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on Public Economics |
| By: | Marco Bassetto; Thomas J. Sargent |
| Abstract: | We analyze the democratic politics and competitive economics of a ‘golden rule’ that separates capital and ordinary account budgets and allows a government to issue debt to finance only capital items. Many national governments followed this rule in the 18th and 19th centuries and most U.S. states do today. We study an economy with a growing population of overlapping generations of long-lived but mortal agents. Each period, majorities choose durable and nondurable public goods. In a special limiting case with demographics that make Ricardian equivalence prevail, the golden rule does nothing to promote efficiency. But when the demographics imply even moderate departures from Ricardian equivalence, imposing the golden rule substantially improves the efficiency of democratically chosen allocations of public goods. We use some examples calibrated to U.S. demographic data and find greater benefits from adopting the golden rule at the state level or with 19th century demographics than under current national demographics. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-05-07&r=pbe |
| By: | Michele P. Cavallo |
| Abstract: | Since World War II, about 75 percent of government consumption in the U.S. economy has been spent on labor services. I distinguish the goods and the employment compensation components of government consumption in assessing the effects of fiscal shocks on main macroeconomic variables. Identifying exogenous fiscal shocks with the onset of military buildups, I show that they lead to a significant increase in hours worked and output in the government sector. Allowing for the distinction between the two components of government consumption improves the quantitative performance of the neoclassical model. In particular, the model with government employment does a good job at accounting for the dynamic response of private consumption to a fiscal policy shock. Government employment compensation acts as a transfer payment for households, thereby mitigating the wealth effect on consumption and labor supply associated with fiscal shocks. |
| Keywords: | Government employees ; Employment ; Consumption (Economics) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfap:2005-16&r=pbe |
| By: | James L. Butkiewicz (Department of Economics,University of Delaware); Halit Yanikkaya (Department of Economics Celal Bayar University) |
| Abstract: | Property rights are known to promote economic growth. Durable political regimes, regardless of type, can create stable environments that facilitate growth. Polity stability has an effect similar to property rights, promoting investment enhancing growth. Examination of the growth effects of regime stability finds that stable polities are important for growth in autocracies, but not democracies. That regime stability is not important for democracies indicates that parameter heterogeneity can be important when estimating empirical growth models. Not just democracies, but also stable autocracies with predictable rules-of-the-game create positive environments for economic growth. |
| Keywords: | Property Rights, Stability, Growth, Democracy, Autocracy |
| JEL: | O40 H11 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dlw:wpaper:05-02&r=pbe |
| By: | Herwig Immervoll (University of Cambridge, OECD, European Centre Vienna and IZA Bonn); Horacio Levy (University of Essex); Christine Lietz (University of Cambridge); Daniela Manotvani (University of Cambridge and Prometeia, Bologna); Cathal O’Donoghue (National University of Ireland, Galway, CHILD and IZA Bonn); Holly Sutherland (University of Essex and DIW Berlin); Gerlinde Verbist (University of Antwerp) |
| Abstract: | The systems of direct taxes and cash benefits in the Member States of the European Union vary considerably in size and structure. We explore their direct impacts on cross-sectional income inequality (termed "redistributive effect" for the purpose of this paper) using EUROMOD, a tax-benefit microsimulation model for the European Union. This relies on harmonised household micro-data representative of each national population together with simulations of entitlements to cash benefits and liabilities for taxes and social contributions. It allows us to draw a more comprehensive - and comparable - picture of the combined effects of transfers and taxes than is usually possible. We decompose the redistributive effect of taxbenefit systems to assess and compare the effectiveness of individual policies at reducing income disparities. The following categories of benefits and taxes are considered both individually and in combination: income taxes, social contributions, cash benefits designed to target the poor or redistribute inter-personally (through means-testing) as well as cash benefits intended to redistribute intra-personally across the lifecycle (through social insurance or contingency-based entitlement). We derive results for the 15 "old" members of the European Union and present them for each country separately as well as for the EU-15 as a whole. |
| Keywords: | income inequality, redistribution, microsimulation, European Union |
| JEL: | C81 D31 H22 H55 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1824&r=pbe |
| By: | Raj Chetty; Adam Looney |
| Abstract: | Studies of risk in developing economies have focused on consumption fluctuations as a measure of the value of insurance. A common view in the literature is that the welfare costs of risk and benefits of social insurance are small if income shocks do not cause large consumption fluctuations. We present a simple model showing that this conclusion is incorrect if the consumption path is smooth because individuals are highly risk averse. Empirical studies find that many households in developing countries rely on inefficient methods to smooth consumption, suggesting that they are indeed quite risk averse. Hence, social safety nets may be valuable in low-income economies even when consumption is not very sensitive to shocks. |
| JEL: | H0 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11709&r=pbe |
| By: | Raj Chetty; Adam Looney |
| Abstract: | This paper examines the welfare consequences of social safety nets in developing economies relative to developed economies. Using panel surveys of households in Indonesia and the United States, we find that food consumption falls by approximately ten percent when individuals become unemployed in both countries. This finding suggests that introducing a formal social insurance program would have small benefits in terms of reducing consumption fluctuations in Indonesia. However, in contrast with households in the U.S., Indonesians use costly methods such as reducing human capital investment to smooth consumption. The primary benefit of social insurance in developing countries may therefore come not from consumption smoothing itself but from reducing the use of inefficient smoothing methods. |
| JEL: | H0 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11708&r=pbe |
| By: | Sheikh Tareq Selim (Cardiff University) |
| Abstract: | The recent general trend of cutting top marginal income tax rates in industrialized economies and the policy concern of enhancing competition in the US and the EU product markets subtly motivate the question if low income tax rates are optimal in an economy with imperfectly competitive markets. This paper examines long run optimal income tax policy in a model with private market monopoly distortion. It finds that the welfare-maximizing income tax policy is distortion-neutralizing, and the optimal policy may involve capital income tax or subsidy depending on the relative strength of two opposing effects --- the monopoly distortion effect, and the welfare effect of investment. If monopoly power is low (high), the welfare effect of investment (the monopoly distortion effect) dominates which supports a capital income tax (subsidy). |
| Keywords: | Monopoly Power, Optimal Taxation, Ramsey Policy |
| JEL: | D42 H21 H30 |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0511001&r=pbe |
| By: | Sheikh Tareq Selim (Cardiff Business School) |
| Abstract: | This paper studies the Ramsey problem of optimal labor income taxation in a simple model economy which deviates from a first best representative agent economy in three important aspects, namely, flat rate second best tax, monopoly power in intermediate product market, and monopolistic wage setting. There are three key findings: (1) In order to correct for monopoly distortion the Ramsey tax prescription is to set the labor income tax rate lower than its competitive market analogue; (2) Government's optimal tax policy is independent of its fiscal treatment of distributed pure profits; and (3) For higher levels of monopoly distortions Ramsey policy is more desirable than the first best policy. The key analytical results are verified by a calibration which fits the model to the stylized facts of the US economy. |
| Keywords: | Optimal taxation; Monopoly power; Ramsey policy |
| JEL: | D42 E62 H21 H30 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2005/6&r=pbe |
| By: | Sheikh Tareq Selim (Cardiff University) |
| Abstract: | This paper studies the Ramsey problem of optimal labor income taxation in a simple model economy which deviates from a first best representative agent economy in three important aspects, namely, flat rate second best tax, monopoly power in intermediate product market, and monopolistic wage setting. There are three key findings: (1) In order to correct for monopoly distortion the Ramsey tax prescription is to set the labor income tax rate lower than its competitive market analogue; (2) Government’s optimal tax policy is independent of its fiscal treatment of distributed pure profits; and (3) For higher levels of monopoly distortions Ramsey policy is more desirable than the first best policy. The key analytical results are verified by a calibration which fits the model to the stylized facts of the US economy. |
| Keywords: | Optimal taxation, Monopoly power, Ramsey policy |
| JEL: | H21 H30 |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0511002&r=pbe |
| By: | Davide Tondani (Dipartimento di Diritto, Economia e Finanza Internazionale) |
| Abstract: | This paper aims at discussing the main features of Spain’s tax system, its recent reforms and those underway. The current state of the main taxes, their future reforms are studied starting from 1975, when Spain shifted to democracy. Direct taxes, indirect taxes and social security contributions are compared with the European average, trying to focus on the major changes from 1975 to 1999. The structure of the main taxes is surveyed, showing the recent reforms and the differences with the previous system. The analysis goes on observing the evolution of the tax burden from 1975 to 1997, looking at progressivity of the tax system, at the redistributive implications. Moreover, in this paper we analyse the process of fiscal decentralisation and the tax wedge in corporate and labour taxation. Finally, after a brief overview of the macroeconomic and budget framework, the paper assesses the fiscal reforms that have taken place during 1990s. The aim of these reforms was a more neutrality of the tax system and a reduction of disincentives to labour force participation, in tandem with an offset increase in VAT rates. Actually, the main tax reforms guidelines are a further reducing of the tax burden on labour, a promotion of tax neutrality across saving instruments and corporate tax regimes, and an improvement of decentralisation. |
| Keywords: | Taxation – Spain - Tax reform |
| JEL: | H20 H24 H25 |
| Date: | 2005–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwppe:0511002&r=pbe |
| By: | Isabelle Joumard |
| Abstract: | Enhanced autonomy of sub-national governments has spurred innovative management. Spending assignments across levels of government, however, often overlap and/or are not yet fully understood by most citizens. Sub-national governments’ accountability is further reduced by the heavy reliance on federal transfers, as opposed to own-revenues (taxes and user fees). In addition, the use of federal transfers as collateral for states' borrowing potentially undermines the role of financial markets in disciplining fiscal behaviour. Getting the most out of decentralisation would thus require a national agreement clarifying responsibilities for each level of government. Improving sub-national governments’ incentives in delivering cost-effective public services would further require improving the quality of information on actual spending and outcomes, raising the volume of their own taxes and reforming the grant systems. Decentralisation should also be more consistent with the aim of improving interregional equity in obtaining access to core public services. This Working Paper relates to the 2005 OECD Economic Survey of Mexico (www.oecd.org/eco/surveys/mexico). <P>Optimiser l'impact de la décentralisation au Mexique L’autonomie renforcée des collectivités territoriales pour la gestion des services publics a permis le développement d’innovations intéressantes. Les responsabilités pour un certain nombre de programmes publics du gouvernement fédéral, des états et des communes se recoupent néanmoins fréquemment et/ou ne sont pas pleinement comprises par la plupart des citoyens. Le rôle prépondérant des transferts fédéraux dans le budget des collectivités territoriales, par opposition aux ressources propres issues de redevances ou d’impôts locaux, n’incite pas les collectivités territoriales à se montrer redevables envers les citoyens. L’utilisation des transferts fédéraux comme garantie pour les emprunts des états nuit à la possibilité d’une discipline budgétaire dictée par les marchés financiers. Pour optimiser l’impact de la décentralisation sur l’économie, il faudrait un accord national clarifiant les responsabilités de chacune des administrations publiques dans la gestion des programmes publics. Les incitations des collectivités territoriales à offrir des services publics répondant mieux aux besoins des citoyens devraient être aussi renforcées en améliorant la qualité des informations sur les dépenses effectives et leurs résultats, en donnant aux impôts locaux un rôle accru et en réformant le système des transferts intergouvernementaux. Il est aussi souhaitable que la décentralisation soit conçue en vue d’une plus grande équité entre les régions pour l’accès aux services publics de base. Ce Document de travail se rapporte à l'Etude économique de l'OCDE du Mexique 2005 (www.oecd.org/eco/etudes/mexique). |
| Keywords: | Mexico, Mexique, fiscal discipline, discipline budgétaire, fiscal federalism, fiscal rules, intergovernmental grants, règles budgétaires, fédéralisme financier, collectivités territoriales, transferts intergouvernementaux, sub-national government, impôts locaux |
| JEL: | H1 H2 H4 H5 H7 |
| Date: | 2005–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:453-en&r=pbe |
| By: | Hansson, Åsa (Department of Economics, Lund University) |
| Abstract: | Entrepreneurship is often credited with generating important positive economic externalities. For example, entrepreneurs are often credited for promoting innovation, discovering new markets, and serving as a mechanism for knowledge spillover. Governments increasingly view encouraging entrepreneurship as an important policy objective. Economists have long studied the determinants of entrepreneurship. Taxation has also been found to be important, in particular income taxes and capital taxes. One form of taxation that has not been considered so far, however, is the wealth tax. The wealth tax is likely to influence entrepreneurship negatively, by affecting the pool of capital available to start up businesses as well as reducing the net return to successful entrepreneurship. This paper illustrates the impact of a tax on wealth on entrepreneurship using a simple model of the choice between becoming an entrepreneur or an employee. Actual data is then used to crudely investigate whether the wealth tax indeed has a measurable effect on self-employment in OECD countries, using increasingly sophisticated techniques. A difference-in-difference type estimator using the abolishment of the wealth tax as a ”natural experiment” points to a consistent pattern of a perceptible, but small impact. |
| Keywords: | Entrepreneurship; wealth tax; difference-in-difference estimation |
| JEL: | H24 H31 J23 |
| Date: | 2005–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2005_043&r=pbe |
| By: | Ronald G. Cummings; Jorge Martinez-Vazquez; Michael McKee; Benno Torgler |
| Abstract: | There is considerable evidence that enforcement efforts can increase tax compliance. However, there must be other forces at work because observed compliance levels cannot be fully explained by the level of enforcement actions typical of most tax authorities. Further, there are observed differences, not related to enforcement effort, in the levels of compliance across countries and cultures. To fully understand differences in compliance behavior across cultures one needs to understand differences in tax administration and citizen attitudes toward governments. The working hypothesis is that cross-cultural differences in behavior have foundations in these institutions. Tax compliance is a complex behavioral issue and its investigation requires the use of a variety of methods and data sources. Results from laboratory experiments conducted in different countries demonstrate that observed differences in tax compliance levels can be explained by differences in the fairness of tax administration, in the perceived fiscal exchange, and in the overall attitude towards the respective governments. These experimental results are shown to be robust by replicating them for the same countries using survey response measures of tax compliance. |
| JEL: | H20 C90 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2005-29&r=pbe |
| By: | Akpalu, Wisdom (Department of Economics, School of Economics and Commercial Law, Göteborg University); Parks, Peter J. (Department of Agricultural Economics and Marketing, Cook College,) |
| Abstract: | Gold is frequently mined in rainforests that can provide either gold or forest benefits, but not both. This conflict in resource use occurs in Ghana, a developing country in the tropics where the capital needed for mining is obtained from foreign direct investment (FDI). We use a dynamic model to show that an ad valorem severance tax on gross revenue can be used to internalize environmental opportunity costs. The optimal tax must equal the ratio of marginal benefits from forest use to marginal benefits from gold extraction. Over time, this tax must change at a rate equal to the difference between the discount rate and the rate of change in the price of gold. Empirical results suggest that the 3 percent tax rate currently used in Ghana is too low to fully represent the external cost of extraction (i.e., lost forest benefits). <p> |
| Keywords: | Optimal taxation; Efficiency; Externality; Dynamic analysis; Firm behaviour |
| JEL: | C61 D21 H21 H23 |
| Date: | 2005–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0182&r=pbe |
| By: | Russell Cooper; Hubert Kempf; Dan Peled |
| Abstract: | This paper studies the repayment of regional debt in a multiregion 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 bail out 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 U.S., the European Union and Argentina. |
| Keywords: | Taxation |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:0507&r=pbe |
| By: | Herwig Immervoll (University of Cambridge, OECD and IZA Bonn); Henrik Jacobsen Kleven (University of Copenhagen, EPRU and CEPR); Claus Thustrup Kreiner (University of Copenhagen, EPRU and CESifo); Emmanuel Saez (UC Berkeley and NBER) |
| Abstract: | This paper estimates the welfare and distributional impact of two types of welfare reform in the 15 (pre-enlargement) member countries of the European Union. The reforms are revenue neutral and financed by an overall and uniform increase in marginal tax rates on earnings. The first reform distributes the additional tax revenue uniformly to everybody (traditional welfare) while the second reform distributes tax proceeds uniformly to workers only (in-work benefit). We build a simple model of labor supply encompassing responses to taxes and transfers along both the intensive and extensive margin. We then use EUROMOD to describe current welfare and tax systems in European Union countries and use calibrated labor supply elasticities along the intensive and extensive margins to analyze the effects of the two welfare reforms. We quantify the equity-efficiency trade-off for a range of elasticity parameters. In most countries, because of large existing welfare programs with high phaseout rates, the uniform redistribution policy is undesirable unless the redistributive tastes of the government are extreme. The in-work benefit reform, on the other hand, is desirable in a very wide set of cases. We discuss the practical policy implications for European welfare policy. |
| Keywords: | labour supply, redistribution, welfare reform |
| JEL: | H20 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1810&r=pbe |
| By: | Ioan Talpos (West University of Timisoara); Bogdan Dima (West University of Timisoara); Mihai Mutascu (West University of Timisoara); Cosmin Enache (West University of Timisoara) |
| Abstract: | The aim of this paper is to emphasize how the correlations between public resources flows and their allocations are manifesting. The results obtained suggest the existence of some “fast” adjustment processes between them, inducted by the intrinsic characteristics of the fiscal policy, and also by the specific behaviour of Romanian public authorities, particularities traced by the way of adoption and application of the public decision. |
| Keywords: | public revenues, public expenditures, public decision, impulse function |
| JEL: | D6 D7 H |
| Date: | 2005–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwppe:0511001&r=pbe |
| By: | Monika Bütler; Federica Teppa |
| Abstract: | We use a unique dataset on individual retirement decisions in Swiss pension funds to analyze the choice between an annuity and a lump sum at retirement. Our analysis suggests the existence of an "acquiescence bias", meaning that a majority of retirees chooses the standard option offered by the pensions fund or suggested by common practice. Small levels of accumulated pension capital are much more likely to be withdrawn as a lump sum, suggesting a potential moral hazard behavior or a magnitude effect. We hardly find evidence for adverse selection effects in the data. Single men, for example, whose money's worth of an annuity is considerably below the corresponding value of married men, are not more likely to choose the capital option. |
| JEL: | D91 H55 J26 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:usg:dp2005:2005-20&r=pbe |
| By: | John Bennett; Elisabetta Iossa |
| Abstract: | We use an incomplete-contract approach to compare contracting out by a public sector agency with the delegation of contracting out to a public-private partnership(PPP) that is a joint venture between private and sector agents. The PPP maximizes a linear combination of profit and social benefit. Such delegation may be desirable to curb innovations that reduce the coset of provision but also reduce social benefit. Delegation may be undesirable for innovations that increase social benefit but also raise costs. Our results are explained in term of the shadow cost of public funds and the negociating stance of the PPP. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:bru:bruedp:05-15&r=pbe |
| By: | Neil Gilbert |
| Abstract: | Policies designed to advance the march toward private financing and delivery of social services follow five main pathways. While some of these approaches to privatization are more direct and transparent than others, all may be pursued simultaneously. Three approaches concentrate on increasing private financing and the other two on increasing the production and delivery of goods and services by the private sector: • Encouragement through tax incentives • Requirements through fees for service • Mandating through legislation • Providing public benefits in the form of cash or vouchers • Purchase-of-service arrangements. Along each of these five paths the state plays a direct or indirect role in stimulating private financing or delivery of benefits in cash or kind. All social welfare benefits are to some degree subsidized or mandated by the state — in part it is the public intervention by fiscal or legal means that makes these benefits “social.” Some social goods and services may be more amenable to public or private provision than others. And traditional relations among government, business, and labour in different societies will certainly influence the preferred paths toward increased private responsibility. In treading the pathways toward privatization, the objective is not to find the shortest route, but to avoid the pitfalls along the way – and to chart a course that is not so focussed on economic efficiency that it loses sight of the public purpose of social protection. Les politiques élaborées pour favoriser le mouvement vers le financement et la distribution privés des services sociaux suivent cinq directions principales. Alors que certaines de ces orientations favorables à la privatisation sont plus directes et transparentes que d’autres, toutes peuvent être poursuivies simultanément. Trois approches s’orientent vers l’accroissement du financement privé et les deux autres vers l’augmentation de la production et de la fourniture de biens et de services par le secteur privé : • Encouragement par le biais d’incitations fiscales • Obligations par le biais de frais pour services rendus • Prescrire par le biais de la législation • Fournir des prestations publiques sous forme d’espèces ou de coupons • Mécanismes d’achat de service. Tout au long de ces cinq directions, l’Etat joue un rôle direct et indirect en stimulant le financement privé ou la distribution de prestations en espèces ou en nature. Toutes les prestations de protection sociale sont dans une certaine mesure subventionnées ou mandatées par l’Etat – c’est en partie l’intervention publique de par leurs moyens légaux et fiscaux qui rendra ces prestations « sociales ». Quelques biens et services sociaux peuvent mieux se prêter que d’autres à la prestation publique ou privée que d’autres. Et les relations traditionnelles entre les pouvoirs publics parmi le gouvernement, le monde des affaires et celui du travail dans différentes sociétés ne manqueront pas d’influencer les trajectoires optimales pour augmenter la responsabilité privée. En suivant la voie de la privatisation, il ne s’agit pas de trouver la voie la plus courte, mais d’éviter les écueils tout au long du chemin et de définir un cap en se gardant de privilégier l’efficacité économique au détriment de l’objectif public de protection sociale. |
| JEL: | H53 L31 L33 |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:oec:elsaab:26-en&r=pbe |
| By: | Ioan Talpos (West University of Timisoara); Bogdan Dima (West University of Timisoara); Mihai Mutascu (West University of Timisoara); Cosmin Enache (West University of Timisoara) |
| Abstract: | Economic policies and, particularly, fiscal policies are not designed and implemented in an “empty space”: the structural characteristics of the economic systems, the institutional architecture of societies, the cultural paradigm and the power relations between different social groups, define the borders of these policies. This paper tries to deal with these borders, to describe their nature and the implications of their existence to the fiscal policies’ quality and impact at a theoretical level as well as at an empirical one. The main results of the proposed analysis support the ideas that the mentioned variables matters both for the social mandate entrusted by the society to the state and thus to role and functions of the state and for the economic growth as a support of the resources collected at distributed by the public authorities. |
| Keywords: | budget deficit, structural characteristics, economic freedom, institutions, cultural paradigm, political freedom |
| JEL: | D6 D7 H |
| Date: | 2005–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwppe:0510023&r=pbe |
| By: | Horst Siebert |
| Abstract: | Krugman's verdict that competitiveness of countries is a largely meaningless concept is a serious misjudgement of the economics profession. Countries compete for the mobile factors of production, most importantly for capital and technology. The exit-option of these factors and of firms changes the calculus of national governments. This paper sets out the main elements of the concept of competition between locations - locational competition - and analyses its impact on welfare and employment of the capital-exporting country. It also looks at whether competition between countries necessarily results in a race to the bottom or whether it can function as a controlling mechanism for governments and as a discovery device. The paper discusses under which conditions common rules are needed to reduce transaction costs and to prevent strategic, opportunistic behaviour of countries and which common rules thus reduce transaction costs. Finally, it deals with the question whether one institutional equilibrium in the world economy can be expected or whether many national equilibriums can coexist. |
| Keywords: | Competitiveness of countries - Mobile and immobile factors of production - Exit option of capital - Impact of capital exports on the capital- exporting country and its employment - Capital exports and exports of goods as complements or substitutes - Manoeuvring space of governments- Locational competition as a discovery device - Locational competition and global public goods and externalities - Single world equilibrium versus many national equilibriums |
| JEL: | F H J |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1258&r=pbe |
| By: | Lindbeck, Assar (Institute for International Economic Studies, Stockholm University) |
| Abstract: | The paper discusses a number of threats to the financial sustainability of social spending: increased internationalization of national economies, gradually higher relative costs of producing a number of human services, the “graying” of the population, slower productivity growth in the private sector, low employment rates, and various types of disincentive effects related to the welfare state itself, including moral hazard. I argue that threats from gradually rising costs of providing human services and disincentive effects of welfare-state arrangements, in particular moral hazard and benefit dependency, are more difficult to deal with than the other threats. I also discuss the choice between ad hoc policy reforms and automatic adjustment mechanisms, delegated to administrative bodies, for dealing with these threats. |
| Keywords: | Sustainable fiscal policy; Baumol’s disease; moral hazard; automatic adjustment mechanisms |
| JEL: | E62 H31 H53 |
| Date: | 2005–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iiessp:0739&r=pbe |
| By: | Patrick Bayer (Economic Growth Center, Yale University); David E. Pozen |
| Abstract: | This paper uses data on juvenile offenders released from correctional facilities in Florida to explore the effects of facility management type (private for-profit, private nonprofit, public state-operated, and public county-operated) on recidivism outcomes and costs. The data provide detailed information on individual characteristics, criminal and correctional histories, judge-assigned restrictiveness levels, and home zipcodes—allowing us to control for the non-random assignment of individuals to facilities far better than any previous study. Relative to all other management types, for-profit management leads to a statistically significant increase in recidivism, but, relative to nonprofit and state-operated facilities, for-profit facilities operate at a lower cost to the government per comparable individual released. Costbenefit analysis implies that the short-run savings offered by for-profit over nonprofit management are negated in the long run due to increased recidivism rates, even if one measures the benefits of reducing criminal activity as only the avoided costs of additional confinement. |
| Keywords: | Juvenile Crime; Juvenile Correctional Facilities; Recidivism; Prison Privatization; Provision of Public Goods: Nonprofit, For-profit, Public |
| JEL: | H0 H1 H4 K0 K4 |
| Date: | 2003–07 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:863&r=pbe |
| By: | Stephen Calabrese; Dennis Epple; Thomas Romer; Holger Sieg |
| Abstract: | Few empirical strategies have been developed that investigate public provision under majority rule while taking explicit account of the constraints implied by mobility of households. The goal of this paper is to improve our understanding of voting in local communities when neighborhood quality depends on peer or neighborhood effects. We develop a new empirical approach which allows us to impose all restrictions that arise from locational equilibrium models with myopic voting simultaneously on the data generating process. We can then analyze how close myopic models come in replicating the main regularities about expenditures, taxes, sorting by income and housing observed in the data. We find that a myopic voting model that incorporates peer effects fits all dimensions of the data reasonably well. |
| JEL: | H4 H7 H1 R5 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11720&r=pbe |
| By: | William C. Gruben; John H. Welch |
| Abstract: | We test for hypercrowding out as a signal of market concerns over fiscal dominance in five Latin American countries. Hypercrowding out occurs when fiscally dominated governments’ domestic credit demands are perceived as so intrusive to a nation’s financial system that a move towards fiscal surplus lowers interest rates and increases growth. We sample five Latin American countries to test for these relationships. Judged by the results of vector error correction models, three nations test clearly positive, suggesting market concern despite their recent efforts towards fiscal balance. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddcl:0205&r=pbe |
| By: | Max Keilbach |
| Abstract: | The objective of evaluating public policy measures is to assess its implications and thus to obtain a measure for weather the respective program has been successful. In this paper, we consider and classify microeconomic and microeconometric approaches to measuring this success. To do so, the evaluation problem is outlined and three estimation priciples are presented. For each of these, underlying assumptions are identified and the consequences of their violation discussed. |
| Keywords: | Evuluation Methods, Public Policy Measures, Microeconometrics |
| JEL: | H43 O22 O38 O57 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:esi:egpdis:2005-30&r=pbe |
| By: | Rob Vos (Institute of Social Studies, The Hague); Arjun Bedi (Institute of Social Studies, The Hague); Paul K. Kimalu (Kenya Institute for Public Policy Research and Analysis); Damiano K. Manda (Kenya Institute for Public Policy Research and Analysis); Nancy N. Nafula (Kenya Institute for Public Policy Research and Analysis); Mwangi S. Kimenyi (University of Connecticut) |
| Abstract: | Kenya has experienced a rapid expansion of the education system partly due to high government expenditure on education. Despite the high level of expenditure on education, primary school enrolment has been declining since early 1990s and until 2003 when gross primary school enrolment increased to 104 percent after the introduction of free primary education. However, with an estimated net primary school enrolment rate of 77 percent, the country is far from achieving universal primary education. The worrying scenario is that the allocations of resources within the education sector seems to be ineffective as the increasing expenditure on education goes to recurrent expenditure (to pay teachers salaries). Kenya's Poverty Reduction Strategy Paper (PRSP) and the Economic Recovery Strategy for wealth and Employment Creation (ERS) outlines education targets of reaching universal primary education by 2015. The Government is faced with budget constrains and therefore the available resources need to be allocated efficiently in order to realize the education targets. The paper uses Budget Negotiation Framework (BNF) to analyze the cost effective ways of resource allocation in the primary education sector to achieve universal primary education and other education targets. Budget Negotiation Framework is a tool that aims at achieving equity and efficiency in resource allocation. Results from the analysis shows that universal primary education by the year 2015 is a feasible target for Kenya. The results also show that with a more cost- effective spending of education resources - increased trained teachers, enhanced textbook supplies and subsidies targeting the poor - the country could realize higher enrolment rates than what has been achieved with free primary education. |
| JEL: | I22 C53 H40 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2004-47&r=pbe |
| By: | Tomas J. Philipson; Ernst R. Berndt; Adrian H. B. Gottschalk; Matthew W. Strobeck |
| Abstract: | The US Food and drug Administration (FDA) is estimated to regulate markets accounting for about 20% of consumer spending in the US. This paper proposes a general methodology to evaluate FDA policies, in general, and the central speed-safety tradeoff it faces, in particular. We apply this methodology to estimate the welfare effects of a major piece of legislation affecting this tradeoff, the Prescription Drug User Fee Acts (PDUFA). We find that PDUFA raised the private surplus of producers, and thus innovative returns, by about $11 to $13 billion. Dependent on the market power assumed of producers while having patent protection, we find that PDUFA raised consumer welfare between $5 to$19 billion; thus the combined social surplus was raised between $18 to $31 billions. Converting these economic gains into equivalent health benefits, we find that the more rapid access of drugs on the market enabled by PDUFA saved the equivalent of 180 to 310 thousand life-years. Additionally, we estimate an upper bound on the adverse effects of PDUFA based on drugs submitted during PDUFA I/II and subsequently withdrawn for safety reasons, and find that an extreme upper bound of about 56 thousand life-years were lost. We discuss how our general methodology could be used to perform a quantitative and evidence-based evaluation of the desirability of other FDA policies in the future, particularly those affecting the speed-safety tradeoff. |
| JEL: | I1 H0 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11724&r=pbe |
| By: | Christian Bjørnskov; Axel Dreher; Justina A.V. Fischer |
| Abstract: | This paper explores a wide range of determinants of life satisfaction exploiting a database of 73 countries, based in turn on about 100 000 observations. The determinants can be categorized in four groups: political, economic, institutional factors and human development and culture. The relevance of these factors is estimated on country-level averages of satisfaction of sub-groups of national populations according to gender, income and political orientation, using OLS, robust regression and Extreme Bounds Analysis techniques. Our results show that only a small number of factors robustly influence life satisfaction across countries while the importance of a large number of alternative factors suggested in the previous literature is rejected. |
| JEL: | I31 H10 H40 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:usg:dp2005:2005-19&r=pbe |
| By: | Patrick Bayer (Economic Growth Center, Yale University); Robert McMillan; Kim Rueben |
| Abstract: | This paper studies the causes and consequences of racial segregation using a new general equilibrium model that treats neighborhood compositions as endogenous. The model is estimated using unusually detailed restricted Census microdata covering the entire San Francisco Bay Area, and in combination with a rich array of econometric estimates, serves as a powerful tool for carrying out counterfactual simulations that shed light on the causes and consequences of segregation. In terms of causes, and contrasting with prior research, our GE simulations indicate that equalizing income and education across race would be unlikely to result in significant reductions in racial segregation, as minority households would sort into newly formed minority neighborhoods. Indeed, among Asian and Hispanic households, segregation increases. In terms of consequences, this paper provides the first evidence that sorting on the basis of race gives rise to significant reductions in the consumption of local public goods by minority households and upper-income minority households in particular. These consumption effects are likely to have important intergenerational implications. |
| Keywords: | Segregation, General Equilibrium, Endogenous Sorting, Urban Housing Market, Locational Equilibrium, Counterfactual Simulation, Discrete Choice |
| JEL: | H0 J7 R0 R2 |
| Date: | 2004–05 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:885&r=pbe |
| By: | Suphachol Suphachalasai (Department of Land Economy, University of Cambridge) |
| Abstract: | This paper investigates the relationship between development, environmental policy determination, and mass media. It stresses the role of mass media as a channel through which the level of development influence environmental policy making. Special interests appear to wield considerable influence over environmental policies, and create policy distortion. We develop a model with two political parties competing in election and policy influence by special interests to study environmental policy determination. Mass media acts as information provider to voters in the election. It informs voters regarding environmental policy platforms announced by the political parties. The theory suggests that, as development progresses, environmental awareness rises and so does the demand for environmental news. This induces profit maximizing media form to report more environmental news, and in turn keeps voters better informed regarding the policy platforms of the parties. We find that, in equilibrium, a more stringent environmental policy is implemented when the voters are better informed through mass media. The model also demonstrates the way in which process of development brings about the stringency of environmental policy at a level closer to the social optimum when special interests present. Empirical evidence across countries supports our fndings. |
| Keywords: | Environmental Policy, Mass Media, Special Interests, Electoral Competition |
| JEL: | D72 D8 H23 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:lnd:wpaper:200515&r=pbe |
| By: | Ioan Talpos (West University of Timisoara); Bogdan Dima (West University of Timisoara); Cosmin Enache (West University of Timisoara); Mihai Ioan Mutascu (West University of Timisoara) |
| Abstract: | The way in which the social subjects take decisions, the interactions established between these, the web of social institutions and rules, the architecture of the power relationships between the various “points of social coagulation” have as a foundation a complex set of determinants, in which the “pure” economic factors have an important, but not unique role. Thus, this paper intends to draft a possible analytical framework, capable of allowing the stress of some existing connections between the cultural variables, the social actions and the role of the public power. Heavy indebted to OLSON and NOZICK, the starting point is made out by a version of the mandate theory, within the way in which society, as a whole, as well as its individual components, delegates a certain set of social responsibilities to the public authorities, based on some social utility functions, which include the characteristics of the dominant cultural model. Part I of the paper deals with the elements of the theoretical foundation, elements resumed by a set of critical postulates and a special definition of state as the dominant agency in a social space and also of the negotiation/parallel associations. Part II is an attempt to examine some empirical evidences in the favor of some results derived from this foundation. The main conclusion of the paper could be resumed by the idea that trying to describe the interactions between state and society without taking into the account the characteristics of the cultural paradigm is equivalent to talk about Hamlet without mentioning the prince of Denmark. |
| Keywords: | agency, negotiation/parallel associations, cultural paradigm |
| JEL: | D6 D7 H |
| Date: | 2005–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwppe:0510022&r=pbe |
| By: | Mihir A. Desai; C. Fritz Foley; James R. Hines Jr. |
| Abstract: | How does rising foreign investment influence domestic economic activity? Firms whose foreign operations grow rapidly exhibit coincident rapid growth of domestic operations, but this pattern alone is inconclusive, as foreign and domestic business activities are jointly determined. This study uses foreign GDP growth rates, interacted with lagged firm-specific geographic distributions of foreign investment, to predict changes in foreign investment by a large panel of American firms. Estimates produced using this instrument for changes in foreign activity indicate that 10% greater foreign capital investment is associated with 2.2% greater domestic investment, and that 10% greater foreign employee compensation is associated with 4.0% greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending. The data do not support the popular notion that greater foreign activity crowds out domestic activity by the same firms, instead suggesting the reverse. |
| JEL: | F23 F21 H25 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11717&r=pbe |
| By: | Simen Bjornerud; Vassiliki Koutsogeorgopoulou; Michael Wise; Helmut Ziegelschmidt |
| Abstract: | The OECD Growth Study and other empirical work have shown that the strength of competition in product markets plays an important role in the economic growth process as well as contributing to a more efficient allocation of resources in a static sense. More intense competition is likely to encourage stronger efforts of managers to improve efficiency and induce higher innovative activity, leading to higher multi-factor productivity. This paper begins with a short review of Australia’s growth performance since the early 1990s and its possible link to strengthened competitive pressures and their interaction with other economic reforms. Attention is then turned to indicators of product market competition to gauge the strength of competitive pressures. This is followed by an assessment of the general competition policy framework and its role in promoting competition. The next section presents the framework of the National Competition Policy and reviews the completeness of the reform programme and the areas requiring further action. The paper then examines a number of sectors where regulatory policies can be expected to have particularly large impacts. The implications of trade liberalisation on Australia’s economic performance and the scope for further improvements are also discussed in some detail. The paper concludes with a set of policy recommendations. This Working Paper relates to the 2005 OECD Economic Survey of Australia (www.oecd.org/eco/surveys/australia). <P>Concurrence sur les marchés de produits et performance économique en Australie L’Étude sur la croissance de l’OCDE et d’autres travaux empiriques ont montré que la vigueur de la concurrence sur les marchés des produits joue un rôle important dans le processus de croissance économique et contribue aussi à une allocation plus efficiente des ressources du point de vue statique. Un renforcement de la concurrence encouragera vraisemblablement les gestionnaires à faire des efforts plus soutenus pour améliorer l’efficience et induire une activité plus novatrice, conduisant à une augmentation de la productivité multifactorielle. Ce document de travail commence avec un bref examen de la performance de l’Australie sur le plan de la croissance depuis le début des années 90 et de ses liens éventuels avec le renforcement des pressions concurrentielles et leur interaction avec d'autres réformes économiques. On s’intéressera aussi aux indicateurs de la concurrence sur les marchés des produits de façon à évaluer la vigueur des pressions concurrentielles. Cet examen est suivi d’une évaluation du cadre général de la politique de la concurrence et de son rôle dans la promotion de la concurrence. La section suivante expose le cadre de la politique nationale de la concurrence et analyse l’exhaustivité du programme de réformes et les domaines exigeant une action plus approfondie. Plusieurs secteurs où les politiques réglementaires devraient avoir une incidence particulièrement importante sont ensuite passés en revue. Les conséquences de la libéralisation commerciale sur la performance économique de l’Australie et les possibilités d’autres améliorations sont aussi examinées en détail. Le document se conclut par un ensemble de recommandations d’action. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de l’Australie, 2005 (www.oecd.org/eco/etudes/australie). |
| Keywords: | telecommunications, télécommunications, health, santé, productivité, politique de la concurrence, air transport, transport aérien, trade policy, politique commerciale, retail distribution, electricity, gas, électricité, gaz, eau, national competition policy, NCP, Trade Practices Act, ACCC, Dawson Review, multifactor productivity, access regime, water, rail, road, television broadcasting, legal services, multifactorielle, NCP, Trade Practices Act, ACCC, Commission Dawson, révision de la législation, régime d’accès, transport feroviaire, transport routier, télédiffusion, distribution de détail, professions juridiques |
| JEL: | H4 K20 K21 L50 L94 L96 Q1 Q4 |
| Date: | 2005–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:451-en&r=pbe |
| By: | Joseph I. Daniel (Department of Economics,University of Delaware); Katherine Thomas Harback (Mitre Corporation) |
| Abstract: | The desirability of airport congestion pricing largely depends on whether dominant airlines otherwise fail to internalize their self-imposed congestion delays. Brueckner (2002) and Mayer and Sinai (2003) find (weak) statistically significant evidence of internalization. We replicate and extend these models by refining their measures of delay and controlling for fixed and random airport effects. For twenty-seven large US airports, we estimate every flight’s congestion delay attributable to its operating time. These time-dependent queuing delays result from traffic rates temporarily exceeding airport capacity, and are precisely the delays susceptible to peak-load congestion pricing. As modified, the models reject the internalization hypothesis. |
| Keywords: | Hub-and-spoke airline networks, simulated annealing, commercial aviation, airline competition, airline mergers, airfares, |
| JEL: | H2 L5 L9 D6 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dlw:wpaper:05-09&r=pbe |
| By: | Joseph I. Daniel (Department of Economics, University of Delaware); Katherine Thomas Harback (Mitre Corporation) |
| Abstract: | We develop theoretical models of airport congestion with non-atomistic traffic and implement them empirically using data from twenty-seven major US airports to determine whether dominant airlines internalize or ignore self-imposed congestion. Estimates of minute-by-minute delay patterns at each airport calibrate structural models of landing and takeoff queues as dynamic functions of traffic rates and airport capacities. These functions determine the internal and external congestion that aircraft impose on one another. Specification tests largely reject the internalization model. Optimal pricing values all time using non-dominant aircraft cost coefficients and treats all delays as external—i.e., fees equal opportunity costs of allocating peak capacity to dominant airlines. |
| Keywords: | Hub-and-spoke airline networks, simulated annealing, commercial aviation, airline competition, airline mergers, airfares, |
| JEL: | H2 L5 L9 D6 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dlw:wpaper:05-08&r=pbe |