nep-pbe New Economics Papers
on Public Economics
Issue of 2005‒09‒29
sixty-four papers chosen by
Peren Arin
Massey University

  1. Why is Fiscal Policy Often Procyclical? By Alberto Alesina; Guido Tabellini
  2. Understanding the Effects of Government Spending on Consumption By Galí, Jordi; López-Salido, J David; Vallés Liberal, Javier
  3. Dual Income Taxation: Why and How? By Peter Birch Sørensen
  4. Searching for Non-Monotonic Effects of Fiscal Policy: New Evidence By Francesco Giavazzi; Tullio Jappelli; Marco Pagano; Marina Benedetti
  5. Fiscal Divergence and Business Cycle Synchronization: Irresponsibility is Idiosyncratic By Darvas, Zsolt; Rose, Andrew K; Szapáry, György
  6. Status Equilibrium in Local Public Good Economies By Anne van den Nouweland; Myrna H. Wooders
  7. Why Are Some Public Officials More Corrupt Than Others? By Hunt, Jennifer
  8. Strategic Tax Competition in Switzerland: Evidence from a Panel of the Swiss Cantons By Lars Feld; Emmanuelle Reulier
  9. Optimal Commodity Taxation when Land and Structures must be Taxed at the Same Rate By Saku Aura; Thomas Davidoff
  10. Does Centralised Wage Setting Lead into Higher Taxation? By Pekka Sinko
  11. Multijurisdictional Firms and Governments’ Strategies under Alternative Tax Designs By Marcel Gérard
  12. Public Pensions and Capital Accumulation: The Case of Brazil By Gerhard Glomm; Jürgen Jung; Changmin Lee; Chung Tran
  13. The International Spillover Effects of Pension Reform By Yvonne Adema; Lex Meijdam; Harrie A. A Verbon
  14. Trade Spillovers of Fiscal Policy in the European Union: A Panel Analysis By Beetsma, Roel; Giuliodori, Massimo; Klaassen, Franc
  15. Pension, Fertility, and Education By Volker Meier; Matthias Wrede
  16. Optimal Taxation Policy in the Presence of Comprehensive Reference Externalities. By Constantin Gurdgiev;
  17. Why Do Differences in the Degree of Fiscal Decentralization Endure? By Xavier Calsamiglia; Teresa Garcia-Milà; Therese J. McGuire
  18. Optimal Taxation Policy in the Presence of Comprehensive Reference Externalities. By Constantin Gurdgiev;
  19. Can Immigrant Employment Alleviate the Demographic Burden? The Role of Union Centralization By Alexander Kemnitz
  20. The Making of Cultural Policy: A European Perspective By Frederick van der Ploeg
  21. Migration and the Welfare State: The Economic Power of the Non-Voter? By Kira Boerner; Silke Uebelmesser
  22. The Stability Pact Pains: A Forward-Looking Assessment of the Reform Debate By Buti, Marco; Eijffinger, Sylvester C W; Franco, Daniele
  23. Fiscal statistics for Sweden 1719-2003 By Fregert, Klas; Gustafsson, Roger
  24. Does Social Security Privatization Produce Efficiency Gains? By Shinichi Nishiyama; Kent Smetters
  25. The household spending response to the 2003 tax cut: evidence from survey data By Julia Lynn Coronado; Joseph P. Lupton; Louise M. Sheiner
  26. Base independence in the analysis of tax policy effects: with an application to Norway 1992–2004 By Peter J. Lambert; Thor O. Thoresen
  27. Justifying the Lindahl Solution as an Outcome of Fair Cooperation By Wolfgang Buchholz; Wolfgang Peters
  28. Spillovers in Vocational Training By Bornemann, Stefan
  29. Public Health Expenditure and Spatial Interactions in a Decentralized National Health System By Joan Costa-Font and Jordi Pons-Novell
  30. Political Selection and the Quality of Government: Evidence from South India By Besley, Timothy; Pande, Rohini; Rao, Vijayendra
  31. Political competition within and between parties: an application to environmental policy By Cremer, Helmuth; De Donder, Philippe; Gahvari, Firouz
  32. The stability pact pains : a forward-looking assessment of the reform debate By Buti,Marco; Eijffinger,Sylvester; Franco,Daniele
  33. Racism, xenophobia, and redistribution By Woojin Lee; John Roemer; Karine van der Straeten
  34. Policy Making in Divided Government. A Pivotal Actors Model with Party Discipline. By Josep M. Colomer
  35. Changes in Japan’s Foreign and Security Policy Associate Professor Marie Söderberg, European Institute of Japanese Studies By Söderberg, Marie
  36. Single Mothers and Incentives to Work: The French Experience By Libertad González Luna
  37. Bribery: Who Pays, Who Refuses, What are the Payoffs? By Hunt, Jennifer; Laszlo, Sonia
  38. The Overhang Hangover By Jean Imbs; Romain Rancière
  39. Structural Change during Transition: Is Russia Becoming a Service Economy? By Albrecht Kauffmann
  40. Toward an Understanding of the Economics of Charity: Evidence from a Field Experiment By Craig Landry; Andreas Lange; John A. List; Michael K. Price; Nicholas G. Rupp
  41. On the Origins of Electoral Systems and Political Parties. The Role of Elections in Multi-Member Districts By Josep M. Colomer
  42. Populist Policies in the Transition to Democracy By Daniel Mejía; Carlos Esteban Posada
  43. Old and New Theories of Fiscal Federalism, Organizational Design Problems, and Tiebout By Giampaolo Garzarelli
  44. Skills, Social Mobility, and the Support for the Welfare State By Johannes Rincke; Robert Schwager
  45. Political economy of municipal water service privatization in Spain: a duration model analysis By Miralles, A.
  46. Short-run policy commitment when investment timing is endogenous: "More harm than good?" By Gerda Dewit; Dermot Leahy
  47. Modern Perspectives on Stabilization Policies By Jordi Galí
  48. It's Parties that Choose Electoral Systems (or Duverger's Law Upside Down) By Josep M. Colomer
  49. The Left-Right Dimension in Latin America By Josep M. Colomer
  50. Outlets, Auctions, and Restaurant Prices: Issues in the Regulation of Alcoholic Beverage Sales in New Jersey By Douglas Coate; Richard Schwester
  51. Race and Ethnic Inequality in Health and Health Care in Colombia By Raquel Bernal; Mauricio Cárdenas
  52. What Did Medicare Do (And Was It Worth It)? By Amy Finkelstein; Robin McKnight
  53. Learning from Decentralised Policy: The Demand Side By Jan Schnellenbach
  55. The Kerry-Bush Health Care Proposals: A Characterization and Comparison of their Impacts on Connecticut (Technical Appendix) By Stan McMillen; Kathryn Parr; Xiumei Song; Brian Baird
  56. Money, Fame and the Allocation of Talent: Brain Drain, the Matthew Effect and the Institution of Science By Doh-Shin Jeon; Domenico Menicucci
  57. Disability Risk and the Value of Disability Insurance By Amitabh Chandra; Andrew A. Samwick
  58. Distributional Impacts of the Self-Sufficiency Project By Marianne P. Bitler; Jonah B. Gelbach; Hilary W. Hoynes
  59. The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare By Amy Finkelstein
  61. The Determinants of Asset Stripping: Theory and Evidence from the Transition Economies By Campos, Nauro F; Giovannoni, Francesco
  62. Recent Trends in Resource Sharing Among the Poor By Steven J. Haider; Kathleen McGarry
  63. The Law and Economics of Antidiscrimination Law By John J. Donohue III
  64. Collateral Damage: Trade Disruption and the Economic Impact of War By Glick, Reuven; Taylor, Alan M

  1. By: Alberto Alesina; Guido Tabellini
    Abstract: Many countries, especially developing ones, follow procyclical fiscal polices, namely spending goes up (taxes go down) in booms and spending goes down (taxes go up) in recessions. We provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less-than-benevolent government to appropriate rents. Voters have incentives similar to the “starving the Leviathan” classic argument, and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well. We test this argument against more traditional explanations based purely on borrowing constraints, with a reasonable amount of success.
    Date: 2005–09
  2. By: Galí, Jordi; López-Salido, J David; Vallés Liberal, Javier
    Abstract: Recent evidence suggests that consumption rises in response to an increase in government spending. That finding cannot be easily reconciled with existing optimizing business cycle models. We extend the standard new Keynesian model to allow for the presence of rule-of-thumb consumers. We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending.
    Keywords: fiscal multiplier; government spending; non-Ricardian households; rule-of-thumb consumers; Taylor rules
    JEL: E32 E62
    Date: 2005–09
  3. By: Peter Birch Sørensen (Department of Economics, University of Denmark)
    Abstract: The dual income tax combines a progressive tax schedule for labour income with a low flat tax rate on capital income and corporate income. This paper restates the case for the dual income tax and discusses alternative methods of taxing business income under such a tax system, paying special attention to the taxation of income from closely held corporations. It is argued that the imputed normal return to shares in unlisted companies should be taxed as capital income, while above-normal returns should be subject to labour income tax. The paper demonstrates that such a tax scheme can be designed to be neutral towards the firm’s investment and financing decisions and towards the decisions of shareholders to realize their shares.
    Keywords: dual income tax; tax neutrality; taxation of business income; shareholder income tax
    JEL: H24 H25
    Date: 2005–08
  4. By: Francesco Giavazzi (IGIER, Università Bocconi, NBER and CEPR); Tullio Jappelli (Università di Salerno, CSEF and CEPR); Marco Pagano (Università di Napoli Federico II, CSEF and CEPR); Marina Benedetti (IGIER, Università Bocconi)
    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.
    Keywords: Fiscal policy, national saving
    JEL: E21 E62 H31
    Date: 2005–09–01
  5. By: Darvas, Zsolt; Rose, Andrew K; Szapáry, György
    Abstract: Using a panel of 21 OECD countries and 40 years of annual data, we find that countries with similar government budget positions tend to have business cycles that fluctuate more closely. That is, fiscal convergence (in the form of persistently similar ratios of government surplus/deficit to GDP) is systematically associated with more synchronized business cycles. We also find evidence that reduced fiscal deficits increase business cycle synchronization. The Maastricht 'convergence criteria', used to determine eligibility for EMU, encouraged fiscal convergence and deficit reduction. They may thus have indirectly moved Europe closer to an optimum currency area, by reducing countries' abilities to create idiosyncratic fiscal shocks. Our empirical results are economically and statistically significant, and robust.
    Keywords: criteria; European; Maastricht; monetary; Mundell; optimum; policy; union
    JEL: F42
    Date: 2005–08
  6. By: Anne van den Nouweland (University of Oregon); Myrna H. Wooders (Vanderbilt University, Warwick University)
    Abstract: We define a concept of status equilibrium for local public good economies. A status equilibrium specifies one status index for each agent in an economy. These indices determine agents’ cost shares in any possible jurisdiction. We provide an axiomatic charaterization of status equilibrium using consistency properties.
    Keywords: Local Public Goods, Status Equilibrium, Axiomatic Characterization
    JEL: H41 D71 D51
    Date: 2005–09–25
  7. By: Hunt, Jennifer
    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.
    Keywords: corruption; governance
    JEL: H4 K4 O1
    Date: 2005–09
  8. By: Lars Feld; Emmanuelle Reulier
    Abstract: Tax competition is discussed as a source of inefficiency in international taxation and in fiscal federalism. Two preconditions for the existence of such effects of tax competition are that mobile factors locate or reside in jurisdictions with – ceteris paribus – lower tax rates and that taxes are actually set strategically in order to attract mobile production factors. It is well known from studies about Swiss cantonal and local income tax competition that Swiss taxpayers reside where income taxes are low. In this paper, empirical results on strategic tax setting by cantonal governments are presented for a panel of the Swiss cantons from 1984 to 1999. Completing the evidence on Swiss tax competition, the income tax rates in cantons are lower, the lower the tax rates of their neighbors.
    Keywords: tax competition, strategic tax setting, personal income taxes
    JEL: H24 H71 H73
    Date: 2005
  9. By: Saku Aura; 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.
    JEL: H21 R13
    Date: 2005
  10. By: Pekka Sinko (Prime Minister's Office, Economic Council)
    Abstract: This paper studies implications of centralised wage setting for the level of taxation and public expenditures in an analytical model with unionised labour markets. We extend the previous studies by allowing both demand and supply effects of labour. Also, in addition to the standard social planner approach, we consider a political economy set up, where the tax rate is chosen to maximise welfare of a median voter. Our results suggest that when working hours are endogenous, the relationship between the degree of centralisation and the labour tax rate is ambiguous. In particular, if the marginal utility from public provision is sufficiently low, centralised wage setting implies lower optimal tax rate on labour. This is due to a 'budgetary discipline effect', which reduces the optimal tax rate preferred by the median voter under centralised wage setting.
    Keywords: Taxation, wage setting, public expenditure
    JEL: J
    Date: 2005–09–16
  11. By: Marcel Gérard
    Abstract: Conducted in a framework which embodies tax-shifting opportunities, risk of losses and possibility of interjurisdictional loss-offset, this paper investigates a reform of multijurisdictional enterprises taxation, a move from Separate Accounting to Formulary Apportionment. Findings are summarised in a series of propositions on the strategic behaviour of enterprises and authorities. Under Separate Accounting, tax-shifting opportunities reduce investment in the lower-taxing jurisdiction, tax sensitivity of investment and tax competition. Moving to Formulary Apportionment eliminates such opportunities, pushing the economy in the opposite direction. Permitting the firm to compensate losses among affiliates allows it to benefit from a tax-shifting and insurance device.
    Keywords: multijurisdictional enterprise, separate accounting, formulary apportionment, cross-border loss offset
    JEL: H32 H73 H87
    Date: 2005
  12. By: Gerhard Glomm; Jürgen Jung; Changmin Lee; Chung Tran
    Abstract: We use an OLG model to study the effects of the generous public sector pension system in Brazil. In our model there are two types of workers, one working in the private sector, the other working in the public sector. Public workers produce infrastructure or education services. We find that reducing generosity of the public sector pensions has large effects on capital accumulation and steady state income.
    Keywords: pension reform, capital accumulation
    JEL: E62 H41 H55
    Date: 2005
  13. By: Yvonne Adema; Lex Meijdam; Harrie A. A Verbon
    Abstract: This paper explores how pension reforms in countries with PAYG schemes affect countries with funded systems. We use a two-country two-period overlapping-generations model, where the countries only differ in their pension systems. We distinguish between the case where a reform potentially leads to a Pareto improvement in the PAYG country, and where this is impossible. In the latter case the funded country shares both in the costs and the benefits of the reform. However, if a Pareto-improving pension reform is feasible in the PAYG country, a Pareto improvement in the funded country is not guaranteed.
    Keywords: international spillover effects, pension reform
    JEL: F21 F41 F47 H55 H63
    Date: 2005
  14. By: Beetsma, Roel; Giuliodori, Massimo; Klaassen, Franc
    Abstract: We explore the international spillovers from fiscal policy shocks via trade in Europe. A fiscal expansion stimulates domestic activity, which leads to more foreign exports and, hence, higher foreign output. To quantify this, we combine a panel VAR model in government spending, net taxes and GDP with a panel trade model. On average, a public spending increase equal to 1% of GDP implies 2.3% more foreign exports over the first two years. The corresponding figure for an equal-size net tax reduction is 0.6%. Both estimates are statistically significant. As far as the effect on foreign activity is concerned, a 1% of GDP spending increase (net tax reduction) in Germany on average raises GDP of trading partners by 0.23% (0.06%) over the first two years. These figures are likely to form lower bounds for the actual effects and suggest that it may be worthwhile to further investigate the benefits from coordinated fiscal expansions (contractions) in response to European-wide cyclical downturns (upswings)
    Keywords: coordination; European Union; Fiscal shocks; impulse responses; trade spillovers
    JEL: E62 F41 F42
    Date: 2005–09
  15. By: Volker Meier; Matthias Wrede
    Abstract: A pay-as-you-go pension scheme is associated with positive externalities of having children and providing them with human capital. In a framework with heterogeneity in productivity, and stochastic and endogenous investment in fertility and education, we discuss internalization policies associated with child benefits in the pension formula. The second-best scheme displays both a benefit contingent on the contributions of children and a purely fertility-related component.
    Keywords: pay-as-you-go, fertility, human capital, externalities
    JEL: H23 H55 J13 J18
    Date: 2005
  16. By: Constantin Gurdgiev; (Department of Economics, Trinity College)
    Date: 2005–08
  17. By: Xavier Calsamiglia; Teresa Garcia-Milà; Therese J. McGuire
    Abstract: A notable difference between the U.S. and many countries in Europe is in the degree of fiscal decentralization. Regional (and local) governments in the U.S. have significant autonomy in setting their own taxes and determining how to spend their revenues. This is not true of their counterparts in Spain, France, the United Kingdom, Czech Republic and many other European countries. In recent years, many countries formerly subject to dictatorships or communism have been considering decentralizing fiscal responsibility to sub-national governments as part of the process of democratization (see Bird and Ebel, forthcoming). Yet, much of Europe remains immune to adopting effective decentralization in which sub-national units have true taxing authority.
    Keywords: Fiscal decentralization, regional solidarity, efficiency, preferences for equality
    JEL: H77 H42 H21
    Date: 2004–08
  18. By: Constantin Gurdgiev; (Department of Economics, Trinity College)
    Date: 2005–08
  19. By: Alexander Kemnitz
    Abstract: This paper investigates the effect of labor immigration on public pensions when wage setting by a centralized trade union leads to unemployment. It is shown that immigration improves the financial soundness of pay-as-you-go pensions if and only if it diminishes total employment. This occurs if the absolute value of the elasticity of labor demand exceeds the unemployment rate.
    Keywords: immigration, public pensions, trade union
    JEL: F22 H55 J51
    Date: 2005
  20. By: Frederick van der Ploeg
    Abstract: No good comparable data on sizes of cultural sectors of the countries of Europe exist. Still, local and national governments of Europe spend substantial resources on culture and cultural sectors contribute significantly to employment and national income. After briefly describing special features of cultural goods and clarifying some misconceptions about the value of culture, valid and invalid arguments for subsidising culture are discussed. Although it is easy to justify government support for preservation of heritage, this is more difficult for the performing arts. Due to changing technologies and advent of E-culture classic public-good arguments for government intervention in broadcasting and other cultural activities become less relevant. Different institutions varying from selection by arts councils, bureaucrats or politicians to less directed tax incentives lead to different cultural landscapes. Theories of delegation suggest delegating the judgement on artistic qualities and execution of cultural policy to an independent Arts Fund. The Minister of Culture should concentrate on formulating a mission for cultural policy and make sure it is implemented properly. The insights of the theories of local public goods and federalism are applied to the making of cultural policy in Europe. Different approaches to international cultural policy in Europe are discussed. The overview concludes with lessons for the making of cultural policy in Europe.
    Keywords: cultural policy, heritage, performing arts, museums, quality, participation, vouchers, tax incentives, quality, politicians, bureaucrats, delegation
    JEL: H20 H40 P51 Z11
    Date: 2005
  21. By: Kira Boerner; Silke Uebelmesser
    Abstract: This paper investigates the impact of emigration on the political choice regarding the size of the welfare state. Mobility has two countervailing effects: the political participation effect and the tax base effect. With emigration, the composition of the constituency changes. This increases the political influence of the less mobile part of the population. The new political majority has to take into account that emigration reduces tax revenues and thereby affects the feasible set of redistribution policies. The interaction of the two effects has so far not been analyzed in isolation. We find that the direction of the total effect of migration depends on the initial income distribution in the economy. Our results also contribute to the empirical debate on the validity of the median-voter approach for explaining the relation between income inequality and redistribution levels.
    Keywords: migration, redistribution, voting
    JEL: D31 D72 F22 H50
    Date: 2005
  22. By: Buti, Marco; Eijffinger, Sylvester C W; Franco, Daniele
    Abstract: The Stability and Growth Pact has been under fire ever since it was born. But is the Pact a flawed fiscal rule? Against established criteria for an ideal fiscal rule, its design and compliance mechanisms show strengths and weaknesses. The latter tend to reflect trade-offs typical of supra-national arrangements. In the end, only a higher degree of fiscal integration would remove the inflexibility inherent in the recourse to predefined budgetary rules. No alternative solution put forward in the literature appears clearly superior. This does not mean that the original Pact of 1997 could not be improved. The debate on the SGP has shown that any reform should aim at overcoming the excessive uniformity of the rules, improving their transparency, correcting pro-cyclicality and strengthening enforcement. The reform of the Pact agreed in 2005 moves in this direction but leaves open a number of issues.
    Keywords: economic and monetary union; fiscal policy; fiscal rules; Stability and Growth Pact
    JEL: E61 H3 H6 H7
    Date: 2005–09
  23. By: Fregert, Klas (Department of Economics, Lund University); Gustafsson, Roger (Department of Economics, Lund University)
    Abstract: We construct yearly fiscal series for Sweden between 1719 and 2003 including expenditures, revenues, deficits and debt. We present measures for the fiscal branch of the central government as well as for the consolidated fiscal and monetary branch, which includes seigniorage. We evaluate the reliability and consistency of the series by calculating the difference between budget deficits and the change in debt to test if the differences are serially uncorrelated around zero, which we confirm.
    Keywords: Fiscal Policy; Expenditures; Revenues; Deficits; Government debt; Seigniorage
    JEL: E58 E62 H61 H62 H63 N43 N44
    Date: 2005–09–20
  24. By: Shinichi Nishiyama; Kent Smetters
    Abstract: While privatizing Social Security can improve labor supply incentives, it can also reduce risk sharing when households face uninsurable risks. We simulate a stylized 50-percent privatization using an overlapping-generations model where heterogenous agents with elastic labor supply face idiosyncratic earnings shocks and longevity uncertainty. When wage shocks are insurable, privatization produces about $21,900 of new resources for each future household (growth adjusted over time) after all households have been fully compensated for their possible transitional losses. However, when wages are not insurable, privatization reduces efficiency by about $5,600 per future household despite improved labor supply incentives. We check the robustness of these results to different model specications and arrive at several surprising conclusions. First, privatization actually performs relatively better in a closed economy, where interest rates decline with capital accumulation, than in an open economy where capital can be accumulated without reducing interest rates. Second, privatization also performs relatively better when an actuarially-fair private annuity market does not exist than when it does exist. Third, introducing progressivity into the privatized system to restore risk sharing must be done carefully. In particular, having the government match private contributions on a progressive basis is not very effective at restoring risk sharing -- too much matching actually harms efficiency. However, increasing the progressivity of the remaining traditional system is very effective at restoring risk sharing, thereby allowing partial privatization to produce efficiency gains of $2,700 per future household.
    JEL: H0 H2 H3
    Date: 2005–09
  25. By: Julia Lynn Coronado; Joseph P. Lupton; Louise M. Sheiner
    Abstract: The Jobs and Growth Tax Relief and Reconciliation Act of 2003 has been described as textbook fiscal stimulus. Using household survey data on the self-reported qualitative response to the tax cuts, we estimate that the boost to aggregate personal consumption expenditures from the child credit rebate and the reduction in withholdings raised the average level of real GDP in the second half of 2003 by 0.2 percent and by 0.3 percent in the first half of 2004. We also show that households in the survey were well aware of their tax cuts and tended to spend equally out of the child credit rebate and the reduced withholdings, a result that is contrary to the conventional wisdom.
    Date: 2005
  26. By: Peter J. Lambert (University of Oregon Economics Department); Thor O. Thoresen (Statistics Norway, Oslo, Norway)
    Abstract: The analysis contrasts results of two recently expounded micro-level data approaches to derive robust intertemporal characterizations of redistributional effects of income tax schedules; the fixed-income procedure of Kasten, Sammartino and Toder (1994) and the transplant-and-compare method of Dardanoni and Lambert (2002). Our study is normative in that the Blackorby and Donaldson (1984) index of tax progressivity is employed. This enables contributions from vertical redistribution and horizontal inequity also to be assessed, using for the latter one classical measure and one no reranking measure. When the competing methodologies are applied to Norwegian data for 1992–2004, their respective strengths and weaknesses are revealed. The transplant-and-compare procedure is found to have a number of advantages.
    Keywords: income tax, tax progressivity, horizontal inequity
    JEL: D31 D63 H24
    Date: 2005–09–01
  27. By: Wolfgang Buchholz; Wolfgang Peters
    Abstract: The Lindahl equilibrium is mostly motivated by a rather artificial price mechanism. Even though the analogy to a competitive market has been emphasised by Lindahl himself his approach does not directly explain the normative ideas, which are behind this concept. In the present paper we therefore show how the Lindahl equilibrium can be deduced from some simple equity axioms that in particular are related to the equal sacrifice principle and a non-envy postulate as norms for distributional equity. Fairness among agents with different preferences is taken into account by considering their marginal willingnesses to pay as virtual prices. In this way it might also become more understandable why the Lindahl solution can be perceived as an outcome of fair cooperation.
    Keywords: public goods, Lindahl equilibrium, fairness, equity
    JEL: C78 D63 H41
    Date: 2005
  28. By: Bornemann, Stefan
    Abstract: The German apprenticeship system is often considered a role model for vocational education. Its influence on economic growth and technological progress through the provision of human capital to the workforce is widely acknowledged. But recent declines in the number of apprenticeships have led to increasing unrest among policy makers. To counter this development, the government is considering to introduce a training levy scheme that collects training levies from non-training firms in order to subsidize apprenticeship training ("Ausbildungsplatzabgabe"). Such training levy schemes already exist in several industrialized countries and even in some sectors in Germany. Yet, economists differ greatly in opinion about this policy. More surprisingly, however, a general economic analysis of this policy instrument is still lacking. Recent contributions have relied on rather qualitative and partial analyses. This paper aims at closing this gap. Following the training literature, we use a simple oligopsonistic labor market model. Such a setting allows to explain why firms provide and (at least partially) finance general vocational training. Moreover, it can demonstrate that a positive externality arises as other firms benefit from vocational training through poaching. In principle, the Pigouvian prescription of a subsidy scheme financed by a non-distortionary tax could restore the social optimum. The proposed training levy scheme, by contrast, is a particular scheme that links subsidies and levies. This paper unveils that it basically corresponds to a uniform subsidy on apprenticeship training that is financed by a distortionary tax on labor. We show that introducing such a levy scheme can entail ambiguous repercussions on general welfare.
    JEL: H23 I22 I28 J24
    Date: 2005–09
  29. By: Joan Costa-Font and Jordi Pons-Novell (Universitat de Barcelona)
    Abstract: One of the limitations of cross-country health expenditure analysis refers to the fact that the financing, the internal organization and political restraints of health care decision-making are country-specific and heterogeneous. Yet, a potential solution is to examine the influence of such effects in those countries that have undertaken decentralization processes. In such a setting, it is possible to examine potential expenditure spillovers across the geography of a country as well as the influence of the political ideology of regional incumbents on public health expenditure. This paper examines the determinants of public health expenditure within Spanish region-states (Autonomous Communities, ACs), most of them subject to similar financing structures although exhibiting significant heterogeneity as a result of the increasing decentralization, region-specific political factors along with different use of health care inputs, economic dimension and spatial interactions.
    Keywords: health expenditure, devolution, political ideology, political competition and spatial interactions
    JEL: I18 I38 H73
    Date: 2005
  30. By: Besley, Timothy; Pande, Rohini; Rao, Vijayendra
    Abstract: This paper uses household data from India to examine the economic and social status of village politicians, and how individual and village characteristics affect politician behaviour while in office. Education increases the chances of selection to public office and reduces the odds that a politician uses political power opportunistically. In contrast, land ownership and political connections enable selection but do not affect politician opportunism. At the village level, changes in the identity of the politically dominant group alter the group allocation of resources but not politician opportunism. Improved information flows in the village, however, reduce opportunism and improve resource allocation.
    Keywords: decentralization; India; political economy; public provision of private goods
    JEL: H11 H42 O12 O20
    Date: 2005–08
  31. By: Cremer, Helmuth; De Donder, Philippe; Gahvari, Firouz
    Abstract: This paper presents a political economy model that explains the low rate of emission taxes in the U.S., as well as the fact that neither Democrats nor Republicans propose to increase them. The voters differ according to their wage and capital incomes which are assumed to have a bivariate lognormal distribution. They vote over the emission tax rate and a budgetary rule that specifies how to redistribute the tax proceeds. The political competition is modeled à la Roemer (2001) where the two parties care for the policies they propose as well as the probability of winning; the equilibrium solution concept is the Party Unanimity Nash Equilibrium (PUNE). We calibrate the model using U.S. data and compute the PUNEs numerically. Two main results emerge. All "viable" PUNEs entail subsidies on emissions (as opposed to taxes). This indicates the importance of distributional concerns in garnering political support for environmental policies. Second, parties always propose an interior value for the budgetary rule even though all citizens prefer extreme values. This illustrates the emergence of political compromise to attract voters.
    Keywords: distributional concerns; Emission taxes; political competition; political compromise; PUNE
    JEL: D72 H23
    Date: 2005–09
  32. By: Buti,Marco; Eijffinger,Sylvester; Franco,Daniele (Tilburg University, Center for Economic Research)
    Abstract: The Stability and Growth Pact has been under fire ever since it was born. But is the Pact a flawed fiscal rule? Against established criteria for an ideal fiscal rule, its design and compliance mechanisms show strengths and weaknesses. The latter tend to reflect tradeoffs typical of supra-national arrangements. In the end, only a higher degree of fiscal integration would remove the inflexibility inherent in the recourse to predefined budgetary rules. No alternative solution put forward in the literature appears clearly superior. This does not mean that the original Pact of 1997 could not be improved. The debate on the SGP has shown that any reform should aim at overcoming the excessive uniformity of the rules, improving their transparency, correcting pro-cyclicality and strengthening enforcement. The reform of the Pact agreed in 2005 moves in this direction but leaves open a number of issues.
    Keywords: fiscal rules;Economic and Monetary Union;Stability and Growth Pact; H7; EMS;fiscal policy
    JEL: E61 H3 H6
    Date: 2005
  33. By: Woojin Lee (University of Massachusetts Amherst); John Roemer (Yale University); Karine van der Straeten (CNRS and Ecole Polytechnique Paris)
    Abstract: We report here a summary of our recent research on the effect that the race issue, in the United States, and the immigration issue in European countries, is having on the degree of redistribution and the size of the public sector that is implemented through political competition. We model political competition as taking place on a two dimensional policy space, where the first issue is the tax rate, or the size of the public sector, and the second issue is the race or immigration issue. Our substantive conclusion is that the conservative economic agenda has been given new life in many countries because of racist and xenophobic views of polities. JEL Categories: D3, D7, H2
    Keywords: Racism, xenophobia, redistribution, anti-solidarity effect, policy bundle effect, party unanimity Nash equilibrium
    Date: 2005
  34. By: Josep M. Colomer
    Abstract: This article presents a formal model of policy decision-making in an institutional framework of separation of powers in which the main actors are pivotal political parties with voting discipline. The basic model previously developed from pivotal politics theory for the analysis of the United States lawmaking is here modified to account for policy outcomes and institutional performances in other presidential regimes, especially in Latin America. Legislators' party indiscipline at voting and multi-partism appear as favorable conditions to reduce the size of the equilibrium set containing collectively inefficient outcomes, while a two-party system with strong party discipline is most prone to produce 'gridlock', that is, stability of socially inefficient policies. The article provides a framework for analysis which can induce significant revisions of empirical data, especially regarding the effects of situations of (newly defined) unified and divided government, different decision rules, the number of parties and their discipline. These implications should be testable and may inspire future analytical and empirical work.
    Keywords: Macroeconomic policy-making, Divided government, Political parties
    JEL: E60 E66 H70 H73 H77
    Date: 2005–03
  35. By: Söderberg, Marie (European Institute of Japanese Studies)
    Abstract: At the moment, very substantial reforms in the field of security are being undertaken in Japan. “The New National Defence Program Guidelines for 2005 and After”, as well as the “Midterm Defence Program Fiscal Year 2005-2009” both talk about a thorough restructuring of the Self Defence Forces to make them able to respond effectively to new threats, such as terrorism and weapons of mass destruction, as well as provide a more proactive Japanese policy with various initiatives to improve the international security environment. There is a definite strengthening of the Japanese-US security relation, where Japan is being asked to and is willing to take a bigger role. The declaration by North Korea that they now possess nuclear weapons is considered an imminent threat to Japan. This, in connection with the abduction issue (see below) is played up in Japanese mass media and is being used by certain groups to create changes in Japan’s defence posture. These are changes that the Japanese consider necessary to counter the larger threat in the long term, the rise of China. This paper will start with a short historic overview of the Japanese defence posture since World War II and give a short presentation of the kinds of threats Japan feels it is facing since September 11, 2001, and in the future. Then we will continue with Japanese-North Korean relations, and Japanese-Chinese relations. The recent strengthening of the Japanese-US security cooperation, and its implications for Japanese defence posture, as well as regional cooperation, will be covered. We will conclude with what these changes imply for Europe, as well as the role Europe could play in securing peace and stability in Asia.
    Keywords: Security policy; Foreign policy; Japan; Japan-North Korea; Japan-China; Japan-Europe
    JEL: H56 H70 H77 N15
    Date: 2005–09–16
  36. By: Libertad González Luna
    Abstract: This paper analyzes the effect of the 1998 reform of the French single parents allowance on the labor supply of single mothers with very young children. The reform aimed at encouraging participation by allowing eligible single parents to accumulate benefits and labor earnings for a limited period of time. Using data from the French Employment Survey, the analysis shows that single mothers affected by the reform had experienced a significant increase in their employment rate four years after the reform was implemented. During the same period, the employment rate of married mothers with young children did not experience a significant change, suggesting that at least part of the increase was a consequence of the reform. These results provide some evidence that benefit schedules that provide financial incentives to work can have significant effects in getting single moms back to work, even in the presence of very young children.
    Keywords: Single mothers, labor supply, welfare benefits
    JEL: I38 J21 H53
    Date: 2005–03
  37. By: Hunt, Jennifer; Laszlo, Sonia
    Abstract: We provide a theoretical framework for understanding when an official angles for a bribe, when a client pays, and the payoffs to the client's decision. We test this framework using a new data set on bribery of Peruvian public officials by households. The theory predicts that bribery is more attractive to both parties when the client is richer, and we find empirically that both bribery incidence and value are increasing in household income. However, 65% of the relation between bribery incidence and income is explained by greater use of officials by high-income households, and by their use of more corrupt types of official. Compared to a client dealing with an honest official, a client who pays a bribe has a similar probability of concluding her business, while a client who refuses to bribe has a probability 16 percentage points lower. This indicates that service improvements in response to a bribe merely offset service reductions associated with angling for a bribe, and that clients refusing to bribe are punished. We use these and other results to argue that bribery is not a regressive tax.
    Keywords: corruption; governance; institutions
    JEL: H4 K4 O1
    Date: 2005–09
  38. By: Jean Imbs; Romain Rancière
    Abstract: We revisit the debt overhang question. We first use non-parametric techniques to isolate a panel of countries on the downward sloping section of a debt Laffer curve. In particular, overhang countries are ones where a threshold level of debt is reached in sample, beyond which (initial) debt ends up lowering (subsequent)growth. On average, significantly negative coefficients appear when debt face value reaches 60 percent of GDP or 200 percent of exports, and when its present value reaches 40 percent of GDP or 140 percent of exports. Second, we depart from reduced form growth regressions and perform direct tests of the theory on the thus selected sample of overhang countries. In the spirit of event studies, we ask whether, as overhang level of debt is reached: (i)investment falls precipitously as it should when it becomes optimal to default, (ii) economic policy deteriorates observably, as it should when debt contracts become unable to elicit effort on the part of the debtor, and (iii) the terms of borrowing worsen noticeably, as they should when it becomes optimal for creditors to pre-empt default and exact punitive interest rates. We find a systematic response of investment, particularly when property rights are weakly enforced, some worsening of the policy environment, and a fall in interest rates. This easing of borrowing conditions happens because lending by the private sector virtually disappears in overhang situations, and multilateral agencies step in with concessional rates. Thus, while debt relief is likely to improve economic policy (and especially investment) in overhang countries, it is doubtful that it would ease their terms of borrowing, or the burden of debt.
    Keywords: Debt overhang, kernel estimation, debt contracts, investment, debt relief
    JEL: E62 F34 F43 H63
    Date: 2005–06
  39. By: Albrecht Kauffmann
    Abstract: This paper analyses the structural change in Russia during the transition from the planned to a market economy. With regard to the famous three sector hypothesis, broad economic sectors were formed as required by this theory. The computation of their shares at GNP at market prices using Input-Output tables, and the adjustment of results from distortions, generated as side effects of tax avoidance practices, shows results that clearly reject claims that Russia would be on the road to a post-industrial service economy. Instead, at least until 2001, a tendency of "primarisation" could be observed, that presents Russia closer to less-developed countries.
    Keywords: Russian Federation; Deindustrialisation; Natural Resources; Conversion
    JEL: O14 O39 P28 H26
    Date: 2005–09
  40. By: Craig Landry; Andreas Lange; John A. List; Michael K. Price; Nicholas G. Rupp
    Abstract: This study develops theory and uses a door-to-door fundraising field experiment to explore the economics of charity. We approached nearly 5000 households, randomly divided into four experimental treatments, to shed light on key issues on the demand side of charitable fundraising. Empirical results are in line with our theory: in gross terms, our lottery treatments raised considerably more money than our voluntary contributions treatments. Interestingly, we find that a one standard deviation increase in female solicitor physical attractiveness is similar to that of the lottery incentive¡ªthe magnitude of the estimated difference in gifts is roughly equivalent to the treatment effect of moving from our theoretically most attractive approach (lotteries) to our least attractive approach (voluntary contributions).
    JEL: C93 H41 L30
    Date: 2005–09
  41. By: Josep M. Colomer
    Abstract: The old, understudied electoral system composed of multi-member districts, open ballot and plurality rule is presented as the most remote scene of the origin of both political parties and new electoral systems. A survey of the uses of this set of electoral rules in different parts of the world during remote and recent periods shows its wide spread. A model of voting by this electoral system demonstrates that, while it can produce varied and pluralistic representation, it also provides incentives to form factional or partisan candidacies. Famous negative reactions to the emergence of factions and political parties during the 18th and 19th centuries are reinterpreted in this context. Many electoral rules and procedures invented since the second half of the 19th century, including the Australian ballot, single-member districts, limited and cumulative ballots, and proportional representation rules, derived from the search to reduce the effects of the ‘originating’ multi-member district system in favor of a single party sweep. The general relations between political parties and electoral systems are restated to account for the foundational stage here discussed.
    Keywords: Political parties, electoral systems, multimember districts
    JEL: H10 H41 H79
    Date: 2005–03
  42. By: Daniel Mejía; Carlos Esteban Posada
    Keywords: This paper develops a political economy model that provides an explanation as for why ruling elites in oligarquic societies may rely on income redistribution to the poor (the masses) in order to prevent them from attempting a revolution. We refer to this kind of redistribution as populist redistribution because, first it does not increase the poor’s productive capacity (human capital), and second it seeks to “buy” political support (peace) to perpetuate the elite’s control of political power. We examine the conditions under which ruling elites choose to deter the poor (by means of military repression and/or populist redistribution), to engage in a dispute with the poor for the control of political power, or, alternatively, to extend democracy. According to the results of the model populist redistribution (or military repression), if any, increases with initial wealth inequality and with the amount of redistribution that the poor can undertake under democracy, and decreases with the relative importance of a human capital externality in production. The model explains why in some cases the use of an apparently ine cient policy of populist redistribution turns out to be optimal for both groups (the ruling elite and the poor class) when the alternative is to use of military repression or default to conflict.; Populism, oligarchy, democracy, conflict, inequality.
    JEL: H11 D73 D74 D78 D30
  43. By: Giampaolo Garzarelli (University of Rome, 'La Sapienza')
    Abstract: This work is a contribution to the Second Generation Theory (SGT) of fiscal federalism that studies fiscal federalism through contemporary economic and industrial organization theory. First, it establishes context by introducing the two classic motivations in support of federalism, namely, incentives and knowledge. Second, it succinctly discusses the incentive-based organizational approach of the SGT. Third, it shows that the Tiebout model already embeds an organizational approach, which instead rests on a knowledge motivation. The underlying theme is that the SGT should include both the incentive and knowledge motivations for fiscal decentralization.
    Keywords: Economic organization, Incentives, Knowledge, Second Generation Theory of fiscal federalism.
    JEL: D79 H10 H77
    Date: 2005–09–21
  44. By: Johannes Rincke; Robert Schwager
    Abstract: Many welfare schemes discourage low skilled individuals from working. In the same time, there is widespread support for the welfare state among the highly educated. We suggest a model which explains these seemingly contrasting observations. In our approach, intergenerational social mobility is conditional on labour market participation of the parents. Such mobility increases the supply of high skilled labour in the next generation. To protect their children from the associated fall in wages, middle class parents have an incentive to induce unemployment among low skilled parents, and therefore vote for a social transfer.
    Keywords: political preferences, voting, unemployment, social mobility, welfare state
    JEL: H53 I38 D72
    Date: 2005–09–14
  45. By: Miralles, A. (Universitat de Barcelona)
    Abstract: This empirical work applies a duration model to the study of factors determining privatization of local water services. I assess how factors determining privatization decision evolve as time goes by. A sample of 133 Spanish municipalities during the six terms of office taken place during the 1980-2002 period is analyzed. A dynamic neighboring effect is hypothesized and successfully tested. In a first stage, private water supply firms may try to expand to regions where there is no service privatized, in order to spread over this region after having being installed thanks to its scale advantages. Other factors influencing privatization decision evolve during the two decades under study, from the priority to fix old infrastructures to the concern about service efficiency. Some complementary results regarding political and budgetary factors are also obtained.
    Date: 2005
  46. By: Gerda Dewit (National University of Ireland Maynooth); Dermot Leahy (University College Dublin)
    Abstract: We introduce endogenous leadership in a game between government and firms, in which the government has short-run commitment power only and firms choose when to invest. We show that firms that delay investment in the absence of government intervention have an incentive to invest early and strategically under policy activism. Then, even though a policy scheme succeeds in correcting an existing distortion targeted by the government, it can create a new and potentially more harmful one. We investigate when the government may do better by adhering to laissez-faire than by engaging in active policy intervention.
    Keywords: Short-run government commitment, Microeconomic policy,Endogenous policy leadership, Investment timing,Uncertainty, Laissez faire
    JEL: D21 D80 H23
    Date: 2004–09
  47. By: Jordi Galí
    Abstract: The present paper describes recent research on two central themes of Keynes’ General Theory: (i) the social waste associated with recessions, and (ii) the effectiveness of fiscal policy as a stabilization tool. The paper also discusses some evidence on the extent to which fiscal policy has been used as a stabilizing tool in industrial economies over the past two decades.
    Keywords: business cycles, inefficient allocations, government spending multiplier, non-Ricardian households, countercyclical policies
    JEL: E32 E63
    Date: 2004–10
  48. By: Josep M. Colomer
    Abstract: This article presents, discusses and tests the hypothesis that it is the number of parties what can explain the choice of electoral systems, rather than the other way round. Already existing political parties tend to choose electoral systems that, rather than generate new party systems by themselves, will crystallize, consolidate or reinforce previously existing party configurations. A general model develops the argument and presents the concept of 'behavioral-institutional equilibrium' to account for the relation between electoral systems and party systems. The most comprehensive dataset and test of these notions to date, encompassing 219 elections in 87 countries since the 19th century, are presented. The analysis gives strong support to the hypotheses that political party configurations dominated by a few parties tend to establish majority rule electoral systems, while multiparty systems already existed before the introduction of proportional representation. It also offers the new theoretical proposition that strategic party choice of electoral systems leads to a general trend toward proportional representation over time.
    Keywords: Elections, electoral systems, political parties, institutional equilibrium
    JEL: H10 H79
    Date: 2005–03
  49. By: Josep M. Colomer
    Abstract: We present voters' self-placement and 68 political party locations on the left-right dimension in 17 Latin American countries. Innovative calculations are based on data from Latinobarometer annual surveys from 1995 to 2002. Our preliminary analysis of the results suggests that most Latin American voters are relatively highly ideological and rather consistently located on the left-right dimension, but they have very high levels of political alienation regarding the party system. Both voters' self-placement and the corresponding party locations are presently highly polarized between the center and the right, with a significant weakness of leftist or broadly appealing 'populist' positions.
    Keywords: Political ideology, left-right dimension, political parties, electoral competition
    JEL: E61 H10
    Date: 2005–03
  50. By: Douglas Coate; Richard Schwester
    Abstract: One way the New Jersey state government regulates the consumption of alcoholic beverages is by linking the issuance of new licenses for the sale of alcoholic beverages for on premise consumption and for off premise consumption to population growth in municipalities. State regulations further permit municipalities that are population eligible to auction the new licenses for the sale of alcoholic beverages. Our purposes in this paper are to consider the effects of the population restrictions on alcoholic beverage licenses in New Jersey on beer, wine, and spirits consumption, to investigate the extent to which the on premise alcoholic beverage licensing system affects prices in the New Jersey restaurant industry, and to examine the determinants of the auction values of liquor licenses in New Jersey. We find that the much smaller number of per capita outlets for the purchase of alcoholic beverages for off premise consumption in New Jersey as compared to other states has had an important impact on beer consumption, reducing it by more than ten percent over what it would be if per capita outlets were as numerous as in other states. The authors’ survey of municipal clerks shows substantial values for licenses auctioned by New Jersey municipalities for on premise and for off premise alcoholic beverage consumption in the last decade. The mean auction values for these licenses in 2005 dollars are $395,000 and $312,000, respectively. Assuming any monopoly profits are bid away in the auction process, the licensing carrying costs must be recouped by license holders. Zagat guide restaurant review data show four to five dollar higher costs for a restaurant meal and one drink, food, service, and décor constant, in licensed restaurants as compared to restaurants without a liquor license.
    Keywords: Beverage Licenses, Beer, Wine, Spirits Consumption, Auctions
    JEL: I18 H20
    Date: 2005–09
  51. By: Raquel Bernal; Mauricio Cárdenas
    Abstract: Abstract: In this paper we explore race and ethnic health inequalities in Colombia. We first characterize the situation of Afro-Colombians and indigenous populations in Colombia. Second, we document racial/ethnic disparities in health outcomes and access to health care using data from the Living Standards Survey and the evaluation of the Familias en Acción program. Third, we set up a statistical model that allows us to test whether some of the health inequalities that are observed still remain after controlling for a wide range of individual and household observed characteristics, including access to health care. The results indicate that most racial and ethnic disparities in health and access to health care disappear once we control for socioeconomic characteristics of individuals, employment status and characteristics of the job and geographic location among other things. Based on these findings we make some specific policy recommendations aimed at improving the status of racial minorities in Colombia.
    Keywords: Salud
    JEL: H11
    Date: 2005–01–03
  52. By: Amy Finkelstein; Robin McKnight
    Abstract: We study the impact of the introduction of one of the major pillars of the social insurance system in the United States: the introduction of Medicare in 1965. Our results suggest that, in its first 10 years, the establishment of universal health insurance for the elderly had no discernible impact on their mortality. However, we find that the introduction of Medicare was associated with a substantial reduction in the elderly’s exposure to out of pocket medical expenditure risk. Specifically, we estimate that Medicare’s introduction is associated with a forty percent decline in out of pocket spending for the top quartile of the out of pocket spending distribution. A stylized expected utility framework suggests that the welfare gains from such reductions in risk exposure alone may be sufficient to cover between half and three-quarters of the costs of the Medicare program. These findings underscore the importance of considering the direct insurance benefits from public health insurance programs, in addition to any indirect benefits from an effect on health.
    JEL: H51 I11 I18
    Date: 2005–09
  53. By: Jan Schnellenbach (Department for Public Economics, Marburg University)
    Abstract: A popular argument about economic policy under uncertainty states that decentralisation offers the possibility to learn from local or regional policy experiments. We argue that such learning processes are not trivial and do not occur frictionlessly: Voters have an inherent tendency to retain a given stock of policy-related knowledge which was costly to accumulate, so that yardstick competition is improbable to function well particularly for complex issues if representatives' actions are tightly controlled by the electorate. Decentralisation provides improved learning processes compared to unitary systems, but the results we can expect are far from the ideal mechanisms of producing and utilising knowledge often described in the literature.This paper looks at competition in the telecommunication industry.
    Keywords: Policy decentralisation, fiscal competition, model uncertainty, collective learning
    JEL: H73 O31 D83
    Date: 2005–06
  54. By: Söderberg, Marie (European Institute of Japanese Studies)
    Abstract: Peace building and peace preservation are new key concepts in Japanese foreign aid policy. According to the revision of the ODA charter in 2003, the objective of Japan’s foreign aid is to contribute to the peace and development of the international community, and thereby to help ensure Japan’s own security and prosperity--“Japan aspires for world peace. Actively promoting the aforementioned effort with ODA” that Japan will carry out “even more strategically” in the future. Asia and especially East Asia is pointed out as a priority region. North Korea, with whom Japan has not yet normalised its relations, is one of Japan’s closest neighbours and would, from a logical point of view, then seem like an important starting point. However, when main Japanese aid agencies such as JICA (Japan International Co-operation Agency) and JBIC (Japan Bank of International Co-operation) are asked, no one works officially with aid to North Korea. The standard answer is that there is no aid to that country, besides some smaller amounts of Japanese humanitarian aid that are channelled through multilateral organisations. If Japan regards aid as one of its main tools for creating peace, why isn’t aid provided to North Korea? Aid is a very complex issue and not giving is often regarded as effective as giving, when it comes to getting concessions and changes in the recipients’ policy behaviour. It is used both as a carrot and a stick. Aid is always envisioned as something quite plausible, if North Korean policy behaviour is changed for the better according to Japanese judgement (so called positive aid sanction); but aid is never paid out and remains an illusion as long as it does not change (negative sanction). But the question for Japan is more complex than this. There are various domestic opinions and interest groups that have to be taken into consideration. The kidnapping issue (Japanese citizens kidnapped by North Korea in the 1970s) has lead to a considerable amount of anti-North Korean sentiment that makes it difficult for the Japanese government to disperse aid to North Korea. There is also foreign pressure at work; the US, Japan’s military ally, and other western countries as well have imposed economic sanctions on North Korea due to its withdrawal from the nuclear non-proliferation treaty. This also affects the Japanese position on the aid question. Keeping all these factors in mind, this paper questions if Japanese foreign aid is an effective tool to influence North Korean policy behaviour. Has it ever led to a change of behaviour? Has it contributed to peace and stability in the area in any way?
    Keywords: Japanese politics; Japan-North Korea; Japanese ODA policy
    JEL: H56 O20 R58
    Date: 2005–09–16
  55. By: Stan McMillen; Kathryn Parr; Xiumei Song; Brian Baird
    Keywords: health care, Connecticut, health insurance
    JEL: I18 H51
    Date: 2004–10
  56. By: Doh-Shin Jeon; Domenico Menicucci
    Abstract: The earning structure in science is known to be flat relative to the one in the private sector, which could cause a brain drain toward the private sector. In this paper, we assume that agents value both money and fame and study the role of the institution of science in the allocation of talent between the science sector and the private sector. Following works on the Sociology of Science, we model the institution of science as a mechanism distributing fame (i.e. peer recognition). We show that since the intrinsic performance is less noisy signal of talent in the science sector than in the private sector, a good institution of science can mitigate the brain drain. We also find that providing extra monetary incentives through the market might undermine the incentives provided by the institution and thereby worsen the brain drain. Finally, we study the optimal balance between monetary and non-monetary incentives in science.
    Keywords: Fame, Science, Brain Drain, Incentives, Asymmetric Information
    JEL: D82 H21 H41 J24
    Date: 2005–02
  57. By: Amitabh Chandra; Andrew A. Samwick
    Abstract: We estimate consumers’ valuation of disability insurance using a stochastic lifecycle framework in which disability is modeled as permanent, involuntary retirement. We base our probabilities of worklimiting disability on 25 years of data from the Current Population Survey and examine the changes in the disability gradient for different demographic groups over their lifecycle. Our estimates show that a typical consumer would be willing to pay about 5 percent of expected consumption to eliminate the average disability risk faced by current workers. Only about 2 percentage points reflect the impact of disability on expected lifetime earnings; the larger part is attributable to the uncertainty associated with the threat of disablement. We estimate that no more than 20 percent of mean assets accumulated before voluntary retirement are attributable to disability risks measured for any demographic group in our data. Compared to other reductions in expected utility of comparable amounts, such as a reduction in the replacement rate at voluntary retirement or increases in annual income fluctuations, disability risk generates substantially less pre-retirement saving. Because the probability of disablement is small and the average size of the loss — conditional on becoming disabled — is large, disability risk is not effectively insured through precautionary saving.
    JEL: H0 I1 J1
    Date: 2005–09
  58. By: Marianne P. Bitler; Jonah B. Gelbach; Hilary W. Hoynes
    Abstract: A large literature has been concerned with the impacts of recent welfare reforms on income, earnings, transfers, and labor-force attachment. While one strand of this literature relies on observational studies conducted with large survey-sample data sets, a second makes use of data generated by experimental evaluations of changes to means-tested programs. Much of the overall literature has focused on mean impacts. In this paper, we use random-assignment experimental data from Canada's Self-Sufficiency Project (SSP) to look at impacts of this unique reform on the distributions of income, earnings, and transfers. SSP offered members of the treatment group a generous subsidy for working full time. Quantile treatment effect (QTE) estimates show there was considerable heterogeneity in the impacts of SSP on the distributions of earnings, transfers, and total income; heterogeneity that would be missed by looking only at average treatment effects. Moreover, these heterogeneous impacts are consistent with the predictions of labor supply theory. During the period when the subsidy is available, the SSP impact on the earnings distribution is zero for the bottom half of the distribution. The SSP earnings distribution is higher for much of the upper third of the distribution except at the very top, where the earnings distribution is the same under either program or possibly lower under SSP. Further, during the period when SSP receipt was possible, the impacts on the distributions of transfer payments (IA plus the subsidy) and total income (earnings plus transfers) are also different at different points of the distribution. In particular, positive impacts on the transfer distribution are concentrated at the lower end of the transfer distribution while positive impacts on the income distribution are concentrated in the upper end of the income distribution. Impacts of SSP on these distributions were essentially zero after the subsidy was no longer available.
    JEL: J2 I38 H53
    Date: 2005–09
  59. By: Amy Finkelstein
    Abstract: This paper investigates the effects of market-wide changes in health insurance by examining the single largest change in health insurance coverage in American history: the introduction of Medicare in 1965. I estimate that the impact of Medicare on hospital spending is substantially larger than what the existing evidence from individual-level changes in health insurance would have predicted. Consistent with a disproportionately larger impact of aggregate changes in health insurance, the evidence suggests that the introduction of Medicare altered the practice of medicine. For example, I find that the introduction of Medicare is associated with an increase in the rate of adoption of then-new medical technologies. A back of the envelope calculation based on the estimated impact of Medicare suggests that the overall spread of health insurance between 1950 and 1990 may be able to explain at least forty percent of the increase in real per capita health spending over this time period.
    JEL: H51 I11 I18
    Date: 2005–09
  60. By: Patrick Paul Walsh; Peter McGoldrick (Department of Economics, Trinity College)
    Abstract: We estimate the productivity dynamics of 680 industrial Chinese State-Owned Enterprises (SOEs) between 1980 and 1994. During this time managerial autonomy over factor markets was introduced. The timing of autonomy varied across SOEs and take-up was an endogenous process: high-productivity SOEs where more likely to take managerial control. We allow for this by adapting an algorithm developed in Olley & Pakes (1996) in order to generate estimates of productivity dynamics that deal with both simultaneity and endogenous selection biases. Apart from offering a methodology to estimate productivity dynamics during endogenous institutional change, we demonstrate that SOEs in China obtained productivity gains from managerial autonomy over factor markets in the years before privatisation.
    Date: 2005–08
  61. By: Campos, Nauro F; Giovannoni, Francesco
    Abstract: During the transition from plan to market, managers and politicians succeeded in maintaining control of large parts of the stock of socialist physical capital. Despite the obvious importance of this phenomenon, there have been no efforts to model, measure and investigate this process empirically. This paper tries to fill this gap by putting forward theory and econometric evidence. We argue that asset stripping is driven by the interplay between the firm's potential profitability and its ability to influence law enforcement. Our econometric results, for about 950 firms in five transition economies, provide support for this argument.
    Keywords: asset stripping; corruption; law enforcement; transition
    JEL: H82 K42 O17 P26 P31
    Date: 2005–09
  62. By: Steven J. Haider; Kathleen McGarry
    Abstract: Motivated in part by the dramatic changes in the United States economy and public assistance policies, many researchers have examined the changes in the resources of the low-income population over the last two decades, with particular attention paid to income from earnings and public assistance programs. One source of income that has received comparatively little attention is income from private transfers. However, private transfers may be a key source of support for low-income individuals, especially for those who have had little attachment to the labor force or who have experienced reductions in public assistance. In this paper, we provide a conceptual discussion of private transfers drawing on several related literatures and provide new empirical evidence regarding the significance of private of transfers as a source income. We find that private transfers are an important source of income for many less-skilled households, the contribution of private transfers to total income has increased over time, and shared living arrangements are a common mechanism for providing assistance.
    JEL: I3 J0 H0
    Date: 2005–09
  63. By: John J. Donohue III
    Abstract: This essay provides an overview of the central theoretical law and economics insights concerning antidiscrimination law across a variety of contexts including discrimination in labor markets, housing markets, consumer purchases, and policing. The different models of discrimination based on animus, statistical discrimination, and cartel exploitation are analyzed for both race and sex discrimination. I explore the theoretical arguments for prohibiting private discriminatory conduct and illustrates the tensions that exist between concerns for liberty and equality. I also discuss the critical point that one cannot automatically attribute observed disparities in various economic or social outcomes to discrimination, and illustrate the complexities in establishing the existence of discrimination. The major empirical findings showing the effectiveness of federal law in the first decade after passage of the 1964 Civil Rights Act are contrasted with the generally less optimistic findings from subsequent antidiscrimination interventions.
    JEL: H J K
    Date: 2005–09
  64. By: Glick, Reuven; Taylor, Alan M
    Abstract: Conventional wisdom in economic history suggests that conflict between countries can be enormously disruptive of economic activity, especially international trade. Yet nothing is known empirically about these effects in large samples. We study the effects of war on bilateral trade for almost all countries with available data extending back to 1870. Using the gravity model, we estimate the contemporaneous and lagged effects of wars on the trade of belligerent nations and neutrals, controlling for other determinants of trade. We find large and persistent impacts of wars on trade, and hence on national and global economic welfare. A rough accounting indicates that such costs might be of the same order of magnitude as the "direct" costs of war, such as lost human capital, as illustrated by case studies of World War I and World War II.
    Keywords: conflict; gravity model; peace; World War I; World War II
    JEL: D74 F02 F10 F14 H56 N40 N70
    Date: 2005–09

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