nep-pbe New Economics Papers
on Public Economics
Issue of 2005‒10‒22
fifty-six papers chosen by
Peren Arin
Massey University

  1. Good bye Lenin (or not?): The Effect of Communism on People%u2019s Preferences By Alberto Alesina; Nichola Fuchs Schuendeln
  2. Asymmetric Effects of Government Spending: Does the Level of Real Interest Rates Matter? By Michael B. Devereux; Woon Gyu Choi
  3. Distribution of Natural Resources, Entrepreneurship, and Economic Development: Growth Dynamics with Two Elites By Josef Falkinger; Volker Grossmann
  4. Global Aging and Fiscal Policy with International Labor Mobility: A Political Economy Perspective By Mehmet S. Tosun
  5. Quantifying the Inefficiency of the US Social Insurance System By Mark Huggett (Georgetown University) and Juan Carlos Parra (Georgetown University)
  6. On Fixed and Variable Fiscal Surplus Rules By Erdem Basci; M. Fatih Ekinci; Murat  Yülek
  7. Personal Income Tax Reform: Concepts, Issues, and Comparative Country Developments By Howell H. Zee
  8. Slovakia's 2004 Tax and Welfare Reforms By David Moore
  9. Tax Systems under Fiscal Adjustment: A Dynamic CGE Analysis of the Brazilian Tax Reform By Victor Duarte Lledo
  10. The Effect of Education Subsidies in an Aging Economy By Megumi Mochida
  11. Tax Competition in EU implies EMTR different: some effects on FDI and Economic Growth Rate By Maria Rosaria Alfano
  12. Taxation Reforms and Changes in Revenue Assignments in China By Ben Lockwood; Ehtisham Ahmad; Raju Singh
  13. Integrating a Unified Revenue Administration for Tax and Social Contribution Collections: Experiences of Central and Eastern European Countries By Peter Barrand; Stanford G. Ross; Graham Harrison
  14. Capital Subsidies and the Underground Economy By Francesco Busato; Bruno Chiarini; Pasquale de Angelis; Elisabetta Marzano
  15. Capital Income Taxation and Economic Growth in Open Economies By Geremia Palomba
  16. The Russian Flat Tax Reform By Anna Ivanova; Alexander Klemm; Michael Keen
  17. Boom-Bust Phases in Asset Prices and Fiscal Policy Behavior By Albert Jaeger; Ludger Schuknecht
  19. Characterizing the Expenditure Uncertainties of Industrial Countries in the 21st Century By David Hauner; Peter S. Heller
  20. The International Effects of Government Spending Composition By Giovanni Ganelli
  21. Fiscal Policy and Debt Sustainability: Cardoso's Brazil, 1995-2002 By Fabio Giambiagi; Márcio Valério Ronci
  22. How Should Subnational Government Borrowing Be Regulated? Some Cross-Country Empirical Evidence By Alexander Plekhanov; Raju Singh
  23. Fiscal Adjustment in EU Countries: A Balance Sheet Approach By Kenji Moriyama; Gian Maria Milesi-Ferretti
  24. New Estimates of Government Net Capital Stocks for 22 OECD Countries 1960-2001 By Christophe Kamps
  25. Increasing Public Sector Revenue in the Philippines: Equity and Efficiency Considerations By Kevin Fletcher
  26. Stabilization, Debt, and Fiscal Policy in the Caribbean By Ratna Sahay
  27. Deficit Limits, Budget Rules and Fiscal Policy By Paolo Manasse
  28. Government Debt: A Key Role in Financial Intermediation By Michael Kumhof; Evan Tanner
  29. Tax Revenue and (or?) Trade Liberalization By Thomas Baunsgaard; Michael Keen
  30. Aging: Some Pleasant Fiscal Arithmetic By David Hauner
  31. Public Spending Management and Macroeconomic Interdependence By Giovanni Ganelli
  32. The Challenge of Fiscal Adjustment in a Democracy: The Case of India By Ricardo Hausmann; Catriona M. Purfield
  33. A Constitutional Theory of the Family By Alessandro Cigno
  34. Are Developing Countries Better Off Spending their Oil Wealth Upfront? By H. Takizawa; E. H. Gardner; Kenichi Ueda
  35. Optimal Government Policies in Models with Heterogeneous Agents By Radim Bohacek; Michal Kejak
  36. How Do Canadian Budget Forecasts Compare with Those of Other Industrial Countries? By David Hauner; Kornélia Krajnyák; Martin Mühleisen; Ben Sutton; Stephan Danninger
  37. Value of Work: Bargaining, Job-Satisfaction, and Taxation in a Simple GE Model By Felix FitzRoy; Michael Nolan
  38. Forestry Taxation in Africa: The Case of Liberia By Arnim Schwidrowski; Saji Thomas
  39. Reforming the Russian Budget System: A Move to More Devolved Budget Management? By Jack Diamond
  40. Outsourcing Tariff Evasion: A New Explanation for Entrepot Trade By Raymond Fisman; Peter Moustakerski; Shang-Jin Wei
  41. A New Approach to Taxing Financial Intermediation Services Under a Value Added Tax By Howell H. Zee
  42. Commodity Price Shocks and the Odds on Fiscal Performance By Francis Y. Kumah; John Matovu
  43. Russia's Regions: Income Volatility, Labor Mobility and Fiscal Policy By Antonio Spilimbergo; Goohoon Kwon
  44. An Approach to Long-Term Fiscal Policy Analysis By Papa M'B. P. N'Diaye; Steven Vincent Dunaway
  45. Fiscal Surveillance in a Petro Zone: The Case of the CEMAC By Johannes Wiegand
  46. Toward More Effective Redistribution: Reform Options for Intergovernmental Transfers in China By Mario Fortuna; Ehtisham Ahmad; Raju Singh
  47. Who Controls the Budget: The Legislature or the Executive? By Ian Lienert
  48. Fiscal Indulgence in Central Europe: Loss of the External Anchor By Helge Berger; George Kopits; István P. Székely
  49. Undesirable Goods, Illegal Trade and Taxation By Jeremy Bertomeu
  50. Centralization and Decentralization of Public Policy in a Complex Framework By Maria Rosaria Alfano
  51. The Political Economy of Violence and Distribution in Ancient Times: A Note on the Relationship between Specific Investments and the Evolution of Early Human Societies By Alberto Battistini
  52. The Productivity Effects of Privatization: Longitudinal Estimates from Hungary, Romania, Russia, and Ukraine By J. David Brown; John S. Earle; Almos Telegdy
  53. Establishing a Performance Management Framework for Government By Jack Diamond
  54. Public Information and Electoral Bias By Taylor, Curtis; Yildirim, Huseyin
  55. Proposal Power and Majority Rule in Multilateral Bargaining with Costly Recognition By Yildirim, Huseyin
  56. Re-examining Voter Turnout in Large Elections By Taylor, Curtis; Yildirim, Huseyin

  1. By: Alberto Alesina; Nichola Fuchs Schuendeln
    Abstract: Preferences for redistribution, as well as the generosities of welfare states, differ significantly across countries. In this paper, we test whether there exists a feedback process of the economic regime on individual preferences. We exploit the "experiment" of German separation and reunification to establish exogeneity of the economic system. From 1945 to 1990, East Germans lived under a Communist regime with heavy state intervention and extensive redistribution. We find that, after German reunification, East Germans are more in favor of redistribution and state intervention than West Germans, even after controlling for economic incentives. This effect is especially strong for older cohorts, who lived under Communism for a longer time period. We further find that East Germans' preferences converge towards those of West Germans. We calculate that it will take one to two generations for preferences to converge completely.
    JEL: H3 E6
    Date: 2005–10
  2. By: Michael B. Devereux; Woon Gyu Choi
    Abstract: This paper empirically explores how fiscal policy (represented by increases in government spending) has asymmetric effects on economic activity at different levels of real interest rates. It suggests that the effect of fiscal policy depends on the level of real rates, since the Ricardian effect is smaller at lower financing costs of fiscal policy. Using threshold regression models on U.S. data, the paper provides new evidence that expansionary government spending is more conducive to short-run growth when real rates are low. It also finds asymmetric effects on interest rates and inflation, and threshold effects associated with substitution between financing methods.
    Keywords: Fiscal policy , United States , Government expenditures , Real interest rates , Economic models ,
    Date: 2005–01–31
  3. By: Josef Falkinger (University of Zurich, CESifo and IZA Bonn); Volker Grossmann (University of Zurich, CESifo and IZA Bonn)
    Abstract: This paper develops a model in which the interaction of entrepreneurial investments and power of the owners of land or other natural resources determines structural change and economic development. A more equal distribution of natural resources promotes structural change and growth through two channels: First, by weakening oligopsony power of owners and thereby easing entrepreneurial investments for credit-constrained individuals whose investment possibilities depend on their income earned in the primary goods sector. Second, by shifting the distribution of political power from resource owners towards the entrepreneurial elite, resulting in economic policy and institutions which are more conducive to entrepreneurship and productivity progress. We argue that these hypotheses are consistent with a large body of historical evidence from the Americas and with evidence on transition economies.
    Keywords: credit constraints, distribution, economic development, entrepreneurship, institutions, oligopsony power, political elites
    JEL: O10 H50
    Date: 2005–09
  4. By: Mehmet S. Tosun
    Abstract: This paper uses an overlapping generations model with international labor mobility and a politically responsive fiscal policy to examine aging in developed and developing regions. Migrant workers change the political structure composed of young and elderly voters in both labor-receiving and labor-sending countries. Numerical simulations show that the developed region benefits more from international labor mobility through the contribution of migrant workers as laborers, savers, and voters. The developing region experiences significant growth in all specifications but benefits more under international capital mobility. Restricting political participation of migrant workers in the developed region produces inferior growth results.
    Keywords: Population , Aging , Fiscal policy , Labor mobility , Capital flows , Economic models , Political economy ,
    Date: 2005–07–28
  5. By: Mark Huggett (Georgetown University) and Juan Carlos Parra (Georgetown University) (Department of Economics, Georgetown University)
    Abstract: How far is the US social insurance system from an efficient system? We answer this question within a model where agents receive idiosyncratic, labor-productivity shocks that are privately observed. When social security and income taxation comprise the social insurance system, the maximum possible efficiency gain is equivalent to a 10.5 percent increase in consumption. This occurs when labor productivity differences are set to the permanent differences estimated in US data. Classification-JEL Codes: D80, D90, E21
    Keywords: Social Security, Idiosyncratic Shocks, Efficient Allocations, Private Information
  6. By: Erdem Basci; M. Fatih Ekinci; Murat  Yülek
    Abstract: Fiscal rules are being increasingly used by both emerging and developed economies. This paper analyzes two alternative fiscal policy rules in terms of their impact on debt sustainability: a rule that fixes the ratio of primary surplus to GDP ("fixed surplus rule") and one that sets the primary surplus as a linear function of debt to GDP ratio ("variable surplus rule"). A simple debt dynamics equation, incorporating real shocks, is constructed, and the probability of exceeding the critical debt level is simulated using Monte Carlo techniques. The results show that the variable surplus rule performs better than the simple fixed surplus rule, by reducing debt sustainability concerns and the necessary medium-term primary surplus. This result hinges on the government's ability to make a credible commitment to the variable surplus rule in the medium run.
    Keywords: Debt , Fiscal policy , Debt restructuring , Economic models ,
    Date: 2004–07–20
  7. By: Howell H. Zee
    Abstract: This paper provides a largely nontechnical survey of concepts and issues related to the reform of the personal income tax, covering both base and rate aspects of the tax, as well as fundamental reform options. It also covers recent developments in selected OECD countries.
    Keywords: Tax reforms , OECD , Income taxes , Tax evasion ,
    Date: 2005–05–13
  8. By: David Moore
    Abstract: The paper reviews Slovakia's comprehensive reforms to its taxation and welfare systems in 2004, including the introduction of a flat-rate income tax and single-rate value-added tax (VAT), and linkage of social benefits to participation in labor market programs. Though revenues following the reform are lower as a ratio to GDP, the paper argues that the reforms have helped encourage investment and improved efficiency by broadening the tax base, reducing the administrative burden, and improving work incentives. The paper also looks at some implications of the reforms for income distribution and social protection.
    Keywords: Tax reforms , Slovak Republic , Income taxes , Value added tax ,
    Date: 2005–07–14
  9. By: Victor Duarte Lledo
    Abstract: This paper uses a dynamic computable general equilibrium model (CGE) to analyze the macroeconomic and redistributive effects of replacing turnover and financial transaction taxes in Brazil by a consumption tax. In order to approximate Brazil's compliance with its fiscal adjustment targets, the proposed reform is subject to a non increasing path for the level of public debt. Despite an increase in the average consumption tax rate in the first years after the reform, a majority of individuals experienced an increase in their lifetime welfare. This result rejects the hypothesis that the on-going fiscal adjustment effort carried on by the Brazilian government was an obstacle to the implementation of a more efficient tax system.
    Keywords: Tax reforms , Brazil , Fiscal reforms , Economic models ,
    Date: 2005–08–01
  10. By: Megumi Mochida (Graduate School of Economics, Osaka University)
    Abstract: We examine how an introduction of education subsidies affects growth rates, incorporating an uncertain lifetime. We demonstrate that the introduction of subsidies engenders higher growth rates in aging economies, except when the education-tax rate is sufficiently low.
    Keywords: Education subsidies; Social security; Uncertain lifetime
    JEL: H31 H52 H55
    Date: 2005–10
  11. By: Maria Rosaria Alfano
    Abstract: Tax base mobility in a globalised economy implies that tax policy influences savings, domestic investments and inter-jurisdictional capital mobility. Assuming the existence of spatial and temporal interdependence, using: a data set of EU countries, after the capital market liberalisation, and a longitudinal data technique for pooling time series of cross section; we test how difference in national tax influence capital inflows and outflows. More, using a cointegration analysis on GDP procapita and FDI time series’, we investigate the link between these two paths.
    Keywords: Tax Competition, FDI, Economic Growth, Cointegration analysis
    JEL: D6 D7 H
    Date: 2005–10–17
  12. By: Ben Lockwood; Ehtisham Ahmad; Raju Singh
    Abstract: The value-added tax (VAT) in China has the unusual feature that capital goods are included in the VAT base. In addition, most services are subject to the business tax, which is not creditable against VAT, but which accrues to local governments, and operates as a turnover tax. On grounds of economic efficiency, it would be desirable to eliminate these distortions so that domestic producers are not increasingly placed at a disadvantage as China dismantles tariff and nontariff barriers on competing goods. Reforming indirect taxation would however generate considerable revenue losses for local governments and, in the absence of any compensatory mechanisms, there would be significant impediments to the needed reforms. This paper focuses on the extent of revenue losses, their distribution across provinces, and possible options for compensation.
    Keywords: Fiscal policy , China , Indirect taxation , Value added tax , Tax reforms ,
    Date: 2004–07–29
  13. By: Peter Barrand; Stanford G. Ross; Graham Harrison
    Abstract: During the 1990s, a failure to collect social contributions in Central and Eastern European countries deprived pension schemes of resources needed to meet their obligations. Based on these countries' experience, this paper examines the trend to increase coordination of tax and contribution collections. It sets out the rationale for establishing a unified agency as the best long-term strategy, and discusses policy and administrative issues in implementing this approach. The appendix presents three case studies for Albania, Bulgaria, and Romania, which are establishing a unified revenue administration. Another case study is presented for Sweden, which successfully integrated tax and social contributions collections in the 1980s.
    Keywords: Tax administration , Europe , Albania , Bulgaria , Romania , Sweden , Revenues , Tax collection , Social security , Economic models ,
    Date: 2005–01–07
  14. By: Francesco Busato; Bruno Chiarini; Pasquale de Angelis; Elisabetta Marzano (Department of Economics, University of Aarhus, Denmark)
    Abstract: In this paper we investigate the effects of different fiscal policies on the firm choice to produce underground. We consider a tax evading firm operating simultaneously both in the regular and in the underground economy. We suggest that such a kind of firm, referred to as moonlighting firm, is able to offset the specific costs usually stressed by literature on underground production, such as those suggested by Loayza (1994) and Anderberg et al. (2003). Investigating the effects of different fiscal policy interventions, we find that taxation is a critical parameter to define the size of capital allocation in the underground production. In fact, a strong and inverse relationship is found, and tax reduction is the best policy to reduce the convenience to produce underground. We also confirm the depressing effect on investment of taxation (see, for instance, Summers, 1981), so that tax reduction has no cost in terms of investment. By contrast, the model states that while enforcement is an effective tool to reduce capital allocation in the underground production, it also reduce the total capital stock. Moreover, we also suggest that the allowance of incentives to capital accumulation may generate, in this specific typology of firm, some unexpected effects, causing, together with a positive investment process, also an increase in the share of irregularity. This finding could explain, in a microeconomic framework, the evidence of Italian southern regions, where high incentives are combined with high irregularity ratios.
    Keywords: evasion, moonlighting, capital subsidies, underground production.
    JEL: E22 H25 H26
    Date: 2005–07–10
  15. By: Geremia Palomba
    Abstract: Do reductions in capital income taxes attract foreign capital and, at the same time, foster economic growth? This paper examines the effect of capital income taxation on the international allocation of capital and on economic growth in a two-country overlapping generations model with endogenous growth and internationally mobile capital. It shows that domestic capital taxes affect both the international allocation of capital and the rate of economic growth and that these two effects are not necessarily the same. A country can increase its share of the existing world capital by changing its taxes but, depending on the elasticity of saving to after-tax returns, this may reduce the rate of capital accumulation and economic growth.
    Keywords: Capital , Income taxes , Economic growth , Taxation , Economic models ,
    Date: 2004–06–15
  16. By: Anna Ivanova; Alexander Klemm; Michael Keen
    Abstract: Russia dramatically reduced its higher rates of personal income tax (PIT) in 2001 establishing a single marginal rate at the low level of 13 percent. In the following year, real revenue from the PIT actually increased by about 26 percent. This 'flat tax' experience has attracted much attention (and emulation) among policymakers, making it perhaps the most important tax reform of recent years. But it has been little studied. This paper asks whether the strong revenue performance of the PIT was itself a consequence of this reform, using both macro evidence and, in particular, micro-level data on the experiences of individuals and households affected by the reform to varying degrees. It concludes that there is no evidence of a strong supply side effect of the reform. Compliance, however, did improve quite substantially-by about one third according to our estimates-though it remains unclear whether this was due to the parametric reforms or to accompanying changes in enforcement.
    Keywords: Tax reforms , Russian Federation , Income taxes , Tax evasion ,
    Date: 2005–02–03
  17. By: Albert Jaeger; Ludger Schuknecht
    Abstract: Boom and bust phases in asset prices have become a pervasive feature of macroeconomic developments in many advanced economies. This paper studies fiscal policy during boom-bust phases in asset prices and draws several conclusions. First, expansions and contractions in economic activity during such boom-bust phases tend to be highly persistent, cyclical turning points are harder to forecast, and the margins of error for output gap estimates can be large. Second, conventional estimates of revenue elasticities seem not to allow an accurate assessment of the fiscal stance and of the strength of underlying fiscal positions during boom-bust phases. And third, boom-bust phases tend to exacerbate already existing procyclical policy biases, as well as political-economy biases, toward higher spending and public debt ratios.
    Keywords: Business cycles , Fiscal policy , Asset prices , Public debt , Budget deficits ,
    Date: 2004–04–12
  18. By: Maria Rosaria Alfano (University of Salerno); Giovanni D'Orio (University of Calabria)
    Abstract: The massive interests of economic literature about the privatisation gave a notable impulse to the discussion about this theme in the pre and post privatisation firms performance. Basically in every case after privatisation the level of profit increases. Does this mean that privatisation is certainly able to increase efficiency? In this field a large part of the literature leave out the complex problem that public firms usually are subject to objectives and constraints that differently from private firms can affect the overall economic efficiency. Unfortunately many authors ignore the effects of taxation during the process of privatisation, but in real term there are significant tax issues that must be considered by public and private decision maker. In this paper we concentrate the attention on the efficiency measures with the purpose to identify and measure sources of successful performance that can be used in policy planning and allocation of resources. Several techniques to calculate these frontier functions have been used, some of them parametric, others non-parametric to empirically investigate the relationship between taxation on firm’s income and efficiency in the period pre and post-privatisation. In this work we use both econometric and mathematical programming approaches for measuring efficiency. The econometric tool provide maximum likelihood estimates of a stochastic production and cost functions to distinguish noise from inefficiency. Instead, the mathematical programming approaches are nonstochastic and they do not make strict assumptions on the functional form of production and the statistical properties of the data. The general results obtained from the 3 different tools (Stochastic Frontier, Data Envelopment Analysis and Neural Network) are consistent. In fact, we see that privatization enhanced efficiency in three out of four sample firms.
    Keywords: Privatization, Fiscal policy, Data Envelopment Analysis, Stochastic Frontier, Neural Network
    JEL: D6 D7 H
    Date: 2005–10–17
  19. By: David Hauner; Peter S. Heller
    Abstract: A number of uncertainties about long-term expenditure commitments in industrial countries are examined: (i) the assumptions underlying the projections, (ii) the potential to further reduce non-age-related expenditures, (iii) the implicitly assumed absence of "shocks," and (iv) the potential for raising revenue. This paper concludes that (i) there is scope, but within narrow limits, to reduce non-age-related expenditures; (ii) fiscal policy frameworks tend to understate risks; and (iii) prevailing tax rates leave little room for increasing taxation in the countries facing the strongest aging pressures. In sum, governments will have to adopt a much more ambitious fiscal policy stance to cope with aging populations.
    Keywords: Government Expenditures , Developed countries , Fiscal reforms ,
    Date: 2005–05–20
  20. By: Giovanni Ganelli
    Abstract: This paper helps resolve a paradox in the literature, noticed by Alesina and Perotti (1995), which is that, although government employment is an important component of public spending, the debate on the effects of fiscal policy focuses almost exclusively on shocks to non-wage government consumption. We incorporate the distinction between spending for government employment and spending for non-wage government consumption in a "new open economy macroeconomics" model. Our results show that a permanent reduction in public employment in one country reduces relative private consumption and appreciates the domestic exchange rate if it is matched by a reduction in taxes. When the reduction in public employment is used to finance increased non-wage government consumption, the macroeconomic effects results are ambiguous, and are affected by the initial level of the public wage bill.
    Keywords: Government expenditures , Fiscal policy , Wages , Economic models ,
    Date: 2005–01–18
  21. By: Fabio Giambiagi; Márcio Valério Ronci
    Abstract: We look into Brazil's public sector accounts during the two administrations of President Fernando Henrique Cardoso: 1995-98 and 1998-2002. We underline the fact that the authorities' attitude was as important as the pace of the structural reforms for understanding the dynamics of the public sector debt and deficit. The high deficit of the first administration (1995-98) resulted from an expansionary policy, while the adjustment of 1999 is seen as proof of a commitment to fiscal rigor and the need to finance public spending adequately. We present a detailed breakdown of the fiscal outcomes. Two important messages come out: (a) the principal cause of the fiscal deterioration in the first Cardoso administration was the deterioration in the primary balance rather than the increase in the interest payments on public debt; and (b) the fiscal adjustment was entirely on account of increased revenues, as the federal primary public expenditure grew in real terms during the eight years of the two administrations. We consider the outlook for fiscal sustainability, and conclude that, to preserve the hard-won fiscal discipline, the authorities' recent austere fiscal attitude should be permanently embedded into the fiscal institutions.
    Keywords: Fiscal policy , Brazil , External debt , Structural adjustment , Economic reforms ,
    Date: 2004–09–02
  22. By: Alexander Plekhanov; Raju Singh
    Abstract: Countries have adopted various institutional responses to subnational government borrowing. Using a sample of 44 countries 1982-2000, this paper provides a panel data analysis to determine the most effective borrowing constraints for containing local fiscal deficits. The results suggest that no single institutional arrangement is superior under all circumstances. The appropriateness of specific arrangements depends upon other institutional characteristics, particularly the degree of vertical fiscal imbalance, the existence of any bailout precedent, and the quality of fiscal reporting.
    Keywords: Budget deficits , Debt , Deficit financing , Fiscal reforms , Government expenditures ,
    Date: 2005–03–22
  23. By: Kenji Moriyama; Gian Maria Milesi-Ferretti
    Abstract: Several European Union countries have recently implemented or are envisaging fiscal that operations improve budgetary figures but have no structural impact on government finances. This paper evaluates some of these measures using a balance sheet approach. In particular, it examines the degree to which reductions in government debt in EU countries has been accompanied by a decumulation of government assets. In the run-up to Maastricht (1997) it finds a strong correlation between changes in government liabilities and government assets, and larger declines in government assets in countries starting from higher public debt levels.
    Keywords: Fiscal reforms , European Union , Debt , Privatization , Government expenditures ,
    Date: 2004–08–17
  24. By: Christophe Kamps
    Abstract: The issue of whether government capital is productive has received a great deal of recent attention. Yet empirical analyses of public capital productivity have generally been limited to the official capital stock estimates available in a small sample of countries. Alternatively, many researchers have investigated the output effects of public investment-recognizing that investment may be a poor proxy for the corresponding capital stock. This paper attempts to overcome the data shortage by providing internationally comparable capital stock estimates for 22 Organization for Economic Cooperation and Development (OECD) countries.
    Keywords: Capital goods , OECD , Public investment , Productivity ,
    Date: 2004–05–11
  25. By: Kevin Fletcher
    Abstract: Public sector revenue has declined markedly in the Philippines over the past seven years. Most observers of the Philippine economy agree that rebuilding public sector revenue will be critical to reducing deficits and ensuring public sector debt sustainability. This paper reviews several of the main possibilities for raising public sector revenue, including increases in excise, VAT, and electricity rates. It argues that most of these proposals would raise revenue in a relatively efficient manner. Using household-level expenditure data, it also finds that most of these measures would be progressive, especially if they allow the government to avoid cuts in pro-poor spending.
    Keywords: Public sector , Philippines , Revenues , Stock markets , Value added tax ,
    Date: 2005–02–08
  26. By: Ratna Sahay
    Abstract: Although Caribbean countries have been largely successful in bringing annual inflation down to single digits in recent years-regardless of their exchange rate regime-their growth rates have been disappointing and their public debt has risen rapidly. By 2003, 14 of 15 Caribbean countries ranked in the top 30 of the world's highly indebted emerging market countries. Most of the increase in their public debt is accounted for by a deterioration in primary fiscal balances that has been largely due to a sharp increase in expenditures rather than a fall in revenues. With the countries of the region now increasingly facing unsustainable debt positions, innovative ways need to be found to raise their economic growth rates and generate fiscal savings to reverse the debt buildup, and to maintain or raise their current living standards.
    Keywords: Stabilization measures , Stabilization programs , Debt , Fiscal policy ,
    Date: 2005–02–14
  27. By: Paolo Manasse
    Abstract: The paper presents a simple model for discussing the effects of deficit limits and budget rules on fiscal policy. I find that limits on deficit-output ratios provide incentives to implement procyclical policies when the economy is in intermediate states, and countercyclical policies only in very "good" and very "bad" economic times. As a result, fiscal "reaction functions" are not monotonically related to the state of the economy. Deficit limits are found to exert discipline only provided the limit is tight and the expected sanction large, albeit at a relatively large welfare cost. Moreover, when fiscal choices are made under a veil of ignorance about the output gap, an increase in volatility is likely to raise the level of the budget deficit. Finally, concerning the design of fiscal frameworks, when excessive deficits arise from a political bias, deficit limits should be symmetric and not state-contingent.
    Keywords: Fiscal management , Budget deficits , Economic growth , Economic stabilization , Economic policy , Economic models ,
    Date: 2005–06–27
  28. By: Michael Kumhof; Evan Tanner
    Abstract: The literature on optimal fiscal policy finds that highly volatile real returns on government debt, for example through surprise inflation, have very low costs. However, policymakers are almost always very apprehensive of this option. The paper discusses evidence concerning features of developing country financial markets that are missing in existing models, and that may suggest why this policy is considered so costly in practice. Most importantly, domestic banks choose to be highly exposed to government debt because the alternative, private lending, is more risky under existing legal and institutional imperfections. This exposure makes banks and their borrowers vulnerable to the government's debt policy.
    Keywords: Fiscal policy , Taxation , Inflation , Public debt ,
    Date: 2005–03–24
  29. By: Thomas Baunsgaard; Michael Keen
    Abstract: With the public finances of many developing and emerging market countries still heavily dependent on trade tax revenues, further trade liberalization may be hindered unless they are able to develop alternative sources of revenue. While there is now a well-established body of theory and policy advice on how this might be done in principle, this paper uses panel data for 111 countries over 25 years- cleaned for a variety of problems in standard data sources-to ask what has happened in practice: Have countries in fact recovered from other sources the revenues they have lost from past episodes of trade liberalization? High-income countries clearly have. For middle-income countries, recovery has been in the order of 45-60 cents for each dollar of lost trade tax revenue, with signs of close to full recovery when separately identifying episodes in which trade tax revenues fell. Troublingly, however, revenue recovery has been extremely weak in low-income countries (which are those most dependent on trade tax revenues): they have recovered, at best, no more than about 30 cents of each lost dollar. Nor is there much evidence that the presence of a value-added tax has in itself made it easier to cope with the revenue effects of trade liberalization.
    Date: 2005–06–15
  30. By: David Hauner
    Abstract: Projections of age-related public expenditure growth have raised widespread concerns about fiscal sustainability. This paper examines how total expenditure would develop under four policy rules on public expenditure growth. Some simple arithmetic of expenditure, GDP, and population is reviewed and applied in simulations for 19 member countries of the Organization for Economic Cooperation and Development (OECD) over 2000-50. A general and a specific conclusion arise from the results in this paper: Generally, long-term expenditure projections could benefit from revisiting common assumptions on non-agerelated expenditure growth. Specifically, under realistic assumptions, the belt-tightening required to maintain fiscal sustainability under age-related spending pressures could be less painful than commonly thought.
    Keywords: Aging , OECD , Fiscal management , Government expenditures ,
    Date: 2005–04–19
  31. By: Giovanni Ganelli
    Abstract: This paper studies, in the context of a New Open Economy Macroeconomics (NOEM) model, the effects of "public competition policies" aimed at improving the efficiency of public spending. Such measures are modeled as an increase in the price elasticity of public consumption. The paper finds that public competition policies significantly affect macroeconomic interdependence across countries. Following a domestic fiscal expansion, an higher public price elasticity increases the substitutability between goods purchased by the domestic and the foreign governments. The same exchange rate variation can therefore sustain larger shifts in relative demand for goods. The expenditure-switching effect is magnified, implying a larger change in relative output. In welfare terms, countries with a larger government sector have an incentive to promote public competition policies.
    Keywords: Government expenditures , Economic models ,
    Date: 2004–07–02
  32. By: Ricardo Hausmann; Catriona M. Purfield
    Abstract: India's fiscal problem has deep roots in its federal fiscal system, where multiple players find it difficult to coordinate adjustment. The size and closed nature of the Indian economy, aided by its deep domestic capital market and large captive pool of domestic savings, has disguised the cost of fiscal laxity and complicated the building of a consensus on reform. The new fiscal responsibility act establishes a new rules-based system to overcome this coordination failure. To strengthen the framework, we recommend an autonomous scorekeeper and the extension of similar rules to the state governments as part of a comprehensive reform of the federal system.
    Keywords: Fiscal management , India , Debt , Fiscal reforms ,
    Date: 2004–09–15
  33. By: Alessandro Cigno (University of Florence, CESifo, CHILD and IZA Bonn)
    Abstract: The paper re-examines the idea that a family can be viewed as a community governed by a self-enforcing constitution, and extends existing results in two directions. First, it identifies circumstances in which a constitution is renegotiation-proof. Second, it introduces parental altruism. The behavioural and policy implications are illustrated by showing the effects of public pensions and credit rationing. These implications are not much affected by whether altruism is assumed or not, but contrast sharply with the predictions of more conventional models.
    Keywords: families, self-enforcing constitutions, renegotiation-proofness, altruism, fertility, saving, transfers, attention, pensions, credit rationing
    JEL: C72 D13 D71 D74 D91 H55 J13 J14
    Date: 2005–10
  34. By: H. Takizawa; E. H. Gardner; Kenichi Ueda
    Abstract: We question the conventional view that it is optimal for government to maintain a stable level of spending out of oil wealth. We compare this conventional policy recommendation with one where government spends all of its oil revenues upfront, at the same rate as oil is extracted. Using a neoclassical growth model with positive external effects of public spending on consumption and productivity, we find that, if the economy is growing along the steady-state balanced path, the conventional view is validated. However, if the economy starts with a lower capital stock, the welfare ranking across two policies can be reversed.
    Keywords: Fiscal policy , Developing countries , Public investment , Oil revenues , Economic growth , Economic models ,
    Date: 2004–08–16
  35. By: Radim Bohacek; Michal Kejak
    Abstract: In this paper we develop a new methodology for finding optimal government policies in economies with heterogeneous agents. The methodology is solely based on three classes of equilibrium conditions from the government’s and individual agent’s optimization problems: 1) the first order conditions; 2) the stationarity condition on the distribution function; and, 3) the aggregate market clearing conditions. These conditions form a system of functional equations which we solve numerically. The solution takes into account simultaneously the effect of government policy on individual allocations and (from the government’s point of view) optimal distribution of agents in the steady state. This general methodology is applicable to a wide range of optimal government policies in models with heterogeneous agents. We illustrate it on a steady state Ramsey problem with heterogeneous agents, finding the optimal tax schedule. JEL Keywords: Optimal macroeconomic policy, optimal taxation, computational techniques, heterogeneous agents, distribution of wealth and income
    JEL: C61 C68 D30 D58
    Date: 2005–09
  36. By: David Hauner; Kornélia Krajnyák; Martin Mühleisen; Ben Sutton; Stephan Danninger
    Abstract: This paper compares Canadian central government budget forecasting with forecasting by other industrial countries. While fiscal forecasting in Canada is governed by one of the strongest institutional frameworks, quantitative analysis suggests that budget projections of macroeconomic and fiscal aggregates have been more cautious than in other countries since the mid-1990s. The relatively volatile macroeconomic environment as well as institutional factors, such as Canada's asymmetric deficit target, have likely contributed to this outcome.
    Keywords: Revenues , Developed countries , Economic forecasting , Forecasting models ,
    Date: 2005–04–07
  37. By: Felix FitzRoy (University of St. Andrews and IZA Bonn); Michael Nolan (Hull University Business School)
    Abstract: Job-satisfaction as a component of workers' utility has been strangely neglected, with work usually regarded as reducing utility and the benefits of leisure. This is contradicted by many empirical studies showing that unemployment is a major cause of unhappiness, even when income is controlled for. Here we develop a simple model where job-satisfaction is noncontractible but can be included in extended collective bargaining when workers participate in management, but employment is still chosen to maximise profit. Including taxation to fund unemployment benefits and public goods, we show that switching from traditional bargaining over wages to extended (but still second-best) bargaining can generate a Pareto welfare improvement.
    Keywords: job-satisfaction, bargaining, unemployment
    JEL: J28 J52 J65
    Date: 2005–09
  38. By: Arnim Schwidrowski; Saji Thomas
    Abstract: Countries generally tax the forestry sector to achieve the twin objectives of revenue maximization and sustainability of logging levels. In an ideal world of perfect markets and information, auctions would be the best instrument to determine the price of extraction rights. However, a number of factors-including a lack of information on the forest resources under consideration, uncertainties as to the stability of property rights over time, and a lack of access to credit-have limited the use of auctions so far, particularly in low-income countries. To establish transparency of the forestry sector's financial flows, this paper discusses a radical simplification of Liberia's current timber tax structure, including a proposal to reduce the sector's current tax system to two instruments, an area tax and an export tax.
    Keywords: Taxation , Liberia , Agriculture ,
    Date: 2005–08–12
  39. By: Jack Diamond
    Abstract: The Russian federal government has recently initiated a fundamental reform of its budget system, encompassing important policy, procedural, and institutional changes. This paper reviews this reform agenda with reference to the experience of industrial countries that over the past two to three decades have followed a similar reform path toward a more devolved budget management system. From this perspective, the importance of the strength of existing public expenditure management systems to accommodate increased devolution and the scope for employing decentralized agencies is explored. An assessment of the present Russian reform plans in light of this review reveals a number of concerns. First, the speed of the reforms contemplated appears overly ambitious when judged by the experience of other countries. Second, the preparedness of budget institutions is questionable. Third, change management capacity needs strengthening with a more carefully defined strategy. Last, in light of these concerns, it is argued that the scope and "big-bang" approach of the current reform plans may need reformulation into a more sequenced strategy with clearer reform priorities.
    Keywords: Debt Management , Russian Federation , Budgetary policy ,
    Date: 2005–06–08
  40. By: Raymond Fisman; Peter Moustakerski; Shang-Jin Wei
    Abstract: Traditional explanations for indirect trade carried out through an entrepôt have focused on savings in transport costs and on the role of specialized agents in processing and distribution. We provide an alternative perspective based on the possibility that entrepôts may facilitate tariff evasion. Using data on direct exports to mainland China and indirect exports to it via Hong Kong SAR, we find that the indirect export rate rises with the Chinese tariff rate, even though there is no legal tax advantage to sending goods via Hong Kong SAR. We undertake a number of extensions to rule out plausible alternative hypotheses.
    Keywords: Tax Evasion , Tariffs , Trade , Corruption ,
    Date: 2005–06–06
  41. By: Howell H. Zee
    Abstract: This paper contains a proposal (referred to as the "modified reverse-charging" approach) to tax financial intermediation services under a VAT. At the heart of the proposal is the application of a reverse charge that shifts the collection of the VAT on deposit interest from depositors to banks, in conjunction with the establishment of a franking mechanism managed by banks that effectively transfers the VAT so collected to borrowers as credits against the VAT on their loan interest on a transaction-by-transaction basis. The proposal is fully compatible with an invoice-credit VAT and is capable of delivering the correct theoretical result at minimal administrative costs.
    Keywords: Value added tax , Taxation , Financial systems ,
    Date: 2004–07–20
  42. By: Francis Y. Kumah; John Matovu
    Abstract: Unanticipated changes in commodity prices can generate significant movements in fiscal aggregates. This paper seeks to understand the dynamics of these fiscal movements in the context of transitory commodity price shocks using sample data from four CIS countries- two oil-producing and two non-oil commodity-intensive countries. It adopts a structural VAR approach and identifies the dynamic effects of commodity price shocks on fiscal performance under two broad tax regimes. Stochastic simulations indicate high probabilities of fiscal overperformance in the short term when commodity prices are high. These probabilities deteriorate significantly, however, in the long term after the transitory positive commodity price shock has dissipated, particularly when lax fiscal policy is adopted during the period of the price boom.
    Date: 2005–09–09
  43. By: Antonio Spilimbergo; Goohoon Kwon
    Abstract: Russia's regions are heavily exposed to regional income shocks because of an uneven distribution of natural resources and a Soviet legacy of heavily skewed regional specialization. Also, Russia has a limited mobility of labor and lacks fiscal instruments to deal with regional shocks. We assess how these features influence the magnitude and persistence of regional income shocks, through a panel vector autoregression, drawing on extensive and unique regional data covering last decade. We find that labor mobility associated with regional shocks is far lower than in the United States yet higher than in the EU-15, and that regional expenditures tend to expand in booms and contract in recessions. We discuss institutional factors behind these outcomes and policy implications.
    Keywords: Fiscal policy , Russian Federation , Labor mobility ,
    Date: 2005–09–30
  44. By: Papa M'B. P. N'Diaye; Steven Vincent Dunaway
    Abstract: This paper proposes an approach to setting fiscal policy that factors in the longer-term budgetary pressures that countries face owing, in particular, to population aging and rising health care costs. The approach attempts to overcome the difficulties in evaluating economic trade-offs and social welfare over extended periods. Long-term fiscal projections from the "Intergenerational Report" published as part of the Australian budget in May 2002 are used in a simple model of the Australian economy to illustrate some of the longer-term trade-offs that need to be considered in framing budgets over the medium term. These illustrative simulations, in particular, point out the importance of smoothing fiscal adjustment over time and, hence, the need for careful planning. Smoothing fiscal adjustment, however, raises a new set of questions regarding burden sharing across generations and what costs should be shared.
    Keywords: Fiscal policy , Australia , Population , Aging , Health care , Economic models ,
    Date: 2004–07–20
  45. By: Johannes Wiegand
    Abstract: This paper discusses fiscal surveillance criteria for the countries of the Central African Monetary and Economic Union (CEMAC), most of which depend heavily on oil exports. At present, the CEMAC's macroeconomic surveillance exercise sets as fiscal target a floor on the basic budgetary balance. This appears inadequate, for at least two reasons. First, fluctuations in oil prices and, hence, oil receipts obscure the underlying fiscal stance. Second, oil resources are limited, which suggests that some of today's oil receipts should be saved to finance future consumption. The paper develops easy-to-calculate indicators that take both aspects into account. A retrospective analysis based on these alternative indicators reveals that in recent years, the CEMAC's surveillance exercise has tended to accommodate stances of fiscal policy that are at odds with sound management of oil wealth.
    Keywords: Fiscal policy , Oil , Monetary unions ,
    Date: 2004–02–03
  46. By: Mario Fortuna; Ehtisham Ahmad; Raju Singh
    Abstract: Full implementation of an intergovernmental transfer system based on revenue capacities and expenditure needs could significantly improve both redistribution and equity objectives of the Chinese authorities. This was envisaged in the 1994 fiscal reforms, but the authorities were unable to implement the measures fully. This paper examines mechanisms that might facilitate effective implementation.
    Keywords: Fiscal reforms , China , Income distribution , Fiscal policy ,
    Date: 2004–06–29
  47. By: Ian Lienert
    Abstract: Country-specific factors prevent a strong linear relationship between the legislature's budgetary powers and the extent of its separation from the executive. Electoral and voting systems, bicameralism, constitutional and legal constraints, voluntary contracts of political parties, and long-standing traditions all influence the relative budgetary powers of executives and legislatures. Differences in the legislature's budgetary authority in twenty-eight countries with five different forms of government are examined. It is concluded that differences in budgetary powers within a particular form of government are as great as those between different forms of government.
    Keywords: Budgets , Legislation , Budgetary policy ,
    Date: 2005–06–22
  48. By: Helge Berger; George Kopits; István P. Székely
    Abstract: In recent years, fiscal performance in Central Europe has steadily deteriorated, in contrast to the improvement in the Baltics. This paper explores the determinants of such differences among countries slated for EU accession. Regression estimates suggest that economic and institutional fundamentals do not provide a full explanation. An alternative explanation lies in the political economy of the accession process, and a game-theoretic model illustrates why a country with a stronger bargaining position might have an incentive to deviate from convergence to the Maastricht criteria. The model generates alternative fiscal policy regimes-allowing for regime shifts-depending on country characteristics and EU policies.
    Keywords: Fiscal policy , Europe , European Union , European Economic and Monetary Union , Fiscal reforms , Budget deficits , Economic models ,
    Date: 2004–04–26
  49. By: Jeremy Bertomeu (Carnegie Mellon University)
    Abstract: This paper considers the problem of a government whose objective is to reduce total consumption of a socially undesirable good using taxation and enforcement. Consumers have access to an illegal sector offering a perfect substitute to official goods and whose size is determined by competitive entry. When the official price is lower than the optimal monopoly price of an illegal seller, legal purchases will depend only on the cost parameters of the illegal sector. Then, if demand is inelastic, entry is important or the profit margin of illegal sellers is low, there may be a global minimum in consumption such that the good is legally sold. The optimal pricing decision of an official monopoly who may or may not sell to the illegal sector is also examined.
    Keywords: Entry, Price Competition, Coordination, Drugs, Increasing Returns
    JEL: C71 D42 D62 H26
    Date: 2005–10–18
  50. By: Maria Rosaria Alfano (University of Salerno)
    Abstract: The public economic literature of the past century is characterized by a traditional paradigm that ascribes little attention to the spatial dimension. However, contemporary globalization requires that researchers and economists expand their perspectives to consider space conceptualization. What is required in the 21st century is a richer and more realistic framework that broadens existing con-cepts of socio- economic analysis while overcoming narrow national borders. Although national governments will remain prominent performers in the global market, regional and local govern-ments cannot be ignored because citizens worldwide are exerting greater self-determination in in- fluencing governmental decisions. This paper is focused on investigating the possibility of implementing a new methodology for ana-lyzing the evolution of fiscal processes and evaluating the usefulness of new optimizing procedures for the governance of decentralization. The first section of the paper explores both positive and normative issues related to centralization and decentralization in a globalized framework as well as the fundamental role of increased interdependence in power sharing among jurisdictions. In the second section, Kauffman’s (1993) contributions are examined as a means of determining if the topography of the landscape ought to be considered when combining conflicting centralization and decentralization processes. Finally, this paper concludes with an exploration of how a form of in-termediate coordination between fully centralized and fully decentralized systems could provide the best outcome.
    Keywords: Centralization, Decentralization, Coordination, Complex systems
    JEL: D6 D7 H
    Date: 2005–10–17
  51. By: Alberto Battistini
    Abstract: this paper combines the economic concept of specific investment with anthropological evidence on three early human societies –the disbanding groups of pre-anatomically modern humans, the huntergatherers’ egalitarian communities, and the primitive states or chiefdoms. This combination is aimed to provide a single framework for thinking of the institutional evolution of their political organizations and, therefore, of the associated mode of regulation of violence and distribution. Specifically, I examine a circular causation mechanism by which exogenous ‘technological’ conditions determine the basic type of economic activity together with the associated degree of investments’ specificity. The resulting safeguards are expressed in political terms and, in turn, the way these political organizations regulate the level of violence in the society implements a distribution of goods and power which has the effect of reinforcing the initial kick in terms of the economic structure. Thus, at the cost of some loss in formal sophistication, the paper stresses the two-way link between the economical, the political and the distributional sphere, and discusses grouplevel mechanisms to restrain behaviour that –exogenous to every individual in the group but endogenous to groups’ behaviour- are not caught by conventional modelling about the origins of order.
    Keywords: micro-foundations of groups; macro-foundations of individuals; self-reinforcing mechanisms.
    JEL: D30 H11 K10 L22 N40
    Date: 2005–09
  52. By: J. David Brown (Heriot-Watt University and CEU Labor Project); John S. Earle (W.E. Upjohn Institute for Employment Research and Central European University); Almos Telegdy (Central European University and Institute of Economics of the Hungarian Academy of Sciences)
    Abstract: This paper estimates the effect of privatization on multifactor productivity (MFP) using long panel data for nearly the universe of initially state-owned manufacturing firms in four economies. We exploit the key longitudinal feature of our data to measure and control for pre-privatization selection bias and to estimate long-run impacts. We find that the magnitudes of our estimates are robust to alternative functional forms, but sensitive to how we control for selection. Our preferred random growth models imply that majority privatization raises MFP about 15% in Romania, 8% in Hungary, and 2% in Ukraine, while in Russia it lowers it 3%. Privatization to foreign rather than domestic investors has a larger impact, 18-35%, in all countries. Positive domestic effects appear within a year in Hungary, Romania, and Ukraine and continue growing thereafter, but take 5 years after privatization to emerge in Russia.
    Keywords: privatization, productivity, foreign ownership, random growth model, transition, Hungary, Romania, Russia, Ukraine
    JEL: D24 G34 L33 P31
    Date: 2005–10
  53. By: Jack Diamond
    Abstract: Based on the experience of budget management reforms that have been introduced over the last two decades in a large number of member countries of the Organization for Economic Cooperation and Development (OECD) it is not uncommon to find emerging market economies moving toward performance-based budgeting where measures of performance play a key role. While it might be tempting for middle income countries to press forward to adopt a full-blown outputs and outcomes framework, there are some risks in the move. Such a change in orientation is only possible once managers have had adequate experience in refining the definition of programs and their objectives, and on this basis developing a comprehensive system of performance measurement. It is argued in this paper that to develop a comprehensive performance measurement system requires resolving a number of issues involved in clearly defining how to measure "performance" as well as overcoming a number of technical issues in the design and use of measures of that "performance." However, perhaps the most critical step is introducing a system whereby performance information can influence resource allocation decisions, i.e., establishing a performance management system. Based on international experience, this paper reviews each of these hurdles in moving toward a performance management framework.
    Keywords: Fiscal Management , Government expenditures , Budgetary policy , Emerging markets ,
    Date: 2005–03–17
  54. By: Taylor, Curtis; Yildirim, Huseyin
    Abstract: We present a theory of strategic voting that predicts elections are more likely to be close and voter turnout is more likely to be high when citizens possess better public information about the composition of the electorate. These findings are disturbing because they suggest that providing more information to potential voters about aggregate political preferences (e.g., through polls, political stock markets, or expert forecasts) may actually undermine the democratic process. We show that if the distribution of preferences is common knowledge, then strategic voting leads to a stark neutrality result in which the probability that either alternative wins the election is 12. This occurs because membersof the minority compensate exactly for their smaller group size by voting with higher frequency. By contrast, when citizens are symmetrically ignorant about the distribution of types, the majority is more likely to win the election and expected voter turnout is lower. Indeed, when the population is large and voting costs are small, the majority wins with probability arbitrarily close to one in equilibrium. Welfare is, therefore, unambiguously higher when citizens possess less information about the distribution of political preferences.
  55. By: Yildirim, Huseyin
    Abstract: This paper studies a sequential bargaining model in which, as in the rent-seeking literature, agents expend resources to be the proposer, and agreement requires affirmative votes of either all agents or a subset of them. By focusing on the Stationary Subgame Perfect Equilibrium, it is found that (1) under the unanimity voting rule, all agents expend the same amount of resources, regardless of their time preferences. (2) Under a nonunanimity rule however, more patient agents expend greater resources, and are thus more likely to propose. Yet, they can end up with a lower payoff than less patient agents. (3) While, under the unanimity rule, the social cost decreases in group heterogeneity, it can increase under a nonunanimity rule. (4) Bargaining as a coalition pays off only if the coalition is large enough. (5) When the surplus is endogenous to the group, groups that require more consensus in their distribution are more likely to expand; and (6) when bargaining delays are possible, costly recognition induces agents to reach an agreement too soon from the social standpoint, even under the unanimity rule..
  56. By: Taylor, Curtis; Yildirim, Huseyin
    Abstract: A well-known shortcoming of rational voter models is that the equilibrium probability that an individual votes converges to zero as the population of citizens tends to infinity. We show that this does not – as is often suggested – imply that equilibrium voter turnout is insignificant in the limit. We characterize limiting equilibrium turnout and show that it may actually be arbitrarily large. Indeed, expected equilibrium turnout is shown to be closely approximated by 1/ where c is the lowest possible realization of an individual’s voting cost.

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