nep-pbe New Economics Papers
on Public Economics
Issue of 2005‒12‒14
thirty-one papers chosen by
Peren Arin
Massey University

  1. Status Equilibrium for Local Public Good Economies By Anne van den Nouweland; Myrna H. Wooders
  2. Do Public Schools Facing Vouchers Behave Strategically? Evidence from Florida By Rajashri Chakrabarti
  3. Can Increasing Private School Participation and Monetary Loss in a Voucher Program Affect Public School Performance? Evidence from Milwaukee By Rajashri Chakrabarti
  4. Do Vouchers Lead to Sorting under Random Private School Selection? Evidence from the Milwaukee Voucher Program By Rajashri Chakrabarti
  5. The Creation of the Rule of Law and the Legitimacy of Property Rights : The Political and Economic Consequences of a Corrupt Privatization By Karla Hoff; Joseph E. Stiglitz
  6. Protecting Cultural Monuments Against Terrorism By Bruno S. Frey and Dominic Rohner
  7. Replacement Incomes and Taxes: A distributional analysis for the EU-15 countries By Verbist G
  8. Household incomes and redistribution in the European Union: quantifying the equalising properties of taxes and benefits By Immervoll H; Levy H; Lietz C; Mantovani D; O'Donoghue C; Sutherland H; Verbist G
  9. Redistributive effect and progressivity of taxes An International Comparison across the EU using EUROMOD By Verbist G
  10. Optimal Nonlinear Taxation of Income and Savings in a Two Class Economy By Craig Brett; John A. Weymark
  11. Falling up the stairs. An exploration of the effects of "bracket creep" on household incomes By Immervoll H
  12. Average and marginal effective tax Rates facing workers in the eu. A Micro-level analysis of levels, Distributions and driving factors (revised version of EM2/02) By Immervoll H
  13. Decentralization and Electoral Accountability : Incentives, Separation and Vote Welfare By Jean, HINDRIKS; Ben, Lockwood
  14. Competing for capital when labor is heterogeneous By Yasuhiro, SATO; Jacques-François, THISSE
  15. The Marginal Cost of Public Funds in Africa By Michael Warlters; Emmanuelle Auriol
  16. Fiscal Stabilisers in Europe: The Macroeconomic Impact of Tax and Benefit Systems By Mabbett D
  17. Costs of Taxation and the Benefits of Public Goods : The Role of Income Effects By Will Martin; James E. Anderson
  18. Fiscal Federalism in Switzerland : Relevant Issues for Transition Economies in Central and Eastern Europe By Bernard Dafflon; Krisztina Tóth
  19. Pension Incomes in the European Union: Policy Reform Strategies in Comparative Perspective By Mantovani D; Papadopoulos F; Sutherland H; Tsakloglou P
  20. The Impact of Tax and Transfer Systems on Children in the European Union By Corak M; Lietz C; Sutherland H
  21. Fiscal Space for Investment in Infrastructure in Colombia By Rodrigo Suescún
  22. Congressional Trends to Tax and Spend: Examining Fiscal Voting Across Time and Chamber By Edward J. Lopez
  23. Corrective Ad Valorem and Unit Taxes : A Welfare Comparison By Susanne Dröge; Philipp J. H. Schröder
  24. Fiscal Determinants of Empowerment By Uri Raich
  25. A Model of Rights By Nicholas Shunda
  26. The Endowment Effect in a Public Good Experiment By Edward J. Lopez; W. Robert Nelson
  27. Sharing resources within the household: a multi-country microsimulation analysis of the determinants of intrahousehold strategic weight differentials and their distributional outcomes By Orsini K; Spadaro A
  28. What Determines the Extent of Fiscal Decentralization ? The Russian Paradox By Lev Freinkman; Alexander Plekhanov
  29. How Does the Composition of Public Spending Matter? By Stefano Paternostro; Anand Rajaram; Erwin R. Tiongson
  30. In-Work Policies in Europe: killing two birds with one stone? By Bargain O; Orsini K
  31. The Effects of Budget Deficit Reduction on Exchange Rate: Evidence from Turkey By Yaprak Gulcan; Mustafa Erhan Bilman

  1. By: Anne van den Nouweland (Department of Economics, University of Oregon); Myrna H. Wooders (Department of Economics, Vanderbilt University)
    Abstract: We introduce a concept of status equilibrium for local public good economies. A status equilibrium specifies one status index for each agent in an economy. These indices determine agents' cost shares in any possible jurisdiction to which the agent might belong. We provide an axiomatic charaterization of status equilibrium using consistency properties.
    Keywords: Local public goods, status equilibrium, axiomatic characterization
    JEL: H41 D71 D51
    Date: 2005–09
  2. By: Rajashri Chakrabarti (Harvard University)
    Abstract: In this paper, I analyze the behavior of public schools facing vouchers. The literature on the effect of voucher programs on public schools typically focuses on student and mean school scores. This paper tries to go inside the black box to investigate some of the ways in which schools facing the threat of vouchers in Florida behaved. Florida schools getting an 'F' grade are exposed to the threat of vouchers, while vouchers are implemented if they get another 'F' grade in the next three years. Exploiting the institutional details of the 1999 program, I analyze the incentives built into the system and investigate whether the threatened public schools behaved strategically to respond to incentives. There is strong evidence that they did respond to incentives. Using highly disaggregated school level data, a difference- in-differences estimation strategy as well as a regression discontinuity analysis, I find that the threatened schools tended to focus more on students below the minimum criteria cutoffs rather than equally on all, but interestingly, this improvement did not come at the expense of higher performing students. Second, consistent with incentives, they focused mostly on writing rather than reading and math. Finally, consistent with substantial costs associated with such reclassification during that period, there is not much evidence of relative reclassification of low performing students in to special education categories exempt from the calculation of grades. These results are robust to controlling for differential pre-program trends, changes in demographic compositions, mean reversion and sorting. These findings have important policy implications and subsequent grading rule changes in Florida suggest that these policy changes have been a response to public school behavior.
    Keywords: Vouchers, Incentives, Strategic Behavior, Regression Discontinuity, Mean Reversion
    JEL: H4 I21 I28
    Date: 2005–12–02
  3. By: Rajashri Chakrabarti (Harvard University)
    Abstract: The Milwaukee voucher program, as implemented in 1990, allowed only non- sectarian private schools to participate in the program. Following a Wisconsin Supreme Court ruling, the program saw a major shift and entered into its second phase, when religious private schools were allowed to participate for the first time in 1998. This led to more than a three-fold increase in the number of private schools and almost a four-fold increase in the number of choice students. Moreover, due to some changes in funding provisions, the revenue loss per student from vouchers increased in the second phase of the program. This paper analyzes, both theoretically and empirically, the impacts of these changes on public school performance in Milwaukee. It argues that voucher design matters and that the choice of parameters in a voucher program is crucial as far as impacts on public school incentives and performance are concerned. In the context of a theoretical model of public school and household behavior, the paper establishes that the policy changes will lead to an improvement of the public schools in the second phase of the program as compared to the first phase. Following Hoxby (2003a, 2003b) in treatment-control group classification, using data from 1987 to 2002, and a difference-in-differences estimation strategy in trends, the paper then shows that the theoretical prediction is validated empirically. This result is robust to alternative samples and specifications, and survive robustness checks including correcting for mean reversion.
    Keywords: Vouchers, Public School Performance, Competition, Mean Reversion
    JEL: H4 I21 I28
    Date: 2005–12–02
  4. By: Rajashri Chakrabarti (Harvard University)
    Abstract: This paper analyzes the impact of voucher design on student sorting, and more specifically investigates whether there are feasible ways of designing vouchers that can reduce or eliminate student sorting. It studies these questions in the context of the first five years of the Milwaukee voucher program. Much of the existing literature investigates the question of sorting where private schools can screen students. However, the publicly funded U.S. voucher programs require private schools to accept all students unless oversubscribed and to pick students randomly if oversubscribed. This paper focuses on two crucial features of the Milwaukee voucher program - random private school selection and the absence of topping up of vouchers. In the context of a theoretical model, it argues that random private school selection alone cannot prevent student sorting. However, random private school selection coupled with the absence of topping up can preclude sorting by income, although there is still sorting by ability. Sorting by ability is not caused here by private school selection, but rather by parental self selection. Using a logit model and student level data from the Milwaukee voucher program for 1990-94, it then establishes that random selection has indeed taken place so that it provides an appropriate setting to test the corresponding theoretical predictions in the data. Next, using several alternative logit specifications, it demonstrates that these predictions are validated empirically. These findings have important policy implications.
    Keywords: Vouchers, Sorting, Cream Skimming, Private Schools
    JEL: H0 I21 I28
    Date: 2005–12–02
  5. By: Karla Hoff (The World Bank); Joseph E. Stiglitz (Columbia University)
    Abstract: How does the lack of legitimacy of property rights affect the dynamics of the creation of the rule of law? The authors investigate the demand for the rule of law in post-communist economies after privatization under the assumption that theft is possible, that those who have "stolen" assets cannot be fully protected under a change in the legal regime toward rule of law, and that the number of agents with control rights over assets is large. They show that a demand for broadly beneficial legal reform may not emerge because the expectation of weak legal institutions increases the expected relative return to stripping assets, and strippers may gain from a weak and corrupt state. The outcome can be inefficient even from the narrow perspective of the asset-strippers.
    Keywords: ???
    Date: 2005–12–01
  6. By: Bruno S. Frey and Dominic Rohner
    Abstract: Famous cultural monuments are often regarded as unique icons, making them an attractive target for terrorists. Despite huge military and police outlays, terrorist attacks on important monuments can hardly be avoided. We argue that an effective strategy for discouraging terrorist attacks on iconic monuments is for the government to show a firm commitment to swift reconstruction. Using a simple game-theoretic model, we demonstrate how a credible claim to rebuild any cultural monuments destroyed discourages terrorist attacks by altering the terrorists’ expectations and by increasing the government’s reputation costs if they fail to rebuild.
    Keywords: Terrorism, Culture, Monuments, Counter-terrorism, Deterrence
    JEL: D74 H56 Z10
    Date: 2005–12
  7. By: Verbist G
    Abstract: In this paper we analyse how income taxation interferes with the logic and aims of the social security system. We investigate the distributional effects of the tax treatment of social benefits, and more specifically of old age pensions and unemployment benefits. We present a brief overview of the different ways of levying taxes on replacement incomes. We measure the distributional effects of these different tax treatments by comparing gross and net replacement incomes over income deciles. By calculating Gini and Kakwani indices, we also estimate the inequality reduction and the progressivity characteristics of taxes on replacement incomes. Having summarised the link between taxes and replacement incomes, as well as their distributional effects, we then try to distinguish if there is a link between the tax treatment of replacement incomes and the type of welfare state.
    Keywords: income redistribution; social benefits; income taxes; social insurance contributions; microsimulation; European Union
    JEL: C81 D31 H23 H24 H55
    Date: 2005–01
  8. By: Immervoll H; Levy H (Institute for Social & Economic Research); Lietz C; Mantovani D; O'Donoghue C; Sutherland H (Institute for Social & Economic Research); Verbist G
    Abstract: The systems of direct taxes and cash benefits in the Member States of the European Union vary considerably in size and structure. We explore their direct impacts on cross-sectional income inequality (termed "redistributive effect" for the purpose of this paper) using EUROMOD, a tax-benefit microsimulation model for the European Union. This relies on harmonised household micro-data representative of each national population together with simulations of entitlements to cash benefits and liabilities for taxes and social contributions. It allows us to draw a more comprehensive - and comparable - picture of the combined effects of transfers and taxes than is usually possible. We decompose the redistributive effect of tax-benefit systems to assess and compare the effectiveness of individual policies at reducing income disparities. The following categories of benefits and taxes are considered both individually and in combination: income taxes, social contributions, cash benefits designed to target the poor or redistribute inter-personally (through means-testing) as well as cash benefits intended to redistribute intra-personally across the lifecycle (through social insurance or contingency-based entitlement). We derive results for the 15 "old" members of the European Union and present them for each country separately as well as for the EU-15 as a whole. JEL: C81, D31, H22, H55 Keywords: Income inequality, Redistribution, Microsimulation, European Union
    Keywords: Income inequality, Redistribution, Microsimulation, European Union
    JEL: C81 D31 H22 H55
    Date: 2005–07
  9. By: Verbist G
    Abstract: This paper gives an international comparison of the redistributive effect of personal income taxes in the 15 countries of the EU, using the European tax-benefit model EUROMOD. We focus on the effect of personal income taxes, social insurance contributions and other direct taxes. We present the contribution of progressivity and average tax rate to the reduction of income inequality, as well as the weight of the various types of tax concessions (i.e. exemptions, deductions, allowances and credits). There appears to be a wide variety among countries in the level of inequality reduction as well as in the instruments used to achieve this reduction. Personal income taxes are in all countries the most important source for inequality reduction, which is to a large extent, though not solely, due to the progressive rate schedule. Countries with a high degree of pre-tax inequality do not systematically redistribute more through their taxes; the results indicate rather the opposite.
    Keywords: income redistribution; income taxes; social insurance contributions; microsimulation; European Union
    JEL: C81 D31 H23 H24
    Date: 2004–10
  10. By: Craig Brett (Department of Economics, Mount Allison University); John A. Weymark (Department of Economics, Vanderbilt University)
    Abstract: Optimal nonlinear taxation of income and savings is considered in a two-period model with two individuals who only differ in their skill levels. When the government can commit to its second period policy, taxes on savings do not form part of the optimal tax mix. When commitment is not possible, the optimal tax scheme distorts private savings behavior. If the types are separated in period one, the savings of the low- (resp. high-) skilled individual are subsidized (resp. taxed) so as to relax an incentive compatibility constraint. If the types are pooled in period one, it is optimal for at least one type to have savings distorted, with the high-skilled individual facing a lower marginal tax rate on savings than the low-skilled individual.
    Keywords: Asymmetric information, commitment, optimal income taxation, savings taxation, time consistency
    JEL: D82 H21
    Date: 2005–11
  11. By: Immervoll H
    Abstract: This paper analyses how inflation-induced erosions of nominally defined amounts built into relevant tax rules ("bracket creep") alter distributional and revenue-generating properties of income taxes and social insurance contributions. Using a multi-country tax-benefit model, it provides quantitative estimates for Germany, the Netherlands and the UK. In the absence of automatic inflation adjustment mechanisms, effects on individual tax burdens can be substantial even with low inflation. Bracket creep is found to reduce tax progressivity. At the same time, overall tax revenues increase. This second effect more than compensates for the decline in progressivity and leads to an overall increase of relevant redistribution measures. Existing adjustment regimes used in the Netherlands and the UK are successful at preventing large tax burdens changes resulting from inflation-induced nominal income changes.
    Keywords: Inflation; Fiscal Drag; Income Tax; Social Insurance Contributions; Income Distribution; European Union; Microsimulation
    JEL: C81 H24 D31
    Date: 2004–07
  12. By: Immervoll H
    Abstract: Macro-based effective tax rate (ETR) measures do not provide information on the level or distribution of marginal effective tax rates thought to influence household behaviour. They also do not capture differences in average ETRs facing different population sub-groups. I use EUROMOD, an EU-wide tax-benefit model, to derive distributions of average and marginal ETR measures for fourteen countries. Results for each country show how many and which types of individuals face different ETR levels. I consider effective tax burdens on labour income as well as the marginal tax rates faced by working men and women. Results are broken down to isolate the influence of income taxes, social contributions and various types of social benefits.
    Keywords: Effective Tax Rates; European Union; Microsimulation.
    JEL: H22 D31 C81
    Date: 2004–10
  13. By: Jean, HINDRIKS; Ben, Lockwood
    Abstract: This paper studies the relationship between fiscal decentralization and electoral accountability, by analyzing how decentralization impacts upon incentive and selecion effects, and thus on voter welfare. The model abstracts from features such as public good spillovers or economics of scale, so that absent elections, voters are indifferent about the fiscal regime. The effect of fiscal centralization on voter welfare works through two channels : (i) via its effect on the probability of pooling by the bad incumbent; (ii) conditional on the probability of pooling, the extent to which, with centralization, the incumbent can divert rents in some regions without this being detected by voters in other regions (selective rent diversion). Both these effects depend on the information structure; whether voters only observe fiscal policy in their own region, in all regions, or an intermediate case with a uniform tax across all regions. More voter information does not necessarily raise voter welfare, and under some conditions, voter would choose uniform over differentiated taxes ex ante to constrain selective rent diversion
    Keywords: Fiscal federalism; decentralization; elections; accountability
    JEL: D72 D73 H41
    Date: 2005–03–15
  14. By: Yasuhiro, SATO; Jacques-François, THISSE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)
    Abstract: This paper investigates the impacts of capital mobility and tax competition in a setting with imperfect matching between firms and workers. The small country always gains and the large country always loses from tax competition, thus implying tax competition leads to redistribution from the large to the small country. These results imply that our model encapsulates both the “importance of being small” as well as the “importance of being large”. We also show that tax harmonization leads to redistribution from the large to the small country
    Keywords: fiscal competition; local labor markets; capital mobility
    JEL: F21 H32 J31
    Date: 2005–09–05
  15. By: Michael Warlters (The World Bank); Emmanuelle Auriol (ARQADE and IDEI, Toulouse)
    Abstract: The authors use a computable general equilibrium model to estimate the marginal cost of public funds (MCF) for taxes on domestic goods, exports, imports, capital, and labor in 38 African countries. The resulting MCF estimates provide directions for tax reform in Africa. The authors investigate the MCFs of hypothetical taxes in the informal sector and the impact of administrative costs. Finally, they investigate the relationship between MCF dispersion and measures of tax system inefficiency.
    Keywords: Infrastructure, Domestic finance, Macroeconomics and growth, Public sector management
    Date: 2005–08–01
  16. By: Mabbett D
    Abstract: Tax and benefit systems generate aggregate intertemporal effects in addition to their interpersonal redistributive effects. These intertemporal effects appear in the cyclical fluctuations in the government’s fiscal position yielded by the ‘automatic stabilisers’. Using EUROMOD, it is possible to produce estimates of the automatic stabilisers which focus on the stabilisation of household income rather than the budgetary effects of cyclical changes in taxes and benefits. These estimates are used to explore theoretical propositions about the role of the tax and benefit system in providing temporary income insurance to households, and to identify some of the possible effects of taxes and benefits on the speed of labour market adjustment over the cycle. The results show that the size of the stabilisers varies widely across the states participating in European Monetary Union (and the other EU-15 states). However, more analysis of the crosscutting effects of private insurance and access to credit is needed to determine the implications for stabilisation policy.
    Keywords: Automatic stabilisation, European Monetary Union, Insurance Unemployment, Microsimulation
    JEL: C81 D31 E32 H31 J68
    Date: 2004–11
  17. By: Will Martin (The World Bank); James E. Anderson (Boston College)
    Abstract: The fact that raising taxes can increase taxed labor supply through income effects is frequently used to justify much lower measures of the marginal welfare cost of taxes and greater public good provision than indicated by traditional, compensated analyses. The authors confirm that this difference remains substantial with newer elasticity estimates, but show that either compensated or uncompensated measures of the marginal cost of funds can be used to evaluate the costs of taxation-and will provide the same result-as long as the income effects of both taxes and public good provision are incorporated in a consistent manner.
    Keywords: Macroeconomics and growth
    Date: 2005–09–01
  18. By: Bernard Dafflon (The World Bank); Krisztina Tóth (The World Bank)
    Abstract: Its highly fragmented structure of local governments and serious horizontal fiscal imbalances make Switzerland a surprisingly powerful model for Eastern European countries that are currently facing the challenge of fiscal decentralization. In spite of the substantial differences in the tradition and current practice of intergovernmental fiscal relations, transition economies may learn valuable lessons from the Swiss case in the fields of direct democracy, horizontal cooperation, expenditure and revenue assignment, and fiscal discipline. Among other conclusions, the authors suggest that subnational authorities can effectively fend off recentralization attempts of the central government if they engage in spontaneous cooperation to enhance the efficiency of public service provision. Together with an adequate fiscal equalization scheme, interjurisdictional cooperation also permits the reconciliation of the objective of an increasing devolution of powers with the existing regional disparities. The authors also show that the principle of subsidiarity can best be safeguarded by anchoring the expenditure and revenue powers of subnational governments in the constitution or in a similarly strong law. With regard to fiscal discipline, the combination of a "golden rule" with direct democratic instruments of budget control is proven to be successful in enhancing the accountability of local politicians toward their constituencies.
    Keywords: Public sector management
    Date: 2005–07–01
  19. By: Mantovani D; Papadopoulos F; Sutherland H (Institute for Social & Economic Research); Tsakloglou P
    Abstract: This paper considers the effects on current pensioner incomes of reforms designed to improve the long-term sustainability of public pension systems in the European Union. We use EUROMOD to simulate a set of common illustrative reforms for four countries selected on the basis of their diverse pension systems and patterns of poverty among the elderly: Denmark, Germany, Italy and the UK. The variations in fiscal and distributive effects on the one hand suggest that different paths for reform are necessary in order to achieve common objectives across countries, and on the other provide indications of the appropriate directions for reform in each case.
    Keywords: Pensions; European Union; Microsimulation
    JEL: C81 I30 H55
    Date: 2005–03
  20. By: Corak M; Lietz C; Sutherland H (Institute for Social & Economic Research)
    Abstract: The objective of this paper is to analyse the impact of fiscal policy on the economic resources available to children, and on the child poverty rate. A static microsimulation model specifically designed for the purposes of comparative fiscal analysis in the European Union, EUROMOD, is used to study the age incidence of government taxes and transfers in 2001 in 15 EU countries.
    Keywords: Children, child poverty, fiscal policy, European Union.
    Date: 2005–03
  21. By: Rodrigo Suescún (The World Bank)
    Abstract: For the evaluation of macroeconomic policies Colombian authorities rely heavily, if not exclusively, on the operational framework known as the Financial Programming Model developed by the International Monetary Fund in the 1950s. Based on this static framework, the formulation of fiscal policy in the country, just as in various Latin American countries, focuses primarily on fiscal deficit and gross debt targets. However, the type of fiscal policy advice derived from it is not useful for understanding the asset-creating nature and the inter-temporal tradeoffs involved in public investment decisions. The author develops a perfect foresight, dynamic small open economy model to provide an alternative framework for fiscal analysis and policy purposes. He shows that the two competing frameworks deliver differing paths for the expected behavior of the Colombian economy. He then uses the proposed framework to study the likely consequences of using public capital spending to achieve deficit targets since, in addition to an already high public debt, in the years ahead unfunded pension obligations will put enormous pressure on the Colombian government's solvency. The results indicate that public capital compression is costly in terms of foregone growth and very ineffective in achieving fiscal consolidation. The adoption of fiscal rules such as the golden rule or the permanent balance rule to shield public investment from undue budgetary pressures makes little sense in the presence of sustainability concerns. The author shows that a transitory capital spending increase is not self-amortizing in the long run; hence an extra peso of public capital spending deteriorates the inter-temporal fiscal position. A permanent increase largely pays for itself in terms of additional tax revenue but this effect is offset by a deterioration of infrastructure user charges, as long as public prices are determined competitively.
    Keywords: Infrastructure, Macroeconomics and growth
    Date: 2005–06–01
  22. By: Edward J. Lopez (San Jose State University)
    Abstract: This paper examines congressional spending preferences over time by party and chamber. The data employed is the annual vote index compiled by the National Taxpayers Union for 1979-2002. NTU scores are presented with and without adjusting for interchamber and intertemporal movements of the policy space over which the scores are calculated. Results indicate that the parties and chambers are much more stable over time, and exhibit a slighter liberal trend, with adjustments for movements in the policy space. In addition, during fiscal milestones the adjusted scores indicate less pronounced changes in spending preferences than the unadjusted data do.
    Keywords: fiscal policy, legislator voting, ideal point estimation
    JEL: D6 D7 H
    Date: 2005–12–02
  23. By: Susanne Dröge; Philipp J. H. Schröder
  24. By: Uri Raich (The World Bank)
    Abstract: Empowerment of local governments and citizens is a primary object of decentralization. Using the analytic lens of empowerment, the author explores the nature of decentralized governance and how this type of structure is likely to be more or less empowering. His primary concern is fiscal decentralization, specifically the association between fiscal determinants and the degree of empowerment of both citizens and local governments. The author's main argument is that both the revenue and expenditure characteristics of local public finances have an effect on the degree of empowerment. His hypothesis is that in a context of decentralized local governance, empowerment is most likely to occur when three conditions prevail: low costs of participation, large and flexible budgets, and a high proportion of tax revenues from a local base. But these ingredients for empowerment will not necessarily produce outcomes that are progressive and pro-poor. The author contrasts the intrinsic and the instrumental approaches to empowerment, but he does not assess the impact of empowerment on instrumental outcomes. For this hypothesis to support an instrumentalist perspective on empowerment, further empirical work must be conducted.
    Keywords: Governance
    Date: 2005–09–01
  25. By: Nicholas Shunda (University of Connecticut)
    Abstract: In this paper, we develop a simple model of the rights a government provides its citizenry. Rights are treated as public goods and taken as primitives in agents utility functions; each agent has preferences over the entire policy vector. We model the interaction among citi-zens and the government as a game in which an exogenous lobbying set makes contributions to the government to in uence policy formu-lation in the matter of rights. When examining contribution schedules comprising truthful Nash strategies, we find that members of the lob-bying set obtain rights closer to their most-preferred bundle, while the rights of non-lobbyers further diverge from their most-preferred bun-dle. Further, if the lobbying set comprises the entire population, the government s allocation of rights does not differ from the allocation achieved in the absence of contributions.
    Keywords: contributions, political economy, rights, voting
    JEL: D72 D73 D78 H41
    Date: 2005–10
  26. By: Edward J. Lopez (San Jose State University); W. Robert Nelson (Center for Study of Public Choice)
    Abstract: Previous tests of the endowment effect have usually observed WTA-WTP disparities. Here, a public good experiment is employed. Both account framing and duration framing treatments are introduced to alter subjects’ perceived control over an initial endowment. Results do not indicate that preferences shift in a way consistent with the endowment effect.
    Keywords: endowment effect, public good, willingness to pay
    JEL: C91 D1 H41
    Date: 2005–12–02
  27. By: Orsini K; Spadaro A (Departamento de Economia Aplicada Universidad de las Islas Baleares)
    Abstract: Equal intra-household sharing is still assumed by the vaste majority of applied analyses in welfare economics. Few pieces of work have tried to depart from the equal sharing hypothesis, but their impact has been limited by lack of data or restricted application to special cases. This paper proposes a new framework to derive sharing rules based on individual bargaining power. The latter is defined for each household member as the share of resources gained by the household due to his/her presence. The causes of power diferentials and their impact on income distribution are analysed in four EU countries presenting signifcantly different tax-benefitt systems: Finland, Italy, Germany and the United Kingdom.
    Keywords: intra-household sharing, tax-benefit systems, microsimulation
    JEL: C70 D1 J16 H31
    Date: 2005–01
  28. By: Lev Freinkman (The World Bank); Alexander Plekhanov (University of Cambridge)
    Abstract: The paper provides an empirical analysis of the determinants of fiscal decentralization within Russian regions in 1994-2001. The conventional view that more decentralized governments are found in regions and countries with higher income, higher ethnolinguistic fractionalization, and higher levels of democracy is not supported by the data. This motivates a more refined analysis of the determinants of decentralization that points to the link between decentralization and the structure of regional government revenue: access to windfall revenues leads to a more centralized governance structure. The degree of decentralization also depends positively on the level of urbanization and regional size and negatively on income and general regional development indicators such as the education level.
    Keywords: Domestic finance, Public sector management
    Date: 2005–09–01
  29. By: Stefano Paternostro (The World Bank); Anand Rajaram (The World Bank); Erwin R. Tiongson (The World Bank)
    Abstract: Public spending has effects which are complex to trace and difficult to quantify. But the composition of public expenditure has become the key instrument by which development agencies seek to promote economic development. In recent years, the development assistance to heavily indebted poor countries (HIPCs) has been made conditional on increased expenditure on categories that are thought to be "pro-poor". This paper responds to the growing concern being expressed about the conceptual foundations and the empirical basis for the belief that poverty can be reduced through targeted public spending. While it is widely accepted that growth and redistribution are important sources of reduction in absolute poverty, a review of the literature confirms the lack of an appropriate theoretical framework for assessing the impact of public spending on growth as well as poverty. There is a need to combine principles of both public economics and growth theory to develop appropriate theoretical guidance for public expenditure policy. This paper identifies a number of approaches that are beginning to address this gap. Building on these approaches, it proposes a framework that has its foundation in a broadly articulated development strategy and its economic goals such as growth, equity, and poverty reduction. It recommends the use of public economics principles to clarify the roles of the private and public sectors and to recognize the complementarity of spending, taxation, and regulatory instruments available to affect public policy. With regard to the impact of any given type of public spending, policy recommendations must be tailored to countries and be based on empirical analysis that takes account of the lags and leads in their effects on equity and growth and ultimately on poverty. The paper sketches out such a framework as the first step in what will have to be a longer-term research agenda to provide theoretically and empirically robust and verifiable guidance to public spending policy.
    Keywords: Agriculture, Infrastructure, Governance, Poverty, Macroeconomics and growth, Education, Health and population
    Date: 2005–03–01
  30. By: Bargain O; Orsini K
    Abstract: Earning an income is probably the best way to avoid poverty and social exclusion, hence the recent trend of promoting employment through in-work transfers in OECD countries. Yet, the relative consensus on the need for ‘making work pay’ policies is muddied by a number of concerns relative to the design of the reforms and the treatment of the family dimension. Relying on EUROMOD, a EU-15 integrated tax-benefit microsimulation software, we simulate two types of in-work benefits. The first one is means-tested on family income, in the fashion of the British Working Family Tax Credit, while the second is a purely individualized low wage subsidy. Both reforms are built on the same cost basis (after behavioral responses) and simulated in three European countries which experience severe poverty traps, namely Finland, France and Germany. The potential labor supply responses to the reforms and the subsequent redistributive impacts are assessed for each country using a structural discrete-choice model. We compare how both reforms achieve poverty reduction and social inclusion (measured as the number of transitions into activity). All three countries present different initial conditions, including institutional environment, existing tax-benefit systems and distribution of incomes and wages. These sources of heterogeneity are exploited together with different labor supply sensitivities to explain the cross-country differences in the impact of the reforms.
    Keywords: tax-benefit systems, in-work benefits, microsimulation, household labor supply, multinomial logit.
    JEL: C25 C52 H31 J22
    Date: 2004–10
  31. By: Yaprak Gulcan (Department of Economics, Faculty of Business, Dokuz Eylül University); Mustafa Erhan Bilman (Department of Economics, Faculty of Business, Dokuz Eylül University)
    Abstract: This study investigates the effect of budget deficit reduction on exchange rate between US dollar and Turkish lira (TL). Our article aims to illustrate that the evidence on the relationship between budget deficits and exchange rates is not clear-cut and to explain why the theoretical approaches that underlie the relationship are ambiguous while there is general agreement that cutting budget deficits and debt will lower interest rates. The relationship between deficit reduction and exchange rates has caused a debate among the most famous monetary policy makers and researchers. [Melvin (1989), Mishkin (1992), Greenspan (1995), Thiessen (1995), Krugman (1995), Feldstein (1995)] In addition, budget deficit can be counted as one of the most common and major problem that influences the macroeconomic stability in developing economies. In this sense, cointegration method and causality tests were used in order to find out the possible effects of budget deficit reduction on exchange rates during the period of 1960-2003 in Turkey.
    Keywords: Budget deficits, exchange rates, cointegration analysis
    JEL: H62 F31
    Date: 2005–12–12

This nep-pbe issue is ©2005 by Peren Arin. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.