nep-pbe New Economics Papers
on Public Economics
Issue of 2006‒01‒24
127 papers chosen by
Peren Arin
Massey University

  1. Did Medicare Induce Pharmaceutical Innovation? By Daron Acemoglu; David Cutler; Amy Finkelstein; Joshua Linn
  2. Modeling Inefficient Institutions By Daron Acemoglu
  3. A Tax-Based Estimate of the Elasticity of Intertemporal Substitution By Jonathan Gruber
  4. What Caused the Decline in U. S. Business Cycle Volatility? By Gordon, Robert J
  5. Household Ownership of Variable Annuities By Jeffrey Brown; James Poterba
  6. Dividend Taxes and Firm Valuation: New Evidence By Alan J. Auerbach; Kevin A. Hassett
  7. Does Privatization Hurt Workers? Lessons from Comprehensive Manufacturing Firm Panel Data in Hungary, Romania, Russia, and Ukraine By J. David Brown; John S. Earle; Almos Telegdy
  8. Optimal Fiscal Policy over the Business Cycle By Filippo Occhino
  9. Optimal Fiscal Policy When Migration is Feasible By Filippo Occhino
  10. Assessment of the introduction of road pricing using a Computable General Equilibrium model By Knud Jørgen Munk
  11. On Prosperity and Posterity: The Need for Fiscal Discipline in a Monetary Union By Carsten Detken; Vítor Gaspar; Bernhard Winkler
  12. Has the Stability and Growth Pact stabilised? Evidence from a panel of 12 European countries and some implications for the reform of the Pact By Carlos José Fonseca Marinheiro
  13. Sustainability of Portuguese Fiscal Policy in Historical Perspective By Carlos José Fonseca Marinheiro
  14. The 1975-78 Anti-Inflation Program in Retrospect By John Sargent
  15. Centralization of wage bargaining and the unemployment rate: revisiting the hump-shape hypothesis By Lorenzo Forni
  16. Evolution of trade patterns in the new EU member states By Jerome Henry; Pablo Hernandez de Cos; Sandro Momigliano
  17. Cyclical asymmetry in fi scal policy, debt accumulation and the Treaty of Maastricht By Fabrizio Balassone; Maura Francese
  18. Tax Compliance as a Social Norm and the Deterrent Effect of Investigations By Marisa Ratto; Richard Thomas; David Ulph
  19. Fiscal policy, credit availability and financing of regional policies in Brazil By Frederico G. Jayme Jr.; Marco Crocco
  20. Competing for a Duopoly: International Trade and Tax Competition By Ferrett, Ben; Wooton, Ian
  21. Economic and VAR Shocks: What Can Go Wrong? By Jesús Fernández-Villaverde; Juan F. Rubio-Ramíre; Thomas J. Sargent
  22. The Elusive Costs and the Immaterial Gains of Fiscal Constraints By Canova, Fabio; Pappa, Evi
  23. Where did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income By Dew-Becker, Ian; Gordon, Robert J
  24. Corruption and the Shadow Economy: An Empirical Analysis By Axel Dreher; Friedrich Schneider
  25. The Different Extent of Privatisation Proceeds in EU Countries: A Preliminary Explanation Using a Public Choice Approach By Ansgar Belke; Frank Baumgartner; Friedrich Schneider; Ralph Setzer
  26. Innovation under taxes versus permits : how a commonly made assumption leads to misleading recommendations By Marc, GERMAIN; Vincent, VAN STEENBERGHE
  27. China?s Emerging Tax Regime: Local Tax Farming and Central Tax Bureaucracy By Zhu, Z.; Krug, B.
  28. Fiscal policy, monopolistic competition, and finite lives By Heijdra,Ben J.; Ligthart,Jenny E.
  29. Debt Non-Neutrality, Policy Interactions, and Macroeconomic Stability By Ludger Linnemann; Andreas Schabert
  30. Fiscal Decentralization and Local Public Good Provision in China By Xin-Qiao; Jie Bai
  31. Analysing French Pension Reforms By Anne Lavigne
  32. Pension Funds in France: Still a Dead-End? By Anne Lavigne
  33. Fiscal Federalism, discipline and selection adverse in the EU : Lessons from a theoretical model By Amélie Barbier-Gauchard
  34. Financial Repression, Tax Evasion and Long-Run Monetary and Fiscal Policy Trade-Off in an Endogenous Growth Model with Transaction Costs By Patrick Villieu; Alexandru Minea
  35. Promoting Entrepreneurship in the Mature Welfare State By Henrekson, Magnus; Roine, Jesper
  36. Inter-Regional Redistribution in Sweden: A Survey of the Literature and a Call for Further Enquiry By Almenberg, Johan
  37. The Dynamics of Housing Allowance Claims in Sweden: A discrete-time hazard analysis By Chen, Jie
  38. Taxation and the Financial Structure of Foreign Direct Investment By Frances Ruane; Padraig Moore
  39. Public Sector Efficiency: Evidence for New EU Member States and Emerging Markets By António Afonso; Ludger Schuknecht; Vito Tanzi
  40. Education Policy and Equality of Opportunity By Gabriela Schütz; Heinrich W. Ursprung; Ludger Woessmann
  41. Israel, the Palestinian Factions, and the Cycle of Violence By David A. Jaeger; M. Daniele Paserman
  42. Migrating Workers and Jobs: A Challenge to the European Social Model? By Simon Commander; Axel Heitmueller; Laura Tyson
  43. How Elections Matter: Theory and Evidence from Environmental Policy By John A., List; Daniel, Sturm
  44. Political Competition and Economic Performance: Theory and Evidence from the United States By Besley, Timothy; Persson, Torsten; Sturm, Daniel
  45. Welfare Restructuring without Partisan Cooperation: The Role of Party Collusion in Blame Avoidance By Martin Hering
  46. From Full Employment to the Natural Rate of Unemployment: A Survey By Thierry Warin
  47. Sticking with Your Vote: Cognitive Dissonance and Voting By Sendhil Mullainathan; Ebonya Washington
  48. How Black Candidates Affect Voter Turnout By Ebonya Washington
  49. Early Decisions: A Regulatory Framework By John Beshears; James J. Choi; David Laibson; Brigitte Madrian
  50. The Economics of Climate Change By Lawrence H. Goulder; William A. Pizer
  51. Female Socialization: How Daughters Affect Their Legislator Fathers' Voting on Women's Issues By Ebonya Washington
  52. Globalization and Developing Countries - A Shrinking Tax Base? By Joshua Aizenman; Yothin Jinjarak
  53. Hyperbolic Discounting of Public Goods By W. Kip Viscusi; Joel Huber
  54. Health Insurance Take-up by the Near Elderly By Thomas C. Buchmueller; Sabina Ohri
  55. The Long Run Impact of Bombing Vietnam By Edward Miguel; Gerard Roland
  56. Fiscal Rules for Sub-central Governments: Design and Impact By Isabelle Joumard; Robert Price; Douglas Sutherland
  57. Can Parents Afford to Work?: Childcare Costs, Tax-Benefit Policies and Work Incentives By David Barber; Herwig Immervoll
  58. The fiscal theory of the price level puzzle: A non Ricardian view. By Jean-Pascal Bénassy
  59. Voting over informal risk-sharing rules By Ambec, S.
  60. The Transition from Welfare to Work By Robert J. Lemke; Robert J. Witt; Ann Dryden Witte
  61. Strategic Procurement, Openness and Market Structure By Maria Garcia-Alonso; Paul Levine
  62. Connecticut's Spending Cap: It's History and An Alternative Spending Growth Rule By Stan McMillen; Mark Sheridan; Bryant Goulding; Patrick Flaherty; Sharan Sharma; Bingbo Hu
  63. Relaxing Tax Competition through Public Good Differentiation By Ben Zissimos; Myrna H. Wooders
  64. Fiscal responsibility legislation and fiscal adjustment : the case of Brazilian local governments By de Mello, Luiz
  65. Corruption and decentralized public governance By Shah, Anwar
  66. Cognition, Incentives, and Public Governance:Laboratory Federalism from the Organizational Viewpoint By Giampaolo Garzarelli
  67. Heterogeneous social preferences and the dynamics of free riding in public goods By Urs Fischbacher; Simon Gächter
  68. A Contribution to the Theory of Optimal Utilitarian Income Taxation By Martin Hellwig
  69. Ostracism and the Provision of a Public Good, Experimental Evidence By Frank P. Maier-Rigaud; Peter Martinsson; Gianandrea Staffiero
  70. Optimal Income Taxation and Public Good Provision in a Two-Class Economy By Felix Bierbrauer
  71. The Undesirability of Randomized Income Taxation under Decreasing Risk Aversion By Martin Hellwig
  72. Debt stabilizing fiscal rules By Philippe Michel; Leopold von Thadden; Jean-Pierre Vidal
  73. A disaggregated framework for the analysis of structural developments in public finances By Jana Kremer; Claudia Rodrigues Braz; Teunis Brosens; Geert Langenus; Sandro Momigliano; Mikko Spolander
  74. They invent (and patent?) like they breathe: what are their incentives to do so? Short tales and lessons from researchers in a public research organisation By Marc Isabelle
  75. The Provision of a Public Good with a direct Provision Technology and Large Number of Agents By Stefan Behringer
  76. Analyzing the Impact of Indirect Tax Reforms on Rank Dependant Social Welfare Functions: A Positional Dominance Approach By Paul Makdissi; Stéphane Mussard
  77. Management, Decision-making and Supervision of Belgian State owned Enterprises: An Inefficient Patchwork? By Christoph van der Elst
  78. The sustainability of the Hungarian pension system: a reassessment By Gábor Orbán; Dániel Palotai
  79. Optimal Nonlinear Labor Income Taxation in Dynamic Economies By Salvador Balle; Amedeo Spadaro
  80. Microsimulation as a Tool for Evaluating Redistribution Policies By François Bourguignon; Amedeo Spadaro
  81. A Macro and Microeconomic Integrated Approach to Assessing the Effects of Public Policies By Xavier Labandeira; José M. Labeaga; Miguel Rodríguez
  82. The Intriguing Nexus between Corruption and Capital Account Restrictions By Axel Dreher; Lars Siemers
  83. Comparing the Efficiency of Alternative Policies for Reducing Traffic Congestion By Parry, Ian
  84. Comparing the Marginal Excess Burden of Labor, Gasoline, Cigarette and Alcohol Taxes: An Application to the United Kingdom By Parry, Ian
  85. How Should Metropolitan Washington, D.C., Finance Its Transportation Deficit? By Parry, Ian
  86. Multinational Taxation and International Emissions Trading By Fischer, Carolyn
  87. Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards By Fischer, Carolyn
  88. Modeling the Costs and Environmental Benefits of Disposal Options for End-of-Life Electronic Equipment: The Case of Used Computer Monitors By Palmer, Karen; Macauley, Molly; Shih, Jhih-Shyang; Cline, Sarah; Holsinger, Heather
  89. How Large are the Welfare Costs of Tax Competition? By Parry, Ian
  90. State-Level Variation in Land-Trust Abundance: Could it Make Economic Sense? By Ando, Amy; Albers, Heidi
  91. A Reconsideration of Environmental Federalism By Oates, Wallace
  92. The Political Economy of Environmental Policy By Portney, Paul; Oates, Wallace
  93. General Equilibrium Benefit Transfers for Spatial Externalities: Revisiting EPA's Prospective Analysis By Smith, V. Kerry; Banzhaf, H. Spencer; Walsh, Randy
  94. Adjusting Carbon Cost Analyses to Account for Prior Tax Distortions By Parry, Ian
  95. Output-Based Allocation of Environmental Policy Revenues and Imperfect Competition By Fischer, Carolyn
  96. Tax Rules, Land Development, and Open Space By Simpson, R. David
  97. Calculating the Cost of Environmental Regulation By Pizer, William; Kopp, Raymond
  98. Comparing Alternative Policies to Reduce Traffic Accidents By Parry, Ian
  99. The Role of Economics in Extended Producer Responsibility: Making Policy Choices and Setting Policy Goals By Walls, Margaret
  100. Are Emissions Permits Regressive? By Parry, Ian
  101. State and Federal Roles in Facilitating Electricity Competition: Legal and Economic Perspectives in the Electricity Sector By Brennan, Timothy
  102. Market Power and Output-Based Refunding of Environmental Policy Revenues By Fischer, Carolyn
  103. Combining Rate-Based and Cap-and-Trade Emissions Policies By Fischer, Carolyn
  104. Electricity Capacity Requirements: Who Pays? By Brennan, Timothy
  105. Fiscal Interactions and the Case for Carbon Taxes over Grandfathered Carbon Permits By Parry, Ian
  106. Private Options to Use Public Goods: Exploiting Revealed Preferences to Estimate Environmental Benefits By Stavins, Robert; Wagner, Alexander; Snyder, Lori
  107. Welfare and Distributional Effects of Road Pricing Schemes for Metropolitan Washington, DC By Parry, Ian; Harrington, Winston; Nelson, Per-Kristian; Safirova, Elena; Mason, Dave; Gillingham, Kenneth
  108. Emissions Pricing, Spillovers, and Public Investment in Environmentally Friendly Technologies By Fischer, Carolyn
  109. Evaluating Regulatory Impact Analyses By Morgenstern, Richard; Harrington, Winston
  110. Fiscal Interactions and the Costs of Controlling Pollution from Electricity By Parry, Ian
  111. Output-Based Allocations of Emissions Permits: Efficiency and Distributional Effects in a General Equilibrium Setting with Taxes and Trade By Fischer, Carolyn; Fox, Alan
  112. A Tale of Two Market Failures: Technology and Environmental Policy By Stavins, Robert; Jaffe, Adam; Newell, Richard
  113. Should Corporate Average Fuel Economy (CAFE) Standards Be Tightened? By Parry, Ian; Fischer, Carolyn; Harrington, Winston
  114. Economics of Pollution Trading for SO2 and NOx By Burtraw, Dallas; Palmer, Karen; Krupnick, Alan; Evans, David; Toth, Russell
  115. Bioeconomic Model of Community Incentives for Wildlife Management Before and After CAMPFIRE By Fischer, Carolyn; Sterner, Thomas; Muchapondwa, Edwin
  116. Is Pay-As-You-Drive Insurance a Better Way to Reduce Gasoline than Gasoline Taxes? By Parry, Ian
  117. Should Fuel Taxes Be Scrapped in Favor of Per-Mile Charges? By Parry, Ian
  118. Environmental Decentralization: Seeking the Proper Balance between National and State Authority By Blackman, Allen; Morgenstern, Richard; Laskowski, Stanley
  119. Waste, Recycling, and "Design for Environment": Roles for Markets and Policy Instruments By Walls, Margaret; Calcott, Paul
  120. Is There a Rationale for Rebating Environmental Levies? By Fischer, Carolyn; Bernard, Alain; Vielle, Marc
  121. Ancillary Benefits of Reduced Air Pollution in the United States from Moderate Greenhouse Gas Mitigation Policies in the Electricity Sector By Burtraw, Dallas; Palmer, Karen; Krupnick, Alan; Toman, Michael; Paul, Anthony; Bloyd, Cary
  122. Quality Adjustment for Spatially-Delineated Public Goods: Theory and Application to Cost-of-Living Indices in Los Angeles By Banzhaf, H. Spencer
  123. Does Britain or the United States Have the Right Gasoline Tax? By Parry, Ian; Small, Kenneth
  124. The Organization of Local Solid Waste and Recycling Markets: Public and Private Provision of Services By Macauley, Molly; Walls, Margaret; Anderson, Soren
  125. Public Expenditure and Economic Growth. A critical extension of Barro's (1990) model By Renato BALDUCCI
  126. Regional Policy from a Supra-Regional Perspective By Ugo FRATESI
  127. The Experimetrics of Public Goods: Inferring Motivations from Contributions By Nicholas Bardsley; Peter Moffatt

  1. By: Daron Acemoglu; David Cutler; Amy Finkelstein; Joshua Linn
    Abstract: The introduction of Medicare in 1965 was the single largest change in health insurance coverage in U.S. history. Many economists and commentators have conjectured that the introduction of Medicare may have also been an important impetus for the development of new drugs that are now commonly used by the elderly and have substantially extended their life expectancy. In this paper, we investigate whether Medicare induced pharmaceutical innovations directed towards the elderly. Medicare could have played such a role only if two conditions were met. First, Medicare would have to increase drug spending by the elderly. Second, the pharmaceutical companies would have to respond to the change in market size for drugs caused by Medicare by changing the direction of their research. Our empirical work finds no evidence of a "first-stage" effect of Medicare on prescription drug expenditure by the elderly. Correspondingly, we also find no evidence of a shift in pharmaceutical innovation towards therapeutic categories most used by the elderly. On the whole, therefore, our evidence does not provide support for the hypothesis that Medicare had a major effect on the direction of pharmaceutical innovation.
    JEL: H51 I18 O33 O38 L65
    Date: 2006–01
  2. By: Daron Acemoglu
    Abstract: Why do inefficient  non-growth enhancing  institutions emerge and persist? This paper develops a simple framework to provide some answers to this question. Political institutions determine the allocation of political power, and economic institutions determine the framework for policy-making and place constraints on various policies. Groups with political power, the elite, choose policies to increase their income and to directly or indirectly transfer resources from the rest of society to themselves. The baseline model encompasses various distinct sources of inefficient policies, including revenue extraction, factor price manipulation and political consolidation. Namely, the elite may pursue inefficient policies to extract revenue from other groups, to reduce their demand for factors, thus indirectly benefiting from changes in factor prices, and to impoverish other groups competing for political power. The elite’s preference over inefficient policies translates into inefficient economic institutions. Institutions that can restrict inefficient policies will in general not emerge, and the elite may manipulate economic institutions in order to further increase their income or facilitate rent extraction. The exception is when there are commitment (holdup) problems, so that equilibrium taxes and regulations are worse than the elite would like them to be from an ex ante point of view. In this case, economic institutions that provide additional security of property rights to other groups can be useful. The paper concludes by providing a framework for the analysis of institutional change and institutional persistence.
    JEL: H2 N10 N40 O1 O10 P16
    Date: 2006–01
  3. By: Jonathan Gruber
    Abstract: One of the most important behavioral parameters in macroeconomics is the elasticity of intertemporal substitution (EIS). Starting with the seminal work of Hall (1978), researchers have used an Euler equation framework to estimate the EIS, relating the growth rate of consumption to the after-tax interest rate facing consumers. This large literature has, however, produced very mixed results, perhaps due to an important limitation: the impact of the interest rate on consumption or savings is identified by time series movements in interest rates. Yet the factors that cause time series movements in interest rates may themselves be correlated with consumption or savings decisions. I address this problem by using variation across individuals in the capital income tax rate. Conditional on observable characteristics of individuals, tax rate movements cause exogenous shifts in the after-tax interest rate. Using data on total non-durable consumption from the Consumer Expenditure Survey over two decades, I estimate a surprisingly high EIS of 2. This finding is robust to a variety of specification checks.
    JEL: H2 E2 E6
    Date: 2006–01
  4. By: Gordon, Robert J
    Abstract: This paper investigates the sources of the widely noticed reduction in the volatility of American business cycles since the mid 1980s. Our analysis of reduced volatility emphasizes the sharp decline in the standard deviation of changes in real GDP, of the output gap, and of the inflation rate. The primary results of the paper are based on a small three-equation macro model that includes equations for the inflation rate, the nominal Federal Funds rate, and the change in the output gap. The development and analysis of the model goes beyond the previous literature in two directions. First, instead of quantifying the role of shocks-in-general, it decomposes the effect of shocks between a specific set of supply shock variables in the model’s inflation equation, and the error term in the output gap equation that is interpreted as representing 'IS' shifts or 'demand shocks'. It concludes that the reduced variance of shocks was the dominant source of reduced business-cycle volatility. Supply shocks accounted for 80 percent of the volatility of inflation before 1984 and demand shocks the remainder. The high level of output volatility before 1984 is accounted for roughly two-thirds by the output errors (demand shocks) and the remainder by supply shocks. The output errors are tied to the paper’s initial decomposition of the demand side of the economy, which concludes that three sectors residential and inventory investment and Federal government spending, account for 50 percent in the reduction in the average standard deviation of real GDP when the 1950-83 and 1984-2004 intervals are compared. The second innovation in this paper is to reinterpret the role of changes in Fed monetary policy. Previous research on Taylor rule reaction functions identifies a shift after 1979 in the Volcker era toward inflation fighting with no concern about output, and then a shift in the Greenspan era to a combination of inflation fighting along with strong countercyclical responses to positive or negative output gaps. Our results accept this characterization of the Volcker era but find that previous estimates of Greenspan-era reaction functions are plagued by positive serial correlation. Once a correction for serial correlation is applied, the Greenspan-era reaction function looks almost identical to the pre-1979 Burns reaction function! Thus the issue in assessing monetary policy regimes comes down to Volcker vs. non-Volcker. Full model simulations show that the Volcker reaction function, if applied throughout the 1965-2004 period, would have delivered substantially higher pre-1984 output volatility than the Burns-Greenspan alternative with the corresponding benefit of a permanent reduction in the inflation rate by fully five percentage points per annum. Compared to the succession of three reaction functions actually in effect, application of the Volcker reaction function prior to 1979 would have deepened the 1975 recession but made the 1982 recession milder, since by then inflation would have been partly conquered. The paper concludes by disputing the view that better monetary policies had any role in the reduced volatility of the business cycle - the Greenspan policies did not need to fight against inflation because there was no inflation, thanks to the reversal of supply shocks from an adverse to a beneficial direction, and thanks to a reduction in the size of the output errors or 'IS' shifts.
    Keywords: Demand shocks; government spending; Inventory change; monetary policy; Phillips curve; residential construction; supply shocks
    JEL: E0 E21 E22 E31 E50
    Date: 2005–12
  5. By: Jeffrey Brown; James Poterba
    Abstract: Variable annuities have been one of the most rapidly growing financial products of the last two decades. Between 1996 and 2004, nominal sales of variable annuities in the U.S. more than doubled, from $51 billion to $130 billion. Variable annuities now account for approximately nearly two thirds of annuity sales. The investment returns associated with variable annuities resemble those from mutual funds, and variable annuity buyers can select among a range of asset allocation options. Variable annuities are considered insurance products under the tax law, so buyers are not taxed on their investment returns until they make withdrawals from their variable annuity accounts. This paper describes the tax treatment of variable annuities, presents summary information on their ownership patterns, and explores the importance of several distinct motives for household purchase of variable annuities. The discussion of tax treatment examines the impact of the 2001 and 2003 tax bills on the relative tax treatment of variable annuities and other financial products. Household data from the 1998 and 2001 Survey of Consumer Finances shows that variable annuity ownership is highly concentrated among high income and high net wealth sub-groups of the population. Variable annuity ownership is less concentrated, however, than ownership of several other types of financial assets. Evidence on the role of tax incentives in encouraging ownership of variable annuities is mixed. The probability of owning a variable annuity rises with the marginal tax rate throughout most of the income distribution, but it is lower for households in the top tax bracket than for those with slightly lower tax rates.
    JEL: G22 J14 J32 H24
    Date: 2006–01
  6. By: Alan J. Auerbach; Kevin A. Hassett
    Abstract: This paper extends our previous analysis (Auerbach and Hassett 2005) of the effects of the "Jobs and Growth Tax Relief Act of 2003" on firm valuation. That paper found that firms with higher dividend yields benefited more than other dividend paying firms, a result that, in itself, is consistent with both new and traditional views of dividend taxation. But further evidence favored the new view. We also found that non-dividend-paying "immature" firms experienced larger abnormal returns than other firms and that a similar bonus accrued to firms likely to issue new shares, two results that are consistent with an anticipated transition to higher dividend payments. Here, we extend our earlier analysis in two ways. First, we consider the impact of the 2004 Presidential election on option prices, to gain further insight into and confirmation of the mechanism through which the 2003 legislation affected firm values. Second, we explore in more detail the determinants of the "immaturity premium" noted above. In contrast to claims in a recent paper by Amromin et al. (2005), we find that the premium is associated with the likelihood of new share issuance, as inferred but not demonstrated in our original analysis.
    JEL: G12 H22
    Date: 2006–01
  7. By: J. David Brown (Heriot-Watt University and CEU Labor Project); John S. Earle (W.E. Upjohn Institute for Employment Research and Central European University); Almos Telegdy (Central European University and Institute of Economics of the Hungarian Academy of Sciences)
    Abstract: We analyze the effects of privatization on firm-level wages and employment in four transition economies. Contrary to workers' fears, our fixed effect and random trend estimates imply little effect of domestic privatization, except for a slight negative effect in Russia, and they provide some evidence of positive foreign effects on both wages and employment in all four countries. The negligible employment impact of domestic privatization results from effects on efficiency and scale that are large, positive, but offsetting in Hungary and Romania, and from small effects of both types in Russia and Ukraine. The positive employment and wage bill consequences of foreign ownership result from a substantial scale-expansion effect that dominates the efficiency effect.
    Keywords: privatization, employment, wages, foreign ownership, Hungary, Romania, Russia, Ukraine
    JEL: D21 G34 J23 J31 L33 P31
    Date: 2005–11
  8. By: Filippo Occhino (Rutgers University)
    Abstract: How should taxes, government expenditures, the primary and fiscal surpluses and government liabilities be set over the business cycle? We assume that the government chooses expenditures and taxes to maximize the utility of a representative household, utility is increasing in government expenditures, only distortionary labor income taxes are available, and the cycle is driven by exogenous technology shocks. We first consider the commitment case, and characterize the Ramsey equilibrium. In the case that the utility function is constant elasticity of substitution between private and public consumption and separable between the composite consumption good and leisure, taxes, government expenditures and the primary surplus should all be constant positive fractions of production, and both government liabilities and the fiscal surplus should be positively correlated with production. Then, we relax the commitment assumption, and we show how to determine numerically whether the Ramsey equilibrium can be sustained by the threat to revert to a Markov perfect equilibrium. We find that, for realistic values of the preferences discount factor, the Ramsey equilibrium is sustainable.
    Keywords: Fiscal Policy; Commitment; Ramsey Equilibrium; Time-consistency; Sustainable equilibrium;
    JEL: E62
    Date: 2005–05–05
  9. By: Filippo Occhino (Rutgers University)
    Abstract: This paper investigates how the feasibility of migration affects governments' optimal fiscal policies. We assume that households migrate towards economies where their welfare is higher, governments choose taxes and public expenditures to maximize a weighted sum of the households' welfare, welfare is increasing in public expenditures, and only distortionary labor income taxes are available. In isolated economies, the optimal fiscal policy implies that some households are net fiscal contributors, while other households are net fiscal beneficiaries. When households can migrate, however, governments compete for the households which are net fiscal contributors, and modify the fiscal policy in their favor, lowering their taxes and net fiscal contribution, and increasing their welfare. The magnitude of the effect increases with the sensitivity of migration to welfare. In the limiting case of free mobility, all households are zero net fiscal contributors.
    Keywords: Optimal fiscal policy; Ramsey equilibrium; Migration; Fiscal competition; Mobility;
    JEL: E62
    Date: 2005–08–17
  10. By: Knud Jørgen Munk (Department of Economics, University of Aarhus, Denmark)
    Abstract: The introduction of road pricing has important budgetary and income distributional consequences. In countries like Denmark, due to high marginal rates of taxation, raising government revenue and redistributing income is associated with substantial distortionary and administrative costs. This paper argues that an evaluation of the introduction of road pricing needs to take into account not only the effects on congestion and on the environment, but also the effects on the government’s budget and the income distributional consequences and therefore should be undertaken within a general equilibrium framework. A stylized Computable General Equilibrium (CGE) model which represents the interaction of the consumption of transport and of traffic congestion with leisure is used to illustrate this point. Model simulations show that the introduction of road pricing may be associated with a double dividend and make it desirable to reduce transport infrastructure, and furthermore, although decreasing road congestion, increase the environmental damage.
    Keywords: Project evaluation, optimal taxation, externalities, separability, road pricing, CGE models, double dividend
    JEL: H2 H29
    Date: 2005–12–30
  11. By: Carsten Detken (European Central Bank); Vítor Gaspar (European Central Bank); Bernhard Winkler (European Central Bank)
    Abstract: We show how in a Blanchard-Yaari, overlapping generations framework, perfect substitutability of government bonds in Monetary Union tempts governments to exploit the enlarged common pool of savings. In Nash equilibrium all governments increase their bond financed transfers to current generations (prosperity effect) at the expense of future generations (posterity effect). The resulting deficit bias occurs even if one assumes that before Monetary Union countries had eliminated their deficit bias by designing appropriate domestic institutions. The paper provides a rationale for an increased focus on fiscal discipline in Monetary Union, without the need to assume imperfect credibility of existing Treaty provisions or to refer to extreme situations involving sovereign default. We draw on existing empirical evidence to argue that the degree of government bond substitutability within the European Monetary Union is an order of magnitude larger than in the global economy.
    Keywords: fiscal spillover effects, common pool, overlapping generations, bond market integration, fiscal discipline, fiscal rules, European Monetary Union
    JEL: D62 E61 E63
    Date: 2005–12
  12. By: Carlos José Fonseca Marinheiro (Universidade de Coimbra and GEMF)
    Abstract: Ever since its inception EMU has been subject to controversy. The fiscal policy rules embedded in the Treaty on European Union, and clarified in the Stability and Growth Pact (SGP), are probably the most contentious. The SGP is being accused of being too rigid and of forcing pro-cyclicality in fiscal policy. We test the impact of the SGP rules on the cyclical properties of fiscal policy for a panel of 12 European countries. We conclude that contrary to what might have been expected the euro fiscal rules have reinforced the counter-cyclicality of fiscal policy. However, the results also show that the SGP is not being applied symmetrically over the cycle, leading to insufficient fiscal consolidation during economic upswings. This explains the recent difficulties of Portugal, Germany and France in complying with SGP requirements. Based on these conclusions we argue for the creation of independent national technical committees that would define an appropriate deficit target on an annual basis.
    Keywords: Fiscal policy, stabilisation, EMU, Stability and Growth Pact reform.
    JEL: E62 H62
    Date: 2005–12
  13. By: Carlos José Fonseca Marinheiro (Universidade de Coimbra and GEMF)
    Abstract: This paper analyses the sustainability of Portuguese public finances, making use of a long dataset with more than a full century of observations. The use of such a long dataset is appropriate because both unit root and cointegration tests require a long period of data. The sustainability testing procedure is based on unit root and cointegration tests. We find considerable evidence in favour of sustainability for the 1903-2003 period. The overall conclusion of sustainability for the 1903-2003 period is not maintained for the more recent 1975-2003 period, which is characterised by the largest GDP deficit ratios of our sample. This latter period appears to signal a shift to an unsustainable path in Portuguese fiscal policy. Hence, our results suggest that fiscal consolidation efforts must, in fact, be continued in Portugal.
    Keywords: Fiscal sustainability, sustainability of public debt, intertemporal budget constraint, government deficits and debt, Portugal
    JEL: E60 H60
    Date: 2005–12
  14. By: John Sargent
    Abstract: The author provides an overview of the 1975–78 Anti-Inflation Program (AIP), in a background document prepared for a seminar organized by the Bank of Canada to mark the AIP's 30th anniversary. After reviewing Canada's experience with, and policy response to, inflation in the decade preceding the introduction of the AIP, the author sets out the elements of the AIP's monetary and fiscal policy, and prices and incomes controls. He then compares the program's inflation objectives with the actual course of inflation and aggregate demand during, and immediately after, the AIP. Drawing on existing analyses of the program's monetary and fiscal policy and controls elements, the author discusses why the program's specific targets and general objectives were not met. He concludes, with the benefit of hindsight, that-while external factors contributed to the failure to meet objectives-monetary and fiscal policy were not suc h as to give the AIP a strong chance of fully succeeding. The program's controls element has generally been assessed more favourably, although certain specifics of the controls design can be questioned. The author briefly considers parallels with recent retrospective considerations of monetary and fiscal policy over the same period in the United States. He also attempts to draw some general lessons from the AIP experience and, more generally, from the 1970s experience. Given that the AIP was an early attempt at a form of inflation targeting, these include lessons that may be relevant to current policy with respect to inflation.
    Keywords: Credibility; Fiscal policy; Inflation and prices; Inflation targets; Monetary policy framework; Monetary policy implementation
    JEL: E31 E52 E63 E64 E65
    Date: 2005
  15. By: Lorenzo Forni (Banca d'Italia)
    Abstract: Is there a relation between wage bargaining institutions and unemployment? The humpshape hypothesis”, first introduced by Calmfors and Driffill (1988), states that countries with highly centralized and highly decentralized wage bargaining processes have a superior performance in terms of unemployment than countries with an intermediate degree of centralization. Calmfors and Driffill’s results were obtained on a sample including data from 1962 up to 1985. This paper shows that the claimed superiority in terms of unemployment of centralized countries over intermediate ones during the ’60s and the ’70s depended upon their high levels of government expenditure and public sector employment. The evidence shows that from the beginning of the ’80s the expansion of the public sector in centralized countries slowed down considerably and, at the same time, the correlation between the degree of centralization and unemployment weakened. This evidence helps reconcile recent findings of poor correlations between measures of economic performance and indexes of bargaining systems with Calmfors and Driffill’s original results. The paper concludes by questioning the compatibility of the reported evidence with the theoretical framework proposed by CD to explain the hump-shape hypothesis.
    Keywords: wage negotiations, unemployment rate, public employment
    JEL: E24 E62 H50
    Date: 2004–06
  16. By: Jerome Henry (European Central Bank); Pablo Hernandez de Cos (Banco de Espana); Sandro Momigliano (Banca d'Italia)
    Abstract: This paper reviews the existing empirical evidence on the short-term impact on prices of fiscal variables and assesses it against new results from harmonised simulations, conducted with six well-established econometric models used by the ECB and five national central banks (NCBs) of the Eurosystem. The outcome is also compared with results from the European Commission and the OECD models. Overall, a broad consensus appears on the impact on prices of changes in individual government budget items in the euro area. In all cases, changes in government demand and in direct taxes paid by households have a limited impact on prices in the first year while, in contrast, changes in indirect taxes and employers’ social security contributions have a relatively large impact. The second year results show that the effects on prices usually take some time to materialise fully; in particular, they often become large for the public consumption shock.
    Keywords: Euro area, model simulations, fiscal policy, prices
    JEL: E17 E31 E62
    Date: 2004–10
  17. By: Fabrizio Balassone (Banca d'Italia); Maura Francese (Banca d'Italia)
    Abstract: In this paper we present a stylised framework of fiscal policy determination that considers both structural targets and cyclical factors. Applying this framework to a sample of 16 OECD countries, we find evidence of significant asymmetry in the reaction of fiscal policy to positive and negative cyclical conditions, with budgetary balances deteriorating in contractions and not improving in expansions. This asymmetry appears to have contributed significantly to debt accumulation. We find no evidence that EU fiscal rules have reduced the ability of governments to conduct stabilisation policy between 1992 and 2000.
    Keywords: stabilization, fiscal policy, government debt, fiscal rules
    JEL: E62 H6
    Date: 2004–12
  18. By: Marisa Ratto; Richard Thomas; David Ulph
    Abstract: In this paper we focus on the effects of investigations on tax compliance. In a very general model we explain the direct and indirect effects of investigations and analyse taxpayers’ response to an increase in the probability of audit when tax compliance is a social norm. We define the different elements that determine the impact of audits on compliance and show that if tax compliance is a social norm in the relevant community there is an additional effect arising because of social norm considerations. The behavioural response of taxpayers to an increase in the audit rate is stronger. Our Findings help explain seemingly contradictory results that emerge from the empirical evidence.
    Keywords: tax evasion, social norm, opportunities to evade, optimal audit rule
    JEL: D81 H26 H30 K42
    Date: 2005–07
  19. By: Frederico G. Jayme Jr. (Cedeplar-UFMG); Marco Crocco (Cedeplar-UFMG)
    Abstract: This paper aims at analyzing regional development in Brazil regarding its financial conditions. It departs from the features of the federalism and decentralization in Brazil, as well as the state and local expenditures. We intends to investigate the role of the federalism and decentralization after the recentralization of taxes and budget in Brazilian economy. Conclusions highlight the importance of financial sector as one of the influential aspects of regional imbalances in Brazil.
    Keywords: regional development, federalism, tax burden
    JEL: R11 H70 H77
    Date: 2005–12
  20. By: Ferrett, Ben; Wooton, Ian
    Abstract: Oligopoly is empirically prevalent in the industries where MNEs operate and national governments compete with fiscal inducements for their FDI projects. Despite this, existing formal treatments of fiscal competition generally focus on the polar cases of perfect competition and monopoly. We consider the competition between two potential host governments to attract the investment of both firms in a duopolistic industry. Competition by identical countries for a monopoly firm's investment is known to result in a 'race to the bottom' where all rents are captured by the firm through subsidies. We demonstrate that with two firms, both are taxed in equilibrium, despite the explicit non-cooperation between governments. When countries differ in size, a single firm will be attracted to the larger market. We explore the conditions under which both firms in the duopoly co-locate and when each nation attracts a firm in equilibrium. Our results are consistent with the observed stability of effective corporate tax rates in the face of ongoing globalization, and our analysis readily generalizes to many specifications with oligopoly in the product markets.
    Keywords: foreign direct investment; market size asymmetries; oligopoly; tax competition
    JEL: F12 F23 H25 H73
    Date: 2005–12
  21. By: Jesús Fernández-Villaverde; Juan F. Rubio-Ramíre; Thomas J. Sargent
    Date: 2005–12–31
  22. By: Canova, Fabio; Pappa, Evi
    Abstract: We study whether and how fiscal restrictions alter the business cycle features macrovariables for a sample of 48 US states. We also examine the 'typical' transmission properties of fiscal disturbances and the implied fiscal rules of states with different fiscal restrictions. Fiscal constraints are characterized with a number of indicators. There are similarities in second moments of macrovariables and in the transmission properties of fiscal shocks across states with different fiscal constraints. The cyclical response of expenditure differs in size and sometimes in sign, but heterogeneity within groups makes point estimates statistically insignificant. Creative budget accounting is responsible for the pattern. Implications for the design of fiscal rules and the reform of the Stability and Growth Pact are discussed.
    Keywords: business cycles; excessive debt; fiscal restrictions; US states
    JEL: E3 E5 H7
    Date: 2005–12
  23. By: Dew-Becker, Ian; Gordon, Robert J
    Abstract: A basic tenet of economic science is that productivity growth is the source of growth in real income per capita. But our results raise doubts by creating a direct link between macro productivity growth and the micro evolution of the income distribution. We show that over the entire period 1966-2001, as well as over 1997-2001, only the top 10 percent of the income distribution enjoyed a growth rate of real wage and salary income equal to or above the average rate of economy-wide productivity growth. Growth in median real wage and salary income barely grew at all while average wage and salary income kept pace with productivity growth, because half of the income gains went to the top 10% of the income distribution, leaving little left over for the bottom 90%. Half of this inequality effect is attributable to gains of the 90th percentile over the 10th percentile; the other half is due to increased skewness within the top 10%. In addition to its micro analysis, this paper also asks whether faster productivity growth reduces inflation, raises nominal wage growth, or raises profits. We find that an acceleration or deceleration of the productivity growth trend alters the inflation rate by at least one-for-one in the opposite direction. This paper revives research on wage adjustment and produces a dynamic interactive model of price and wage adjustment that explains movements of labour's share of income. What caused rising income inequality? Economists have placed too much emphasis on 'skill-biased technical change' and too little attention to the sources of increased skewness at the very top, within the top 1% of the income distribution. We distinguish two complementary explanations, the 'economics of superstars,' i.e., the pure rents earned by sports and entertainment stars, and the escalating compensation premia of CEOs and other top corporate officers. These sources of divergence at the top, combined with the role of deunionization, immigration, and free trade in pushing down incomes at the bottom, have led to the wide divergence between the growth rates of productivity, average compensation, and median compensation.
    Keywords: income inequality; income tax data; productivity growth; wage and price econometrics
    JEL: D31 D33 D63 E31 I30 J30
    Date: 2005–12
  24. By: Axel Dreher; Friedrich Schneider
    Abstract: This paper analyzes the influence of the shadow economy on corruption and vice versa. We hypothesize that corruption and shadow economy are substitutes in high income countries while they are complements in low income countries. The hypotheses are tested for a cross-section of 120 countries and a panel of 70 countries for the period 1994-2002. Our results show that the shadow economy reduces corruption in high income countries, but increases corruption in low income countries. We also find that stricter regulations increase both corruption and the shadow economy.
    Keywords: Corruption; Shadow Economy; Regulation; Tax Burden
    JEL: D73 H26
    Date: 2006–01
  25. By: Ansgar Belke; Frank Baumgartner; 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: H42 E62 L33
    Date: 2006–01
    Abstract: The literature on the impact of economic instruments (typically taxes and tradable permits) on the level of innovation is usually based on the assumption that innovation reduces the slope of the marginal abatement cost curve. This assumption, which usually leads to the conclusion that taxes induce higher levels of innovation than tradable permits, is however never motivated. In this short article, we analyse the assumption by introducing innovation in the production function as a polluting firm and by showing how it affects the corresponding marginal abatement cost curve. We show that the slope of the marginal abatement cost curvedoes not necessarily decrease with the level of innovation. As a consequence, previous analyses lead to misleading policy recommendations
    Date: 2005–10–15
  27. By: Zhu, Z.; Krug, B. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: China like other transition economies needs to establish a tax system compatible with a market economy, in particular, an efficient tax administration system with capable tax bureaucrats. The paper singles out the general and China-specific features by which central government attempts to accompany economic transformation via tax farming to tax bureaucratisation in tax administration. Based on empirical study in two provinces this paper shows that without including local government agencies and their budgets, China?s fiscal federalism cannot be analysed and argues that China?s emerging tax system depends on the institutional and organizational design that shapes the interaction between central government, local governments and economic agents.
    Keywords: Tax Governance;Tax Farming;Tax Bureaucratisation;Fiscal Federalism;
    Date: 2005–12–21
  28. By: Heijdra,Ben J.; Ligthart,Jenny E. (Tilburg University, Center for Economic Research)
    Abstract: The paper studies the short-run, transitional, and long-run output effects of permanent and temporary shocks in public consumption under various financing methods. To this end, a dynamic macroeconomic model for a closed economy is developed, which features a perfectly competitive final goods sector and a monopolistically competitive intermediate goods sector. Finitely lived households consume final goods, supply labor, and save part of their income. Amongst the findings for a permanent rise in public consumption are: (i) monopolistic competition increases the absolute value of the balanced-budget output multiplier; (ii) positive long-run output multipliers are obtained only if the generational turnover effect is dominated by the intertemporal labor supply effect; (iii) short-run output multipliers under lump-sum tax financing are smaller than long-run output multipli-ers if labor supply is elastic; and (iv) bond financing reduces the size of long-run output multipliers as compared to lump-sum tax financing and may give rise to non-monotonic adjustment paths if labor supply is sufficiently elastic and the speed of adjustment of lump-sum taxes is not too high. Temporary bond-financed fiscal shocks are shown to yield: (i) permanent effects on output; and (ii) negative long-run output multipliers.
    Keywords: output multipliers;Yaari-Blanchard model;overlapping generations;monopolistic competition;love of variety;temporary fiscal shocks; fiscal policy
    JEL: E12 E63 L16
    Date: 2005
  29. By: Ludger Linnemann (University of Cologne); Andreas Schabert (Faculty of Economics and Econometrics, University of Amsterdam)
    Abstract: We study the consequences of non-neutrality of government debt for macroeconomic stabilization policy in an environment where prices are sticky. Assuming transaction services of government bonds, Ricardian equivalence fails because public debt has a negative impact on its marginal rate of return and thus on private savings. Stability of equilibrium sequences requires a stationary evolution of real public debt, which steers inflation expectations and rules out endogenous fluctuations. Under anti-inflationary monetary policy regimes, macroeconomic fluctuations tend to decrease with the share of tax financing, which justifies tight debt constraints. In particular, a balanced budget policy stabilizes the economy under cost-push shocks, such that output and inflation variances can be lower than in a corresponding case where debt is neutral.
    Keywords: Government debt; fiscal and monetary policy rules; stabilization policy; equilibrium uniqueness
    JEL: E32 E63 E52
  30. By: Xin-Qiao (China Center of Economic Research, Peking University); Jie Bai (China Center of Economic Research, Peking University)
    Abstract: Fiscal incentive is closely related with the extra-budgetary revenues. Based on our definition of fiscal incentive, we explore the impacts of fiscal incentives under decentralization on responsiveness of public good provision to real local needs. There are also some problems in fiscal decentralization in China: first, with a huge basis of extra-budgetary revenue, the size of local government would be expanded, resulting in a heavier burden on the shoulder of local citizens and peasants; second, there exist some decreasing return to scale in local extra-budgetary expenditure; thirdly, ¡°urbanization¡± (measured as the ratio of rural population to the total population) is negatively correlated with the local extra-budgetary expenditure on urban maintenance, indicating that in China, the process of industrialization and urban construction are not consistent.
    Keywords: Fiscal Decentralization, Local Public Good Provision, Fiscal Incentives
    JEL: H61 H71 H72
    Date: 2005–06
  31. By: Anne Lavigne (LEO - Laboratoire d'économie d'Orleans - - CNRS : FRE2783 - Université d'Orléans)
    Abstract: In 1982, the French socialist government lead by Pierre Mauroy reduced the legal age of retirement for both men and women. In 1993, the Balladur reform modified the pay-as-you-go basic private scheme. In March 1997, the Parliament enacted the Thomas Act that introduced retirement savings plan, but the law was never enforced because of the political change in June 1997, and was formally abrogated in 2002.<br /><br /> Amazingly there seems be a 10 years cycle in French pension system reforms since the French parliament started to examine a new pension reform presented by the French Prime minister Jean-Pierre Raffarin in June 2003. According to his defender, the project is the most comprehensive and the most ambitious since 1945. Our assessment is more critical: in fact, after a four-month round of negotiations with trade-unions and despite its impressive number of articles (81) the final project is milder than it originally was, with a parametric reform of the first pillar as its main component. This article aims at giving the main features of this reform. The first section presents the context of the reform. The second section is devoted to the main features of the reform, while section 3 gives a critical appraisal, underlines the remaining problems, and raises alternative relevant solutions.
    Keywords: Retirement;pays-as-you-go;pensions
    Date: 2006–01–04
  32. By: Anne Lavigne (LEO - Laboratoire d'économie d'Orleans - - CNRS : FRE2783 - Université d'Orléans)
    Abstract: Today there still lack a consensus on pension funds in France. The only issue that seems not to be debatable is the willingness to maintain a PAYG public scheme for the basic and complementary pension schemes. The debate concerns the introduction of pension funds as a third pillar. We show in this paper that, even if pension funds hardly exist in France, they have close, but imperfect, substitutes such as life insurance and employee-saving schemes. The difficulty is that these saving instruments are not specifically designed for retirement purposes. There is thus a risk of insufficient saving at old-age. We advocate the introduction of pension-oriented schemes, but not as designed by the Thomas Act, since there is an insufficient protection of wage-earners against financial risks. The first section is devoted to an institutional overview of the French pension system, and presents basic statistics. The second section gives some details on the supplementary occupational funded schemes. In section 3, we argue that funding does exist in France, through personal savings. In section 4 we show that the last reforms did not pave the way to pension funds. Section 5 concludes.
    Keywords: pension funds, employee savings schemes, risk sharing
    Date: 2006–01–04
  33. By: Amélie Barbier-Gauchard (LEO - Laboratoire d'économie d'Orleans - - CNRS : FRE2783 - Université d'Orléans)
    Abstract: What is the optimal wat to stabilize shocks and to take care of fiscal discipline in a fiscal union ? Among the various possible ways, this paper focuses on an inter-countries insurance scheme conditioned by the national preference for the fiscal discipline of each government. We will show that the insurance scheme improves significantly the union\'s social welfare because it enables to cover deviations of the output gap and correct national preferences.
    Keywords: Inter-countries insurance ; stabilization ; fiscal discipline ; EU ; fiscal federalism ; selection adverse
    Date: 2006–01–13
  34. By: Patrick Villieu (LEO - Laboratoire d'économie d'Orleans - - CNRS : FRE2783 - Université d'Orléans); Alexandru Minea (LEO - Laboratoire d'économie d'Orleans - - CNRS : FRE2783 - Université d'Orléans)
    Abstract: In this paper, we study maximizing long-run economic growth trade-off in monetary and fiscal policies in an endogenous growth model with transaction costs. We show that both monetary and fiscal policies are subject to threshold effects, a result that gives account of a number of recent empirical findings. Furthermore, the model shows that, to finance public expenditures, maximizing-growth government must choose relatively high seigniorage (respectively income taxation), if "tax evasion" and "financial repression" coefficients are high (respectively low). Thus, our model may explain why some governments resort to seigniorage and inflationary finance, and others rather resort to high tax-rate, as result of maximizing-growth strategies in different structural enviroments (notably concerning tax evasion and financial repression). In addition, the model allows examining how the optimal mix of government finance changes in response to different public debt contexts.
    Keywords: Endogenous growth ; threshold effects ; monetary policy ; fiscal policy ; public deficit ; policy mix ; tax evasion ; financial repression ; financial development
    Date: 2006–01–19
  35. By: Henrekson, Magnus (The Research Institute of Industrial Economics); Roine, Jesper (Stockholm School of Economics)
    Abstract: Entrepreneurship is largely ignored or treated in a highly simplified way in endogenous growth theory. Still, it is now widely recognized that the supply of entrepreneurial talent is likely to be important for economic growth, innovation and job creation. In this study we provide an in-depth examination of how the supply of productive entrepreneurship is likely to be affected by the kind of tax and welfare arrangements that may prevail in a mature welfare state. Sweden, allegedly the most extensive of all welfare states, is the object of the empirical analysis. It is argued that the Swedish welfare state early on chose a specific “Swedish Model” of trying to combine ambitious welfare programs and a high tax burden with good opportunities for economic growth. This particular view rested heavily on the assumption that innovative activity was best performed in large established firms and that entry of new firms was less important. Consequently, policy and institutions were geared to promoting certain types of activities which could deliver growth if scale economies are important and intrapreneurship can substitute for entrepreneurship. However, in an environment where entry, exit and turnover of firms are important for growth, and where scale-economies are less important, this kind of model may be more problematic. Both aggregate economic performance and data on firm growth and direct measures of entrepreneurial activity are broadly consistent with the identified structure of payoffs. A number of measures that can be implemented to strengthen entrepreneurial incentives within extensive welfare states are discussed, but the fact still remains that an entrepreneurial culture and a welfare state are very remotely related. As a result, the respective cultures are unlikely to be promoted by a similar set of institutions.
    Keywords: Economic Growth; Entrepreneurship; Innovation; Swedish Model; Welfare State
    JEL: H30 J20 M13 O12
    Date: 2005–11–13
  36. By: Almenberg, Johan (Stockholm School of Economics)
    Abstract: The Swedish system for inter-regional redistribution is examined from a political economy perspective and a growth perspective. A number of recent Swedish studies of this system are examined. Political economy concerns are found to be adequately represented in academic studies of this system, while lacking, at least explicitly, in all the major relevant government reports. Growth implications of extensive inter-regional redistribution are found to be relatively neglected in both academic studies and government reports. In particular, the short-circuiting of labour mobility (and hence the impairment of long-term structural adjustment) is examined at both micro- and macroeconomic levels. It is concluded that extensive inter-regional redistribution is likely to have considerable effects on labour mobility. The author argues that this almost entirely overlooked effect is an important consideration in evaluating the costs and benefits of inter-regional redistribution, and calls for further enquiry into the matter.
    Keywords: Inter-regional redistribution; fiscal federalism; political economy; growth; labour force mobility
    JEL: D72 D78 E60 H11 H31 H71 H77 O18 R23 R58
    Date: 2006–01–11
  37. By: Chen, Jie (Department of Economics)
    Abstract: This paper analyses the dynamics of the duration of housing allowance claims in Sweden during the period 1991 to 2002. The central concern in this paper is whether the Swedish housing allowance system creates dependence on welfare. Using longitudinal data from Swedish micro database-LINDA, this paper found that there is no evidence of negative duration dependence arising from the duration of housing allowance claims. This finding is consistent across different model specifications and various controls of the heterogeneity issue. Hence we come to the conclusion that a recipient’s exit rate from the system does not decrease over the duration claim. This paper also shows that the demographic characteristics, educational background, labour market status and economic contextual conditions play important roles in determining recipients’ conditional probability of exiting from the housing allowance system. However, there are substantial variations in the factors’ impact across different household types.
    Keywords: housing allowance; discrete-time hazard; duration dependence
    JEL: H24 I38 R21
    Date: 2006–01–04
  38. By: Frances Ruane; Padraig Moore
    Abstract: The vast increase in foreign assets globally has raised interest in how the home country should tax profits flowing from these investments. Broadly speaking, countries have chosen either to exempt foreign income from taxation or to subject foreign income to taxation with credits/deductions given for foreign taxes paid. Recent research has focused on the effect of these foreign income tax rules on the relationship between aggregate FDI flows and corporate tax rates. In this paper we examine how foreign income tax rules can affect the financial structure of subsidiary-level FDI in Europe. The tax-deductibility of interest payments suggests that higher (host-country) corporate tax rates should be associated with a greater proportion of debt-financed FDI, as foreign income tax credit systems should, in theory, limit the benefits of shielding foreign income from host country taxation. Our results indicate that whilst multinationals from tax exemption countries adjust the financial structure of foreign investments in response to corporate tax rates, the effect of corporate tax rates is insignificant for FDI originating from tax credit countries. These results reveal an additional channel through which foreign income tax credit systems attenuate the forces of tax competition.
    JEL: F21 F23 H25 H87 F36 G32
    Date: 2005–12–15
  39. By: António Afonso; Ludger Schuknecht; Vito Tanzi
    Abstract: In this paper we analyse public sector efficiency in the new member states of the European Union compared to that in emerging markets. After a conceptual discussion of expenditure efficiency measurement issues, we compute efficiency scores and rankings by applying a range of measurement techniques. The study finds that expenditure efficiency across new EU member states is rather diverse especially as compared to the group of top performing emerging markets in Asia. Econometric analysis shows that higher income, civil service competence and education levels as well as the security of property rights seem to facilitate the prevention of inefficiencies in the public sector.
    Keywords: government expenditure; efficiency; DEA; new EU member states; emerging markets.
    JEL: C14 H40 H50
  40. By: Gabriela Schütz (Ifo Institute, University of Munich); Heinrich W. Ursprung (University of Konstanz and CESifo); Ludger Woessmann (Ifo Institute, University of Munich, CESifo and IZA Bonn)
    Abstract: We provide a measure of equality of educational opportunity in 54 countries, estimated as the effect of family background on student performance in two international TIMSS tests. We then show how organizational features of the education system affect equality of educational opportunity. Our model predicts that late tracking and a long pre-school cycle are beneficial for equality, while pre-school enrollment is detrimental at low levels of enrollment and beneficial at higher levels. Using cross-country variations in education policies and their interaction with family background at the student level, we provide empirical evidence supportive of these predictions.
    Keywords: equality of opportunity, educational production, family background, student performance, tracking, pre-school, efficiency-equity tradeoff
    JEL: I21 J62 H52
    Date: 2005–12
  41. By: David A. Jaeger (College of William and Mary and IZA Bonn); M. Daniele Paserman (Hebrew University, CEPR and IZA Bonn)
    Abstract: In this study we extend our previous work to examine the dynamic relationship between violence committed by Palestinian factions and that committed by Israel during the Second Intifada. We find a statistically significant relationship between Israeli fatalities claimed by groups associated with the ruling political party, Fatah, and subsequent Palestinian fatalities. We do not find a similar relationship for Israeli fatalities claimed by Hamas, Palestinian Islamic Jihad, and other Palestinian factions. We conjecture that these differences are due to the different positions of the factions vis-à-vis bargaining over a two-state solution to the conflict as well as the organizational structures of the factions.
    Keywords: Intifada, terrorism, conflict resolution, bargaining, violence
    JEL: C32 D71 D74 H56
    Date: 2006–01
  42. By: Simon Commander (London Business School and IZA Bonn); Axel Heitmueller (London Business School and IZA Bonn); Laura Tyson (London Business School)
    Abstract: This paper proceeds from two key assumptions. The first is that European countries are likely to face increased immigration of individuals. The second is that the emigration of jobs from Europe to other regions of the world through offshoring is also likely to increase. It has been widely argued that both factors are contributing to growing insecurity among European workers. This paper has two goals: first, to put the wider discussion of job displacement and wage changes resulting from immigration and offshoring on a firmer empirical foundation; and second, to explore changes in the European social model that will allow the European economies to adjust to the challenges and respond to the opportunities resulting from increased global competition from emerging market economies. Both immigration and offshoring confront European policy makers with trade-offs between efficiency and equity. These tradeoffs can be eased by active labour market and education policies to enhance the flexibility and skills of European workers so that they enjoy the productivity advantages necessary to support high wages and compete in the global economy. Such policies must combine an appropriate balance of incentives, obligations and benefits that focus on the overall employability of workers rather than on the number of jobs in a particular company or sector. A key challenge in designing such policies is how to combine generous income support for jobseekers while at the same time strengthening their incentives to find and accept available jobs.
    Keywords: offshoring, migration, social model, displacement
    JEL: J3 J6 H2 L0
    Date: 2006–01
  43. By: John A., List; Daniel, Sturm
    Abstract: This paper explores to what extent secondary policy issues are infuenced by electoral incentives. We develop a two dimensional political agency model in which a politician decides on both a frontline policy issue and a secondary policy issue. The model predicts when the incumbent should manipulate the secondary policy to attract voters. We test our model by using panel data on environmental policy choices in the U.S. states. In contrast to the popular view that secondary policies are largely determined by lobbying, we find strong effects of electoral incentives.
    JEL: Q58 H72 D72
    Date: 2005–11
  44. By: Besley, Timothy; Persson, Torsten; Sturm, Daniel
    Abstract: We formulate a model to explain why the lack of political competition may stifle economic performance and use the United States as a testing ground for the model?s predictions, exploiting the 1965 Voting Rights Act which helped break the near monpoly on political power of the Democrats in southern states. We find statistically robust evidence that changes in political competition have quantitatively important effects on state income growth, state policies, and quality of Governors. By our bottom-line estimate, the increase in political competition triggered by the Voting Rights Act raised long-run per capita income in the average affected state by about 20 percent.
    JEL: N12 H70 H11 D72
    Date: 2005–11
  45. By: Martin Hering
    Abstract: This article argues that welfare state restructuring, which is highly unpopular among voters, is politically feasible if government and opposition parties collude informally with each other. Contrary to key arguments made in the literature, restructuring does not require the formation of a formal grand coalition which diffuses blame from voters. Party collusion is a distinctive blame-avoiding strategy that differs not only from other party-oriented strategies such as building a grand coalition, but also from voter-oriented ones. By analyzing the politics of pension reform in Germany from 1995 to 2004, this article shows that party collusion, which emerges through repeated signaling and informal agreements, enables political parties to restructure the welfare state without running the risk of electoral failure. Finally, it suggests that collusion likely explains recent successes of Austrian, French and Italian governments in legislating unpopular welfare cutbacks.
    Keywords: political parties, blame avoidance, collusion, welfare state, pension policy
    JEL: D72 D78 H53 H55 J26
    Date: 2005–11
  46. By: Thierry Warin
    Abstract: On its face, unemployment seems to be a concept easy to grasp. But when one looks closer, the intricacies are numerous and assump-tions are multiple. Nowadays, the New Classical School is a bit closer to New Keynesianism than ever before. It still has a strong footprint in Monetarism, since in the long run, there is no interest in stabilizing an economy. But unlike the Classical school, the New Classical School concedes that in the short run things are much more complicated. If Keynes was right when he said, “in the long run, we are all dead,” one may even conclude that the New Classi-cal School is far more Keynesian than it first appears.
    Keywords: full employment, underemployment, unemployment, natural rate hypothesis, natural rate of unemployment
    JEL: E4 E5 E6 H3 N0
    Date: 2006–01
  47. By: Sendhil Mullainathan; Ebonya Washington
    Abstract: In traditional models, votes are an expression of preferences and beliefs. Psychological theories of cognitive dissonance suggest, however, that behavior may shape preferences. In this view, the very act of voting may influence political attitudes. A vote for a candidate may lead to more favorable interpretations of his actions in the future. We test the empirical relevance of cognitive dissonance in US Presidential elections. The key problem in such a test is the endogeneity of voter choice which leads to a mechanical relationship between voting and preferences. We use the voting age restrictions to help surmount this difficulty. We examine the Presidential opinion ratings of nineteen and twenty year olds two years after the President's election. Consistent with cognitive dissonance, we find that twenty year olds (who were eligible to vote in the election) show greater polarization of opinions than comparable nineteen year olds (who were ineligible to vote). We rule out that aging drives these results in two ways. First, we find no polarization differences in years in which twenty and nineteen year olds would not have differed in their eligibility to vote in the prior Presidential election. Second, we show a similar effect when we compare polarization (for all age groups) in opinions of Senators elected during high turnout Presidential campaign years with Senators elected during low turnout non-Presidential campaign years. Thus we find empirical support for the relevance of cognitive dissonance to voting behavior. This finding has at least three implications for the dynamics of voting behavior. First, it offers a new rationale for the incumbency advantage. Second, it suggests that there is an efficiency argument for term limits. And finally, our results demonstrate that efficiency may not be increasing in turnout level.
    JEL: D0 H0
    Date: 2006–01
  48. By: Ebonya Washington
    Abstract: Both Black and White voter turnout increases 2-3 percentage points with each Black Democrat on the ballot. Given the groups' representations in the population, the White response is numerically greater. Whites of both parties are less likely to vote for their parties' candidate when s/he is Black. The turnout findings are not explained away by voter, election, or politician characteristics. However the fact that there is no turnout response to Black Republicans suggests that a perception of Blacks' ideology may be a factor.
    JEL: H0 J15
    Date: 2006–01
  49. By: John Beshears; James J. Choi; David Laibson; Brigitte Madrian
    Abstract: We propose a regulatory framework that helps consumers who have difficulty sticking to their own long-run plans. Early Decision regulations help long-run preferences prevail by allowing consumers to partially commit to their long-run goals, making it harder for a momentary impulse to reverse past decisions. In the cigarette market, examples of Early Decision regulations include restricting the locations or times at which cigarettes are sold, delaying the receipt of cigarettes following purchase, and allowing a consumer to choose in advance the legal restrictions on her own cigarette purchases. A formal model of Early Decision regulations demonstrates that Early Decisions are optimal when consumer preferences are heterogeneous. Intuitively, each consumer knows his own preferences, so self-rationing - which is what Early Decisions enable - is better than a one-size-fits-all regulation like a sin tax. Of course, Early Decision regulations incur social costs and therefore require empirical evaluation to determine their net social value.
    JEL: D11 D69 D91 H21 H31
    Date: 2006–01
  50. By: Lawrence H. Goulder; William A. Pizer
    Abstract: Global climate change poses a threat to the well-being of humans and other living things through impacts on ecosystem functioning, biodiversity, capital productivity, and human health. This paper briefly surveys recent research on the economics of climate change, including theoretical insights and empirical findings that offer guidance to policy makers. Section 1 frames the climate change problem and indicates the ways that economic research can address it. Section 2 describes approaches to measuring the benefits and costs associated with reducing greenhouse gas emissions. In Section 3 we discuss the implications of uncertainty for the timing and stringency of policies to address possible climate change. We then present issues related to policy design, including instrument choice (Section 4), flexibility (Section 5), and international coordination (Section 6). The final section offers general conclusions.
    JEL: D62 H23 N50 Q20
    Date: 2006–01
  51. By: Ebonya Washington
    Abstract: Economists have long concerned themselves with environmental influences, such as neighborhood, peers and family on individuals' beliefs and behaviors. However, the impact of children on parents' behavior has been little studied. Parenting daughters, psychologists have shown, increases feminist sympathies. I test the hypothesis that children, much like neighbors or peers, can influence adult behavior. I demonstrate that the propensity to vote liberally on reproductive rights is significantly increasing in a congress person's proportion of daughters. The result demonstrates not only the relevance of child to parent behavioral influence, but also the importance of personal ideology in a legislator's voting decisions as it is not explained away by voter preferences.
    JEL: H0 J16 D72
    Date: 2006–01
  52. By: Joshua Aizenman; Yothin Jinjarak
    Abstract: This paper evaluates the impact of globalization on the tax bases of countries at varying stages of development. We see globalization as a process that induces countries to embrace greater trade and financial integration, and macro stabilization. This in turn should shift their tax base from "easy to collect" taxes [tariff, seigniorage, etc.] towards "hard to collect" taxes [VAT, income tax, etc.]. We confirm this prediction -- the revenue/GDP ratio of the "easy to collect" taxes declined by about 20% in developing countries between the early 1980s and the late 1990s, while the revenue/GDP of the "hard to collect" taxes increased by 9%. The relatively small initial base of "hard to collect" taxes in developing countries implied a net 7% drop in total tax revenue/GDP. Applying panel regressions and controlling for structural factors, we find that trade openness and financial integration have a positive relationship with "hard to collect" taxes, and negative relationship with the "easy to collect" taxes. The effects of globalization in our panel regressions are even larger than the effects of the institutional and political variables combined. Fiscal revenue from financial repression has also decreased, further reinforcing these results. The high income and the middle income countries managed to more than compensate for the revenue decline of the "easy to collect" taxes, increasing the total tax/GDP. In contrast, the upper and low income developing countries experienced sizeable drop in the tax/GDP. We also identify fiscal convergence: the coefficient of variation of tax revenue/GDP measures across countries declined substantially during 1980s - 1990s. The cross country variation declined by about 50% for seigniorage, about 30% for tariff, and about 15% for the "hard to collect" taxes. These results are consistent with the notion that improving the performance of the "hard to collect" taxes is more challenging than reducing the use of "easy to collect" sources of revenue.
    JEL: F15 H21
    Date: 2006–01
  53. By: W. Kip Viscusi; Joel Huber
    Abstract: This article examines revealed rates of time preference for public goods, using environmental quality as the case study. A nationally representative panel-based sample of 2,914 respondents considered a series of 5 conjoint policy choices, yielding 14,570 decisions. Both the conditional fixed effect logit estimates of the random utility model and mixed logit estimates implied that the rate of time preference is very high for immediate improvements and drops off substantially thereafter, which is inconsistent with exponential discounting but consistent with hyperbolic discounting. The implied marginal rate of time preference declines and then rises. Estimates of the quasi-hyperbolic discounting parameter range from 0.48 to 0.61. People who are older are especially likely to have a high disutility from delays in improving water quality.
    JEL: Q20 D90 H40
    Date: 2006–01
  54. By: Thomas C. Buchmueller; Sabina Ohri
    Abstract: This study examines the effect of price on the demand for health insurance by early retirees between the ages of 55 and 64. The analysis is based on administrative data from a medium sized employer and takes advantage of a natural experiment created by the firm's health insurance contribution policy. The amount the firm contributes toward retiree health insurance coverage depends on when a person retired and her years of service at that date. As a result of this policy, there is considerable variation in out-of-pocket premiums faced by individuals in the data, but this variation is independent of the non-price attributes of the health insurance plans offered, and plausibly exogenous to individual characteristics that are likely to affect the demand for insurance. We find that price has a statistically significant but small effect on the decision to take up coverage. The implied elasticities are very similar to results found in previous studies using very different data.
    JEL: D12 H51 I11 J26 J32
    Date: 2006–01
  55. By: Edward Miguel; Gerard Roland
    Abstract: We investigate the impact of U.S. bombing on later economic development in Vietnam. The Vietnam War featured the most intense bombing campaign in military history and had massive humanitarian costs. We use a unique U.S. military dataset containing bombing intensity at the district level (N=584). We compare the heavily bombed districts to other districts controlling for baseline demographic characteristics and district geographic factors, and use an instrumental variable approach exploiting distance to the 17th parallel demilitarized zone. U.S. bombing does not have a robust negative impact on poverty rates, consumption levels, infrastructure, literacy or population density through 2002. This finding suggests that local recovery from war damage can be rapid under certain conditions, although further work is needed to establish the generality of the finding in other settings.
    JEL: E2 O5 P5 H7
    Date: 2006–01
  56. By: Isabelle Joumard; Robert Price; Douglas Sutherland
    Abstract: Against a background of mounting demands for spending on services provided by sub-central governments, this paper examines how fiscal rules can help to ensure that pressure on resources is minimised and available resources are used efficiently. Drawing on questionnaire responses and other sources, this paper gives a detailed picture of fiscal rules for sub-central governments in place among a number of OECD countries. The paper examines the rationales for using fiscal rules, the various impacts fiscal rules can have, the factors making for effective implementation and the interactions between the various types of rule. It then constructs a number of synthetic sub-indicators designed to assess the extent to which sub-central government fiscal frameworks exhibit favourable characteristics for the achievement of fiscal objectives. It concludes with the construction of a composite indicator based on the combined impacts in the different areas of fiscal policy. <P>Règles budgétaires des collectivités territoriales Face à l’augmentation des dépenses au titre des services assurés par les collectivités territoriales, cette étude examine comment les règles budgétaires peuvent contribuer à atténuer les pressions sur les ressources et à garantir une utilisation efficiente des ressources disponibles. S’appuyant sur les réponses à des questionnaires et sur d’autres sources, elle présente une description détaillée des règles budgétaires applicables aux collectivités territoriales dans plusieurs pays de l’OCDE. Elle analyse les raisons qui motivent l’utilisation de règles budgétaires, les divers effets que ces règles peuvent avoir, les facteurs qui contribuent à l’efficacité de leur mise en œuvre et les interactions entre les divers types de règles. Un certain nombre d’indicateurs synthétiques sont ensuite élaborés dans le but de déterminer dans quelle mesure les règles budgétaires des collectivités territoriales présentent des caractéristiques favorisant la réalisation des objectifs de finances publiques. L’étude s’achève par la construction d’un indicateur composite des effets combinés dans les différents domaines de la politique budgétaire.
    Keywords: fiscal discipline, discipline budgétaire, fiscal rules, règles budgétaires, collectivités territoriales, indicators, indicateurs, sub-central governments
    JEL: C43 D78 H71 H72 H74 H81
    Date: 2005–12–09
  57. By: David Barber; Herwig Immervoll
    Abstract: Finding a suitable balance of work and family life is not an easy task for parents who face multiple, and potentially conflicting, demands. Childcare policies play a crucial role in helping parents reconcile care and employment-related tasks. But inconsistent or poorly implemented policies can also introduce additional barriers that make it harder for families to arrange and share their responsibilities according to their needs and preferences. This paper quantifies the net cost of purchasing centre-based childcare in OECD countries taking into account a wide range of influences on household budgets, including fees charged by childcare providers as well as childcare-related tax concessions and cash benefits available to parents. Building on these calculations, family resources are evaluated for different employment situations in order to assess the financial trade-offs between work and staying at home. Results are disaggregated to identify the policy features that present barriers to work for parents whose employment decisions are known to be particularly responsive to financial work incentives: lone parents and second earners with young children requiring care. Trouver un juste équilibre entre le travail et la vie de famille n’est pas toujours facile pour des parents confrontés à des contraintes multiples, potentiellement contradictoires. Les mesures en faveur de la garde des enfants jouent un rôle essentiel pour ce qui est d’aider les parents à concilier ces responsabilités et les contraintes liées à un emploi. Mais des politiques incohérentes ou mal mises en œuvre peuvent aussi créer des obstacles supplémentaires qui feront qu’il sera plus difficile encore pour les familles de s’organiser et de partager les tâches en fonction de leurs besoins et de leurs préférences. Il s’agit ici de mesurer le coût net de l’achat de services de garde d’enfants dans des structures spécifiques, dans les pays de l’OCDE, en faisant intervenir tout un éventail d’éléments qui influent sur le budget des ménages, à savoir notamment les tarifs pratiqués par les prestataires de services de garde ainsi que les avantages fiscaux et prestations en espèces dont les parents peuvent bénéficier au titre de la garde des enfants. En s’appuyant sur ces calculs, on évalue les ressources des familles dans différentes situations d’emploi afin de mettre en évidence les termes du choix financier entre travailler et rester à la maison. Les résultats sont affinés pour faire apparaître les éléments, dans les dispositifs publics, qui créent des obstacles à l’emploi des parents dont on sait que la décision d’emploi est particulièrement sensible aux incitations financières en faveur de l’activité : en l’occurrence, parents isolés et seconds apporteurs de revenu ayant de jeunes enfants qui doivent être gardés.
    JEL: D13 H31 J13 J18 J22
    Date: 2005–12–16
  58. By: Jean-Pascal Bénassy
    Abstract: The fiscal theory of the price level says that the price level can be made determinate if the government uses fiscal policies such that government liabilities explode unless the price in the first period is at the "right" level. The policy implications are disturbing, as they call for rather adventurous fiscal policies. We show that these disturbing policy implications are specific to the "Ricardian" models that have been used to develop the theory. By moving to "non Ricardian" models we see that price determinacy is consistent with reasonable fiscal policies.
    Date: 2005
  59. By: Ambec, S.
    Abstract: People vote over risk-sharing rules to cope with random revenues. Risk-sharing rules are enforced through peer pressure : those who comply exert a negative externality on those who do not. People are differently affected by this externality. The author determines the elected risk-sharing rules and the level of compliance. It turns out that full risk-sharing is achieved only if everybody complies. Partial risk-sharing is more often achieved with, sometime, some level of non-compliance. In many cases, a majority of people votes over and complies with the risk-sharing rule that maximizes their own expected payoff.
    JEL: H21 O15 O17
    Date: 2005
  60. By: Robert J. Lemke (Lake Forest College); Robert J. Witt (University of Surrey); Ann Dryden Witte (Wellesley College and NBER)
    Abstract: We consider the effects the child care market, child care vouchers, early childhood education programs, and welfare reforms have on welfare recipients in their transition from welfare to work. Specifically, we are interested in determining which factors encourage single mothers to move directly from welfare to work and which factors encourage the pursuit of additional schooling or job retraining before entering the labor market. Using Massachusetts data from July 1996 through August 1997, we find that the availability, quality, and cost of formal child care are all positively related to transiting directly from welfare to work. We also find that single mothers with older children are more likely to pursue a job and forego additional schooling, while single mothers with infants are more likely to advance their education before seeking employment.
    Keywords: Welfare Reform, Child Care, Vouchers, Time Limits, Labor Supply
    JEL: I38 H40 J22 I20
    Date: 2004–08
  61. By: Maria Garcia-Alonso (University of Kent); Paul Levine (University of Surrey)
    Abstract: We examine strategic procurement behaviour by governments and its effect on market structure in sectors, such as defence, where the government is the dominant consumer. In a world economy with trade between producers, and between producers and non-producers, we use a modified Dixit-Stiglitz utility function with an indepen- dent taste for variety. Governments can, in effect, choose the number of domestic firms and their size by adjusting the procurement price. Unlike the standard model with no independent taste for variety and no external sector of non-producers, there are incentives for subsidies, openness impacts on industrial structure and there are potential gains from procurement coordination between producer countries.
    Keywords: procurement, openness, market structure, defence and pharmaceutical sectors
    JEL: F12 H56 L10
    Date: 2004–09
  62. By: Stan McMillen; Mark Sheridan; Bryant Goulding; Patrick Flaherty; Sharan Sharma; Bingbo Hu
    Abstract: State spending growth rules and an alternative for Connecticut
    Keywords: state tax policy, spending growth rules, tax and expenditure limits, TELs
    JEL: H72 H20
    Date: 2005–09
  63. By: Ben Zissimos (Department of Economics, Vanderbilt University); Myrna H. Wooders (Department of Economics, Vanderbilt University)
    Abstract: This paper argues that, because governments are able to relax tax competition through public good differentiation, traditionally high-tax countries have continued to set taxes at a relatively high rate even as markets have become more integrated. The key assumption is that firms vary in the extent to which public good provision reduces costs. We show that Leviathan governments are able to use this fact to relax the forces of tax competition, reducing efficiency. When firms can `vote with their feet' tax competition leads firms to locate in `too many' jurisdictions. A `minimum tax' further relaxes tax competition, further reducing efficiency.
    Keywords: Asymmetric equilibrium, core-periphery, non-renegotiable minimum tax, tax competition, tax harmonization
    JEL: C72 H21 H42 H73 R50
    Date: 2006–01
  64. By: de Mello, Luiz
    Abstract: This paper discusses trends in fiscal adjustment in Brazil since the 1990s, with particular emphasis on the strengthening of institutions for fiscal policymaking, and its effect on local government finances and their ability to invest in infrastructure building and upgrading. Although fiscal adjustment, which is ongoing, has taken a toll on the government ' s ability to finance much-needed infrastructure investment, it is not the only culprit. A lack of budget flexibility, against a backdrop of increasing downward rigidities in current spending, also constrains the government ' s ability to invest. The paper argues that regulatory uncertainty in many sectors, particularly water and sanitation, in which the municipalities play a leading role, has discouraged private sector investment and that the financing of infrastructure building and upgrading goes beyond the municipal level of government. Higher-level jurisdictions are responsible for financing investment in energy and transport infrastructure, for example.
    Keywords: Public Sector Economics & Finance,Municipal Financial Management,Urban Economics,Public & Municipal Finance,Public Sector Management and Reform
    Date: 2006–01–01
  65. By: Shah, Anwar
    Abstract: This paper examines the conceptual and empirical basis of corruption and governance and concludes that decentralized local governance is conducive to reduced corruption in the long run. This is because localization helps to break the monopoly of power at the national level by bringing decisionmaking closer to people. Localization strengthens government accountability to citizens by involving citizens in monitoring government performance and demanding corrective actions. Localization as a means to making government responsive and accountable to people can help reduce corruption and improve service delivery. Efforts to improve service delivery usually force the authorities to address corruption and its causes. However, one must pay attention to the institutional environment and the risk of local capture by elites. In the institutional environments typical of some developing countries, when in a geographical area, feudal or industrial interests dominate and institutions of participation and accountability are weak or ineffective and political interference in local affairs is rampant, localization may increase opportunities for corruption. This suggests a pecking order of anticorruption policies and programs where the rule of law and citizen empowerment should be the first priority in any reform efforts. Localization in the absence of rule of law may not prove to be a potent remedy for combating corruption.
    Keywords: National Governance,Governance Indicators,Corruption & Anitcorruption Law,Public Sector Corruption & Anticorruption Measures,Government Diagnostic Capacity Building
    Date: 2006–01–01
  66. By: Giampaolo Garzarelli (University of Rome 'La Sapienza')
    Abstract: The Second Generation Theory (SGT) of fiscal federalism, which draws upon contemporary economic and industrial organization theory, hitherto focuses only on the negative benefits of public decentralization: the potentially superior ability to align perverse incentives vis-à-vis the centralized governance alternative. The SGT neglects the positive benefits of decentralization (mistake-ridden learning, flexibility, and option discovery), although the limitations of organization theory do not justify such neglect. By likening intergovernmental grants to incomplete contracts, this work shows that the SGT can include the laboratory nature of decentralization.
    Keywords: Experimentation, incomplete contracts, intergovernmental grants, learning, Second Generation Theory of fiscal federalism.
    JEL: D6 D7 H
    Date: 2005–12–29
  67. By: Urs Fischbacher; Simon Gächter
    Abstract: We provide a direct test of the role of social preferences in voluntary cooperation. We elicit individuals’ cooperation preference in one experiment and make a point prediction about the contribution to a repeated public good. This allows for a novel test as to whether there are "types" of players who behave consistently with their elicited preferences. We find clear-cut evidence for the existence of "types". People who express free rider preferences show the most systematic deviation from the predicted contributions, because they contribute in the first half of the experiment. We also show that the interaction of heterogeneous types explains a large part of the dynamics of free riding.
    Keywords: Public goods games, experiments, voluntary contributions, conditional cooperation, free riding
    JEL: C91 C72 H41 D64
    Date: 2005–12
  68. By: Martin Hellwig (Max-Planck-Institute for Research on Collective Goods)
    Abstract: The paper provides a new proof of the positivity of the optimal marginal income tax, in a more general model, under weaker assumptions. The analysis focusses on the (weakly) relaxed problem in which upward incentive constraints are replaced by a monotonicity condition on consumption. Without upward incentive constraints, nonnegativity of the optimal marginal income tax is straightforward; strict positivity follows from an assumption on the desirability of redistributing leisure. The resulting allocation is incentive compatible, and is optimal for the original income tax problem. The argument is the same for distributions with finitely many types and for a continuous type distribution.
    Keywords: Optimal Income Taxation, Utilitarian Welfare Maximization, Redistribution
    JEL: D63 H21
    Date: 2005–11
  69. By: Frank P. Maier-Rigaud (Max Planck Institute for Research on Common Goods and Department of Economics, University of Bonn); Peter Martinsson (Department of Economics, Göteborg University); Gianandrea Staffiero (IESE Business School, University of Navarra)
    Abstract: We analyze the effects of ostracism on cooperation in a linear public good experiment. Our results show that introducing ostracism increases contributions. Despite reductions in group size due to ostracism, the net effect on earnings is positive and significant.
    Keywords: Experiment, Public Good, Ostracism
    JEL: C92 H41
    Date: 2005–11
  70. By: Felix Bierbrauer (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: This paper combines the problem of optimal income taxation with the free-rider problem in public good provision. There are two groups of individuals with private information on their earning ability and their valuation of a public good. Adjustments of the transfer system are needed to discourage the more productive from exaggerating the desirability of public good provision. Similarly, the less productive need to be prevented from understating their valuation. Relative to an optimal income tax, which focuses solely on earning ability, income transfers are increased whenever a public good is installed and are decreased otherwise.
    Keywords: Income Taxation, Public Good Provision, Revelation of Preferences, Two-dimensional Heterogeneity
    JEL: D71 D82 H21 H41
    Date: 2005–11
  71. By: Martin Hellwig (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: For the standard specification of the utilitarian optimal income tax problem with hidden characteristics, the paper shows that randomized tax schemes are undesirable if preferences exhibit a property of weakly decreasing risk aversion according to the multidimensional risk aversion concept of Hellwig (2004). The property of decreasing risk aversion also implies uniqueness of the optimal income tax schedule and continuity in cases where the type distribution has a continuous density.
    Keywords: Optimal Income Taxation, Randomized Incentive Schemes, Nonincreasing Risk Aversion
    JEL: H21
    Date: 2005–12
  72. By: Philippe Michel; Leopold von Thadden (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.); Jean-Pierre Vidal (European Central Bank,Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
    Abstract: Unstable government debt dynamics can typically be corrected by various fiscal instruments, like appropriate adjustments in government spending, public transfers, or taxes. This paper investigates properties of state-contingent debt targeting rules which link stabilizing budgetary adjustments around a target level of long-run debt to the state of the economy. The paper establishes that the size of steady-state debt is a key determinant of whether it is possible to find a rule of this type which can be implemented under all available fiscal instruments. Specifically, considering linear feedback rules, the paper demonstrates that there may well exist a critical level of debt beyond which this is no longer possible. From an applied perspective, this finding is of particular relevance in the context of a monetary union with decentralized fiscal policies. Depending on the level of long-run debt, there might be a conflict between a common fiscal framework which tracks deficit developments as a function of the state of the economy and the unrestricted choice of fiscal policy instruments at the national level.
    Keywords: Fiscal regimes, Overlapping generations
    JEL: E63 H62
    Date: 2006–01
  73. By: Jana Kremer (Deutsche Bundesbank, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, Germany.); Claudia Rodrigues Braz (Banco de Portugal, Av. Almirante Reis, 71, 1150-012 Lisbon, Portugal); Teunis Brosens (De Nederlandsche Bank, Westeinde 1, NL-1017 ZN Amsterdam, The Netherlands.); Geert Langenus (Banque Nationale de Belgique, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.); Sandro Momigliano (Banca d’Italia, Via Nazionale 91, I-00184 Rome, Italy.); Mikko Spolander (European Central Bank,Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
    Abstract: In this paper, we present a disaggregated framework for the analysis of past and projected structural developments in the most relevant revenue and expenditure categories and the fiscal balance. The framework, in particular, distinguishes between the effects of discretionary fiscal policy and of macroeconomic and other developments and is sufficiently standardised to be used in multi-country studies. Here, it is applied to Belgium, Finland, Germany, Italy, the Netherlands and Portugal over the period 1998 to 2004. During this period the structural primary balance ratio clearly worsened in all countries except Finland. In Belgium, Italy and the Netherlands, both revenue and expenditure contributed to the deterioration of the structural primary balance. In Germany the large deterioration in revenue was partially offset by the decline in the structural primary expenditure ratio, while the opposite was true for Portugal. The analysis highlights the various factors that contributed to these developments.
    Keywords: Structural budget balance, fiscal forecasting and monitoring, fiscal indicators transmission; survey data; communication.
    JEL: H20 H50 H60 E69
    Date: 2006–01
  74. By: Marc Isabelle (IMRI (Institut pour le Management de la Recherche et de l’Innovation), Université Paris-Dauphine)
    Abstract: Two major and complementary transformations have occurred in the world of public research organisations in the past two decades. Instruments of intellectual property (first and foremost the patent) have disseminated in many domains of research while collaborations with industrial firms have grown substantially. Strategies have been designed in PROs to accompany and stimulate the researchers in their new mission: the transfer of knowledge and technologies to firms. This paper investigates on an empirical basis the fact that researchers’ inventiveness could to a certain extent be independent from private economic incentives. It concludes by opening some analytical perspectives about the pros and cons of PROs’ knowledge and technology transfer strategies and by suggesting that the dominant model could well look inappropriate in some respects.
    Keywords: public research organisations, invention, patent, knowledge and technology transfer, science and technology policy
    JEL: D83 H4 L3 O3
    Date: 2004–04
  75. By: Stefan Behringer (Economics Department, Frankfurt University)
    Abstract: This paper provides a limit result for the provision of a public good in a mechanism design framework as the number of agents gets large. A canonical example for a public good that is produced with a direct provision technology is Open Source Software.
    Keywords: Mechanism design, public goods, open source software
    JEL: H41 D82
    Date: 2005–11
  76. By: Paul Makdissi (GREDI, Département d'économique, Université de Sherbrooke); Stéphane Mussard (GREDI, Université de Sherbrooke and Université de Perpignan)
    Abstract: A new approach is developed to identify thorough marginal tax reforms for pairs of commodities and to test for the robustness of their impacts on Yaari's dual social welfare functions. S-concentration curves are provided for every order of positional dominance and an illustration is performed using Canadian data.
    Keywords: Dual Social Welfare Function, Stochastic Dominance, Tax Reform.
    JEL: H20 I30
    Date: 2006
  77. By: Christoph van der Elst
    Abstract: In April 2005 the OECD published its guidelines on the corporate governance of state-owned enterprises (S0E). Its first guideline reads that "...SOEs should not be exempt from the application of general laws and regulations... the legal and regulatory framework should allow sufficient flexibility for adjustments in the capital structure of SOEs". In 1991, long before the corporate governance discussions hit the European coasts, Belgium developed a proper regulatory governance framework for autonomous state-owned enterprises, including specific checks and balances. The general commercial company code is applicable for the remaining issues. However, due to constitutional developments and divergent views on industrial policy, federal and regional Parliaments modified the applicable rules of a large number of SOE’s, pushing the checks and balances to the edge. This paper assesses the 1991 corporate governance framework for Belgian autonomous SOE’s, compares governance features of these entities and considers the differences with the commercial corporate governance practices. The paper starts with a brief introduction of the Belgian federal state and concludes with some thoughts for future developments.
    Date: 2005–10
  78. By: Gábor Orbán (Magyar Nemzeti Bank); Dániel Palotai (Magyar Nemzeti Bank)
    Abstract: This paper gives a reassessment of the sustainability of the reformed Hungarian pension system with a special focus on whether the introduction of the fully funded pillar in 1998 has led to any improvement in the sustainability of the pension system. After a brief description of the 1997/1998 reform of the Hungarian pension system, we present results from simulations with a revised pension model. Our results show that 1) the pension system, in its present form, is unsustainable with net implicit public liabilities in the system around 240% of GDP, unless corrective measures are taken. 2) The series of policy measures taken since the 1997/1998 reform account for nearly three-fourths of the net liability implicit in the pension system, reflecting a policy reversal: an alarming tendency of undoing the progress made by the reform in terms of improving the system’s sustainability. 3) The funded pillar can help in lowering net implicit liabilities if the transition costs involved in the reform are financed by budgetary adjustment. 4) The returns recorded so far in the private pension funds fall short of expectations and, on the condition that these low returns persist, the second pillar is projected to provide annuities that do not make up for the reduction in benefits received from the public pillar. This conclusion is valid even if we compare a hypothetical balanced full pay-as-you-go (PAYG) system with a sustainable multi-pillar system.
    Keywords: ageing, pension system, social security, fiscal sustainability.
    JEL: G23 H55
    Date: 2005
  79. By: Salvador Balle; Amedeo Spadaro (PSE -Paris-Jourdan Sciences Economiques- and Universitat de les Illes Balears, Palma de Mallorca)
    Abstract: The aim of this paper is to explore the characteristics of the optimal nonlinear labor income tax in dynamic economies with information asymmetries and human capital accumulation. We develop a dynamic optimal income tax model in which agent’s productivity evolves over time according to two different factors: an exogenous component and a learning by doing process endogenous to the fiscal policy. The latter is determined by the government, maximizing in the initial period a social welfare function capturing some level of aversion to inequality. We characterize analytically the first order condition driving the optimal tax schedule in a model in which agents choose the consumption and labor supply patterns that maximize their lifetime utility function. We show that the inclusion of the endogenous evolution of productivities into the tax problem changes the results with respect to the static framework `a la Mirrlees (1971). We find that the optimal tax strategy balances social marginal costs of increasing marginal tax rates with social marginal benefits of doing so. The costs are related with the reduction of both past and future human capital accumulation, with the negative impact on aggregate social welfare due to the reduction of the individual utility of all the agents paying more taxes and with the increase of the necessity to redistribute more in the future (given that the spread among social marginal weights of each agents will be higher). The benefits derive from the increase of the instantaneous tax receipts with the consequent reduction of the overall tax burden all along the time horizon and from the reduction of present inequality of incomes and future inequality of the productivities. As a particular extreme result we find that it can be optimal to subsidize (instead of taxing) at the margin high productivity agents.
    Keywords: Dynamic Optimal Income Taxation, Private Information, Learning by Doing.
    JEL: H21 C63
    Date: 2006
  80. By: François Bourguignon (The World Bank and PSE -Paris-Jourdan Sciences Economiques-); Amedeo Spadaro (PSE -Paris-Jourdan Sciences Economiques- and Universitat de les Illes Balears, Palma de Mallorca)
    Abstract: During the last 20 years, microsimulation models have been increasingly applied in qualitative and quantitative analysis of public policies. This paper discusses microsimulation techniques and their theoretical background as a tool for the analysis of public policies. It next analyses basic principles for using microsimulation models and interpreting their results, with emphasis on tax incidence, redistribution and poverty analysis. It then discusses social welfare analysis permitted by microsimulation techniques and points to the limits of present approaches and some directions for future developments.
    Keywords: Keywords: Microsimulation; Evaluation of Public Policies; Redistribution; Poverty, Inequality.
    JEL: C81 D31 H21 H23 H31
    Date: 2006
  81. By: Xavier Labandeira (rede and Department of Applied Economics (Universidade de Vigo)); José M. Labeaga (FEDEA and Department of Economic Analysis II (UNED)); Miguel Rodríguez (rede and Department of Applied Economics (Universidade de Vigo))
    Abstract: Most public policies have not only efficiency but also distributional effects. However, there is a kind of trade-off between modeling approaches suitable for calculating each one of these impacts on the economy. For the former, most of the studies have been conducted with general equilibrium models, whereas partial equilibrium models represent the main approach for distributional analysis. This paper proposes a methodology which enables us to carry out an analysis of the distributional and efficiency consequences of public policies. In order to do so, we have integrated a microeconomic household demand model and a computable general equilibrium model for the Spanish economy. We illustrate the advantages of this approach by simulating a revenue-neutral reform in Spanish indirect taxation, with a reduction of VAT and a simultaneous increase of energy taxes. The results show that the reform brings about significant efficiency and distributional effects, in some cases counterintuitive, and demonstrate the academic and social utility of this approximation.
    Keywords: Taxes, general equilibrium, micro modeling, efficiency, distribution
    JEL: C33 D58 H30 Q21
    Date: 2006
  82. By: Axel Dreher (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH)); Lars Siemers (Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI Essen), Division „Public Economics“)
    Abstract: The paper develops a theoretical model showing a mutual relationship between corruption and capital account restrictions. According to the model, higher corruption induces stricter restrictions and vice versa. We test the model using panel data for 112 countries over the period 1984-2002 and find that corruption and restrictions are indeed mutually determined. Estimating the model simultaneously, capital account restrictions induce higher corruption. Higher corruption, in turn, is associated with more restrictions on the capital account. The empirical relationship is, however, not completely robust.
    Keywords: corruption, capital account restrictions, dynamic panel
    JEL: C33 D19 F33 G11 H26 O17
    Date: 2005–11
  83. By: Parry, Ian (Resources For the Future)
    Abstract: This paper compares the efficiency of a single lane toll, a congestion tax applied uniformly across freeway lanes, a gasoline tax, and a transit fare subsidy at reducing traffic congestion. The model incorporates a variety of conditions required to reach an efficient outcome. These include conditions for the efficient allocation of travel among competing modes, travel at peak versus off-peak periods, and drivers with high and low time costs sorted onto faster and slower freeway lanes. Each policy violates some or all of the efficiency conditions. Under wide parameter scenarios, the single lane toll, gasoline tax, and transit subsidy forgo at least two thirds of the efficiency gains under an "ideal" congestion tax that varies across lanes. In contrast, the uniform congestion tax can achieve more than 90 percent of the efficiency gains, despite failing to separate out drivers with high and low time costs onto different freeway lanes.
  84. By: Parry, Ian (Resources For the Future)
    Abstract: This paper develops an analytical framework for estimating the marginal excess burden (MEB) of taxes on labor, gasoline, cigarettes and alcohol, allowing for externalities and interactions between the different taxes. The formulas are estimated using plausible parameter values for the United Kingdom. Given the uncertainty over various elasticities and external damages, we obtain wide ranges of possible outcomes for the MEBs. By performing Monte Carlo simulations, however, we can assess the likelihood that the MEB of one tax exceeds that of other taxes. We find that the MEB of labor taxes lies between 0.18 and 0.34 with 80% probability for tax increases used to finance transfer spending. The MEB for the gasoline tax is much larger- it is more than double that of the labor tax in 75% of our simulations and more than treble in 51%. Similar results apply for the cigarette tax. Even though these goods are relatively weak leisure substitutes, this is more than offset by large incremental welfare losses in the commodity markets, because the commodity tax rates are substantially higher than estimated marginal external damages in most of our scenarios. In contrast, our central estimate for the MEB of alcohol taxes is similar to that for labor taxes, because the alcohol tax is much closer to our assumed values for marginal external costs. But the MEB is still positive, even in scenarios when the alcohol tax is below marginal external damages, due to the impact of the tax on exacerbating the labor market distortion. When additional government spending is on public goods rather than transfers, the MEB is significantly lower for the labor tax but less so for commodity taxes. In the United Kingdom context, our results suggest the possibility of significant social welfare gains from tax reforms that shift some of the burden of taxation off gasoline and cigarettes and onto labor. The methodology could be readily extended and applied to tax systems in other countries.
    Keywords: welfare cost, labor tax, cigarette tax, alcohol tax, gasoline tax, externalities
    JEL: H21 H23 Q28
  85. By: Parry, Ian (Resources For the Future)
    Abstract: It is widely perceived that projected public spending on transportation infrastructure in the metropolitan Washington, DC, area for the next 20 years will not be enough to halt, let alone reverse, the trend of increasing traffic congestion. Consequently, there has been much debate about how additional sources of local revenues might be raised to finance more transportation spending. This paper develops and implements an analytical framework for estimating the efficiency costs of raising $500 million per annum in local revenue from five possible sources. These sources are increasing labor taxes, property taxes, gasoline taxes, transit fares, and implementing congestion taxes. Our model incorporates congestion and pollution externalities, and it allows for interactions between the different policies. Under our central estimates, the efficiency cost of raising $500 million in additional revenue from labor taxes is $118 million; from transit fares is $136 million; from property taxes is $16 million; from gasoline taxes is $66 million; and from congestion taxes is $19 million. The higher costs of the labor tax and transit fares reflect their negative impact on employment, and on pollution and congestion, respectively. A case could be made on efficiency grounds for using congestion fees and gasoline taxes to raise the revenue, though it should not be overstated. For example, much of the pollution externality is already internalized through pre-existing gasoline taxes, and the inelastic demand for peak-period driving and for gasoline limits the pollution and congestion benefits per dollar of revenue raised. Moreover, the relative advantage of these policies is sensitive to alternative scenarios for external damages. The property tax has a relatively low cost because it reduces pre-existing distortions created by the favorable tax treatment of housing.
    Keywords: transportation, taxes, Washington, D.C., welfare cost
    JEL: R48 H21 H23
  86. By: Fischer, Carolyn (Resources For the Future)
    Abstract: Many studies have shown that the activities of multinational corporations are quite sensitive to differences in income tax rates across countries. In this paper, I explore the interaction between multinational taxation and abatement activities under an international emissions permit trading scheme. Four types of plans are considered- (1) a single domestic permit system with international offsets; (2) separate national permit systems without trade; (3) separate national permit systems with limited offsets; and (4) an international permit trading system. For each plan, I model the incentives for the multinational firm to choose abatement activities at home and abroad and to transfer emissions credits between parent and subsidiary. Limits on trading across countries restrict efficiency gains from abatement, as is well known. But I show furthermore that if available offset opportunities are limited to actual abatement activities, those activities are more susceptible to distortions from incentives to shift taxable income. Transfer pricing rules can limit but not always eliminate these distortions. In a system of unlimited international trading, abatement is efficiently allocated across countries, but tax shifting can still be achieved through intra-firm transfer pricing. From the basis of efficiency for both environmental and tax policies, the best design is an international permit trading system with transparent, enforceable transfer pricing rules.
    Keywords: emission permits, transfer pricing, taxation, multinational corporations
    JEL: H2 F2 Q2
  87. By: Fischer, Carolyn (Resources For the Future)
    Abstract: Political pressure often exists to earmark environmental tax revenues or permit rents to the industry affected by the regulation. This paper analyzes schemes that rebate revenues based on output shares- tradable performance standards, an emissions tax with market-share rebates, and tradable permits with output-based allocation. All three policies effectively combine a tax on emissions with a subsidy to output. The result is a shifting of emissions control efforts toward greater emissions rate reduction and less output contraction, with higher marginal costs of control and lower output prices compared to the social optimum, given any targeted level of abatement. These welfare costs depend on the degree of output substitutability and are likely to be much larger in the long run. While some political and market-failure justifications may exist, policy makers should carefully consider industry characteristics before engaging in output-based rebating.
    Keywords: emission tax, permit allocation, earmarking, tradable performance standards
    JEL: H21 H23 Q2
  88. By: Palmer, Karen (Resources For the Future); Macauley, Molly (Resources For the Future); Shih, Jhih-Shyang (Resources For the Future); Cline, Sarah; Holsinger, Heather
    Abstract: Managing the growing quantity of used electronic equipment poses challenges for waste management officials. In this paper, we focus on a large component of the electronic waste stream—computer monitors—and the disposal concerns associated with the lead embodied in cathode ray tubes (CRTs) used in most monitors. We develop a policy simulation model of consumers’ disposal options based on the costs of these options and their associated environmental impacts. For the stock of monitors disposed of in the United States in 1998, our preliminary findings suggest that bans on some disposal options would increase disposal costs from about $1 per monitor to between $3 and $20 per monitor. Policies to promote a modest amount of recycling of monitor parts, including lead, can be less expensive. In both cases, the costs of the policies exceed the value of the avoided health effects of CRT disposal.
    Keywords: end-of-life electronics, waste stream, cost-benefit analysis
    JEL: Q2 Q0 H8
  89. By: Parry, Ian (Resources For the Future)
    Abstract: Previous literature has shown that competition among regional governments may lead to inefficiently low levels of capital taxation, because governments do not take account of the external benefits of capital flight to other regions. However, the fiscal distortion is smaller the more elastic the supply of capital (for the region bloc), if governments are not perfectly competitive, or they behave in part as a revenue-maximizing Leviathan. There has been very little empirical work on the magnitude of the welfare effects of fiscal competition. This paper presents extensive calculations of the welfare effects using a model that incorporates the possibility of Leviathan behavior, strategic behavior by governments, monopsony power in factor markets, and a wide range of capital supply elasticities. The welfare costs of tax competition are generally fairly small, and even these costs can disappear fairly quickly when some weight is attached to the possibility of Leviathan behavior.
    Keywords: fiscal competition, tax harmonization, welfare costs, Leviathan, strategic behavior
    JEL: H73 H21 H23
  90. By: Ando, Amy; Albers, Heidi
    Abstract: We develop a conceptual model of the economic value of space solar power (SSP) as a source of power to in-space activities, such as spacecraft and space stations. We offer several estimates of the value based on interviews and published data, discuss technological innovations that may compete with or be complementary to SSP, and consider alternative institutional arrangements for government and the private sector to provide SSP.
    Keywords: Land Trusts, public goods, organizational size, conservation benefits, U.S. land conservation
    JEL: Q2 H4 L3
  91. By: Oates, Wallace (Resources For the Future)
    Abstract: This paper provides a review and assessment of the debate over environmental federalism-the issue of the roles of different levels of government in environmental management. The paper begins with the presentation of three benchmark cases that provide a framework for thinking about the issue. It then offers a review, first of the theoretical literature and second of some new, provocative empirical literature on the race to the bottom. The paper contends that there remains, under certain circumstances, an important role for decentralized government in the setting of environmental standards and the design of regulatory programs. The central government, in addition to setting standards for "national" pollutants, has a fundamental contribution to make in supporting research in environmental science and pollution control technology and in providing needed information and guidance to state and local governments.
    Keywords: environmental federalism, environmental management, environmental policy, environmental regulation
    JEL: Q2 H1 H7
  92. By: Portney, Paul; Oates, Wallace (Resources For the Future)
    Abstract: This paper provides a review and assessment of the extensive literature on the political determination of environmental regulation. A promising theoretical literature has emerged relatively recently that provides models of the political interaction of government with various interest groups in the setting of environmental standards and the choice of regulatory instruments. A large empirical literature supports such models, finding evidence of the influence of interest groups but also evidence that net social benefits are often an important determinant of environmental policy choices. We then take up the issue of environmental federalism and the large and growing theoretical literature that addresses the competitive “race to the bottom.” The paper concludes with a brief look at the evolution of environmental policy and finds that economics has come to play a growing role both in the setting of standards for environmental quality and in the design of regulatory measures.
    Keywords: environmental regulation, environmental management, environmental policy
    JEL: Q2 H1
  93. By: Smith, V. Kerry; Banzhaf, H. Spencer (Resources For the Future); Walsh, Randy
    Abstract: Environmental policy analyses increasingly require the evaluation of benefits from large changes in spatially differentiated public goods. Such changes are likely to induce general equilibrium effects through changes in household expenditures and local migration, yet current practice "transfers" constant marginal values for even the largest changes. Moreover, it ignores important distributional effects of policy. This paper demonstrates that recently developed locational equilibrium models can provide transferable general equilibrium benefit measures. Our results suggest that taking account of the potential for adjustment and household heterogeneity is important. Applying benefits estimated from this method to the effect of the Clean Air Act amendments in Los Angeles, we find that the estimated annual general equilibrium benefits in 2000 and 2010 are dramatically different by income group and location. The gains range from $33 to about $2,400 per household. These differences arise from variations in the air quality conditions, income, and the effects of general equilibrium price adjustment.
    Keywords: air quality, clean air act, non-market valuation, Tiebout model
    JEL: H41 Q25 R13
  94. By: Parry, Ian (Resources For the Future)
    Abstract: This paper discusses how carbon abatement policies interact with the tax system, and how these interactions affect the overall costs of carbon controls. We provide formulas for adjusting cost estimates of auctioned and grandfathered carbon emissions from partial equilibrium energy models into rough estimates of general equilibrium costs that account for fiscal interactions. In the basic model with a tax on labor income, the general equilibrium costs of (revenue-neutral) auctioned permits are around 25% higher than the partial equilibrium costs; those of grandfathered permits, which do not directly raise revenues for recycling, are typically more than 100% higher. However, when allowance is made for complicating factors, such as the effect of tax subsidies on raising the distortionary costs of the tax system, the efficiency gains from recycling revenues from auctioned permits are larger. Indeed the general equilibrium costs of (revenue-neutral) auctioned permits can be negative for modest abatement levels.
    Keywords: carbon permits; tax distortions; revenue recycling; general equilibrium costs
    JEL: Q28 H21
  95. By: Fischer, Carolyn (Resources For the Future)
    Abstract: Environmental policies with output-based refunding of the revenues effectively combine a tax on emissions with a subsidy to output. Three similar forms exist- tradable performance standards, an emissions tax with rebates, and tradable permits with output-based allocation. Two arguments for including an output subsidy are imperfect competition, in which an environmental regulation alone could exacerbate output underprovision, and imperfect participation, in which imposing a regulation on a subset of polluters could cause output to shift to exempt firms. However, both these scenarios imply that output shares among program participants are likely to be significant. In this situation, output-allocated permits offer less of a subsidy than a fixed rebate, and they can lead to inefficient shifting of production among participants. Rebating the emission tax reduces the incentive to abate, nor will marginal abatement costs be equalized if costs differ. These results hold in a Cournot duopoly model whether emission rates are determined simultaneously or strategically in a two-stage model.
    Keywords: emission tax, permit allocation, earmarking, tradable performance standards
    JEL: H21 H23 Q2
  96. By: Simpson, R. David
    Abstract: Concern about “open space” is growing. Conservation advocates worry that private land use decisionmakers preserve too little open space. Yet private land developers are deciding on their own to preserve open space in new developments because it provides amenities to purchasers of lots. Moreover, tax provisions provide incentives for preserving more open space than would be privately optimal. Many jurisdictions have adopted “use-value assessment” standards granting favorable tax treatment to lands maintained in open space. Also, donations of open space can be deducted from income in computing tax liabilities. Both factors may be empirically important, although tax deductibility may have larger conservation effects than does use-value assessment. These conclusions raise several unanswered questions- How important are tax incentives in practice? Do they motivate enough conservation of open space? Do tax incentives target the right conservation priorities?
    Keywords: income tax, property tax, tax deductions, use-value assessment, ecosystem services, open space, conservation, amenity value
    JEL: H23 H41 H71 R14
  97. By: Pizer, William (Resources For the Future); Kopp, Raymond (Resources For the Future)
    Abstract: Decisions concerning environmental protection hinge on estimates of economic burden. Over the past 30 years, economists have developed and applied various tools to measure this burden. In this paper, developed as a chapter for the Handbook of Environmental Economics, we present a taxonomy of costs along with methods for measuring those costs. At the broadest level, we distinguish between partial and general equilibrium costs. Partial equilibrium costs represent the burden directly borne by the regulated entity (firms, households, government), including both pecuniary and nonpecuniary expenses, when prices are held constant. General equilibrium costs reflect the net burden once all good and factor markets have equilibrated. In addition to partial equilibrium costs, these general equilibrium costs include welfare losses or gains in markets with preexisting distortions, welfare losses or gains from rebalancing the government's budget constraint, and welfare gains from the added flexibility of meeting pollution constraints through reductions in the use of higher-priced, pollution-intensive products. In addition to both partial and general equilibrium costs, we also consider the distribution of costs across households, countries, sectors, subnational regions, and generations. Despite improvements in our understanding of cost measurement, we find considerable opportunity for further work and, especially, better application of existing methods.
    Keywords: social cost, cost-benefit, cost-effectiveness, environmental regulation
    JEL: Q20 Q28 H41 L50 D58
  98. By: Parry, Ian (Resources For the Future)
    Abstract: This paper derives and implements formulas for the welfare effects of differentiated and uniform mileage taxes, gasoline taxes, and per mile insurance premiums, for reducing the external costs of passenger vehicle accidents. The model distinguishes three driver groups and five vehicle groups, and we obtain estimates of external accident costs per mile for each group from crash data. The (average) external accident cost is estimated at 2.2-6.6 cents per mile. Accidents costs differ substantially across drivers of different ages, but only moderately across different vehicles groups. Annual welfare gains from a mileage tax differentiated across drivers and vehicles according to marginal external costs are $9.4 billion in the benchmark case. The uniform mileage tax and per-mile insurance reform can achieve 76% and 65% of this welfare gain, respectively, while the gasoline tax can achieve only 28% of the welfare gain. Unlike other policies, the gasoline tax induces costly improvements in average fleet fuel economy that have little effect on reducing external costs.
    Keywords: traffic accidents; external costs; pricing policies; insurance reform
    JEL: R48 H22 H23
  99. By: Walls, Margaret (Resources For the Future)
    Abstract: Extended producer responsibility (EPR) embodies the notion that producers should be made physically or financially responsible for the environmental impacts their products have at the end of product life. The EPR concept has taken hold in Europe and is garnering wide interest in the United States, where a variant known as “shared product responsibility” or “product stewardship” is usually the preferred approach. There are several policy instruments that are consistent with EPR—product take-back mandates, advance disposal fees, deposit-refunds, recycled content standards, and more. The EPR concept itself, however, provides little guidance about which of these instruments might be appropriate under particular conditions and for particular products. Moreover, while the EPR goal is usually focused on end-of-life environmental impacts, in the United States, at least, the goal seems to have widened to include environmental impacts throughout the product life-cycle. And even a focus on end-of-life impacts leaves the question of whether EPR is intended to deal with waste volumes, the toxic constituents of waste, the method of waste disposal, or a combination of these things. In this paper, I address three main topics- appropriate goals for EPR; conditions under which EPR should be preferred over alternative non-EPR policy instruments; and specific policy instruments that are both cost-effective and consistent with EPR principles. In the discussion of the second and third topics, I focus on the issue of “design for environment.” I develop four policy “maxims” that should guide EPR policymaking. I then apply those maxims to a brief case study of electronic and electrical equipment waste.
    Keywords: EPR, recycling, design for environment
    JEL: Q2 H2
  100. By: Parry, Ian (Resources For the Future)
    Abstract: Grandfathered emissions permits redistribute income to wealthy households by creating firm rents that ultimately accrue to shareholders. Consequently, they can be highly regressive, even if the poor do not have large budget shares for polluting goods. Using an analytical model, this paper estimates the burden borne by different income groups when emissions permits are used to control power plant emissions of carbon, SO2, and NOx. We also compare the burden borne by poor households under permits with that under emissions taxes, performance standards, technology mandates, and input taxes. And we show how the social costs of policies differ from efficiency costs when society has aversion to inequality.
    Keywords: equity effects; pollution controls; emissions permits; social welfare function
    JEL: Q28 H22 H23
  101. By: Brennan, Timothy (Resources For the Future)
    Abstract: Jurisdictions have overlapping authority regarding electricity restructuring when a national authority and subnational regional governments—for example, states—both have a say. The initial sections of the paper review the division of regulatory authority over electricity markets in the United States, constitutional provisions, recent developments, and how federalist concerns have been manifested in antitrust and telecommunications. Justifications for using private markets rather than central governments suggest an efficiency approach to dividing authority, based on information, cross-border externalities, and agency, that is, the ability of a government to reflect the political preferences of its constituents. The goal is not to impose a “right” policy (e.g., promoting efficiency) through a rhetorical “back door,” but to set up rules that would best reflect constituent views. This analysis suggests that transmission and environmental regulations should be set on a regional or national level. States should retain control over when and how to open local retail markets. Uncertainty regarding the best way to organize electricity markets warrants localized experimentation. The paper concludes with brief discussions of nonefficiency ethical criteria and transnational considerations.
    Keywords: electricity restructuring, federalism, regulatory policy
    JEL: H11 L94 L51 H77
  102. By: Fischer, Carolyn (Resources For the Future)
    Abstract: Output-based refunding of environmental policy revenues combines a tax on emissions with a subsidy to output. With imperfect competition, subsidies can discourage output underprovision. However, when market shares are significant, endogenous refunding suffers compared to a fixed subsidy. Refunding the emissions tax according to market share reduces the incentive to abate, and marginal abatement costs will not be equalized if market shares differ. In a Cournot duopoly, endogenous refunding leads to higher output, emissions, and possibly costs compared to a fixed rebate program. These results hold whether emission rates are determined simultaneously or strategically in a two-stage model.
    Keywords: emissions tax, earmarking, tradable performance standards, imperfect competition, Cournot, duopoly, refunding, subsidy
    JEL: H21 H23 Q2
  103. By: Fischer, Carolyn (Resources For the Future)
    Abstract: Rate-based emissions policies (like tradable performance standards) fix average emissions intensity, while cap-and-trade policies fix total emissions. This paper shows that unfettered trade between rate-based and cap-and-trade programs always raises combined emissions, except when product markets are related in particular ways. Gains from trade are fully passed on to consumers in the rate-based sector, resulting in more output and greater emissions allocations. We consider a range of policy options to offset the expansion, including unilateral ones when jurisdictional differences require. The cap-and-trade jurisdiction could impose an "exchange rate" to adjust for relative permit values, but marginal abatement cost equalization is sacrificed. Still, that jurisdiction may prefer adjusted trade over tightening their own cap, which transfers away rents. Although the rate-based sector would have to implement the switch to output-based allocation of a cap, its surplus would be higher than with adjusted trade, which is also preferred to no trade. The cap-and-trade sector would also be better off. Thus, a range of combinations of tighter allocations could improve situations in both sectors with trade, while holding emissions constant.
    Keywords: emissions trading, permit allocation, tradable performance standards, climate, greenhouse gases
    JEL: H23 H3 Q2 Q48
  104. By: Brennan, Timothy (Resources For the Future)
    Abstract: Reserve requirements in electricity markets may get each producer to internalize the cost of grid-wide blackouts it might cause if unable to meet consumer demand. Markets for how such capacity might be procured have been studied. Less examined is how the costs of reserve capacity are covered. “Who pays” depends on how requirements are designed. If each producer has to provide peak capacity available to a grid operator at a below-spot price, requirements will increase volatility—that is, the gap between baseload and marginal peak prices. Requirements based on energy sales act as a tax on baseload to subsidize peak, reducing volatility. Finally, if requirements are designed to ensure that extreme-peak energy is available without scarcity rents, baseload prices remain unaffected, but (nonextreme) peak prices increase. Although this pattern seems unrelated to any economic or social goal, it replicates what one might see under crude seasonal or time-of-use pricing.
    Keywords: capacity requirements, reserve requirements, electricity generation, utility regulation
    JEL: L94 L51 H22
  105. By: Parry, Ian (Resources For the Future)
    Abstract: This paper provides simple formulas for adjusting the costs of carbon taxes and tradable carbon permits to account for interactions with preexisting tax distortions in the labor market. Both policies reduce labor supply as they increase product prices and reduce real household wages; the resulting efficiency losses in the labor market can be substantial relative to partial equilibrium abatement costs. However, much of this added cost can be offset—and perhaps more than offset when additional distortions from the tax system are considered—if revenues from carbon taxes or auctioned permits are used to reduce distortionary taxes. Consequently, there can be a strong case on efficiency grounds for using carbon taxes or auctioned permits over grandfathered carbon permits.
    Keywords: carbon taxes, carbon permits; fiscal interactions; revenue recycling
    JEL: Q28 H21 H23
  106. By: Stavins, Robert; Wagner, Alexander; Snyder, Lori
    Abstract: We develop and apply a new method for estimating the economic benefits of an environmental amenity. The method fits within the household production framework (Becker 1965), and is based upon the notion of estimating the derived demand for a privately traded option to utilize a freely-available public good. In particular, the demand for state fishing licenses is used to infer the benefits of recreational fishing. Using panel data on state fishing license sales and prices for the continental United States over a fifteen-year period, combined with data on substitute prices and demographic variables, a license demand function is estimated with instrumental variable procedures to allow for the potential endogeneity of administered prices. The econometric results lead to estimates of the benefits of a fishing license, and subsequently to the expected benefits of a recreational fishing day. In contrast with previous studies, which have utilized travel cost or hypothetical market methods, our approach provides estimates that are directly comparable across geographic areas. Further, our results suggest that the benefits of recreational fishing days are generally less than previously estimated.
    JEL: Q26 Q21 Q22 H41
  107. By: Parry, Ian (Resources For the Future); Harrington, Winston (Resources For the Future); Nelson, Per-Kristian (Resources For the Future); Safirova, Elena (Resources For the Future); Mason, Dave; Gillingham, Kenneth
    Abstract: Economists have long advocated congestion pricing as an efficient way of allocating scarce roadway capacity. However, with a few exceptions, congestion tolls are rarely used in practice and strongly opposed by the public and elected officials. Although high implementation costs and privacy issues are alleviated as appropriate technologies are developed, the concerns that congestion pricing will adversely affect low-income travelers remain. In this paper, we use a strategic transportation planning model calibrated for the Washington, DC, metropolitan area to compare the welfare and distributional effects of three pricing schemes- value pricing (HOT lanes), limited congestion pricing, and comprehensive congestion pricing. We find that social welfare gains from HOT lanes amount to three-quarters of those from the comprehensive road pricing. At the same time, a HOT lanes policy turns out to be much more equitable than other road pricing schemes, with all income groups strictly benefiting even before the toll revenue is recycled.
    Keywords: traffic congestion, congestion pricing, value pricing, HOT lanes, HOV lanes
    JEL: R40 R41 R48 H23
  108. By: Fischer, Carolyn (Resources For the Future)
    Abstract: In a second-best world of below-optimal pollution pricing, the public return to R&D may be greater than under Pigouvian pricing, due to excess benefits of increasing abatement, or it may be lower, since private actors lack the incentives to take full advantage of the new, cleaner technologies. This paper uses a simple model to demonstrate the interaction between environmental policies, R&D externalities, and the social return to innovation. The results indicate that strong public support for innovation is only justified if at least a moderate emissions policy is in place and spillover effects are significant. Furthermore, in most cases, policy constraints that limit regulatory burdens tend to further limit the scope for public support, even when cost reductions allow for more stringent abatement targets. An exception is when knowledge of the policy adjustment process further reduces private innovation incentives.
    Keywords: emissions price, technological innovation, spillovers, R&D policy
    JEL: Q28 O38 H23
  109. By: Morgenstern, Richard (Resources For the Future); Harrington, Winston (Resources For the Future)
    Abstract: Federal agencies in the United States are required to prepare regulatory impact analyses (RIAs) for every major regulatory action they undertake. Increasingly, other OECD countries are imposing similar requirements. However, there has been little examination of the quality of these documents or of the uses to which they have been put in the regulatory process or elsewhere. In this paper we survey previous efforts to evaluate RIAs and find a fair amount of evaluation of RIAs as stand-alone documents, but much less evaluation of their contribution to producing better regulations.
    Keywords: regulation, RIA, benefit-cost analysis, cost-effectiveness analysis
    JEL: H11 H43
  110. By: Parry, Ian (Resources For the Future)
    Abstract: This paper quantifies the costs of controlling SO2, carbon, and NOx emissions from power generation, accounting for interactions between environmental policies and the broader fiscal system. We distinguish a dirty technology (coal) that satisfies baseload demand and a clean technology (gas) that is used during peak periods, and we distinguish sectors with and without regulated prices. Estimated emissions control costs are substantially lower than in previous models of fiscal interactions that assume a single, constant returns technology and competitive pricing. The results are reasonably robust to alternative scenarios, such as full price deregulation and market power in the deregulated sector.
    Keywords: electricity generation, pollution control, fiscal interactions, price regulation, multiple technology
    JEL: Q28 H21 H23 L94
  111. By: Fischer, Carolyn (Resources For the Future); Fox, Alan
    Abstract: Abstract The choice of mechanism for allocating tradable emissions permits has important efficiency and distributional effects when tax and trade distortions are considered. We present different rules for allocating carbon allowances within sectors (lump-sum grandfathering, output-based allocation [OBA], and auctioning) and among sectors (historical emissions and value-added shares). Using a partial equilibrium model, we explore how OBA mitigates price increases, limits incentives for conservation in favor of lowering energy intensity, and changes relative output prices among sectors. We then use a computable general equilibrium model from the Global Trade Analysis Project, modified to incorporate a labor/leisure choice, to compare overall mechanism performance. The output subsidies implicit in OBA mitigate tax interactions, which can lead to higher welfare than grandfathering. OBA with sectoral distributions based on value added generates effective subsidies similar to a broad-based tax reduction, performing nearly like auctioning with revenue recycling, which generates the highest welfare. OBA based on historical emissions supports the output of more polluting industries, which more effectively counteracts carbon leakage but is more costly in welfare terms. Industry production and trade impacts among sectors that are less energy intensive are also quite sensitive to allocation rules.
    Keywords: emissions trading, output-based allocation, tax interaction, carbon leakage
    JEL: Q2 Q43 H2 D61
  112. By: Stavins, Robert; Jaffe, Adam; Newell, Richard (Resources For the Future)
    Abstract: Market failures associated with environmental pollution interact with market failures associated with the innovation and diffusion of new technologies. These combined market failures provide a strong rationale for a portfolio of public policies that foster emissions reduction as well as the development and adoption of environmentally beneficial technology. Both theory and empirical evidence suggest that the rate and direction of technological advance is influenced by market and regulatory incentives, and can be cost-effectively harnessed through the use of economicincentive based policy. In the presence of weak or nonexistent environmental policies, investments in the development and diffusion of new environmentally beneficial technologies are very likely to be less than would be socially desirable. Positive knowledge and adoption spillovers and information problems can further weaken innovation incentives. While environmental technology policy is fraught with difficulties, a long-term view suggests a strategy of experimenting with policy approaches and systematically evaluating their success.
    Keywords: technology, research and development, environment, externality, policy
    JEL: O38 Q28 H23
  113. By: Parry, Ian (Resources For the Future); Fischer, Carolyn (Resources For the Future); Harrington, Winston (Resources For the Future)
    Abstract: This paper develops analytical models to estimate the welfare effects of higher Corporate Average Fuel Economy (CAFE) standards on new passenger vehicles. The analysis incorporates a broad range of fuel- and driving-related externalities, fuel taxes, different assumptions concerning consumers' valuation of fuel saving technologies and their alternative value in enhancing other vehicle attributes, and endogenous vehicle fleet composition. To implement the analysis, we develop estimates of CAFE's impact on local pollution, nationwide congestion, and traffic accidents. We find that higher fuel economy standards can produce anything from moderate welfare gains, to very little or no effect, to substantial welfare losses, depending on how consumers value fuel economy technologies and their opportunity costs.
    Keywords: fuel economy standards, oil dependency, carbon emissions, rebound effect, gasoline tax
    JEL: R48 Q48 H23
  114. By: Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Krupnick, Alan (Resources For the Future); Evans, David (Resources For the Future); Toth, Russell
    Abstract: For years economists have urged policymakers to use market-based approaches such as cap-and-trade programs or emission taxes to control pollution. The SO2 allowance market created by Title IV of the 1990 U.S. Clean Air Act Amendments represents the first real test of the wisdom of economists’ advice. Subsequent urban and regional applications of NOx emission allowance trading took shape in the 1990s in the United States, culminating in a second large experiment in emission trading in the eastern United States that began in 2003. This paper provides an overview of the economic rationale for emission trading and a description of the major U.S. programs for sulfur dioxide (SO2) and nitrogen oxides (NOx). We evaluate these programs along measures of performance including cost savings, environmental integrity, and incentives for technological innovation. We offer lessons for the design of future programs including, most importantly, those reducing carbon dioxide.
    Keywords: sulfur dioxide, nitrogen oxides, emission trading, power plants, air pollution
    JEL: H23 Q25 Q28 D78
  115. By: Fischer, Carolyn (Resources For the Future); Sterner, Thomas; Muchapondwa, Edwin
    Abstract: This paper formulates a bioeconomic model to analyze community incentives for wildlife management under benefit-sharing programs like the Communal Areas Management Programme for Indigenous Resources (CAMPFIRE) in Zimbabwe. Two agents influence the wildlife stock- a parks agency determines hunting quotas, and a local community chooses to either aid or discourage outside poachers. Wildlife generates revenues from hunting licenses and tourism; it also intrudes on local agriculture. We consider two benefit-sharing regimes- shares of wildlife tourism rents and shares of hunting licenses. Resource sharing does not necessarily improve community welfare or incentives for wildlife conservation. Results depend on the exact design of the benefit shares, the size of the benefits compared with agricultural losses, and the way in which the parks agency sets hunting licenses.
    Keywords: bioeconomic, CAMPFIRE, community, poaching, wildlife, benefit sharing
    JEL: H41 Q20
  116. By: Parry, Ian (Resources For the Future)
    Abstract: Gasoline taxes are widely perceived as the most efficient instrument for reducing gasoline consumption because they exploit all behavioral responses for reducing fuel use, including reduced driving and improved fuel economy. At present, however, higher fuel taxes are viewed as a political nonstarter. Pay-as-you-drive (PAYD) auto insurance, which involves replacing existing lump-sum premiums with premiums that vary in proportion to miles driven, should be more practical, since they do not raise driving costs for the average motorist. We show that when impacts on a broad range of motor vehicle externalities are considered, PAYD also induces significantly higher welfare gains than comparable gasoline tax increases, for fuel reductions below 9%. The reason is that under PAYD, all of the reduction in fuel use, rather than just a fraction, comes from reduced driving; this produces a substantial additional efficiency gain because mileage-related external costs (especially congestion and accidents) are relatively large in magnitude.
    Keywords: gasoline tax; pay-as-you-drive insurance; mileage tax; welfare effects; motor vehicle externality
    JEL: H21 H23 R48
  117. By: Parry, Ian (Resources For the Future)
    Abstract: This paper discusses the appropriate balance between traditional gasoline taxes and charging by the mile, focusing mainly on economic efficiency considerations. We begin with a brief discussion of the five major passenger vehicle externalities of concern - local pollution, greenhouse warming, oil dependency, traffic congestion, and traffic accidents - summarizing evidence on the dollar value of the externalities for passenger vehicles in the United States. We then discuss how much fuel taxation might be justified to account for these externalities, as well as how much taxation might be appropriate on fiscal grounds, assuming per-mile charges are unavailable. Finally, we discuss to what extent fuel taxation should be replaced with per-mile charges.
    Keywords: gasoline tax, mileage tax, motor vehicle externalities, fiscal interactions
    JEL: H21 H23 R48
  118. By: Blackman, Allen (Resources For the Future); Morgenstern, Richard (Resources For the Future); Laskowski, Stanley
    Abstract: This paper examines the United States’ experience with environmental decentralization, focusing on the relationship between the U.S. Environmental Protection Agency (EPA) and the states. It outlines the factors that are considered in determining the appropriate degree of decentralization, the advantages and disadvantages of decentralization, how the EPA-state relationship has evolved over the years, and the structural mechanisms used to ensure that there is a high degree of performance by EPA and the states in administering the programs. Program-specific examples of the EPA-state relationship are also provided.
    Keywords: environmental decentralization, environmental administration
    JEL: H11 H59
  119. By: Walls, Margaret (Resources For the Future); Calcott, Paul
    Abstract: Several studies that have solved for optimal solid waste policy instruments have suggested that transaction costs may often prevent the working of recycling markets. In this paper, we explicitly incorporate such costs into a general equilibrium model of production, consumption, recycling, and disposal. Specifically, we assume that consumers have access to both recycling without payment and recycling with payment but that the latter option comes with transaction costs. Producers choose material and nonmaterial inputs to produce a consumer product, and they also choose design attributes of that product—its weight and degree of recyclability. We find that the policy instruments that yield a social optimum in this setting need to vary with the degree of recyclability of products. Moreover, they need to be set to ensure that recycling markets do not operate—that is, that all recycling takes place without an exchange of money between recyclers and consumers. We argue that implementing such a policy would be difficult in practice. We then solve for a simpler set of instruments that implement a constrained (second-best) optimum. We find the results in this setting more encouraging- a modest disposal fee—less than the Pigouvian fee—combined with a common deposit-refund applied to all products will yield the constrained optimum. Moreover, this set of constrained optimal instruments is robust to the possibility that consumers imperfectly sort used products into trash and recyclables.
    Keywords: Dfe, deposit-refund, disposal fee, constrained optimum
    JEL: H21 Q28
  120. By: Fischer, Carolyn (Resources For the Future); Bernard, Alain; Vielle, Marc
    Abstract: Political pressure often exists for rebating environmental levies, particularly when incomplete regulatory coverage allegedly creates an “unlevel playing field” with other, unregulated firms or industries. This paper assesses the conditions under which rebating environmental levies is justified for the regulated sector. It combines a theoretical approach based on second-best modeling with numerical simulations aimed at determining the most sensitive parameters. We find that if an adequate tax on production can be levied in the unregulated sector, no rebate is justified for the regulated sector. Moreover, even in the case of constrained taxation in the unregulated sector, a tax rebate or a subsidy in the regulated sector is not necessarily a welfare-increasing policy. The exception occurs when the goods of the competing sectors are close substitutes. We find that these kinds of policy contraints can be quite costly in terms of welfare.
    Keywords: environmental levy, tax rebate, fiscal distortions
    JEL: Q2 Q43 H2 D61
  121. By: Burtraw, Dallas (Resources For the Future); Palmer, Karen (Resources For the Future); Krupnick, Alan (Resources For the Future); Toman, Michael; Paul, Anthony; Bloyd, Cary
    Abstract: This paper considers how moderate actions to slow atmospheric accumulation of greenhouse gases from fossil fuel use also could reduce conventional air pollutants in the United States. The benefits that result would be “ancillary” to greenhouse gas abatement. Moreover, the benefits would tend to accrue locally and in the near term, while benefits from reduced climate change mostly accrue globally and over a time frame of several decades or longer. The previous literature suggests that changes in nitrogen oxides (NOx) would be the most important consequence of moderate carbon policies. We calculate these changes in a detailed electricity model linked to an integrated assessment framework to value changes in human health. A tax of $25 per metric ton of carbon emissions would yield NOx related health benefits of about $8 per metric ton of carbon reduced in the year 2010 (1997 dollars). Additional savings accrue from reduced investment in NOx and SO2 abatement in order to comply with emission caps. These savings sum to $4-$7 per ton of carbon reduced. Total ancillary benefits of a $25 carbon tax are estimated to be $12-$14, which appear to justify the costs of a $25 tax, although marginal benefits are less than marginal costs. At a tax of $75 per ton carbon, greater health benefits and abatement cost savings are achieved but the value of ancillary benefits per ton of carbon reductions remains roughly constant at about $12.
    Keywords: climate change, greenhouse gas, ancillary benefits, air pollution, co-control benefits, nitrogen oxides, sulfur dioxide, carbon dioxide, particulates, health
    JEL: H23 I18 Q48
  122. By: Banzhaf, H. Spencer (Resources For the Future)
    Abstract: This paper illustrates how public goods may be incorporated into a cost-of-living index. When public goods are weak complements to a market good, quality-adjusted prices for the market good capture all the welfare information required. They are also consistent with a Laspeyres index that maintains the bound on a true cost-of-living index. The paper recovers this information from a discrete-choice model, using a simulation routine to solve for the appropriate price adjustments. These concepts are applied to the case of housing, education, crime, and air quality in Los Angeles for 1989 to 1994. Over a period of time when they are improving, incorporating pubic goods into the index lowers the estimated change in the cost of living by 0.5 to 2.6 percentage points. In other years, when public goods diverge, the estimated annual adjustment differs by model, with a range of -0.2 to +1.3 percentage points.
    Keywords: air quality, discrete choice models, green accounting, nonmarket valuation, price inde
    JEL: C51 D12 D60 E31 H40 R10
  123. By: Parry, Ian (Resources For the Future); Small, Kenneth
    Abstract: This paper develops an analytical framework for assessing the second-best optimal level of gasoline taxation, taking into account unpriced pollution, congestion, and accident externalities and interactions with the broader fiscal system. We provide calculations of the optimal taxes for the United States and the United Kingdom under a wide variety of parameter scenarios, with the gasoline tax substituting for a distorting tax on labor income. Under our central parameter values, the second-best optimal gasoline tax is $1.01 per gallon for the United States and $1.34 per gallon for the United Kingdom. These values are moderately sensitive to alternative parameter assumptions. The congestion externality is the largest component in both nations, and the higher optimal tax for the United Kingdom is due mainly to a higher assumed value for marginal congestion cost. Revenue-raising needs, incorporated in a “Ramsey” component, also play a significant role, as do accident externalities and local air pollution. The current gasoline tax in the United Kingdom ($2.80 per gallon) is more than twice this estimated optimal level. Potential welfare gains from reducing it are estimated at nearly one-fourth the production cost of gasoline used in the United Kingdom. Even larger gains in the United Kingdom can be achieved by switching to a tax on vehicle miles with equal revenue yield. For the United States, the welfare gains from optimizing the gasoline tax are smaller, but those from switching to an optimal tax on vehicle miles are very large.
    Keywords: gasoline tax, pollution, congestion, accidents, fiscal interactions
    JEL: H21 H23 R48
  124. By: Macauley, Molly (Resources For the Future); Walls, Margaret (Resources For the Future); Anderson, Soren
    Abstract: We study determinants of market organization of local public services by an empiricalexamination of one of the most visible municipal services, residential waste management. Usinga multinomial logit model and data for 1,000 U.S. communities, we explore the effect of politicalinfluence, voter ideology, environmental constraints, production costs (i.e., “economies ofdensity”), and contracting transaction costs on a community’s choice of market arrangement forwaste collection and recycling. We find that cost factors are a significant determinant of servicedelivery method. In contrast, few of the political variables are statistically significant. Theseresults hold for our models of both waste and recycling, lending further evidence to theconclusion that local governments emphasize costs when choosing between private and publicprovision.
    Keywords: Market organization, solid waste management, state and local government
    JEL: Q20 H70
  125. By: Renato BALDUCCI (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: I intend to verify whether the results obtained by Barro (1990) in relation to the effects of both productive investments and public consumption on economic growth are also confirmed in a more general context. As is well-known, public expenditure may exert an effect on the economic growth rate through the positive externality in the productivity of the capital stock. When public expenditure in the households' utility function is considered, a further effect operates to modify the saving and investment decisions of households, depending on the relative weight of public consumption. In particular, if households consider public expenditure to be useful, I shall show that - whatever the exogenous fiscal policy may be - the growth rate is always higher than it is in the case of productive investments alone. Moreover, if households are able to choose the optimal income tax rate, an optimal growth rate greater than the maximum one may be obtained.
    Keywords: economic growth, public expenditure
    JEL: H5 O4
    Date: 2005–08
  126. By: Ugo FRATESI
    Abstract: This paper introduces a new 2-country 4-region model in order to study the possible trade-offs arising between national efficiency and interregional equity, differentiating for different strengths of agglomeration economies and different regional productivities. In this static model the national policy maker can affect entrepreneurship through the set-up costs of firms. It is evidenced that, for countries composed of identical regions, spatially dispersed allocations of public productive expenditure are more efficient with low agglomeration economies whereas spatially concentrated allocations are more efficient with high agglomeration economies. As the regions become different, however, unbalanced allocations of public productive expenditure;towards the most advanced region become more efficient also in case of relatively weak agglomeration economies, until, for regions sufficiently different, the most efficient allocation of public productive expenditure is always to;concentrate it in the most advanced territories. For this reason, if some sort of lump-sum compensating mechanisms are available, short-sighted national policy makers, not taking into account long-run growth and factor mobility, can rationally decide to support the competitiveness of the already more-productive regions and transfer income to the lagging ones, a behaviour which is shown to have significant similarities with two real cases.
    Keywords: agglomeration economics, interregional equity, national efficiency, regional policy
    JEL: E61 H79 R13 R58
    Date: 2005–11
  127. By: Nicholas Bardsley (CeDEx, School of Economics, University of Nottingham); Peter Moffatt (School of Economics, University of East Anglia)
    Abstract: In public goods experiments, stochastic choice, censoring, and motivational heterogeneity allow experimentalists to differ over the extent of unselfishness, and whether it is reciprocal or altruistic. These problems are addressed econometrically by estimating a finite mixture model to isolate types, incorporating the two-limit Tobit model with tremble to accommodate censoring and errors. Most subjects act selfishly, but a substantial proportion are reciprocal with altruism playing only a marginal role. Isolating reciprocators enables a test of Sugden’s model of voluntary contributions, which is rejected because they display a selfserving bias.
    Keywords: voluntary contributions, reciprocity, altruism, tobit, finite mixture models, trembles
    JEL: C1 C9 H4
    Date: 2005–06

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