nep-pbe New Economics Papers
on Public Economics
Issue of 2005‒06‒14
63 papers chosen by
Kerim Arin
Massey University

  1. Vertical Imbalances and Revenue Assignments in Decentralized Spain By Julio Lopez Laborda; Carlos Monasterio Escudero
  2. Building a Castle on Sand: Effects of Mass Privatization on Capital Market Creation in Transition Economies By Zuzana Fungacova
  3. Monetary and Fiscal policy Interaction in the Euro Area with Different Assumptions on the Phillips Curve By Bofinger, Peter; Mayer, Eric
  4. Does Privatization Raise Productivity? Evidence from Comprehensive Panel Data on Manufacturing Firms in Hungary, Romania, Russia and Ukraine By Brown, J David; Earle, John S
  5. Risk Shifting, Technology Policy and Sales Contingent Claims: When is Launch Aid to the Aerospace Industry A Subsidy? By Kaivanto, Kim; Stoneman, Paul
  6. Bundling and the Unanimity Rule By Erlenmaier, Ulrich; Gersbach, Hans
  7. Theft and Taxes By Desai, Mihir; Dyck, Alexander; Zingales, Luigi
  8. Estimating the Effects of Fiscal Policy in OECD Countries By Perotti, Roberto
  9. The Evolution of Retirement By Conde-Ruiz, José Ignacio; Galasso, Vincenzo; Profeta, Paola
  10. Policy-oriented Parties and the Choice Between Social and Private Insurance By De Donder, Philippe; Hindricks, Jean
  11. Retirement Expectations, Pension Reforms and Their Effect on Private Wealth Accumulation By Bottazzi, Renata; Jappelli, Tullio; Padula, Mario
  12. Rolling Back the Public Sector - Differential Effects on Unemployment, Investment and Growth By van der Ploeg, Frederick
  13. Monetary Policies for Developing Countries: The Role of Institutional Quality By Huang, Haizhou; Wei, Shang-Jin
  14. Are the Welfare State and Distribution Really that Bad for the Economy? Effects of Reciprocal Altruism, Consumer Rivalry and Second Best By van der Ploeg, Frederick
  15. Forms of Democracy, Policy and Economic Development By Persson, Torsten
  16. Time Consistency of Fiscal and Monetary Policy: A Solution By Persson, Torsten; Persson, Mats; Svensson, Lars E O
  17. How Changes in Benefits Entitlement Affect the Duration of Unemployment By van Ours, Jan C; Vodopivec, Milan
  18. Trade and Growth with Heterogeneous Firms By Baldwin, Richard; Robert-Nicoud, Frédéric
  19. Can we Trust Private Firms as Suppliers of Vaccines for the Avian Influenza? By Forslid, Rikard
  20. Demand and Distance: Evidence on Cross-Border Shopping By Asplund, Marcus; Friberg, Richard; Wilander, Fredrik
  21. Implementing the Stability and Growth Pact: Enforcement and Procedural Flexibility By Beetsma, Roel; Debrun, Xavier
  22. Does Fertility Respond to Financial Incentives? By Laroque, Guy; Salanié, Bernard
  23. Efficient Tuition & Fees, Examinations and Subsidies By Gary-Bobo, Robert J.; Trannoy, Alain
  24. Democratic Mechanisms: Double Majority Rules and Flexible Agenda Costs By Gersbach, Hans
  25. Pareto Improving Social Security Reform when Financial Markets Are Incomplete By Krueger, Dirk; Kubler, Felix
  26. On the Optimal Progressivity of the Income Tax Code By Conesa, Juan Carlos; Krueger, Dirk
  27. Human Capital and Optimal Positive Taxation of Capital Income By Bovenberg, A Lans; Jacobs, Bas
  28. Political Predation and Economic Development By Azam, Jean-Paul; Bates, Robert H; Biais, Bruno
  29. The Benefits of Separating Early Retirees from the Unemployed: Simulation Results for Belgian Wage Earners By Desmet, Raphael; Jousten, Alain; Perelman, Sergio
  30. The French Zones D'Education Prioritaire: Much Ado About Nothing? By Bénabou, Roland; Kramarz, Francis; Prost, Corinne
  31. The taxation of equity, dividends, and stock prices By Richard W. Kopcke
  32. Beggar thy neighbor? the in-state vs. out-of-state impact of state R&D tax credits By Daniel J. Wilson
  33. Temporary partial expensing in a general-equilibrium model By Rochelle M. Edge; Jeremy B. Rudd
  34. Education subsidies and school drop-out rates By Lorraine Dearden; Carl Emmerson; Chris Frayne; Costas Meghir
  35. Wealth concentration in a developing economy : Paris and France, 1807-1994 By Thomas Piketty; Gilles Postel-Vinay; Jean-Laurent Rosenthal
  36. Party Discipline and Pork Barrel Politics By Gene M. Grossman; Elhanan Helpman
  37. Equilibrium Impotence: Why the States and Not the American National Government Financed Economic Development in the Antebellum Era By John Joseph Wallis; Barry R. Weingast
  38. Corruption, Inequality and Fairness By Alberto Alesina; George-Marios Angeletos
  39. FDI and Trade -- Two Way Linkages? By Joshua Aizenman; Ilan Noy
  40. Alternative Methods of Price Indexing Social Security: Implications for Benefits and System Financing By Andrew G. Biggs; Jeffrey R. Brown; Glenn Springstead
  41. Does More Progressive Tax Make Tax Discipline Weaker? By Tatiana Damjanovic
  42. An Expenditure Based Estimate of Britain's Black Economy Revisited By Knut R. Wangen
  43. Macroeconomic effects of proposed pension reforms in Norway By Dennis Fredriksen, Kim Massey Heide, Erling Holmøy and Ingeborg Foldøy Solli
  44. Effects of demographic development, labour supply and pension reforms on the future pension burden By Dennis Fredriksen and Nils Martin Stølen
  45. Tax Effects on Unemployment and the Choice of Educational Type By Annette Alstadsæter, Ann-Sofie Kolm and Birthe Larsen
  46. The relationship between firm mobility and tax level: Empirical evidence of fiscal competition between local governments By Fredrik Carlsen, Bjørg Langset and Jørn Rattsø
  47. Understanding Divergent Views on Redistribution Policy in the United States By Louise C. Keely; Chih Ming Tan
  48. Revealed Preferences for Macroeconomic Stabilization By David Kiefer
  49. Trust, communication and equlibrium behaviour in public goods By Alexis Belianin; Marco Novarese
  50. Economic Implications of an Ageing Australia By Productivity Commission
  51. Some aspects of social choice theory (in Japanese) By Yasuhito Tanaka
  52. Algebraic topology and social choice theory, First part (in Japanese) By Yasuhito Tanaka
  53. Development of social choice theory (in Japanese) By Yasuhito Tanaka
  54. Basics of social choice theory (in Japanese) By Yasuhito Tanaka
  55. Cooperation Breakdowns under Incomplete Property Rights By Jean-Pierre Tranchant
  57. The Virtues of Personal Accounts for Social Security: A Comment to Lazear By Alberto Chilosi
  58. Tax Cuts and Employment Growth in New Jersey: Lessons From a Regional Analysis By W. Robert Reed; Cynthia L. Rogers
  59. Fiscal Discipline before and after EMU - Permanent Weight Loss or Crash Diet? By Andrew Hughes Hallett; John Lewis
  61. Shadow Economies of 145 Countries all over the World: What Do We Really Know? By Friedrich Schneider
  62. The Small Saving Tax Exemption and Japanese Household Asset Allocation Behavior: Impact of the 1988 and 2006 Revisions (in Japanese) By Shizuka Sekita
  63. Regional redistribution policy and welfare in a two-region endogenous growth model By Yutaro Murakami

  1. By: Julio Lopez Laborda; Carlos Monasterio Escudero
    Abstract: This chapter provides an overview of the key issues in public economics arising from the process of territorial decentralisation that has taken place in Spain since the restoration of democracy and the Constitution of 1978, and which resulted in the emergence of the “Autonomic State”. The first section focuses on the assignment of competencies between central and regional levels of government and explains in some detail the methodology used to quantify the “effective cost” of the services devolved to the Autonomous Communities (hereinafter ACs). We have paid special attention to health services, which is the most significant item for regional budgets in quantitative terms. The second section deals with revenue assignment, transfers and borrowing, and describes the two systems established to finance regional expenditure. These are the “common system” (régimen común) applied in the majority of the ACs and the “charter system” (régimen foral), which is based on the historical rights accorded to the Basque Country and Navarre. The last section appraises the decentralisation process and notes some emerging issues of debate.
    Keywords: Decentralization, revenue assignments
    Date: 2005–06–06
  2. By: Zuzana Fungacova
    Abstract: In this paper we study the relationship between mass privatization and capital market development in the transition economies. The link is investigated empirically using a panel of data which includes most of the transition countries. Our results confirm the hypothesis that mass privatization exerted a negative influence on capital market functioning in the short and medium term. Results further indicate that in countries with mass privatization, the capital market was established and perceived only as a byproduct of the privatization process and did not serve as a source of capital for the corporate sector. This non-transparent market of thousands of securities caused negative investor sentiment and thus did not contribute to initiating economic growth.
    Keywords: Privatization, mass privatization, emerging capital markets, capital market.
    JEL: G15 G28 P34
    Date: 2005–04
  3. By: Bofinger, Peter; Mayer, Eric
    Abstract: In this Paper we carry over a static version of a New Keynesian Macromodel a la Clarida Gali Gertler (1999) to a monetary union. We will show in particular that a harmonious functioning of a monetary union critically depends on the correlation of shocks that hit the currency area. Additionally a high degree of integration in product markets is advantageous for the ECB as it prevents that national real interest rates can drive a wedge between macroeconomic outcomes across member states. In particular small countries are vulnerable and therefore in need of fiscal policy as an independent stabilization agent with room to breath.
    Keywords: fiscal policy; inflation targeting; monetary policy; policy coordination
    JEL: E50 E60 H70
    Date: 2004–12
  4. By: Brown, J David; Earle, John S
    Abstract: We analyse the impact of privatization on multifactor productivity (MFP) using long panel data for nearly the universe of initially state-owned manufacturing firms in four economies. Controlling for firm and industry-year fixed effects and employing a wide variety of measurement approaches, we estimate that majority privatization raises MFP about 28% in Romania, 22% in Hungary, and 3% in Ukraine, with some variation across specifications, while in Russia it lowers it about 4%. Privatization to foreign rather than domestic investors has a larger impact (about 44%) and is much more consistent across countries. The positive effects emerge within a year in Hungary, Romania, and Ukraine and continue to grow thereafter, but are still ambiguous even after 5 years in Russia. Pre-privatization MFP exceeds that of firms remaining state-owned in all countries, implying that cross-sectional estimates overstate privatization effects. The patterns of the estimated effects cast doubt on a number of explanations for ‘when privatization works’.
    Date: 2004–12
  5. By: Kaivanto, Kim; Stoneman, Paul
    Abstract: This Paper studies the criteria with which the presence or absence of ‘subsidy’ in sales contingent Launch Aid R&D support may be determined when payoff-relevant market incompleteness limits the precision of market-based pricing to non-trivial intervals. The criteria currently employed in WTO and EU proceedings are consistent with correct accounting for the opportunity cost of capital when markets are complete and frictionless, but fail in the presence of payoff-relevant market incompleteness where the interval between bid and ask prices may not be finessed away. An economic definition of subsidy must necessarily capture opportunity cost, and we develop a definition that fully incorporates government’s opportunity cost in both complete and incomplete market settings. With this in hand we then revisit some commonly posed questions concerning the subsidy status of Launch Aid, giving indication of how they may be best resolved by those in possession of the relevant details.
    Keywords: civil aerospace; incomplete markets; R&D; sales contingent claims; subsidies
    JEL: D52 F13 H25 L62 O38
    Date: 2004–12
  6. By: Erlenmaier, Ulrich; Gersbach, Hans
    Abstract: In this Paper, we design democratic constitutions that can transcend the shortcomings of the unanimity rule. The constitution embeds the unanimity rule in a set of virtue-supporting principles: (a) broad packages with many public projects (bundling) are allowed, but can only be proposed once in a legislative term; (b) the person who designs the package is also taxed at the highest proposed rate; and (c) subsidies are forbidden. We show that such democratic constitutions can yield efficient public project provision.
    Keywords: amendment rules; bundling; constitutions; provision of public projects; unanimity rule
    JEL: D62 D70 H40
    Date: 2004–12
  7. By: Desai, Mihir; Dyck, Alexander; Zingales, Luigi
    Abstract: This Paper analyses the interaction between corporate taxes and corporate governance. We show that the characteristics of a taxation system affect the extraction of private benefits by company insiders. A higher tax rate increases the amount of income insiders divert and thus worsens governance outcomes. In contrast, stronger tax enforcement reduces diversion and, in so doing, can raise the stock market value of a company in spite of the increase in the tax burden. We also show that the corporate governance system affects the level of tax revenues and the sensitivity of tax revenues to tax changes. When the corporate governance system is ineffective (i.e., when it is easy to divert income), an increase in the tax rate can reduce tax revenues. We test this prediction in a panel of countries. Consistent with the model, we find that corporate tax rate increases have smaller (in fact, negative) effects on revenues when corporate governance is weaker. Finally, this approach provides a novel justification for the existence of a separate corporate tax based on profits.
    Keywords: corporate governance; Corporate taxation
    JEL: G30 H25 H26
    Date: 2004–12
  8. By: Perotti, Roberto
    Abstract: This Paper studies the effects of fiscal policy on GDP, inflation and interest rates in five OECD countries, using a structural Vector Autoregression approach. Its main results can be summarized as follows: 1) The effects of fiscal policy on GDP tend to be small: government spending multipliers larger than 1 can be estimated only in the US in the pre-1980 period. 2) There is no evidence that tax cuts work faster or more effectively than spending increases. 3) The effects of government spending shocks and tax cuts on GDP and its components have become substantially weaker over time; in the post-1980 period these effects are mostly negative, particularly on private investment. 4) Only in the post-1980 period is there evidence of positive effects of government spending on long interest rates. In fact, when the real interest rate is held constant in the impulse responses, much of the decline in the response of GDP in the post-1980 period in the US and UK disappears. 5) Under plausible values of its price elasticity, government spending typically has small effects on inflation. 6) Both the decline in the variance of the fiscal shocks and the change in their transmission mechanism contribute to the decline in the variance of GDP after 1980.
    Keywords: fiscal policy; Government Spending; taxes
    JEL: E62 E63 H50
    Date: 2005–01
  9. By: Conde-Ruiz, José Ignacio; Galasso, Vincenzo; Profeta, Paola
    Abstract: We provide a long-term perspective on the individual retirement behaviour and on the future of early retirement. In a cross-country sample, we find that total pension spending depends positively on the degree of early retirement and on the share of elderly in the population, which increase the proportion of retirees, but has hardly any effect on the per capita pension benefits. We show that in a Markovian political economic theoretical framework, in which incentives to retire early are embedded, a political equilibrium is characterized by an increasing sequence of social security contribution rates converging to a steady state and early retirement. Comparative statistics suggest that aging and productivity slow-downs lead to higher taxes and more early retirement. However, when income effects are factored in, the model suggests that periods of stagnation – characterized by decreasing labour income – may lead middle-aged individuals to postpone retirement.
    Keywords: lifetime income effect; pensions; politico-economic Markovian equilibrium; tax burden
    JEL: D72 H53 H55
    Date: 2005–01
  10. By: De Donder, Philippe; Hindricks, Jean
    Abstract: We study the political economy of social insurance in a world where individuals differ in both income and risk. Social insurance is financed through distortionary taxation and redistributes across income and risk. Individuals vote on social insurance that they can complement with insurance bought on the private market. Private insurance is actuarially fair but suffers from adverse selection, which results in a screening equilibrium with partial coverage. The equilibrium social insurance is the result of an electoral competition game where parties maximize the utility of their members. We calculate the equilibrium social insurance offered by the two parties as well as their equilibrium membership, and study how the equilibrium outcome is affected by electoral uncertainty, distortions from taxation, risk aversion and the distribution of risk and income. We then calibrate the model to US data from the PSID survey. Lastly, we study how the political demand for social insurance is affected by the possibility to redistribute through income taxation.
    Keywords: adverse selection; political economy; redistribution; social insurance
    JEL: H23 H50
    Date: 2005–01
  11. By: Bottazzi, Renata; Jappelli, Tullio; Padula, Mario
    Abstract: We estimate the effect of pension reforms on households’ expectations of retirement outcomes and private wealth accumulation decisions exploiting a decade of Italian pension reforms as a source of exogenous variation in expected pension wealth. Two parameters are crucial to estimate pension wealth: the age at which workers expect to retire and the expected ratio of pension benefits to pre-retirement income. The Survey of Household Income and Wealth, a large random sample of the Italian population, elicits these expectations during a period of intense pension reforms between 1989 and 2002. These reforms had different consequences for different cohorts and employment groups, providing a quasi-experimental framework to study the effect of social security arrangements on expectations of retirement outcomes and household saving decisions. Our main findings are that workers have revised expectations in the direction suggested by the reform and that there is substantial offset between private wealth and perceived pension wealth.
    Keywords: expectations; pension reform
    JEL: E21 H55
    Date: 2005–01
  12. By: van der Ploeg, Frederick
    Abstract: The macroeconomic effects of different ways of rolling back the welfare state are analysed. Cutting public spending on market goods induces a lower interest rate, a higher wage, a lower capital stock and a fall in employment. Cutting public employment or the labour income tax rate leads, in contrast, to a lower wage, a higher interest rate and a higher capital stock. Employment rises on impact. If the extra revenues of rolling back the welfare state are handed back via a lower tax rate rather than a lump-sum subsidy, both cutting public employment and cutting public spending on market goods induce an investment boom. Making the tax system less progressive by cutting tax credits and the labour income tax rate induces an investment boom as well. The effects of endogenous growth, adjustment costs for investment and non-Walrasian labour markets on these results are considered as well.
    Keywords: fiscal retrenchment; growth; investment; labour market; public employment
    JEL: D90 E20 E60 H30
    Date: 2005–02
  13. By: Huang, Haizhou; Wei, Shang-Jin
    Abstract: Weak public institutions, including high levels of corruption, characterize many developing countries. With a simple model, we demonstrate that institutional quality has important implications for the design of monetary policies and can produce several departures from the conventional wisdom. We find that a pegged exchange rate or dollarization, while sometimes prescribed as a solution to the problem of a lack of credibility, is typically not appropriate in developing countries with poor institutions. Such an arrangement is inferior to an optimal inflation targeting, or a Rogoff-style central banker, whose optimal degree of conservatism is proportional to the quality of institutions. Furthermore, our results cast doubt on the notion that a low inflationary target or a currency board can be used as an instrument to induce governments to strengthen quality of public institutions.
    Keywords: conservative central banker; corruption; currency board; dollarization; inflation targeting; institutional quality; monetary policy
    JEL: E52 E58 E61 E62 H50
    Date: 2005–02
  14. By: van der Ploeg, Frederick
    Abstract: Democratic countries with substantial inequality and where people believe that success depends on connections and luck induce political support for high tax rates and generous welfare states. Traditional wisdom is that such policies harm the economy, but there is not much evidence that countries with a large welfare state and substantial redistribution have worse economic performance and welfare. One important reason is that governments have been careful to invoke the principles of reciprocity and mutual obligations in the design of the welfare state. Unemployment benefits conditioned on work experience, no misconduct and search effort harm the economy less. Indeed, conditional benefits may even boost employment in an economy with efficiency wages. A second reason is that people care about relative incomes and become unhappy if others earn and consume much more than they do. This explains why people do not seem to get happier, even though societies grow richer and richer. With such consumer rivalry the government wishes to correct for the rat race, even if there is no need for redistribution, by taxing labour. A third reason is that in modern economies many distortions are present and removing one at a time may worsen economic performance. Conversely, increasing tax progression in economies with non-competitive labour markets induces wage moderation and boosts employment. A final reason is that countries with large welfare states typically introduce various pro-growth policies as well.
    Keywords: altruism; demand management; design of welfare state; happiness; mutual obligations; redistributive taxation; relative incomes; second best
    JEL: H20 H53 J50 J60
    Date: 2005–02
  15. By: Persson, Torsten
    Abstract: The paper combines insights from the recent research programs on constitutions and economic policy, and on history, institutions and growth. Drawing on cross-sectional as well as panel data, it presents new empirical results showing that the form of democracy (rather than democracy vs. non-democracy) has important consequences for the adoption of structural polices that promote long-run economic performance. Reforms into parliamentary (as opposed to presidential), proportional (as opposed to majoritarian) and permanent (as opposed to temporary) democracy appear to produce the most growth-promoting policies.
    Keywords: democratic institutions; economic performance; growth promoting policy
    JEL: F43 H11 O57
    Date: 2005–02
  16. By: Persson, Torsten; Persson, Mats; Svensson, Lars E O
    Abstract: This paper demonstrates how time consistency of the Ramsey policy (the optimal fiscal and monetary policy under commitment) can be achieved. Each government should leave its successor with a unique maturity structure for the nominal and indexed debt, such that the marginal benefit of a surprise inflation exactly balances the marginal cost. Unlike in earlier papers on the topic, the result holds for quite general Ramsey policies, including time-varying polices with positive inflation and positive nominal interest rates. We compare our results with those in Persson, Persson and Svensson (1987), Calvo and Obstfeld (1990), and Alvarez, Kehoe and Neumeyer (2004).
    Keywords: ramsey policy; surprise inflation; time consistency
    JEL: E31 E52 H21
    Date: 2005–03
  17. By: van Ours, Jan C; Vodopivec, Milan
    Abstract: This paper investigates the disincentive effects of the potential duration of unemployment insurance (UI) benefits. The disincentive effects are identified by exploiting changes in the UI system in Slovenia, which involved substantial reductions in the potential benefit duration and had characteristics of a ‘natural experiment’. We find that the change had a positive effect on the exit rate out of unemployment – both to employment and to other destinations – at various durations of unemployment spells and for many categories of unemployed workers.
    Keywords: job finding rates; potential benefit duration; unemployment insurance
    JEL: C41 H55 J64 J65
    Date: 2005–03
  18. By: Baldwin, Richard; Robert-Nicoud, Frédéric
    Abstract: This paper explores the impact of trade on growth when firms are heterogeneous. Our findings can be viewed as relevant to the trade and growth literature on one hand and the heterogeneous-firms trade theory on the other. Our main finding – that freer trade is both anti-growth and welfare worsening from a purely dynamic perspective – contrasts with most findings in the endogenous growth literature. We also show that market-entry costs are anti-growth, but heterogeneity per se is pro-growth. As concerns the heterogeneous-firms literature our main finding is a static-vs.-dynamic trade-off in terms of productivity gains. Freer trade raises measured productivity in a level sense but slows measured productivity growth.
    Keywords: dynamic versus static efficiency; heterogeneous firms; trade and endogenous growth
    JEL: H32 P16
    Date: 2005–03
  19. By: Forslid, Rikard
    Abstract: Using a simple monopoly model, this note analyses the incentives of a vaccine producer. Because a vaccine tends to eradicate the disease for which it is intended, it also tends to destroy its own market. This means that monopolistic producers may be tempted, in a socially non-optimal way, to delay the introduction of vaccines against new infections until the disease has spread.
    Keywords: vaccines
    JEL: D42 D62 H10 I18 L10
    Date: 2005–03
  20. By: Asplund, Marcus; Friberg, Richard; Wilander, Fredrik
    Abstract: While many studies have documented deviations from the Law of One Price in international settings, evidence is scarce on the extent to which consumers take advantage of price differentials and engage in cross border shopping. We use data from 287 Swedish municipalities to estimate how responsive alcohol sales are to foreign prices, and relate the sensitivity to the location’s distance to the border. Typical results suggest that the elasticity with respect to the foreign price is around 0.4 in the border region; moving 200 (400) kilometres inland reduces it to 0.2 (0.1). Given that cross-country price differences for alcohol and other products are often caused by taxes, our evidence has implications for the debate on tax competition/harmonization.
    Keywords: cross border shopping; european integration; law of one price; tax competition; tax harmonization
    JEL: F15 H20 H77 R12
    Date: 2005–04
  21. By: Beetsma, Roel; Debrun, Xavier
    Abstract: The paper proposes a theoretical analysis illustrating some key policy trade-offs involved in the implementation of a rules-based fiscal framework reminiscent of the Stability and Growth Pact (SGP). The analysis offers some insights on the current debate about the SGP. Specifically, greater ‘procedural’ flexibility in the implementation of existing rules may improve welfare, thus making the Pact more easily acceptable to euro area Member States. Here, procedural flexibility designates the enforcer’s room to apply well-informed judgment on the basis of underlying policies and to set a consolidation path that does not discourage high-quality policy measures. Yet budgetary opaqueness may hinder the qualitative assessment of fiscal policy, possibly destroying the case for flexibility. Also, improved budget monitoring and greater transparency increase the benefits from greater procedural flexibility. Overall, we establish that a fiscal pact based on a simple deficit rule with conditional procedural flexibility can simultaneously contain excessive deficits, lower unproductive spending and increase high-quality outlays.
    Keywords: deficits; fiscal rules; procedural flexibility; Stability and Growth Pact; structural reforms
    JEL: E62 H60
    Date: 2005–04
  22. By: Laroque, Guy; Salanié, Bernard
    Abstract: We attempt here to evaluate the sensitivity of fertility to financial incentives in France. We discuss and implement several estimation strategies; our main focus is on a structural model of female participation and fertility based on a microsimulation model of the tax-benefit system. We estimate this model on individual data from the Labor Force Survey. Our results suggest that financial incentives play a sizable role in determining fertility decisions in France.
    Keywords: benefits; fertility; incentives; population
    JEL: H53 J13 J22
    Date: 2005–04
  23. By: Gary-Bobo, Robert J.; Trannoy, Alain
    Abstract: A student's future log-wage is given by the sum of a skill premium and a random personal ‘ability’ term. Students observe only a private, noisy signal of their ability, and universities can condition admission decisions on the results of noisy tests. We assume first that universities are maximizing social surplus, and contrast the results with those obtained when they maximize rents. If capital markets are perfect, and if test results are public knowledge, then, there is no sorting on the basis of test scores. Students optimally self-select as a result of pricing only. In the absence of externalities generated by an individual's higher education, the optimal tuition is then greater than the university's marginal cost. If capital markets are perfect but asymmetries of information are bilateral, i.e., if universities observe a private signal of each student's ability, or if there are borrowing constraints, then, the optimal policy involves a mix of pricing and pre-entry selection based on the university's private information. Optimal tuition can then be set below marginal cost, and can even become negative, if the precision of the university's private assessment of students' abilities is high enough.
    Keywords: examinations; higher education; incomplete information; state subsidies; tuition fees
    JEL: D82 H42 I22 J24
    Date: 2005–04
  24. By: Gersbach, Hans
    Abstract: We develop democratic mechanisms where individual utilities are not observable by other people at the legislative stage. We show that an appropriate combination of three rules can yield efficient provision of public projects: first, flexible and double majority rules where the size of the majority depends on the proposal and verifiable parameters and taxed and non-taxed individuals need to support the proposal; second, flexible agenda costs where the agenda-setter has to pay a certain amount of money if his proposal does not generate enough supporting votes; third, a ban on subsidies. We provide a rationale why double majority rules are used in practice. We also show that higher degrees of uncertainty about project parameters can make it easier to achieve first-best allocations and that universal equal treatment with regard to taxation is undesirable.
    Keywords: democratic constitutions; double majority rules; flexible agenda cost rules; unobservable utilities
    JEL: D62 D72 H40
    Date: 2005–04
  25. By: Krueger, Dirk; Kubler, Felix
    Abstract: This paper studies an overlapping generations model with stochastic production and incomplete markets to assess whether the introduction of an unfunded social security system leads to a Pareto improvement. When returns to capital and wages are imperfectly correlated a system that endows retired households with claims to labour income enhances the sharing of aggregate risk between generations. Our quantitative analysis shows that, abstracting from the capital crowding-out effect, the introduction of social security represents a Pareto improving reform, even when the economy is dynamically efficient. However, the severity of the crowding-out effect in general equilibrium tends to overturn these gains.
    Keywords: aggregate fluctuations; incomplete markets; intergenerational risk sharing; social security reform
    JEL: D58 D91 E62 H31 H55
    Date: 2005–05
  26. By: Conesa, Juan Carlos; Krueger, Dirk
    Abstract: This paper computes the optimal progressivity of the income tax code in a dynamic general equilibrium model with household heterogeneity in which uninsurable labour productivity risk gives rise to a nontrivial income and wealth distribution. A progressive tax system serves as a partial substitute for missing insurance markets and enhances an equal distribution of economic welfare. These beneficial effects of a progressive tax system have to be traded off against the efficiency loss arising from distorting endogenous labour supply and capital accumulation decisions. Using a utilitarian steady state social welfare criterion we find that the optimal US income tax is well approximated by a flat tax rate of 17.2% and a fixed deduction of about $9,400. The steady state welfare gains from a fundamental tax reform towards this tax system are equivalent to 1.7% higher consumption in each state of the world. An explicit computation of the transition path induced by a reform of the current towards the optimal tax system indicates that a majority of the population currently alive (roughly 62%) would experience welfare gains, suggesting that such fundamental income tax reform is not only desirable, but may also be politically feasible.
    Keywords: flat taxes; optimal taxation; progressive taxation; social insurance; transition
    JEL: E62 H21 H24
    Date: 2005–05
  27. By: Bovenberg, A Lans; Jacobs, Bas
    Abstract: This paper analyzes optimal linear taxes on capital and labour incomes in a life-cycle model of human capital investment, financial savings, and labour supply with heterogenous individuals. A dual income tax with a positive marginal tax rate on not only labour income but also capital income is optimal. The positive tax on capital income serves to alleviate the distortions of the labour tax on human capital accumulation. The optimal marginal tax rate on capital income is lower than that on labour income if savings are elastic compared to investment in human capital; substitution between inputs in human capital formation is difficult; and most investments in human capital are verifiable. Numerical calculations suggest that the optimal marginal tax rate on capital income is close to the tax rate on labour income.
    Keywords: capital income taxation; education subsidies; human capital; labour income taxation; life cycle
    JEL: H2 H5 I2 J2
    Date: 2005–05
  28. By: Azam, Jean-Paul; Bates, Robert H; Biais, Bruno
    Abstract: Economic growth occurs as resources are reallocated from the traditional sector to the more productive modern sector. Yet, the latter is more vulnerable to political predation. Hence, political risk hinders development. We analyse a politico-economic game between citizens and governments, whose type (benevolent or predatory) is unknown to the citizens. In equilibrium, opportunistic governments mix between predation and restraint. As long as restraint is observed, political expectations improve and the economy grows. Once there is predation, the reputation of the current government is ruined and the economy collapses. If citizens are unable to overthrow this government, the collapse is durable. Otherwise, a new government is drawn and the economy can rebound. Equilibrium dynamics are characterized as a Markov chain. Consistent with stylized facts, equilibrium political and economic histories are random, unstable and exhibit long-term divergence. Our theoretical model also generates new empirical implications on the joint dynamics of income inequality, output and political variables.
    Keywords: Economic Development; Political Economy; political predation; reputation
    JEL: D82 H11 O00 O17
    Date: 2005–05
  29. By: Desmet, Raphael; Jousten, Alain; Perelman, Sergio
    Abstract: The pool of early retirees is characterized by a large heterogeneity along several criteria. The present paper focuses on the key distinction between those in forced early retirement and those who retire early by individual choice. We start by estimating a retirement probit model for older workers in Belgium. Based on these estimates, we then perform micro-simulations relating to a hypothetical actuarial reform of a pension system, i.e., a reform imposing on average actuarial neutrality with respect to the time of retirement. We explore two scenarios, one where the entire population is subjected to the actuarial system, and one where a duly screened sub-sample of the unemployed is shielded against these actuarial adjustment factors, a group we call the truly unemployed. We evaluate the impact on the average retirement age, the pension budgets as well as indicators of redistribution within the group of the elderly. We find that the extra budgetary gain of exposing this subgroup to the full-blown reform is modest, while the distributional cost is rather high. Our results thus comfort the idea that the budgetary cost of a focused unemployment system are moderate, and that returning the unemployment insurance to its primary role might be a desirable strategy.
    Keywords: inequality; older worker; retirement
    JEL: H31 I30 J14
    Date: 2005–05
  30. By: Bénabou, Roland; Kramarz, Francis; Prost, Corinne
    Abstract: We provide an assessment of the French ZEP (Zones d’Education Prioritaire), a programme started in 1982 that channels additional resources to schools in disadvantaged areas and encourages the development of new teaching projects. Focusing on middle-schools, we first evaluate the impact of the ZEP status on resources, their utilization (teacher bonuses versus teaching hours) and key establishments characteristics such as class sizes, school enrolments, teachers’ qualifications and experience, and student composition and mobility. We then estimate the impact of the ZEP programme on four measures of individual student achievement: obtaining at least one diploma by the end of schooling, reaching 8th grade, reaching 10th grade and success at the Baccalauréat. We take into account the endogeneity of the ZEP status by using both differences in differences and instrumental variables based on political variables. The results are the same in all cases: there is no impact on student success of the ZEP programme.
    Keywords: class size; disadvantaged schools; education policy; education production function; School finance
    JEL: H52 I21 I22
    Date: 2005–05
  31. By: Richard W. Kopcke
    Abstract: The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) essentially halved the tax rate on dividends and reduced the top tax rate on capital gains. This paper explores the likely effect of JGTRRA on the composition of returns on corporations’ common stock. Both larger corporations’ past behavior and theory suggest that the recent tax cuts are not likely to increase dividend payouts significantly. Instead, in the short run, dividends will continue to rise in the customary way in response to the recovery in earnings. In the longer run, the tax cuts will principally reduce companies’ cost of capital, fostering capital deepening, when the economy is at full employment. With constant returns to scale prevailing at full employment, capital deepening reduces corporations’ average gross return on assets and equity. Because the tax cuts increase the value of each dollar of earnings for shareholders, they could raise price-earnings ratios by more than 10 percent and stock prices by more than 6 percent. By fostering capital deepening, the tax cuts also tend to increase the real compensation of labor at full employment.
    Keywords: Taxation ; Dividends ; Stock - Prices
    Date: 2005
  32. By: Daniel J. Wilson
    Abstract: In this paper, I exploit the cross-sectional and time-series variation in R&D tax credits, and in turn the user cost of R&D, available from U.S. states between 1981-2002 to estimate the elasticity of private R&D with respect to both the within-state (internal) user cost and the out-of-state (external) user cost. To faciliate comparisons to previous studies of the R&D cost elasticity, I first estimate an R&D cost elasticity omitting external R&D costs; the estimated elasticity is negative, above unity (in absolute value), and statistically significant—a finding quite similar to that found by previous studies based on alternative data. Unlike previous studies, however, I then add the external R&D user cost to the regressions. I find the external-cost elasticity is positive and significant, raising concerns about whether having state-level R&D tax credits on top of federal credits is socially desirable. More importantly, I find the aggregate R&D price elasticity—the difference between the internal- and external-cost elasticities—is far smaller than previously estimated. In fact, the preferred specification yields a zero aggregate elasticity, suggesting a zero-sum game among states and raising questions about the efficacy of R&D tax credits more broadly.
    Keywords: Taxation ; Research and development
    Date: 2005
  33. By: Rochelle M. Edge; Jeremy B. Rudd
    Abstract: This paper uses a dynamic general-equilibrium model with a nominal tax system to consider the effects of temporary partial expensing allowances on investment and other macroeconomic aggregates.
    Keywords: Tax incentives ; Equilibrium (Economics)
    Date: 2005
  34. By: Lorraine Dearden (Institute for Fiscal Studies); Carl Emmerson (Institute for Fiscal Studies); Chris Frayne (Institute for Fiscal Studies); Costas Meghir (Institute for Fiscal Studies and University College London)
    Abstract: This paper evaluates whether means-tested grants paid to secondary students are an effective way of reducing the proportion of school dropouts. We look at this problem using matching techniques on a pilot study carried out in England during 1999 and 2000 using a specially designed dataset that ensures that valid comparisons between our pilot and control areas are made. The impact of the subsidy is quite substantial with initial participation rates (at age 16/17) being around 4.5 percentage points higher. Full-time participation rates one year later are found to have increased by around 6.4 percentage points which is largely due to the EMA having a significant effect on retention in post compulsory education. These effects vary by eligibility group with those receiving the full payment having the largest initial increase in participation, whilst the effects for those who are partially eligible are only significantly different from the control group in the second year of the program. There is some evidence that the participation rate effect is stronger for boys, especially in the second year, and that the policy goes some way to reducing the gap in dropout rates between boys and girls. It is also clear that the policy has the largest impact on children from the poorest socio-economic background.
    JEL: H52 I28 J24
    Date: 2005–06
  35. By: Thomas Piketty; Gilles Postel-Vinay; Jean-Laurent Rosenthal
    Abstract: Using large samples of estate tax returns we construct new series on wealth concentration in Paris and France from 1807 to 1994. Wealth concentration in Paris and in France increased until World War I and then fell abruptly. The rise in inequality prior to WWI accelerated (rather than stabilized) during the 1860-1913 period. This was largely driven by the growth of large industrial and financial estates and coincided with the decline of aristocratic fortunes (until the 1840s, the share of aristocrats and real estate in top estates was actually rising). The decline in wealth concentration that followed World War I appears to have been prompted by the 1914-1945 shocks rather than by a two-sector, Kuznets-type process. Inequality fell both in Paris and in the rest of France. Finally, individuals who lived on capital income rather than active entrepreneurs were responsible for the very high levels of wealth concentration observed on the eve of World War I. In the late nineteenth and early twentieth century top wealth holders were in their 70s and 80s, whereas they had been in their 50s in the early the nineteenth century and would be so again after WWII. These results shed new light on the ongoing debate about wealth inequality and growth in the presence of capital constraints.
    Keywords: wealth concentration, inequality
    JEL: J14 N20 H20
    Date: 2005–05
  36. By: Gene M. Grossman; Elhanan Helpman
    Abstract: Polities differ in the extent to which political parties can pre-commit to carry out promised policy actions if they take power. Commitment problems may arise due to a divergence between the ex ante incentives facing national parties that seek to capture control of the legislature and the ex post incentives facing individual legislators, whose interests may be more parochial. We study how differences in %u201Cparty discipline%u201D shape fiscal policy choices. In particular, we examine the determinants of national spending on local public goods in a three-stage game of campaign rhetoric, voting, and legislative decision-making. We find that the rhetoric and reality of pork-barrel spending, and also the efficiency of the spending regime, bear a non-monotonic relationship to the degree of party discipline.
    JEL: D72 H41
    Date: 2005–06
  37. By: John Joseph Wallis; Barry R. Weingast
    Abstract: Why did states dominate investments in economic development in early America? Between 1787 and 1860, the national government%u2019s $54 million on promoting transportation infrastructure while the states spent $450 million. Using models of legislative choice, we show that Congress could not finance projects that provided benefits to a minority of districts while spreading the taxes over all. Although states faced the same political problems, they used benefit taxation schemes -- for example, by assessing property taxes on the basis of the expected increase in value due to an infrastructure investment. The U.S. Constitution prohibited the federal government from using benefit taxation. Moreover, the federal government%u2019s expenditures were concentrated in collections small projects -- such as lighthouses and rivers and harbors -- that spent money in all districts. Federal inaction was the result of the equilibrium political forces in Congress, and hence an equilibrium impotence.
    JEL: N0 N4 N7 H1
    Date: 2005–06
  38. By: Alberto Alesina; George-Marios Angeletos
    Abstract: Bigger governments raise the possibilities for corruption; more corruption may in turn raise the support for redistributive policies that intend to correct the inequality and injustice generated by corruption. We formalize these insights in a simple dynamic model. A positive feedback from past to current levels of taxation and corruption arises either when wealth originating in corruption and rent seeking is considered unfair, or when the ability to engage in corruption is unevenly distributed in the population. This feedback introduces persistence in the size of the government and the levels of corruption and inequality. Multiple steady states exist in some cases.
    JEL: D31 E62 H2 P16
    Date: 2005–06
  39. By: Joshua Aizenman; Ilan Noy
    Abstract: The purpose of this paper is to investigate the intertemporal linkages between FDI and disaggregated measures of international trade. We outline a model exemplifying some of these linkages, describe several methods for investigating two-way feedbacks between various categories of trade, and apply them to the recent experience of developing countries. After controlling for other macroeconomic and institutional effects, we find that the strongest feedback between the sub-accounts is between FDI and manufacturing trade. More precisely, applying Geweke (1982)%u2019s decomposition method, we find that most of the linear feedback between trade and FDI (81%) can be accounted for by Granger-causality from FDI gross flows to trade openness (50%) and from trade to FDI (31%). The rest of the total linear feedback is attributable to simultaneous correlation between the two annual series.
    JEL: F15 F21 F36 H21
    Date: 2005–06
  40. By: Andrew G. Biggs; Jeffrey R. Brown; Glenn Springstead
    Abstract: This paper explains four methods of "price indexing" initial Social Security retirement benefits, and discusses the effect of each method on the fiscal sustainability of Social Security, benefit levels and replacement rates, redistribution, and sensitivity of system finances to demographic and economic shocks. Of these methods, PIA Factor Indexing would generate the largest cost savings while reducing benefit growth at approximately an equal rate for all income levels. Methods that index the AIME, the formula "bend points," or both, would reduce benefit growth at a slower rate and would have different effects on benefit distribution and system sustainability.
    JEL: H55 J14
    Date: 2005–06
  41. By: Tatiana Damjanovic
    Abstract: This paper investigates the relationship between the disparity in tax base and tax collection. I address the tax collection problem with traditional industrial organization approach. Thus, I model the "tax minimization" industry where the supplier helps taxpayers to avoid their tax liability. I find that lower income inequality as well as a less progressive tax code may result in a smaller number of tax payers committing to their tax duties. Finally, I question the reduction in the highest tax rate as a policy directed at the improvement of tax discipline.
    Keywords: Endogenous prices, tax collection, inequality, tax progressivity.
    JEL: H21 H23 H26
  42. By: Knut R. Wangen (Statistics Norway)
    Abstract: The seminal paper by Pissarides and Weber (1989) is one of several previous studies trying to measure the size of the black economy. Pissarides and Weber compared the relationship between food expenditure and income in two groups of workers, self-employed and employees in employment, assuming that employees reported income correctly. For a given level of reported income, the self-employed had a higher food expenditure than employees. Pissarides and Weber concluded that self-employed's actual income was 1.55 times reported income, and that this part of the black economy was about 5.5 percent of GDP in the UK in 1982. Presumably due to a too informal argumentation, Pissarides and Weber's estimators are not entirely correct and alternative estimators have been overlooked. In all, I suggest three different interval estimators for mean under-reporting. The first is obtained by formally solving optimization problems which Pissarides and Weber tried to solve informally. The other two follows from recognizing, and incorporating, parameter restrictions which were not fully appreciated.
    Keywords: Self-Employment; Under-Reporting of Income; Household Consumption; Black Economy; Informal Sector.
    JEL: D31 E21 H26 H31 J23 O17
    Date: 2005–04
  43. By: Dennis Fredriksen, Kim Massey Heide, Erling Holmøy and Ingeborg Foldøy Solli (Statistics Norway)
    Abstract: Ageing combined with generous welfare state schemes makes the present fiscal policy in Norway unsustainable, despite large government petroleum revenues. We estimate to what extent two suggested reforms of the public pension system improve fiscal sustainability and stimulate employment, two main objectives of the reforms. To this end we apply two large models iteratively: 1) a detailed dynamic micro simulation model to estimate government pension expenditures; 2) a large CGE-model to estimate general equilibrium effects on all tax bases and employment, i.e. macroeconomic effects. We find that the reform proposals have much larger effects than typically found for reforms of the tax and trade policy. Whereas maintaining the present system implies that the payroll tax rate must be increased from about 13 percent today to 25 percent in 2050, both proposals imply that taxes can be reduced from the present level in all years up to 2050. Most of this reduction can be attributed to higher employment.
    Keywords: Population ageing; Fiscal sustainability; Pension reforms; Computable general equilibrium model; Dynamic micro simulation
    JEL: H30 H55 H62
    Date: 2005–04
  44. By: Dennis Fredriksen and Nils Martin Stølen (Statistics Norway)
    Abstract: A much higher old-age dependency ratio together with more generous pension benefits will lead to a substantial increase in the future pension burden in Norway. The challenges of financing the increasing pension expenditures depend on the development in demographic characteristics like fertility, mortality and immigration, as well as characteristics affecting supply of labour, like education, disability, retirement age, participation rates and part time work (especially for women), and the design of the pension system. By use of a dynamic micro simulation model the paper analyses and projects how these factors will affect the expenditures and financing of the Norwegian National Insurance Scheme. The model also allows analyses of distributional effects of pension reforms.
    Keywords: Social security; pension expenditures; demographic forecasts; retirement
    JEL: H53 H55 J11 J14 J26
    Date: 2005–04
  45. By: Annette Alstadsæter, Ann-Sofie Kolm and Birthe Larsen (Statistics Norway)
    Abstract: This paper examines the effect of taxes on the individuals' choices of educational direction, and thus on the economy's skill composition. A proportional labour income tax induces too many workers with high innate ability to choose an educational type with high consumption value and low effort costs. This increases the skill mismatch and aggregate unemployment in the economy. The government can correct for this distortion by use of differentiated tuition fees or tax rates.
    Keywords: Unemployment; matching; education; optimal taxation; tuition fees
    JEL: J64 J68 H21 H24
    Date: 2005–01
  46. By: Fredrik Carlsen, Bjørg Langset and Jørn Rattsø (Statistics Norway)
    Abstract: The mobility of the tax base may influence fiscal outcomes. The many theoretical contributions about the role of mobility are not matched by empirical evidence. Existing studies address strategic interaction between governments, but have little to say about mobility. We introduce a new measure of mobility conditions based on the geographic profit variability of industrial sectors. The econometric analysis shows a systematic negative relationship between mobility conditions and tax level among municipalities in Norway. The analysis takes into account neighborhood effects in a spatial model, and the endogeneity of mobility conditions is handled with instrumental variables.
    Keywords: Fiscal competition; mobility; local taxation
    JEL: H71 H72 H73 C21
    Date: 2005–06
  47. By: Louise C. Keely; Chih Ming Tan
    Abstract: Particular demographic groups are often associated with distinct points of view across various dimensions of redistribution policy. In this paper, we investigate which demographic groups account for heterogeneity in views on welfare policy and views on appropriate levels of overall redistribution. Using data from the General Social Survey and classification tools, we find evidence that classifications of the population by race, socioeconomic status, and age have some predictive power. However, much heterogeneity in views on redistribution policy persists even within these demographic groupings and remains unexplained. Our results suggest that identity-based explanations for variations in these views have to be interpreted with caution.
    Keywords: Data mining, classification and regression trees, random forests, redistribution preferences, welfare, identity
    JEL: C45 C49 H50 H53
    Date: 2005
  48. By: David Kiefer
    Abstract: In the new Keynesian model of endogenous stabilization governments react quickly to lean against the macroeconomic wind. Governments have ideological objectives with respect to macroeconomic performance, but are constrained by an augmented Phillips curve. Voter influence on macroeconomic policy should be noticeable during election years, when the government and voters disagree about goals. We offer an econometric test of this principal-agent characterization of government control of the political-economic equilibrium and voter control over their governments. This methodology yields an inferences about the functional form of stabilization preferences, the stabilization ideology of Left and Right governments, and possibility a measure of voter ideology.
    Keywords: Stabilization; philips curve; public policy
    Date: 2005–03
  49. By: Alexis Belianin (International College of Economics & Finance ICEF , . Higher School of Economics); Marco Novarese (Centre for Cognitive Economics - Università del Piemonte Orientale)
    Abstract: This paper reports a novel cross-cultural public goods game experiment played in real time through Internet. Web-based software was used to compare the contributions to public good of different groups of participants: mixed, consisting of both Italians (students in law and economics) and Russians (students in economics), as well as all-Italian and all-Russian groups. This setup allows for testing for a number of effects, including participants’ awareness of the group composition in terms of nationality and gender of group members; possibility of coordination of one’s strategy during a cheap talk session organized before some of the games was used as an additional control. Our results show that the degree of cooperation is rather high, but does not vary significantly with nationalities of the group members, while communication tends to enhance contributions to public goods. A notable difference between the subjects representing the two nations is an overly strong and increasing cooperativeness of the Russian female participants in contrast to that of the Russian men, as well as the Italians.
    JEL: C9
    Date: 2005–06–01
  50. By: Productivity Commission
    Abstract: The commissioned study into the ageing of Australia’s population was released April 2005. The Commission found that one quarter of Australians will be aged 65 years or more by 2044-45, roughly double the present proportion. This gives rise to significant policy challenges. The Commission maintains that policy responses would have to be broad and at all levels of government. Policy measures will be needed to reduce the fiscal pressure from ageing and/or to finance the fiscal gap. Reforms would be needed in key human service areas, such as health and aged care, where the pressures of an ageing population will impact most. The resulting fall in labour force participation would also need to be addressed. The Commission shows that raising labour force participation and productivity can partly offset the impacts of an ageing population. These would enhance income growth, helping to sustain economic growth and living standards, and increase the capacity to ‘pay’ for the costs of ageing, as well as through taxation.
    Keywords: ageing, health, aged care, labour force, labour supply, economic growth, policy measures, productivity, demographic trends,
    JEL: H
    Date: 2005–06–06
  51. By: Yasuhito Tanaka (Doshisha University)
    Abstract: Some aspects of social choice theory
    JEL: D6 D7 H
    Date: 2005–06–06
  52. By: Yasuhito Tanaka (Doshisha University)
    Abstract: Algebraic topology and social choice theory
    JEL: D6 D7 H
    Date: 2005–06–06
  53. By: Yasuhito Tanaka (Chuo University)
    Abstract: Development of social choice theory
    JEL: D6 D7 H
    Date: 2005–06–06
  54. By: Yasuhito Tanaka (Chuo University)
    Abstract: Basics of social choice theory
    JEL: D6 D7 H
    Date: 2005–06–06
  55. By: Jean-Pierre Tranchant (CERDI-Université d'Auvergne)
    Abstract: In order to analyze conflict and cooperation between a State and a non ruling group in a general equilibrium, I unite pure rent-seeking models and economic models of conflict under an assumption of incomplete property rights. I show that a unique and globally stable Nash equilibrium exists in this game. Cooperation breakdowns appear to be twofold: generalized conflict driven by a collapse of the State and one- sided rebellion due to the coexistence between a strong State and a weak minority. Natural resources increase the conflict intensity but raise also the cost of rebellion for the ruler inducing this one to be more benevolent toward his minority.
    Keywords: Incomplete Property Rights, Rent-Seeking, Redistribution, Civil Conflict
    JEL: C72 D30 H10
    Date: 2005–06–08
  56. By: Paul Lewin; Krister Andersson
    Keywords: Chile, Gasto Público, Insentivos, gobiernos locales, municipalidades
    JEL: D6 D7 H
    Date: 2005–06–08
  57. By: Alberto Chilosi (Department of Economics University of Pisa)
    Abstract: Edward P. Lazear‘s thesis that “personal accounts are more consistent with economic principles, avoid government moral hazard, and provide more security than government Social Security” is unsound. The same applies to a number of other statements that are made in the process of expounding the main thesis.
    Keywords: Personal accounts, social security, pensions
    JEL: D6 D7 H
    Date: 2005–06–09
  58. By: W. Robert Reed (University of Oklahoma); Cynthia L. Rogers (University of Oklahoma)
    Abstract: The Whitman Administration’s 30 percent reduction in New Jersey’s personal income taxes from 1994-96 is prominently cited as a role model for state fiscal policy. We investigate whether the growth benefits attributed to the Whitman tax cuts are warranted. Panel data methods are applied to annual observations of county-level employment growth from New Jersey and the surrounding economic region. Our analysis does not support the hypothesis that tax cuts stimulated employment growth in New Jersey. While New Jersey did experience substantial employment growth subsequent to the tax cuts, most of this growth was shared by the nearby Economic Areas.
    Keywords: Tax cuts, economics growth
    JEL: R58 H71 H24
    Date: 2005–06–08
  59. By: Andrew Hughes Hallett (Department of Economics, Vanderbilt University); John Lewis (Tallinn Technical University and Bank of Estonia)
    Abstract: This paper studies the evolution of European fiscal policies and the attempts at budgetary consolidation through three periods: the pre-Maastricht phase (to 1991); the run up to monetary union (1992-97), and finally the stability pact phase (1998 onwards). Using three separate indicators ­ the probability of undertaking a consolidation, the degree to which it is sustained, and the probability of exceeding a specified deficit limit ­ we search for structural breaks which could signify a change in the average level of fiscal discipline in these periods. We find increased discipline only up to 1997. Thereafter discipline erodes to the extent that, by 2005, there is less discipline than before the Maastricht process started. We conclude the new fiscal discipline was temporary; a product of the sanction of being denied entry to the Euro, and that EMU itself has had no impact on discipline (in the absence of that sanction). Our methodological innovation is to show the importance of the dynamics of fiscal behaviour: step dummies for changes in the average level of discipline, and trend dummies to capture any decline/increase relative to that average. A single structural break test will miss these dynamic effects, and may generate the erroneous conclusion that fiscal discipline had tightened since the start of phase two of EMU.
    Keywords: Fiscal consolidation, probit regressions, dynamic structural breaks
    JEL: H50 H61 E65
    Date: 2005–05
  60. By: Jorge Blazquez (BBVA); Jose M. Martin-Moreno (Departamento de Fundamentos de Analisis Economico e Historia Economica. Universidad de Vigo.)
    Abstract: Dual inflation takes place when prices increases in non-tradable goods are higher than those of tradable goods. In this paper, we develop a model where public spending has a positive externality on the production of those sectors. The main results suggested by the paper are the following: 1)An increase in non-productive public spending does not generate dual inflation, as the usual Balassa-Samuelson result states and 2) An increase in productive public spending raises the productivity of those sectors and this can result in dual inflation, dual deflation or no effect on prices. Dual inflation only takes place when public spending has a bigger effect on the production technology of the tradable sector than on the non-tradable one.
    Keywords: Dual inflation, productive public spending, competitiveness
  61. By: Friedrich Schneider
    Abstract: Estimations of the size and development of the shadow economy for 145 countries, including developing, transition and highly developed OECD economies over the period 1999 to 2003 are presented. The average size of the shadow economy (as a percent of “official” GDP) in 2002/03 in 96 developing countries is 38.7%, in 25 transition countries 40.1%, in 21 OECD countries 16.3% and in 3 Communist countries 22.3%. An increased burden of taxation and social security contributions, combined with a labor market regulation are the driving forces of the shadow economy. Finally, the various estimation methods are discussed and critically evaluated.
    Keywords: shadow economy of 145 countries; tax burden; tax moral; quality of state institutions; regulation; DYMIMIC and other estimation methods
    JEL: O17 O5 D78 H2 H11 H26
    Date: 2005–06
  62. By: Shizuka Sekita (Graduate School of Economics, Osaka University)
    Abstract: This paper calculates effective tax rates on capital income (interest, dividends, and capital gains on equities) in Japan and analyzes the impact of the revision of the Small Saving Tax Exemption for interest income (the so-called Maruyu System) on Japanese household portfolios. My contributions are as follows: (1) I am the first to calculate effective tax rates on interest, dividends, and capital gains on equities from 1973 to 2001 and calculate the effective tax rates on assets to which the exemption applies (Maruyu assets) and those on assets to which the exemption does not apply (non-Maruyu assets). As a result, I found that (2) before the 1988 revision of the exemption, Maruyu assets such as bank and postal savings deposits were given more preferable tax treatment than non-Maruyu assets such as equities, as is the general perception in Japan, but after the 1988 revision, the situation became reversed, with non-Maruyu assets being given more preferable tax treatment than Maruyu assets. Moreover, (3) I use effective tax rates by age group in the empirical analysis, taking into account for the first time the amount of principal that is tax-exempt, and (4) I estimate asset demand equations by three-stage least squares to deal with the endogeneity of rates of return, which is so far not taken into account in analyses of the revision of Maruyu system and household portfolios in Japan. And (5) I calculate the amount of the change in holdings of each asset that is caused by the 1988 and 2006 revisions of the Maruyu system, and it turns out that not only the 1988 revision of the exemption but also the 2006 revision will promote a shift in household portfolios away from Maruyu assets and toward non-Maruyu assets, as expected, but that the magnitude of the impact of the 2006 revision is much less considerable than that of the 1988 revision in the short run as well as the long run.
    Keywords: Effective tax rates; Household asset allocation; Taxation
    JEL: G11 H31
    Date: 2005–06
  63. By: Yutaro Murakami (Graduate School of Economics, Osaka University)
    Abstract: This paper constructs a two-region endogenous growth model with productive government expenditure to analyze the relationship between regional redistribution of public input and the welfare of residents in each region. This paper shows that the redistribution policy may be Pareto improving if the distribution rate of a more populous region is increased because it raises the equilibrium growth rate. Furthermore, the higher the inequalities between the labor populations are, the greater the possibility of a Pareto improving policy.
    Keywords: Endogenous growth; Government expenditure; Regional distribution; Welfare; Pareto improving policy
    JEL: H53 O41 R58
    Date: 2005–03

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