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on Public Economics |
| By: | Ronald G. Cummings; Jorge Martinez-Vazquez (Andrew Young School of Policy Studies, Georgia State University); Michael McKee; Benno Torgler |
| Abstract: | There is considerable evidence that enforcement efforts can increase tax compliance. However, there must be other forces at work because observed compliance levels cannot be fully explained by the level of enforcement actions typical of most tax authorities. Further, there are observed differences, not related to enforcement effort, in the levels of compliance across countries and cultures. To fully understand differences in compliance behavior across cultures one needs to understand differences in tax administration and citizen attitudes toward governments. The working hypothesis is that cross-cultural differences in behavior have foundations in these institutions. Tax compliance is a complex behavioral issue and its investigation requires the use of a variety of methods and data sources. Results from laboratory experiments conducted in different countries demonstrate that observed differences in tax compliance levels can be explained by differences in the fairness of tax administration, in the perceived fiscal exchange, and in the overall attitude towards the respective governments. These experimental results are shown to be robust by replicating them for the same countries using survey response measures of “tax morale.” |
| Keywords: | tax compliance, tax morale, tax authorities |
| Date: | 2004–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0403&r=pbe |
| By: | Richard M. Bird (Director of the International Tax Program, Joseph L. Rotman School of Management, University of Toronto); Jorge Martinez-Vazquez (Andrew Young School of Policy Studies, Georgia State University); Benno Torgler |
| Abstract: | “Will underdeveloped countries learn to tax?” asked Nicholas Kaldor (1963), forty years ago. Underlying this question is the assumption that if a country wishes to become ‘developed’ it needs to collect in taxes an amount greater than the 10-15 percent found in many developing countries. Kaldor’s answer to his question was essentially that since even the poorest country had sufficient ‘capacity’ in both economic and administrative terms to tax more, whether or not a particular country did so depended primarily on its political institutions. Would developing countries be fortunate enough to have those with political power voluntarily give up at least some of their power to block fiscal reform in exchange for social stability? Or would the ruling groups rather wait (in the spirit of après moi le deluge) for the revolutionary upheaval that he considered the only alternative? |
| Keywords: | Societal Institutions,Tax Effort,Developing Countries |
| Date: | 2004–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0406&r=pbe |
| By: | Sophia Levtchenkova; Jeff Petchey |
| Abstract: | In this paper, a simulation model is constructed that would enable policy-makers in transitional economies to estimate regionally disparate capital needs and direct capital expenditures to improve standards of public capital or services such as education and health. The model allows policy makers to achieve some degree of ‘equalisation in the regional distribution of publicly supplied capital to allow citizens greater equality of access to services, regardless of location. After developing an appropriate input database, the model is applied to South Africa. The results show that South Africa would need to commit about 2 percent of GDP to supplementary public capital expenditures if it is to make substantial inroads into attaining some form of public infrastructure equalisation over time. |
| Keywords: | transitional economies, capital expenditure, PIM, equalisation, infrastructure backlogs, public expenditure |
| Date: | 2004–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0414&r=pbe |
| By: | Jeff Petchey; Sophia Levtchenkova |
| Abstract: | Fiscal capacity equalisation, at least of the type implemented in Australia, is shown to link regions together through a grant distribution formula that creates an incentive for regions to act strategically in order to influence the size of their grant. This behaviour distorts the provision of local public goods away from optimal levels of provision by changing regional perceptions of the marginal benefit from local public good provision. In addition, the inter-regional transfer of income that occurs with equalisation leads to inefficiency in the spatial allocation of mobile factors of production. As a result, we conclude that equalisation may create economic inefficiency, and lead to a lower level of social welfare. |
| Keywords: | fiscal equalisation, revenue needs, expenditure needs, local public goods, Nash equilibrium, labour mobility, fiscal externalities, economic rents. |
| Date: | 2004–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0415&r=pbe |
| By: | Dana Weist |
| Abstract: | Governments decentralize for various political and economic reasons. It can be a means to move decision making closer to people, to enhance the efficiency and responsiveness of service delivery, and to make tax systems more productive. In some countries, it may also promote national cohesion (e.g., Indonesia). Done well, decentralization can lead to all of the benefits promised by a multi-tiered intergovernmental system: better public services, enhanced local accountability, and a potential tool for poverty alleviation. But if decentralization is done badly, it can lead to macroeconomic instability, deterioration in service delivery, corruption and collapse of the safety net. |
| Keywords: | Intergovernmental Loans, Transfer System, dezentralization |
| Date: | 2004–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0422&r=pbe |
| By: | Lucy F. Ackert; Jorge Martinez-Vazquez (Andrew Young School of Policy Studies, Georgia State University); Mark Rider (Andrew Young School of Policy Studies, Georgia State University) |
| Abstract: | This paper reports the results of experiments designed to examine whether a taste for fairness affects people’s preferred tax structure. Building on the Fehr and Schmidt (1999) model we devise a simple test for the presence of social preferences in voting for alternative tax structures. The experimental results show that individuals demonstrate concern for their own payoff and inequality aversion in choosing between alternative tax structures. However, concern for redistribution decreases when it leads to increasing deadweight losses. Our findings have important implications for the design of optimal tax theory. |
| Keywords: | tax policy, social preferences, fairness |
| Date: | 2004–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0425&r=pbe |
| By: | David L. Sjoquist (Andrew Young School of Policy Studies, Georgia State University) |
| Abstract: | This Working Paper on the property tax contains an Executive Summary and four chapters. In Chapter One we describe how the Jamaican property tax functions. In Chapter Two we present an analysis of various problems and issues that surround of the property tax. Chapter Three, which was co-authored with Ki-Whan Choi, presents an analysis of a land value tax versus a capital value tax. Finally, in Chapter Four we present options for reform. |
| Keywords: | Land Value Tax,Jamaica,Tax Reform |
| Date: | 2004–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0426&r=pbe |
| By: | Roy Bahl (Andrew Young School of Policy Studies, Georgia State University) |
| Abstract: | The stamp duty and property transfer tax in Jamaica yielded less than J$4 billion in revenues in 2003. As a percent of GDP, and as a percent of total taxes raised, there has been a long term decline in revenue from these two sources. However, even though these taxes do not dominate the revenue structure, they often figure prominently in discussions about what is wrong with Jamaica’s tax system. There are many problems with the stamp duty and property transfer tax and there have been calls for their elimination. Why have they been retained? Even at only about 4 percent of total taxes, they account for a significant amount of revenue. In fact, in 2002-2003, revenues from these two taxes were equivalent in amount to 22 percent of collections from the domestic portion of the GCT. Another justification for these taxes is that they plug a hole in a leaky tax enforcement system, and capture some Jamaicans who may escape the income tax net. |
| Keywords: | Jamaica, Property Transfer Tax,Stamp Duty |
| Date: | 2004–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0427&r=pbe |
| By: | James Alm (Andrew Young School of Policy Studies, Georgia State University); Sally Wallace (Andrew Young School of Policy Studies, Georgia State University) |
| Abstract: | This staff paper analyzes this “system” of payroll taxes and contributions, focusing mainly on the tax and contribution side rather than on the benefit aspects of the contribution programs. The administration of each of these payroll programs is discussed, and the effects of the entire system are also analyzed. Much of the analyses is based on microsimulation models developed in the course of this tax reform project. |
| Keywords: | Jamaica, Payroll Taxes |
| Date: | 2004–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0431&r=pbe |
| By: | Kelly D. Edmiston; Richard M. Bird |
| Abstract: | The GCT and SCT are critically important revenue sources in Jamaica, accounting for 37.4 percent of total revenues in fiscal year 2003/04 (27.7 percent for GCT alone) and an estimated 11.2 percent of GDP (8.3 percent for GCT alone). In this paper we set out in some detail the present structure and administration of the GCT and SCT and evaluate the performance of these taxes from several angles – as revenue generators, with respect to their distributional effects, and in an international comparison. We end with recommendations for reform. |
| Keywords: | Jamaica, Taxing Consumption, GCT,SCT |
| Date: | 2004–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0432&r=pbe |
| By: | F. Javier Arze del Granado (Andrew Young School of Policy Studies, Georgia State University); Jorge Martinez-Vazquez (Andrew Young School of Policy Studies, Georgia State University); Robert McNab |
| Abstract: | This study examines the relationship between fiscal decentralization and the functional composition of public expenditures. We develop a theoretical model based on a distance-sensitive representative agent model, some applications of the median-voter theorem, and the Tiebout choice model. In our model, higher levels of fiscal decentralization lead indiviuals to demand higher amounts of publicly provided private goods. We empirically test this hypothesis by employing several econometric models on an unbalanced panel data set of 45, developed and developing countries over a 28-year period. The empirical models used in this study improve upon previous empirical studies of expenditure composition by using up-to-date data and the most current estimation techniques for fractional data. We obtain strong evidence that fiscal decentralization increases the share of education and health expenditures over total expenditures. Most of our estimates reveal no statistically significant evidence that the effects of decentralization may differ between developing and industrialized countries. However, for one model we find evidence that the effect of decentralization on the composition of public expenditures is greater in developing countries than in industrialized countries. |
| Keywords: | Fiscal Decentralization, and Functional Composition of Public Expenditures |
| Date: | 2005–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0501&r=pbe |
| By: | Jorge Martinez-Vazquez (Andrew Young School of Policy Studies, Georgia State University); Andrey Timofeev (Andrew Young School of Policy Studies, Georgia State University) |
| Abstract: | The international experience shows a variety of approaches to the organization and degree of decentralization in tax administration. It is quite common to observe, even in countries that are otherwise significantly decentralized as is the case in the Scandinavian Countries, a highly centralized organization of tax administration. Nevertheless, there are other countries, in small number, where tax administration is highly decentralized; in some cases, as in Germany, even central government taxes are administered by the decentralized subnational governments. The fundamental questions addressed in this paper are the following: what is the most appropriate approach to organizing the vertical structure of tax administration, and what are the determinant factors that may make an approach more or less optimal in any particular country. |
| Keywords: | Centralized and Decentralized Models of Tax Administration |
| Date: | 2005–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0502&r=pbe |
| By: | Stuti Khemani |
| Abstract: | Normative theories of fiscal federalism postulate that intergovernmental transfers should be determined by equity and efficiency considerations, to support local governments in providing differentiated public goods to heterogeneous populations, while ensuring an even distribution of basic services across all regions (Musgrave, 1959, 1983; Oates, 1972; Gramlich, 1977). However, a recent surge of empirical evidence shows that variations in intergovernmental transfers to sub-national jurisdictions within countries cannot be explained by traditional concerns of equity and efficiency alone, and that political variables representing electoral incentives of public agents are additional and significant determinants. |
| Keywords: | Political Economy,Equalization Transfers, determinants |
| Date: | 2004–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ipswps:paper0413&r=pbe |
| By: | Santiago Lago-Peñas (Univesidad de Vigo); Diego Martínez López (Centro de Estudios Andaluces y Univesidad Pablo de Olavide) |
| Abstract: | The aim of this paper is to add new arguments to the debate on the redesign of regional policies. An endogenous growth model is presented with two regions where the crucial issue for the removal of regional disparities is public investment. When testing the model using data obtained from Spanish regions, evidence of convergence is not found, in spite of the redistribution pattern of regional allocation of public investment during the 80's and 90's and a high degree of private capital mobility. After analyzing other factors potentially affecting regional convergence, a number of recommendations are supplied in order to redefine European and Spanish regional policies. |
| Keywords: | Infrastructures, convergence, growth |
| JEL: | H54 R58 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:cea:doctra:e2005_05&r=pbe |
| By: | Kollmann, Robert |
| Abstract: | This Paper computes welfare-maximizing monetary and tax policy feedback rules, in a calibrated dynamic general equilibrium model with sticky prices. The government makes exogenous final good purchases, levies a proportional income tax, and issues nominal one-period bonds. A quadratic approximation method is used to solve the model, and to compute household welfare. Optimized policy has a strong anti-inflation stance and implies persistent fluctuations of the tax rate and of public debt. Very simple optimized policy rules, under which the interest rate just responds to inflation and the tax rate just responds to public debt, yield a welfare level very close to that generated by richer rules. |
| Keywords: | fiscal policy; monetary policy; welfare |
| JEL: | E50 E60 H60 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:4782&r=pbe |
| By: | Beatriz de-Blas-Perez |
| Abstract: | This paper studies the consequences on growth and welfare of imposing limits to public borrowing. In the model economy, government spending may play two different roles, either as input in the production function, or providing services directly in the utility function. In these setups I study the effects of different fiscal policies with and without debt limits both in the balanced growth path and during the transitional dynamics. In the long run, if there is no limit, the growth effects of raising labor income taxes are negative, regardless of the role of government spending. However, the role public spending is crucial for the growth effects of changes in the ratio of public expenditures to output. In the presence of a limit to debt, higher labor tax rates have a positive effect on growth if government spending is productive. The opposite is true when private capital drives growth. Regarding welfare, raising labor income taxes imply a lower welfare cost of reducing debt than does cutting government spending, when this is productive. |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we052717&r=pbe |
| By: | Galbiati,Roberto; Vertova,Pietro (Tilburg University, Center for Economic Research) |
| Abstract: | Laws consist of two components: the 'obligations' they express and the 'incentives' designed to enforce them. In this paper we run a public good experiment to test whether or not obligations have any independent effect on cooperation in social dilemmas. The results show that, for given marginal incentives, different levels of minimum contribution required by obligation determine significantly different levels of average contributions. Moreover, unexpected changes in the minimum contribution set up by obligation have asymmetric dynamic effects on the levels of cooperation: a reduction does not alter the descending trend of cooperation, whereas an increase induces a temporary re-start in the average level of cooperation. Nonetheless, obligations per se cannot sustain cooperation over time. |
| JEL: | C91 C92 H26 H41 K40 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200556&r=pbe |
| By: | Wilko Bolt; David B. Humphrey |
| Abstract: | This paper discusses various theoretic concepts which play a role in assessing the public benefits ofTarget, the large value RTGS payment network operated by the Eurosystem. These concepts touch upon natural monopoly, network externalities, competition and contestability, as well as economies of scale and scope. Based on empirical results for the Federal Reserve's payment system (Fedwire), it is argued that if Target decided to standardize its operating platforms and consolidate its processing sites into one or a few centers, it too could realize strong scale economy benefits and lower unit costs. The main thrust of the paper concerns natural monopoly and the possibility of lowering unit payment processing cost via economies of scale. The existence of a natural monopoly provides a rationale for a temporary partial or full subsidy in order for Target to achieve the `most efficient scale' or apply the most efficient technology to lower unit costs. Such a subsidy could be implemented through temporary 'penetration' pricing (i.e., pricing at less than full current cost). When the lower costs are realized, the subsidy would be removed and full cost pricing implemented. Once users face the full costs of their payment decisions, they are better able to match benefits with actual costs and implement a more efficient allocation of payment resources than occurs today on Target. |
| Keywords: | public good; natural monopoly; most efficient scale; partial subsidy |
| JEL: | G20 H41 L10 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:036&r=pbe |
| By: | Antonio Afonso; Carla Scaglioni |
| Abstract: | We measure the performance of public spending in Italian regions regarding the provision of public services, by constructing a so-called total regional performance indicator for strategic sectors such as general administration, energy, water and sewage, solid waste, and transports for 2001. This composite indicator is then the output measure selected to assess expenditure efficiency for the Italian regions, using the non-parametric DEA approach. The computation of efficiency scores allows to rank the regions and to detect some room for improvement in terms of efficiency gains at the regional level. |
| Keywords: | technical efficiency; DEA; regional expenditure; Italy. |
| JEL: | C14 H42 H72 R50 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp22005&r=pbe |
| By: | K Blackburn; N Bose; M E Haque |
| Abstract: | This paper presents a dynamic general equilibrium analysis of public sector corruption and economic growth. In an economy with government intervention and capital accumulation, state-appointed bureaucrats are charged with the responsibility for procuring public goods which contribute to productive efficiency. Corruption arises because of an opportunity for bureaucrats to appropriate public funds by misinforming the government about the cost and quality of public goods provision. The incentive for each bureaucrat to do this depends on economy-wide outcomes which, in turn, depend on the behaviour of all bureaucrats. We establish the existence of multiple development regimes, together with the possibility of multiple, frequency-dependent equilibria. The predictions of our analysis accord strongly with recent empirical evidence on the causes and consequences of corruption in public office. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:53&r=pbe |
| By: | Armando Gomes; Gordon Phillips |
| Abstract: | We examine a comprehensive set of private and public security issuance decisions by publicly traded companies. We study private and public issues of debt, convertibles and common equity securities - a total of 6 different security-market choices. The market for public firms issuing private securities is large. Of the over 13,000 issues we examine, more than half are in the private market. We find that asymmetric information and moral hazard problems play a large role in the public versus private market choice and the security type choice. Our findings show that asymmetric information impacts security choice in a particular pattern: Conditional on issuing in the public market we find a pecking order of security issuance holds, firms with higher measures of asymmetric information are less likely to issue equity. We find a reversal of this pecking order in the private market, firms with higher measures of asymmetric information are more likely to issue equity and convertibles. Second, we find risk and investment opportunities are important in determining which security type a firm issues. Firms with high risk, low profitability and good investment opportunities are more likely to choose equity and convertibles and to issue privately. The results support models of security issuance where private securities give investors more incentives to produce information and monitor the firm. |
| JEL: | G0 G2 G3 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11294&r=pbe |
| By: | Jürgen Bitzer (Free University Berlin Department of Economics & Institute for East European Studies); Wolfram Schrettl (Free University Berlin Department of Economics & Institute for East European Studies); Philipp J.H. Schröder (Aarhus School of Business) |
| Abstract: | This papers sheds light on the puzzling evidence that even though open source software (OSS) is a public good, it is developed for free by highly qualified, young and motivated individuals, and evolves at a rapid pace. We show that once OSS development is understood as the private provision of a public good, these features emerge quite naturally. We adapt a dynamic private-provision-of-public-goods model to reflect key aspects of the OSS phenomenon. In particular, instead of relying on extrinsic motives (e.g. signaling) the present model is driven by intrinsic motives of OSS programmers, such as user- programmers, play value or 'homo ludens' payoff, and gift culture benefits. Such intrinsic motives feature extensively in the wider OSS literature and contribute new insights to the economic analysis. |
| Keywords: | open source software, public goods, homo ludens, war of attrition |
| JEL: | L86 H41 L31 |
| Date: | 2005–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0505007&r=pbe |
| By: | Tilman Brück (German Institute for Economic Research (DIW Berlin)) |
| Abstract: | This paper analyses public policy choices in the security economy from an economic perspective. It discusses the role of public goods for national and global security and identifies the importance of the first- and second-order indirect effects of insecurity on economic activity, which include the behavioural responses of agents and the government to security measures, akin to such effects in insurance economics. Furthermore, key public policy trade-offs are outlined, in particular between security and efficiency, globalisation, equity and freedom. The analysis identifies suitable policy options for raising security in the national and international contexts and in view of these trade-offs. A suitable balance between market and non-market instruments in achieving security should be aimed for to minimise the adverse effects of aiming for higher security. In addition, the public good nature of security implies that international coordination of security policies is important, despite this process being itself fraught with enforcement problems. |
| Keywords: | collective goods, public policy, regulation, risk, security, terrorism |
| JEL: | D74 H40 K40 |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:hic:wpaper:06&r=pbe |