nep-pbe New Economics Papers
on Public Economics
Issue of 2005‒10‒08
27 papers chosen by
Peren Arin
Massey University

  1. Puzzling Tax Structures in Developing Countries: A Comparison of Two Alternative Explanations By Roger Gordon; Wei Li
  2. Monetary-Fiscal Policy Interactions and the Price Level: Background and Beyond By Eric M. Leeper; Tack Yun
  3. Modern Perspectives on Stabilization Policies By Jordi Galí
  4. Deficits and Debt in the Short and Long Run By Benjamin M. Friedman
  5. Does Centralised Wage Setting Lead into Higher Taxation By Juha Kilponen; Pekka Sinko
  6. Tax Reform and Environmental Taxation By Gilbert E. Metcalf
  7. Land taxes in a Latin American context By Juliano Junqueira Assunção; Humberto Moreira
  8. Tax Evasion and the Importance of Trust By Hammar, Henrik; Jagers, Sverker; Nordblom, Katarina
  9. Gli effetti redistributivi delle riforme dell'imposizione personale nella XIV Legislatura By Davide Tondani; Patrizia Mancini
  10. Saving Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with H&R Block By Esther Duflo; William Gale; Jeffrey Liebman; Peter Orszag; Emmanuel Saez
  11. The Tax Base in Transition: The Case of Bulgaria, World Bank Policy Research Working Paper Series No. 1267 (March 1994), The World Bank. By Zeljko Bogetic; Arye Hillman
  12. Personal Income Tax Reform and Revenue Potential in Transition By Zeljko Bogetic; Fareed Hassan
  13. Is It Is or Is It Ain%u2019t My Obligation? Regional Debt in a Fiscal Federation By Russell Cooper; Hubert Kempf; Dan Peled
  14. Will China Eat Our Lunch or Take Us Out to Dinner? Simulating the Transition Paths of the U.S., EU, Japan, and China By Hans Fehr; Sabine Jokisch; Laurence J. Kotlikoff
  16. Were Bush Tax Cut Supporters “Simply Ignorant?” A Second Look at Conservatives and Liberals in “Homer Gets a Tax Cut” By Arthur Lupia; Adam S. Levine; Jesse O. Menning; Gisela Sin
  17. Fractional Treatment Rules for Social Diversification of Indivisible Private Risks By Charles F. Manski
  18. Aggregate Scale Economies, Market Integration, and Optimal Welfare State Policy By Hassan Molana; Catia Montagna
  19. Collateral, Access to Credit, and Investment in Bulgaria, chap. 8 in D. Jones and J. Miller (eds) THE BULGARIAN ECONOMY: LESSONS FROM REFORM DURING EARLY TRANSITION, Ashgate 97. By Zeljko Bogetic
  20. How the President and Senate Affect the Balance of Power in the By Gisela Sin; Arthur Lupia
  21. Heterogeneous Firms, Agglomeration and Economic Geography: Spatial Selection and Sorting By Richard Baldwin; Toshihiro Okubo
  22. Are Traditional Retirements a Thing of the Past? New Evidence on Retirement Patterns and Bridge Jobs By Kevin E. Cahill; Michael D. Giandrea; Joseph F. Quinn
  23. Minorities and Storable Votes By Alessandra Casella; Thomas Palfrey; Raymond Riezman
  24. Necessary Conditions for Improving Civic Competence: A Scientific Perspective By Arthur Lupia
  25. Infrastructure, Productivity and Urban Dynamics in Cote d'Ivoire, Africa Region Working Paper Series No. 86 (July 2005), The World Bank, Washington D.C. By Zeljko Bogetic; Issa Sanogo
  26. Privatizing Profits of Bulgaria's State Enterprises, TRANSITION newsletter about transition economies, The World Bank, Vol. 6, No.3, March 1995. By Zeljko Bogetic; Arye Hillman
  27. Courts, firms and allocation of credit By Julia Shvets

  1. By: Roger Gordon; Wei Li
    Abstract: Observed economic policies in developing countries differ sharply both from those observed among developed countries and from those forecast by existing models of optimal policies. For example, developing countries rely little on broad-based taxes, and make substantial use of tariffs and seignorage as nontax sources of revenue. The objective of this paper is to contrast the implications of two models designed to explain such anomalous policies. One approach, by Gordon-Li (2005), focuses on the greater difficulties faced in poor countries in monitoring taxable activity, and explores the best available policies given such difficulties. The other, building on Grossman-Helpman (1994), presumes that political-economy problems in developing countries are worse, leading to worse policy choices. The paper compares the contrasting theoretical implications of the two models with the data, and finds that the political-economy approach does poorly in reconciling many aspects of the data with the theory. In contrast, the forecasts from Gordon-Li model are largely consistent with the data currently available.
    JEL: H21 O23 O17 F13 F23
    Date: 2005–10
  2. By: Eric M. Leeper; Tack Yun
    Abstract: The paper presents the fiscal theory of the price level in a variety of models, including endowment economies with lump-sum taxes and production economies with proportional income taxes. We offer a microeconomic perspective on the fiscal theory by computing a Slutsky-Hicks decomposition of the effects of tax changes into substitution, wealth, and revaluation effects. Revaluation effects arise whenever tax changes alter the value of outstanding nominal government liabilities by changing the price level. Under certain assumptions on monetary and fiscal behavior, the revaluation effect reflects the fiscal theory mechanism. When taxes distort, two Laffer curves arise, implying that a tax increase can lower or raise the price level and the revaluation effect can be positive or negative, depending on which side of a particular Laffer curve the economy resides.
    JEL: E31 E52 E62
    Date: 2005–10
  3. 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: 2005–06
  4. By: Benjamin M. Friedman
    Abstract: This paper begins by examining the persistence of movements in the U.S. Government’s budget posture. Deficits display considerable persistence, and debt levels (relative to GDP) even more so. Further, the degree of persistence depends on what gives rise to budget deficits in the first place. Deficits resulting from shocks to defense spending exhibit the greatest persistence and those from shocks to nondefense spending the least; deficits resulting from shocks to revenues fall in the middle. The paper next reviews recent evidence on the impact of changes in government debt levels (again, relative to GDP) on interest rates. The recent literature, focusing on expected future debt levels and expected real interest rates, indicates impacts that are large in the context of actual movements in debt levels: for example, an increase of 94 basis points due to the rise in the debt-to-GDP ratio during 1981-93, and a decline of 65 basis point due to the decline in the debt-to-GDP ratio during 1993-2001. The paper next asks why deficits would exhibit the observed negative correlation with key elements of investment. One answer, following the analysis presented earlier, is that deficits are persistent and therefore lead to changes in expected future debt levels, which in turn affect real interest rates. A different reason, however, revolves around the need for markets to absorb the increased issuance of Government securities in a setting of costly portfolio adjustment. The paper concludes with some reflections on “the Perverse Corollary of Stein’s Law”: that is, the view that in the presence of large government deficits nothing need be done because something will be done.
    JEL: E62
    Date: 2005–10
  5. By: Juha Kilponen (Bank of Finland); Pekka Sinko (Prime Minister's Office)
    Abstract: This paper studies implications of centralised wage setting for the level of taxation and public expenditure in an analytical model with unionised labour markets. We extend the previous studies by allowing for 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 the 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, median voter
    JEL: J
    Date: 2005–09–30
  6. 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).
    JEL: H2 Q4 Q5
    Date: 2005–10
  7. By: Juliano Junqueira Assunção (Department of Economics PUC-Rio); Humberto Moreira (EPGE/FGV)
    Abstract: Since Henry George (1839-1897) economists have been arguing that a tax on unim- proved land is an ideal tax on e¢ ciency grounds. Output taxes, on the other hand, have distortional e¤ects on the economy. This paper shows that under asymmetric information output tax might be used along with land tax in order to implement the optimal taxation scheme in a Latin-American context, i.e., in an economy with imperfect land-rental market, non-agricultural land use and non-revenue objectives of land taxation. Also, we show that: (i) schemes based on land taxes alone might not be implementable; and (ii) tax evasion is more acute among large landholders.
    Keywords: Optimal taxation, tax evasion, land use.
    Date: 2005–02
  8. By: Hammar, Henrik (Department of Economics, Göteborg University and National Institute of Economic Research (NIER)); Jagers, Sverker (Department of Political Science, Göteborg University); Nordblom, Katarina (Department of Economics, School of Business, Economics and Law)
    Abstract: Unless people pay the taxes they are obliged to pay, a general welfare state will eventually collapse. Thus, for the welfare state to survive in the long run, tax compliance is of utmost importance. Using Swedish individual survey data we analyze which factors affect the perception of tax evasion. The analysis is conducted on ten different taxes and the results differ widely. Hence, we show that it is important to study different taxes separately rather than treating tax evasion as one common phenomenon. In this paper we focus on the importance of different kinds of trust. Whether or not people in general are regarded as trustworthy only has a minor impact on perceived tax evasion. Instead, what matters is trust or distrust in politicians. People who distrust the parliament are more likely than others to think that tax evasion is common, and the result holds for most of the taxes studied. This may have severe long-run consequences for the welfare state. If people stop trusting their leading politicians, social norms about tax compliance deteriorate and the possibilities of collecting taxes for maintain- ing the welfare state are reduced. <p>
    Keywords: trust in politicians; generalized trust; social capital; general welfare state; tax policy; tax compliance
    JEL: H11 H26 Z13
    Date: 2005–09–27
  9. By: Davide Tondani (Università di Parma, Dipartimento di Diritto, Economia e Finanza Internazionale); Patrizia Mancini
    Abstract: As many industrialized countries, in recent years Italy reformed its fiscal system. In particular, during the period 2002-2005, two reforms deeply modified the Personal Income Tax (PIT) structure. This paper analyses the main redistributive and on disposable income effects due to the reforms of the current period of office of Parlament. The comparison with the previous PIT law is made analyzing average and marginal tax rate, liability progression and family allowances for different family size and composition. Similmente a molti altri paesi industrializzati, l’Italia ha provveduto in anni recenti a riformare il proprio sistema fiscale. In particolare, nel periodo 2002-2005 due interventi di riforma hanno profondamente modificato la struttura dell’imposta sui redditi personali. Il paper prende in considerazione i principali effetti redistributivi e sul reddito disponibile conseguenti alle riforme dell’imposizione personale avvenute durante la XIV Legislatura. Il confronto con la legislazione del 2001 viene effettuato analizzando per diversi tipi di nucleo famigliare, la struttura delle aliquote medie e marginali effettive, la tutela delle responsabilità famigliari e la progressività dell’imposta.
    Keywords: Redistribution Personal income tax Italy Marginal tax rate Average tax rate Liability progression Redistributive effects
    JEL: D6 D7 H
    Date: 2005–10–05
  10. By: Esther Duflo; William Gale; Jeffrey Liebman; Peter Orszag; Emmanuel Saez
    Abstract: This paper analyzes the effects of a large randomized field experiment carried out with H&R Block, offering matching incentives for IRA contributions at the time of tax preparation. About 14,000 H&R Block clients, across 60 offices in predominantly low- and middle-income neighborhoods in St. Louis, were randomly offered a 20 percent match on IRA contributions, a 50 percent match, or no match (the control group). The evaluation generates two main findings. First, higher match rates significantly raise IRA participation and contributions. Take-up rates were 3 percent for the control group, 8 percent in the 20 percent match group, and 14 percent in the 50 percent match group. Average IRA contributions (including non-contributors, excluding the match) for the 20 percent and 50 percent match groups were 4 and 7 times higher than in the control group, respectively. Second, several additional findings are inconsistent with the full information, rational-saver model. In particular, we find much more modest effects on take-up and amounts contributed from the existing Saver's Credit, which provides an effective match for retirement saving contributions through the tax code; we suspect that the differences may reflect the complexity of the Saver's Credit as enacted, and the way in which its effective match is presented. Taken together, our results suggest that the combination of a clear and understandable match for saving, easily accessible savings vehicles, the opportunity to use part of an income tax refund to save, and professional assistance could generate a significant increase in contributions to retirement accounts, including among middle- and low-income households.
    JEL: H0 H3
    Date: 2005–10
  11. By: Zeljko Bogetic (The World Bank); Arye Hillman (Bar-Ilan University)
    Abstract: Meeting government revenue needs without inhibiting private sector development is a key challenge of tax policy during the transition from the socialist system. The paper explores issues in the design of tax bases and tax structures in the transition and argues that transition economies would need to adopt a lower and simpler tax structure than the ones prevailing in developed Western market economies.
    Keywords: tax reform, tax policy, tax bases, tax structure, transition, Bulgaria
    JEL: D6 D7 H D1 D4 F1 F2 O P
    Date: 2005–10–05
  12. By: Zeljko Bogetic (The World Bank); Fareed Hassan
    Abstract: The paper uses the 1992 household survey for Bulgaria to show poor revenue performance of the income tax structure prevailing in 1992, which did not take into account the underlying distribution of income. The paper shows that Bulgaria can benefit from a much lower and simpler income tax rate structure, which will be superior on revenue and distributional grounds. Subsequently in the 1990s, Bulgaria implemented an income tax reform similar to the one advocated in this paper.
    Keywords: Income tax, tax reform, tax potential tax rate, tax base, income distribution, Bulgaria, transition
    JEL: D6 D7 H D1 D2 D3 D4 O P
    Date: 2005–10–05
  13. By: Russell Cooper; Hubert Kempf; Dan Peled
    Abstract: This paper studies the repayment of regional debt in a multi-region economy with a central authority: who pays the obligation issued by a region? With commitment, a central government will use its taxation power to smooth distortionary taxes across regions. Absent commitment, the central government may be induced to bailout the regional government in order to smooth consumption and distortionary taxes across the regions. We characterize the conditions under which bailouts occur and their welfare implications. The gains to creating a federation are higher when the (government spending) shocks across regions are negatively correlated and volatile. We use these insights to comment on actual fiscal relations in three quite different federations: the US, the European Union and Argentina.
    JEL: E6 F4 R5
    Date: 2005–10
  14. By: Hans Fehr; Sabine Jokisch; Laurence J. Kotlikoff
    Abstract: This paper develops a dynamic, life-cycle, general equilibrium model to study the interdependent demographic, fiscal, and economic transition paths of China, Japan, the U.S., and the EU. Each of these countries/regions is entering a period of rapid and significant aging requiring major fiscal adjustments. In previous studies that excluded China we predicted that tax hikes needed to pay benefits along the developed world's demographic transition would lead to capital shortage, reducing real wages per unit of human capital. Adding China to the model dramatically alters this prediction. Even though China is aging rapidly, its saving behavior, growth rate, and fiscal policies are very different from those of developed countries. If this continues to be the case, the model's long run looks much brighter. China eventually becomes the world's saver and, thereby, the developed world's savoir with respect to its long-run supply of capital and long-run general equilibrium prospects. And, rather than seeing the real wage per unit of human capital fall, the West and Japan see it rise by one fifth by 2030 and by three fifths by 2100. These wage increases are over and above those associated with technical progress.
    JEL: E2 E4 H2 H3 H5 H6 J1
    Date: 2005–10
  15. By: Vincenzo Andrietti; Vincent Hildebrand
    Abstract: This paper uses the Tax Reform Act of 1986 (TRA86) as a natural experiment to evaluate the job mobility response of prime aged US employees participating into employer sponsored defined benefit (DB) pension plans to a reduction in the vesting period for pension rights accrual. The repeated panel data design of the Survey of Income and Program Participation (SIPP) allows us to implement a "difference-in-difference" identification strategy using data from pre and post-reform periods. The effect of the policy change is identified as the difference between the change in predicted voluntary job mobility of the treated group and the change in predicted voluntary job mobility of the control group, over the period under study. We find that the reform had no significant effects on voluntary job mobility of the treated group. Our findings are robust to the use of different control groups and different pre/post reform samples.
    Date: 2004–10
  16. By: Arthur Lupia (University of Michigan); Adam S. Levine (University of Michigan); Jesse O. Menning (University of Michigan); Gisela Sin (University of Michigan)
    Abstract: In a recent edition of Perspectives on Politics, Larry Bartels examines the high levels of support for tax cuts signed into law by President Bush in 2001. In so doing, he characterizes the opinions of “ordinary people” as being based on “simple-minded and sometimes misguided considerations of self interest” and concludes that “the strong plurality support for Bush’s tax entirely attributable to simple ignorance.” Our analysis of the same data reveals different results. We show that for a large and politically relevant class of respondents – people who describe themselves as “conservative” or “Republican” – increasing information levels increase support for the tax cuts to the extent that they have any affect at all. Indeed, using Bartels’ measure of political information, we show that the Republican respondents rated most informed supported the tax cuts at extraordinarily high levels (over 96%). For these citizens, Bartels’ claim that “better-informed respondents were much more likely to express negative views about the 2001 tax cut” is simply untrue. We then show that Bartels’ results depend on a very strong assumption about how information affects public opinion. He restricts all respondents -- whether liberal or conservative, Republican or Democrat – to respond to increasing information levels in identical ways. In other words, he assumes that if more information about the tax cut makes liberals less likely to support it, then conservatives must follow suit. This assumption is very presumptive about the policy and value trade- offs that different people should make. Our analysis, by contrast, allows people of different partisan or ideological identities to react to higher information levels in varying ways. This flexibility has many benefits, one of which is a direct test of Bartels’ restrictive assumption. We demonstrate that the assumption is untrue. Examined several ways, our findings suggest that much of the support for the tax cut was attributable to something other than “simple ignorance.” Bartels’ approach is based on a very strong presumption about how citizens should think and what they should think about. We advocate a different approach, one that takes questions of public policy seriously while respecting ideological and partisan differences in opinion and interest. Indeed, citizens have reasons for the opinions and interests they have. We may or may not agree with them. However, we, as social scientists, can contribute more by offering reliable explanations of these reasons than we can by judging them prematurely. By turning our attention to explaining differences of opinion, we can help to forge a stronger and more credible foundation for progress in meeting critical social needs.
    Keywords: public opinion, tax policy, incomplete information, welfare economics
    JEL: D6 D7 H
    Date: 2005–10–05
  17. By: Charles F. Manski
    Abstract: Should a social planner treat observationally identical persons identically? This paper shows that uniform treatment is not necessarily desirable when a planner has only partial knowledge of treatment response. Then there may be reason to implement a fractional treatment rule, with positive fractions of the observationally identical persons receiving different treatments. The planning problems studied here share some important features: treatment is individualistic, social welfare is a strictly increasing function of a population mean outcome, and outcomes depend on an unknown state of nature. They differ in the information that the planner has about the state of nature and in how he uses this information to make treatment choices. In particular, I compare treatment choice using Bayes rules and the minimax-regret criterion. Following the analysis, I put aside the literal notion of a planner who makes decisions on behalf of society and consider the feasibility of implementing fractional treatment rules in functioning democracies.
    JEL: D7 H0
    Date: 2005–10
  18. By: Hassan Molana (University of Dundee); Catia Montagna (University of Dundee)
    Abstract: Using a two-sector-two-country model with aggregate scale economies and unionisation, we show that optimal welfare state policy entails positive levels of unemployment benefits under free-trade and capital mobility. In this setting, economic integration does not reduce the revenue raising capacity of governments and thus does not lead to a race-to-the- bottom in social standards. Instead, trade and capital flows interact with welfare state policies in increasing welfare even when each government acts independently (non-cooperatively) in determining its optimal welfare payment. Cooperation is shown to improve upon noncooperative outcomes by raising both the generosity of the welfare state and aggregate welfare.
    Keywords: circular causation; international trade; capital mobility; optimal policy; welfare state
    JEL: E6 F1 F4 H3 J5
    Date: 2005–10–05
  19. By: Zeljko Bogetic (The World Bank)
    Abstract: The paper measures economic loss from the problem of inadequate collateral in Bulgaria and proposes solutions consisting of creation of security interests, perfection, and enforcement.
    Keywords: collateral, finance, access to credit, investment, Bulgaria
    JEL: G D6 D5 D7 H O P
    Date: 2005–10–05
  20. By: Gisela Sin (University of Michigan); Arthur Lupia (University of Michigan)
    Abstract: Can the President or the Senate affect the balance of power in the House? We find that they can. Our answer comes from a model that links House leadership decisions to the constitutional requirement to build lawmaking coalitions with the Senate and President. Changing the ideal point of a non-House actor, while holding constant the ideal point of all House members, can alter the House’s balance of power. Power shifts because changes in the Senate or President can reshape the set of achievable legislative outcomes, which, in turn, alters the bargaining power of key House members. A corollary clarifies when empowering preference outliers (policy extremists) in the House leads to legislative outcomes that moderates prefer. Overall, our theory clarifies how constitutional requirements induce House members to make different leadership decisions than they would if they were, as commonly represented, unaware of other chambers or branches of government.
    Keywords: congress, bargaining, legislative bargaining, collective action
    JEL: D6 D7 H
    Date: 2005–10–05
  21. By: Richard Baldwin; Toshihiro Okubo
    Abstract: A Melitz-style model of monopolistic competition with heterogeneous firms is integrated into a simple New Economic Geography model to show that the standard assumption of identical firms is neither necessary nor innocuous. We show that re-locating to the big region is most attractive for the most productive firms; this implies interesting results for empirical work and policy analysis. A 'selection effect' means standard empirical measures overestimate agglomeration economies. A 'sorting effect' means that a regional policy induces the highest productivity firms to move to the core while the lowest productivity firms to move to the periphery. We also show that heterogeneity dampens the home market effect.
    JEL: H32 P16
    Date: 2005–10
  22. By: Kevin E. Cahill (Tinari Economics Group); Michael D. Giandrea (U.S. Bureau of Labor Statistics); Joseph F. Quinn (Boston College)
    Abstract: Purpose: This paper investigates whether permanent, one-time retirements are coming to an end just as the trend towards earlier and earlier retirements did nearly 20 years ago. We explore how common bridge jobs are among today’s retirees, and how uncommon traditional retirements have become. Methods: Using data from the Health and Retirement Study (HRS), we explore the work histories and retirement patterns of a cohort of retirees aged 51 to 61 in 1992 over a ten-year time period in both a cross-sectional and longitudinal context. Bridge job determinants are examined using bivariate comparisons and a multinomial logistic regression model of the bridge job decision. Results: We find that one-half to two-thirds of the HRS respondents with full-time career jobs take on bridge jobs before exiting the labor force completely. We also find that bridge job behavior is most common among younger respondents, respondents without defined-benefit pension plans, and respondents at the lower- and upper-end of the wage distribution. Implications: The evidence suggests that changes in the retirement income landscape since the 1980s appear to be taking root. Going forward, traditional retirements will be the exception rather than the rule.
    Keywords: Economics of Aging; Partial Retirement; Gradual Retirement
    JEL: J26 J14 J32 H55
    Date: 2005–09
  23. By: Alessandra Casella; Thomas Palfrey; Raymond Riezman
    Abstract: The paper studies a simple voting system that has the potential to increase the power of minorities without sacrificing aggregate efficiency. Storable votes grant each voter a stock of votes to spend as desidered over a series of binary decisions. By cumulating votes on issues that it deems most important, the minority can win occasionally. But because the majority typically can outvote it, the minority wins only of its strength of preferences is high and the majority's strength of preferences is low. The result is that aggregate efficiency either falls little or in fact rises. The theoretical predictions are confirmed by a series of experiments: the frequency of minority victories, the relative payoff of the minority versus the majority, and the aggregate payoffs all match the theory.
    JEL: C9 D7 H1 K19
    Date: 2005–10
  24. By: Arthur Lupia (University of Michigan)
    Abstract: Many attempts to increase civic competence are based on premises about communication and belief change that are directly contradicted by important insights from microeconomic theory and social psychology. At least two economic literatures are relevant to my effort to improve matters. One is the literature on strategic communication, which includes Spence (1974), Crawford and Sobel (1982), Banks (1991), and Lupia and McCubbins (1998). The other is the literature on mechanism design, which includes Green and Laffont (1977), Myerson (1983) and Palfrey (1992). While both literatures have the potential to convey important insights, many scholars and practitioners do not yet see a need for such insights. This paper lays such a foundation. It explains how greater attention to basic scientific principles can help people who want to increase civic competence use the generosity of donors and the hard work of well-intentioned citizens more effectively. The paper continues as follows. First, I discuss the topic of competence more precisely. Then, I introduce the necessary conditions for increasing civic competence described above. Next, I describe implications and applications of these conditions – focusing in this paper on the growing contention that deliberation is an effective way to increase civic competence. Applying the necessary conditions to this topic reveals a need to revise and clarify common expectations about what deliberation can accomplish. A brief concluding section follows.
    Keywords: incomplete information, strategic communication, learning, behavioral economics,
    JEL: D6 D7 H
    Date: 2005–10–05
  25. By: Zeljko Bogetic (The World Bank); Issa Sanogo (The World Bank)
    Abstract: Recent contributions in economic geography reflect renewed interest in issues of location and spatial concentration of economic activities, yet there are still few empirical studies of developing countries, particularly in Africa. This paper aims to contribute to this body of knowledge by (i) documenting wide regional disparities in economic activity and infrastructure (especially between the north and the south), which were partly determined by regional development policy, and (ii) examining empirically to what extent spatial factors such as agglomeration economies contribute to labor productivity––and therefore to urban dynamics––using recent panel data from Côte d’Ivoire for the period from 1980 to 1996.
    Keywords: infrastructure productivity urban Cote d'Ivoire Ivory Coast Africa
    JEL: R O P D6 D7 H
    Date: 2005–10–05
  26. By: Zeljko Bogetic (The World Bank); Arye Hillman (Bar-Ilan University)
    Abstract: The note documents and discusses the modalities and consequences of the phenomenon of siphoning profits of state enterprises for private uses by state enteprise managers and insiders in Bulgaria during the period of early transition.
    Keywords: privatizing, privatization, state enteprprises, transition, Bulgaria
    JEL: D6 D7 H O P D1 D4
    Date: 2005–10–05
  27. By: Julia Shvets (University of Cambridge, Corpus Christi College)
    Abstract: The paper investigates whether and how performance of regional commercial courts has affected external credit of Russian enterprises between 1995 and 2002. The results show that more reliable courts lead to higher bank lending to firms. This occurs predominantly through expansion of the number of businesses which have access to bank financing. There is limited evidence that trade credit also responds to changes in quality of courts. However, credit from suppliers is considerably less sensitive to court performance than bank credit. Court reliability is precisely defined and measured objectively using appeal rates of lower court decisions. The paper analytically derives the relationship between reliability of courts, appeal rates and lending to firms, identifying a specific channel through which law enforcement affects external financing. Empirical analysis is based on a new panel dataset which measures credit at the level of a firm and permits a number of robustness tests.
    Keywords: law enforcement, finance
    JEL: O12 G38 G32 K42 K41 H40
    Date: 2005–09–29

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