nep-pbe New Economics Papers
on Public Economics
Issue of 2005‒12‒09
74 papers chosen by
Peren Arin
Massey University

  1. Distribution of Natural Resources, Entrepreneurship, and Economic Development: Growth Dynamics with two Elites By Josef Falkinger; Volker Grossmann
  2. The Market for Protection and the Origin of the State By Kai A. Konrad; Stergios Skaperdas
  3. Why is Fiscal Policy often Procyclical? By Alberto Alesina; Guido Tabellini
  4. Fiscal Rules and Fiscal Performance in the EU and Japan By von Hagen, Jürgen
  5. Fiscal Federalism and Economic Growth By Jan K. Brueckner
  6. Consumption Taxes and Redistribution By Correia, Maria Isabel Horta
  7. International Capital Market Integration, Educational Choice and Economic Growth By Hartmut Egger; Peter Egger; Josef Falkinger; Volker Grossmann
  8. Ricardian Fiscal Regimes in the European Union By António Afonso
  9. Mixing Private and Public Service Providers and Specialization By Hans Gersbach; Maija Halonen-Akatwijuka
  10. Transparency, Recuitment and Retention in the Public Sector By Gian Luigi Albano; Clare Leaver
  11. Demographic Change and Public Education Spending: A Conflict between Young and Old? By Ueli Grob; Stefan C. Wolter
  12. Sharing Budgetary Austerity under Free Mobility and Asymmetric Information: An Optimal Regulation Approach to Fiscal Federalism By Marie-Laure Breuillé; Robert J. Gary-Bobo
  13. Subsidizing Enjoyable Education By Robert A. J. Dur; Amihai Glazer
  14. Risk Sharing and Efficiency Implications of Progressive Pension Arrangements By Hans Fehr; Christian Habermann
  15. Pension Design when Fertility Fluctuates: The Role of Capital Mobility and Education Financing By Jovan Zamac
  16. Early Retirement and Social Security: A Long Term Perspective By J. Ignacio Conde-Ruiz; Vincenzo Galasso; Paola Profeta
  17. Risk Management of Pension Systems from the Perspective of Loss Aversion By Johannes Binswanger
  18. Social Health Insurance - the Major Driver of Unsustainable Fiscal Policy? By Christian Hagist; Norbert Klusen; Andreas Plate; Bernd Raffelhüschen
  19. How Fiscal Decentralization Flattens Progressive Taxes By Roland Hodler; Kurt Schmidheiny
  20. Social Security and Longevity By Torben Andersen
  21. Young Liberals and Old Conservatives - Inequality, Mobility and Redistribution By Astri Muren; Sten Nyberg
  22. On the Incentives to Experiment in Federations By Christos Kotsogiannis; Robert Schwager
  23. Centralized vs. De-centralized Multinationals and Taxes By Søren Bo Nielsen; Pascalis Raimondos-Møller; Guttorm Schjelderup
  24. Optimal Tax Policy when Firms are Internationally Mobile By Johannes Becker; Clemens Fuest
  25. Electoral Uncertainty, Fiscal Policy and Macroeconomic Fluctuations By Jim Malley; Apostolis Philippopoulos; Ulrich Woitek
  26. Sustainable Social Spending By Assar Lindbeck
  27. Survivor Benefits and the Gender Tax Gap in Public Pension Schemes: Observations from Germany By Martin Werding
  28. The Different Extent of Privatisation Proceeds in EU Countries: A Preliminary Explanation Using a Public Choice Approach By Ansgar Belke; Frank Baumgärtner; Friedrich Schneider; Ralph Setzer
  29. Russia's Regions: Income Volatility, Labour Mobility and Fiscal Policy By Kwon, Goohoon; Spilimbergo, Antonio
  30. Searching for Non-Monotonic Effects of Fiscal Policy: New Evidence By Benedetti, Marina; Giavazzi, Francesco; Jappelli, Tullio; Pagano, Marco
  31. A Political Economy Theory of the Soft Budget Constraint By Robinson, James A; Torvik, Ragnar
  32. Fiscal-Monetary Policy Interactions in the Presence of Unionized Labour Markets By Cukierman, Alex; Dalmazzo, Alberto
  33. Making A Difference By Francois, Patrick
  34. Should You Take a Lump-Sum or Annuitize? Results from Swiss Pension Funds By Bütler, Monika; Teppa, Federica
  35. The Cycle of Violence? An Empirical Analysis of Fatalities in the Palestinian-Israeli Conflict By Jaeger, David A; Paserman, Marco Daniele
  36. Dams By Duflo, Esther; Pande, Rohini
  37. Guide to Reform of Higher Education: A European Perspective By Jacobs, Bas; van der Ploeg, Frederick
  38. Saving Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with H&R Block By Duflo, Esther; Gale, William; Liebman, Jeff; Orszag, Peter; Saez, Emmanuel
  39. Property Tax and Urban Sprawl. Theory and Implications for U.S. Cities By Song, Yan; Zenou, Yves
  40. A microsimulation analysis of the 2006 regime change in the Dutch disability scheme By Sonsbeek, J.M. van; Gradus, R.H.J.M.
  41. Fiscal Competition and the Composition of Public Spending : Theory and Evidence By Rainald Borck; Marco Caliendo; Viktor Steiner
  42. Privatizing Highways in the United States By Eduardo Engel; Ronald Fischer; Alexander Galetovic
  43. Impact of Climate Policy on the Basque Economy By Mikel González; Rob Dellink
  44. Optimal Soil Management and Environmental Policy By Gilles Lafforgue; Walid Oueslati
  45. Political Cycles : The Opposition Advantage By Pascal Gautier; Raphael Soubeyran
  46. Multi-Product Crops for Agricultural and Energy Production – an AGE Analysis for Poland By Adriana Ignaciuk; Rob B. Dellink
  47. Coalition Formation under Uncertainty: The Stability Likelihood of an International Climate Agreement By Rob Dellink; Michael Finus; Niels Olieman
  48. Some remarks on Internet-based territorial planning: the role of local public institutions on the diffusion of broadband access (In French) By Jérome VICENTE (LEREPS-GRES); Godefroy DANG NGUYEN (ENST-Bretagne - LUSSI & ICI-UBO)
  49. Is Commodity Taxation Unfair? By Marc Fleurbaey
  50. International multidimensional comparisons of inequality in disposable income and access to public goods By Nicolas Gravel; Patrick Moyes; Benoît Tarroux
  51. The Freedom Ordering of Budget Sets: Volume orPointed Distance? By Serge-Christophe Kolm
  52. Crime and Police Resources: The Street Crime Initiative By Stephen Machin; Olivier Marie
  53. Why Is the Timing of School Tracking So Heterogeneous? By Kenn Ariga; Giorgio Brunello; Roki Iwahashi; Lorenzo Rocco
  54. Gender, Time Use and Public Policy over the Life Cycle By Patricia Apps; Ray Rees
  55. The Determinants of Asset Stripping: Theory and Evidence from the Transition Economies By Nauro F. Campos; Francesco Giovannoni
  56. Employment Effects of the Provision of Specific Professional Skills and Techniques in Germany By Bernd Fitzenberger; Stefan Speckesser
  57. Having Everyone in the Boat May Sink it - Interest Group Involvement and Policy Reforms By Boerner, Kira
  58. Corruption Clubs: Endogenous Thresholds in Corruption and Development By M E Haque; R Kneller
  60. Aching to Retire? The Rise in the Full Retirement Age and its Impact on the Disability Rolls By Mark Duggan; Perry Singleton; Jae Song
  61. Universal Childcare, Maternal Labor Supply, and Family Well-Being By Michael Baker; Jonathan Gruber; Kevin Milligan
  62. Fiscal Relations Across Levels of Government in the United States By Thomas Laubach
  63. The Effect of Plant Downsizing on Disability Pension Utilization By Mari Rege, Kjetil Telle and Mark Votruba
  64. The relationship between altruism and equal sharing. Evidence from inter vivos transfer behavior By Elin Halvorsen and Thor O. Thoresen
  65. The Effects of Campaign Finance Laws on Turnout, 1950-2000 By Jeffrey Milyo; David M. Primo
  66. The Law od Demand in Tiebout Economies By Edward Cartwright; Myrna Wooders
  67. Policy Innovation in Local Jurisdictions: Testing the Neighborhood Influence Against the Free-Riding Hypothesis By Johannes Rincke
  68. The Fiscal Effects of Tariff Reduction in the Caribbean Community By Amos Peters
  69. BAD Taxation: Disintermediation and Illiquidity in a Bank Account Debits Tax Model By Pedro H. Albuquerque
  70. Surplus Appropriation from R&D and Health Care Technology Assessment Procedures By Tomas J. Philipson; Anupam B. Jena
  71. “One Man, One Dollar”? Examining the equalization argument in support of campaign contribution limits By Christoph Vanberg
  72. Inference on Income Inequality and Tax Progressivity Indices: U-Statistics and Bootstrap Methods By Raquel Andres; Samuel Calonge
  73. Policy Learning in Europe: The "Open Method of Coordination" and Laboratory Federalism By Wolfgang Kerber; Dr. Martina Eckardt
  74. Dynamic Tax Competition and Public-Sector Modernisation By Daniel Becker

  1. By: Josef Falkinger; Volker Grossmann
    Abstract: This paper develops a model in which the interaction of entrepreneurial investments and power of the owners of land or other natural resources determines structural change and economic development. A more equal distribution of natural resources promotes structural change and growth through two channels: First, by weakening oligopsony power of owners and thereby easing entrepreneurial investments for credit-constrained individuals whose investment possibilities depend on their income earned in the primary goods sector. Second, by shifting the distribution of political power from resource owners towards the entrepreneurial elite, resulting in economic policy and institutions which are more conducive to entrepreneurship and productivity progress. We argue that these hypotheses are consistent with a large body of historical evidence from the Americas and with evidence on transition economies.
    Keywords: credit constraints, distribution, economic development, entrepreneurship, institutions, oligopsony power, political elites
    JEL: H50 O10
    Date: 2005
  2. By: Kai A. Konrad; Stergios Skaperdas
    Abstract: We examine a stark setting in which security or protection can be provided by self-governing groups or by for-profit entrepreneurs (kings, kleptocrats, or mafia dons). Though self-governance is best for the population, it faces problems of long-term viability. Typically, in providing security the equilibrium market structure involves competing lords, a condition that leads to a tragedy of coercion: all the savings from the provision of collective protection are dissipated and welfare can be as low as, or even lower than, in the absence of the state.
    Keywords: property rights, anarchy, government
    JEL: D30 D70 H10
    Date: 2005
  3. By: Alberto Alesina; Guido Tabellini
    Abstract: Many countries, especially developing ones, follow procyclical fiscal policies, namely spending goes up (taxes go down) in booms and spending goes down (taxes go up) in recessions. We provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less-than-benevolent government to appropriate rents. Voters have incentives similar to the "starving the Leviathan" classic argument, and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well. We test this argument against more traditional explanations based purely on borrowing constraints, with a reasonable amount of success.
    JEL: H30 H60
    Date: 2005
  4. By: von Hagen, Jürgen
    Abstract: Fiscal rules specify quantitative targets for key budgetary aggregates. In this paper, we review the experience with such rules in Japan and in the EU. Comparing the performance of fiscal policy in the 1980s and 1990s until 2003, we find that the fiscal rule of the 1980s exerted some but not much disciplinary influence on Japanese fiscal policy. The fiscal rule of the Maastricht Treaty had a significant impact on political budget cycles in the EU, but did little to constrain fiscal policy in the large member states. Since the start of the European Monetary Union, the disciplinary effect of the fiscal rule in the EU has vanished. Next, we discuss the importance of budgetary institutions for the effectiveness of fiscal rules. In Europe, a number of countries adopted strong fiscal rules, i.e., a fiscal rule combined with a design of the budget process enabling governments to commit to the rule. We find that strong fiscal rules have been effective. We conclude with some suggestions for the design of a strong fiscal rule in Japan.
    Keywords: fiscal policy; government budgeting; political budget cycles
    JEL: H11 H61 H62
    Date: 2005–11
  5. By: Jan K. Brueckner
    Abstract: This paper uses an endogenous-growth model with overlapping generations to explore the connection between fiscal federalism and economic growth. The analysis shows that federalism, which allows public-good levels to be tailored to suit the differing demands of young and old consumers, who live in different jurisdictions, increases the incentive to save. This stronger incentive in turn leads to an increase in investment in human capital, and a byproduct of this higher investment is faster economic growth.
    JEL: H10 H70
    Date: 2005
  6. By: Correia, Maria Isabel Horta
    Abstract: It is relatively well known that the introduction of consumption taxation as an alternative in the tax code, and as the main source of government revenues, leads to a more efficient tax system. However the conventional wisdom is that the change from the actual tax code, based on taxation of capital and labour income to this consumption-based system, has undesirable distributional consequences. In this work a very simple method is developed to argue that the converse is the most reasonable outcome from that fundamental tax reform. The main difference in relation to the literature comes from the assumed source of household heterogeneity. Additionally it is shown that the inclusion of a tax on consumption allows for redistributive policies with no costs in terms of efficiency.
    Keywords: consumption taxes; equity; fundamental tax reform; heterogeneous agents
    JEL: D63 E62 H20
    Date: 2005–10
  7. By: Hartmut Egger (University of Zurich, CESifo and GEP Nottingham); Peter Egger (Ifo Institute, University of Munich, CESifo and GEP Nottingham); Josef Falkinger (University of Zurich, CESifo and IZA Bonn); Volker Grossmann (University of Fribourg, CESifo and IZA Bonn)
    Abstract: This paper examines the impact of capital market integration (CMI) on higher education and economic growth. We take into account that participation in higher education is noncompulsory and depends on individual choice. Integration increases (decreases) the incentives to participate in higher education in capital-importing (-exporting) economies, all other things equal. Increased participation in higher education enhances productivity progress and is accompanied by rising wage inequality. From a national policy point of view, education expenditure should increase after integration of similar economies. Using foreign direct investment (FDI) as a measure for capital flows, we present empirical evidence which largely confirms our main hypothesis: An increase in net capital inflows in response to CMI raises participation in higher education and thereby fosters economic growth. We apply a structural estimation approach to fully track the endogenous mechanisms of the model.
    Keywords: capital mobility, capital-skill complementarity, educational choice, education policy, economic growth, wage income inequality
    JEL: F20 H52 J24 O10
    Date: 2005–11
  8. By: António Afonso
    Abstract: The prevalence of either Ricardian or non-Ricardian fiscal regimes is important both for practical policy reasons and to assess fiscal sustainability, and this is of particular relevance for European Union countries. The purpose of this paper is to assess, with a panel data set, the empirical evidence concerning the existence of Ricardian fiscal regimes in EU-15 countries. The results give support to the Ricardian fiscal regime hypothesis throughout the sample period, and for sub-samples accounting for the dates of the Maastricht Treaty and for the setting-up of the Stability and Growth Pact. Additionally, electoral budget cycles also seem to play a role in fiscal behaviour.
    Keywords: fiscal regimes; European Union; panel data models.
    JEL: C23 E62 H62
  9. By: Hans Gersbach; Maija Halonen-Akatwijuka
    Abstract: We analyze the reform of public sector welfare services such as education. In this paper we compare a mix of private and a public service provider with full privatization. In both cases the suppliers specialize in serving particular customer types. In the mixed institution the government sets the public fee such that service quality does not deteriorate and the price of the private supplier is anchored at comparatively low level. Under full privatization, however, prices escalate to the highest possible level. As a consequence, consumer welfare is higher with a mixed institution – unless the proportion of low-cost customers is high. The mixed institution can also accommodate wealth constraints of customers to some extent.
    Keywords: private and public suppliers, specialization, welfare services, mixed institutions
    JEL: D23 H11 I21 L33
    Date: 2005–09
  10. By: Gian Luigi Albano; Clare Leaver
    Abstract: Although performance measurement systems are likely to have significant recruitment and retention consequences these have received much less attention that the individual incentive effects. This paper explores these recruitment and retention consequences in organizations, such as those in the public sector, which are characterized by rigidities in pay. We clarify when performance measurement increases the cost of recruiting and retaining public sector employees and when it does not. Within the same framework, we also show that traditional practices such as tenure based pay and ports of entry can be rationalized as an optimal response to rigidities in pay.
    Keywords: performance measurement, disclosure, sorting, wage compression, public sector
    JEL: D73 H10 J31 J45
    Date: 2005–09
  11. By: Ueli Grob; Stefan C. Wolter
    Abstract: Demographic change in industrial countries will influence educational spending in potentially two ways. On the one hand, the decline in the number of school-age children should alleviate the financial pressure. On the other hand, the theoretical/empirical literature has established that the concomitantly increasing proportion of elderly in the population can influence the propensity of politicians to spend on education. Using a panel of the Swiss Cantons for the period from 1990 to 2002, we find that the education system has exhibited little elasticity in adjusting to changes in the school-age population, and that the share of the elderly population has a significantly negative influence on the willingness to spend on public education.
    Keywords: public finance, education finance, demographics, panel estimates, Switzerland
    JEL: H72 I22 J18
    Date: 2005
  12. By: Marie-Laure Breuillé; Robert J. Gary-Bobo
    Abstract: In the present article, Tiebout meets Laffont and Tirole in the land of Fiscal Federalism. We use a non-trivial Principal-Multi-Agent model to characterize the optimal intergovernmental grant schedule, when the cost of local public goods depends on hidden characteristics and actions of local governments, and under citizen free mobility. We show that local governments earn informational rents, and how optimal local taxes, public good production levels and land prices are jointly distorted at the second-best optimum, as a consequence of free mobility and asymmetric information. The effect of informational asymmetries is to decrease the average production of public goods and to increase the inter-jurisdictional variance of taxes and public-good production.
    Keywords: asymmetric information, Principal-Agent model, public budget deficits, free-mobility equilibrium, fiscal federalism
    JEL: D72 D82 H70
    Date: 2005
  13. By: Robert A. J. Dur; Amihai Glazer
    Abstract: We explain why means-tested college tuition and means-tested government grants to college students can be efficient. The critical idea is that attending college is both an investment good and a consumption good. If education has a consumption benefit and tuition is uniform, the marginal rich student is less smart than some poor people who choose not to attend college, thus reducing the social returns to education and increasing the college’s cost of education. We find that competition among profit-maximizing colleges results in means-tested tuition. In addition, to maximize the social returns to education government should means-test grants. We thus provide a rationale for means-tested tuition and grants which relies neither on capital market imperfections nor on redistributive objectives.
    Keywords: tuition policy, education subsidies, self-selection
    JEL: H52 I20
    Date: 2005
  14. By: Hans Fehr; Christian Habermann
    Abstract: The present paper aims to quantify the welfare effects of progressive pension arrangements in Germany. Starting from a purely contribution-related benefit system, we introduce basic allowances for contributions and a flat benefit fraction. Since our overlapping-generations model takes into account variable labor supply, borrowing constraints as well as stochastic income risk, we can compare the labor supply, the liquidity, and the insurance effects of the policy reform. Our simulations indicate that for a realistic parameter combination an increase in pension progressivity would yield an aggregate efficiency gain of more than 2 percent of resources. However, such a reform would not be implemented because it would not find political support of the currently living generations.
    Keywords: pension reform, idiosyncratic labor income uncertainty
    JEL: H55 J26
    Date: 2005
  15. By: Jovan Zamac
    Abstract: This study compares alternative designs of an unfunded pension system. Convex combinations between a fixed contribution rate and a fixed benefit rate are considered. The objective is to maximize the expected ex-ante welfare under stochastic fertility. The model is a three-period CGE framework where the design of the education system and effects on factor prices are accounted for. The effects on factor prices depend on the degree of capital mobility. For low degrees of capital mobility it is optimal to have a fixed benefit rate in the pension system. But for the small open economy, a fixed contribution rate is optimal if the education system has a fixed benefit rate. This design of education and pension systems assures that individuals in the small open economy are unaffected by fertility fluctuations.
    Keywords: pension schemes, demography, social security, education, fertility
    JEL: H52 H55 J13
    Date: 2005
  16. By: J. Ignacio Conde-Ruiz; Vincenzo Galasso; Paola Profeta
    Abstract: We provide a long-term perspective on the individual retirement behaviour and on the future of retirement. In a Markovian political economic theoretical framework, in which incentives to retire early are embedded, we derive a political equilibrium with positive social security contribution rates and early retirement. Aging has two opposite effects: it leads to lower taxes and fewer (early) retirees, while a poorer median voter will push for higher contributions. The model highlights the existence of crucial income effects: a decrease of the income of young people will induce them to postpone retirement and to vote for less social security.
    Keywords: pensions, income effect, tax burden, politico-economic Markovian equilibrium
    JEL: D72 H53 H55
    Date: 2005
  17. By: Johannes Binswanger
    Abstract: This paper studies pension design from a risk management point of view using a lexicographic loss aversion model. Interest in this model stems from the fact that it explains income expansion paths of equity and total savings particularly well. I find that all income groups are likely to benefit from a PAYGO system, even in the absence of any redistribution. Optimal equity investments are close to zero for the two bottom income quintiles and increase sharply for higher incomes. The results are compared to optimal pension plans under HARA preferences. I find that a PAYGO system has higher value under loss aversion than in the HARA case. Moreover, equity shares correspond more closely to empirical observations.
    Keywords: pension system, portfolio choice, income heterogeneity, loss aversion, HARA preferences
    JEL: H55
    Date: 2005
  18. By: Christian Hagist; Norbert Klusen; Andreas Plate; Bernd Raffelhüschen
    Abstract: During the next decades the populations of most developed countries will grow older as a result of the low level of birth rates since the 1970s and/or the continuously increasing life expectancy. We show within a Generational Accounting framework how unsustainable the public finances of France, Germany, Switzerland and the U.S. are, given their demographic developments. Thereby our focus lies on social health insurance systems that are in addition affected by medical-technical progress. Due to the cost-increasing effect of medical-technical progress one can justifiably say that social health insurance schemes are the major drivers behind unsustainable fiscal policies.
    JEL: H51 I11
    Date: 2005
  19. By: Roland Hodler; Kurt Schmidheiny
    Abstract: We study the tension between fiscal decentralization and progressive taxation. We present a multi-community model in which households differ in incomes and housing preferences and in which the local income tax rate is a function of an exogenous progressive tax schedule and an endogenous local tax shifter. The progressivity of the tax schedule induces a self-sorting process that results in substantial though imperfect income sorting. The actual tax structure is thus less progressive than the exogenous tax schedule. Empirical evidence from the largest Swiss metropolitan area supports the predictions of our model.
    Keywords: progressive taxation, fiscal decentralization, income segregation
    JEL: H73 R23
    Date: 2005
  20. By: Torben Andersen
    Abstract: Many countries face the problem of how to reform social security systems to cope with increasing life expectancy. This raises questions concerning both distribution and risk sharing across generations. These issues are addressed within an OLG model with stochastic life expectancy across generations and endogenous retirement decisions. The social optimum is shown to imply that retirement age should be proportional to longevity. Moreover, increasing longevity calls for pre-funding even if the utility of all generations is weighted equal to the objective discount rate. The social optimum cannot be decentralized due to a conflict between incentives and risk sharing. The implications of stylized social security systems for risk sharing and retirement incentives are analyzed.
    JEL: H55 J11 J14 J18
    Date: 2005
  21. By: Astri Muren; Sten Nyberg
    Abstract: The paper examines the impact of income inequality and mobility on income redistribution in a modified median voter model where redistributive conflict takes place both between educational groups and age-groups. The effects of inequality and mobility are not unambiguous but depend on factors such as how mobility changes in different groups and causes of inequality. We also examine the effect of the length of electoral periods on redistribution and welfare for different groups and allow for majority voting on the length of electoral periods. Finally, we extend the model to encompass retirement and baby booms.
    Keywords: inequality, mobility, income redistribution, median voter, age-earnings profiles
    JEL: D31 D72 H20 J31 P16
    Date: 2005
  22. By: Christos Kotsogiannis; Robert Schwager
    Abstract: Conventional wisdom has it that policy innovation is better promoted in a federal rather than in a unitary system. Recent research, however, has provided theoretical evidence to the contrary: a multi-jurisdictional system is characterized - due to the existence of a horizontal information externality - by under-provision of policy innovation. This paper presents a simple model that introduces political competition for federal office. Under such competition political actors use the innovative policies in order to signal ability to the electorate. In the equilibrium analyzed policy innovation may occur more frequently than in a unitary system. It is thus shown that, once electoral motives are accounted for, the conventional wisdom is likely to be a valid proposition.
    Keywords: fiscal federalism, policy innovation, policy experimentation
    JEL: H77 R59
    Date: 2005
  23. By: Søren Bo Nielsen; Pascalis Raimondos-Møller; Guttorm Schjelderup
    Abstract: The paper examines how country tax differences affect a multinational enterprise’s choice to centralize or de-centralize its decision structure. Within a simple model that emphasizes the multiple conflicting roles of transfer prices in MNEs - here, as a strategic pre-commitment device and a tax manipulation instrument -, we show that (de-)centralized decisions are more profitable when tax differentials are (small) large.
    Keywords: centralized vs. de-centralized decisions, taxes, MNEs
    JEL: F23 H25 L23
    Date: 2005
  24. By: Johannes Becker; Clemens Fuest
    Abstract: The standard tax theory result that investment should not be distorted is based on the assumption that profits are locally bound. In this paper we analyze the optimal tax policy when firms are internationally mobile. We show that the optimal policy response to increasing firm mobility may be taxation, subsidization or non-distortion of investment depending on whether the mobile firms are more or less profitable than the average firm in the economy. Our findings may contribute to understanding recent tax policy developments in many OECD countries.
    Keywords: corporate taxes, optimal tax policy
    JEL: H21 H25
    Date: 2005
  25. By: Jim Malley; Apostolis Philippopoulos; Ulrich Woitek
    Abstract: In this paper we study the link between elections, fiscal policy and aggregate fluctuations. The set-up is a stylized dynamic stochastic general equilibrium model incorporating both technology and political re-election shocks. The later are incorporated via a two-party model with elections. The main theoretical prediction is that forward-looking incumbents, with uncertain prospects of re-election, find it optimal to follow relatively shortsighted fiscal policies, and that this hurts capital accumulation. Our econometric estimation, using U.S. data, finds a statistically significant link between electoral uncertainty and policy instruments and in turn macroeconomic outcomes.
    Keywords: political uncertainty, business cycles & growth, optimal policy, hybrid maximum likelihood estimation
    JEL: D90 E60 H10 H50
    Date: 2005
  26. By: Assar Lindbeck
    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
  27. By: Martin Werding
    Abstract: Since its inception, the traditional form of providing survivor benefits within public pension schemes has lost much of its legitimacy. As a result of fundamental changes in marriage behaviour and the typical division of labour between married spouses, offering non-contributory benefits of this kind could be seen as inequitable. Since these benefits usually substitute for non-derived pension entitlements based on the surviving spouse’s own contributions, they can also lead to incentive effects, especially for married women with some degree of labour-force attachment, that appear to be far from optimal. The present paper highlights this problem referring to institutional details and empirical results related to Germany and shows how it could be resolved by jointly annuitizing a given couple’s pension entitlements.
    Keywords: public pensions, survivor benefits, female labour supply, optimal taxation
    JEL: H55 J16 J22
    Date: 2005
  28. By: Ansgar Belke; Frank Baumgärtner; Friedrich Schneider; Ralph Setzer
    Abstract: This paper empirically investigates the differences in the motives of raising privatisation proceeds for a panel of EU countries from 1990 to 2000. More specifically, we test whether privatisations can be mainly interpreted (a) as ingredients of a larger reform package of economic liberalisation in formerly overregulated economies, (b) as a reaction to an increasing macroeconomic problem pressure and (c) as a means to foster growth and increase tax income and relax the fiscal stance with an eye on the demands by integration of economic and financial markets. Whereas we are able to corroborate claim (a) only partly, we gain consistent evidence in favour of claims (b) and (c).
    Keywords: European Union, panel analysis, partisan theory, privatisation proceeds, state-owned enterprises
    JEL: E62 H42 L33
    Date: 2005
  29. By: Kwon, Goohoon; Spilimbergo, Antonio
    Abstract: Russia's regions are heavily exposed to regional income shocks because of an uneven distribution of natural resources and a Soviet legacy of heavily skewed regional specialization. Also, Russia has a limited mobility of labour and lacks fiscal instruments to deal with regional shocks. We assess how these features influence the magnitude and persistence of regional income shocks, through a panel vector auto-regression, drawing on extensive and unique regional data covering the last decade. We find that labour mobility associated with regional shocks is far lower than in the US yet higher than in the EU-15, and that regional expenditures tend to expand in booms and contract in recessions. We discuss institutional factors behind these outcomes and policy implications.
    Keywords: fiscal policy; labour mobility; panel VAR; Russia
    JEL: C33 E62 H77 J61 P52
    Date: 2005–10
  30. By: Benedetti, Marina; Giavazzi, Francesco; Jappelli, Tullio; Pagano, Marco
    Abstract: Data revisions and the availability of a longer sample offer the opportunity to reconsider the empirical findings that suggest that in the OECD countries national saving responds non-monotonically to fiscal policy. The paper confirms that the circumstance most likely to give rise to a non-monotonic response of national saving to a fiscal impulse is a 'large and persistent impulse', defined as one in which the full employment surplus, as a percent of potential output, changes by at least 1.5 percentage points per year over a two-year period. This particular circumstance remains the only statistically significant one even when we allow for non-monotonic responses to arise when public debt is growing rapidly or interest rate spreads are widening. We find that non-monotonic responses are similar for fiscal contractions and expansions. In particular, an increase in net taxes has no effect on national saving during large fiscal contractions or expansions. For government consumption there is a large, albeit in some specifications less then complete, offset during expansions or contractions.
    Keywords: fiscal policy; national saving
    JEL: E21 E62 H31
    Date: 2005–10
  31. By: Robinson, James A; Torvik, Ragnar
    Abstract: Why do soft budget constraints exist and persist? In this paper we argue that the prevalence of soft budget constraints can be best explained by the political desirability of softness. We develop a political economy model where politicians cannot commit to policies that are not ex post optimal. We show that because of the dynamic commitment problem inherent in the soft budget constraint, politicians can in essence commit to make transfers to entrepreneurs that otherwise they would not be able to do. This encourages such entrepreneurs to vote for them. Though the soft budget constraint may induce economic inefficiency, it may be politically rational because it influences the outcomes of elections. In consequence, even when information is complete, politicians may fund bad projects that they anticipate they will have to bail out in the future.
    Keywords: development; investment; political economy
    JEL: H20 H50 O20
    Date: 2005–10
  32. By: Cukierman, Alex; Dalmazzo, Alberto
    Abstract: This paper develops a framework for studying the interactions between labour unions, fiscal policy, monetary policy and monopolistically competitive firms. The framework is used to investigate the effects of labour taxes, the replacement ratio, labour market institutions and monetary policy-making institutions on economic performance in the presence of strategic interactions between labour unions and the central bank. Given fiscal variables, higher levels of either centralization of wage bargaining, or of central bank conservativeness are associated with lower unemployment and inflation. However the forward shifting of changes in either labour taxes or in unemployment benefits to labours costs is larger the higher are those institutional variables. The paper also considers the effects of those institutions on the choice of labour taxes and of unemployment benefits by governments concerned with the costs of inflation and unemployment, as well as with redistribution to particular constituencies. A main result is that higher levels of centralization and conservativeness induce government to set higher labour taxes if the replacement ratio and the tax wedge are sufficiently small.
    Keywords: central bank conservativeness; collective wage bargaining; competitiveness; inflation; labour taxes; redistribution; unemployment; unemployment benefits
    JEL: E5 E6 H2 J3 J5 L1
    Date: 2005–10
  33. By: Francois, Patrick
    Abstract: Despite the potential for free-riding, workers motivated by `making a difference' to the mission or output of an establishment may donate labour to it. When the establishment uses performance related compensation (PRC), these labour donations closely resemble a standard private provision of public goods problem, and are not rational in large labour pools. Without PRC, however, the problem differs significantly from a standard private provision of public goods situation. Specifically, in equilibrium: there need not be free-riding, decisions are non-monotonic in valuations, and contribution incentives are significant even in large populations. When PRC is not used, the establishment tends to favour setting low wages which help to select a labor force driven by concern for the firm's output. Expected output can actually fall with the wage in this situation. For sufficiently high levels of risk aversion, performance related pay can yield less expected output than when compensation is output independent.
    Keywords: incentive schemes; privately provided public goods; public sector employment; voluntarism
    JEL: H11 H41 H83 J45
    Date: 2005–10
  34. By: Bütler, Monika; Teppa, Federica
    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 behaviour 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.
    Keywords: annuity; choice anomalies; lump sum; occupational pension
    JEL: D91 H55 J26
    Date: 2005–10
  35. By: Jaeger, David A; Paserman, Marco Daniele
    Abstract: This paper studies the dynamics of violence in the Palestinian-Israeli conflict since the outbreak of the Second (or 'Al-Aqsa') Intifada in September 2000, during which more than 3,300 Palestinians and more than 1,000 Israelis have been killed. The conflict has followed an uneven pattern, with periods of high levels of violence and periods of relative calm. Using data on the number of deaths occurring each day between September 2000 and January 2005, we estimate reaction functions for both Israelis and Palestinians and find evidence of unidirectional Granger causality from Palestinian violence to Israeli violence, but not vice versa. This finding is consistent whether we look only at the incidence of fatalities or whether we look at the level of fatalities, and is robust to the specification of the lag structure and the level of time aggregation. We find little evidence that violence on either side has a direct deterrent or incapacitation effect. We do find, however, that successful assassination attempts do reduce the number of subsequent Israeli fatalities. We conclude that, despite the popular perception that Palestinians and Israelis are engaged in 'tit-for-tat' violence, there is no evidence to support that notion.
    Keywords: Granger causality; Intifada; terrorism
    JEL: C32 D71 D74 H56
    Date: 2005–10
  36. By: Duflo, Esther; Pande, Rohini
    Abstract: The construction of large dams is one of the most costly and controversial forms of public infrastructure investment in developing countries, but little is known about their impact. This paper studies the productivity and distributional effects of large dams in India. To account for endogenous placement of dams we use GIS data and the fact that river gradient affects a district's suitability for dams to provide instrumental variable estimates of their impact. We find that, in a district where a dam is built, agricultural production does not increase but poverty does. In contrast, districts located downstream from the dam benefit from increased irrigation and see agricultural production increase and poverty fall. Overall, our estimates suggest that large dam construction in India is a marginally cost-effective investment with significant distributional implications, and has, in aggregate, increased poverty.
    Keywords: dams; development planning; program evaluation
    JEL: H23 H43 O12 O21
    Date: 2005–10
  37. By: Jacobs, Bas; van der Ploeg, Frederick
    Abstract: Although there are exceptions, most European universities and institutions of higher education find it difficult to compete with the best universities in the Anglo-Saxon world. Despite the Bologna agreement and the ambitions of the Lisbon agenda, European universities are in need of fundamental reforms. We look at structural reforms of higher education and propose more effective use of public subsidies, more efficient modes of financing institutions of higher education, more diversity, competition and transparency, and larger private contributions through income-contingent student loans. In the process we discuss the nature of an institution of higher education, grade inflation, fair competition, private and social returns to education, income-contingent loans, student poverty and transparency. We sum up with seven recommendations for reform of higher education.
    Keywords: central planning; education subsidies; equity; grade inflation; higher education; input funding; monopoly; output funding; peer review; policy reform; selection; student loans; transparency; tuition fees; variety
    JEL: H2 H4 I2
    Date: 2005–11
  38. By: Duflo, Esther; Gale, William; Liebman, Jeff; Orszag, Peter; Saez, Emmanuel
    Abstract: This paper analyzes the effects of a large randomized field experiment carried out with H&R Block, offering matching incentives for IRA contributions at the time of tax preparation. About 14,000 H&R Block clients, across 60 offices in predominantly low and middle-income neighbourhoods in St. Louis, were randomly offered a 20 percent match on IRA contributions, a 50 percent match, or no match (the control group). The evaluation generates two main findings. First, higher match rates significantly raise IRA participation and contributions. Take-up rates were 3 percent for the control group, 8 percent in the 20 percent match group, and 14 percent in the 50 percent match group. Average IRA contributions (including non-contributors, excluding the match) for the 20 percent and 50 percent match groups were 4 and 7 times higher than in the control group, respectively. Second, several additional findings are inconsistent with the full information, rational-saver model. In particular, we find much more modest effects on take-up and amounts contributed from the existing Saver’s Credit, which provides an effective match for retirement saving contributions through the tax code; we suspect that the differences may reflect the complexity of the Saver's Credit as enacted, and the way in which its effective match is presented. Taken together, our results suggest that the combination of a clear and understandable match for saving, easily accessible savings vehicles, the opportunity to use part of an income tax refund to save, and professional assistance could generate a significant increase in contributions to retirement accounts, including among middle- and low-income households. This strategy would not, however, produce contribution rates anywhere near 100 percent.
    Keywords: field experiment; retirement savings
    JEL: H0
    Date: 2005–11
  39. By: Song, Yan; Zenou, Yves
    Abstract: This article attempts a formal analysis of the connection between property tax and urban sprawl in U.S. cities. We develop a theoretical model that includes households (who are also landlords) and land developers in a regional land market. We then test the model empirically based on a national sample of urbanized areas. The results we obtained from both theoretical and empirical analyses indicate that increasing property tax rates reduces the size of urbanized areas.
    Keywords: fully-closed city; instrumental variables; property tax; urban economics; urban sprawl
    JEL: H3 H71 R14
    Date: 2005–11
  40. By: Sonsbeek, J.M. van (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Gradus, R.H.J.M.
    Abstract: This paper introduces a microsimulation model that simulates the budgetary impact of the 2006 regime change in the Dutch disability scheme. A dynamic population model fits the case of the disability benefits the best. As opposed to macro forecasts, a microsimulation can answer questions about the individual or meso income effects, the exact distribution of expenses among different benefits and the time path of the savings. The introduction of the proposed system change decreases the number of disability benefits by more than 25 % from 2020 onwards and reduces total costs by almost _ 2 billion or 20 %. Based on the better incentive structure, participation will increase and boost GDP. Microsimulation can be used to pick the winners and losers of the new system and give the time path of the savings. It is shown that for almost all partially disabled that are working, the total discounted income after the system change is as large as or larger than before the system change, for the non-working total discounted income is lower.
    Keywords: Disability schemes; Incentive structures; Micro-simulation
    JEL: H55
    Date: 2005
  41. By: Rainald Borck; Marco Caliendo; Viktor Steiner
  42. By: Eduardo Engel; Ronald Fischer; Alexander Galetovic
    Abstract: Major increases in congestion over the last two decades, combined with troubled government finances, have made private toll-roads increasingly attractive in the United States. Road privatization consists in having a private firm build, operate and maintain the road for many decades. The main (often only) source of income for the franchise holder is toll revenue. We review the experience of both private toll-roads built in the United States during the 1990s, and argue that the problems they encountered could have been avoided if the length of the franchise contract had adapted to demand realizations. We also argue in favor of adjudicating private toll-roads in competitive (Demsetz) auctions. Both advantages are attained if the highway is auctioned to the firm that bids the least present value of toll revenue (PVR), an approach we discuss in detail throughout the paper.
    Date: 2005
  43. By: Mikel González (University of Basque Country); Rob Dellink (Wageningen University)
    Abstract: In this paper we analyze the economic effects of CO2 emission reductions in the Basque Country (Spain) using an applied general equilibrium (AGE) model with specific attention to environment-energy-economy interactions. Environmental policy is implemented through a system of tradable pollution permits that the government auctions. The costs of different levels of CO2 abatement are discussed, focusing on the variations of macroeconomic, sectoral and environment-energy variables. Results show that the costs for achieving the Kyoto targets can remain limited if the appropriate combination of changes in fuel-mix and restructuring of the economy is induced.
    Keywords: Applied general equilibrium, Climate change, Tradable pollution permits, Basque country
    JEL: D58 H21 Q20 Q48
    Date: 2005–09
  44. By: Gilles Lafforgue (Institut National d’Horticulture); Walid Oueslati (Institut National d’Horticulture)
    Abstract: This paper studies the effects of environmental policy on the farmer’s soil optimal management. We consider a dynamic economic model of soil erosion where the intensity use of inputs allows the farmer to control soil losses. Therefore, inputs use induces a pollution which is accentuated by the soil fragility. We show, at the steady state, that the environmental tax induces a more conservative farmer behavior for soil, but in some cases it can exacerbate pollution. These effects can be moderated when farmers introduce abatement activity.
    Keywords: Soil erosion, Pollution, Environmental policy, Optimal soil conservation, Abatement activities
    JEL: Q12 Q24 Q28 Q52 H23
    Date: 2005–09
  45. By: Pascal Gautier (GREQAM, Université d’Aix-Marseille II); Raphael Soubeyran (GREQAM, Université d’Aix-Marseille II)
    Abstract: We propose a two dimensional infinite horizon model of public consumption in which investments are decided by a winner-take-all election. Investments in the two public goods create a linkage across periods and parties have different specialities. We show that the incumbent party vote share decreases the longer it stays in power. Parties chances of winning do not converge and, when the median voter is moderate enough, no party can maintain itself in power for ever. Finally, the more parties are specialized and the more public policies have long-term effects, the more political cycles are likely to occur.
    Keywords: Cycles, Alternation, Public goods, Advantage, Opposition
    JEL: D72 H41 C72
    Date: 2005–10
  46. By: Adriana Ignaciuk (Wageningen University); Rob B. Dellink (Wageningen University)
    Abstract: By-products from agriculture and forestry can contribute to production of clean and cheap (bio)electricity. To assess the role of such multi-product crops in the response to climate policies, we present an applied general equilibrium model with special attention to biomass and multi-product crops for Poland. The potential to boost production of bioelectricity through the use of multi-product crops turns out to be limited to only 2-3% of total electricity production. Further expansion of the bioelectricity sector will have to be based on biomass crops explicitly grown for energy purposes. The competition between agriculture and biomass for scarce land remains limited, given the availability of relatively poor land types and substitution possibilities. The importance of indirect effects illustrates that the AGE framework is appropriate.
    Keywords: Applied general equilibrium (AGE), Biomass, Energy policy, Renewable energy
    JEL: D58 H23 Q28 Q42
    Date: 2005–10
  47. By: Rob Dellink (Wageningen University); Michael Finus (Institute of Economic Theory and University of Hagen); Niels Olieman (Wageningen University)
    Abstract: Results derived from empirical analyses on the stability of climate coalitions are usually very sensitive to the large uncertainties associated with the benefits and costs of climate policies. This paper provides the methodology of Stability Likelihood that links uncertainty about benefits and costs of climate change to the stability analysis of coalitions in a stochastic, empirical setting. We show that the concept of Stability Likelihood improves upon the robustness and interpretation of stability analysis. Our numerical application is based on a modified version of the climate model STACO. It turns out that the only non-trivial coalition structure with a relatively high Stability Likelihood (around 25 percent) is a coalition between the European Union and Japan, though quantitative results depend especially on the variance in regional benefits from abatement.
    Keywords: Climate change, Coalition formation, International environmental agreements, Uncertainty
    JEL: C79 H87 Q54
    Date: 2005–07
  48. By: Jérome VICENTE (LEREPS-GRES); Godefroy DANG NGUYEN (ENST-Bretagne - LUSSI & ICI-UBO)
    Abstract: This paper focuses on the market dynamics of broadband access and the implications on territorial planning. From the tools of the « economic geography of network », we study the supply conditions of internet-based infrastructures, taking into account the peculiar role played by local public institutions in this dynamics. We show that strategic interactions between suppliers, according to the geography and density of potential users and the nature of information flows in the demand side, engender a cumulative dynamics at the advantage of central regions relative to peripheral ones. We show also that the coming of local public institutions in the market dynamics of networks infrastructures can modify the interplay of strategic interactions, in that sense that we can observe a better diffusion from central regions to peripheral ones, but not a reduction of access inequality inside regions.
    Keywords: Internet-based territorial planning, strategic interactions, diffusion, local public institutions
    JEL: H54 L96 R10 R58
    Date: 2005
  49. By: Marc Fleurbaey (CATT, IDEP, University of Pau)
    Abstract: In a model where agents have unequal skills and heterogeneous preferences about consumption goods and leisure, this paper studies how to combine linear commodity taxes and non-linear income tax. It proposes a particular social welfare function on the basis of fairness principles. It then derives a simple criterion for evaluating the social welfare consequences of various tax schedules. Under the proposed approach, the optimal tax should have no commodity tax for some range of consumptions, and income redistribution would feature high subsidies to the working poor. It is also shown that, even when the income tax fails to be optimal, commodity taxes may not improve social welfare.
    Keywords: optimal tax, income tax, commodity tax, social choice, fairness.
    JEL: D63 H21
    Date: 2005–01
  50. By: Nicolas Gravel (Centre de Sciences Humaines, Delhi & IDEP-GREQAM); Patrick Moyes (GRAPE (UMR, CNRS no 5133), IDEP, Université Montesquieu Bordeaux IV); Benoît Tarroux (IDEP-GREQAM and University of the Mediterranean)
    Abstract: This paper provides a comparison of 12 OECD countries on the basis of the (multidimensional) inequality in both disposable income and access to public goods. The public goods considered, measured at the regional level, are infant mortality and pupils/teacher ratios at public schools. The comparisons is performed using recent multidimensional dominance criteria developped along the seminal lines of Atkinson and Bourguignon [3]. The comparisons reveal that, despite their possible undecisiveness which increase with the number of dimensions, the criteria are able to provide conclusive rankings in about 36% of the comparisons (against 78% in the case of unidimensional income inequality comparisons based on the generalized Lorenz criterion). We also complete the analysis by comparing multidimensional inequalities on the basis of two broad categories of indices. All in all, the introduction of the two public goods modifies the inequality-based ranking of the countries. The most significant modification that it entails is to reduce the relative ranking of countries such as Australia and United State who perform badly in terms of both the level and the distribution of the two public goods and to increase the position of Portugal. Yet, it appears that the (positive) correlation between unidimensional and multidimensional indices is quite high, suggesting that a comparison of the countries based on income inequality alone does not provide a bad approximation of a ranking of the same countries resulting from multidimensional comparisons.
    Keywords: Inequalities, Dominance, Multidimensional, International comparisons, Public Goods
    JEL: D31 D63 H4 H70 I1 I2 I3 O57
    Date: 2005–06
  51. By: Serge-Christophe Kolm (CREM, IDEP, EHESS)
    Abstract: Xu’s theorem comforts ranking the freedom of choice provided by budget sets as their volume in deriving it from three axioms. Yet, one and a half of these axioms can be discussed. In contrast, simple logic - it seems - leads one to order the freedom provided by budget sets as the distance to the origin of the intersection of the budget hyperplanes with a given ray from the origin. Hence, equal budget freedoms correspond to pencils of budget hyperplanes. Applied to labour and earnings of individuals with different wage rates, this equal freedom yields the distributive principle of equal labour income equalization.
    Keywords: freedom of choice, budget ranking, equality.
    JEL: D31 D46 D63 H21 J33
    Date: 2005–07
  52. By: Stephen Machin (University College London, CEP, London School of Economics and IZA Bonn); Olivier Marie (CEP, London School of Economics)
    Abstract: In this paper we look at links between police resources and crime in a different way to the existing economics of crime work. To do so we focus on a large-scale policy intervention - the Street Crime Initiative - that was introduced in England and Wales in 2002. This allocated additional resources to some police force areas to combat street crime, whereas other forces did not receive any additional funding. Estimates derived from several empirical strategies show that robberies fell significantly in SCI police forces relative to non-SCI forces after the initiative was introduced. Moreover, the policy seems to have been a cost effective one, even after allowing for possible displacement or diffusion effects onto other crimes and adjacent areas. There is some heterogeneity in this positive net social benefit across different SCI police forces, suggesting that some police forces may have made better use of the extra resources than others. Overall, we reach the conclusion that increased police resources do in fact lead to lower crime, at least in the context of the SCI programme we study.
    Keywords: street crime, police resources, cost effectiveness
    JEL: H00 H5 K42
    Date: 2005–11
  53. By: Kenn Ariga (Kyoto Institute of Economic Research); Giorgio Brunello (Padova University, CESifo and IZA Bonn); Roki Iwahashi (University of the Ryukyus, Okinawa); Lorenzo Rocco (Padova University)
    Abstract: Secondary schools in the developed world differ in the degree of differentiation and in the first age of selection of pupils into different tracks. In this paper, we account for the heterogeneity of tracking time with a simple stochastic model which conjugates the returns from specialization with the costs of early selection. We calibrate the model for 20 countries - including most of Europe, the US and Japan - and show that the model performs rather well in replicating the observed heterogeneity, with the remarkable exception of Germany.
    Keywords: tracking, secondary schools
    JEL: H52 H73
    Date: 2005–11
  54. By: Patricia Apps (University of Sydney, Australian National University and IZA Bonn); Ray Rees (University of Munich)
    Abstract: In this paper we compare gender differences in the allocation of time to market work, domestic work, child care, and leisure over the life cycle. Time use profiles for these activity categories are constructed on survey data for three countries: Australia, the UK and Germany. We discuss the extent to which gender differences and life cycle variation in time use can be explained by public policy, focusing on the tax treatment of the female partner and on access to high quality, affordable child care. Profiles of time use, earnings and taxes are compared over the life cycle defined on age as well as on phases that represent the key transitions in the life cycle of a typical household. Our contention is that, given the decision to have children, life cycle time use and consumption decisions of households are determined by them and by public policy. Before children arrive, the adult members of the household have high labour supplies and plenty of leisure. The presence of pre-school children, in combination with the tax treatment of the second earner’s income and the cost of bought-in child care, dramatically change the pattern of time use, leading to large falls in female labour supply. We also highlight the fact that, in the three countries we study, female labour supply exhibits a very high degree of heterogeneity after the arrival of children, and we show that this has important implications for public policy.
    Keywords: gender, time allocation, labour supply, household taxation, life cycle
    JEL: J16 J22 H31 D91
    Date: 2005–11
  55. By: Nauro F. Campos (Brunel University, CEPR, WDI and IZA Bonn); Francesco Giovannoni (CMPO, University of Bristol)
    Abstract: During the transition from plan to market, managers and politicians succeeded in maintaining control of large parts of the stock of socialist physical capital. Despite the obvious importance of this phenomenon, there have been no efforts to model, measure and investigate this process empirically. This paper tries to fill this gap by putting forward theory and econometric evidence. We argue that asset stripping is driven by the interplay between the firm’s potential profitability and its ability to influence law enforcement. Our econometric results, for about 950 firms in five transition economies, provide support for this argument.
    Keywords: asset stripping, law enforcement, corruption, transition
    JEL: H82 K42 O17 P26 P31
    Date: 2005–11
  56. By: Bernd Fitzenberger (Goethe University Frankfurt, ZEW, IFS and IZA Bonn); Stefan Speckesser (Policy Studies Institute London and Goethe University Frankfurt)
    Abstract: Based on unique administrative data, which has only recently become available, this paper estimates the employment effects of the most important type of public sector sponsored training in Germany, namely the provision of specific professional skills and techniques (SPST). Using the inflows into unemployment for the year 1993, the empirical analysis uses local linear matching based on the estimated propensity score to estimate the average treatment effect on the treated of SPST programs starting during 1 to 6, 7 to 12, and 13 to 24 months of unemployment. The empirical results show a negative lock{in effect for the period right after the beginning of the program and significantly positive treatment effects on employment rates of about 10 percentage points and above a year after the beginning of the program. The general pattern of the estimated treatment effects is quite similar for the three time intervals of elapsed unemployment considered. The positive effects tend to persist almost completely until the end of our evaluation period. The positive effects are stronger in West Germany compared to East Germany.
    Keywords: training program, employment effects, administrative data, matching
    JEL: C14 C23 H43 J64 J68
    Date: 2005–11
  57. By: Boerner, Kira
    Abstract: In many countries, governments involve interest groups at early stages of political decisionmaking. The idea of this is to enhance the legitimacy of the policy decision and to curb later opposition to the implementation of the policy. We show that the way and timing of interest groups involvement can be crucial for the scope and success of policy reforms. When interest groups influence both the policy choice, or legislation, and the subsequent decision on the implementation of the policy, their early involvement may lead them to oppose the reform more than if they had been excluded from the legislation stage.
    JEL: H51 D78 D72
  58. By: M E Haque; R Kneller
    Abstract: The relationship between corruption and economic development is characterised by three stylised facts: (i) a strong negative correlation between corruption and development (ii) countries can remain trapped in high corruption-low development or low corruption-high development equilibria (iii) amongst intermediate levels of development corruption levels are more variable, some countries have high corruption and others low corruption. This paper argues that existing models are consistent with the first two only and demonstrates how these models might be extended to capture all three. The paper searches for the location of corruption clubs within the data and provides some explanation of their cause.
    Date: 2005
  59. By: Kristjan-Olari Leping
    Abstract: In this paper the wage differential between the public and private sector is estimated by means of the quantile regression method, which will provide a more complex picture of the distribution of the public-private sector wage differential than can be obtained with ordinary mean regression. The evidence from quantile regression shows that there is a negative wage differential for higher quantiles, but no significant difference in wages for lower quantiles. The other main results are that women benefit more from working in the public sector than men, and that employees with higher educational levels benefit more from working in the public sector than low-educated workers.
    Keywords: Public sector, wage differential, quantile regression
    Date: 2005
  60. By: Mark Duggan; Perry Singleton; Jae Song
    Abstract: In 1983 the federal government passed legislation that gradually increases the age at which individuals can receive full social security retirement benefits from 65 to 67 and reduces the generosity of benefits available at the early retirement age of 62. No corresponding changes were made to social security disability insurance (DI) benefits. This increase in the full retirement age will substantially increase individuals' financial incentives to apply for DI benefits. In this paper we use administrative data from the Social Security Administration to estimate the effect of this change on DI enrollment. Our findings indicate that the policy has contributed to the recent growth in the disability rolls with the effect concentrated among 63 and 64 year old men. When the policy is fully implemented, our estimates suggest that DI enrollment for this group of near elderly men will increase by 1.6 percentage points (13 percent). The overall effect would be modest, however, as it would account for just 1.3 percent of total DI enrollment and offset less than 4 percent of the estimated budgetary savings that will result from increasing the full retirement age.
    JEL: H53 H55 J21 J26
    Date: 2005–12
  61. By: Michael Baker; Jonathan Gruber; Kevin Milligan
    Abstract: The growing labor force participation of women with small children in both the U.S. and Canada has led to calls for increased public financing for childcare. The optimality of public financing depends on a host of factors, such as the “crowd-out” of existing childcare arrangements, the impact on female labor supply, and the effects on child well-being. The introduction of universal, highly-subsidized childcare in Quebec in the late 1990s provides an opportunity to address these issues. We carefully analyze the impacts of Quebec’s “$5 per day childcare” program on childcare utilization, labor supply, and child (and parent) outcomes in two parent families. We find strong evidence of a shift into new childcare use, although approximately one third of the newly reported use appears to come from women who previously worked and had informal arrangements. The labor supply impact is highly significant, and our measured elasticity of 0.236 is slightly smaller than previous credible estimates. Finally, we uncover striking evidence that children are worse off in a variety of behavioral and health dimensions, ranging from aggression to motor-social skills to illness. Our analysis also suggests that the new childcare program led to more hostile, less consistent parenting, worse parental health, and lower-quality parental relationships.
    JEL: H2 J2
    Date: 2005–12
  62. By: Thomas Laubach
    Abstract: This paper discusses the current state of fiscal relations between the federal, state and local governments in the United States and suggests directions for improvement. The significant degree of fiscal autonomy of the states and, to a lesser extent, of local governments has had several beneficial effects, including the responsiveness of public expenditure to local preferences and the comparatively high degree of accountability through the close link between revenue-raising powers and expenditure assignments. This link reflects traditionally weak support for redistribution across jurisdictions. Grants from the federal to sub-national governments are focused on achieving aims of an efficiency or paternalistic nature and are therefore all earmarked. Programme devolution to the states, notably in the welfare area, has been remarkably successful in fostering innovation in programme design, but the cost pressures in health care for the indigent are such that greater federal involvement might become necessary. The efficiency with which states raise revenues has been compromised by the erosion of their tax bases, notably for corporate income and sales taxes. Replacing these taxes with a less distorting form of indirect taxation could reverse this trend. Finally, state balanced budget requirements appear to have had salutary effects, but more extreme forms of fiscal rules have reduced state and local governments' ability to provide the desired level of public goods. This Working Paper relates to the 2005 OECD Economic Survey of the United States ( <P>Les relations budgétaires entre les différents niveaux d'administration aux États-Unis On fera le point dans cet article sur les relations budgétaires entre l’État fédéral, les États fédérés et les collectivités locales tout en examinant les mesures qui pourraient être prises pour améliorer ces relations. La large autonomie budgétaire des États et, dans une moindre mesure, des collectivités locales, a eu plusieurs effets bénéfiques, en particulier la réactivité des dépenses publiques aux préférences locales et une responsabilité relativement étendue du fait du lien étroit entre les prérogatives fiscales et les obligations de dépenses. Ce lien reflète traditionnellement le faible rôle de la redistribution entre les collectivités territoriales. Les subventions fédérales aux administrations infranationales sont accordées en fonction d’objectifs d’efficience ou de préoccupations à caractère paternaliste et sont donc toujours préaffectées. La décentralisation des programmes au niveau des États, en particulier pour la protection sociale, s’est révélée très fructueuse en favorisant l’innovation dans la conception des mesures, mais les coûts sont tels pour les soins de santé en faveur des catégories défavorisées qu’une plus forte participation fédérale pourrait être nécessaire. L’érosion des bases d’imposition, notamment pour l’impôt sur les sociétés et pour la taxe sur les ventes, compromet une collecte efficiente des recettes des États. On pourrait inverser cette tendance en substituant à ces impôts une forme de taxation indirecte qui créerait moins de distorsions. Enfin, l’obligation d’équilibre budgétaire au niveau des États paraît avoir été salutaire, mais les règles de discipline budgétaire sous leurs formes les plus extrêmes ont entravé la fourniture, par les États et les collectivités locales Ce document de travail se rapporte à l'Étude économique de l'OCDE des États-Unis 2005 (
    Keywords: fiscal federalism, fiscal rules, fédéralisme budgétaire, subvention, grants, welfare reform, Medicaid, state and local taxes, balanced budget requirements, tax and expenditure limitations, réforme de la protection sociale, Medicaid, impôts des Etats et des collectivités locales, règles de discipline budgétaire, obligation d'équilibre budgétaire, plafonds d'impôts et de dépenses
    JEL: H23 H51 H52 H53 H71 H72 H74 H77
    Date: 2005–11–29
  63. By: Mari Rege, Kjetil Telle and Mark Votruba (Statistics Norway)
    Abstract: We investigate the impact of plant downsizing on disability pension utilization in Norway. Plant downsizing substantially increases the disability entry rate of workers in affected plants. Workers originally employed in plants that closed between 1993 and 1998 were 27.9 percent more likely to utilize disability pensions in 1999 than comparable workers in non-downsizing plants. The effect of downsizing is non-linear, with workers originally employed in plants downsizing 65-95 percent of their workforce more likely to enter disability than workers in fully closing plants. This is consistent with the signaling story of Gibbons and Katz (1991). We also estimate significant effects of downsizing on future earnings and mortality, suggesting the increase in disability participation could be driven by an adverse effect of downsizing on the economic opportunities or health of affected workers
    Keywords: disability; social insurance; downsizing; layoffs; plant closings
    JEL: H55 I12 I38 J63 J65
    Date: 2005–10
  64. By: Elin Halvorsen and Thor O. Thoresen (Statistics Norway)
    Abstract: Several studies reject the implications of the altruism model. In this study it is argued that parents who transfer resources to their children both are altruistic and influenced by an equal division fairness norm. Under such motives, the degree of income compensation should be stronger in one-child families and we expect the altruism motive to dominate the fairness norm when income differences between siblings are large. The results suggest that equal divisions are intentional and weighted against altruistic motives.
    Keywords: inter vivos gifts; altruism; equal sharing; compensatory transfer
    JEL: D19 D64 H21
    Date: 2005–11
  65. By: Jeffrey Milyo (Department of Economics, University of Missouri-Columbia); David M. Primo
    Abstract: Scholars have proposed many routes by which campaign finance laws may impact turnout. For instance, laws restricting campaign spending may decrease mobilization, resulting in lower turnout. Alternatively, such laws might increase the competitiveness of elections, resulting in higher turnout. Existing studies tend to focus on only one causal pathway, ignoring the net effects of campaign finance reforms on voter turnout. We exploit the variation in state campaign finance laws from 1950 to 2000 in order to estimate the reduced-form relationships between reform and turnout. Using both aggregate and individual-level data, we find that campaign finance laws on net have little impact on turnout in gubernatorial elections. There are two exceptions to this finding: Limits on organizational contributions are shown in an individual level analysis to increase turnout prior to a sea change in campaign finance ushered in by the Buckley v. Valeo decision in 1976, while public financing laws are shown to have an equally large negative impact on turnout in the post-Buckley era. These results strengthens the existing literature, which finds similarly perverse effects of public financing on the “quality of democracy,” and demonstrates the advantages of reduced-form analysis for understanding the influence of laws on behavior.
    Keywords: voting, campaign finance
    JEL: D72 H79 K39
    Date: 2005–11–28
  66. By: Edward Cartwright (Department of Economics, Keynes College, University of Kent); Myrna Wooders (Department of Economics, Vanderbilt University)
    Abstract: We consider a general equilibrium local public goods economy in which agents have two distinguishing characteristics. The first is 'crowding type,' which is publicly observable and provides direct costs or benefits to the jurisdiction (coalition or firm) the agent joins. The second is taste type, which is not publicly observable, has no direct effects on others and is defined over private good, public goods and the crowding profile of the jurisdiction the agent joins. The law of demand suggests that as the quantity of a given crowding type (plumbers, lawyers, smart people, tall people, nonsmokers, for example) increases, the compensation that agents of that type receive should go down. We provide counterexamples, however, that show that some agents of a given crowding type might actually benefit when the proportion of agents with the same crowding type increases. This reversal of the law of demand seems to have to do with an interaction effect between tastes and skills, something difficult to study without making these classes of characteristics distinct. We argue that this reversal seems to relate to the degree of difference between various patterns of tastes. In particular, if tastes are homogeneous, the law of demand holds. This paper is to appear in a volume on Tiebout economies, to be published by the Lincoln Institute.
    JEL: H41 D46 D71
    Date: 2005–11
  67. By: Johannes Rincke (Zentrum für Europäische Wirtschaftsforschung)
    Abstract: Before making di±cult 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: 2005–11–23
  68. By: Amos Peters (CARICOM Secretariat)
    Abstract: This paper explores the fiscal effects of tariff reduction for the Caribbean Community.The paper concludes that Caribbean countries are likely to experience short-run revenue shortfall as a consequence of trade liberalization. Indications are that the shortfall could be as much as a 45 per cent decline in customs duties. In order to mitigate this substantial effect, the ongoing efforts at fiscal reform must continue, paying particular attention to lowering tax exemptions, enhancing indirect tax systems, improving tax collection and administration and modifying the tax structure to reflect lower dependence on trade taxes for fiscal receipts.
    JEL: D6 D7 H
    Date: 2005–11–26
  69. By: Pedro H. Albuquerque (Texas A&M International University)
    Abstract: This paper uses a dynamic general equilibrium model to study the economic effects of bank account debits (BAD) taxation. Australia and various Latin American countries have levied or levy BAD taxes. Aspects such as financial disintermediation, market illiquidity, and impacts on dividend and interest rates are considered. Part of the BAD tax revenue may be fictitious, due to increased interest payments on government debt. The Brazilian BAD tax (CPMF) experience is evaluated. The empirical analysis confirms some theoretical predictions. Incidence base over GDP appears to be sensitive to the tax rate, possibly engendering a Laffer curve. The tax may also cause real interest rates to increase. Furthermore, the deadweight losses are relatively large, even if revenues are small. The theoretical and empirical results suggest that the BAD tax is not adequate for revenue collection.
    Keywords: Bank Account Debits Tax, BAD Tax, Financial Transactions Tax, FTT, Currency Transaction Tax, CTT, Automated Payment Transaction Tax, APT Tax, CPMF, Disintermediation, Illiquidity
    JEL: H20 E62
    Date: 2005–11–26
  70. By: Tomas J. Philipson (University of Chicago); Anupam B. Jena (University of Chicago)
    Abstract: Given the rapid growth in health care spending that is often attributed to technological change, many private and public institutions are grappling with how to best assess and adopt new health care technologies. We argue that popular assessment criteria going under the rubric of “cost-effectiveness” often concern maximizing consumer surplus, which many times is consistent with maximizing static efficiency after an innovation has been developed. Dynamic efficiency, however, concerns aligning the social costs and benefits of R&D and is therefore determined by how much of the social surplus from the new technology is appropriated as producer surplus. We estimate that for the HIV/AIDS therapies that entered the market from the late 1980’s onwards, producers appropriated only 5% of the social surplus arising from these new technologies. We show how to translate standard findings of cost- effectiveness to estimates of innovator appropriation for standard studies of over 200 drugs, and find that these studies implicitly support a low degree of appropriation as well. Despite the high annual costs of drugs to patients, the low share of social surplus going to innovators raises concerns about advocating cost-effectiveness criteria that would further reduce appropriation by innovators, and hence further reduce dynamic efficiency by unduly sacrificing future patients’ health for current ones.
    JEL: D6 D7 H
    Date: 2005–11–28
  71. By: Christoph Vanberg (Max Planck Institute of Economics)
    Abstract: Arguably the most important campaign finance regulations in U.S. federal elections are limits imposed on the amount that an individual or organization may donate to a federal campaign. Such contribution limits are advocated on two separate grounds. The first is that they prevent corruption, the second is that they democratize the financing of campaigns by equalizing the relative influence of donors. According to the latter argument, an equalization of donor influence is desirable because it causes campaign resources to more accurately reflect public support for candidates and their political ideas. I construct a formal model to illustrate this equalization argument in support of contribution limits. The analysis calls attention to a number of implicit assumptions underlying the corresponding money primary analogy for campaign fund-raising. The central assumption is that a candidate’s reliance on large contributions is an indicator of negative characteristics not revealed through her campaign communication. The model also suggests a method for testing this assumption, as it implies a negative relationship between a candidate’s reliance on large contributions and her electoral success. Using data on elections to the House of Representatives between 1990 and 2002, I find no evidence that such a negative relationship exists. This empirical result casts doubt on the equalization argument in support of campaign contribution limits.
    Keywords: Elections, Campaign Contributions, Speech, Signaling, Campaign Advertising, Corruption, Inequality, Equality, First Amendment, Buckley
    JEL: D6 D7 H
    Date: 2005–12–01
  72. By: Raquel Andres (Centre for the Study of Wealth and Inequality, Columbia University and Centre of Research on Welfare Economics (CREB)); Samuel Calonge (Department of Econometrics, Statistics and Spanish Economy, University of Barcelona and Centre of Research on Welfare Economics (CREB))
    Abstract: This paper discusses asymptotic and bootstrap inference methods for a set of inequality and progressivity indices. The application of non-degenerate U-statistics theory is described, particularly through the derivation of the Suits-progressivity index distribution. We have also provided formulae for the “plug-in” estimator of the index variances, which are less onerous than the U-statistic version (this is especially relevant for those indices whose asymptotic variances contain kernels of degree 3). As far as inference issues are concerned, there are arguments in favour of applying bootstrap methods. By using an accurate database on income and taxes of the Spanish households (statistical matching EPF90-IRPF90), our results show that bootstrap methods perform better (considering their sample precision), particularly those methods yielding asymmetric CI. We also show that the bootstrap method is a useful technique for Lorenz dominance analysis. An illustration of such application has been made for the Spanish tax and welfare system. We distinguish clear dominance of cashbenefits on income redistribution. Public health and state school education also have significant redistributive effects.
    Keywords: Income Inequality; Tax Progressivity; Statistical Inference; U-statistics; Bootstrap method.
    JEL: H00 C14 C15
    Date: 2005–11
  73. By: Wolfgang Kerber; Dr. Martina Eckardt (University of Rostock)
    Abstract: The Open Method of Coordination (OMC) is a new governance method applied in the European Union to policy fields where the main competences still rest with the member states. The OMC should help to foster mutual learning about successful policies and promote policy transfer by identifying best practices and recommending them. By confronting this approach with the economic concept of laboratory federalism its potential for the innovation and diffusion of policies in a multi-level governance system is analysed. Both concepts use the basic idea of decentralised experimentation and mutual learning from experiences with implemented policies. Whereas the OMC organizes this learning process to a greater extent “topdown”, laboratory federalism is much more a “bottom-up” concept. Their advantages and shortcomings in evaluating, finding and transferring best policies are discussed and the underlying insufficiencies in setting adequate incentives for adopting better policies are analysed. It is shown that under certain conditions both concepts can supplement each other.
    Keywords: European Union, Federalism, Open Method of Coordination, Policy Coordination, Policy Innovation, Policy Learning
    JEL: D7 F02 F42 H7
    Date: 2004
  74. By: Daniel Becker (University of Rostock)
    Abstract: This paper addresses the question whether increased mobility of capital en- hances public-sector modernisation. Public-sector modernisation is modelled as the accumulation of knowledge that serves as an input in the government’s production of a consumption good that is redistributed to households. The tax competition model in the background is a dynamic model in which capital flight induced by taxation is a process that takes time. The speed with which firms can relocate capital to other jurisdictions is taken as a measure of the degree of capital mobility. The main result of the paper is a contradiction of the idea that the competitive pressure caused by increased capital mobility enhances public sector modernisation.
    Keywords: public-sector modernisation, redistribution, dynamic tax competition, imperfect capital mobility
    JEL: H11 H77 H54 O40
    Date: 2005

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