|
on Public Economics |
| By: | John Gibson (University of Waikato); Susan Olivia (University of California, Davis); Scott Rozelle (University of California, Davis) |
| Abstract: | This paper investigates whether there is a non-linear relationship between income and the private transfers received by households in developing countries. If private transfers are unresponsive to household income, expansion of public social security and other transfer programs is unlikely to crowd out private transfers, contrary to concerns first raised by Barro and Becker. There is little existing evidence for crowding out effects in the literature, but this may be because they have been obscured by methods that ignore non-linearities. If donors switch from altruistic motivations to exchange motivations as recipient income increases, a sharp non-linear relationship between private transfers and income may result. In fact, threshold regression techniques find such non-linearity in the Philippines and after accounting for these there is evidence of serious crowding out, with 30 to 80 percent of private transfers potentially displaced for low-income households [Cox, Hansen and Jimenez 2004, 'How Responsiveare Private Transfers to Income?' Journal of Public Economics]. To see if these non-linear effects occur more widely, semiparametric and threshold regression methods are used to model private transfers in four developing countries - China, Indonesia, Papua New Guinea and Vietnam. The results of our paper suggest that non-linear crowding-out effects are not important features of transfer behaviour in these countries. The transfer derivatives under a variety of assumptions only range between 0 and -0.08. If our results are valid, expansions of public social security to cover the poorest households need not be stymied by offsetting private responses. |
| Keywords: | crowding out; private transfers; social security |
| JEL: | H55 O15 |
| Date: | 2006–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:wai:econwp:01/06&r=pbe |
| By: | Lars P. Feld; Bruno S. Frey |
| Abstract: | The traditional economic approach to tax evasion does not appear to be particularly successful in explaining the extent of tax compliance. We argue instead that a psychological tax contract which establishes a fiscal exchange between the state and the citizens shapes tax compliance to a large extent. In that respect, a case study of Switzerland is useful because the small size of the cantons and their direct democratic political systems procedurally establish a close exchange relationship between taxpayers and tax authorities. In this paper, evidence is discussed on how tax evasion and tax morale in Switzerland evolved over time. In addition, the impact of economic, legal, socio-demographic, psychological and institutional factors on Swiss tax evasion is discussed. |
| Keywords: | Tax Evasion; Tax Morale; Deterrence; Responsive Regulation |
| JEL: | H26 H73 D73 D78 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2006-13&r=pbe |
| By: | Lars P. Feld; Bruno S. Frey |
| Abstract: | In this paper, we develop the concept of a psychological tax contract that goes beyond the traditional deterrence model and explains tax morale as a complicated interaction between taxpayers and the government. Based on crowding theory, the impact of deterrence and rewards on tax morale is discussed. As a contractual relationship implies duties and rights for each contract partner, sticking to the fiscal exchange paradigm between citizens and the state increases tax compliance. Citizens are willing to honestly declare income even if they do not receive a full public good equivalent to their tax payments as long as the political process is perceived to be fair and legitimate. At the procedural level, a friendly treatment of taxpayers by the tax office in auditing processes increases tax compliance. |
| Keywords: | Tax Compliance, Positive and Negative Incentives, Responsive Regulation |
| JEL: | H26 H73 D73 D78 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:287&r=pbe |
| By: | Lars P. Feld; Bruno S. Frey |
| Abstract: | In this paper, we develop the concept of a psychological tax contract that goes beyond the traditional deterrence model and explains tax morale as a complicated interaction between taxpayers and the government. Based on crowding theory, the impact of deterrence and re-wards on tax morale is discussed. As a contractual relationship implies duties and rights for each contract partner, sticking to the fiscal exchange paradigm between citizens and the state increases tax compliance. Citizens are willing to honestly declare income even if they do not receive a full public good equivalent to their tax payments as long as the political process is perceived to be fair and legitimate. At the procedural level, a friendly treatment of taxpayers by the tax office in auditing processes increases tax compliance. |
| Keywords: | Tax Compliance; Positive and Negative Incentives; Responsive Regulation |
| JEL: | H26 H73 D73 D78 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2006-10&r=pbe |
| By: | António Afonso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Vítor Gaspar (Banco de Portugal, R. Francisco Ribeiro, 2, 1150-165 Lisbon, Portugal.) |
| Abstract: | In this paper we revisit the literature on the economic consequences from inefficiency in public services provision. Following Dupuit (1844) and Pigou (1947) we argue that it is important to take the financing side explicitly into account. The fact that public expenditure financing must rely on distortional taxation implies that both direct and indirect costs are relevant when estimating the economic impacts of inefficiency in public services provision. Using Hicks’ compensating variation (following Diamond and McFadden (1974) and Auerbach (1985)) we show that these magnification mechanisms are not only conceptually relevant, they are also important from a quantitative point of view. Specifically, we rely on a range of estimates of public sector efficiency (from Afonso, Schuknecht and Tanzi (2005, 2006)) to illustrate numerically that the relative importance of indirect costs of public sector provision inefficiency, linked to financing through distortional taxation increases with the magnitude of the inefficiency. |
| Keywords: | Government efficiency, excess burden, taxes, spending. |
| JEL: | D11 E62 H21 H50 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060601&r=pbe |
| By: | Bruno S. Frey; Benno Torgler |
| Abstract: | Why so many people pay their taxes, although fines and audit probability are low, has become a central question in the tax compliance literature. A homo economicus, with a more refined motivation structure, helps us to shed light on this puzzle. This paper provides empirical evidence for the relevance of conditional cooperation, using survey data from 30 West and East European countries. We find a high correlation between perceived tax evasion and tax morale. The results remain robust after exploiting endogeneity and conducting several robustness tests. We also observe a strong positive correlation between institutional quality and tax morale. |
| Keywords: | tax morale; tax compliance; tax evasion; pro-social behavior; institutions |
| JEL: | H26 H73 D64 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2006-11&r=pbe |
| By: | Albanesi, Stefania |
| Abstract: | This paper studies optimal taxation of entrepreneurial capital and financial assets in economies with private information. Returns to entrepreneurial capital are risky and depend on entrepreneurs’ effort, which is not observed. The presence of idiosyncratic risk in capital returns implies that constrained-efficient allocations display an intertemporal wedge on entrepreneurial capital that can be positive or negative. The properties of optimal marginal taxes on entrepreneurial capital depend on the sign of this wedge. If the wedge is positive, the marginal capital tax should be decreasing in capital returns, while the opposite is true when the wedge is negative. The optimal tax system equalizes after tax returns on all assets, thus reducing the variance of capital returns after tax relative to other assets. If entrepreneurs are allowed to sell shares of their capital to outside investors, returns to externally owned capital are subject to double taxation at the level of the entrepreneur and at the level of the outside investors. Even if entrepreneurs can purchase private insurance against their idiosyncratic risk, optimal asset taxes are essential to implement the constrained-efficient allocation if entrepreneurial portfolios are private information. |
| Keywords: | entrepreneurial capital; optimal taxation; private information |
| JEL: | E6 H2 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5647&r=pbe |
| By: | Lars P. Feld; Bruno S. Frey; Benno Torgler |
| Abstract: | This paper analyzes the impact of rewards on tax compliance as an additional instrument to take into account. While social psychologists and neuroscientists have emphasized the importance of rewards, the tax compliance literature has strongly disregarded the possibilities of rewards. The use of field experiments presents an alternative “carrot” strategy for tax policy. Design mechanisms to conduct a field experiments focusing on the impact of rewards on tax compliance are discussed. |
| Keywords: | positive rewards; tax compliance; tax evasion; field experiments |
| JEL: | H26 H41 C90 D63 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2006-16&r=pbe |
| By: | Gilbert E. Metcalf |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:tuf:tuftec:0607&r=pbe |
| By: | Honkapohja, Seppo (University of Cambridge); Turunen-Red, Arja H. (University of New Orleans) |
| Abstract: | We analyze the welfare impact of entrepreneur mobility in a two-country model. Increasing returns in production yield multiple equilibria that are stable under adaptive learning. Governments compete for the mobile resource by setting income taxes. We show that large welfare gains can arise from noncooperative taxation. If expectational barriers prevent the realization of high output equilibria, tax competition can sufficiently perturb expectations so that high steady states become attainable. Once in a high production regime, governments may institute cooperative tax increases or reductions so as to bring the economy to the global joint optimum without disturbing the regime. |
| Keywords: | Competition for mobile factors, Overlapping generations, Multiple equilibria, Bifurcations |
| JEL: | H2 F2 D83 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:uno:wpaper:2005-09&r=pbe |
| By: | Siu, Henry |
| Abstract: | I consider the role of conscription as a fiscal shock absorber in times of war. Conscription of military personnel allows the fiscal authority to minimize wartime government expenditure, and hence, minimize tax distortions associated with war finance. I develop a simple dynamic general equilibrium model to articulate this view, and calibrate the model to mimic the U.S. World War II experience. Analysis of the calibrated model indicates that the value of conscription as a fiscal policy tool is quantitatively large. |
| Date: | 2006–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:bricol:siu-06-04-26-12-42-20&r=pbe |
| By: | Bruno S. Frey; Alois Stutzer |
| Abstract: | This chapter discusses the role of environmental morale and environmental motivation in individual behavior from the point of view of economics and psychology. It deals with the fundamental public good problem, and presents empirical (laboratory and field) evidence on how the cooperation problem can be overcome. Four different theoretical approaches are distinguished according to how individuals’ underlying environmental motivation is modeled. Specifically, we look at the interaction between environmental policy and environmental morale through the lens of cognitive evaluation theory (also known as crowding theory). |
| Keywords: | environmental morale; environmental policy; motivation crowding; pro-social preferences; public good problem |
| JEL: | D64 H41 Q50 Z13 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2006-17&r=pbe |
| By: | Arindam Das-Gupta (Indira Gandhi Institute of Development Research, Goregaon, India); Shanto Ghosh (LECG, Oakland); Dilip Mookherjee (Institute for Economic Development, Boston University) |
| URL: | http://d.repec.org/n?u=RePEc:bos:iedwpr:dp-137&r=pbe |
| By: | Benno Torgler; Neven T. Valev |
| Abstract: | In recent years the topics of illegal activities such as corruption or tax evasion have attracted a great deal of attention. However, there is still a lack of substantial empirical evidence about the determinants of compliance. The aim of this paper is to investigate empirically whether women are more willing to be compliant than men and whether we observe (among women and in general) differences in attitudes among similar age groups in different time periods (cohort effect) or changing attitudes of the same cohorts over time (age effect) using data from eight Western European countries from the World Values Survey and the European Values Survey that span the period from 1981 to 1999. The results reveal higher willingness to comply among women and an age rather than a cohort effect. |
| Keywords: | corruption; bribe; social norms; tax compliance; gender effect; age effect; cohort effect |
| JEL: | H10 J16 K42 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2006-15&r=pbe |
| By: | Gilbert E. Metcalf |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:tuf:tuftec:0608&r=pbe |
| By: | Stephanie Schmitt-Grohé (Duke University, Durham, NC 27708, United States.); Martín Uribe (Duke University, Durham, NC 27708, United States.) |
| Abstract: | In this paper, we study Ramsey-optimal fiscal and monetary policy in a mediumscale model of the U.S. business cycle. The model features a rich array of real and nominal rigidities that have been identified in the recent empirical literature as salient in explaining observed aggregate fluctuations. The main result of the paper is that price stability appears to be a central goal of optimal monetary policy. The optimal rate of inflation under an income tax regime is half a percent per year with a volatility of 1.1 percent. This result is surprising given that the model features a number of frictions that in isolation would call for a volatile rate of inflation—particularly nonstate-contingent nominal public debt, no lump-sum taxes, and sticky wages. Under an income-tax regime, the optimal income tax rate is quite stable, with a mean of 30 percent and a standard deviation of 1.1 percent. |
| Keywords: | Ramsey Policy, Inflation Stabilization, Tax Smoothing, Time to Tax, Nominal and Real Rigidities. |
| JEL: | E52 E61 E63 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060612&r=pbe |
| By: | Hendrik Hakenes (Max Planck Institute for Research on Collective Goods, Kurt-Schumacher-Str. 10, 53113 Bonn, Germany, hakenes@coll.mpg.de); Isabel Schnabel (Max Planck Institute for Research on Collective Goods, Kurt-Schumacher-Str. 10, 53113 Bonn, Germany, schnabel@coll.mpg.de) |
| Abstract: | This paper yields a rationale for why subsidized public banks may be desirable from a regional perspective in a financially integrated economy. We present a model with credit rationing and heterogeneous regions in which public banks prevent a capital drain from poorer to richer regions by subsidizing local depositors, for example, through a public guarantee. Under some conditions, cooperative banks can perform the same function without any subsidization; however, they may be crowded out by public banks. We also discuss the impact of the political structure on the emergence of public banks in a political-economy setting and the role of interregional mobility. |
| Keywords: | Public banks, cooperative banks, capital drain, credit rationing, financial integration, privatization. |
| JEL: | G21 F36 H11 L33 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:107&r=pbe |
| By: | Martimort, David; Pouyet, Jérôme |
| Abstract: | This paper analyzes whether the two tasks of building infrastructures which are socially useful and managing those assets should be bundled or not. When performances contracts can be written, both tasks should be performed altogether by the same firm when a better design of the infrastructure helps also to save on operating costs (positive externality). Otherwise (negative externality), tasks should be kept split apart and undertaken by different units. In incomplete contracting environments where the quality of the infrastructure may be hard to describe in advance, we isolate conditions under which either the traditional form of public provision of services or the more fashionable public-private partnership optimally emerges. The latter dominates when there is a positive externality but the private benefits from owning assets are small enough. Finally, we take a political economy perspective and study how incentive schemes are modified under the threat of capture of the decision-makers. |
| Keywords: | agency costs; bundling/unbundling; capture; public-private partnership |
| JEL: | H11 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5610&r=pbe |
| By: | Leonardo Gasparini (Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS) - Universidad Nacional de La Plata); Santiago Pinto (Department of Economics, West Virginia University) |
| Abstract: | This paper examines the argument for public provision of certain private goods, like education and health, based on equality of opportunity by studying the utility possibility frontier of a society in which there is a concern for the distribution of these goods. A given quality of education or health services can be consumed for free in the public sector, but people can opt-out and purchase their desired quality levels in the private sector. Some of the conclusions are: (i) a pure cash transfer is optimal when the utility redistribution is either “sufficiently” small or large; (ii) if and only if both the equality-of-opportunity concern and the utility redistribution are large enough, can an in-kind program which attracts the whole population be justified; (iii) even when everybody chooses the in-kind program, it may be optimal to perform some additional utility redistribution by increasing the size of such program. |
| Keywords: | equality of opportunity, redistribution, education, in-kind |
| JEL: | D3 H4 I2 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:dls:wpaper:0022&r=pbe |
| By: | Pranab Bardhan (University of California at Berkeley); Dilip Mookherjee (Institute for Economic Development, Boston University) |
| Abstract: | The impact of government decentralization on economic performance and growth is a hotly contested issue. Waves of decentralization occurred in many developing countries over the past few decades, following the demise of a development paradigm in which centralized states played a leading role (see for instance, case studies of decentralization covering over half the world’s population in Bardhan and Mookherjee 2005b). The trends toward greater decentralization has been motivated by disenchantment with previous centralized modes of governance, owing partly to a perception that monolithic government bred high levels of rent-seeking, corruption and lack of accountability of government officials. An important research question, therefore, concerns the effects of decentralization on corruption. Can decentralization be a useful institutional reform to reduce corruption, or might corruption increase as political power shifts downward? |
| URL: | http://d.repec.org/n?u=RePEc:bos:iedwpr:dp-152&r=pbe |
| By: | Bruno S. Frey; Dominic Rohner |
| Abstract: | It has often been pointed out in the literature that a symbiotic relationship exists between terrorist groups and the media. As yet, however, no formal model has been built based on this issue and only very little empirical research has been done in this field. The present contribution builds a simple game theoretic model, focussing on the social interactions between terrorists and the media. The model has features of a common-interest-game and results in multiple equilibria. After a discussion of the policy implications of the model, an empirical analysis is performed. Using newspaper coverage, terror incidents and terror fatalities data, it is shown that media attention and terrorism do mutually Granger cause each other, as predicted by the model. Moreover, it is explained why terror attacks tend to be “bloodier” in developing countries than in Europe and the United States. |
| Keywords: | Terrorism; media; common-interest-game; coordination; conflict |
| JEL: | C72 D74 H52 H77 J22 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2006-08&r=pbe |
| By: | Bruno S. Frey; Dominik Rohner |
| Abstract: | It has often been pointed out in the literature that a symbiotic relationship exists between terrorist groups and the media. As yet, however, no formal model has been built based on this issue and only very little empirical research has been done in this field. The present contribution builds a simple game theoretic model, focussing on the social interactions between terrorists and the media. The model has features of a common-interest-game and results in multiple equilibria. After a discussion of the policy implications of the model, an empirical analysis is performed. Using newspaper coverage, terror incidents and terror fatalities data, it is shown that media attention and terrorism do mutually Granger cause each other, as predicted by the model. Moreover, it is explained why terror attacks tend to be “bloodier” in developing countries than in Europe and the United States. |
| Keywords: | Terrorism, media, common-interest-game, coordination, conflict |
| JEL: | C72 D74 H52 H77 J22 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:285&r=pbe |
| By: | Mototsugu Fukushige (Graduate School of Economics, Osaka University); Noriko Ishikawa (Graduate School of Science and Technology, Kobe University) |
| Abstract: | We propose a method for decomposing interregional differentials in productivities based on the lifecycle permanent income hypothesis and conduct an empirical analysis using data from prefectural economic accounts in Japan to examine the effectiveness of this method. |
| Keywords: | Interregional Differentials in Productivities, Decomposition of Inequality, Consumption Inequality |
| JEL: | R3 D30 H24 E20 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:0611&r=pbe |
| By: | Thomas Giebe (Institut für Wirtschaftstheorie I, Humboldt.Universität zu Berlin Spandauer Str. 1, 10099 Berlin, Germany Email: giebe@wiwi.hu.berlin.de); Tim Grebe (Institut für Wirtschaftstheorie I, Humboldt.Universität zu Berlin Spandauer Str. 1, 10099 Berlin, Germany Email: grebe @wiwi.hu.berlin.de); Elmar Wolfstetter (Institut für Wirtschaftstheorie I, Humboldt.Universität zu Berlin Spandauer Str. 1, 10099 Berlin, Germany Email: wolfstetter@wiwi.hu.berlin.de) |
| Abstract: | This paper evaluates how R&D subsidies to the business sector are typically awarded. We identify two sources of ine_ciency: the selection based on a ranking of individual projects, rather than complete allocations, and the failure to induce competition among applicants in order to extract and use information about the necessary funding. In order to correct these ine_- ciencies we propose mechanisms that include some form of an auction in which applicants bid for subsidies. Our proposals are tested in a simulation and in controlled lab experiments. The results suggest that adopting our proposals may considerably improve the allocation. |
| Keywords: | Research, Subsidies, Experimental Economics |
| JEL: | D44 D45 H25 O32 O38 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:108&r=pbe |