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on Public Economics |
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Issue of 2005‒04‒03
fourteen papers chosen by Joao Carlos Correia Leitao Universidade da Beira Interior |
| By: | Cécile Carpentier; Jean-Marc Suret |
| Abstract: | To ease the financing of growing SMEs, governments found or indirectly fund venture capital companies. These companies act in a context of extreme information asymmetry and potentially exorbitant agency costs. The rigorous governance of these companies is thus pivotal to their performance. We analyze the financial reporting guidelines put in place for American SBICs by the Small Business Administration, along with the valuation guidelines issued by venture capital associations and institutions in several countries. SBICs are subject to rigorous uniform financial reporting and valuation standards, which likely partly explains their performance in recent years. We also describe the efforts of diverse institutions to develop venture capital valuation guidelines. The most rigorous methods entail filing the initial terms of the financial deal, which could allow more efficient control of the selection process of investments. The Quebec government would benefit from implementing more rigorous reporting and valuation guidelines. <P>Pour faciliter le financement des entreprises en croissance, les gouvernements mettent en place ou financent indirectement des sociétés de capital de risque. Celles-ci interviennent dans un contexte d’asymétrie informationnelle où les coûts d’agence sont potentiellement très élevés. L’encadrement strict de ces sociétés est donc une condition essentielle à leur performance. Nous analysons le cadre de reddition de comptes mis en place pour les Small Business Investment Companies (SBICs) par la Small Business Administration américaine, puis les normes d’évaluation des placements préconisés par les associations et organismes de capital de risque dans plusieurs pays. Les SBICs sont soumises à un cadre uniforme strict de reddition de comptes et d’évaluation, qui explique probablement en partie leur bonne performance dans les années récentes. Nous montrons également les efforts déployés par divers organismes pour développer un cadre d’évaluation des placements de capital de risque. Les méthodes les plus rigoureuses demanderaient l’archivage des conditions initiales du placement, ce qui contribuerait à un contrôle plus efficace du processus de sélection des investissements. Les initiatives québécoises gagneraient très certainement à disposer d’un cadre de reddition de comptes et d’évaluation plus strict que celui qui semble actuellement prévaloir. |
| Keywords: | public policy, venture capital, governance, reporting guidelines, valuation guidelines , politique publique, capital de risque, gouvernance, normes comptables, normes d’évaluation |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirpro:2005rp-07&r=pbe |
| By: | Luc Godbout; Matthieu Arseneau |
| Abstract: | This paper analyses the effect of a tax mix modification. More precisely, the authors assess the relevance of increasing consumption taxes and at the same time decreasing income taxes. Several arguments in favour of modifying the tax mix are analysed such as its impacts on savings, on labour supply and on tax compliance. While the Quebec government has recently modified its tax mix, the authors observe that it still relies more on income taxes, compared to the OECD countries average. However, comparative analysis data does not show any tendencies concerning the modification of the tax mix in developed countries. In fact, the reduction of income taxes observed in the analyzed countries is much more the consequence of a desire to decrease the tax burden rather than a desire for a modification of the tax mix. In this context, if the Quebec government is going to go forward with a tax mix reform, the authors suggest a moderate reform since the consumption tax rate is already one the highest in the region. Thus, they recommend the abolition of the tax exemptions concerning particular goods and services adopted coupled with an increase of the tax credit so as to compensate for the negative impact on the personal finances of2 poorer taxpayers. <P>Les auteurs analysent les incidences d’une réduction de l’utilisation d’un impôt au profit d’un autre, qu’ils nomment la révision du dosage des impôts. Ils évaluent la pertinence d’un usage accru de la taxe à la consommation au détriment de l’impôt sur le revenu. Les arguments souvent invoqués en faveur d’une révision du dosage des impôts sont analysés, à savoir les incitatifs au travail, à l’épargne et à la conformité fiscale. Même s’il s’avère que le Québec a légèrement revu le dosage de ses impôts au cours des dernières années, les auteurs observent qu’il utilise encore beaucoup plus l’impôt sur le revenu comparativement à la moyenne des pays de l’OCDE. Toutefois, l’analyse comparative ne permet de dégager aucune tendance quant à une telle révision du dosage des impôts dans les pays industrialisés. En fait, la réduction du poids des impôts sur le revenu au sein des pays analysés paraît davantage corrélée à une réduction de la pression fiscale qu’à une révision du dosage des impôts. Dans ce contexte, si le gouvernement du Québec entend revoir le dosage des impôts, les auteurs suggèrent qu’il le fasse modérément puisque le taux de la taxe à la consommation figure déjà parmi les plus élevés de la région. À cet égard, ils préconisent plutôt un élargissement des biens et services visés par la taxe à la consommation jumelé à une hausse du crédit de la taxe de vente pour compenser son impact sur les finances personnelles des moins nantis. |
| Keywords: | Quebec, international comparison, income tax, consumption tax, household taxation, tax reform, tax policy, tax mix, Québec, comparaison internationale, impôt sur le revenu, taxe à la consommation, impôt des particuliers, politique fiscale, réforme fiscale, dosage des impôts |
| JEL: | H24 H31 |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2005s-11&r=pbe |
| By: | Cécile Carpentier; Jean-Marc Suret |
| Abstract: | Several governments have designed tax incentive programs to promote small business finance, yet evidence of their efficiency is very scarce. This article analyzes the QBIC program, introduced in Quebec to help capitalize SME. Individual investors in holding companies that finance one or more small corporations receive substantial tax credits. First, the functioning of the program is analyzed in light of the fundamentals of the small business finance paradigm, in particular the adverse selection, agency cost and control aversion problems. Because the program design does not consider these dimensions, it putatively cannot fulfill its primary objective of attracting angels. Rather, it should mainly serve mediocre quality firms, whose subsequent performance should be weak. We analyze the ownership of all the QBICs accredited between 1998 and 2003, and the operating performance of the 83 financed companies for which accounting data were available. Our tests confirm each of our hypotheses. The program can hardly be considered as a success. In terms of public policy, the study concludes that poorly designed programs cannot attain the objective of promoting small business capitalization. <P>De nombreux gouvernements ont instauré des programmes fiscaux destinés à promouvoir le financement des petites et moyennes entreprises. Il existe toutefois très peu d’études de l’efficacité de ces initiatives. Nous analysons le programme de Société de placements dans l’entreprise québécoise (SPEQ), instauré au Québec pour améliorer la capitalisation des petites et moyennes entreprises. Les actionnaires de sociétés de portefeuille obtiennent d’importants crédits d’impôt lorsque ces sociétés financent des entreprises admissibles. Nous analysons en premier lieu le programme à la lumière des principes de base du financement des entreprises : l’asymétrie informationnelle, les problèmes d’anti-sélection et d’agence et la réticence à partager le contrôle. Comme le programme ne tient aucun compte de ces diverses dimensions, nous posons l’hypothèse qu’il ne permettra pas l’atteinte de l’objectif premier, qui était d’attirer des investisseurs providentiels dans l’actionnariat des entreprises. Nous supposons également que le programme devrait attirer principalement des entreprises de qualité médiocre, dont la performance après le placement sera faible. L’analyse de l’ensemble des SPEQ agréées entre 1998 et 2003 et des 83 sociétés financées pour lesquelles des données comptables sont accessibles permet de confirmer chacune de ces hypothèses. Le programme n’atteint pas ses objectifs et ne peut pas être considéré comme un succès. L’étude met en évidence l’importance de dessiner très soigneusement les programmes d’aide au financement des petites entreprises. |
| Keywords: | public policy, small business finance, tax incentives, business angels, politiques publiques, financement des petites entreprises, incitatifs fiscaux, investisseurs providentiels |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2005s-13&r=pbe |
| By: | Mandell, Svante (Dept. of Economics, Stockholm University) |
| Abstract: | This paper takes on the issue of ‘Prices vs. Quantities’, see Weitzman (1974), applied to environmental regulations under uncertainty. It is shown that, from an efficiency point of view, it is generally preferable to divide the economy into two parts, one regulated through a tax and the other through cap-and-trade, rather than letting it be subject to either of these regulation mechanisms. This may be so even when the latter alternatives are cost effective while the former is not. Particular interest is devoted to determining the optimal size of each sector. Generally, a steeper marginal abatement cost function relative to the marginal abatement benefit function implies that a larger part of the economy should be taxed. |
| Keywords: | regulation; uncertainty; emissions tax; tradable permits |
| JEL: | H23 L51 Q28 Q58 |
| Date: | 2004–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2004_0012&r=pbe |
| By: | Lundholm, Michael (Dept. of Economics, Stockholm University) |
| Abstract: | The marginal cost of public funds defined as the ratio between the shadow price of tax revenues and the population average of the social marginal utility of income, is analysed within an explicit cost–benefit context. It is shown that for an optimal tax system the measure is always equal to one. Benefit and cost measures congruent with this definition are derived. Under optimal taxes a positive net social benefit is a necessary and sufficient condition for a project that passes the cost–benefit test. Under non–optimal taxes this is not the case: If taxes are too low a positive net social benefit is a necessary but not sufficient condition and if taxes are too high a sufficient but not necessary condition for an accepted project. |
| Keywords: | Cost–benefit; optimal taxation; marginal cost of public funds |
| JEL: | H21 H43 |
| Date: | 2005–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2005_0003&r=pbe |
| By: | Zamac , Jovan (Department of Economics) |
| Abstract: | This study investigates the general equilibrium effects of a fertility shock under different intergenerational transfer schemes. The effects on lifetime income and utility for different generations, as well as the effects on factor prices, are analyzed in a three-period overlapping generations model where the workers provide for the young and the retired under different tax schemes. The economic effects of a fertility shock vary substantially with different intergenerational transfer schemes. How wages, interest rate and savings will evolve differs not only quantitatively but also qualitatively. To minimize the effects from a fertility shock it is vital that the effects on human capital are minimized. For a baby boom shock this implies that a higher fraction of output must be devoted to human capital accumulation, during the educational years of the baby boom generation. With respect to transfers to the old, the tax rate should not be fixed. |
| Keywords: | Intergenerational transfers; demography; social security; education |
| JEL: | H52 H55 J13 |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2005_013&r=pbe |
| By: | Mark Pearson (OECD); John P. Martin (OECD and IZA Bonn) |
| Abstract: | Some people make great claims about the advantages to be gained from greater reliance on the private sector for the provision of social protection. Many of the claims for great macroeconomic advantages do not stand up to scrutiny. However, there is some reason hope that private provision might promote microeconomic efficiency and services which are more responsive to consumer preferences than those provided by a single monopoly public sector provider. Drawing on examples from recent OECD country experiences with private health insurance, care for children and the elderly, and private pension provision, three main conclusions can be drawn. First, opening provision to a diversity of providers has often promoted more choice and innovation. Second, however, efficiency gains have often been limited. This is due to a number of inter-related reasons: (a) Individualisation of packages services is expensive. (b) In order to ensure adequate coverage of the population, crosssubsidisation of particular groups of people is often mandated on providers, reducing costcompetition and diversity of choice. (c) Informational asymmetries (how good is this childcare which I cannot personally monitor, or this health care package which I am not technically able to assess?) cannot be overcome without extensive regulation, which has the effect of limiting innovation and competition. (d) The fiscal incentives necessary to stimulate private provision are high, and have welfare costs of their own. Third, and related to this last point, the distributional effects of private provision raise significant social problems. Private financing and provision of social benefits is not a magic wand; waving it in the social protection field will not mean that the economy and voters will be freed from some great deadweight that has been dragging them down. Nevertheless, the private sector can sometimes deliver either slightly cheaper, slightly more varied or slightly more flexible system of social protection. |
| Keywords: | private social protection, private health insurance, child care, long-term care for the frail elderly, private pensions, efficiency, choice. |
| JEL: | H11 H42 H51 H53 L33 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1544&r=pbe |
| By: | Sebastian G. Kessing (Free University of Berlin); Kai A. Konrad (WZB, Free University of Berlin and IZA Bonn) |
| Abstract: | Restrictions on work hours are more important in countries with a large welfare state. We show that this empirical observation is consistent with the strategic effects of such restrictions in a welfare state in the context of optimal direct taxation in the tradition of Mirrlees (1971). Our results also apply to non-welfarist states which have income redistribution, but not in purely extortionary states. |
| Keywords: | optimal income taxation, labor unions, work hours |
| JEL: | H21 H23 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1545&r=pbe |
| By: | SALMON, Pierre (LEG - CNRS UMR 5118 - Université de Bourgogne) |
| Abstract: | Governments situated on the same level of a multi-level governmental system compete with each other as well as with those placed higher or lower. This paper is concerned with horizontal competition only. It discusses both competition based on the mobility of agents (individuals, business firms, or factors) and competition related to the circulation of information. With regard to the first kind, it focuses on the capacity that governments keep to decide their policies and compete in spite of the mobility of agents. Some attention is also given to the implications of some non-standard assumptions about the underlying political set-up. The discussion of information-based competition includes that of "laboratory federalism" (whether decentralization favours innovation) and of "yardstick competition" (what are the effects of comparisons of governments' comparative performance across jurisdictions). Some questions pertaining to the relationship between the different forms of horizontal competition and to their normative and empirical dimensions are addressed briefly. |
| Keywords: | decentralization; federalism; intergovernmental competition; yardstick competition |
| JEL: | D72 H7 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:lat:legeco:2005-02&r=pbe |
| By: | Robert Inman |
| Abstract: | The macro-economic and micro-economic evidences makes a persuasive case for cities as important centers for productive efficiency, innnovation, and economic growth. For cities to achieve their full economic potential, however, complementary public services are required. This paper reviews the arguments and the evidence for the efficient financing and governance of city public services. Against the criterion of efficiency, city services should be limited to those services valued by city residents; financing should assign residential taxes to residential services and business land taxes and fees to business services; and city governance should foster competition and choice. |
| JEL: | H11 H7 R38 R51 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11203&r=pbe |
| By: | Jesse Rothstein |
| Abstract: | In an influential paper, Hoxby (2000) studies the relationship between the degree of so-called "Tiebout choice" among local school districts within a metropolitan area and average test scores. She argues that choice is endogenous to school quality, and instruments with the number of larger and smaller streams. She finds a large positive effect of choice on test scores, which she interprets as evidence that school choice induces greater school productivity. This paper revisits Hoxby's analysis. I document several important errors in Hoxby's data and code. I also demonstrate that the estimated choice effect is extremely sensitive to the way that "larger streams" are coded. When Hoxby's hand count of larger streams is replaced with any of several alternative, easily replicable measures, there is no significant difference between IV and OLS, each of which indicates a choice effect near zero. There is thus little evidence that schools respond to Tiebout competition by raising productivity. <p> <a href="http://www.princeton.edu/~jrothst/replication/hoxbydocumentation/index.html"> A data appendix for this paper is available online</a> |
| JEL: | H7 I2 R5 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11215&r=pbe |
| By: | Duo Qin (Queen Mary, University of London); Marie Anne Cagas (Asian Development Bank); Geoffrey Ducanes (Asian Development Bank); Nedelyn Magtibay-Ramos (Asian Development Bank); Pilipinas F. Quising (Asian Development Bank) |
| Abstract: | This paper develops empirical methods of assessing the sustainability and feasibility of public debt using the No Ponzi Game criterion, using the Philippines as the testing case. Both historical data and forecasts generated by a quarterly macro-econometric model are used in the assessment. Stochastic simulations are carried out to mimic future uncertainty. The test results show that, up to the end of the present administration in 2010, the Philippine government debt is not sustainable but weakly feasible, that the feasibility is vulnerable to major adverse shocks, and that simple budgetary deficit control policy is inadequate for achieving debt sustainability or strengthening feasibility. |
| Keywords: | Government debt, Ponzi game, Rollover bond portfolio. |
| JEL: | H62 H63 E62 F34 C53 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp527&r=pbe |
| By: | Ronald MacDonald (University of Glasgow); Paul Hallwood (University of Connecticut) |
| Abstract: | In this paper we consider the case for assigning tax revenues to Scotland, by which we mean that taxes levied on Scottish tax bases should be returned to the Scottish budget. The budget, however, would continue to be supplemented by transfers from the Westminster budget. This arrangement differs from the current situation whereby public spending is largely financed by a bloc grant from Westminster. Our suggestion falls short of full fiscal federalism for Scotland . meaning that Scotland had control over choice of tax base and of tax rates, and fiscal transfers from Westminster would be minimal. We use propositions drawn from the theory of fiscal federalism to argue for a smaller vertical imbalance between taxes retained in Scotland and public spending in Scotland. A closer matching of spending with taxes would better signal to beneficiaries the true costs of public spending in terms of taxes raised. It would also create more complete incentives for politicians to provide public goods and services in quantities and at qualities that voters are actually willing to pay for. Under the current bloc grant system, the marginal tax cost of spending does not enter into political agents. calculations as spending is out of a fixed total budget. Moreover, the Scottish electorate is hindered in signaling its desire for local public goods and services since the size of the total budget is determined by a rigid formula set by Westminster. At the present time we reject proposals for full fiscal federalism because in sharply reducing vertical imbalance in the Scottish budget, it is likely to worsen horizontal balance between Scotland and the other UK regions. Horizontal balance occurs where similarly situated regions enjoy the same per capita level of public goods and services at the same per capita tax cost. The complete removal of the bloc grant under full fiscal federalism would remove the mechanism that currently promotes horizontal equity in the UK. Variability in own-source tax revenues creates other problems with full fiscal federalism. Taxes derived from North Sea oil would constitute a large proportion of Scottish taxes, but these are known to be volatile in the face of variable oil prices and the pound-dollar exchange rate. At the present time variability in oil tax revenue is absorbed by Westminster. Scotland is insulated through the bloc grant. This risk sharing mechanism would be lost with full fiscal federalism. It is true that Scotland could turn to financial markets to tide itself over oil tax revenue downturns, but as a much smaller and less diversified financial entity than the UK as a whole it would probably have to borrow on less favorable terms than can Westminster. Scotland would have to bear this extra cost itself. Also, with full fiscal federalism it is difficult to see how the Scottish budget could be used as a macroeconomic stabilizer. At present, tax revenue downturns in Scotland - together with the steady bloc grant - are absorbed through an increase in vertical imbalance. This acts as an automatic stabilizer for the Scottish economy. No such mechanism would exist under full fiscal federalism. The borrowing alternative would still exist but on the less favorable terms - as with borrowing to finance oil tax shortfalls |
| Keywords: | Barnett formula, bloc grants, devolution, fiscal federalism, local public goods, oil taxes, regional economics, Scottish economy, soft budget constraint, tax assignment, UK economy, UK fiscal system. |
| JEL: | E62 H1 H61 H7 H87 |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2004-42&r=pbe |
| By: | Honkapohja, Seppo; Turunen-Red, Arja H. |
| Abstract: | We consider international labor (entrepreneur) mobility in a two-country overlapping-generations model. Interactions of decreasing and increasing returns in production yield multiple equilibria that are stable under adaptive learning. Governments have an unilateral incentive to reduce income taxes at the joint optimum. We compare the Nash equilibrium in taxes under full labor mobility to the closed economy with no mobility. Despite strategic tax setting, the free mobility outcome is often better in welfare terms. Large, discrete gains in welfare may be attained because of the tax competition. Expectational barriers for discrete welfare improvements can be overcome through tax competition. |
| Keywords: | Tax policy, Mobility of labor, Multiple equilibria, Expectation traps |
| JEL: | H87 F22 H21 |
| Date: | 2004–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:uno:wpaper:2004-01&r=pbe |