nep-pbe New Economics Papers
on Public Economics
Issue of 2005‒06‒05
forty-five papers chosen by
Kerim Arin
Massey University

  1. Inversión pública y crecimiento económico. Una revisión crítica con propuesta de futuro By Carmen Díaz Roldán; Diego Martínez-López
  2. What Triggers Early Retirement? Results from Swiss Pension Funds By Monika Bütler; Olivia Huguenin; Federica Teppa
  3. Impure Public Goods and Technological Interdependencies By Dirk T.G. Rübbelke; Andreas Löschel
  4. Trust and Fiscal Performance: A Panel Analysis with Swiss Data By Benno Torgler; Christoph A. Schaltegger
  5. Debt and Economic Growth in Developing and Industrial Countries By Schclarek, Alfredo
  6. Risk Adjustment and Primary Health Care in Chile By Veronica Vargas; Juergen Wasem
  7. Inequality, redistribution and the allocation of public spending in education. A political-economy approach. By Debora Di Gioacchino, Sergio Ginebri, Laura Sabani
  8. Religious Market Structure, Religious Participation, and Outcomes: Is Religion Good for You? By Jonathan Gruber
  9. A General Formula for the Optimal Level of Social Insurance By Raj Chetty
  10. Capital Income Taxation and the Dual Income Tax By Shigeki Morinobu
  11. The Public Financial System in Japan - Re-verification of the ballooning theory and the privileged government enterprise theory By Nobuyoshi Yamori; Narunto Nishigaki
  12. A Missing Link in Decentralization Reform in Japan: “Trinity Reform package” By Takero Doi
  13. Precautionary Saving and Employment Risk in the 1990s By Takero Doi
  14. To Establish Sustainability of Government Deficits: Methodology and Application By Takero Doi
  15. Public Debt and the Macroeconomic Stability of Japan By Keigo Kameda; Masao Nakata
  16. Utilité relative, politique publique optimale et croissance économique. By Thi Kim Cuong PHAM
  17. Wealth distribution, endogenous fiscal policy and growth: status-seeking implications. By Thi Kim Cuong PHAM
  18. Factors Affecting University–Industry R&D Collaboration : The importance of screening and signalling. By Roberto FONTANA; Aldo GEUNA; Mireille MATT
  19. The Second Paycheck to Keep Up With the Joneses: Relative Income Concerns and Labor Market Decisions of Married Women By Yongjin Park
  20. How State Governments Implement Federal Policies: The Telecommunications Act of 1996 By Troy Quast
  21. Decentralisation of health care and its impact on health outcomes By Dolores Jimenez; Peter C Smith
  22. Postponing the Legal Retirement Age By Juan Antonio Lacomba; Francisco Miguel Lagos
  23. Direct Democracy: Designing a Living Constitution By Bruno S. Frey; Alois Stutzer
  24. Spatial Spillovers in Metropolitan Areas: Evidence from Swiss Communes By Christoph A. Schaltegger; Simon Zemp
  25. The Importance of Faith: Tax Morale and Religiosity By Benno Torgler
  26. Tax Morale and Institutions By Benno Torgler
  27. Moral Suasion: An alternative tax policy strategy? Evidence from a controlled field experiment in Switzerland By Benno Torgler
  28. Tax Morale in Asian Countries By Benno Torgler
  29. Shadow Economies Around the World: What Do We Know? By Friedrich Schneider; Robert Klinglmair
  30. Tax Morale in Australia: What Shapes it and Has it Changed over Time? By Benno Torgler; Kristina Murphy
  31. Tax Morale, Trust and Corruption: Empirical Evidence from Transition Countries By Benno Torgler
  32. A Knight Without a Sword or a Toothless Tiger? The Effects of Audit Courts on Tax Morale in Switzerland By Benno Torgler
  33. Effects of Culture on Tax Compliance: A Cross Check of Experimental and Survey Evidence By Ronald G. Cummings; Jorge Martinez-Vazquez; Michael McKee; Benno Torgler
  34. Culture Differences and Tax Morale in the United States and in Europe By James Alm; Benno Torgler
  35. Do Large Cabinets Favor Large Governments? Evidence from Swiss Sub-federal Jurisdictions By Christoph A. Schaltegger; Lars P. Feld
  36. Growth Effects of Public Expenditure on the State and Local Level: Evidence from a Sample of Rich Governments By Christoph A. Schaltegger; Benno Torgler
  37. Does Culture Influence Tax Morale? Evidence from Different European Countries By Benno Torgler; Friedrich Schneider
  38. Taxation and Conditional Cooperation By Bruno S. Frey; Benno Torgler
  39. Calculating Tragedy: Assessing the Costs of Terrorism By Bruno S. Frey; Simon Luechinger; Alois Stutzer
  40. Corruption and Age By Benno Torgler; Neven T. Valev
  41. The Role of Direct Democracy and Federalism in Local Power By Bruno S. Frey; Alois Stutzer
  42. Attitudes Towards Paying Taxes in Austria: An Empirical Analysis By Benno Torgler; Friedrich Schneider
  43. What Shapes the Attitudes Towards Paying Taxes? Evidence from Switzerland, Belgium and Spain By Benno Torgler; Friedrich Schneider
  44. Fiscal Autonomy and Tax Morale: Evidence from Germany By Benno Torgler; Jan Werner
  45. Child Allowances, Fertility, and Uncertain Lifetime By Megumi Mochida

  1. By: Carmen Díaz Roldán (Universidad de Castilla-La Mancha); Diego Martínez-López (Centro de Estudios Andaluces y Univesidad Pablo de Olavide)
    Abstract: The relationship between public investment and economic performance has received a substantial attention by economists and policy-makers over the recent few years. In such a way, several approaches have been followed, from different theoretical and empirical points of view. The aim of this paper is to survey the main results found in the literature, especially those concerning productive public spending and economic growth. Moreover, we present a simple growth model in which regional characteristics are explicitly taken into account.
    Keywords: Growth, infrastructures, regional policy
    JEL: E62 H54
    Date: 2005
  2. By: Monika Bütler; Olivia Huguenin; Federica Teppa
    Abstract: Early retirement is predominantly considered as the result of incentives set by social security and the tax system. But people seem to retire early even in the absence of such distortions as the Swiss example demonstrates. We look for determinants of early retirement, in particular the role of lifetime income and family status, using individual data from a selection of Swiss pension funds. Our findings suggest that affordability is a key determinant in retirement decisions: More affluent men, and — to a much smaller extent — women, tend to leave the work force earlier. The fact that early retirement has become much more prevalent in the last 15 years is another indicator for the importance of affordability as Switzerland's funded pension system has matured over that period leading to higher effective replacement rates. We also find sizeable differences in retirement behavior across marital status. These may be explained by a constrained rational choice based on differential mortality and the desire of couples to coordinate their entry into retirement. Jel–Classification: D91, H55
    Keywords: Occupational Pension; Retirement decision; Duration models
    JEL: D91 H55
    Date: 2005–05
  3. By: Dirk T.G. Rübbelke (Chemnitz University of Technology); Andreas Löschel (Zentrum für Europäische Wirtschaftsforschung)
    Abstract: Impure public goods represent an important group of goods. Almost every public good exerts not only effects which are public to all but also effects which are private to the producer of this good. What is often omitted in the analysis of impure public goods is the fact that – regularly – these private effects can also be generated independently of the public good. In our analysis we focus on the effects alternative technologies – independently generating the private effects of the public good – may have on the provision of impure public goods. After the investigation in an analytical impure public good model, we numerically simulate the effects of alternative technologies in a parameterized model for climate policy in Germany.
    Keywords: Impure public goods, Climate policy, Rationing
    JEL: H41 C61 Q53 Q54
    Date: 2005–05
  4. By: Benno Torgler (Yale Center for International and Area Studies); Christoph A. Schaltegger (Swiss Federal Tax Administration University of St. Gallen and CREMA, Center for Research in Economics, Management and the Arts)
    Abstract: Citizens are willing to abandon their short-term financial interest in free-riding considerably, if governments act in their interest, if procedures of the public decisions-making process are felt to be fair and if other fellow-citizens have to contribute also an adequate share to the community. In such a situation trustworthiness of a government and trust in a government is high. This paper provides empirical evidence that trust is crucial for fiscal performance using data for the full sample of Swiss cantons over the 1981-2001 period. In cantons with high levels of trust, the level of indebtedness is significantly lower. Trust supports fiscal discipline. In order to get a useful approximation for mutual trust among citizens and between citizens and their representatives, we use information from direct voter participation on political issues (initiatives and public referenda) held in Swiss state (cantonal) governments. Electoral support of government proposals reveals an important aspect of trust in a real world setting. Hence, our trust variable measures the behavior at the ballots thereby reducing possible subjective biases derived from surveys and questionnaires.
    Keywords: Trust, Social capital, Fiscal performance, Indebtedness
    JEL: Z13 H11 O17 D72 E62
    Date: 2005–05
  5. By: Schclarek, Alfredo (Department of Economics, Lund University)
    Abstract: This paper empirically explores the relationship between debt and growth for a number of developing and industrial economies. For developing countries, we find that lower total external debt levels are associated with higher growth rates, and that this negative relationship is driven by the incidence of public external debt, and not by private external debt. Regarding the channels through which debt accumulation affects growth, we find that this is mainly driven by the capital accumulation growth. There is only limited evidence on the relationship between external debt and total factor productivity growth. In addition, for private savings rates there are mixed results. We do not find any support for an inverted-U shape relationship between external debt and growth. For industrial countries, we do not find any significant relationship between gross government debt and economic growth.
    Keywords: External Debt; Public debt; Economic Growth; Capital Accumulation; Productivity Growth; Private Savings
    JEL: F34 H63 O10 O40
    Date: 2004–12–04
  6. By: Veronica Vargas (Professor of Health Economics, ILADES-Georgetown University-Universidad Alberto Hurtado, Chile.); Juergen Wasem (Department of Economics, University of Essen, Germany)
    Abstract: Chile´s primary health care (PHC) payment system uses income of the municipalities and the geographic location of health centres (HCs) to adjust current capitation payments. Concerns over the ability of the formula to direct health resources where greater health needs are discussed. We uses a sample of 10,000 individuals was drawn and two years data was collected from a region in Chile. Three models were tested: i) age and gender, ii) age, gender and the presence of two key diagnoses and iii) age, gender and the presence of seven key diagnoses, to estimate how significant their effects were on utilization and per-capita expenditures. Regression analysis was performed to calculate the predictive values of the independent variables and two tests applied to select the best and next best model. The main results are the following. First, the use of services by age and gender confirmed international trends, where children under five, women and elderly were the main users of PHC services. Second, women consulted twice as much as men. Thrid, clear difference by SES were observed, indigents aged 65+ under-utilised PHC services. From the three models simulated, the major improvement in the predictive power took place from the demographic to the demographic plus two diagnoses model. Improvements were limited when five other diagnoses were added (R-square=28%). The conclusion is that the current normative formula used by the MOH provides little incentives to care appropriately for indigents and people with chronic conditions such as diabetes and hypertension. A capitation payment that adjusts for age, gender, and presence of hypertension and diabetes will better guide resources to those with poorer health and lower SES.
    Keywords: Primary health care, Payment system, Risk adjustment
    JEL: H51 I11 I18
    Date: 2005–05
  7. By: Debora Di Gioacchino, Sergio Ginebri, Laura Sabani
    Abstract: The incidence of public expenditure in education appears to be skewed in favour of the middle and upper classes. This paper inquires into the determinants of this bias using a political economy approach. We develop a model with two time periods with an election occurring between the two. In the first period, agents differ in their initial wealth. In the second period, differences in wealth are combined with differences in income. In the first period, the incumbent government issues debt to finance public spending in education and decides how to allocate available resources between primary and tertiary education. Both increase aggregate income, but while investment in primary education reduces income inequality, investment in tertiary education increases it. At the beginning of the second period, a two-party electoral competition is held and probabilistic voting decides the winner. By varying the parameters of the linear income tax, the elected policy-maker can redistribute resources between low and high income individuals, while by choosing a debt default rate she can renege on the promise to fully repay public obligations, redistributing resources from bond-holders to tax-payers. We show that the investment in primary education might not be (politically) viable. Intuitively, investment in primary education, by reducing income inequality with respect to wealth inequality, might increase the desired debt default rate of future policy makers, making issuing debt to finance primary education unfeasible.
    Keywords: policy choices in representative democracies, public investment in education, redistribution, government debt repayment.
    JEL: D78 H63 H42 I28
    Date: 2005–05–27
  8. By: Jonathan Gruber
    Abstract: Religion plays an important role in the lives of many Americans, but there is relatively little study by economists of the implications of religiosity for economic outcomes. This likely reflects the enormous difficulty inherent in separating the causal effects of religiosity from other factors that are correlated with outcomes. In this paper, I propose a potential solution to this long standing problem, by noting that a major determinant of religious participation is religious market density, or the share of the population in an area which is of an individual's religion. I make use of the fact that exogenous predictions of market density can be formed based on area ancestral mix. That is, I relate religious participation and economic outcomes to the correlation of the religious preference of one's own heritage with the religious preference of other heritages that share one's area. I use the General Social Survey (GSS) to model the impact of market density on church attendance, and micro-data from the 1990 Census to model the impact on economic outcomes. I find that a higher market density leads to a significantly increased level of religious participation, and as well to better outcomes according to several key economic indicators: higher levels of education and income, lower levels of welfare receipt and disability, higher levels of marriage, and lower levels of divorce.
    JEL: H3 N4
    Date: 2005–05
  9. By: Raj Chetty
    Abstract: In an influential paper, Baily (1978) showed that the optimal level of unemployment insurance (UI) in a stylized static model depends on only three parameters: risk aversion, the consumption-smoothing benefit of UI, and the elasticity of unemployment durations with respect to the benefit rate. This paper examines the key economic assumptions under which these parameters determine the optimal level of social insurance. A Baily-type expression, with an adjustment for precautionary saving motives, holds in a very general class of dynamic models subject to weak regularity conditions. For example, the simple reduced-form formula derived here applies with arbitrary borrowing constraints, endogenous insurance markets, and search and leisure benefits of unemployment. A counterintuitive aspect of this result is that the optimal benefit rate appears not to depend on (1) any benefit of UI besides consumption-smoothing or (2) the relative magnitudes of income and substitution effects in the link between UI benefits and durations. However, these parameters enter implicitly in the optimal benefit calculation, and estimating them can be useful in testing whether the values of the primary inputs are consistent with observed behavior.
    JEL: H5
    Date: 2005–05
  10. By: Shigeki Morinobu (Ministry of Finance Japan)
    Abstract: In June 2004, the Government Tax Commission presented its report on the unified taxation system for financial income (hereinafter referred to as “integration of taxes on financial income”). Theoretically, the dual income tax (DIT) discussion introduced mainly in Nordic countries is at the core of the discussion about integration of taxes on financial income. The Tax Commission’s mid-term policy report (hereinafter referred to as “the mid-term policy report”), submitted in June 2002, lists DIT as a key issue for future consideration. Then, in the revised report submitted in November of the same year, the commission argues: “Establishing a tax system that is fair, simple, and easy to understand should be the basis of all taxes on financial assets. From this perspective, which meets the policy demand for a shift ‘from savings to investment,” with regard to the tax structure for financial transactions, the tax authorities should not only strive to ensure neutrality between financial instruments regarding taxes on interest, dividends, and capital gains but also aspire to integrate the various categories of financial income. In this case, the integration of taxes on financial income and the DIT should be considered as a future direction.” Specifically, in the FY 2003 tax reform, dividend income (large accounts excluded), which until then was taxed as part of aggregate income, is taxed as separate income and at the same rate as are capital gains and interest. In this paper, we will first give an overview of the discussions thus far on dual income tax, after which we will take up various issues surrounding the integration of taxes on financial income.
    Keywords: tax commision, financial income, dual income tax (DIT),
    JEL: H24 D14 H71
    Date: 2004–01
  11. By: Nobuyoshi Yamori (Nagoya University); Narunto Nishigaki (Okayama University)
    Abstract: The large weight of public financial institutions is often identified as one of the characteristics of the Japanese financial system. It is believed that reform of the private financial sector is not enough to revitalize the Japanese financial system, but reform of the public financial sector is crucial. There are various opinions concerning ideal public financial institutions, and heated debate continues. We would like to raise attention to the point that much discourse is based on the prerequisite that public financial sector is still increasing (i.e., the ballooning theory). However, only a small number of arguments present grounds for the prerequisite, and even in the case of those based on statistical analyses, such analyses are not rigorously verified. Under these circumstances, the first purpose of this paper is to reverify the ballooning theory of public financial sector which is used as a prerequisite for much of the discourse.
    Keywords: financial institutions, Japan, public financial sector,
    JEL: P11 F36 H24
    Date: 2005–01
  12. By: Takero Doi (Ministry of Finance Japan)
    Abstract: In June 2003, the Koizumi administration created the "Trinity Reform Package." In this context, "trinity" means the decentralization reform process that involves three factors: local tax, local allocation tax grant and national government disbursement. There is, however, a missing link in the reform. This is local bond, which is one of major revenue source for local governments. In particular, system of local bond has a very close relationship with local allocation tax system. Local allocation tax grant also covers debt service expenditure at the local level. Hence, the system itself undermines the sound issuance of local bonds. Moreover current local bond system does not result in awareness as debtors. In this paper, we build a simple theoretical model describing the Japanese local system, and propose a comprehensive decentralization reform including local bond.
    Keywords: Decentralization, Reform, Japan, local tax, local allocation tax grant, national government disbursement
    JEL: H71 H77 H63
    Date: 2004–04
  13. By: Takero Doi (Ministry of Finance Japan)
    Abstract: This paper analyzes the reason that Japan’s household saving rate rose in the 1990s. The unemployment rate as well as saving rate of workers’ households was increasing in the 1990s, and growth rate of disposable income was decreasing in the late 1990s. The evidence may imply that an increase in the saving rate is explained by precautionary saving motive among growing uncertainty (risk) concerning future income and employment. An increase in income risk means that households’ expectation of future income becomes more uncertain. This paper investigates this evidence, and finds that correlation between Japan’s saving rate of workers’ households (using data for the Family Income and Expenditure Survey) and the income risk is significantly positive during the full sample period (from 1976 to 1998), but not significantly positive in the recent years. Therefore it is concluded that the increase in Japan’s household saving rate in the 1990s is not explained by precautionary saving hypothesis with the income risk.
    Keywords: Japan, saving, unemployment rate, household income, disposable income,
    JEL: H24 E21 E24 O16
    Date: 2004–03
  14. By: Takero Doi (Ministry of Finance Japan)
    Abstract: The purpose of this paper is to survey methodology of test for fiscal sustainability. The econometrical tests for fiscal sustainability have been improved since the 1980s. We introduce the methods and backgrounds of these tests. Also we apply the tests to the Indonesian and Japanese data. It is important to analyze the sustainability of government bonds consisting with the fiscal system, particularly intergovernmental relationship. Namely, we should investigate debt sustainability of the consolidated government including not only the central government but also local governments and other (off-budget) account of the central government. In the second half of this paper, we explain the Japanese fiscal policy from the viewpoint of the sustainability problem of government bond policy.
    Keywords: Japan, Indonesia, government bonds, debt sustainability, fiscal policy
    JEL: O23 H30 E62
    Date: 2004–03
  15. By: Keigo Kameda (Niigata university); Masao Nakata (Ministry of Finance Japan)
    Abstract: Recently, the outstanding debt of the Japanese government amounts to 695 trillion yen, which implies 139.5% of GDP. In this paper, we constructed three IS-LM type dynamic models and estimate the eigenvalues of their differential systems. Then we confirm whether or not the huge amount of public debt violates the stability conditions for the Japanese economy. Our estimation concludes the Japanese economy to be unstable with the existence of a saddle-point equilibrium. Our simulation also shows that severe tax reform would be required to restore the economic stability. Concretely, the government has to raise the consumption tax rate to 15% from 5%, and in addition, allowing the income elasticities of income taxes and inhabitant taxes to increase by 0.033 each, which is equivalent to tax hikes of about 8.3 trillion yen. We assert that structural reform for the government budget including a tax system is essential and emergent.
    Keywords: Public Debt, Macroeconomic Stability, Japan, Yen, GDP, consumption tax, saddle-point equilibrium, IS-LM type dynamic models, eigenvalues
    JEL: C30 H61 H63 H20
    Date: 2005–01
  16. By: Thi Kim Cuong PHAM
    Abstract: Cet article étudie l'impact de la recherche du statut social sur la croissance et la détermination des politiques publiques optimales dans un modèle de croissance avec le secteur public. Le gouvernement prélève des taxes sur le revenus individuel pour financer le bien public, étant un facteur de production. Les individus ont des préférences portant à la fois sur leur consommation et leur statut social. Celui-ci est déterminé par la position relative de l'individu dans la société en termes de richesse. On montre que la quête du statut social a un effet positif sur la croissance dans le cadre d'une économie décentralisée ainsi que sur la croissance optimale définie par le planificateur central. Le modèle démontre aussi que l'existence et la valeur de taux de taxation optimale dépendent étroitement du degré d'interaction sociale et de l'importance que l'individu accorde au statut social dans son utilité.
    Keywords: Croissance endogène ; Politique publique optimale ; Utilité relative ; Statut social
    JEL: D90 H31 H50 O41
    Date: 2004
  17. By: Thi Kim Cuong PHAM
    Abstract: We investigate the wealth distribution and endogenous fiscal policy in a two-classes growth model in which individuals exhibit a desire for social status. The latter is in- creasing with individual wealth and decreasing with the average level of the society. First, we show that status seeking is crucial in determining the long-run wealth dis- tribution: agents with stronger status motive end up holding a higher level of wealth. Second, a higher inequality can be associated with a higher growth if it is due to a stronger incentive to accumulate wealth of one class of agents. Third, the model implies that a higher growth rate may reduce welfare of one class of agents and raise welfare of the other one. Finally, when fiscal policy is determined through a voting mechanism, an increase in the strength of status motive of majoritarian class may lead to a reduced political equilibrium growth.
    Keywords: Individual welfare; endogenous growth; endogenous Þscal policy; status seeking; wealth distribution
    JEL: D31 H31 H50 O41
    Date: 2004
  18. By: Roberto FONTANA; Aldo GEUNA; Mireille MATT
    Abstract: This paper presents an empirical analysis of the determinants of research cooperation between firms and Public Research Organisations (PROs) for a sample of innovating small and mediumsized enterprises. The econometric analysis is based on the results of the KNOW survey carried out in seven EU countries during 2000. In contrast to earlier works that provide information about the importance of PROs’ research, we know how many collaborative projects a firm has had with PROs. This allows us to study the determinants of firms’ collaboration with PROs in terms of both the propensity of a firm to cooperate with a university (do they cooperate or not) and the extent of this cooperation (the number of collaborations). Two questions are addressed. Which firms cooperated with PROs? And what are the firm characteristics that might explain the number of collaborations with PROs? The results of our analysis point to two major phenomena. First, the propensity to forge an agreement with an academic partner depends on the ‘absolute size’ of the industrial partner. Second the openness of firms to the external environment, as measured by their willingness to search, screen and signal, significantly affects the development of cooperations with PROs. Our findings suggest that acquiring knowledge through the screening of publications and involvement in public policies positively affects the probability of signing an agreement with a PRO, but not the level of collaboration developed. In fact, firms that outsource research and development (R&D), and patent to protect innovation and to signal competencies show higher levels of collaboration.
    Keywords: Public Research Organisations, University-Industry R&D cooperation, Openness.
    JEL: H4 L3 O3
    Date: 2005
  19. By: Yongjin Park (Connecticut College)
    Abstract: This paper investigates whether one’s effort to keep up with the Joneses has any effect on labor supply behavior. We provide a simple model and empirical evidence that labor supply decisions of married women are influenced by relative as well as absolute income of their husbands. We find, after controlling for husbands’ absolute income and other individual characteristics, that married women are more likely to be in labor force when their husbands’ relative income is low. Results are robust across various settings and measures of relative income and the size of the effect is economically meaningful. We also show that income inequality of reference group of husbands in age-regional cross sections can be a predictor of their wives’ labor supply.
    Keywords: Interdependent utility, relative income, social comparisons, inequality, emulation, labor market participation of married women.
    JEL: H23 D31 D62 J22
    Date: 2005–06
  20. By: Troy Quast (University of Florida)
    Abstract: This paper examines the rates set by state public utility commissions (PUCs) that competitors must pay to access the local loop of the largest incumbent U.S. telecommunications suppliers (RBOCs). Employing a unique data set and dynamic panel data regressions, the results indicate that the rates are influenced by factors beyond local costs. Specifically, rates in the smaller states in each RBOC region are strongly influenced by the largest state in the region. Rates are lower in the period immediately before the RBOC applied for Section 271 approval in the state and where the level of competitive entry is lower, while they are higher in states where the governor is a Republican. The analysis suggests that this cornerstone of the Telecommunications Act of 1996 may been applied inconsistently across states and information spillovers should be considered when state agencies are charged with implementing federal policy.
    Keywords: telecommunications, regulation, federal government, state government
    JEL: H70 L50 L96
    Date: 2005–05–29
  21. By: Dolores Jimenez; Peter C Smith
    Abstract: This paper explores the impact of health care decentralisation on a characteristic of human development: the overall level of population's health. While much of the literature on decentralisation in health care has stressed the advantages of sub national provision of health services, in the absence of a quantitative measure of the magnitude of the effect of decentralisation, there is little that can be said in terms of its benefits and costs for the health sector. The purpose of this study is therefore to contribute to the limited empirical literature on this issue by investigating the hypothesis that shifts towards more decentralisation would be accompanied by improvements in population health. The analysis draws on a theoretical model of theoretical model of local government's public finance applied to health. We use the ten provinces of Canada as a case study. Apart from being one of the most decentralised countries in the world, Canadian data required to estimate our model was found to be one of the best.
    Keywords: Fiscal decentralisation; health outcomes; Canada
    JEL: I12 H77
  22. By: Juan Antonio Lacomba (Department of Economic Theory and Economic History, University of Granada); Francisco Miguel Lagos (Department of Economic Theory and Economic History, University of Granada)
    Abstract: This paper analyzes the reform of the pensionable age as an answer to the future financing problems of public pension systems. We use a two-staged model where, firstly, the government decides the redistribution level of the pension system, and, secondly, individuals face a voting process on the legal retirement age. Our results suggest that an increase in the re-distributive character of the system could lead to a larger social consensus to postpone the legal retirement age. Surprisingly, it could be the case that the richest people would support more redistribution if that implies to postpone the pensionable age.
    Keywords: Legal retirement age, pension benefits, redistribution level
    JEL: D72 D91 H55
    Date: 2005–06–01
  23. By: Bruno S. Frey; Alois Stutzer
    Abstract: A crucial aspect of constitutional design is the provision of rules on how a constitution is to be amended. If procedures for constitutional amendment are very restrictive, changes will take place outside the constitution. These changes are likely to be against the citizens’ interests and their ability to influence the political process. We argue that the development of the constitution must be based on the rule of law. We propose direct democratic rights that allow citizens to participate in the amendment process. The direct democratic process of institutional change is theoretically and empirically analyzed. A number of counter arguments and issues for a gradual introduction are discussed.
    Keywords: collective decision-making; constitutional design; constitutional economics; direct democracy
    JEL: D72 H1 H7
    Date: 2003–09
  24. By: Christoph A. Schaltegger; Simon Zemp
    Abstract: This paper investigates spatial spillovers in local spending decisions by using panel data of the Swiss communes in the canton of Lucerne during the 1990s. Due to the geographical fragmentation with a major central city and some 100 suburban communes within a distance from 4 to 55 kilometers to the center this area represents a particularly useful data base in order to test the relevance of spatial interactions in metropolitan areas. The empirical evidence confirms strategic interactions among suburban governments and the central city for public security spending. A 10% increase of the city’s security spending leads to a 3% decrease in security spending of the suburban communes in the Lucerne area. For all other spending items, the empirical evidence suggests no quantitative and significant spatial spillover effects. The same applies for spatial spillovers in overall local spending between the Lucerne communes and the Lucerne central city.
    Keywords: spatial spillovers; strategic interaction; central city exploitation
    JEL: D72 H72
    Date: 2003–10
  25. By: Benno Torgler
    Abstract: The intention of this paper is to analyze religiosity as a factor that potentially affects tax morale. For this purpose, a multivariate analysis has been done with data from the World Values Survey 1995- 1997, covering more than thirty countries at the individual level. Several variables, such as church attendance, religious education, being an active member of a church or a religious organization, perceived religiosity, religious guidance and trust in the church have been analyzed. The results suggest that religiosity raises tax morale.
    Keywords: Tax morale; Tax compliance; Religiosity
    JEL: H26 H73 K42
    Date: 2003–10
  26. By: Benno Torgler
    Abstract: This paper analyses the impact of direct democracy, trust in government, the court and the legal system, and federalism on tax morale. In the tax compliance literature it is novel to analyse tax morale as dependent variable and to systematically analyse the effects of formal and informal institutions in Switzerland, a country where participation rights and the degree of federalism vary across different cantons. We used two different data sets at the individual level (World Values Survey and International Social Survey Programme). The findings suggest that direct democratic rights, local autonomy, and trust in government, the court and the legal system have a significantly positive effect on tax morale.
    Keywords: Tax Morale; Tax Compliance; Tax Evasion; Direct Democracy; Local Autonomy
    JEL: H26 H73 D70
    Date: 2003–11
  27. By: Benno Torgler
    Abstract: In a controlled field experiment in Switzerland this paper analyses the effects of moral suasion on the timely paying and filling out of the tax form 2001, and the honesty regarding the declaration of domestic income from capital gains, lottery winnings, and certain insurance benefits. Comparisons of different tax filling years and multiple regression estimations have been done using these three factors as dependent variables to check if there is a significant difference between the control group and the treatment group, controlling for additional factors that might influence compliance behaviour. In February 2002 the treatment group received a letter signed by the commune’s fiscal commissioner containing normative appeals. Results indicate that moral suasion has hardly any effect on taxpayers’ compliance behaviour. The strongest effect can be observed for the variable tax payments.
    Keywords: tax compliance; morale suasion; field experiment
    JEL: H26 H71
    Date: 2004–01
  28. By: Benno Torgler
    Abstract: This paper analyses tax morale in several Asian countries. The descriptive analysis indicates that tax morale is very low in the Philippines and relatively high in Japan, China, and Bangladesh. In general Asia has a higher tax morale than OECD countries, which might indicate cultural differences. The paper also analyses tax morale as a dependent variable and thus gives answers to what shapes tax morale. Pooling the Asian countries we find, e.g., that trust in the government and the legal system have a positive effect on tax morale. These results remain robust for India and Japan in a time series analysis.
    Keywords: tax morale; tax evasion; shadow economy
    JEL: H26 K42
    Date: 2004–01
  29. By: Friedrich Schneider; Robert Klinglmair
    Abstract: Using various statistical procedures, estimates about the size of the shadow economy in 110 developing, transition and OECD countries are presented. The average size of the shadow economy (in percent of official GDP) over 1999-2000 in developing countries is 41%, in transition countries 38% and in OECD countries 18.0%. An increasing burden of taxation and social security contributions combined with rising state regulatory activities are the driving forces for the growth and size of the shadow economy. If the shadow economy increases by one percent the annual growth rate of the “official” GDP of a developing country (of a industrialized and/or transition country) decreases by 0.6% (increases by 0.8 and 1.0 respectively).
    Keywords: shadow economy; interaction of the shadow economy with the official one; tax burden
    JEL: O17 O5 D78 H2 H11 H26
    Date: 2004–01
  30. By: Benno Torgler; Kristina Murphy
    Abstract: Why citizens pay their taxes voluntarily is an important question for tax administrations worldwide. Some believe it is because taxpayers are deterred from tax evasion out of a fear of being caught or penalised. Others, in contrast, suggest that factors such as the level of tax morale one has (i.e., the intrinsic motivation one has to pay their tax) affects compliance behaviour. While there have been numerous empirical studies published that have explored the role of deterrence on tax compliance behaviour, very few studies have explored the concept of tax morale in any detail. This study therefore attempts to rectify this gap in the literature. If tax morale is important in determining compliance behaviour, as several researchers have suggested, then it is also important to understand what might affect one’s level of tax morale. The specific aim of this paper will be to identify factors that shape or have an impact on tax morale. Using data collected from the Australian wave of the 1981 and 1995 World Values Survey, this study will demonstrate that factors such as trust and moral beliefs play an important role in shaping tax morale in Australia. Further, it will be shown that tax morale has increased significantly in Australia since the early 1980s, and that it has done so at a faster rate than many other OECD countries. Possible explanations for this increase will be discussed.
    Keywords: Tax Morale; Tax Compliance; Tax Evasion; Australia
    JEL: H26 H73
    Date: 2004–01
  31. By: Benno Torgler
    Abstract: This paper analyses tax morale in transition countries. Tax morale has been used as dependent variable working with World Values Survey and European Values data for different years (1990-2000). The results suggest that trust, measured as trust in the legal system, the government, the parliament and the national officers has a strong impact on tax morale. Furthermore, a higher degree of satisfaction with the political system leads to a higher tax morale. Furthermore, the paper investigates the correlation between corruption and tax morale. The bivariate as well as the multivariate analysis show that in transition countries a higher corruption leads to a lower tax morale.
    Date: 2004–02
  32. By: Benno Torgler
    Abstract: The intention of this paper is to analyse how audit courts affect tax morale, controlling in a multivariate analysis for a broad variety of potential factors. Switzerland with its variety of audit court competences among the cantons has been analysed. With data from the ISSP for 1999 evidence has been found that a higher audit court competence has a significantly positive effect on tax morale. Thus, the results in Switzerland suggest that in the cantons where audits courts are not just knights without swords or toothless tigers, they help improve taxpayers’ tax morale and thus citizens’ intrinsic motivation to pay taxes.
    Keywords: Tax Morale; Tax Compliance; Tax Evasion; Audit Courts Direct Democracy; Local Autonomy
    JEL: H26 H73 D70
    Date: 2004–04
  33. By: Ronald G. Cummings; Jorge Martinez-Vazquez; 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 Evasion; Tax Morale; Culture
    JEL: H26 C91
    Date: 2004–06
  34. By: James Alm; Benno Torgler
    Abstract: In recent years much research has investigated whether values, social norms, and attitudes differ across countries and whether these differences have measurable effects on economic behavior. One area in which such studies are particularly relevant is tax compliance, given both the noted differences across countries in their levels of tax compliance and the marked inability of standard economic models of taxpayer compliance to explain these differences. In the face of these difficulties, many researchers have suggested that the intrinsic motivation for individuals to pay taxes – what is sometimes termed their “tax morale” – differs across countries. However, isolating the reasons for these differences in tax morale is notoriously difficult. In a common approach, studies sometimes referred to as “cultural studies” have often relied upon controlled laboratory experiments conducted in different countries because such experiments can be set up with identical experimental protocols to allow cultural effects to be isolated. In this paper we first analyze a cross-section of individuals in Spain and the United States using the World Values Survey (WVS). In line with previous experiments, our findings indicate a significantly higher tax morale in the United States than in Spain, controlling in a multivariate analysis for additional variables. We then extend our multivariate analysis to include 14 European countries in the estimations. Our results again indicate that the United States has the highest tax morale across all countries, followed by Austria and Switzerland. We also find a strong negative correlation between the size of shadow economy and the degree of tax morale in those countries.
    Keywords: Tax Morale; Tax Compliance; Tax Evasion; Culture
    JEL: H26 H73
    Date: 2004–07
  35. By: Christoph A. Schaltegger; Lars P. Feld
    Abstract: The fiscal commons problem is one of the most prominent explanations of excessive spending and indebtedness in political economics. The more fragmented a government, the higher its spending, deficits and debt. In this paper we investigate to what extent this problem can be miti-gated by different fiscal or constitutional institutions. We distinguish between two variants of fragmented governments: cabinet size and coalition size. Theoretically, they both describe the degree to which the costs of spending decisions are internalized by individual decision-makers. In addition, we evaluate whether constitutional rules for executive and legislation as well as budget rules shape the size of government and how the different rules interact with fragmentation in de-termining government size. The empirical study of the role of fragmented governments for fiscal policy outcomes is based on a panel of the 26 Swiss cantons over the 1980-1998 period. The re-sults indicate that the number of ministers in the cabinet is negatively associated with fiscal disci-pline. Furthermore, the fiscal referendum does effectively restrict the fiscal commons problem, but less successfully than the budget rule.
    Keywords: Fragmentation; Fiscal Policy; Referendums; Legislative Rules; Budget Rules
    JEL: E61 E63 H61
    Date: 2004–07
  36. By: Christoph A. Schaltegger; Benno Torgler
    Abstract: There is a vast empirical literature investigating the relationship between government size and economic growth. But the empirical evidence of growth effects of public expenditure using cross-country regres-sions is still inconclusive. According to a number of authors this is not surprising since the negative rela-tionship only applies for rich countries with a large public sector. Restricting their analysis on rich coun-tries only they can show the predicted negative impact. Naturally, a selection of a sub-sample of rich countries is always somewhat arbitrary. Another possibility is to concentrate on governments within a rich country. However, only few studies investigate the effect of state and local spending on economic growth. This paper concentrates on the relationship between public expenditure and economic growth within a rich country using the full sample of state and local governments from Switzerland over the 1981-2001 period. The general finding is a fairly robust negative relationship between government size and economic growth. However, in contrast to public spending from operating budgets there is no significant impact on economic growth by expenditure from capital budgets.
    Keywords: Economic Growth; Government expenditure; Public Sector
    JEL: E62 H20 O23
    Date: 2004–07
  37. By: Benno Torgler; Friedrich Schneider
    Abstract: There is considerable evidence that enforcement efforts cannot fully explain the high degree of tax compliance. Previous studies have found differences in compliance behaviour across cultures. Novel in this paper is to investigate the impact of culture differences within a country rather than between countries. Thus, the main purpose of the paper is to see how culture affects tax morale, using World Values Survey (WVS) and European Values Survey (EVS) data. The empirical findings focus individually on Switzerland, Belgium and Spain, countries with a certain cultural variety. In general, the results indicate that the cultural background seems not to have a strong effect on tax morale within a country. However, there is evidence that there is a strong interaction between culture and institutions, which has a strong impact on tax morale.
    Keywords: Tax Morale; Tax Compliance; Tax Evasion; Culture
    JEL: H26 H73
    Date: 2004–07
  38. By: Bruno S. Frey; Benno Torgler
    Abstract: Why so many people pay their taxes, although fines and audit probability are low, has become a central question in the tax compliance literature. Concepts of Homo Economicus, endowed with a more refined motivation structure, help to shed light on the tax compliance puzzle. This paper provides empirical evidence for the relevance of conditional cooperation, using survey data from 30 European countries. The findings suggest that a higher perceived tax evasion leads to a lower tax morale, also when controlling for additional factors in a multivariate analysis.
    Keywords: tax morale; tax compliance; tax evasion; pro-social behavior
    JEL: H26 H73 D64
    Date: 2004–08
  39. By: Bruno S. Frey; Simon Luechinger; Alois Stutzer
    Abstract: The trends and consequences of terrorist activities are often captured by counting the number of incidents and casualties. More recently, the effects of terrorist acts on various aspects of the economy have been analyzed. These costs are surveyed and put in perspective. As economic consequences are only a part of the overall costs of terrorism, possible approaches for estimating the utility losses of the people affected are discussed. Results using the life satisfaction approach, in which individual utility is approximated by self-reported subjective well-being, suggest that people’s utility losses may far exceed the purely economic consequences.
    Keywords: Terrorism; subjective well-being; life satisfaction; utility loss
    JEL: D74 H56 I31
    Date: 2004–09
  40. By: Benno Torgler; Neven T. Valev
    Abstract: In recent years the topic of corruption has attracted a great deal of attention. However, there is still a lack of substantial empirical evidence about the determinants of corruption. This empirical study analyses a cross-section of individuals using the World Values Survey wave III (1995-1997), investigating the justifiability of corruption. The major aim in the paper is to investigate whether we observe differences between age groups. Despite an increasing interest of economists in the determinants of corruption, the factor age has been widely neglected in the literature. The results suggest that there is a strong age effect, controlling in a multivariate analysis for additional factors.
    Keywords: Corruption; Age; Bribe; Social Norms
    JEL: H10 J16 K42
    Date: 2004–10
  41. By: Bruno S. Frey; Alois Stutzer
    Abstract: Alienation to politics weakens political competition and can undermine the acceptance and legitimacy of democracy as a political system. Governance and representation problems at the local level cause part of citizens’ lack of power and political alienation. Citizens have local power if they can influence the political process so that its outcomes are closer to their preferences and if they feel to be effective in the political sphere. In order to increase citizens’ local power, we emphasize the role of institutions of local governance. Local democratic governance is concerned about the relationship between citizens and local government institutions, political representatives and officials. This relationship is fundamentally shaped by the federal structure of a nation’s government and by the scope and depth of citizens’ participation possibilities in the political process.
    Keywords: collective decision-making; constitutional design; constitutional economics; direct democracy; fiscal federalism; local governance; local power; participation
    JEL: D70 D71 D72 H10 H77
    Date: 2004–10
  42. By: Benno Torgler; Friedrich Schneider
    Abstract: People mostly pay their taxes although there is a low probability of getting caught and being penalized. Thus, new attempts in the tax compliance literature try to go beyond standard economic theory. This paper examines citizens’ attitudes toward paying taxes – what is sometimes termed their “tax morale”, or the intrinsic motivation to pay taxes. Tax morale may be a key determinant to explain why people are honest. However, there are very few papers that explore the concept of tax morale theoretically and empirically. This study, based on the World Values Survey and the European Values Survey, therefore attempts to fill this gap in the literature, focusing on tax morale in Austria. Societal institutions such as trust or pride have been identified as key determinants that shape tax morale in Austria. Furthermore, a lower perceived compliance leads to a decrease of tax morale, which indicates that social comparisons are relevant. The results also show a decrease of tax morale between 1990 and 1999, although Austria’s taxpayers still have a very high tax morale compared to other European countries.
    Keywords: Tax Morale; Societal Institutions; Austria
    JEL: H26 H73 D64
    Date: 2004–11
  43. By: Benno Torgler; Friedrich Schneider
    Abstract: There is considerable evidence that enforcement efforts cannot fully explain the high degree of tax compliance. To resolve this puzzle of tax compliance, many researchers have argued that citizens’ attitudes toward paying taxes or tax morale, seen as the intrinsic motivation to pay taxes, can help to explain the high degree of tax compliance. However, most studies treat tax morale as a black box without discussing which factors shape it. Additionally, there is a lack of empirical evidence in the tax compliance literature that investigate attitudes towards paying taxes in Europe. Thus, a unique aspect in this paper is to examine citizens’ attitudes towards paying taxes in the three European countries Switzerland, Belgium and Spain, allowing thus to investigate in detailed way the impact of internal and external institutions.
    Keywords: Tax Morale; Tax Compliance; Tax Evasion; Internal and External Institutions.
    JEL: H26 H73
    Date: 2005–02
  44. By: Benno Torgler; Jan Werner
    Abstract: This paper analyses fiscal autonomy in Germany. First, it provides an overview of fiscal autonomy. What is novel in this paper compared to previous studies is the development of a fiscal autonomy coefficient for the states, based on communal data. The basic intention in the empirical part is to analyse how fiscal autonomy affects tax morale, defined as the intrinsic motivation to pay taxes, in Germany. Strong evidence has been found that a higher fiscal autonomy leads to a higher tax morale, controlling in a multivariate analysis for additional factors. Thus, this paper fills a gap in the tax compliance literature, which has rarely analysed the impact of fiscal autonomy on compliance
    Keywords: Tax Morale; Tax Compliance; Fiscal Autonomy; Germany
    JEL: H26 H73 D70
    Date: 2005–02
  45. By: Megumi Mochida (Graduate School of Economics, Osaka University)
    Abstract: We examine how child-allowance policies with pay-as-you-go systems affect fertility and growth rates. A current method to subsidize child-rearing households, which determines benefits according to family's number of children, increases the fertility rate but decreases the growth rate. This study also demonstrates that when a government initiates a child-allowance policy using some part of the pension budget, the fertility rate declines in aging economies.
    Keywords: Fertility, Social security, Uncertain lifetime.; Fertility, Social security, Uncertain lifetime.
    JEL: D91 H55 J13
    Date: 2005–05

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