nep-pbe New Economics Papers
on Public Economics
Issue of 2006‒01‒01
39 papers chosen by
Peren Arin
Massey University

  1. Is there a Case for Sophisticated Balanced-Budget Rules? By Antonio Fatás
  2. Pensions for an Aging Population By Peter Diamond
  3. How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Cross-Section of Countries By Adi Brender; Allan Drazen
  4. The Evolution of Tax Morale in Modern Spain By Jorge Martinz-Vazquez; Benno Torgler
  5. How to Preserve a Fortune: An Experimental Comparison of Foundations and Direct Transfers to the Heir By Werner Güth; Kurt-Dieter Koschmieder; M. Vittoria Levati; Ev Martin
  6. The Regulation of Nonpoint Emissions in the Laboratory: A Stress Test of the Ambient Tax Mechanism By Francois Cochard; Anthony Ziegelmeyer; Kene Boun My
  7. Explaining female and male entrepreneurship at the country level By Ingrid Verheul; Andre van Stel; Roy Thurik
  8. Is it is or is it ain't my obligation? Regional debt in a fiscal federation By Russell Cooper; Hubert Kempf; Dan Peled
  9. Dynamic contracting, persistent shocks and optimal taxation By Yuzhe Zhang
  10. Optimal monetary and fiscal policy under discretion in the new Keynesian model: a technical appendix to "Great Expectations and the End of the Depression" By Gauti B. Eggertsson
  11. Avoiding the inflation tax By Huberto M. Ennis
  12. Routines and Communities of Practice in Public Environmental Procurement Processes By Katarina, Larsson; Svane, Örjan
  13. Optimal Monetary and Fiscal Policy in a Currency Union By Tommaso Monacelli; Jordi Galí
  14. On the Optimal Staffing of Surgeons and Efficient Scheduling of Surgeries at a High-Volume Eye Hospital By Desai Tejas A
  15. Making the politician and the bureaucrat deliver: Employment guarantee in India By Ashima Goyal
  16. Unreported Labour By Erling Barth; Tone Ognedal
  17. Income Taxation and Household Size: Would French Family Splitting Make German Families Better Off? By Alexandre Baclet; Fabien Dell; Katharina Wrohlich
  18. Biens publics et défense européenne : quel processus d'allocation ?. By Martial Foucault
  19. The Generational Divide in Support for Environmental Policies: European Evidence By Joni Hersch; W. Kip Viscusi
  20. The Perception and Valuation of the Risks of Climate Change: A Rational and Behavioral Blend By W. Kip Viscusi; Richard Zeckhauser
  21. The Net Asset Position of the U.S. National Government, 1784-1802: Hamilton%u2019s Blessing or the Spoils of War? By Farley Grubb
  22. Life After Kyoto: Alternative Approaches to Global Warming By Robert Shimer
  23. Getting the Most Out of Public-Sector Decentralisation in Korea By Randall Jones; Tadashi Yokoyama
  24. A Comment on the Role of Prices for Excludable Public Goods By Gilbert E. Metcalf; Jongsang Park
  25. The Economic Impact of Connecticut's Corporate Tax Policy Changes: 1995-2012 By Stan McMillen; William Lott
  26. Identifying Reticent Respondents: Assessing the Quality of Survey Data on Corruption and Values By Omar Azfar; Peter Murrell
  27. On Globalization and the Growth of Governments By Paolo Epifani; Gino Gancia
  28. The Impact of Generic Reference Pricing Interventions in the Statin Market By Jaume Puig
  29. Do Institutions of Direct Democracy Tame the Leviathan? Swiss Evidence on the Structure of Expenditure for Public Education. By Justina A.V. Fischer
  30. Fiscal decentralization and fiscal performance By Shah, Anwar
  32. External Debt Sustainability: Theory and Empirical Evidence By Marco Arnone; Luca Bandiera; Andrea Presbitero
  34. ¿Es progresivo aumentar el mínimo no imponible del Impuesto a las Ganancias? By Federico Marongiu; Daniela Dborkin
  35. Explaining Middle Eastern Authoritarianism By Marcus Noland
  36. Pay-Roll Contribution Financed Social Protection Programs in Uruguay By Alvaro Forteza; Anna Caristo; Natalia Ferreira-Coimbra; Ianina Rossi
  37. Public Debt in Turkey By K. Azim Ozdemir
  38. Revealing Turkey’s Public Debt Burden : A Transparent Payments Approach By Ertunc Alioglu; Can Erbil; Ferhan Salman
  39. Information, Capital Gains Taxes & New York Stock Exchange By Ferhan Salman

  1. By: Antonio Fatás
    Abstract: This paper reviews the arguments in favor of excluding investment from fiscal policy constraints (the adoption of a “golden rule”). The paper starts by reviewing the goals and motivations of fiscal policy rules. From this analysis, it is clear that answering the question of whether investment should be excluded from those constraints can only be done once the goals and logic of those constraints are made clear. The strongest arguments in favor of a “golden rule” are those of transparency and intergenerational fairness. Other arguments, such as the possibility that public investment pays for itself, do not receive strong empirical support. The paper concludes that for a policy rule to be sustainable and have enough political and public support, it is necessary to have a proper, transparent and, therefore, different accounting treatment for investment. Whether this implies that investment should be completely excluded from fiscal policy constraints is left as an open question. <P>Les arguments en faveur de règles sophistiquées d’équilibre budgétaires sont-ils légitimes? Cet article analyse les arguments en faveur de l'exclusion de l'investissement des contraintes de politique budgétaire (adoption d'une « règle d’or »). Il commence par passer en revue les buts et les motivations des règles de politique budgétaire. Il en ressort qu'avant de pouvoir répondre à la question de savoir si oui ou non l'investissement doit être exclu de ces contraintes, il est essentiel que les buts et la logique qui les sous-tendent soient clairement énoncés. Les arguments les plus solides en faveur d'une "règle d'or" sont ceux de la transparence et de l'équité transgénérationnelle. D'autres arguments, tels que le fait que l'investissement s'autofinancerait, ne reçoivent pas beaucoup de validation empirique. L’auteur en conclut que pour qu'une règle budgétaire soit soutenable et reçoive suffisamment de soutien des acteurs politiques et de la population, il est nécessaire que l'investissement fasse l'objet d'un traitement comptable spécifique, transparent et par conséquent différent. La question de savoir si cela implique que l'investissement soit complètement exclu des contraintes de politique budgétaire reste une question ouverte.
    Keywords: fiscal policy, politique budgétaire, cycle économique, fiscal rules, règles budgétaires, business cycles
    JEL: E32 H30
    Date: 2005–12–12
  2. By: Peter Diamond
    Abstract: After presenting the Gruber-Wise analysis showing a strong effect on retirement of implicit taxes from pension rules, it is shown that there is no effect of these implicit taxes on unemployment. This supports the argument for avoiding high implicit taxes on continued work. Also discussed are methods for adjusting benefits and taxes for increases in life expectancy, with particular attention to increasing "the retirement age." Calculations are presented showing the decreases in benefits for an increase in the normal retirement age in the US and the years of service for a full benefit in France.
    JEL: H55
    Date: 2005–12
  3. By: Adi Brender; Allan Drazen
    Abstract: Conventional wisdom is that good economic conditions or expansionary fiscal policy help incumbents get re-elected, but this has not been tested in a large cross-section of countries. We test these arguments in a sample of 74 countries over the period 1960-2003. We find no evidence that deficits help reelection in any group of countries -- developed and less developed, new and old democracies, countries with different government or electoral systems, and countries with different levels of democracy. In developed countries, especially old democracies, election-year deficits actually reduce the probability that a leader is reelected, with similar negative electoral effects of deficits in the earlier years of an incumbent's term in office. Higher growth rates of real GDP per-capita raise the probability of reelection only in the less developed countries and in new democracies, but voters are affected by growth over the leader's term in office rather than in the election year itself. Low inflation is rewarded by voters only in the developed countries. The effects we find are not only statistically significant, but also quite substantial quantitatively. We also suggest how the absence of a positive electoral effect of deficits can be consistent with the political deficit cycle found in new democracies.
    JEL: D72 E62 H62
    Date: 2005–12
  4. By: Jorge Martinz-Vazquez; Benno Torgler
    Abstract: This paper studies the evolutions of tax morale in Spain in the post-Franco era. Tax morale, defined as the intrinsic motivation to pay taxes, might be a key determinant of the actual degree of tax compliance in a country. But despite its potential significance, most studies in the previous literature have treated tax morale as an exogenous residual. In contrast to the previous tax compliance literature, the current paper investigates tax morale as the dependent variable and attempts to answer what actually shapes tax morale. The empirical analysis uses survey data from two sources: the World Values Survey (WVS) and the European Values Survey (EVS). The data allow us to observe tax morale in Spain for the years 1981, 1990, 1995, and 1999/2000. The study of the evolution of tax morale in Spain over nearly a 20-year span is particularly interesting because it provides close to a natural experiment setting. Constitutional and political changes after Franco died in 1975 and the advent of a fully democratic state, deep tax reforms, a significant push for decentralization, joining the European Community, and so on, provide excellent benchmarks for institutional changes that are expected in the compliance literature to change tax morale.
    Keywords: Spain; Tax morale; Tax compliance; Constitutional and political changes
    JEL: H26 H73 K42 O17 Z13
    Date: 2005–12
  5. By: Werner Güth; Kurt-Dieter Koschmieder; M. Vittoria Levati; Ev Martin
    Abstract: Direct transfers allow heirs to freely use what has been passed on to them. Bequeathers who do not trust their descendants to make proper use of the fortune may prefer investing it in a safe foundation, thereby limiting their descendants' autonomy. In our study we compare experimentally these two institutional arrangements. Although bequeather and descendant have specific personal interests, they agree in their concern for preserving the fortune. Our results show that bequeathers tend to trust their descendant. When transfers to the descendant are less efficient than investments in a foundation, due to, e.g., inheritance taxation, overall bequests decrease significantly.
    Keywords: Autonomous foundations, inheritance, efficiency, trust
    JEL: C72 C92 D31 H41
    Date: 2005–11
  6. By: Francois Cochard; Anthony Ziegelmeyer; Kene Boun My
    Abstract: We investigate the ability of the damage based tax mechanism to induce socially optimal outcomes in a controlled laboratory environment which incorporates important aspects of nonpoint pollution problems. Our experimental setting combines a strictly convex damage function with uncertainty in measuring the ambient level of pollution, indefinitely repeated interactions among heterogeneous polluters, limited information on the regulator's side about the polluters' profit functions, and, in half of the experimental conditions, limited information on the polluters' side about the strategic environment. We additionally investigate whether the relative position of the social optimum in the polluters’ emission space has an impact on the efficiency of the fiscal instrument. In almost all implemented conditions, the observed total pollution level is not significantly different from the socially optimal level but compliance at the individual level is rarely observed. Experimental conditions in which polluters have to dramatically reduce their emissions in order to comply with the fiscal instrument lead to higher efficiency levels than those where compliance implies less dramatic reductions. Our most striking result is that less information on the polluters' side is beneficial from a social point of view as the performance of the damage based tax mechanism is higher the less information polluters have about the strategic environment.
    Date: 2005–11
  7. By: Ingrid Verheul; Andre van Stel; Roy Thurik
    Abstract: Using Global Entrepreneurship Monitor data for 29 countries this study investigates the (differential) impact of several factors on female and male entrepreneurship at the country level. These factors are derived from three streams of literature, including that on entrepreneurship in general, on female labor force participation and on female entrepreneurship. The paper deals with the methodological aspects of investigating (female) entrepreneurship by distinguishing between two measures of female entrepreneurship: the number of female entrepreneurs and the share of women in the total number of entrepreneurs. The first measure is used to investigate whether variables have an impact on entrepreneurship in general (influencing both the number of female and male entrepreneurs). The second measure is used to investigate whether factors have a differential relative impact on female and male entrepreneurship, i.e., whether they influence the diversity or gender composition of entrepreneurship. Findings indicate that - by and large - female and male entrepreneurial activity rates are influenced by the same factors and in the same direction. However, for some factors (e.g., unemployment, life satisfaction) we find a differential impact on female and male entrepreneurship. The present study also shows that the factors influencing the number of female entrepreneurs may be different from those influencing the share of female entrepreneurs. In this light it is important that governments are aware of what they want to accomplish (i.e., do they want to stimulate the number of female entrepreneurs or the gender composition of entrepreneurship) to be able to select appropriate policy measures.
    Keywords: entrepreneurship, gender, determinants of entrepreneurship
    JEL: M13 H10 J16 J23
    Date: 2005–12
  8. By: Russell Cooper; Hubert Kempf; Dan Peled
    Abstract: This paper studies the repayment of regional debt in a multiregion economy with a central authority: Who pays the obligation issued by a region? With commitment, a central government will use its taxation power to smooth distortionary taxes across regions. Absent commitment, the central government may be induced to bail out the regional government in order to smooth consumption and distortionary taxes across the regions. We characterize the conditions under which bailouts occur and their welfare implications. The gains to creating a federation are higher when the (government spending) shocks across regions are negatively correlated and volatile. We use these insights to comment on actual fiscal relations in three quite different federations: the U.S., the European Union and Argentina.
    Keywords: Taxation
    Date: 2005
  9. By: Yuzhe Zhang
    Abstract: In this paper I develop continuous-time methods for solving dynamic principal-agent problems in which the agent’s privately observed productivity shocks are persistent over time. I characterize the optimal contract as the solution to a system of ordinary differential equations, and show that, under this contract, the agent’s utility converges to its lower bound—immiseration occurs. I also show that, unlike in environments with i.i.d. shocks, the principal would like to renegotiate with the agent when the agent’s productivity is low—it is not renegotiation-proof. I apply the theoretical methods I have developed and numerically solve this (Mirrleesian) dynamic taxation model. I find that it is optimal to allow a wedge between the marginal rate of transformation and individuals’ marginal rate of substitution between consumption and leisure. This wedge is significantly higher than what is found in the i.i.d. case. Thus, using the i.i.d. assumption is not a good approximation quantitatively when there is persistence in productivity shocks.
    Date: 2005
  10. By: Gauti B. Eggertsson
    Abstract: This paper details the microfoundations of the model presented in Staff Report no. 234, "Great Expectations and the End of the Depression." It defines the Markov perfect equilibrium formally in the nonlinear model, discusses in some detail the approximation method used and the order of accuracy of this approximation, and gives proofs of two propositions not proved in Staff Report no. 234. In addition, this paper states a proposition that shows the equivalence between the linear quadratic approximation in Staff Report no. 234 and a first order approximation to the exact nonlinear conditions of the government in the Markov perfect equilibrium defined here.
    Keywords: Econometric models ; Equilibrium (Economics) ; Rational expectations (Economic theory) ; Price levels
    Date: 2005
  11. By: Huberto M. Ennis
    Abstract: I study the effects of inflation on the purchasing behavior of buyers in an economy where money is essential for certain transactions (as in Lagos and Wright, 2005). A long-standing intuition in this subject is that when inflation increases, agents try to spend their money holdings more speedily. The standard framework fails to capture this kind of effect (Lagos and Rocheteau, 2005). I propose a simple modification of the model in which trading of goods and rebalancing of money holdings happen less frequently. In such a framework, I show that higher inflation induces buyers to search for transactions more intensively and buy goods of worse quality. The modification proposed also sheds new light on the connection between the search-theoretic and the inventory-theoretic models of money.
    Keywords: Inflation (Finance) ; Money
    Date: 2005
  12. By: Katarina, Larsson (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Svane, Örjan (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: Environmental procurement has received increasing attention as a policy tool promoting change towards sustainable consumption and production. The successful implementation of public environmental procurement policy requires the establishment of new routines for user-producer-supplier relationships that enable the integration of environmental aspects. The aim of the study is to analyse the roles of different communities of practice and learning patterns in environmental procurement processes. Building on experiences from the procurement of ecological food and sustainable construction in Stockholm, the paper identifies learning patterns and codes of practice when environmental criteria are introduced into existing routines for economic and technical specifications in public procurement processes.
    Keywords: Public environmental procurement; routines and codes of practice; procedural and declarative knowledge; vertical and horizontal learning; City of Stockholm
    JEL: D83 Q28 Q55
    Date: 2005–12–28
  13. By: Tommaso Monacelli; Jordi Galí
    Abstract: We lay out a tractable model for fiscal and monetary policy analysis in a currency union, and analyze its implications for the optimal design of such policies. Monetary policy is conducted by a common central bank, which sets the interest rate for the union as a whole. Fiscal policy is implemented at the country level, through the choice of government spending level. The model incorporates country-specific shocks and nominal rigidities. Under our assumptions, the optimal monetary policy requires that inflation be stabilized at the union level. On the other hand, the relinquishment of an independent monetary policy, coupled with nominal price rigidities, generates a stabilization role for fiscal policy, one beyond the efficient provision of public goods. Interestingly, the stabilizing role for fiscal policy is shown to be desirable not only from the viewpoint of each individual country, but also from that of the union as a whole. In addition, our paper offers some insights on two aspects of policy design in currency unions: (i) the conditions for equilibrium determinacy and (ii) the effects of exogenous government spending variations.
  14. By: Desai Tejas A
    Abstract: It is well-known that the demand for services at many if not all hospitals is variable over a given year such that the demand is significantly higher in some months compared to the rest of the months in any given year. This is especially true for surgical departments at many hospitals. Therefore, it is a challenge to staff the surgical departments in such a way that the demand for surgeries throughout a year is met without creating significant over- or under-staffing at any point in a given year. In other words, an optimal level of staffing is sought so that the staff is not significantly over- or under- utilized at any point in a given year. In this paper, we consider an algorithmic approach of arriving at such an optimal level of staffing given some practical constraints. We apply this approach to the surgery department of the paying section of the Aravind Eye Hospital in Madurai, India.
    Date: 2005–12–27
  15. By: Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: The paper examines the division of tasks required between politicians and bureaucrats to run an effective rural employment guarantee scheme (EGS) in India, in the context of Indian history and habits. There are still weaknesses in the incentive structure of the new nationwide EGS. First, there is no guarantee that high quality durable assets will be produced. Second, the role of the bureaucrat in the EGS is not clearly defined. A number of analytical results are obtained. A major one is giving the bureaucrat a long-term task (durable assets) as his objective will ensure the completion of both tasks, since effort must be allocated to the short-term task (employment) in order to achieve the long-term task. More power to the local populace and politicians will ensure that local needs, including employment are met. The results, together with an examination of the interactions between politicians and bureaucrats, village self-government, and the water economy in India, imply that an EGS with good incentive properties has the potential to reverse corruption of the executive, and vitalize village self-government. Lower level politicians are more accountable to the public. The tradition of voluntary labour associated with cooperative village management of the water economy, can make local resources available to extend the cyclical EGS. Higher own resources at stake will improve the efficiency of resource utilization and the quality of work done.
    Keywords: Politician, bureaucrat, incentives, employment guarantee
    JEL: O10 O53 H11 D72 D73
    Date: 2005–11
  16. By: Erling Barth (Institute for Social Research, Oslo, University of Oslo and IZA Bonn); Tone Ognedal (University of Oslo)
    Abstract: Unreported labour by one worker in a firm increases the probability of detection for his fellow workers, not only for himself. The firm takes this external effect into account. As a consequence, unreported work becomes rationed by the firms demand, rather than determined by demand equal supply. The gap between supply and demand increases with firm size. An empirical analysis on survey data supports theses theoretical predictions. Using a bivariate probit model, we find evidence of excess supply of unreported work in firms. We also find that the gap between supply and demand increases with firm size.
    Keywords: tax evasion, hidden labour market
    JEL: H26 J20 J22 J23 J24
    Date: 2005–12
  17. By: Alexandre Baclet (INSEE Paris); Fabien Dell (PSE Paris and DIW Berlin); Katharina Wrohlich (DIW Berlin and IZA Bonn)
    Abstract: In this paper, we address the question whether family support via the income tax system is more generous in France than in Germany, as it is often claimed in the public debate. We use two micro-data sets and a micro-simulation model to compare effective average tax rates for different household types in France and Germany. Our analysis shows that the popular belief that French high income families with children face lower average tax rates than their German counterparts is true, however not due to the French Family splitting but rather to the different definitions of taxable incomes in both countries. Actually, low income families with less than three children even fare better in terms of tax relief in Germany than in France. The French system leads to lower average tax rates than the German one (over a large range of the income distribution) only for families with three children.
    Keywords: D31, H24, J18
    Date: 2005–12
  18. By: Martial Foucault (LAEP et European University Institute)
    Abstract: The European Union has decided to implement in 1999 an independent European security and defence policy (ESDP). As States' preferences in defence issues are characterized by a strong heterogeneity, I propose to determine the kind of allocation process for providing defence resources. By assuming European security as an impure public good due to spillin effects, this article aims at evaluating whether as Nash-Cournot or Lindhal process is better suitable for the ESDP. Based on an econometric analysis for the 1980-2002 period, it is concluded that the Europe of Defence follows a Nash-Cournot process for 10 out of 15 countries. This result strengthens the interdependency of defence policies for defining a common security need.
    Keywords: Public good provision, defence spending, allocation process, free-riding, Nash-Cournot, Lindhal.
    JEL: H0 H56 H87
    Date: 2005–12
  19. By: Joni Hersch; W. Kip Viscusi
    Abstract: This article examines age variations in support for environmental protection policies that affect climate change using a sample of over 14,000 respondents to a 1999 Eurobarometer survey. There is a steady decline with age in whether respondents are willing to incur higher gasoline prices to protect the environment. This relationship remains after controlling for socioeconomic characteristics. There are age-related differences in information about environmental risks, information sources about the environment, perceived health risks from climate change, and degree of worry about climate change. However, taking these factors into account does not eliminate the age variation in willingness to pay more for gasoline to protect the environment.
    JEL: Q25 H23
    Date: 2005–12
  20. By: W. Kip Viscusi; Richard Zeckhauser
    Abstract: Over 250 respondents--graduate students in law and public policy--assessed the risks of climate change and valued climate-change mitigation policies. Many aspects of their behavior were consistent with rational behavior. For example, respondents successfully estimated distributions of temperature increases in Boston by 2100. The median value of best estimates was 1-3 degrees Fahrenheit. In addition, people with higher risk estimates, whether for temperature or related risks (e.g., hurricane intensities) offered more to avoid warming. Median willingness to pay (WTP) to avoid global warming was $0.50/gallon, and 3% of income. And important scope tests (e.g., respondents paid more for bigger accomplishments) were passed. However, significant behavioral propensities also emerged. For example, accessibility of neutral information on global warming boosted risk estimates. Warming projections correlated with estimates for unrelated risks, such as earthquakes and heart attacks. The implied WTP for avoidance was much greater when asked as a percent of income than as a gas tax, a percent thinking bias. Home team betting showed itself; individuals predicting a Bush victory predicted smaller temperature increases. In the climate-change arena, behavioral decision tendencies are like a fun-house mirror: They magnify some estimates and shrink others, but the contours of rational decision remain recognizable.
    JEL: Q25 H23
    Date: 2005–12
  21. By: Farley Grubb
    Abstract: The War for Independence left the National Government deeply in debt. The spoils from winning that war also gave it an empire of land. So, post-1783, was the National Government solvent? Was its net asset position, land assets minus debt liabilities, positive or negative? Evidence is gathered to answer this question by constructing a yearly time series of its net asset position, including time series of the subcomponents of that position, from 1784 through 1802. The answer to this question may help explain the constraints that determined why the National Debt was funded in the particular way that it was. The results from the data series constructed indicate that the National Government was solvent, had more than enough land assets to cover its debt liabilities, in this period but only if it maintained the default on the Continental Dollar (its non-interest-bearing debt). To do this and not ruin its creditworthiness it had to distinguish, legally and in the marketplace, between its interest-bearing and its non-interest-bearing debt. It did this, in part, by only paying interest and no principal on its debts and by curtailing direct swaps of land for debt.
    JEL: E62 F34 G18 H60
    Date: 2005–12
  22. By: Robert Shimer
    Abstract: This study reviews different approaches to the political and economic control of global public goods like global warming. It compares quantity-oriented control mechanisms like the Kyoto Protocol with price-type control mechanisms such as internationally harmonized carbon taxes. The pros and cons of the two approaches are compared, focusing on such issues as performance under conditions of uncertainty, volatility of the induced carbon prices, the excess burden of taxation and regulation, potential for corruption and accounting finagling, and ease of implementation. It concludes that, although virtually all discussions about economic global public goods have analyzed quantitative approaches, price-type approaches are likely to be more effective and more efficient.
    JEL: H2 Q5
    Date: 2005–12
  23. By: Randall Jones; Tadashi Yokoyama
    Abstract: This paper discusses policies to improve fiscal relations between levels of government to better meet the needs of citizens, an objective of the government’s “Roadmap for Decentralisation”. Although local government accounts for around half of total government spending, they have little autonomy and fiscal resources vary sharply between regions. The priority should be to enhance the independence of local authorities by establishing a clear division of responsibilities and transferring additional assignments to the local level. The general local governments should also have more influnence on education, while providing more support, through stronger linkages with the local education authorities, with a final aim of merger. The allocation of intergovernmental grants should be more transparent and the regulations attached to them should be relaxed to expand flexibility, while increasing reliance on block grants. Improving the fiscal federalism framework also requires more revenue raising power for local governments while simplifying the structure of local taxes. Greater accountability and rules are needed to ensure sound fiscal management by local governments. This Working Paper relates to the 2005 OECD Economic Survey of Korea ( <P>Tirer le maximum de la décentralisation du secteur public en Corée Ce papier examine les politiques qui visent à rationaliser les relations financières des différents niveaux d’administration pour mieux répondre aux besoins des habitants, comme le veut le plan de marche gouvernemental vers la décentralisation. Bien que les collectivités locales soient à l’origine de la moitié des dépenses publiques totales, elles n’ont guère d’autonomie et leurs ressources budgétaires varient fortement d’une région à l’autre. L’objectif prioritaire est de renforcer l’indépendance des autorités locales en clarifiant la répartition des compétences, en transférant d’autres tâches à l’échelon local et en fusionnant les autorités scolaires locales avec les autorités locales générales. L’affectation des transferts entre collectivités publiques doit être plus transparente et leur réglementation, assouplie, pour plus de flexibilité, avec en parallèle un recours élargi aux dotations globales. Pour rationaliser le fédéralisme budgétaire, il faut aussi que les collectivités locales puissent mobiliser davantage de recettes et, en même temps, simplifier la structure de la fiscalité locale. Ce chapitre recommande aussi un effort de responsabilité et des règles qui assurent une saine gestion budgétaire des autorités locales. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de la Corée 2005 (
    Keywords: Korea, Corée, local government, fiscal discipline, discipline budgétaire, fiscal federalism, intergovernmental grants, fédéralisme financier, collectivités territoriales, transferts intergouvernementaux, decentralisation, property tax, décentralisation, impôt immobilier
    JEL: H1 H2 H7 R58
    Date: 2005–12–16
  24. By: Gilbert E. Metcalf; Jongsang Park
    Abstract: Blomquist and Christensen (2005) argue that welfare is initially decreasing in the price of an excludable public good and that the case for a positive public good price is weak. We argue that this result follows from their particular characterization of the public good and that a more reasonable characterization overturns their result. Hence the policy case for a positive price on the public good is stronger than Blomquist and Christiansen suggest. We also provide a more flexible characterization of public goods that nests a wide variety of public goods models.
    Keywords: public goods; optimal second-best taxation
    Date: 2005
  25. By: Stan McMillen; William Lott
    Abstract: Economic effects of corporate tax policy changes on jobs and state and local revenue
    Keywords: corporate income tax, tax credits, sales tax exemption, state tax policy
    JEL: H25 H27 H71
    Date: 2005–12
  26. By: Omar Azfar (IRIS Center, Department of Economics, University of Maryland); Peter Murrell (Department of Economics, University of Maryland)
    Abstract: Randomized response methods, which were designed to elicit candid answers to sensitive questions, have not succeeded in eliminating reticence in survey responses. We implement a methodology that effectively stands the randomized response technique on its head, using it to identify reticent respondents. In a sample of Romanian company officials, we identify a specific 10% of respondents as reticent with near certainty and estimate that roughly 40% of the whole sample were actually reticent. The identifiably reticent respondents admit to corruption interactions significantly less often than others do. They are also more likely to state that it is impermissible to break socially beneficial rules. We show that reticence is related to the respondent's age and the colonial heritage of the respondent's region. These results suggest some difficulties in making cross-country comparisons of corruption and of values using the types of survey data often employed in social science research and policy analysis.
    Keywords: corruption, survey methods, randomized response, regulation, Romania
    JEL: D72 D82 H10 K40 N40 P51
    Date: 2005–12
  27. By: Paolo Epifani; Gino Gancia
    Abstract: This paper investigates the relationship between trade openness and the size of government, both theoretically and empirically. We show that openness can increase the size of governments through two channels: (1) a terms of trade externality, whereby trade lowers the domestic cost of taxation and (2) the demand for insurance, whereby trade raises risk and public transfers. We provide a unified framework for studying and testing these two mechanisms. First, we show how their relative strength depends on a key parameter, the elasticity of substitution between domestic and foreign goods. Second, while the terms of trade externality leads to inefficiently large governments, the increase in public spending due to the demand for insurance is optimal. We show that large volumes of trade may result in welfare losses if the terms of trade externality is strong enough while small volumes of trade are always beneficial. Third, we provide new evidence on the positive association between openness and the size of government and test whether it is consistent with the terms of trade externality or the demand for insurance. Our findings suggest that the positive relationship is remarkably robust and that the terms of trade externality may be the driving force behind it, thus raising warnings that globalization may have led to inefficiently large governments.
    Keywords: Openness, government size, terms of trade externality, elasticity of substitution between imports and exports
    JEL: F1 H1
    Date: 2005–11
  28. By: Jaume Puig
    Abstract: The objective of this study was to evaluate the intended and unintended impact on pharmaceutical use and sales of three public financing reforms applied to the prescription of statins: a Spanish generic reference pricing (RP) system for lovastatin and simvastatin, and two competing policies introduced by the Andalusian Public Health Service (APHS) for all statins, first a maximum consumer price (MCP) and then a so called quality prescribing incentive for general practitioners (MCP plus PI). This study is designed as an observational, retrospective, interrupted time series analysis with comparison series (APHS and the rest of Spain) of 46 monthly drug use and sales ratios from January 2001 to October 2004 for each active ingredient in the group of statins. RP has been effective at reducing the volume of sales growth of the off-patent statins, yet its overall impact on sales of all statins has been relatively modest. The quantity and volume of sales impact heavily depends on regulatory RP details such as when the system is introduced, how often it is updated, and how the reference price is calculated.
    Keywords: Pharmaceutical sales, generic medicines, pharmaceutical reference pricing, statins
    JEL: I18 H5
    Date: 2005–12
  29. By: Justina A.V. Fischer
    Abstract: Identification of a deleterious impact of institutions of direct legislation on student performance by studies for both the U.S. and Switzerland has raised the question of the exact transmission channels for this impact. Studies for the U.S. that find an increase in the ratio of administrative to instructional spending and larger class sizes support the hypothesis of a Leviathan-like school administration. However, research for Switzerland using a time-series panel of sub-federal school expenditure and class size detects no such effect. These findings are in line with previous analyses that identify efficiency gains in the provision of public goods for Switzerland. Version: 7 Dec 2005
    JEL: H72 H41 I22
    Date: 2005–12
  30. By: Shah, Anwar
    Abstract: A resurgence of recent interest in fiscal federalism has been a source of concern among macroeconomic stabilization experts. They argue that a decentralized fiscal system poses a threat to macroeconomic stability as it is incompatible with prudent monetary and fiscal management. The author addresses these concerns by taking a simple neo-institutional economics with an econometric analysis perspective. His analysis concludes that, contrary to a common misconception, fiscal decentralization is associated with improved fiscal performance and better function ing of internal common markets. Fiscal policy coordination represents an important challenge for federal systems. In this context, fiscal rules and institutions provide a useful framework but not necessarily a solution to this challenge. Fiscal rules binding on all levels can help sustain political commitment in countries having coalitions or fragmented regimes in power. Coordinating institutions help in the use of moral suasion to encourage a coordinated response. Industrial countries ' experiences also show that unilaterally imposed federal controls and constraints on subnational governments typically do not work. Instead, societal norms based on fiscal conservatism such as the Swiss referenda and political activism of the electorate play important roles. Ultimately capital markets and bond-rating agencies provide more effective discipline on fiscal policy. In this context, it is important not to backstop state and local debt and not to allow ownership of the banks by any level of government. Transparency of the budgetary process and institutions, accountability to the electorate, and general availability of comparative data encourages fiscal discipline. Fiscal decentralization poses significant challenges for macroeconomic management. These challenges require careful design of monetary and fiscal institutions to overcome adverse incentives associated with the " common property " resource management problems or with rent seeking behavior. Experiences of federal countries indicate significant learning and adaptation of fiscal systems to create incentives compatible with fair play and to overcome incomplete contracts. This explains why that decentralized fiscal systems appear to do better than centralized fiscal systems on most aspects of monetary and fiscal policy management and transparent and accountable governance.
    Keywords: Banks & Banking Reform,Economic Stabilization,Public Sector Economics & Finance,Economic Theory & Research,Financial Intermediation
    Date: 2005–12–01
    Abstract: The need to develop securities market has, following the recent international financial crises, increasingly attracted the attention of national and international policy makers. Never before have developed and developing countries shared such a strong interest in ensuring the stable growth of the international capital flows. And yet, the question for policymakers is how to channel these gains into investments that promote development, sustainable poverty reduction and social equity. Using the African scenario, this paper argued that although many of the institutions needed for strong income growth and asset accumulation are equally important in fostering social assets, the institutional underpinnings of sustainable development are somewhat broader. They rest on greater access to information and knowledge and the ability to form broader partnerships. Without these additional institutional elements, society risks fragmentation that imperil both income growth and wellbeing. Nothing that market exchange plays a larger role in africa, we also argued that the presence of transactions costs naturally leads market participants to enter in long-term trading relationships(and these relationships form business networks that shape market outcomes) with minimum risks. However,when societies become more equitable in ways that lead to greater opportunites for all,the poor stand to benefit from a 'double dividend'.
    JEL: G10 G11 G12 G24 G30 F21 F32 E44 H55 D81
    Date: 2005–12–19
  32. By: Marco Arnone (Catholic University of Milan); Luca Bandiera (World Bank); Andrea Presbitero (Politechnic University of Marche Italy)
    Abstract: This paper is a review of the different approaches on external debt sustainability. The Heavily Indebted Poor Country (HIPC) Initiative was launched to assure a permanent exit from debt dependence. However, the IMF-World Bank program is not without faults, in particular for what concerns debt sustainability analysis. The aim of this work is to present the IMF-World Bank approach to debt sustainability, together with the other approaches in the literature. We show that a new and broader framework is emerging to address the main shortcomings of the standard analysis, namely, the effects that large external debts and deficits have on growth and the macroeconomic environment.
    Keywords: HIPC Initiative, Debt Sustainability, Debt Relief, External Debt.
    JEL: F34 H63 O11 O19
    Date: 2005–12–25
  33. By: Federico Marongiu (Universidad de Buenos Aires)
    Abstract: Currency and financial crises are determinants of growth and development, mainly in developing countries subject to shocks, contagion and volatility. A relevant issue when trying to do the implementation of development policies is to anticipate or forecast the occurrence of currency crises that could turn good ideas into failure. This type of crises have strong negative economic, social and political consequences. This paper takes a look in the leading indicators literature and shows that this approach failed in predicting the Argentinean collapse of 2001-2002. We also show that particular features of the Argentinean economy needed of different indicators to forecast the collapse of the currency board system. The paper also developes some new indicators to include in an Early Warning System that can take on account specific features of Argentina´s economy. This indicators can be integrated into a wider set in order to be a useful tool for policymakers and authorities in Argentina and in other developing countries in the planification and implementation of development policies and programs.
    Keywords: currency crisis - exchange rate - leading indicators - Argentina
    JEL: D6 D7 H
    Date: 2005–12–23
  34. By: Federico Marongiu (CIPPEC); Daniela Dborkin (CIPPEC)
    Abstract: Uno de los aspectos más controvertidos del debate en el Congreso de la Nación sobre las prórrogas impositivas es el que se refiere al aumento del mínimo no imponible del Impuesto a las Ganancias. Mientras que el Poder Ejecutivo Nacional elevó un proyecto de ley que mantiene el mínimo actual ( $1.835 para una persona soltera y en $2.235 para una persona casada con dos hijos), la oposición apunta a elevarlo, con propuestas que alcanzan a la duplicación. El argumento es sencillo: con los aumentos salariales registrados en los últimos tres años (muchos de ellos por decreto), hoy deben pagar Ganancias personas que antes no lo hacían. Sin embargo deben tenerse en cuenta dos aspectos claves. Por un lado, sólo 7% de la Población Económicamente Activa (PEA) gana más de $1.800, es decir, se encuentra alcanzado por este gravamen. Por eso, elevar el mínimo no imponible haría que todavía un porcentaje menor de la población pague este impuesto (93% de la PEA percibe menos de $1.800 mensuales). Si bien los aumentos salariales han generado nuevos contribuyentes del Impuesto a las Ganancias, estas personas se encuentran en el 10% más rico de la distribución del ingreso de los argentinos. Por otra parte, debe analizarse el costo fiscal que tendría esta iniciativa y evaluar si con ese dinero puede implementarse una medida más progresiva. Si se incrementara el mínimo no imponible, tomando datos del primer semestre de 2005, entre 300.000 y 350.000 contribuyentes dejarían de pagar este tributo, representando una caída en la recaudación de entre $300 y $500 millones. Con un costo similar, una medida que favorecería más a los sectores de menores ingresos de la población sería hacer una rebaja del IVA a los bienes de la canasta básica de alimentos. Esta decisión, acompañada de las políticas necesarias, reduciría los precios y tendría un mayor impacto en pobreza e indigencia.
    Keywords: tax system - income tax - Argentina - income distribution - Value Added Tax
    JEL: D6 D7 H
    Date: 2005–12–23
  35. By: Marcus Noland (Institute for International Economics)
    Abstract: Arab political regimes are both unusually undemocratic and unusually stable. A series of nested statistical models are reported to parse competing explanations. The democratic deficit is comprehensible in terms of lack of modernization, British colonial history, neighborhood effects, reliance on taxes for government finance, and the Arab population share. Interpretation of the last variable is problematic: It could point to some antidemocratic aspect of Arab culture (though this appears not to be supported by survey evidence), or it could be a proxy for some unobservable such as investment in institutions of internal repression that may not be culturally determined and instead reflect elite preferences. Hypotheses that did not receive robust support include the presence of oil rents, the status of women, conflict with Israel or other neighbors, or Islam. The odds on liberalizing transitions occurring are low but rising. In this respect the distinction between the interpretation of the Arab ethnic share as an intrinsic cultural marker and as a proxy for some unobservable is important—if the former is correct, then one would expect the likelihood of regime change to rise only gradually over time, whereas if it is the latter, the probabilities may exhibit much greater temporal variability.
    Keywords: democracy, Middle East, Islam, regime change
    JEL: H1 Z12
    Date: 2005–06
  36. By: Alvaro Forteza (Departmento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Anna Caristo (Departmento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Natalia Ferreira-Coimbra (Departmento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Ianina Rossi (Departmento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: In this paper we analyze the recent performance, perspectives and some policy options for two public social security programs in Uruguay: pensions and unemployment insurance. We review the impact of these programs on public expenditure, including recent and expected future trends, and on income inequality. Performing microsimulations, we evaluate the fiscal impact, and in some cases the equity impact, of some policy options.
    Keywords: Pensions, Unemployment insurance, Inequality
    JEL: H55 J14
    Date: 2004–11
  37. By: K. Azim Ozdemir
  38. By: Ertunc Alioglu; Can Erbil; Ferhan Salman
  39. By: Ferhan Salman

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