nep-pbe New Economics Papers
on Public Economics
Issue of 2005‒05‒29
ten papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Critical Decisions and Constitutional Rules By Toke S. Aidt; Francesco Giovannoni
  2. Natural volatility, welfare and taxation By Olaf, POSCH; Klaus, WAELDE
  3. Tax evasion and labour supply in Norway in 2003: Structural models versus flexible functional form models By Due-Andresen, Kari
  4. Do Government Subsidies Stimulate Training Expenditure? Microeconometric Evidence from Plant Level Data By Holger Görg; Eric Strobl
  5. Boosting growth through greater competition in Denmark By Martin Jørgensen
  6. The Impact of Direct Democracy on Public Education: Performance of Swiss Students in Reading By Justina A.V. Fischer
  7. Failed States and Failed Economies: Nationalism and Economic Behavior, 1955-1995 By Carl Mosk
  8. Franchise Bidding in the Water Industry – Auction Schemes and Investment Incentives By Urs Meister
  9. How to Classify a Government? Can a Neural Network do it? By António Caleiro
  10. Information Asymmetry and the Problem of Transfers in Trade Negotiations and International Agencies By Koichi Hamada; Shyam Sunder

  1. By: Toke S. Aidt; Francesco Giovannoni
    Abstract: Many constitutions specify procedures that allow critical decisions to be made with a different rule from day-to-day decisions. We propose a theory of constitutional rules that explains why. The theory is based on the assumption that the type of decision can be observed, but not verified. We characterise two classes of second-best constitution, both with clear analogues in real world constitutions: i) incentive scheme (IS) constitutions that elicit information about the type of decision through costly decision rule switching procedures, and ii) linking scheme (LS) constitutions that grant limited veto powers to interested parties. We explore how the relative performance of the IS and LS constitution depends on the economic environment.
    Keywords: constitutions, social contracts, majority rules, vetoes, referenda
    JEL: H10 H11
    Date: 2005–05
  2. By: Olaf, POSCH; Klaus, WAELDE
    Abstract: Cyclical components are analytically computed in a theoretical model of stochastic endogenous fluctuations and growth. Volatility is shown to depend on the speed of convergence of the cyclical component, the expected length of a cycle and on the attitude of the slump. Taxes affect these channels and can therefore explain cross-country differences and breaks over time in volatility. With exogenous sources of fluctuations, a special case of our model, decentralized factor allocation is efficient. With endogenous fluctuations and growth decentralized factor allocation is inefficient and (time invariant) taxes can (de-) stabilize the economy. No unambiguous link exists between volatility and welfare.
    Keywords: Endogenous fluctuations and growth; welfare analysis; taxation; stochastic continuous time model; Poisson uncertainty
    JEL: C65 E32 E62 H3 O33
    Date: 2005–03–15
  3. By: Due-Andresen, Kari (Dept. of Economics, University of Oslo)
    Abstract: A Box-Cox structural utility model is estimated on tax evasion survey data and it is shown that this model gives a better representation of individual utility maximizing behavior than a flexible model, represented by a polynomial of degree 3. It is found that an overall wage increase has a positive impact on hours worked in the regular part of the economy and a negative impact on hours work in the irregular part.
    Keywords: Labor Supply; Tax Evasion; Survey Data; Microeconometrics
    JEL: C25 D12 D81 H26 J22
    Date: 2005–05–10
  4. By: Holger Görg (University of Nottingham, DIW Berlin and IZA Bonn); Eric Strobl (Université de Paris X-Nanterre and IZA Bonn)
    Abstract: This paper examines whether financial assistance provided by government induces firms to spend more of their own funds on training expenditures, using plant level data for the Republic of Ireland. We pay particular attention to the potential problems in such an evaluation study, namely selectivity and endogeneity, by first identifying a valid counterfactual for grant receiving plants via a matching estimator and then employing a difference-indifferences technique on this matched sample. Our results show that there are differences in causal effects between domestic and foreign owned plants. For the former we find clear evidence that grant receipt stimulates private expenditure, while there are no statistically significant effects for foreign-owned plants based in Ireland.
    Keywords: training, government grants, matching, difference-in-differences
    JEL: J24 H25
    Date: 2005–05
  5. By: Martin Jørgensen
    Abstract: This paper discusses ways of strengthening the competitive environment in order to help boost productivity performance in various sectors of the Danish economy. It looks at a number of indicators of the strength of competition - including price levels, industrial concentration and product market regulation - and it discusses the appropriateness of the competition legislation framework. The paper then focuses on the large public sector, which has been slow to open up to competition, partly because of regulatory restrictions but also because some local governments are too small to handle tenders and provide an attractive market for private providers. The paper also looks at the process of liberalising network industries and at various regulations that still impede effective competition in a number of other sectors, including construction, housing, distribution and professional services. <p> Dynamiser la croissance en stimulant la concurrence au Danemark <p> Ce document examine les moyens de renforcer le cadre concurrentiel pour stimuler la productivité dans divers secteurs de l'économie du Danemark. Il passe en revue un certain nombre d'indicateurs de la vigueur de la concurrence - notamment le niveau des prix, la concentration industrielle et la réglementation des marchés de produits - et évalue l'adéquation du cadre législatif de la concurrence. L'analyse se porte ensuite sur le vaste secteur public, qui a tardé à s'ouvrir à la concurrence, du fait de restrictions réglementaires mais aussi parce que certaines collectivités locales sont trop petites pour gérer des appels d'offres et offrir un marché attractif à des prestataires privés. Ce document examine aussi le processus de libéralisation des industries de réseau ainsi que différentes réglementations qui font encore obstacle à une concurrence efficace dans plusieurs autres secteurs, dont la construction, le logement, la distribution et les services professionnels.
    Keywords: Denmark;competition; regulation; product markets; network industries; retail distribution; construction; public sector; competitive neutrality; public procurement; privatisation
    JEL: H4 K21 L1 L32 L33 L41 L43 L44 L8 L9 O52
    Date: 2005–05–18
  6. By: Justina A.V. Fischer
    Abstract: This paper analyzes the impact of direct legislation at the cantonal level on the quality of public education in Switzerland, using a cross-section of individual data on reading performance similar to that used in the OECD-PISA study. For this purpose, a structural and a reduced form of an educational production function is estimated. The OLS esti­mate of a composite index of direct democracy supports the findings previously ob­tained for U.S. states in which initiative-driven tax limits have had a deleterious effect on student performance in public schools. For a more complete picture, the impact of direct democracy on several portions of the conditional test score distribution is also in­vestigated using a quantile regression method. The negative impact appears to be equal in size between the estimated quantiles and to occur exclusively through the budgetary channel. Moreover, the equipment of schools is found to matter for student per­formance. Finally, no redistributive influence on students attending the same class is found.
    JEL: H41 I28 H10
    Date: 2005–04
  7. By: Carl Mosk (Department of Economics, University of Victoria)
    Abstract: Using data from the Failed State Task Force data set, this paper argues entering onto positive growth paths for income and infrastructure per capita depend upon a nation’s political stability and its geography. A nation’s achieving sustained long-run growth in both variables is essential to its capacity to converge towards countries with high levels of income per capita because high levels of per capita infrastructure are strongly correlated with high levels of income per capita. New nation states seem to face heavy burdens to avoiding negative feedback traps, partly because their youthfulness is associated with political stability; partly because their propinquity to other politically unstable neighbors hampers their capacity to grow through trade and their ability to avert domestic conflict; partly because they tend to be located in the tropics where the incidence of malaria is high.
    Keywords: Political economy, economic development, infrastructure, convergence
    JEL: F1 H1 H8 O5
    Date: 2005–05–26
  8. By: Urs Meister (University of Zurich)
    Abstract: The periodical re-auction of a water monopoly concession causes the danger of underinvestment. If the life-time of specific assets such as water pipes exceeds the contract length and transferring the ownership of assets is difficult, the incumbent franchisee faces a hold-up problem. Using a simple auction model that considers the specifics of the piped water sector this paper shows that investment incentives may vary depending on the applied auction scheme. The model is designed as a two stage game, where the franchisee decides about investment on the first and competes with a potential market entrant on the second stage. Investment tends to be higher in sealed bid auctions than in an English auction, since the incumbent benefits from an information advantage. Additionally investment may vary in a first- and a second-price sealed bid auction depending on several factors such as costs or effectiveness of investment. The analysis is extended by a vertical separation.
    Keywords: Water, Networks, Franchise Bidding, Investment
    JEL: L95 L43 D21 Q25
    Date: 2005–05–26
  9. By: António Caleiro (Department of Economics, University of Évora)
    Abstract: An electoral cycle created by governments is a phenomenon that seems to characterise, at least in some particular occasions and/or circumstances, the democratic economies. As it is generally accepted, the short-run electorally-induced fluctuations prejudice the long-run welfare. Since the very first studies on the matter, some authors offered suggestions as to what should be done against this electorally-induced instability. A good alternative to the obvious proposal to increase the electoral period length is to consider that voters abandon a passive and naive behaviour and, instead, are willing to learn about government’s intentions. The electoral cycle literature has developed in two clearly distinct phases. The first one considered the existence of non-rational (naive) voters whereas the second one considered fully rational voters. It is our view that an intermediate approach is more appropriate, i.e. one that considers learning voters, which are boundedly rational. In this sense, one may consider neural networks as learning mechanisms used by voters to perform a classification of the incumbent in order to distinguish opportunistic (electorally motivated) from benevolent (non-electorally motivated) behaviour of the government. The paper explores precisely the problem of how to classify a government showing in which, if so, circumstances a neural network, namely a perceptron, can resolve that problem.
    Keywords: Classification, Elections, Government, Neural Networks, Output Persistence, Perceptrons
    JEL: C45 D72 E32
    Date: 2005
  10. By: Koichi Hamada (Economic Growth Center, Yale University); Shyam Sunder (School of Management, Yale University)
    Abstract: This paper studies the role of transfers among groups within a country as well as among countries in a two level game of nternational trade negotiations. We show that in order to realize the intended transfer in the presence of asymmetric information on the states of recipients (and donors), a transfer process uses up additional resources. The difficulty of making transfers renders it less likely that a nation would find it individually rational to participate as a member of an international institution. Costly transfers render the internal and international adjustment difficult, and serve as a barrier to trade liberalization. Costly international transfers harden the resistance against trade liberalization in the (potentially) recipient country and soften it in the (potentially) donor country.
    Keywords: International trade, tariff negotiation, asymmetric Information, transfer, WTO, common agency, two-level game
    JEL: F13 H21 H71 H77
    Date: 2005–05

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