nep-pbe New Economics Papers
on Public Economics
Issue of 2005‒07‒25
eighteen papers chosen by
Kerim Arin
Massey University

  1. The Economics of Workaholism: We Should Not Have Worked on This Paper By Daniel S. Hamermesh; Joel Slemrod
  2. Contracting Out Public Service Provision to Not-For-Profit Firms By John Bennett; Elisabetta Iossa
  3. Leading by example in a public goods experiment with heterogeneity and incomplete information By M. Vittoria Levati; Matthias Sutter; Eline van der Heijden
  4. Una aproximación al financiamiento de un sistema de protección social en Colombia By Olga Lucía Acosta; Luis Fernando Gamboa Niño
  5. Optimum Income Taxation and Layoff Taxes By Pierre Cahuc; André Zylberberg
  6. Decentralization and the Productive Efficiency of Government: Evidence from Swiss Cantons By Iwan Barankay; Ben Lockwood
  7. Merger Policy to Promote Global Players? A Simple Model By Haufler, Andreas; Nielsen, Soren Bo
  8. Sustainability of the Slovenian Pension System: An Analysis with an Overlapping-generations General Equilibrium Model By Miroslav Verbic; Boris Majcen; Renger van Nieuwkoop
  10. The size and performance of public sector activities in Europe By Heinz Handler; Bertrand Koebel; Philipp Reiss; Margit Schratzenstaller
  11. Optimal Commodity Taxation When Land and Structures Must Be Taxed at the Same Rate By Saku Aura; Thomas Davidoff
  12. The Reform of Local Taxation in the United Kingdom in the Light of The Balance of Funding Review Report. By Fender, John.
  13. Optimal Income Taxation, Public-Goods Provision and Public-Sector Pricing: A Contribution to the Foundations of Public Economics By Martin Hellwig
  14. Non-Linear Strategies in a Linear Quadratic Differential Game By Rowat, Colin
  15. Altruism and charitable giving in a fully replicated economy By Thomas Gaube
  16. Second-Best Pollution Taxation and Environmental Quality By Thomas Gaube
  17. The Role of Choice in Social Dilemma Experiments By Frank P. Maier-Rigaud; Jose Apesteguia
  18. Social Dilemmas, Revisited from a Heuristics Perspective By Christoph Engel

  1. By: Daniel S. Hamermesh (University of Texas at Austin, NBER and IZA Bonn); Joel Slemrod (University of Michigan and NBER)
    Abstract: A large literature examines the addictive properties of such behaviors as smoking, drinking alcohol and eating. We argue that for some people addictive behavior may apply to a much more central aspect of economic life: working. Workaholism is subject to the same concerns about the individual as other addictions, is more likely to be a problem of higher-income individuals, and can, under conditions of jointness in the workplace or the household, generate negative spillovers onto individuals around the workaholic. Using the Retirement History Survey and the Panel Study of Income Dynamics, we find evidence that is consistent with the idea that high-income, highly educated people suffer from workaholism with regard to retiring, in that they are more likely to postpone earlier plans for retirement. The theory and evidence suggest that optimal policy involves a more progressive tax system than in the absence of workaholism.
    Keywords: addiction, retirement, labor supply, tax policy
    JEL: J26 H21
    Date: 2005–07
  2. By: John Bennett; Elisabetta Iossa
    Abstract: In an incomplete contract setting, we analyze the contracting out of public service provision, comparing the performance of for-profit and not-for-profit private firms. Two institutional arrangements are considered, control rights lying either with the firm as under the UK’s Private Finance Initiative (PFI) or the government (as under traditional procurement). We derive the conditions under which provision by not-for-profit firms leads to greater investment and social benefit than provision by for profit firms. The role played by the non-distribution constraint in not-for profit firms and the nature of the investment are emphasized.
    Keywords: contracting out, not-for-profit firms, private finance initiative, public-private partnership, incomplete contracts, public service provision
    JEL: H41 L31 L33
    Date: 2005–06
  3. By: M. Vittoria Levati; Matthias Sutter; Eline van der Heijden
    Abstract: We study the effects of leadership on the private provision of a public good when group members are heterogeneously endowed. Leadership is implemented as a sequential public goods game where one group member contributes first and all the others follow. Our results show that the presence of a leader increases average contribution levels, but less so than in case of homogeneous endowments. Leadership is almost ineffective, though, if subjects do not know the distribution of endowments. Granting the leaders exclusion power does not lead to significantly higher contributions.
    Keywords: public goods experiment, leadership, exclusion, heterogeneous endowments, incomplete information
    JEL: C72 C92 H41
    Date: 2005–07
  4. By: Olga Lucía Acosta; Luis Fernando Gamboa Niño
    Abstract: El documento hace una revisión de las principales fuentes de protección social que hay en Colombia y las características de los sistemas de protección de otros países. Se encuentra que gran parte de lo que se conoce como gasto social se destina al tema pensional y que los resultados de los fondos de solidaridad son muy pequeños frente a la autoprotección de los hogares. Se propone tener en cuenta los esfuerzos individuales y privados que hay en Colombia al diseñar un sistema de protección social, pues de lo contrario se estarían desincentivando estos esfuerzos.
    Keywords: Protección Social
    JEL: H11
    Date: 2005–06–01
  5. By: Pierre Cahuc (CREST-INSEE, University of Paris 1, CEPR and IZA Bonn); André Zylberberg (EUREQua, University of Paris 1 and CNRS)
    Abstract: This paper analyzes optimum income taxation in a model with endogenous job destruction that gives rise to unemployment. It is shown that optimal tax schemes comprise both payroll and layoff taxes when the state provides public unemployment insurance and aims at redistributing income. The optimal layoff tax is equal to the social cost of job destruction, which amounts to the discounted value of the sum of unemployment benefits (that the state pays to unemployed workers) and payroll taxes (that the state does not get when workers are unemployed). Our quantitative analysis suggests that the introduction of layoff taxes, that are usually absent from actual tax schemes, could lead to significant increases in employment and GDP.
    Keywords: layoff taxes, optimal taxation, job destruction
    JEL: H21 H32 J38 J65
    Date: 2005–07
  6. By: Iwan Barankay; Ben Lockwood
    Abstract: Advocates of fiscal decentralization argue that amongst other benefits, it can increase the productive efficiency of delivery of government services. This paper is one of the first to evaluate this claim empirically by looking at the association between expenditure decentralization and the productive efficiency of government using a data-set of Swiss cantons. We first provide careful evidence that expenditure decentralization is a powerful proxy for factual local autonomy. Further panel regressions of Swiss cantons provide robust evidence that more decentralization is associated with higher educational attainment. We also show that these gains lead to no adverse effects across education types but that male students benefited more from educational decentralization closing, for the Swiss case, the gender education gap. Finally, we present evidence of the importance of competence in government and how it can reinforce the gains from decentralization.
    Date: 2005–07–19
  7. By: Haufler, Andreas; Nielsen, Soren Bo
    Abstract: We use a simple framework where firms in two countries serve their respective domestic markets and a world market to analyze under which conditions cost-reducing mergers will be beneficial for the merging firms, the home country, and the world as a whole. For a national merger, the policies enacted by a national merger authority tend to be overly restrictive from a global efficiency perspective. In contrast, all international mergers that benefit the merging firms will be cleared by either a national or a regional regulator, and this laissez-faire approach is also globally efficient. Finally, we derive the properties of the endogenous merger equilibrium.
    JEL: H77 F13 L41
    Date: 2005–07
  8. By: Miroslav Verbic (Institute for Economic Research Ljubljana); Boris Majcen (Institute for Economic Research Ljubljana); Renger van Nieuwkoop (ECOPLAN Berne)
    Abstract: The article presents an analysis of welfare effects in Slovenia, an analysis of macroeconomic effects of the Slovenian pension reform and an analysis of effects of the pension fund deficit on sustainability of Slovenian public finances with a dynamic OLG general equilibrium model. It has been established that while young generations and new generations will lose from the pension reform, even complete implementation of the reform might not be sufficient to compensate unfavourable demographic developments. The level of expected deficit of the PAYG-financed state pension fund seems to be most worrying. Financing the pension system with VAT revenues as an extreme case could result in more sustainable public finances, since GDP and welfare levels ought to increase, yet this might be infeasible to implement politically, given that the generations of voters would have their welfare decreased. In addition, the present pension system is intransparent and tremendously complicated and should primarily be made more comprehensible to the public.
    Keywords: general equilibrium models, macroeconomic effects, OLG-GE, PAYG, pension system, sustainability of public finances, Slovenia, welfare analysis
    JEL: C68 D58 D61 D91 E62 H55
    Date: 2005–07–19
  9. By: Piero Cipollone (BANK OF ITALY); Corrado Di Maria (Tilburg University); Anita Guelfi (Confindustria)
    Abstract: A long-standing economic tradition maintains that labour supply reacts to market tightness; its sensitivity to job quality has received less attention. If firms hire workers with both temporary and open-end contracts, does participation increase when more permanent jobs are available? We investigate this relationship within a policy evaluation framework; in particular, we examine how labour supply reacted in Italy to a recent subsidy in favour of open-end contracts. This subsidy increased labour force participation by 1.4% in 2001 and 2.1% in 2002. This increase was concentrated on males aged 35-54, with a low or at most a secondary schooling level, and might be due to the choice to leave undegraound economy.
    Keywords: labour supply, program evaluation, temporary contracts, open-end contracts, shadow economy
    JEL: D78 H25 J22 J38
    Date: 2005–06
  10. By: Heinz Handler (Austrian Institute of Economic Research); Bertrand Koebel (University of Strasbourg); Philipp Reiss (University of Madgeburg); Margit Schratzenstaller (Austrian Institute of Economic Research)
    Abstract: The obvious difference in the economic performance of countries has led to the question why some countries are so much wealthier than others, and whether the size, the structure, and the organisation of the public sector contribute to cross-country income and growth gaps. Public sector activities may have an effect on overall productivity and growth either directly by the level and changes of productivity within the public sector, or indirectly by triggering off productivity changes in private production. This paper is concerned with the former aspect. It provides an overview of the size and the structure of the public sector in Europe and compares it with the US and Japan. This is related to the more recent empirical literature on public sector performance. After reviewing some of the measurement issues related to public services, the evidence on the size of government and its performance is analysed. The results on industrial countries are not fully conclusive, but seem to attribute more efficiency to smaller rather than to larger governments. Public sector reforms to consolidate the size of government are therefore likely to enhance the sector's own productivity and thereby positively contribute to overall economic performance.
    Keywords: public sector size, performance of public sector
    JEL: D6 D7 H
    Date: 2005–07–19
  11. By: Saku Aura (Department of Economics, University of Missouri-Columbia); Thomas Davidoff
    Abstract: We show that the optimal property tax rate rises with the ratio of land rents to structure and land development costs. California’s high ratio of income to property tax revenue and the distribution of Federal housing subsidies thus appear geographically misplaced. Proportional taxation of non-housing commodities is not optimal, even when elasticities with respect to wages are identical. Absent externalities, the desirability of transportation taxes and“anti-sprawl” growth controls hinge on the relative importance of time versus money in commuting costs.
    Keywords: Property Taxes, Henry George Theorem
    JEL: H21 R13
    Date: 2005–07–19
  12. By: Fender, John.
    Abstract: Currently, local authorities in the UK raise only about a quarter of their revenues from taxes under their control. The Balance of Funding Review Report considered whether this proportion should be increased, and if so, how. This paper considers the report and possible reforms. Reasons why the balance of funding is a problem are discussed. However, there are problems with the current system apart from the balance of funding, and to solve some of these a closer link between council tax bills and property values is suggested. Whether a local income tax should be introduced as a supplement to a reformed council tax, and other possible reforms, are also discussed.
    Keywords: Balance of funding, property tax, business rates, local income tax
    Date: 2005–01
  13. By: Martin Hellwig (Max Planck Institute for Research on Collective Goods, Bonn, Germany)
    Abstract: The paper develops an integrated model of optimal nonlinear income taxation, public-goods provision and pricing in a large economy. With asymmetric information about labour productivities and publicgoods preferences, the multidimensional mechanism design problem becomes tractable by requiring renegotiation proofness of the final allocation of private goods and admission tickets for excludable public goods. Under an affiliation assumption on the underlying distribution, optimal income taxation, public-goods provision and admission fees have the same qualitative properties as in unidimensional models. These properties are obtained for utilitarian welfare maximization and for a Ramsey-Boiteux formulation with interim participation constraints.
    Keywords: Optimal Income Taxation, Public Goods, Public-Sector Pricing, Multidimensional Mechanism Design, Ramsey-Boiteux Pricing
    JEL: D82 H20 H40
    Date: 2004–11
  14. By: Rowat, Colin
    Abstract: We study non-linear Markov perfect equilibria in a two agent linear quadratic differential game. In contrast to the literature owing to Tsutsui and Mino (1990), we do not associate endogenous subsets of the state space with candidate solutions. Instead, we address the problem of unbounded-below value functions over infinite horizons by use of the 'catching up optimality' criterion. We present sufficiency conditions for existence based on results in Dockner, Jorgenson, Long, and Sorger (2000). Applying these to our model yields the familiar linear solution as well as a condition under which a continuum of non-linear solutions exist. As this condition is relaxed when agents are more patient, and allows more efficient steady states, it resembles a Folk Theorem for differential games. The model presented here is one of atmospheric pollution; the results apply to differential games more generally.
    Keywords: Differential game, Non-Linear Strategies, Catching up Optimal, Folk Theorem
    JEL: C61 C73 H41 Q00
    Date: 2005–01
  15. By: Thomas Gaube (Max Planck Institute for Research on Collective Goods, Bonn, Germany)
    Abstract: In this paper, an economy is analyzed where one group of agents, the altruists, cares about the well-being of another group of agents, the recipients. It is asked how changes in the size of these groups affect the altruists’ charitable giving in the Nash equilibrium. I show that a pure group size effect, i.e., a proportional expansion of both subgroups can lead to less free riding and to a lower degree of underprovision relative to the efficient level of charitable giving.
    Keywords: altruism, public goods, group size, charitable giving
    JEL: D64 H41
    Date: 2005–04
  16. By: Thomas Gaube (Max Planck Institute for Research on Collective Goods, Bonn, Germany)
    Abstract: This paper deals with second-best pollution taxation by investigating allocations instead of the corresponding tax rates. Assuming certain restrictions on utility and that the marginal revenue from environmental taxation is positive, it is shown that environmental quality is higher in second best where only distortionary taxes are used to finance public expenditures than in the first-best optimum where lump-sum taxes are available.
    Keywords: environmental taxation, public goods
    JEL: H21 H41
    Date: 2005–04
  17. By: Frank P. Maier-Rigaud (Max Planck Institute for Research on Collective Goods, Bonn, Germany); Jose Apesteguia
    Abstract: On the basis of problems related to asymmetric information, self-governance has been proposed and often empirically found to be superior to the external imposition of rules in social dilemma situations. The present paper suggests and experimentally analyses a different line of argument, namely to what extent behavioral aspects can explain these findings. We study this hypothesis using the simplest, most general dilemma form: the prisoner’s dilemma (PD). We compare behavior when players are given the possibility of choosing between two different representations of the same PD, to behavior when players are externally assigned to play a specific game. We find that cooperation rates are significantly higher in the games that were chosen.
    Keywords: Freedom of Choice, Self-governance, Social Dilemmas, Framing
    JEL: H41 C90 C91
    Date: 2003–09
  18. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn, Germany)
    Abstract: The standard tool for analysing social dilemmas is game theory. They are reconstructed as prisoner dilemma games. This is helpful for understanding the incentive structure. Yet this analysis is based on the classic homo oeconomicus assumptions. In many real world dilemma situations, these assumptions are misleading. A case in point is the contribution of households to climate change. Decisions about using cars instead of public transport, or about extensive air conditioning, are typically not based on ad hoc calculation. Rather, individuals rely on situational heuristics for the purpose. This paper does two things: it offers a model of heuristics, in the interest of making behaviour that is guided by heuristics comparable to behaviour based on rational reasoning. Based on this model, the paper determines the implications for the definition of social dilemmas. In some contexts, the social dilemma vanishes. In other contexts, it must be understood, and hence solved, in substantially different ways.
    Keywords: Heuristic, Social Dilemma, Public Good, Prisoner’s Dilemma
    JEL: A12 A13 C91 D62 H41 K32

This nep-pbe issue is ©2005 by Kerim Arin. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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