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on Public Economics |
| By: | Werner Güth (Max Planck Institute for Research into Economic Systems); Vittoria Levati (Max Planck Institute for Research into Economic Systems); Rupert Saugruber (University of Innsbruck) |
| Abstract: | We consider an economy composed of two regions. Each of them provides a public good whose benefits reach beyond local boundaries. In case of decentralization, taxes collected by members of a region are spent only on that region's public good. In case of centralization, tax receipts from the two regions are pooled and used to finance both public goods according to the population size of each region. The experiment shows that centralization induces lower tax morale and less efficient outcomes. The reasons are that centralization gives rise to an interregional incentive problem and creates inequalities in income between regions. |
| Keywords: | Tax morale; Fiscal federalism; Public goods experiments |
| JEL: | C91 H26 H41 H70 |
| Date: | 2005–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwppe:0511014&r=pbe |
| By: | Agnès Bénassy-Quéré (CEPII); Nicolas Gobalraja (THEMA (University Paris X) and CEPII); Alain Trannoy (GREQAM-IDEP, L’Ecole des Hautes Etudes en Sciences Sociales (EHESS), Paris) |
| Abstract: | This paper assesses the extent and policy implications of simultaneous competition among countries on both corporate tax rates and the provision of public goods used by firms as production factors (‘public factors’). First, we derive the relevant theoretical results in a unified framework where a corporate tax is used to finance a public good that raises both household utility and firm productivity. Then, the relevance of such simultaneous competition is tested using data on foreign direct investment from the US to EU member states. Both the theoretical analysis and the empirical results presented in this paper suggest that focusing on the tax side of the competition for the location of multinationals is misleading. It shows that there are grounds for the coexistence of high tax/spending countries and low tax/spending ones. Furthermore, provided multinationals are heterogeneous concerning their use of public factors, the competition for attracting them could take the form of a vertical or horizontal specialisation, whereby each government would seek to attract a certain type of activity through the adequate provision of certain public factors. In this framework, international competition could act as a vector for raising public-sector efficiency rather than as a standardisation factor. |
| Keywords: | Tax competition, public factors, public goods, FDI |
| JEL: | F21 F23 H25 H41 H54 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:epr:enepwp:040&r=pbe |
| By: | Jian Zhang (EEE programme UNESCO, FEEM) |
| Abstract: | A global multi-sectoral, multi-regional computational general equilibrium model is employed to assess carbon taxes under perfect competition and monopoly. We found that regional studies of carbon taxation maybe inaccurate due to the carbon emission spillover effects. Emission taxes have stronger impacts on the economy in monopoly rather than on perfect competition in terms of magnitude. Carbon emission tax policy analysis which is based on perfect competition may also underestimate the losses of welfare compared with the case in imperfect competition. |
| Keywords: | environmental taxation, imperfect competition, Computable General Equilibrium |
| JEL: | D43 D58 L13 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:213&r=pbe |
| By: | Philippe Michel (Division Monetary Policy Strategy European Central Bank); Leopold von Thadden; Jean-Piere Vidal |
| Abstract: | Unstable government debt dynamics can typically be corrected by various fiscal instruments, like appropriate adjustments in government spending, public transfers, or taxes. This paper investigates properties of state-contingent debt targeting rules which link stabilizing budgetary adjustments around a target level of long-run debt to the state of the economy. The paper establishes that the size of steady-state debt is a key determinant of whether it is possible to find a rule of this type which can be implemented under all available fiscal instruments. Specifically, considering linear feedback rules, the paper demonstrates that there may well exist a critical level of debt beyond which this is no longer possible. From an applied perspective, this finding is of particular relevance in the context of a monetary union with decentralized fiscal policies. Depending on the level of long-run debt, there might be a conflict between a common fiscal framework which tracks deficit developments as a function of the state of the economy and the unrestricted choice of fiscal policy instruments at the national level |
| Keywords: | Fiscal regimes, overlapping generations |
| JEL: | E63 H62 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:349&r=pbe |
| By: | Marko Köthenbürger (CES, University of Munich and CESifo); Panu Poutvaara (University of Helsinki, CEBR, CESifo, HECER and IZA Bonn); Paola Profeta (Bocconi University) |
| Abstract: | We suggest a political economy explanation for the stylized fact that intragenerationally more redistributive social security systems are smaller. We relate the stylized fact to an "efficiencyredistribution" trade-off to be resolved by political process. The inefficiency of social security financing is due to endogenous labor supply. Using data on eight European countries, we find that the stylized fact and a considerable degree of cross-country variation in contribution rates can be explained by the median voter model. |
| Keywords: | earnings-related and flat-rate benefits, applied political economy, public pensions, labor supply |
| JEL: | H55 D72 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1831&r=pbe |
| By: | Agar Brugiavini (University of Venice - Department of Economics); Franco Peracchi (University of Rome II - Centre for International Studies on Economic Growth (CEIS)) |
| Abstract: | A "good" pension reform should address a number of issues. One important aspect is the financial soundness of the system, particularly in the light of the legacy that we leave to future generations. Policy makers should also address economic efficiency at two levels: no waste of resources for a given contribution rate (or for a given benefit level), and no distortions of individual choices (or at least minimize distortions). The main distortions associated with a pension system or with its reform have to do with saving and labor supply behavior. Italy has seen a flurry of reforms during the 1990s, and economists and policy makers are still struggling to assess the results and the long-term effects of these reforms. Many analysts argue that the overall design of the recent Italian reforms is probably a good one, and yet more steps need to be taken to speed up the reform process and reap the benefits which, due the adverse demographic trends, could easily evaporate. In this paper, we contribute to the current debate on the Italian pension system by analyzing the impact of social security reforms, in terms of both budgetary implications and distributional effects. This is done by simulating the effects of three hypothetical reforms, plus the effects of the 1995-reform of the Italian pension system (the so-called Dini reform). Our approach relies on the use of a semi-structural econometric model to predict retirement probabilities under different policy scenarios, so as to properly take into account the behavioral effects of the reforms. On the basis of the estimated retirement model, we develop a complete accounting exercise which includes not only changes in gross future benefits due to policy changes, but also changes in social security contributions, income taxes and value added taxes. Thus, our results provide not only estimates of the workers' gains or losses, but also an exhaustive evaluation of the gains and losses for the government budget. We find that the reforms, particularly the Dini reform (once fully phased in), have a substantial impact on individuals' retirement decisions and their net social security wealth, as well as substantial gains for the government finances. |
| Date: | 2005–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:67&r=pbe |
| By: | Dennis W. Jansen; Shao-Jung Chang (Economics Texas A&M University) |
| Abstract: | Over the years, optimal taxation has been extensively discussed, and a major focus has been on the question of whether the optimal capital income tax rate is zero in long-run equilibrium. This paper addresses this issue in the context of a model of vintage capital with technical change and the entry and exit of new plants. It considers the optimal combinations of three taxes, including taxes on capital income, labor income, and property. The tax base for the property tax is plant value, which is determined by the plant’s productivity. Each plant is endowed with one unit of capital, which cannot be replaced or upgraded during the plant’s lifetime, although plant productivity is a combination of the vintage of capital and learning by doing. The tax base for the property tax is relatively large compared to that for capital income. There is a trade-off between these two rates in that a much lower tax rate on property is needed to satisfy a given level of government expenditure, while on the other hand the property tax rate has an effect on the exit threshold of plants and hence on the distribution of plant productivity. In this model there are two types of plants. One type is complete and able to produce the final good, while the other type is under development process and subject to a time-to-build constraint. Only the producing plant is subject to the property tax. In the steady state this paper documents interesting interactions between the capital income tax and the property tax. One special case of interest is the optimal capital income tax rate given different level of exogenous government expenditure when the property tax rate is fixed at zero. (Government expenditure is assumed to be unproductive.) Subsidies on capital income and property are considered. In addition to looking at the steady state, transitional paths including exit and entry rates of plants, and social welfare, are derived under two situations, one in which there is a shock to embodied technology, and one in which there is a shock to the path of exogenous government expenditures. Some results to date indicate that for a large range of values the steady state optimal tax rates include a positive tax on property matched with a subsidy to capital income |
| JEL: | E62 L16 O41 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:401&r=pbe |
| By: | Johannes Rincke (Zentrum für Europäische Wirtschaftsforschung) |
| Abstract: | This paper investigates how local jurisdictions in a federal system influence each other in the adoption of policy innovations. We look at school districts in Michigan and their participation in a public school choice program launched in 1996. Districts' participation decisions are modelled as simultaneous discrete choice decisions using a spatial latent variable model. Strong effects are found saying that lagged adoptions of neighbors positively affect the current probability of participation. This finding is robust to various changes in specification. The results suggest that in federal systems the diffusion of policy innovations is stimulated by horizontal interactions between jurisdictions. |
| JEL: | D6 D7 H |
| Date: | 2005–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwppe:0511011&r=pbe |
| By: | Nada Eissa; Hilary Hoynes |
| Abstract: | Twenty-two million families currently receive a total of $34 billion dollars in benefits from the Earned Income Tax Credit (EITC). In fact, the EITC is the largest cash transfer program for lower-income families at the federal level. An unusual feature of the credit is its explicit goal to use the tax system to encourage and support those who choose to work. A large body of work has evaluated the labor supply effects the EITC and has generated several important findings regarding the behavioral response to taxes. Perhaps the main lesson learned from the evidence is the confirmation that real responses to taxes are important; labor supply does respond to the EITC. The second major lesson is related to the nature of the labor supply response. A consistent finding is that labor supply responses are concentrated along the extensive (entry) margin, rather than the intensive (hours worked) margin. This distinction has important implications for the design of tax-transfer programs and for the welfare evaluation of tax reforms. |
| JEL: | H24 J22 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11729&r=pbe |
| By: | Hylke Vandenbussche; Chang Tan |
| Abstract: | This paper provides empirical evidence of a more favorable tax treatment for foreign multinationals compared to similar domestic Firms in a small open economy. Using treatment effects to control for self-selection of foreign firms into low tax firms, we find that foreign multinationals have substantially lower effective tax rates compared to domestic firms. In our estimations we also control for firm size, sector membership and business-cycle effects. A simple theoretical framework is used to explain our empirical findings and rests on the notion that multinational firms are in a better position to bargain for lower taxes with governments as a result of their "footloose" nature and outside location options. |
| Keywords: | ¯rm level data, multinationals, corporate taxation, self-selection |
| JEL: | C51 E62 F23 |
| URL: | http://d.repec.org/n?u=RePEc:lic:licosd:16005&r=pbe |
| By: | Wojciech Kopczuk; Cristian Pop-Eleches |
| Abstract: | In 2002 more than 18 million low-income individual taxpayers received the Earned Income Tax Credit (EITC). Despite its size, non-participation in this program is a concern and substantial effort is devoted by the IRS, local governments and many non-profits to address it. Most of the tax returns for EITC recipients are filed electronically by paid tax preparers who often charge significant fees for their services. Using variation across states in the introduction of state electronic filing programs, we show that the introduction of electronic filing had a significant effect on participation in the EITC. Our results are robust to accounting for other welfare, EITC and IRS reforms introduced during the same period. We suggest that this effect is due to the impact that electronic filing opportunities had on the tax preparation industry, therefore providing an example of how a market-based approach can be effective in addressing the problem of program non-participation. |
| JEL: | H24 I38 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11768&r=pbe |
| By: | Sunghyun Henry Kim; Jinill Kim |
| Abstract: | This paper studies optimal tax policy problem by employing a two-country dynamic general equilibrium model with incomplete asset markets. We investigate the possibility of welfare-improving active, contingent tax policies (under which tax rates respond to changes in productivity) on capital and labor income and consumption. Unlike the conventional wisdom regarding stabilization policies, procyclical factor-income tax policies in general improves welfare in open economies. Procyclical tax policies generate efficiency gains by correcting asset market incompleteness. Optimal tax policy under cooperative equilibrium is similar to that under the Nash equilibrium, and welfare gains from tax policy coordination is quite small |
| Keywords: | optimal tax, procyclical, countercyclical, stabilization, cooperation |
| JEL: | F4 E6 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:169&r=pbe |
| By: | Jukka Railavo (Monetary Policy and Research Department Bank of Finland) |
| Abstract: | In this paper we analyse the monetary impact of alternative fiscal policy rules using the debt and deficit, both mentioned as measures of fiscal policy performance in the Stability and Growth Pact (SGP). We use a New Keynesian model, with distortionary taxation and an appropriately defined output gap. The economy is hit by two fundamental shocks: demand and supply shocks, which are orthogonal to each other. Monetary policy is conducted by an independent central bank that will optimise. Under discretionary monetary policy the size of the inflation bias depends on the fiscal policy regime. Using the timeless perspective approach to precommitment, output persistence increases compared to the discretionary case. The result holds with the alternative fiscal policy rules, and inflation and output persistence reflects the economic data. With the deficit rules, the autocorrelation of the tax rate is near unity irrespective of the monetary policy regime, and irrespective of the fiscal policy parameters and targets. Thus we revive Barro's (1979) random walk result with the deficit rules |
| Keywords: | Inflation, monetary policy, fiscal policy, policy coordination |
| JEL: | E52 E31 E61 E62 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:145&r=pbe |
| By: | Roberto Billi; Klaus Adam (Research Department CEPR and European Central Bank) |
| Abstract: | We study monetary and fiscal policy games in a dynamic sticky priceeconomy where monetary policy sets nominal interest rates and fiscal policy provides public goods financed with distortionary labor taxes. We compare the Ramsey outcome to non-cooperative policy regimes where one or both policymakers lack commitment power. Absence of fiscal commitment gives rise to a public spending bias, while lack of monetary commitment generates the well-known inflation bias. An appropriately conservative monetary authority can eliminate the steady state distortions generated by lack of monetary commitment and may even eliminate the distortions generated by lack of fiscal commitment. The costs associated with the central bank being overly conservative seem small, but insufficient conservatism may result in sizable welfare losses |
| Keywords: | optimal monetary and fiscal policy, lack of commitment, sequential policy, discretionary policy |
| JEL: | E52 E62 E63 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:62&r=pbe |
| By: | Giancarlo Marini (University of Rome II - Faculty of Economics); Alessandro Piergallini (University of Rome II; University of Bristol - Department of Economics) |
| Abstract: | This paper studies the performance of monetary policy under alternative fiscal regimes in a dynamic New Keynesian optimizing general equilibrium model with wealth effects. The interactions between fiscal policy and interest rate rules are shown to have relevant implications for the existence of a unique rational expectations equilibrium. When calibrated to Euro Area quarterly data, the model simulation results show that the preferred monetary-fiscal regime for inflation stabilization consists of a generalized Taylor rule with a low degree of inertia coupled with a public debt-GDP ratio targeting rule. |
| Keywords: | Fiscal Policy Rules, Monetary Policy, Wealth Effects |
| JEL: | E52 E58 E63 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:50&r=pbe |
| By: | Lucas Bretschger (Institute of Economic Research (WIF), Swiss Federal Institute of Technology Zurich (ETH)) |
| Abstract: | This contribution provides evidence for the hypothesis that trade increases growth through its curbing effect on capital taxes. The analysed trade-growth channel includes a negative impact of open- ness on corporate taxes and a negative effect of taxes on growth. The paper explores the two steps theoretically and empirically, taking into account the critical points of recent studies in this field. Estimations with panel data for a sample of 12 OECD countries in the period 1965-1999 confirm a significant and robust impact of trade on growth through corporate taxes. |
| Keywords: | Trade and Growth, Tax Competition, Capital Taxes and Mobility, OECD Countries |
| JEL: | F43 O40 H71 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:05-43&r=pbe |
| By: | Thomas Steinberger (CSEF, University of Salerno) |
| Abstract: | This paper analyzes the welfare effects of funding regulation for defined benefit pension plans subject to pension benefit default risk in an incomplete financial markets OLG-setting with aggregate uncertainty and idiosyncratic pension default risk. The financial market incompleteness arises from the inability to trade human capital claims. Using numerical methods to solve for equilibrium, we show first that default-free defined benefit pension plans are welfare-improving even in a dynamically efficient economy. Second, we show that in the presence of default risk funding regulations improve aggregate welfare by making larger size plans more attractive and that full funding is not necessarily the optimal policy. Our results provide a rationale for the widespread underfunding of defined benefit pension plans and might explain the decline of these plans after the introduction of stringent funding regulation in the US |
| Keywords: | generations, pension default, funding regulation |
| JEL: | H21 H31 H55 |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:147&r=pbe |
| By: | Markus Pasche (University of Jena, Faculty of Economics) |
| Abstract: | The paper investigates the optimal regulation of a (software) firm which acts as a natural monopolist, who also offers a complementary good (IT services) on a competitive market. It is shown that a first-best-regulation accompanyied with an optimal taxation schedule in order to compensate the losses is equivalent to a cross-subsidisation of the software by the complementary good. This is the same result as in business models with Free/Open Source Software (F/OSS). Even if a price of zero for F/OSS does not reflect the use of resources for software development, the price system in F/OSS related markets leads to a welfare improving allocation. F/OSS license models can be seen as institutional arrangements which mimick a social planner. |
| Keywords: | natural monopoly, regulation, Ramsey pricing, welfare, complementary good, Open Source Software |
| JEL: | L51 H21 |
| Date: | 2005–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:jen:jenasw:2005-18&r=pbe |
| By: | Steven Ambler (Université du Québec à Montréal public); Florian Pelgrin |
| Abstract: | This paper shows how to use optimal control theory to derive time-consistent optimal government policies in nonlinear dynamic general equilibrium models. It extends the insight of Cohen and Michel (1988), who showed that in _linear_ models time-consistent policies can be found by imposing a linear relationship between predetermined state variables and the costate variables from private agents' maximization problems. We use an analogous procedure based on the Den Haan and Marcet (1990) technique of parameterized expectations, which replaces nonlinear functions of expected future costates by flexible functions of current states. This leads to a nonlinear relationship between current state and costate variables, which is verified in equilibrium to an arbitrarily close degree of approximation. The optimal control problem of the government is recursive, unlike the Ramsey (1927) problem which is common in the optimal taxation literature. We use a model of public investment to illustrate the technique |
| Keywords: | Optimal government policy; Time consistent control |
| JEL: | E61 E62 C63 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:282&r=pbe |
| By: | René Böheim (University of Linz and IZA Bonn); Karin Mayr (University of Linz) |
| Abstract: | We examine the relation between low-skilled and high-skilled immigration and public spending from a theoretical and an empirical perspective. We introduce the distinction of public spending on private goods and on public goods. Our model implies that high-skilled immigration can have a negative effect on public spending only in the presence of an antisocial effect. We test our theoretical hypotheses, the ‘income effect’ and the ‘anti-social effect’ of immigration, and a ‘welfare magnet effect’ of public spending empirically using OECD panel data for 1990-2001. Estimating a system of simultaneous equations using three stage least squares (3SLS), we find evidence for an anti-social effect for low-skilled and highskilled immigrants. In addition, we also find empirical evidence for the welfare magnet effect. |
| Keywords: | immigration, cash transfers, public goods |
| JEL: | F2 H4 H5 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1834&r=pbe |
| By: | Sanjay K. Chugh |
| Abstract: | Ramsey models of fiscal and monetary policy with perfectly-competitive product markets and a fixed supply of capital predict highly volatile inflation with no serial correlation. In this paper, we show that an otherwise-standard Ramsey model that incorporates capital accumulation and habit persistence predicts highly persistent inflation. The result depends on increases in either the ability to smooth consumption or the preference for doing so. The effect operates through the Fisher relationship: a smoother profile of consumption implies a more persistent real interest rate, which in turn implies persistent optimal inflation. Our work complements a recent strand of the Ramsey literature based on models with nominal rigidities. In these models, inflation volatility is lower but continues to exhibit very little persistence. We quantify the effects of habit and capital on inflation persistence and also relate our findings to recent work on optimal fiscal policy with incomplete markets |
| Keywords: | Optimal fiscal and monetary policy, inflation persistence, Ramsey model, habit formation |
| JEL: | E50 E61 E63 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:369&r=pbe |
| By: | J. C. Parra; M. Huggett |
| Abstract: | We quantify the inefficiency of the retirement component of the US social security system within a model where agents receive idiosyncratic labor-productivity shocks that are privately observed |
| Keywords: | social security, efficient allocations, idiosyncratic shocks |
| JEL: | D80 D90 E21 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:70&r=pbe |
| By: | Johannes Rincke (Zentrum für Europäische Wirtschaftsforschung) |
| Abstract: | A simple model of yardstick competition between jurisdictions is presented. Governments of jurisdictions face the alternative to choose between an old and a new policy with stochastic payoffs. The new policy is superior to the old policy in one state of the world, and inferior in the other. Governments are either benevolent, serving the interest of the voter, or rent-seeking. An equilibrium with yardstick competition is shown to exist where bad governments having a good government in their neighborhood choose the new policy more often compared to an equilibrium without relative performance evaluation. Overall, the probability of policy innovations is increased by yardstick competition. The model has a testable empirical implication saying that policy innovations should show spatial correlation. |
| JEL: | D6 D7 H |
| Date: | 2005–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwppe:0511010&r=pbe |
| By: | Rangan Gupta (ECONOMICS UNIVERSITY OF CONNECTICUT) |
| Abstract: | Given that data indicates several countries with same, or nearly same, degree of tax evasion but widely different levels of reserve requirements, this paper analyzes the relationship between the ``optimal" degree of tax evasion and mandatory cash reserve requirements required to be held by banks using a simple overlapping generations framework. Proceeding on the initial premises that the above observation may be a fallout of the possibilities of multiple levels of tax evasion given the reserve requirements and other policy variables, or that the optimal degree of tax evasion may be completely unaffected by the movements in reserve requirements, we find the latter to be true. The model also suggests the following: (i) An economy with a less corrupt structure will have a higher steady-state of value of reported income; (ii) Increases in the penalty rates of evading taxes would induce consumers to report greater fraction of their income, while increases in the income-tax rates would cause them to evade greater fraction of their income, and ; (iii) The model does not vindicate the popular belief in the literature that, countries with lower percentage of reported income tend to have higher reserve requirements |
| Keywords: | Reserve requirements; Tax evasion |
| JEL: | E52 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:328&r=pbe |
| By: | Giancarlo Marini (University of Rome II - Faculty of Economics); Pietro Senesi (University of Rome II - Faculty of Economics) |
| Abstract: | Within a one-sector, infinite-horizon representative agent model with technological externalities and a convex-concave production function, this paper derives a capital subsidy policy that simultaneously eliminates the wedge between private and social marginal products of capital, and achieves a globally efficient allocation. |
| Keywords: | nonconvexities, technological externalities, dynamic equilibrium allocations |
| JEL: | C61 D62 H21 |
| Date: | 2004–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:57&r=pbe |
| By: | Patricio Barra (Servicio de Impuestos Internos); Danae Chandia (Servicio de Impuestos Internos) |
| Abstract: | Esta monografía analiza los principales aspectos involucrados en el Impuesto a la Renta de las Personas Físicas (IRPF). El análisis comprende una revisión de los modelos teóricos tras el diseño del IRPF como asimismo una visión comparada de los esquemas reales adoptados en varios países. La muestra incluye a países latinoamericanos, del G-7, a otras economías seleccionadas de la OCDE, y a países del Asia-Pacífico. Se constata que el IRPF juega hoy un papel muy importante en los sistemas fiscales de los países desarrollados y que, probablemente, lo seguirá jugando en el futuro. En los países latinoamericanos, en cambio, este rol es menor y se mantendrá irrelevante en el futuro a menos que se logre potenciar adecuadamente su cumplimiento tributario, se reduzcan los gastos tributarios asociados y se impulsen reformas simplificadoras del gravamen. |
| Keywords: | impuestos, renta, personal, personal income tax. |
| JEL: | D6 D7 H |
| Date: | 2005–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwppe:0511006&r=pbe |
| By: | Pedro Cavalcanti Gomes Ferreira (EPGE/FGV); Leandro Gonçalves do Nascimento |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:epgewp:604&r=pbe |
| By: | Christian Bjørnskov (Aarhus School of Business, Department of Economics); Axel Dreher (Konjunkturforschungsstelle, Eidgenössische Technische Hochschule Zürich (ETH)); Justina A. V. Fischer (Swiss Institute for International Economics and Applied Economic Research, University of St. Gallen) |
| Abstract: | This paper empirically analyzes the question whether government involvement in the economy is conducive or detrimental to life satisfaction in a cross-section of 74 countries. This provides a test of a longstanding dispute between standard neoclassical economic theory, which predicts that government plays an unambiguously positive role for individuals’ quality of life, and public choice theory, that was developed to understand why governments often choose excessive involvement and regulation, thereby harming voters’ quality of life. Our results show that life satisfaction decreases with higher government spending. This negative impact of the government is stronger in countries with a leftwing median voter. It is alleviated by government effectiveness – but only in countries where the state sector is already small. |
| Keywords: | Life satisfaction, Government |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:05-44&r=pbe |
| By: | Laurent Bouton (ECARES, Université Libre de Bruxelles); Marjorie Gassner (ECARES, Université Libre de Bruxelles); Vincenzo Verardi (ECARES, Université Libre de Bruxelles) |
| Abstract: | It has been suggested that …scal federalism is a good way to induce decentralized entities to behave parsimoniously, but this has been largely criticized in the literature, in particular because of the Common-Pool problem. In this paper, we present an extra facet of the latter problem. We present a simple theoretical model con…rmed by empirical evidence suggesting that vertical imbalance induces govenments to substitute redistributive spending for non-distributive expenditures. This drives …scal policies to be less efficient in reducing income inequality. |
| Keywords: | Federalism, Income Inequality, Common Pool, Redistribution |
| JEL: | D6 D7 H |
| Date: | 2005–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwppe:0511013&r=pbe |
| By: | Gustavo Piga (University of Rome II); Giorgio Valente (The Chinese University of Hong Kong) |
| Abstract: | We estimate, using a previously unexploited set of data for the Italian public debt, quarterly yield curves over the period 1970-1996 to test the main implications of the expectations hypothesis theory (EH). Our empirical results show that short-term interest rates move according to the prediction of the EH, though the same cannot be found for long-term interest rates. In addition, using a probit model, we investigate the public debt issuance policy. We find and interpret a significant relationship between the slope of the yield curve and the probability of an increase in the aggregate duration of the outstanding debt. |
| Keywords: | Term Structure of Interest Rates, Expectations Hypothesis, Public Debt Management |
| JEL: | H63 E44 E58 E61 |
| Date: | 2004–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:49&r=pbe |
| By: | Johannes Rincke (Zentrum für Europäische Wirtschaftsforschung) |
| Abstract: | Before making difficult decisions, individuals tend to collect information on decision makers in reference groups. With respect to policy innovations in a decentralized public sector, this may give rise to positive neighborhood influence on adoption decisions. On the other hand, due to learning externalities, an incentive exists to free-ride on policy experiments of others. In this paper, U.S. data on school district policies are used to show that with respect to policy experiments, decision makers indeed are heavily affected by decision makers in reference groups. The results suggest that if a given district's neighbors' expected benefits from adopting a new policy increase, this substantially increases the original district's probability of adoption. The paper thus rejects the free-riding hypothesis and supports the view that in federal systems the discusion of policy innovations is stimulated by horizontal interactions between jurisdictions. |
| JEL: | D6 D7 H |
| Date: | 2005–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwppe:0511009&r=pbe |
| By: | Namkee Ahn; Javier Alonso-Meseguer; Juan Ramón García |
| Abstract: | The objective of this paper is to carry out a projection of the pension expenditures under demographic uncertainty in Spain. In order to obtain a stochastic pension expenditure projection, as well as the number of pensioners and the number of contributors, we use a stochastic population projection. Demographic situation with respect to the pension system in Spain shows a dramatic change during the first half of this century. It will be relatively favorable during the first two decades due to the increasing participation and employment rates as well as due to the relatively small civil war generations occupying dependent old ages while the baby boom generations staying in working ages. Starting from around 2030, however, the situation is completely reversed as the baby-boomers start to retire from the labor market while the working age population consists mostly of much smaller baby bust generations. The financial situation of Spanish pension system appears to be affected significantly by the above mentioned demographic situation. During the first few decades it will enjoy a small surplus. Most importantly, the deficit during the subsequent decades will be large and increasing over time. In 2050, the deficit will be higher than 6% of GDP by the probability of 0.90, and will be higher than 15% by the 0.10 probability. In the same year, the range of the debt (accumulated deficit) will be between 77% and 260% of GDP by the 80% confidence interval. |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2005-20&r=pbe |
| By: | Anabela Botelho (NIMA, Universidade do Minho); Glenn W. Harrison; Lígia Pinto (NIMA, Universidade do Minho); Elisabet E. Rutstrom (University of South Carolina) |
| Abstract: | Game theory provides predictions of behavior in many one-shot games. On the other hand, most experimenters usually play repeated games with subjects, to provide experience. To avoid subjects rationally employing strategies that are appropriate for the repeated game, experimenters typically employ a "random strangers" design in which subjects are randomly paired with others in the session. There is some chance that subjects will meet in multiple rounds, but it is claimed that this chance is so small that subjects will behave as if they are in a one-shot environment. We present evidence from public goods experiments that this claim is not always true. |
| Keywords: | Game theory, experiments, public goods |
| JEL: | C72 C92 H41 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:nim:nimawp:29/2005&r=pbe |
| By: | Michele Giuseppe Giuranno |
| Abstract: | This paper focuses on the question of how income inequality between two jurisdictions impacts upon government decision-making affecting the size of the public sector. We model policy choices as the outcome of regional representatives' negotiations in the legislature. We show that the more unequal income distribution is, the greater the degree of inefficiency in terms of under-provision of public goods. Particularly, a divergent income trend between rich and poor makes interregional redistributive conflicts more dramatic. Consequently, the larger the income disparity, the smaller the public sector. A wealthier economy as a result may lead to a relatively smaller public sector when income disparity increases.Number: 602 |
| Date: | 2005–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:603&r=pbe |
| By: | Facundo Albornoz and Gregory Corcos |
| Abstract: | Regional integration affects location decisions of MNCs and therefore influences each member country’s provision of investment incentives, which in turn may trigger relocation. As a consequence, subsidy competition increases as integration proceeds. We analyze the welfare consequences of this phenomenon, modelling subsidization as a game between a MNC facing different location alternatives and governments that may deter or induce relocation by means of subsidies. We show that the combination of integration and subsidy competition may lead to an excess of subsidization. We also discuss how the interest of harmonizing subsidies, the net gains from integration crucially depend on technological differences, ownership and the absorption capacity of MNC profits by countries. Lastly, we find that the gain from supranational subsidy coordination increases with integration. |
| Keywords: | Multinational Corporations, Regional Integration, FDI, Subsidy Competition, Location Choice |
| JEL: | F15 F21 F23 H2 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:05-14&r=pbe |
| By: | Francisco J. André (Universidad Pablo de Olavide); Emilio Cerdá (Universidad Complutense de Madrid) |
| Abstract: | En este trabajo se presenta un análisis de la gestión de residuos sólidos urbanos desde una perspectiva económica. Se profundiza en los fallos de mercado que produce la generación y la gestión de los residuos y se discuten los principales instrumentos de política que se pueden utilizar para corregir dichos fallos. En particular, se presta especial atención a las políticas de incentivos y se clasifican y se enumeran las principales ventajas e inconvenientes de cada una de ellas. También se realiza un breve recorrido sobre los acontecimientos recientes y los cambios en los principios y las prácticas de gestión en el ámbito nacional e internacional. |
| Keywords: | Residuos sólidos urbanos, fallos de mercado, políticas de incentivos, vertido, reciclaje. |
| JEL: | Q53 D62 H71 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:cea:doctra:e2005_23&r=pbe |
| By: | Jyrki Ali-Yrkkö (ETLA, the Research Institute of the Finnish Economy) |
| Abstract: | This study analyses how public R&D financing impacts companies. Our main goal is to study whether public and private R&D financing are substitutes or complements, and whether this impact differs between financially constrained and unconstrained companies. Our company-level panel data cover the period from 1996 to 2002. The statistical method employed in the research takes into account the possibility that receiving public support may be an endogenous factor. Our results suggest that public R&D financing does not crowd out privately financed R&D. Instead, receiving a positive decision to obtain public R&D funds increases privately financed R&D. Furthermore, our results suggest that this additionality effect is bigger in large firms than in small firms. |
| Keywords: | Public finance, R&D, substitute, financial constraint |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:epr:enepwp:030&r=pbe |
| By: | M. Alejandro Cardenete (Universidad Pablo de Olavide); G.J.D. Hewings (Universidad de Illinois); E. Velázquez (Universidad Pablo de Olavide) |
| Abstract: | El objetivo de este trabajo consiste en analizar los efectos que tendría un incremento en la tarifa del agua del sector agrario sobre la conservación del recurso, la eficiencia en el consumo y la posible relocalización del mismo entre los diferentes sectores productivos. La política tarifaria se aplicará sobre el sector agrario debido, por un lado, al excesivo consumo de agua realizado por dicho sector y, por otro, al bajo precio pagado por ella. La metodología que se utilizará para alcanzar el objetivo propuesto consistirá en un modelo de equilibrio general aplicado (MEGA), previamente diseñado para el análisis de impuestos directos de la economía andaluza (Cardenete y Sancho, 2003), mejorado y ampliado para incluir las emisiones contaminantes y la introducción de impuestos ambientales (André, Cardenete y Velázquez, 2005). Este modelo se modificará para introducir las variaciones en la tarifa del agua que trataremos de analizar mediante la introducción de un impuesto sobre la estructura de producción. |
| Keywords: | reformas impositivas ambientales, equilibrio general aplicado, precio del agua. |
| JEL: | D58 H21 H22 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:cea:doctra:e2005_22&r=pbe |
| By: | Gianni De Fraja (University of York (UK) - Department of Economics; Centre for Economic Policy Research (CEPR)); Pedro Landeras (University of Cantabria - Department of Economics) |
| Abstract: | This paper studies the effects of incentive mechanisms and of the competitive environment on the interaction between schools and students, in a set-up where the students' educational attainment depends on their peer group, on their effort, and on the quality of the school's teaching. We show that increasing the power of the incentive scheme and the effectiveness of competition may have the counterintuitive effect of lowering the students' effort, with ambiguous effects on their attainment. In a simple dynamic set-up, where the reputation of the schools affects recruitment, we show that increased competition leads to segregation of pupils by ability. |
| Keywords: | Students effort, Schools quality, Peer-group effect, Incentives |
| JEL: | I20 H42 |
| Date: | 2004–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:48&r=pbe |
| By: | Potters,Jan; Sefton,Martin; Heijden,Eline van der (Tilburg University, Center for Economic Research) |
| Abstract: | We use experiments to compare two institutions for allocating the proceeds of team production. Under revenue-sharing, each team member receives an equal share of team output; under leader-determined shares, a team leader has the power to implement her own allocation. Both arrangements are vulnerable to opportunistic incentives: under revenuesharing team members have an incentive to free-ride, while under leader-determined shares leaders have an incentive to seize team output. We find that most leaders forego the temptation to appropriate team output and manage to curtail free-riding. As a result, compared to revenue-sharing, the presence of a team leader results in a significant improvement in team performance. |
| Keywords: | team production;leadership;opportunism;experiments |
| JEL: | C9 D2 H4 J3 L2 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2005109&r=pbe |
| By: | Raj Chetty |
| Abstract: | It is well known that unemployment benefits raise unemployment durations. This result has traditionally been interpreted as a substitution effect caused by a reduction in the price of leisure relative to consumption, generating a deadweight burden. This paper questions the validity of this interpretation by showing that unemployment benefits can also affect durations through a non-distortionary income effect for agents who face borrowing constraints. The empirical relevance of borrowing constraints and income effects is evaluated in two ways. First, I classify households into groups that are likely to be constrained and unconstrained based on their asset holdings, mortgage payments, and spouse's labor force status. I find that increases in unemployment benefits have small effects on durations in the unconstrained groups but large effects in the constrained groups. Second, I find that lump-sum severance payments granted at the time of job loss significantly increase durations, particularly among households that are likely to be constrained. These results suggest that transitory benefits affect search behavior largely through an income effect, challenging the prevailing view that social safety nets create large efficiency costs. |
| JEL: | H0 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11760&r=pbe |
| By: | Jing Yang; Sheri Markose; Amadeo Alentorn |
| Abstract: | In this paper, we report on the main building blocks of an ongoing project to develop a computational agent-based simulator for a generic real-time large-value interbank payment system with a central processor that can implement different rules for payment settlement. The main types of payment system in their polar forms are Real Time Gross Settlement (RTGS) and Deferred Net Settlement (DNS). DNS generates large quantities of settlement risk; in contrast, the elimination of settlement risk in RTGS comes with excessive demands for liquidity on banks. This could lead them to adopt various delaying tactics to minimise liquidity needs with free-riding and other ‘bad’ equilibria as potential outcomes. The introduction of hybrid systems with real-time netting is viewed as a means by which liquidity costs can be reduced while settlement risk is unchanged. Proposed reforms for settlement rules make it imperative to have a methodology to assess the efficiency of the different variants along three dimensions: the cost of liquidity to the individual banks and the system as a whole, settlement risk at both bank and system levels, and how early in the day payments are processed, since this proxies the impact of an operational incident. In this paper, we build a simulator for interbank payments capable of handling real time payment records along with autonomous bank behaviour and show that it can be used to evaluate different payment system designs against these three criteria |
| Keywords: | Agent based modeling, Real Time Gross Settlement; Deferred Net Settlement; Agent-based simulation; Payment Concentration; Liquidity; Systemic Risk |
| JEL: | H30 G21 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:396&r=pbe |
| By: | Oleg V. Pavlov (Social Science and Policy Studies WPI) |
| Abstract: | Peer-to-peer technology has made massive music piracy possible, which, in turn, has arguably had a significant economic impact on the recording industry. Record labels have responded to online piracy with litigation and are also considering self-help measures. It is currently not obvious whether or not these counter-piracy strategies will ultimately stifle online file sharing in the long term. With this paper we attempt to add to our understanding of the conflict within the institution that is the commercial music industry. We conduct an institutional analysis of the industry in transition and extend the traditional pattern modeling methodology with a formal resource-based model of a representative online music network. The model accounts for complex causal interactions between resources, private provision of common goods, free riding and membership dynamics. The numerical implementation of the model is the basis of a decision support system, which is used in a series of computer experiments that emulate anti-piracy scenarios. We show that a peer-to-peer system may be quite resilient to outside disturbances. The experiments also demonstrate that policies rank differently in their effectiveness based on a selected yardstick. |
| Keywords: | Peer-to-peer (P2P) networks; Online File Sharing; Copyright; Simulation |
| JEL: | K40 H40 C60 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:233&r=pbe |
| By: | Oleg V. Pavlov (Social Science and Policy Studies WPI); Nigel Melville |
| Abstract: | The growth of unsolicited commercial email imposes increasing costs on organizations and causes considerable aggravation on the part of email recipients. A thriving anti-spam industry addresses some of the frustration. Regulation and various economic and technical means are in the works – all aimed at bringing down the flood of unwanted commercial email. This paper contributes to our understanding of the UCE phenomenon by drawing on scholarly work in areas of marketing and resource ownership and use. Adapting the tragedy of the commons to the email context, we identify a causal structure that drives the direct e-marketing industry. Computer simulations indicate that although filtering may be an effective method to curb UCE arriving at individual inboxes, it is likely to increase the aggregate volume, thereby boosting overall costs. We also examine other response mechanisms, including self-regulation, government regulation, and market mechanisms. The analysis advances understanding of the digital commons, the economics of UCE, and has practical implications for the direct e-marketing industry |
| Keywords: | SPAM; Unsolicited Commercial Email (UCE); Tragedy of the Digital Commons; Simulation |
| JEL: | H40 C60 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:231&r=pbe |