nep-pbe New Economics Papers
on Public Economics
Issue of 2006‒05‒20
28 papers chosen by
Peren Arin
Massey University

  1. Markets Versus Governments: Political Economy of Mechanisms By Daron Acemoglu; Michael Golosov; Aleh Tsyvinski
  2. Interaction of Fiscal Policies on the Euro Area: How Much Pressure on the ECB? By Luca Onorante
  3. What Shapes Attitudes Toward Paying Taxes? Evidence from Multicultural European Countries By Benno Torgler; Friedrich Schneider
  4. A Dynamic Theory of Public Spending, Taxation and Debt By Marco Battaglini; Stephen Coate
  5. Macroeconomic effects of banking secrecy when tax evasion is endogenous By Frode Brevik; Manfred Gärtner
  6. Fair Tax Evasion By Barth, Erling; Cappelen, Alexander W.; Ognedal, Tone
  7. Can Coasean bargaining justify Pigouvian taxation? By Stephanie Rosenkranz; Patrick W. Schmitz
  8. Tax Competition and Parasitic Tax Havens By Joel Slemrod; John D. Wilson
  9. The Effect of Taxes on Efficiency and Growth By Martin Feldstein
  10. Income Taxation, Tuition Subsidies, and Choice of Occupation By Geir Haakon Bjertnæs
  11. Evaluation of Policy Options to Encourage Welfare to Work By Hielke Buddelmeyer; John Freebairn; Guyonne Kalb
  13. Tax Law Changes, Income Shifting and Measured Wage Inequality: Evidence from India By Jagadeesh Sivadasan; Joel Slemrod
  14. Estimating the effects of personal income tax on labour supply in Italy By D. Tondani
  15. Inter-jurisdiction Subsidy Competition for a New Production Plant: What is the Central Government Optimal Policy? By Osiris J.Parcero
  16. The Cost of Complexity in Federal Student Aid: Lessons from Optimal Tax Theory and Behavioral Economics By Susan M. Dynarski; Judith E. Scott-Clayton
  17. Myths and Maths: Macroeconomic Effects of Fiscal Adjustments in Hungary By Ágnes Horváth; Zoltán M. Jakab; Gábor P. Kiss; Balázs Párkányi
  18. Internet Retail Demand: Taxes, Geography, and Online-Offline Competition By Glenn Ellison; Sara Fisher Ellison
  19. Wage Rigidity or Fiscal Redistribution? The Unemployment Bias of Time Consistent Redistributive Policies By Etienne Lehmann
  20. Why There is a Democratic Deficit in the EU: A Response to Majone and Moravcsik By Follesdal, Andreas; Hix, Simon
  21. Public jobs creation and unemployment dynamics. By Céline Choulet
  22. Where are the Real Bottlenecks? A Lagrangian Approach to Identifying Constraints on Growth from Subjective Survey Data By Wendy Carlin; Mark Schaffer; Paul Seabright
  23. Discounting Dollars, Discounting Lives: Intergenerational Distributive Justice and Efficiency By Louis Kaplow
  24. European Urban Growth: now for some problems of spaceless and weightless econometrics By Stefano Magrini; Paul Cheshire
  25. Do redistributive schemes reduce inequality between individuals? By Eugenio Peluso; Alain Trannoy
  26. The Opportunity Cost of Electricity Outages and Privatization of Substations in Nepal By Roop Jyoti; Aygul Ozbafli; Glenn Jenkins
  27. Get Training or Wait? Long-Run Employment Effects of Training Programs for the Unemployed in West Germany By Bernd Fitzenberger; Aderonke Osikominu; Robert Völter
  28. An Elephant in the Garden: The Allies, Spain, and Oil in World War II By Leonard Caruana; Hugh Rockoff

  1. By: Daron Acemoglu; Michael Golosov; Aleh Tsyvinski
    Abstract: We study the optimal Mirrlees taxation problem in a dynamic economy with idiosyncratic (productivity or preference) shocks. In contrast to the standard approach, which implicitly assumes that the mechanism is operated by a benevolent planner with full commitment power, we assume that any centralized mechanism can only be operated by a self-interested ruler/government without commitment power, who can therefore misuse the resources and the information it collects. An important result of our analysis is that there will be truthful revelation along the equilibrium path (for all positive discount factors), which shows that truth-telling mechanisms can be used despite the commitment problems and the different interests of the government. Using this tool, we show that if the government is as patient as the agents, the best sustainable mechanism leads to an asymptotic allocation where the aggregate distortions arising from political economy disappear. In contrast, when the government is less patient than the citizens, there are positive aggregate distortions and positive aggregate capital taxes even asymptotically. Under some additional assumptions on preferences, these results generalize to the case when the government is benevolent but unable to commit to future tax policies. We conclude by providing a brief comparison of centralized mechanisms operated by self-interested rulers to anonymous markets.
    JEL: H11 H21 E61 P16
    Date: 2006–05
  2. By: Luca Onorante
    Abstract: Since the Helsinki European Council of December 1999, a process of increased coordination of fiscal policies in the area of the Euro seems to be on its way. In this paper I examine this process from the point of view of the independence of the European Central Bank (ECB). The interaction of the governments and the ECB is addressed in a game theoretical framework. First, the conditions under which the national governments are able to put pressure on the ECB are made explicit. Then the main question is addressed: would a greater fiscal coordination reduce or increase the capacity of the monetary authority of targeting long run inflation? Formal and informal, discretional (positive) and rule-based (negative) coordination and their interactions are examined as possible solutions of the game. I conclude that the main point is not how much fiscal coordination is there, but the form it takes. It turns out that a mix of informal political coordination and binding rules is the one that best preserves the independence of the ECB. For negative coordination, it is shown that a simple change in the definition of "excessive deficit" can at the same time allow more stabilization of output after a shock and a better control of inflation by the ECB.
    Keywords: European Montary Union, European Central Bank, game theory, fiscal policy, monetary policy, policy coordination
    JEL: C7 E0 E3 E6 H5
    Date: 2006
  3. By: Benno Torgler (Yale University and CREMA); Friedrich Schneider (University of Linz, CREMA and IZA Bonn)
    Abstract: Considerable evidence suggests that enforcement efforts cannot fully explain the high degree of tax compliance. To resolve this puzzle of tax compliance several researchers have argued that citizens’ attitudes toward paying taxes defined as tax morale helps to explain the high degree of tax compliance. However, most studies have treated tax morale as a black box without discussing which factors shape it. Additionally, the tax compliance literature provides little empirical research that investigates attitudes toward paying taxes in Europe. Thus, this paper is unique in its examination of citizen tax morale within three multicultural European countries, Switzerland, Belgium and Spain, a choice that allows far more detailed examination of the impact of culture and institutions using datasets from the World Values Survey and the European Values Survey.
    Keywords: tax morale, tax compliance, tax evasion, culture
    JEL: H26 H73
    Date: 2006–05
  4. By: Marco Battaglini; Stephen Coate
    Date: 2006–05–11
  5. By: Frode Brevik; Manfred Gärtner
    Abstract: We analyze a multi-country model in which a small group of countries adopts banking secrecy (BS) laws and a withholding tax. The other group doesn't. BS countries benefit in all relevant macroeconomic variables, including taxes and the provision of public goods. In non- BS countries most of the same variables deteriorate - when tax evasion is exogenous or its tax elasticity is moderate. When this elasticity is high, BS may drive these countries' tax rates down also, and income, consumption and wealth may rise. However, public-goods provision always deteriorates and welfare falls. We also argue that this case does not appear to be relevant empirically.
    Keywords: Banking secrecy, tax evasion, withholding tax, welfare effects
    JEL: E2 E62 F42 H2
    Date: 2006–05
  6. By: Barth, Erling (Insitute for Social Research and Department of Economics, University of Oslo.); Cappelen, Alexander W. (The Norwegian School of Economics and Business Administration.); Ognedal, Tone (Dept. of Economics, University of Oslo)
    Abstract: In this paper we analyse how fairness considerations, in particular considerations of just income distribution, affect whether or not people believe tax evasion can be justified and their willingness to engage in tax evasion. Using data from the Norwegian “Hidden Labour Market Survey” we show that individuals with low wages or long working hours, individuals that are treated unfairly by most tax systems, have a higher probability of justifying tax evasion. The same individuals are also more willing to take home income without reporting it to the tax authorities. These results are consistent with a model in which individuals make a trade-off between economic gains and fairness considerations when they make decisions about tax evasion. Taken together our results suggest that considerations of fair income distribution are important for the analysis of tax evasion.
    Keywords: Tax evasion; redistributive taxation; fair income distribution.
    JEL: D63 H26
    Date: 2006–04–25
  7. By: Stephanie Rosenkranz; Patrick W. Schmitz
    Abstract: The fact that according to the celebrated Coase Theorem rational parties always try to exploit all gains from trade is usually taken as an argument against the necessity of government intervention through Pigouvian taxation in order to correct externalities. However, we show that the hold-up problem, which occurs if non-verifiable investments have external effects and parties cannot be prevented from always exploiting ex post gains from trade through Coasean bargaining, may be solved by government intervention. In this sense, the impossibility to rule out Coasean bargaining (after investments are sunk) may in fact justify Pigouvian taxation.
    Keywords: Hold-up problem, Bargaining, Contracts, Taxation, Externalities
    JEL: D62 H21 H23 L14
    Date: 2006–02
  8. By: Joel Slemrod; John D. Wilson
    Abstract: We develop a tax competition framework in which some jurisdictions, called tax havens, are parasitic on the revenues of other countries. The havens use real resources to help companies camouflage their home-country tax avoidance, and countries use resources in an attempt to limit the transfer of tax revenues to the havens. The equilibrium price for this service depends on the demand and supply for such protection. Recognizing that taxes on wage income are also evaded, we solve for the equilibrium tax rates on mobile capital and immobile labor, and we demonstrate that the full or partial elimination of tax havens would improve welfare in non-haven countries, in part because countries would be induced to increase their tax rates, which they have set at inefficiently low levels in an attempt to attract mobile capital. We also demonstrate that the smaller countries choose to become tax havens, and we show that the abolishment of a sufficiently small number of the relatively large havens leaves all countries better off, including the remaining havens.
    JEL: H26 H87
    Date: 2006–05
  9. By: Martin Feldstein
    Abstract: This nontechnical paper discusses the adverse effects of high marginal tax rates on labor income and on investment income. It explains that the deadweight loss of a tax on labor income depends on the response of taxable income and not just the change in labor supply. An across the board increase in personal tax rates involves a deadweight loss of 76 cents per dollar of revenue and only collects about two-thirds of the revenue implied by a “static” calculation. A tax on investment income brings a deadweight loss even if household saving does not respond to taxes and the net rate of return. What matters is the response of future consumption. The tax on investment income is also effectively a tax on labor supply because current work effort produces income that will be spent on future consumption and the tax on investment income reduces the future consumption that results from more work today. An appendix shows for a simple log utility case that the tax on labor income has a smaller deadweight loss than a tax on investment income with the same present value of revenue. There is a further discussion of the various ways in which capital income taxes distort economic activity.
    JEL: H2
    Date: 2006–05
  10. By: Geir Haakon Bjertnæs (Statistics Norway)
    Abstract: Differentiated tax rates on labor and capital income are found to be optimal in this study, where agents choose occupation based on lifetime income net of tuition costs. Efficient revenue raising in a case where the government can not observe educational effort implies that the government should trade off efficiency in production for efficiency in intertemporal consumption. The subsequent wage difference between high and low-skilled occupations is increased compared to a production efficient outcome, which is in contrast to previous results in the literature.
    Keywords: Optimal income taxation; Subsidies for tuition; Skill formation; Production efficiency
    JEL: H21 H24
    Date: 2006–05
  11. By: Hielke Buddelmeyer (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); John Freebairn (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Guyonne Kalb (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: This paper compares five alternative policy options with the January 2006 tax and social security system. Each option is designed to cost a similar amount of 5 billion dollars to the government at the current level of labour supply. The five options are: reducing the lowest income tax rate, increasing the tax-free threshold, increasing the low income tax offset, decreasing all taper rates on own and partner’s income for a number of allowances, and introducing an Earned Income Tax Credit. The criteria for comparison are the labour supply responses, the expected budgetary cost to the government after taking into account labour supply responses, the number of winners and losers from the policy change, the effects on the distribution of effective marginal tax rates, and the effect on the number of jobless households. From the results, it is clear that the option to reduce taper rates is dominated by the other options on all criteria. The other four options each have their advantages and disadvantages; no option scores best on all criteria.
    Date: 2006–05
  12. By: Jean-Paul Faguet; Fabio Sanchez
    Abstract: The effects of decentralization on public sector outputs is much debated but little agreed upon. This paper compares the remarkable case of Bolivia with the more complex case of Colombia to explore decentralization's effects on public education outcomes. In Colombia, decentralization of education finance improved enrollment rates in public schools. In Bolivia, decentralization made government more responsive by re-directing public investment to areas of greatest need. In both countries, investment shifted from infrastructure to primary social services. In both, it was the behavior of smaller, poorer, more rural municipalities that drove these changes.
    Keywords: decentralization, education, public investment, Bolivia, Colombia, local government
    Date: 2006–03
  13. By: Jagadeesh Sivadasan; Joel Slemrod
    Abstract: We use a large dataset covering all registered plants in the manufacturing sector in India over the period 1986 to 1995 to examine the effects of a 1992 income tax law change that eliminated the double taxation of wages paid to partners in partnership firms. This tax law change provides a unique opportunity to identify the effects of tax policy changes on firm behavior in a developing country context. Since the change provided incentives for shifting income from wages to profits, it also has important implications for certain measures of wage inequality. We find an immediate and pervasive response by partnership firms to the tax law change, reflected in a significant shifting of income from profits to managerial wages. Since about 50 percent of registered manufacturing plants are incorporated in the form of partnerships (including most family-run businesses), income shifting by these firms could have a significant impact on measured wage inequality. We find a sizeable jump in the mean and median relative wage of skilled workers (which includes managers and partners) following the tax law change in 1992. This sudden increase in measured wage inequality follows major trade liberalization and deregulation reforms announced earlier (in July 1991). We find that the income shifting induced by the tax law change explains almost all of the observed increase in measured wage inequality following these reforms. This finding is robust to inclusion of controls for a number of other potential sources of post-liberalization increases in wage inequality. Our results show that firms respond strongly to tax incentives for income shifting, and highlight the need to control for the potential effects of tax incentives in studies of wage inequality.
    JEL: H32 H25 F14 O24
    Date: 2006–05
  14. By: D. Tondani
    Abstract: In this paper we attempt to estimate labour supply elasticities for four categories of Italian workers: married men, married women, unmarried men, unmarried women. We use microdata provided by the Bank of Italy 2002 survey adopting a piecewise linear labour supply functional form. Sample selection and tobit technique have been used. Wage elasticities are calculated from the results of the labour supply estimation. Hours of work are found to be positively related to after tax labour income and negatively related to virtual income. Female labour supply is more sensitive than that of males to an increase in net wage.
    Keywords: Labour supply, Personal income taxation, Italy
    JEL: C24 J22
    Date: 2006
  15. By: Osiris J.Parcero
    Abstract: This paper models inter-jurisdiction competition for foreign direct investment and optimal government policy intervention to protect the national interest. The inter-jurisdiction competition for a multinational has the potential of favouring the multinational and of becoming detrimental for the host country. The central government wants to limit such competition but it cannot tax-discriminate between different types of multinationals. We find that the central government would use tax policy to create asymmetries even when the underlying structure is symmetrical. This offers a novel explanation for the creation of ‘Special Economic Zones’ in many countries, which are well known to be aimed at the attraction of foreign direct investment.
    Keywords: Bargaining, subsidy, regional, competiton, FDI
    JEL: F23 H25 H71
    Date: 2006–05
  16. By: Susan M. Dynarski; Judith E. Scott-Clayton
    Abstract: The federal system for distributing student financial aid rivals the tax code in its complexity. Both have been a source of frustration and a focus of reform efforts for decades, yet the complexity of the student aid system has received comparatively little attention from economists. We describe the complexity of the aid system, and apply lessons from optimal tax theory and behavioral economics to show that complexity is a serious obstacle to both efficiency and equity in the distribution of student aid. We show that complexity disproportionately burdens those with the least ability to pay and undermines redistributive goals. We use detailed data from federal student aid applications to show that a radically simplified aid process can reproduce the current distribution of aid using a fraction of the information now collected.
    JEL: D0 H0 I0 J0
    Date: 2006–05
  17. By: Ágnes Horváth (Magyar Nemzeti Bank); Zoltán M. Jakab (Magyar Nemzeti Bank); Gábor P. Kiss (Magyar Nemzeti Bank); Balázs Párkányi (Magyar Nemzeti Bank)
    Abstract: In this paper we investigate the possible effects of fiscal tightening in Hungary from two perspectives. First, simulations in an estimated neo-Keynesian model are used to characterise the effects of different scenarios for fiscal consolidations. We show that the composition of fiscal shocks is important for both the economic outcome and monetary policy. These simulations suggest a modest output cost of fiscal consolidation. Then we take a closer look at the non-Keynesian effects and their relevance for Hungary in a qualitative way. In our review of non-Keynesian channels of fiscal adjustments we conclude that expansionary effects are likely to become evident only in the medium or long run, rather than immediately after measures are taken.
    Keywords: Keynesian, non-Keynesian effects, expansionary fiscal adjustment, Monetary policy reactions, Model simulations.
    JEL: E17 E52 E61 E62 E63 E65 H30
    Date: 2006
  18. By: Glenn Ellison; Sara Fisher Ellison
    Abstract: Data on sales of memory modules are used to explore several aspects of e-retail demand. There is a strong relationship between e-retail sales to a given state and sales tax rates that apply to purchases from online retailers. This suggests that there is substantial substitution between online and online retail, and tax avoidance may be an important contributor to e-retail activity. Geography matters in two ways: we find some evidence that consumers prefer purchasing from firms in nearby states to benefit from faster shipping times as well as evidence of a separate preference for buying from in-state firms. Consumers appear fairly rational in some ways, but boundedly rational in others.
    JEL: L8 D1 H2
    Date: 2006–05
  19. By: Etienne Lehmann (ERMES, University Paris 2 Panthéon Assas and IZA Bonn)
    Abstract: Because of Time Inconsistency considerations, policymakers underestimate the drawbacks of wage rigidity as a redistributive tool. Consequently, they redistribute inefficiently income from high to low skilled workers. They typically implement too much wage rigidity whereas other means (in particular fiscal transfers) could achieve the same redistributive goal with less perverse effect on unemployment. Time inconsistency is more likely due to lack of credibility than to the short-term horizon of policymakers. Hence, policymaking processes should be reformed towards more transparent and binding agreements between government and social partners.
    Keywords: unemployment, inequality, wage rigidity, time inconsistency
    JEL: D78 H2 J68
    Date: 2006–05
  20. By: Follesdal, Andreas; Hix, Simon
    Abstract: In a series of recent papers, Giandomenico Majone and Andrew Moravcsik have ‘raised the bar’ in the debate over the so-called ‘democratic deficit’ in the European Union. These two influential scholars both contend that much of the existing analysis is flawed and that the EU is as democratic as it could, and even should, be. We accept many of Moravcsik’s and Majone’s arguments. However, we disagree about one key element: that a democratic polity requires contestation for political leadership and argument over the direction of the policy agenda. This aspect, which is ultimately the difference between a democracy and an enlightened form of authoritarianism, is an essential element of even the ‘thinnest’ theories of democracy, yet is conspicuously weak in the EU.
    Keywords: democracy; European elections; legitimacy; non-majoritarian institutions; normative political theory; political parties; public opinion; Constitution for Europe; agenda-setting
    Date: 2005–03–14
  21. By: Céline Choulet (Centre d'Economie de la Sorbonne)
    Abstract: This paper raises the question of the dynamic effects of public spending in jobs on labor market performance. We use a dynamic matching model and study how public jobs creation affects endogenous workers' decisions to move on the labor market and private-sector firms' job creation and destruction decisions. We obtain that it exerts an attracting effect and a fiscal effect on the labor market that make the unemployment rate and job flows overshoot. As an empirical illustration, we estimate a SVAR model that focuses on the consequences of public job creations on unemployment, wages and job flows dynamics. We confirm our intuition : public employment has a significant ambiguous effect on private wages.
    Keywords: Public sector labor market, unemployment dynamics.
    JEL: J45 J21
    Date: 2006–03
  22. By: Wendy Carlin; Mark Schaffer; Paul Seabright
    Abstract: We use firm-level survey data from over 20,000 firms in about 60 countries to identify constraints on the growth of firms. We develop a Lagrangian approach and measure the cost of different constraints by using managers' answers to survey questions on what aspects of their external environment inhibit the operation and growth of their firm. Our model reveals that, contrary to the common practice in much of the existing literature on this question, the importance of an obstacle to growth is not, except under very restrictive assumptions, measured by the coefficient on the reported level of the obstacle in a growth regression. This parameter estimate is typically contaminated by the endogeneity of public good supply at a country level (better performing countries have higher levels of supply), and by the endogeneity of demand for public goods at a firm level (better performing firms need higher levels of public good inputs). We illustrate these biases for a number of obstacles to growth, and argue that such biases can account for anomalous findings in the literature. A priori arguments suggest that the subjective evaluation of finance constraints is different from other constraints and this too is reflected in the data. We show how the importance of different constraints varies across countries and how the cost of a constraint depends on the characteristics of the firm.
    Keywords: public goods, constraints on growth, infrastructure, finance, institutions, subjective data
    JEL: H41 O12 O16 O57
    Date: 2006
  23. By: Louis Kaplow
    Abstract: The view that intergenerational distributive justice and efficiency should be treated separately is familiar, yet controversial. This article elaborates the often-implicit justifications for separate treatment and provides a more express statement of how and when such treatment is appropriate. Substantial attention is devoted to an approach that holds constant the intra- and intergenerational distribution of well-being, which proves to be a valuable analytical device even for intergenerational policies that are not distribution neutral. Also explored are possible interrelationships between intergenerational distributive justice and efficiency, the choice of interest rate for discounting dollars, and how the present approach relates to those that would employ direct social weights to dollars at different points in time.
    JEL: D31 D61 D63 D81 D99 H23 H43 K32 Q38 Q58
    Date: 2006–05
  24. By: Stefano Magrini (Department of Economics, University Of Venice Cà Foscari); Paul Cheshire (Department of Geography and Environment, London School of Economics)
    Abstract: This paper investigates growth differences in the urban system of the EU12 for a data set relating to Functional Urban Regions comparing the results of ‘artisanal’ methods of model selection with those obtained using general to specific model selection with PcGets. The artisanal approach tests hypotheses relating to the role of human capital, EU integration and fragmentation of urban government. The paper also explores issues of spatial dependence and mechanisms of spatial interaction. Using PcGets as suggested by Hendry and Krolzig (2004) to optimise model selection we find that while PcGets provides a powerful tool for model selection when applied to cross sectional data, caution is necessary to ensure that variables relating to spatial adjustment processes are included and spatial dependence is avoided. More generally, not only do the results provide consistent estimates of parameters but they also support relevant theoretical insights. Finally careful testing for spatial dependence reveals that national borders are still significant barriers to adjustment within the EU.
    Keywords: Growth, Cities, Spatial Dependence, Local Public Goods, Human Capital; EU Integration
    JEL: H41 H73 O18 R11 R50
    Date: 2006
  25. By: Eugenio Peluso (Dipartimento di Scienze economiche (Università di Verona)); Alain Trannoy (EHESS, GREQAM-IDEP)
    Abstract: Redistribution schemes (taxes or benefits) are generally performed at the household level. The issue is to know whether intra-household inequality magnifies or hampers the redistributive effect of the transfers, when the policy-maker focuses on the inequality at the individual level. Depending on the type of the transfer, three properties capturing the idea that the more wealthy the household is, the more unequally it behaves, have been shown to matter. In the moving away approach, the deviation with the equal split make a difference, in the star-shaped approach, the average share counts while the marginal share is relevant for concavity. We complete the analysis by showing how these properties of the intra-household allocation may be recovered through a bargaining model of the household. Then, the DARA and DRRA properties of the utility function emerge as the key conditions for the recovery.
    Keywords: Inequality, Intra-household Allocation, Household bargaining, Lorenz curve, Taxation schemes.
    JEL: D10 D31 D63 H24
  26. By: Roop Jyoti (Ministry of Finance, Nepal); Aygul Ozbafli (Girne American University, North Cyprus); Glenn Jenkins (Queen's University, Canada)
    Abstract: The unreliability of electricity supplies is a major cause of the high cost of manufacturing in developing countries. In this paper we are able to measure the cost imposed by power outages and suggest some feasible mitigating measures. The study employs a rich, if not unique, set of data from three large manufacturing enterprises in Nepal. Using it the opportunity costs to the enterprises from lost production from electricity outages can be estimated accurately. Power outages due to substation failure can be separated from other electricity systems failures. An analysis is carried out on the feasibility of privatized electricity substations. We find that this is a very worthwhile capital investment for the private sector to undertake, even when additional generation capacity to improve overall electricity reliability is not justified.
    Keywords: electricity supply, reliability, opportunity costs, privatization
    JEL: L94 Q41 Q48
    Date: 2006–04
  27. By: Bernd Fitzenberger (Goethe University of Frankfurt, ZEW, IFS and IZA Bonn); Aderonke Osikominu (Goethe University of Frankfurt); Robert Völter (Goethe University of Frankfurt and CDSEM, University of Mannheim)
    Abstract: Long-term public sector sponsored training programs often show little or negative short-run employment effects and often it is not possible to assess whether positive long-run effects exist. Based on unique administrative data, this paper estimates the long-run differential employment effects of three different types of training programs in West Germany. We use inflows into unemployment for the years 1986/87 and 1993/94 and apply local linear matching based on the estimated propensity score to estimate the effects of training programs starting during 1 to 2, 3 to 4, and 5 to 8 quarters of unemployment. The results show a negative lock-in effect for the period right after the beginning of the program and significantly positive treatment effects on employment rates in the medium- and long-run. The differential effects of the three programs compared to one another are mainly driven by differences in the length of the lock-in periods.
    Keywords: multiple treatments, training programs, employment effects, local linear matching, administrative data, active labor market programs
    JEL: C14 J68 H43
    Date: 2006–05
  28. By: Leonard Caruana; Hugh Rockoff
    Abstract: During World War II the Allies controlled Spain's oil supply in order to limit Spain's support for the Axis. This experiment with sanctions is unusually informative because a wide range of policies was tried over a long period. Three episodes are of special interest: (1) a total embargo on oil for Spain in 1940 that was surprisingly successful in dissuading Spain from joining the Axis; (2) a period of reduced supplies in 1941-42 that we call "the Squeeze" that was only partially successful; and (3) a second total embargo in 1944 that was a disappointment for the Allies, given the course of the war, that produced a rift between Churchill and Roosevelt. Our analysis is based on new monthly estimates of Spain's imports of gasoline and other petroleum products, which we describe in the text and report in the appendix. These estimates allow us to draw a clearer picture of the oil sanctions than has been possible in the past.
    JEL: H4
    Date: 2006–05

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