nep-pbe New Economics Papers
on Public Economics
Issue of 2005‒03‒20
nine papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Improving the SGP: Taxes and Delegation Rather than Fines By Lindbeck, Assar; Niepelt, Dirk
  2. Time Consistency of Fiscal and Monetary Policy: A Solution By Persson , Mats; Persson , Torsten; Svensson, Lars E.O.
  3. Environmental Policy and Product Specialization By Aronsson, Thomas; Persson, Lars; Sjögren, Tomas
  4. Optimal Taxation with Endogenous Insurance Markets By Mikhail Golosov; Aleh Tsyvinski
  5. Corporate Taxation and Bilateral FDI with Threshold Barriers By Assaf Razin; Yona Rubinstein; Efraim Sadka
  6. Elasticities of Regional and Local Administrations Expenditures - the Portuguese case By Paulo Reis Mourão
  7. Corruption, Decentralization and Yardstick Competition By Christopher J. Ellis; Oguzhan C. Dincer
  8. The Stability and Growth Pact from the Perspective Of the New Member States By Gábor Orbán; György Szapáry
  9. International Coercion, Emulation and Policy Diffusion: Market-Oriented Infrastructure Reforms, 1977-1999 By Witold J. Henisz; Bennet A. Zelner; Mauro F. Guillen

  1. By: Lindbeck, Assar (Institute for International Economic Studies, Stockholm University); Niepelt, Dirk (Institute for International Economic Studies, Stockholm University)
    Abstract: We analyze motivations for, and possible alternatives to, the Stability and Growth Pact (SGP). With regard to the former, we identify domestic policy failures and various cross-country spillover effects; with regard to the latter, we contrast an "economic-theory" perspective on optimal corrective measures with the "legalistic" perspective adopted in the SGP.We discuss the advantages of replacing the Pact's rigid rules backed by fines with corrective taxes (as far as spillover effects are concerned) and procedural rules and limited delegation of fiscal powers (as far as domestic policy failures are concerned). This would not only enhance the efficiency of the Pact, but also render it easier to enforce.
    Keywords: Stability and Growth Pact; spillover effects; policy failures; Pigouvian taxes; policy delegation
    JEL: E63 F33 F42 H60
    Date: 2004–12–14
  2. By: Persson , Mats (Institute for International Economic Studies, Stockholm University); Persson , Torsten (Institute for International Economic Studies, Stockholm University); Svensson, Lars E.O. (Department of Economics, Princeton University)
    Abstract: This paper demonstrates how time consistency of the Ramsey policy–the optimal fiscal and monetary policy under commitment–can be achieved. Each government should leave its successor with a unique maturity structure for the nominal and indexed debt, such that the marginal benefit of a surprise inflation exactly balances the marginal cost. Unlike in earlier papers on the topic, the result holds for quite a general Ramsey policy, including time varying polices with positive inflation and positive nominal interest rates. We compare our results with those in Persson, Persson, and Svensson (1987), Calvo and Obstfeld (1990), and Alvarez, Kehoe, and Neumeyer (2004).
    Keywords: time consistency; Ramsey policy; surprise inflation
    JEL: E31 E52 H21
    Date: 2004–10–01
  3. By: Aronsson, Thomas (Department of Economics, Umeå University); Persson, Lars (Department of Economics, Umeå University); Sjögren, Tomas (Department of Economics, Umeå University)
    Abstract: This paper characterizes income and commodity taxation as the outcome of a noncooperative Nash game in a two-country economy where one of the countries produces an environmentally clean good, while the other produces a dirty good. Among the results, it is shown that the commodity tax on the dirty good implemented by each country does not contain any term that directly serves to correct for the external effect. Instead, the country producing the dirty good internalizes part of the domestic external effect by choosing a relatively high marginal income tax rate.
    Keywords: Trade and Environment; Optimal Taxation; Externalities.
    JEL: F18 H21 H23
    Date: 2005–03–15
  4. By: Mikhail Golosov; Aleh Tsyvinski
    Abstract: We study optimal tax policy in a dynamic private information economy with endogenous private markets. We characterize efficient allocations and competitive equilibria. A standard assumption in the literature is that trades are observable by all agents. We show that in such an environment the competitive equilibrium is efficient. The only effect of government interventions is crowding out of private insurance. We then relax the assumption of observability of consumption and consider an environment with unobservable trades in competitive markets. We show that efficient allocations have the property that the marginal product of capital is different from the market interest rate associated with unobservable trades. In any competitive equilibrium without taxation, the marginal product of capital and the market interest rate are equated, so that competitive equilibria are not efficient. Taxation of capital income can be welfare-improving because such taxation introduces a wedge between market interest rates and the marginal product of capital and allows agents to obtain better insurance in private markets. Finally, we use plausibly calibrated numerical examples to compute optimal taxes and welfare gains and compare results to an economy with a restricted set of tax instruments, and to an economy with observable trades.
    JEL: E62 H21 H23 H53
    Date: 2005–03
  5. By: Assaf Razin; Yona Rubinstein; Efraim Sadka
    Abstract: The paper brings out the special mechanism through which taxes influence bilateral FDI, when investment decisions are two-fold in the presence of fixed setup flows costs. For each pair of source-host countries, there is a set of factors determining whether aggregate FDI flows will occur at all, and a different set of factors determimnig the volume of FDI flows (provided that they occur). We demonstrate that the notion that the mere international tax differetials are a key factor behind the direction and magnitude of FDI flows is too simple. We argue that the source country tax rate works primarely on the selection process, whereas the host-country tax rate affect mainly the magnitude of the FDI, once they occur. We analyze international panel data with 24 OECD countries over the period 1981-1998 by the Heckman selection method to bring evidence in support of this argument.
    JEL: F3 H2 F1
    Date: 2005–03
  6. By: Paulo Reis Mourão (Universidade do Minho - NIPE)
    Abstract: This work analyses the evolution of real public expenditures of local and regional administrations (LRA), in Portugsl, in the period after the Second World War. It also aims to estimate the elasticities associated to determinants, which explain the found growth. As most relevant results, it is focused that real public espenditures of LRA did not increase in a constant way - the most significant period of growth was between 1974 and 1990. A long-term relation was found among real public expenditures of LRA ( as a proportion of real Gross National Product), the Number of Employees in Public Administration, the Number of Unemployed and Public Revenues. These results are consistent with the bureaucracy being a source of discouragement referring to the decentralized public expenditures.
    Keywords: Public Expenditures; Cointegration; Decentralization
    JEL: H50 H54 H72 C13
    Date: 2005
  7. By: Christopher J. Ellis (University of Oregon); Oguzhan C. Dincer (Massey University)
    Abstract: Several empirical studies have found a negative relationship between corruption and the decentralization of the powers to tax and spend. In this paper we explain this phenomenon using a model of Yardstick Competition. Further, using data on government corruption in US states, we provide some new evidence that supports the theoretical findings.
    Keywords: Corruption, decentralization, yardstick competition
    JEL: H20 H29
    Date: 2005–03–01
  8. By: Gábor Orbán; György Szapáry
    Abstract: The purpose of this paper is to examine the fiscal characteristics of the new members in the light of the requirements of the SGP and the criticisms levelled against the Pact and to see in what ways their initial conditions differ from those faced by the current euro zone countries in the run-up to the adoption of the euro. Overall, because of the lower debt levels and greater yield convergence already achieved, the new members will be able to rely less on gains from yield convergence than the current euro zone members were able to do. EU accession will also have a negative net impact on the budgets of the new members in the early years of membership. We also look at the cyclical sensitivities of the budgets and find that in the new members the smoothing capacity of the automatic stabilizers might be weaker than in the current euro zone members. Beyond these general characteristics, we also emphasize that there are large differences in the starting fiscal positions of the new members. Some of the policy implications of our findings are discussed.
    Keywords: EU enlargement, fiscal policy, fiscal rules, Stability and Growth Pact
    JEL: E61 H6 H87
    Date: 2004–07–01
  9. By: Witold J. Henisz; Bennet A. Zelner; Mauro F. Guillen
    Abstract: Why do some countries adopt market-oriented reforms such as deregulation, privatization and liberalization of competition in their infrastructure industries while others do not? Why did the pace of adoption accelerate in the 1990s? Building on neo-institutional theory in sociology, we argue that the domestic adoption of market-oriented reforms is strongly influenced by international pressures of coercion and emulation. We find robust support for these arguments with an event-history analysis of the determinants of reform in the telecommunications and electricity sectors of as many as 205 countries and territories between 1977 and 1999. Our results also suggest that the coercive effect of multilateral lending from the IMF, the World Bank or Regional Development Banks is increasing over time, a finding that is consistent with anecdotal evidence that multilateral organizations have broadened the scope of the “conditionality” terms specifying market-oriented reforms imposed on borrowing countries. We discuss the possibility that, by pressuring countries into policy reform, cross-national coercion and emulation may not produce ideal outcomes.
    Keywords: Privatization, deregulation, liberalization, infrastructure, International Monetary Fund (IMF), World Bank, Multileral Institutions, Development, Reform, Globalization, Adoption, International
    JEL: O19 F02 F42 H11 L33 L96 L94 N70 P16 C41
    Date: 2004–07–01

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