to examine the various implications from using the cooperative model for tax policy analysis and the likely role of taxation on intra-household negotiation.
    Keywords: collective model, Nash-bargaining model, intrahousehold allocation, household labor supply, tax reform, microsimulation
    JEL: C25 C52 C71 D11 D12 H31 J22
    Date: 2005–01
  25. By: Martin Feldstein
    Abstract: Governments around the world have enacted or are currently considering fundamental structural reforms of their Social Security pension programs. The key feature in these reforms is a shift from a pure pay-as-you-go tax-financed system, in which taxes on current workers are primarily distributed to current retirees, to a mixed system that combines pay-as-you-go benefits with investment-based personal retirement accounts. This paper discusses how such a mixed system could work in practice and how the transition to such a change could be achieved. It then analyzes the economic gains that would result from shifting to a mixed system. I turn next to the three problems that critics raise about any investment-based plan: administrative costs, risk, and income distribution. Finally, I comment on some of the ad hoc proposals for dealing with the financial problem of Social Security without shifting to an investment-based system.
    JEL: H0 H3 H1
    Date: 2005–02
  26. By: Kent Smetters
    Abstract: This paper shows that many common methods of privatizing social security fail to reduce labor market distortions when taxes are second best, challenging a key reason to privatize. Ironically, providing "transition relief" to workers alive at the time of the reform, in an effort to protect their previous contributions, undercuts potential efficiency gains. Chile's reform -- the first major privatization that also served as a model for other countries -- actually increased labor market distortions. It is then shown that privatization with limited transition relief can reduce labor market distortions and produce gains to current and future generations without hurting initial retirees, i.e., a Pareto gain, even with second-best taxes.
    JEL: H0 H2
    Date: 2005–02
  27. By: Nada Wasi; Michelle J. White
    Abstract: Proposition 13, adopted by California voters in 1978, mandates a property tax rate of one percent, requires that properties be assessed at market value at the time of sale, and allows assessments to rise by no more than 2% per year until the next sale. In this paper, we examine how Prop 13 has affected the average tenure length of owners and renters in California versus in other states. We find that from 1970 to 2000, the average tenure length of owners and renters in California increased by 1.04 years and .79 years, respectively, relative to the comparison states. We also find substantial variation in the response to Prop 13, with African-American households responding more than households of other races and migrants responding more than native-born households. Among owner-occupiers, the response to Prop 13 increases sharply as the size of the subsidy rises. Homeowners living in inland California cities such as Bakersfield receive Prop 13 subsidies averaging only $110/year and their average tenure length increased by only .11 years in 2000, but owners living in coastal California cities receive Prop 13 subsidies averaging in the thousands of dollars and their average tenure length increased by 2 to 3 years.
    JEL: H2 R2 H7 K2
    Date: 2005–02
  28. By: Torfinn Harding, Haakon O. Aa. Solheim og Andreas Benedictow (Statistics Norway)
    Abstract: The household portfolio is dominated by a small number of assets; primarily housing and mortgages. We compare data on actual portfolios of Norwegian households with estimated optimal portfolios, using traditional financial theory. We find actual portfolios to be close to the portfolio indicated by a mean-variance frontier, based on four assets and estimated under assumptions of short sale constraints. This result is sustained even in a no-tax regime. To induce a substantial change from housing to equity, taxation of the consumption stream from housing is needed. An alternative; taxation of capital gains from housing investment; could actually increase the relative holding of housing.
    Keywords: Households; portfolio choice; consumption tax; capital gains tax.
    JEL: G11 H2 H31
    Date: 2004–11
  29. By: Erling Holmøy and Birger Strøm (Statistics Norway)
    Abstract: We use a CGE model to estimate the social cost of a marginal increase in public expenditure in Norway. Norway exemplifies an economy with high taxes. Distortionary taxes imply wedges between the market prices and the corresponding shadow prices. The shadow prices are unobservable, which is the rationale for using a CGE model to estimate the social cost of government consumption. The social cost is decomposed into a direct resource cost and the cost of public funds. The CGE estimate of the direct resource cost is implicitly a weighted average of different opportunity costs, reflecting distortions in the Norwegian economy. Our estimate of the resource cost equals about ¾ of the ex ante market price of the resources consumed. This gap is due to a positive labour supply response combined with a high effective tax rate on labour income. Our estimate of the social cost of raising public funds through a higher pay-roll tax is about 20 percent of the direct resource cost.
    Keywords: Tax distortions; Cost-benefit analysis; Cost of public funds; Computable general equilibrium models
    JEL: H20 H21 H43 J22
    Date: 2004–12
  30. By: Zhiyang Jia (Statistics Norway)
    Abstract: In this paper, we use a binary choice panel data model to analyze married individuals.retirement behavior in Norway when a new option, AFP early retirement becomes available. We focus our study on the influence of the spouse.s characteristics on early retirement behavior. We find the directions of spousal e¤ects are quite symmetric but women seem to have a much stronger response to their spouses' characteristics than men. The comparison of di¤erent specifications indicates that correct modeling of the error term covariance structure in a panel data binary choice model is quite important.
    Keywords: Retirement; Spousal Influence; Panel Data; Random Effects.
    JEL: H55 J26
    Date: 2005–02
  31. By: Gustavo A. Marrero (Universidad Complutense de Madrid. Facultad de Ciencias Económicas y Empresariales. Dpto. de Economía Cuantitativa)
    Abstract: In dynamic settings with public capital, it is common to assume that the government claims a constant fraction of public investment to total output each period, which is clearly a restrictive assumption. The goal of the paper is twofold: first, to find out a more reasonable rule for public investment, consistent with US data, than the constant-ratio rule; second, to analyze the impact of that rule on welfare and judge the public investment downsizing process held in US since the end of the sixties. Calibrating for US, the model simulation captures the public investment downsizing process held during 1960-2001, as well as the post-1970 slowdown in private factors productivity. Downsizing would be optimal whenever the public capital elasticity is approximately smaller than 0.09, a lower level than the general consensus in the literature. Thus, it is more likely that our result be consistent to Aschauer (1989) and Munnell (1990), which put forth that policymakers would have reduced the stock of public capital below its optimum level along this time.
    Date: 2004
  32. By: Rafaela Mª Pérez Sánchez (Universidad Complutense de Madrid. Facultad de CC. Económicas y Empresariales. Dpto. Fundamentos Análisis Económico I.)
    Abstract: This paper extends the neoclassical growth model with productive public capital by including an infrastructure efficiency index, which is assumed to depend on a public choice variable, in particular, the share of public spending allocated to productive public consumption. A golden rule for the allocation of public expenditure between productive consumption and investment is specified. Under this framework, the observed path for the stock of infrastructures and the proposed efficiency index in the US economy during the last fifty years have been close to optimal: a lower stock of infrastructures has been accumulated, but it has been used more efficiently.
    Date: 2004

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