nep-pbe New Economics Papers
on Public Economics
Issue of 2005‒09‒17
twelve papers chosen by
Peren Arin
Massey University

  1. Searching for Non-Monotonic Effects of Fiscal Policy: New Evidence By Francesco Giavazzi; Tullio Jappelli; Marco Pagano; Marina Benedetti
  2. Why Are Some Public Officials more Corrupt Than Others? By Jennifer Hunt
  3. Globalization and International Conflict: Can FDI Increase Peace? By Solomon Polachek; Carlos Seiglie; Jun Xiang
  4. Decentralization with Property Taxation to Improve Incentives: Evidence from Local Governments’ Discrete Choice By Jørn Rattsø; Jon Hernes Fiva
  5. Tax Effects of Unemployment and the Choice of Educational Type By Alstadsæter, Annette; Kolm, Ann-Sofie; Larsen, Birthe
  6. Property Taxation as a Determinant of School District Efficiency By Marte Rønning; Jon Hernes Fiva
  7. Under-reporting of Income and Labor Market Performance By Kolm, Ann-Sofie; Nielsen, Søren Bo
  8. Tax Reform and Environmental Taxation By Gilbert E. Metcalf
  9. The Economic Effects of Judicial Accountability. Some Preliminary Insights. By Stefan Voigt
  10. Social Security Incentives, Human Capital Investment and Mobility of Labor By Panu Poutvaara
  11. European Asylum Policy By Timothy J. Hatton
  12. Evaluating Dominance Ranking of PSID Incomes by Various Household Attributes By Esfandiar Maasoumi; Almas Heshmati

  1. By: Francesco Giavazzi; Tullio Jappelli; Marco Pagano; Marina Benedetti
    Abstract: Data revisions and the availability of a longer sample offer the opportunity to reconsider the empirical findings that suggest that in the OECD countries national saving responds non-monotonically to fiscal policy. The paper confirms that the circumstance most likely to give rise to a non-monotonic response of national saving to a fiscal impulse is a "large and persistent impulse", defined as one in which the full employment surplus, as a percent of potential output, changes by at least 1.5 percentage points per year over a two-year period. This particular circumstance remains the only statistically significant one even when we allow for non-monotonic responses to arise when public debt is growing rapidly or interest rate spreads are widening. We find that non-monotonic responses are similar for fiscal contractions and expansions. In particular, an increase in net taxes has no effect on national saving during large fiscal contractions or expansions. For government consumption there is a large, albeit in some specifications less then complete, offset during expansions or contractions.
    JEL: E21 E62 H31
    Date: 2005–09
  2. By: Jennifer Hunt
    Abstract: Using detailed Peruvian data measuring bribery, I assess which types of public official are most corrupt and why. I distinguish between the bribery rate and the size of bribes received, and seek to explain the variation in each across public institutions. The characteristics of officials’ clients explain most of the variation for bribery rates, but none for bribe amounts. A measure of the speed of honest service at the institution explains much of the remaining variation for both bribery rates and amounts. The results indicate that the bribery rate is higher at institutions with bribe-prone clients, and that bribery rates and bribe amounts are higher where clients are frustrated at slow service. Faster and better service would reduce corruption. Overall, the judiciary and the police are by far the most corrupt institutions.
    JEL: K4 H4
    Date: 2005–09
  3. By: Solomon Polachek; Carlos Seiglie; Jun Xiang
    Abstract: This paper extends the analysis of the conflict-trade relationship by introducing foreign direct investment (FDI). We present a formal model that shows why FDI can improve international relations. We then proceed to test the model empirically. Our empirical results in fact show that foreign direct investment plays a similar role to trade in affecting international interactions. More specifically, we find that the flow of FDI has reduced the degree of international conflict and encouraged cooperation between dyads during the period of the late 1980 and the decade of the 90s. This is an especially important finding since one of the main characteristics of globalization has been the reduction of barriers to international capital flows. As a consequence, these have expanded enormously relative to trade flows. Finally, we also find that trade and FDI complement each other in reducing conflict. The policy implication of our finding is that further international cooperation in reducing barriers to both trade and capital flows can promote a more peaceful world.
    Keywords: Foreign Direct Investment, Conflict, Trade
    JEL: H56 F21
    Date: 2005–09
  4. By: Jørn Rattsø (Department of Economics, Norwegian University of Science and Technology); Jon Hernes Fiva (Centre for Economic Research and Department of Economics, Norwegian University of Science and Technology)
    Abstract: Decentralization of government with property tax financing is the standard recipe for public sector reform. Fiscal competition is assumed to stimulate efficiency and hold down the tax level. Property taxation offers additional incentives for efficiency. We study the incentive mechanisms involved using data for decentralized governments and in a setting where they can choose to have property taxation or not. The empirical analysis addresses whether fiscal competition and political control problems influence the choice of having property taxation. The results indicate that both incentive mechanisms are relevant and consequently support the standard advice. Fiscal competition generates a distinct geographic pattern in local taxation and political fragmentation seems to motivate property taxation to control common pool problems. The main methodological challenge handled concerns spatial interaction with discrete choice.
    Keywords: property taxation; fiscal competition; political fragmentation; Bayesian analysis; spatial autoregressive model
    JEL: C11 C21 D78 H71
    Date: 2005–03–01
  5. By: Alstadsæter, Annette (Research Department, Statistics Norway,); Kolm, Ann-Sofie (Dept. of Economics, Stockholm University); Larsen, Birthe (CIM and Copenhagen Business School)
    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: H21 H24 J64 J68
    Date: 2005–04–20
  6. By: Marte Rønning (Centre for Economic Research and Department of Economics, Norwegian University of Science and Technology); Jon Hernes Fiva (Centre for Economic Research and Department of Economics, Norwegian University of Science and Technology)
    Abstract: Recent theoretical contributions have emphasized the favorable incentive effects of property taxation. The object of this paper is to confront these theories with Norwegian data on student performance. The institutional setting in Norway is well suited to analyzing the effects of property taxation because we can compare school districts with and without property taxation. In addition, we focus on an alternative incentive mechanism - competition between school districts. The empirical results indicate that students in school districts that levy residential property taxes perform better at the national examination than students in comparable school districts. Strategic interaction in school quality is present, but the magnitude of the interaction effect is modest.
    Keywords: Student achievement;efficiency;property taxation;competition;spatial auto-regressive model
    JEL: C21 H71 I22
    Date: 2004–08–01
  7. By: Kolm, Ann-Sofie (Dept. of Economics, Stockholm University); Nielsen, Søren Bo (Department of Economics, Copenhagen Business School)
    Abstract: To examine the effects on labor market performance of government tax and enforcement policies, this paper develops an equilibrium model featuring tax evasion, matching frictions, and worker-firm wage bargains. In the wage bargains, workers and firms can agree on the amount of remuneration that should not be reported to the tax authorities. We find that increased taxation actually reduces unemployment, whereas more zealous enforcement has the opposite effect.
    Keywords: Unemployment; matching; wage bargaining; tax evasion
    JEL: H26 J41 J64
    Date: 2005–06–15
  8. By: Gilbert E. Metcalf
    Abstract: I measure the industry impacts of an environmental tax reform where a carbon tax is used to finance full or partial corporate tax integration. I find that the industry impacts of such a reform are likely to be modest (in the sense of impacts on returns on equity).
    Date: 2005
  9. By: Stefan Voigt
    Abstract: Judicial independence is not only a necessary condition for the impartiality of judges, it can also endanger it: judges that are independent could have incentives to remain uninformed, become lazy or even corrupt. It is therefore often argued that judicial independence and judicial accountability are competing ends. In this paper, it is, however, hypothesized that they are not necessarily competing ends but can be complementary means towards achieving impartiality and, in turn, the rule of law. It is further argued that judicial accountability can increase per capita income through various channels one of which is the reduction of corruption. First tests concerning the economic effects of JA are carried out drawing on the absence of corruption within the judiciary as well as data gathered by the U.S. State Department as proxies. On the basis of 75 countries, these proxies are highly significant for explaining differences in per capita income.
    Keywords: Judicial Independence; judicial accountability; rule of law; economic growth; corruption; constitutional political economy.
    JEL: H11 K40 O40 P51
    Date: 2005–08
  10. By: Panu Poutvaara (University of Helsinki, CEBR, CESifo, HECER and IZA Bonn)
    Abstract: Migration between countries with earnings-related and flat-rate pay-as-you-go social security systems may change human capital investments in both countries. The possibility of emigration boosts investments in human capital in the country with flat-rate benefits. Correspondingly, those expecting to migrate from the country with earnings-related benefits to a country with flat-rate benefits may reduce their investment in education. With suitably planned transfers between the two countries, allowing for migration may generate a Paretoimprovement for all current and future generations. Without transfers, either country may be unable to pay for promised benefits when labor becomes mobile.
    Keywords: social security, education, migration, earnings-related and flat-rate pensions
    JEL: H55 I2 F22
    Date: 2005–07
  11. By: Timothy J. Hatton (Australian National University, University of Essex and IZA Bonn)
    Abstract: Policy towards asylum seekers has been a controversial topic for more than a decade. Rising numbers of asylum applications have been met with ever-tougher policies to deter them. Following a period of policy harmonisation, the EU has reached a crucial stage in the development of a new Common European Asylum System. This paper seeks to shed light on what form this should take. It summarizes the development of policy to date and it argues that these policies have been too tough, even from the point of view of EU citizens. Using an economic framework, it examines scenarios with different degrees of policy harmonisation and integration among EU countries. Finally, it argues that there is an important role for enhanced burden-sharing arrangements.
    Keywords: asylum, refugees, migration, policy cooperation
    JEL: F22 H41 H77 H87 J61 K42
    Date: 2005–07
  12. By: Esfandiar Maasoumi (Southern Methodist University); Almas Heshmati (TEPP, Seoul National University and IZA Bonn)
    Abstract: We examine the dynamic evolution of incomes, both disposable and gross, for several groups in the PSID panel data at several points from 1968 to 1997. We employ the extended Kolmogorov-Smirnov tests of First and Second Order Stochastic Dominance (SD) as implemented by Maasoumi and Heshmati (2000). They do not impose the Least Favorable Case (LFC) of the composite null hypotheses of SD orders. This is in contrast to simulation and bootstrap-based techniques that do so, resulting in tests that are not asymptotically similar or unbiased. Our approach is also different from the subsampling technique of Linton et al (2005) who obtain critical values for these tests under very general sampling schemes. We offer partial control for many individual/family specific attributes, such as age, gender, education, number of children, work and marital status, by comparing group cells. This avoids having to specify and estimate models of dependence of incomes on these attributes, but lacks the multiple controls that is the promise of such techniques. We find a surprising number of strong rankings, both between groups and over time, in gross income and, to a lesser extent, in ‘disposable’ incomes.
    Keywords: Stochastic Dominance, bootstrap, income distribution, testing, PSID, gender, education, age, marital status
    JEL: C14 D33 D63 H24
    Date: 2005–07

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