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on Public Economics |
| By: | Robin Boadway (Queen's University); Jean-Francois Tremblay (University of Ottawa) |
| Abstract: | This paper examines how sequential decision-making by two levels of government can result in vertical fiscal imbalances (VFI). Federal-regional transfers serve to equalize the marginal cost of public funds between regions hit by different shocks. The optimal vertical fiscal gap minimizes the efficiency cost of taxation in the federation as a whole. The analysis shows how the existence of vertical fiscal externalities, leading regional governments to overprovide public goods, can induce the federal government to create a VFI by selecting transfers that differ from the optimal fiscal gap. When the federal government can commit to its policies before regional governments select their level of expenditures, the VFI will generally be negative. In the absence of commitment, the equilibrium transfer is unambiguously larger than the optimal fiscal gap, resulting in a positive VFI. In an intertemporal setting, the VFI has implications for the sharing of debt between the federal and regional governments. |
| Keywords: | vertical fiscal imbalance, federal-regional transfers, commitment, fiscal externalities |
| JEL: | H72 H73 H77 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1072&r=pbe |
| By: | Jean Hindriks (Department of Economics, CORE, Université Catholique de Louvain); Ben Lockwood (CEPR and Department of Economics, University of Warwick) |
| Abstract: | This paper studies the relationship between fiscal decentralization and electoral accountability, by analyzing how decentralization impacts upon incentive and selection effects, and thus on voter welfare. The effect of fiscal centralization on voter welfare works through two channels: (i) via its effect on the probability of pooling by the bad incumbent; (ii) conditional on the probability of pooling, the extent to which, with centralization, the incumbent can divert rents in some regions without this being detected by voters in other regions (selective rent diversion). Both these effects depend on the information structure; whether voters only observe fiscal policy in their own region, in all regions, or an intermediate case with a uniform tax across all regions. More voter information does not necessarily raise voter welfare, and under some conditions, voter would choose uniform over differentiated taxes ex ante to constrain selective rent diversion. |
| Keywords: | fiscal federalism; decentralization; elections; accountability |
| JEL: | D72 D73 H41 H77 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:ifr:wpaper:2006-02&r=pbe |
| By: | Robin Boadway (Queen's University); Firouz Gahvari (University of Illinois) |
| Abstract: | This paper studies the optimal commodity taxation problem when time taken in consumption is a perfect substitute for either labor or leisure. It shows that while labor substitutability affects the optimal tax structure, leisure substitutability leaves the classical optimal tax results intact. In the Ramsey tax framework with linear income taxes, whether the consumers have the same or different earning abilities, labor substitutes tend to be taxed at a higher rate than leisure substitutes with the tax differential being increasing in consumption time. This is not necessarily the case when one allows for nonlinear income taxation. |
| Keywords: | consumption time, labor substitutes, leisure substitutes, optimal taxation |
| JEL: | H21 D13 J22 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1068&r=pbe |
| By: | William Hoyt (Gatton School of Business and Economics and Martin School of Public Policy and Administration, University of Kentucky); |
| Abstract: | The existence of either "horizontal" fiscal externalities, in which changes in one jurisdiction's policies affect the government budget of other jurisdictions and therefore the utility of its residents or "vertical" externalities, in which changes in one level of government's policies affect the budget of another level of government, may lead to non-optimal government policies. These fiscal externalities, then, suggest the possibility of corrective policies. The focus here is on vertical externalities. In a growing literature, these externalities are associated with the extent that tax bases are shared or "co-occupied" by two different levels of government. Given that co-occupancy is the cause of or at least exacerbates the externality, I consider, the optimal "assignment" of the tax base and, more specifically, whether the co-occupancy of tax bases is desirable. Specifically, I examine the optimal extent of the tax base of a lower level of government (local) and a higher level (state) in a hierarchical system of governments. The co-occupancy of the tax base influences the magnitude and possible the direction of "vertical" fiscal externalities associated with the taxes of one or both of the levels of government. Using a model in which there is a continuum of commodities, each with the same demand characteristics, I formally consider whether, as has been asserted in a number of studies, whether it is optimal to eliminate all co-occupancy between the tax bases of the two levels of government. While I find that it is indeed not optimal to have co-occupancy in the tax base in the absence of other corrective policies for the fiscal externality, eliminating co-occupancy does not, in general, eliminate fiscal externalities, meaning that tax rates can still be above or now below the socially-optimal level. Thus elimination of co-occupancy in the tax base is not a substitute for a policy such as intergovernmental matching grants which directly eliminates fiscal externalities. If alternative policies are available such as matching grants that do eliminate fiscal externalities and governments are restricted to set the same tax rate on all commodities in their base, the optimal division of the tax base changes dramatically -- optimality requires both governments tax the entire base. (JEL H77 - Intergovernmental Relations; Federalism) |
| JEL: | H77 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:ifr:wpaper:2005-07&r=pbe |
| By: | Andrew Leigh |
| Abstract: | Do income taxes levied at a state or regional level affect the after-tax distribution of income? Or do workers merely move between regions, causing pre-tax wages to adjust? This question is relevant both in across states in the United States, and across countries within the European Union. Using the full income tax parameters for all US states from 1977-2002, I create a “simulated tax redistribution index”, which captures the mechanical impact of the changes in tax policy on the gini coefficient, but is exogenous to any behavioral response. Analyzing the effect of this redistribution index on inequality, I find that gross wages do not adjust so as to fully offset the effect of more redistributive taxes. Exploring the adjustment process further, I create a new class of tax redistribution measures, based on the S-Gini, which differentially weight effects at the bottom and top of the distribution, and conclude that neither taxes that particularly affect the rich or the poor seem to affect the distribution of wages. Redistributive taxes do not appear to affect interstate migration or total state personal income. From a political economy perspective, I also find some evidence that more inequality leads states to implement more redistributive taxes, which may help explain why earlier studies observed a positive relationship between redistribution and inequality. |
| Keywords: | taxation, redistribution, progressivity, inequality, income distribution, Gini index, S-Gini index, interstate migration |
| JEL: | H21 H23 H73 D63 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:490&r=pbe |
| By: | Julia Darby; Muscatelli Anton; Graeme Roy |
| Abstract: | This paper contributes to a developing literature that examines financial interactions between different levels of government. More specifically, we investigate the use of grants, shared tax revenues, and their impact on fiscal outcomes, including decentralized service provision. Most existing empirical evidence has focused on individual country studies, and has predominantly been US based. However, it is difficult to generalize the conclusions obtained for the US to countries where the position and remit of lower tiers of government has recently been evolving or is less clear constitutionally. We use a panel dataset covering 15 OECD countries to investigate how central and sub-central expenditures, taxation, and intergovernmental grants change in response to central governments' attempts to correct their fiscal positions. We adopt an event study methodology to examine the timing of expenditure, taxation and intergovernmental grant shifts around the periods of fiscal consolidation. In addition to highlighting issues regarding the interaction between central and sub-central tiers of government, our analysis also sheds light into the extent to which sub-central tiers of government participate in fiscal consolidations, and hence to macroeconomic adjustment. Our key results can be summarized as follows. First, successful fiscal consolidations are generally driven by similar, and sustained, falls in expenditure at both central and sub-central tiers. Moreover, our evidence counters that identified by Gramlich (1987) for the USA, in that when central governments cut intergovernmental grants sub-central tiers do not take redress through offsetting increases in other forms of revenues. Second, unsuccessful consolidations tend to be characterized by increased central government taxation, with no fall back in grants and no tendency for sub-central taxation to change. It does appear that there is strong correlation between success in consolidating central fiscal deficits and similar actions from lower tiers of government. Third, we find that where consolidations are successful sub-central tiers of government are typically forced to cut back on capital expenditure. This suggests that in this regard the burden of adjustment falls onto lower tiers of government and central governments worry less about the long-term (i.e. public investment) consequences of consolidation if these decisions are taken at local level. We also find that when faced with cuts in intergovernmental grants, sub-central governments tend to maintain expenditures on wages at the expense of capital expenditure, reflecting a definite compositional switch towards public consumption. This might be interpreted as a variant of the effect identified by Gramlich (1987): sub-central governments seeking to defend current services rather than spending on infrastructure or raising taxation. This may reflect the greater constraints on sub-central tiers’ tax raising powers in many of the OECD countries in our sample, relative to those in the USA. Finally, our results shed some light, at least indirectly, on the ‘Fly-paper Effect’, by showing that it operates in reverse. Successful consolidations are characterized by cut-backs in grants that are more than offset by cut-backs in sub-central expenditures. In contrast, periods of unsuccessful consolidation are characterized by increases in central taxation, no change in grants, and small, temporary reductions in sub-central expenditure. |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p366&r=pbe |
| By: | Johannes Becker; Clemens Fuest; Thomas Hemmelgarn |
| Abstract: | Does the reduction of the effective tax burden on corporations trigger foreign direct investment? We take the German tax reform of 2000 as a natural experiment in order to isolate the impact of corporate taxation on the investment of foreign-held affiliates in Germany. We do so by exploiting the very rich MiDi data base from the Deutsche Bundesbank. Although we deliberately choose an approach which is likely to underestimate the tax effects on investment we find significant evidence that the tax reduction had the intended effect of - ceteris paribus - fostering inward direct investment. We find an elasticity of inward foreign direct investment with respect to the effective marginal tax rate of -0.7. We repeat the analysis for different subgroups and find high degrees of heterogeneity. Our results do not allow to decide whether the model of discrete investment choices or the model of marginal adjustment of the capital stock performs better in explaining the investment data. |
| Keywords: | corporate taxation, foreign direct investment |
| JEL: | H21 H25 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1722&r=pbe |
| By: | Willem Adema; Maxime Ladaique |
| Abstract: | This is the 2005 edition of a Net Social Expenditure paper that contains information on net (after tax) public and private social expenditure. These indicators supplement the detailed historical information on gross (before tax) publicly mandated social expenditure in the OECD Social Expenditure Database by accounting for the varying roles of voluntary private social spending and the tax system on social policy across OECD countries. Government intervention through the tax system affects social spending as governments levy direct taxes and social security contributions on cash transfers, and indirect taxes on goods and services bought by benefit recipients. In addition, governments may award tax advantages similar to cash benefits and/or grant tax concessions aiming to stimulate the provision of private social benefits. Through compulsion and tax relief public policy contributes to private pension plans, and such arrangements are generally considered within the social domain. This document refines the methodological framework previously developed per earlier editions of net social expenditure and presents indicators based on a common questionnaire for twenty-three OECD countries for which information on taxation of benefits in 2001 is now available: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, Japan, Korea, Mexico, the Netherlands, New Zealand, Norway, the Slovak Republic, Sweden, Spain, the United Kingdom and the United States. Accounting for the impact of the tax system and private social expenditure leads to a greater similarity in social expenditure to GDP ratios across countries and to a reassessment of the magnitude of welfare states. Usually, Denmark and Sweden are seen as the biggest social spenders. After accounting for the impact of taxation social expenditure to GDP ratios appear highest in France, Germany and Sweden. Ce document est l’édition 2005 du rapport sur les Dépenses sociales nettes (après imposition) publiques et privées. Ces indicateurs ont été développés afin d’apporter un supplément aux informations historiques détaillées des dépenses sociales publiques brutes (avant imposition) obligatoires disponibles dans la Base de données des dépenses sociales de l’OCDE (SOCX), en tenant compte des différentes fonctions des dépenses sociales privées volontaires et l’impact du système d’imposition sur les politiques sociales dans les pays OCDE. L'intervention des gouvernements au travers du système d’imposition a un impact sur les dépenses sociales. En effet, ils perçoivent à la fois des impôts directs et des cotisations de sécurité sociale sur les transferts en espèces, mais aussi des impôts indirects sur les marchandises et les services achetés par les bénéficiaires. De plus, les gouvernements peuvent accorder des déductions fiscales similaires à des prestations en espèces et/ou accorder des allégements fiscaux dans le but d’inciter les agents (instituts et/ou individus) privés à avoir recours aux assurances sociales. Par ces obligations et allègements fiscaux, les politiques publiques encouragent la couverture privée des risques ; de telles dispositions relèvent du domaine social. Ce document redéfinit le cadre méthodologique développé dans les éditions précédentes des dépenses sociales nettes, et présente des indicateurs issus d’un questionnaire envoyé à vingt-trois pays pour lesquels les informations sur l’imposition des prestations pour 2001 sont désormais disponibles : Allemagne, Australie, Autriche, Belgique, Canada, Corée, Danemark, Espagne, États-Unis, Finlande, France, Islande, Irlande, Italie, Japon, Mexique, Norvège, Nouvelle-Zélande, Pays-Bas, République tchèque, République slovaque, Royaume-Uni et Suède. L’ajustement « impôt et dépenses privées » montre une plus grande similitude en terme de dépenses sociales en pourcentage du PIB entre pays, et donne aussi une nouvelle vision de l’ampleur des états protecteurs. Habituellement, le Danemark et la Suède sont considérés comme les pays aux dépenses sociales les plus importantes. Après ajustement, ce sont ici la France l'Allemagne et la Suède qui apparaissent en tête. |
| JEL: | H2 H53 |
| Date: | 2005–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:oec:elsaab:29-en&r=pbe |
| By: | Willi Leibfritz; Paul O'Brien |
| Abstract: | France belongs to the group of OECD countries with relatively high tax levels. In recent years French governments have been increasingly aware that the tax system may have negative effects on growth and employment and some reforms have been introduced to reduce tax distortions. There has, however, been no grand reform design and it is also not clear in which direction it should go. This paper describes the main characteristics and the developments of the French tax system and examines some of its economic distortions and complexities. A future tax reform agenda could focus on the following five elements: First, reduce labour tax distortions by further reductions in social security contributions for low paid workers and reducing the withdrawal rate for in-work benefits, financing these either by increasing the Contribution Sociale Généralisée (CSG) or value added tax. Second, simplify the personal income tax, widening its base to permit lower top rates, and introducing deduction at source. Consider merging it with the CSG if this can be done in an administratively efficient way. Third, reduce capital tax distortions by cutting the corporate tax rate and widening the tax base by reducing the number of special incentives for certain kinds of activity, and also reduce the bias in favour of debt finance. Fourth, increase the role of “green” taxes because of the efficiency gains they offer –- though not as significant sources of revenue. Fifth, improve, and reduce the costs of, tax administration by progressively merging tax administrations where possible. This Working Paper relates to the 2005 OECD Economic Survey of France (www.oecd.org/eco/surveys/france). <P>Le système fiscal français La France appartient au groupe des pays de l’OCDE ayant des niveaux d’imposition relativement élevés. Ces dernières années, les autorités françaises ont pris de plus en plus conscience des effets négatifs que le système fiscal peut avoir sur la croissance et l’emploi et des réformes ont été introduites pour réduire les distorsions fiscales. Il n’y a pas eu, toutefois, de grand projet de réforme et on n’appréhende pas encore très bien non plus dans quel sens la réforme devrait aller. La présente étude décrit les caractéristiques et les évolutions du système fiscal français et examine certaines de ses complexités et distorsions économiques. Un programme de réforme fiscale pour l’avenir pourrait être axé sur les cinq objectifs suivants : premièrement, atténuer les distorsions imputables aux prélèvements sur le travail en abaissant encore les cotisations de sécurité sociale pour les bas salaires et en diminuant le taux de réduction en fonction du revenu des prestations subordonnées à l’exercice d’un emploi, ces dernières étant financées par une augmentation de la Contribution sociale généralisée (CSG) ou de la taxe à la valeur ajoutée. Deuxièmement, simplifier l’impôt sur le revenu des personnes physiques, en élargissant sa base de façon à permettre une baisse des taux supérieurs d’imposition et en introduisant le prélèvement à la source. On pourrait envisager de fusionner cet impôt avec la CSG si cela peut être fait de façon administrativement efficiente. Troisièmement, réduire les distorsions imputables à l’impôt sur le capital en baissant le taux d’imposition des sociétés et en élargissant l’assiette fiscale grâce à une diminution du nombre d’incitations spéciales pour certains types d’activité, et également atténuer le parti-pris en faveur du financement par l’emprunt. Quatrièmement, accroître le rôle des impôts écologiques en raison des gains d’efficience qu’ils offrent –même s’il ne s’agit pas d’une source importante de recettes. Cinquièmement, améliorer l’administration de l’impôt, et en réduire les coûts, en fusionnant progressivement les administrations fiscales lorsque c’est possible. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de la France, 2005 (www.oecd.org/eco/etudes/france). |
| Keywords: | fiscalité, tax policy, politique fiscale, social security, sécurité sociale, tax administration, administration fiscale |
| JEL: | E62 H2 H71 J32 |
| Date: | 2005–07–28 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:439-en&r=pbe |
| By: | Sebastian Hauptmeier (Munich University and Center for European Economic Research (ZEW), P.O. Box 10 34 43, L 7,1, 68161 Mannheim, Germany.); Martin Heipertz (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Ludger Schuknecht (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This study examines reforms of public expenditure in industrialised countries over the past two decades. We distinguish ambitious and timid reformers and analyse in detail reform experiences in eight case studies of ambitious reform episodes. We find that ambitious reform countries reduce spending on transfers, subsidies and public consumption while largely sparing education spending. Such expenditure retrenchment is also typically part of a comprehensive reform package that includes improvements in fiscal institutions as well as structural and other macroeconomic reforms. The study finds that ambitious expenditure retrenchment and reform coincides with large improvements in fiscal and economic growth indicators. |
| Keywords: | public expenditure, expenditure reform, economic growth, deficit, debt, employment, case studies, fiscal institutions. |
| JEL: | H5 H6 O57 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060634&r=pbe |
| By: | Paolo Panteghini |
| Abstract: | This article studies the relationship between debt policies of multinational companies (MNCs) and governments’ tax strategies. In the first part, it is shown that the ability to shift income from high- to low-tax countries affects MNCs’ financial choices. In the second part we show how MNCs’ financial decisions can affect the tax strategies of two governments competing to attract income. |
| Keywords: | capital structure, country risk, default, multinationals, tax competition |
| JEL: | G31 H25 H32 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1721&r=pbe |
| By: | Pablo Sanguinetti; Martin Besfamille |
| Abstract: | In many countries fiscal decentralization characterizes the relationship among different levels of government. In those countries, local authorities have the prerogative to tax their constituencies. However, fiscal decentralization is seldom balanced in terms of tax and expenditure assignments. In order to equalize tax capacities, to internalize spillovers or to achieve national policy objectives, central governments often provide transfers to lower levels of government. These transfers may affect the incentives to manage or to improve fiscal performance. Specifically, according to Litvack, Ahmad and Bird (1998), such transfers may induce low `tax effort' in the regions. The purpose of this paper is to investigate theoretically and empirically this relationship between intergovernmental transfers and local tax effort. An initial problem to deal with is the definition of `tax effort' in itself. First, one can associate tax effort to high tax rates. Smart (1998) asserted that such association is inadequate. Second, one can measure tax effort using actual tax revenues or the difference between actual the predicted value of tax revenues. This approach has been mainly adopted by the empirical literature on the relationship between intergovernmental transfers and local tax effort [Baretti, Huber and Lichtblau (2000), Von Hagen and Hepp (2000), Jha, Mohanty, Chattergee and Chitkara (1999), Sagbas (2001)]. Although tax revenue is an accurate and observable variable, still one can hardly say that it is a good estimate of tax effort. The reason is for a given region in a given time period tax revenue is affected by many potential variables outside the control of local governments (like idiosyncratic shocks to some specific tax bases) which are seldom well controlled for in estimates of tax capacity. In practice local tax effort encompasses a broad set of actions. One of them is clearly the battle against tax evasion. In spite of its importance, this problem has been only recently addressed by the local public finance literature. Bordignon, Manasse and Tabellini (1996), presented a model where a local government exerts costless effort to catch tax evader workers and they showed how intergovernmental transfers affect tax enforcement. The drawback of this model is that, in reality, tax enforcement is not costless and the cost depends upon other variables chosen by local authorities, like the efficiency of the local tax administration. Although Prud'homme (1995) and Tanzi (1996) have informally signaled the possible inefficiencies of the local tax administrations, this feature has not been raised by the theoretical or the empirical literature. The purpose of this paper is precisely to incorporate such dimension in the assessment of the relationship between intergovernmental transfers and local tax effort. The theoretical framework assumes that in each region there is one representative habitant and a local government. The habitant posses a low or a high-valued property. The local government maximizes tax revenues. In a first period, the local government invests resources to improve the efficiency of the tax administration or to lobby the central government in order to obtain discretionary transfers. This decision is affected by the political cost of reforming the tax administration and on the ability of the local government to negotiate with the central government. Thus, in our model, intergovernmental transfers are endogenous and simultaneously determined with the reform of the local tax system. In a second period, the local government sets the property tax schedule. But, as the local government is unable to observe the value of the property, it has to rely on the habitant announcing this value. Finally, in the third period, the local government decides to enforce the tax law by randomly auditing such announcement. If the habitant is discovered having misreported, the local government sets the corresponding property tax and imposes a penalty. We assume that audit is perfect but costly; the cost depending on the efficiency of the local tax administration. We solve the model backwards. As the local government cannot commit to the auditing probability when it designs its tax policy, the equilibrium of the audit-report game is in mixed strategies, with auditing and tax evasion. Then we find the optimal tax schedule. In order to reduce the stake for tax evasion, the local government distorts downwardly the high-valued property tax. Finally, we solve for the decision of the local government regarding how much resources to invest for improving the efficiency of the tax administration. We find that this decision is negatively associated with the domestic political costs and positively with the ability to negotiate with the Federal Government. The predictions of the model are empirically tested using data for Argentina. The theory suggests a two-step approach. In a first stage we run a probit estimation where the probability of a certain province to reform its tax system (or receiving discretionary transfers) in a given year will be correlated with domestic political variables (e.g. divided government) and also with variables describing its bargaining power vis a vis the federal authorities (e.g. political representation at the National Congress, political party of the President vis a vis that of the Governor). In a second stage, we include this exogenous instrument of tax reform in a regression where the evolution of actual provincial tax receipts are regressed against this variable plus other controls like population, density, provincial income distribution and production structure. Notice that this two stage empirical approach allow us to deal with a frequent problem encountered in the empirical literature given by the endogeneity bias affecting some of the variables of interest, like federal transfers (e.g. Jha, Mohanty, Chattergee and Chitkara (1999), Sagbas (2001)). |
| Keywords: | local tax effort - discretionary transfers - tax enforcement |
| JEL: | H26 |
| Date: | 2004–08–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecm:latm04:249&r=pbe |
| By: | Alain Guenguant (CREM - CNRS); Jean-Michel Josselin (CREM - CNRS) |
| Abstract: | The article explores the content and consequences of the French constitutional reform of March 2003. Among the objectives of that reform, one is to preserve the tax autonomy for the local public sector; another is to ensure that the coming wave of devolution of competencies to decentralised levels of government will be adequately financed. These constitutional safeguards are assessed and they prove to be somewhat counterproductive, as if the recourse to the higher level of juridical norms could not replace the legislative level when reforms of local public finance, however difficult, have to be conducted. |
| Keywords: | Central government, Constitutional reform, France, Local public sector, Local taxation, National grants. |
| JEL: | D70 H70 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:200612&r=pbe |
| By: | Andrew Leigh |
| Abstract: | With many countries considering the adoption of a system of earned income tax credits, it is useful to analyze how different types of credits affect labor supply and earnings. This paper focuses on a 1999 reform to the UK tax credit system, which increased the value of the credit and reduced the phase-out rate. Using panel data, with individual fixed effects, I compare eligibles and ineligibles within five groups: all individuals; those whose demographic characteristics predict that they will have low earnings; single women; women in couples; and men in couples. Over a 15-month period, boosting the credit appears to have raised the labor participation rates, hours, and earnings of those who were eligible to receive it. |
| Keywords: | working families’ tax credit, earned income tax credit, wage subsidies, labor supply, earnings, self-reported health status |
| JEL: | C23 H21 H31 I18 I38 J22 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:488&r=pbe |
| By: | David E. Wildasin (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky); |
| Abstract: | International integration of markets for labor and capital has far-reaching policy implications in economies where governments pursue extensive programs of redistribution through tax and transfer policies. The large fiscal impacts that result from movement of high- and low-income populations, as well as of capital, affect the benefits, costs, and political payoffs of redistributive policies, creating incentives for fiscal competition that may limit the extent of redistribution over time. Migration and capital flows are dynamic adjustment mechanisms, analysis of which can shed light on the consequences of structural changes such as globalization of factor markets and EU enlargement. |
| Keywords: | Fiscal Competition |
| JEL: | H77 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:ifr:wpaper:2005-08&r=pbe |
| By: | Anne-Marie Brook; Willi Leibfritz |
| Abstract: | Slovakia’s fundamental tax reform of 2004 considerably improved the simplicity and efficiency of the tax system by eliminating exemptions and special regimes and setting the rates for the personal income tax (PIT), the corporate income tax (CIT) and the value added tax (VAT) all equal to 19%. This paper assesses the impact of this reform in the context of Slovakia's wider package of economic reforms. With respect to economic efficiency, the two key conclusions are as follows: First, the reforms are expected to improve both the level and efficiency of capital investment in Slovakia – although further improvements could be made by eliminating the double taxation on projects financed by retained profits. Second, the combination of the tax and social benefit reforms has enhanced the incentives for unemployed workers to seek work, which should result in higher labour supply. Labour demand should also have increased, thanks to the more flexible labour market. However, as overall taxes on labour remain high, labour demand for very low skilled workers may not pick up without further reforms to reduce the cost of employing such workers. With respect to equity considerations the assessment is less clear cut. On the one hand the flat personal income tax has benefited both low income earners and very high earners, particularly those with families, while middle-income earners, particularly single earners appear to be somewhat worse off. The increase in VAT and the welfare reform also have distributive effects. The net result of these reforms has been a significant cut in the real incomes of social beneficiaries who are not working. On the other hand, by raising labour productivity and reducing structural unemployment the reforms have the potential to benefit the low-skilled population also – provided other public policies are in place to facilitate this outcome. This Working Paper relates to the 2005 OECD Economic Survey of the Slovak Republic (www.oecd.org/eco/surveys/slovakia) <P>L'impôt à taux unique dans le contexte de réformes économiques slovaques La réforme fiscale radicale mise en place par la Slovaquie en 2004 a fortement accru la simplicité et l’efficience du système fiscal en supprimant les exemptions et les régimes spéciaux et en fixant un taux uniforme de 19 % pour l’impôt sur le revenu des personnes physiques (IRPP), l’impôt sur le revenu des sociétés (IRS) et la taxe sur la valeur ajoutée (TVA). Ce document évalue l’incidence de cette réforme dans le contexte d’une série plus générale de réformes économiques mises en œuvre par la Slovaquie. Du point de vue de l’efficience économique, les deux principales conclusions sont les suivantes : En premier lieu, les réformes vont sans doute augmenter à la fois le niveau et l’efficience de l’investissement en Slovaquie – même si une amélioration reste possible en supprimant la double imposition des investissements financés par les bénéfices non distribués. En second lieu, la réforme fiscale, conjuguée à une réforme du système de prestations sociales, renforce les incitations pour les chômeurs à chercher du travail, ce qui devrait accroître l’offre de main-d’œuvre. La demande de main-d’œuvre doit aussi avoir augmenté, grâce à la plus grande flexibilité du marché du travail. Cependant, l’imposition totale du travail demeurant élevée, la demande pour les travailleurs très peu qualifiés n’augmentera peut-être pas en l’absence de mesures supplémentaires pour réduire le coût de l’embauche de ces travailleurs. En ce qui concerne les considérations relatives à l’équité, l’évaluation est moins tranchée. D’un côté, le taux uniforme de l’impôt sur le revenu des personnes physiques profite à la fois aux catégories à bas revenus et à aux titulaires de revenus très élevés, en particulier ceux qui ont une famille, tandis que les catégories à revenu moyen, en particulier les célibataires, semblent quelque peu défavorisées. L’alourdissement de la TVA et la réforme de la protection sociale ont aussi des effets redistributifs. Au total, ces réformes se traduisent par une diminution sensible des ressources des bénéficiaires de prestations sociales qui ne travaillent pas. D’un autre côté, en rehaussant la productivité du travail et en réduisant le chômage structurel, les réformes vont sans doute bénéficier aussi à la population peu qualifiée – à condition que des mesures complémentaires soient mises en place pour faciliter ce résultat. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de la République slovaque, 2005 (www.oecd.org/eco/etudes/slovaquie). |
| Keywords: | tax policy, politique fiscale, social security, sécurité sociale, flat tax, labour taxation, capital taxation, impôt uniforme, fiscalité du travail, fiscalité du capital |
| JEL: | E62 H21 H53 J3 |
| Date: | 2005–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:448-en&r=pbe |
| By: | Sijbren Cnossen |
| Abstract: | Later this year, the European Commission has to submit a report to the Council of Ministers and the European Parliament with its views on tobacco tax policy in the EU. A 2004 publication issued by the Commission expressed the beliefs that tobacco consumption should be controlled by increasing tobacco excises and that harmonization should proceed on the basis of specific rates. This article reviews and evaluates EU tobacco tax policies. It supports the move towards specific taxation, but notes that there are conceptual and empirical limits to excessively high tobacco taxes. Smokers appear to pay their way and cigarette smuggling is a growing menace to health and revenue objectives. |
| Keywords: | tobacco taxation, European Union |
| JEL: | H20 H80 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1718&r=pbe |
| By: | Ghalwash, Tarek (Department of Economics, Umeå University) |
| Abstract: | This thesis consists of four papers: two of them deal with the relationship between consumption, energy taxation, and emissions on macro level, and two of them focus on the effects of changes in consumption and income on the environmental quality on a micro level. <p> The main objective of paper [I] is to examine how exogenous technological progress, in terms of an increase in energy efficiency, affects consumption choice by Swedish households and thereby emissions of carbon dioxide (CO2), sulphur dioxide (SO2) and nitrogen oxide (NOx). The aim of the paper is closely related to the discussion of what is known as the “rebound effect”. To neutralize the rebound effect, we estimate the necessary change in CO2 tax, i.e. the CO2 tax that keeps CO2 emissions at their initial level. In addition, we estimate how this will affect emissions of sulphur dioxide and nitrogen oxides. The results indicate that an increase in energy efficiency of 20 percent will increase emissions of CO2 by approximately 5 percent. To reduce the CO2 emissions to their initial level, CO2 tax must be raised by 130 percent. This tax increase will reduce the emissions of sulphur dioxide to below their initial level, but will leave the emissions of nitrogen oxides at a higher level than initially. <p> One of the premises implied in paper [II] is that the changes in consumer prices, as a result of changes in environmental taxes, may send a different signal to the consumer compared with other changes in consumer prices, such as changes in producer price. In addition, this assumed difference in the signaling effect of the changes in environmental taxes, compared to changes in the producer price, may also differ between different commodities. To achieve the objectives a system of demand functions for Swedish households is estimated. To test for the signaling effect of environmental taxes the consumer price for energy goods is partitioned into a producer price part and a tax part. <p> In Paper [III], we estimate the income elasticity of demand for recreational services and other traditional groups of goods in Sweden and we test for potential changes in such estimates over the twentieth century. The paper uses Swedish household surveys for the years 1913, 1984, 1988, and 1996. Because of the difficulty of directly observing the demand for recreational services, we employ an indirect methodology by using the demand for some outdoor goods as proxies for the recreational services demand. <p> In paper [IV], we investigate the relationship between pollution and income at the household level. Here we want to investigate, and hence contribute to the existing literature, under what conditions concerning individual preferences and the link between consumption and pollution a linear relationship is to be expected, but also to empirically assess the relationship. To achieve our objective we formulate a model determining different type of households’ choice of consumption for goods. Furthermore we link the demand model to emission functions for the various goods. The results from the empirical analysis show that, at least in a close neighborhood of observed income/pollution, we can reject linearity for all three types of pollutions, CO2, SO2, and NOx. According to our results the pollution/income relationships are all strictly concave. Thus the implication is that the income distribution seems to matter in the sense that equalization of income will lead to higher emissions. Furthermore it is shown that the slope as well as the curvature differ between different types of households, which means that preferences differ across households. <p> Keywords: Household consumption, energy demand, emissions, rebound effect, energy taxation, tax elasticities, environmental services, income elasticities, Engel Curves, income distribution. |
| Keywords: | Household consumption; energy demand; emissions; rebound effect; energy taxation; tax elasticities; environmental services; income elasticities; Engel Curves; income distribution |
| JEL: | D12 H31 H41 Q26 Q41 Q53 Q56 |
| Date: | 2006–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0678&r=pbe |
| By: | Robin Boadway (Queen's University); Pierre Pestieau (Universite de Liege) |
| Abstract: | We study the optimal redistributive tax structure when the population can be disaggregated into tagged groups. We begin with the case in which the tag has no normative significance, but simply separates the population into identifiable groups with different distributions of ability-types. Under reasonable circumstances, the tax system will be more redistributive in the tagged group with the higher proportion of high-ability persons. We then extend the analysis to the case where the tag reflects differences in needs, that is, differences in the resources required to achieve a given level of utility, for example, due to a medical condition or a disability. The amount of compensation given for needs depends on whether the income tax structure is differentiated by needs groups. |
| Keywords: | optimal income tax, tagging, needs |
| JEL: | H21 H23 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1071&r=pbe |
| By: | Duc Hong Vo (Department of Economics, The University of Western Australia) |
| Abstract: | Fiscal decentralisation is a complex theoretical and practical issue. The literature is currently divided on whether there is a positive or negative relationship between fiscal decentralisation and economic growth, and it appears that this is in large part due to inconsistent measures of fiscal decentralisation. In this paper, fiscal decentralisation in Vietnam will be examined, with a view to developing a fiscal decentralisation index that accounts for both the fiscal autonomy and fiscal importance of subnational governments to compare the degree of fiscal decentralisation in Vietnam with that of a range of other countries. This will facilitate subsequent (and hopefully definitive) investigations of the relationship between fiscal decentralisation and economic growth. |
| Keywords: | Fiscal Decentralisation, Economic Growth, Fiscal Autonomy, Fiscal Importance, Vietnam |
| JEL: | H77 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:uwa:wpaper:05-16&r=pbe |
| By: | Gonzales, Paula (Universidad Pablo de Olavide, Spain); Hindriks, Jean (Universite Catholique de Louvain, Belgium); Lockwood, Ben (University of Warwick); Porteiro, Nicolas Universidad Pablo de Olavide, Spain |
| Abstract: | In this paper, we study a model à la Rogoff (1990) where politicians distort fiscal policy to signal their competency, but where fiscal policy can be centralized or decentralized. Our main focus is on how the equilibrium probability that fiscal policy is distorted in any region (the political budget cycle, PBC) differs across fiscal regimes. With centralization, there are generally two effects that change the incentive for pooling behavior and thus the probability of a PBC. One is the possibility of selective distortion: the incumbent can be re-elected with the support of just a majority of regions. The other is a cost distribution effect, which is present unless the random cost of producing the public goods is perfectly correlated across regions. Both these effects work in the same direction, with the general result that overall, the PBC probability is larger under centralization (decentralization) when the rents to office are low (high). Voter welfare under the two regimes is also compared: voters tend to be better off when the PBC probability is lower, so voters may either gain or lose from centralization. Our results are robust to a number of changes in the specification of the model. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:742&r=pbe |
| By: | Robin Boadway (Queen's University); Laurence Jacquet (Universite Catholique de Louvain) |
| Abstract: | Using the Mirrlees optimal income tax model with a maxi-min social welfare function, we derive conditions for a decreasing marginal tax rate throughout the skill distribution, a strictly concave tax function in income and a single-peaked average tax schedule. With additive preferences and a constant labor supply elasticity, marginal tax rates are decreasing below the modal skill level, and will also decrease above the mode if aggregate skills are non-decreasing with the skill level. In this case and with a bounded skill distribution or with a constant hazard rate, the tax function is strictly concave in income and the average tax rate single-peaked. When quasilinear utility functions apply in either consumption or leisure, under fairly mild restrictions on the truncated or untruncated distribution function, marginal tax rates are decreasing in skill and the average tax profile is single-peaked. The distribution of skills has the same qualitative influence for either case of quasilinearity. These results continue to hold when there is bunching at the bottom due to a binding non-negativity constraint. We also illustrate how relaxing the assumption of constant elasticity of labor supply, generally used in the literature, modifies the results. |
| Keywords: | Maxi-min, optimal income taxation |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1073&r=pbe |
| By: | Robin Boadway (Queen's University); Zhen Song (Queen's University); Jean-Francois Tremblay (University of Ottawa) |
| Abstract: | This paper studies multi-stage processes of non-cooperative voluntary provision of public goods. In the first stage, one or more players announce contributions that may be conditional on the subsequent contributions of others. In later stages, players choose their own contributions and fulfill any commitments made in the first stage. Equilibrium contributions are characterized under different assumptions about the commitment ability of players, the number of public goods and whether players commit to matching rates or to discrete quantities. We focus on contribution mechanisms that can emerge and be sustainable without a central authority, and that therefore may be particularly relevant for the provision of international public goods. Efficient levels of public goods can be achieved under some circumstances. |
| Keywords: | voluntary provision, matching contributions, commitment, multiple public goods |
| JEL: | H41 H87 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1067&r=pbe |
| By: | Andrew Leigh |
| Abstract: | Using panel data from US states, I measure the impact of partisanship on a wide range of different policy settings and economic outcomes. Across 32 measures, there are surprisingly few differences in policy settings, social outcomes and economic outcomes under Democrats and Republicans. In terms of policies, Democratic Governors tend to prefer slightly higher minimum wages and more redistributive taxes. Under Republican Governors, incarceration rates are higher, while welfare caseloads are higher under Democratic Governors. In terms of social and economic outcomes, Democratic Governors tend to preside over higher median post-tax income, lower post-tax inequality, and lower unemployment rates. However, for 25 of the 32 dependent variables, gubernatorial partisanship does not have a statistically significant impact on policy outcomes and social welfare. I find no evidence of gubernatorial partisan differences in welfare generosity, the number of government employees or their salaries, state revenue, incarceration rates, execution rates, pre-tax incomes and inequality, crime rates, suicide rates, and test scores. These results are robust to the use of regression discontinuity estimation, to take account of the possibility of reverse causality. Overall, it seems that Governors behave in a fairly non-ideological manner. |
| Keywords: | median voter theorem, partisanship, state government, taxation, expenditure, welfare, crime, growth |
| JEL: | D72 D78 H71 H72 I38 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:504&r=pbe |
| By: | Louis Lévy-Garboua; David Masclet; Claude Montmarquette |
| Abstract: | A conjecture of Laffer, which had considerable influence on fiscal doctrine, is that tax revenues of a Leviathan state eventually decrease when the tax rate exceeds a threshold value. We conduct a real effort experiment, in which a “worker” is matched with a non-working partner, to elicit the conditions under which a Laffer curve can be observed. We ran four different treatments by manipulating work opportunities and the power to tax. In the endogenous treatment, the non-working partner chooses a tax rate among the set of possibilities and receives the revenue generated by her choice and the worker’s effort response to this tax rate. In the exogenous treatment, the tax rate is randomly selected by the computer and the non-working partner merely receives the revenue from taxes. The Laffer curve phenomenon cannot be observed in the exogenous treatments, but arises in endogenous treatments. Tax revenues are then maximized at a 50% tax rate. We demonstrate that an “efficiency tax” model (with or without inequity aversion) falls short of predicting our experimental Laffer curve but an alternative model of social preferences provides a micro-foundation for the latter. This new model endogenously generates a social norm of fair taxation at a 50% tax rate under asymmetric information about workers’ type. Taxpayers manage to enforce this norm by working less whenever it has been violated but do not systematically reward “kind” tax setters. Workers who maximize their expected wealth adjust work to the tax rate equitably so that tax revenues remain at a fair level. Workers who respond affectively to norm violations want to hurt, and even refuse to work, so that tax revenues are cut down. Workers endowed with higher work opportunities tend to respond more emotionally to unfair taxation in our experiment, which is consistent with the observed Laffer curve and with the history of tax revolts. <P>En 1974, Arthur Laffer lançait l’idée que les recettes fiscales d’un état Léviathan se mettent à décroître lorsque le taux d’imposition excède un certain seuil. Cette idée a exercé une grande influence sur la doctrine fiscale des dernières décennies. Dans la présente étude, nous procédons à une expérience avec effort réel dans laquelle un « travailleur » est apparié à un partenaire inactif. Le but de l’expérience est de dégager les conditions de validité de la prédiction de Laffer. Nous avons retenu quatre traitements en manipulant les opportunités de travail et le pouvoir de taxer. Dans les deux traitements endogènes (avec opportunité de travail faible et forte), le participant inactif choisit le niveau de taxe qui déterminera le revenu qu’il recevra du travail de son partenaire. Dans les deux traitements exogènes, le niveau de taxe est choisi aléatoirement par l’ordinateur, et les taxes perçues distribuées au partenaire inactif. La courbe de Laffer n’est pas observable dans les traitements exogènes, mais existe bien dans les traitements endogènes, particulièrement lorsque l’opportunité du travail est forte. La recette fiscale est maximum au taux de 50 %. Nous démontrons qu’un modèle de « taxe d’efficience » (avec ou sans aversion à l’inégalité) ne parvient pas à prédire l’ensemble de ces résultats. En revanche, un modèle alternatif de préférences sociales procure des fondements microéconomiques à la courbe de Laffer. Ce nouveau modèle induit une norme sociale de juste taxation au taux de 50 % sous condition d’information asymétrique sur les types de travailleurs. Les travailleurs taxés assurent le maintien de la norme en travaillant moins lorsqu’elle n’est pas respectée, mais ne récompensent pas les choix d’imposition « généreux ». Les travailleurs qui maximisent leur richesse attendue ajustent leur travail au taux de taxation de sorte que la recette fiscale ne s’écarte pas du niveau équitable. Les travailleurs, notamment ceux qui ont une forte opportunité de travail, réagissent plus souvent de manière émotionnelle aux violations de la norme en refusant de travailler, validant ainsi la courbe de Laffer et l’histoire des révoltes de contribuables. |
| Keywords: | experimental economics, informational asymmetry, Laffer curve, social norms and sanctions, taxation and labour supply , asymétrie d’information, courbe de Laffer, économie expérimentale, normes sociales et sanctions, taxation et offre de travail |
| JEL: | C72 C91 H30 J22 |
| Date: | 2006–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2006s-03&r=pbe |
| By: | Andrew Leigh |
| Abstract: | Prior to the last three decades, regular surveys on household income were rare or non-existent in many developed countries, making it difficult for economists to develop long-run series on income distribution. Using taxation statistics, which tend to be available over a longer time span, I propose a method for imputing the incomes of non-taxpayers, and deriving the underlying distribution of income. Because taxation statistics are typically disaggregated by gender, it is possible to derive separate income distribution series for men and women in countries where individuals file separately. I show that over the past four decades, the distribution of adult male incomes is a good proxy for the distribution of family incomes. Applying this method to Australia, I develop a new annual series for inequality from 1942-2000. Inequality fell in the 1950s and the 1970s, and rose during the 1980s and 1990s – a pattern similar to the United Kingdom. |
| Keywords: | income distribution, imputation, tax progressivity, Australia |
| JEL: | C81 D31 H23 |
| Date: | 2004–09 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:476&r=pbe |
| By: | Piero Gottardi; Felix Kubler |
| Abstract: | In this paper we identify conditions under which the introduction of a pay-as-you-go social security system is ex-ante Pareto-improving in a stochastic overlapping generations economy with capital accumulation and land. We argue that these conditions are consistent with many calibrations of the model used in the literature. In our model financial markets are complete and competitive equilibria are interim Pareto efficient. Therefore, a welfare improvement can only be obtained if agents’ welfare is evaluated ex ante, and arises from the possibility of inducing, through social security, an improved level of intergenerational risk sharing. We will also examine the optimal size of a given social security system as well as its optimal reform. The analysis will be carried out in a relatively simple set-up, where the various effects of social security, on the prices of long-lived assets and the stock of capital, and hence on output, wages and risky rates of returns, can be clearly identified. |
| Keywords: | intergenerational risk sharing, social security, ex ante welfare improvements, interim optimality, price effects |
| JEL: | D58 D91 E62 H55 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1705&r=pbe |
| By: | David E. Wildasin (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky); Thiess Buettner (ifo and Munich University) |
| Abstract: | The dynamic fiscal policy adjustment of local jurisdictions is investigated empirically using a panel of more than 1000 U.S. municipalities over a quarter of a century. Distinguishing own-source revenue, grants, expenditures, and debt service, the analysis is carried out using a vector error-correction model which takes account of the intertemporal budget constraint. The results indicate that a large part of the adjustment in response to fiscal imbalances takes place by offsetting changes in future expenditures. In addition, the results show that fiscal imbalances are financed to a significant extent by subsequent changes in grants. Decomposition of the sample according to average city population reveals that the basic pattern of fiscal adjustment is robust, although intergovernmental grants play a much more pronounced role in maintaining budget balance for large cities. |
| JEL: | H70 H72 H77 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:ifr:wpaper:2005-03&r=pbe |
| By: | David E. Wildasin (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky); |
| Abstract: | The theory of fiscal competition seeks to ascertain how fiscal policymaking is affected by competitive pressures faced by governments. This requires a theory of policy choice, and, as such, the theory of fiscal competition lies squarely in the realm of political economy. This essay presents a concise overview of some of the principal themes that have figured prominently in economic analyses of fiscal competition and identifies significant gaps that warrant further attention and that may occupy the attention of investigators in the years to come. It first sketches a model that has been used frequently in theoretical and empirical analyses of fiscal competition, emphasizing how fiscal policies affect the welfare (real incomes) of various groups and how these impacts depend on the mobility of resources. Subsequent sections address parts of the subject that are less well-settled, highlighting, for example, the fact that exit (or entry) options for mobile resources alters the payoffs from alternative fiscal policies among those who participate actively in the political process and, thus, participation incentives. Two intertemporal aspects of fiscal competition are emphasized: the determination of the "degree" of factor mobility, especially for the purposes of empirical analysis, and the issue of time-varying policies, commitment, and dynamic consistency. The paper also discusses the role of institutions, and particularly of higher- and lower-level governments (i.e., the vertical and horizontal structure of government), in fiscal competition. |
| Keywords: | Fiscal Competition, Political Economy |
| JEL: | H77 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:ifr:wpaper:2005-05&r=pbe |
| By: | Dirk Schindler; Guttorm Schjelderup |
| Abstract: | We study how harmonization of corporate tax systems affects the stability of international cartels. We show that tax base harmonization reinforces collusive agreements, while harmonization of corporate tax rates may destabilize or stabilize cartels. We also find that bilateral and full harmonization to a common standard is worse from society’s point of view than unilateral harmonization to a minimum tax standard. |
| Keywords: | corporate tax systems, tacit collusion |
| JEL: | H87 L10 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1702&r=pbe |
| By: | Valeria DeBonis; Luca Spataro |
| Abstract: | The issue of inheritance taxation is very similar to that of capital income taxation, once they are analyzed within the optimal taxation framework: should one tax own future consumption and estate (i.e. perspective heirs’ consumption) more than own present consumption? As for capital income taxation, starting from the seminal works by Judd (1985) and Chamley (1986), the issue of dynamic optimal capital income taxation has been analyzed by a number of researchers. In particular, Judd (1999) has shown that the zero tax rate result stems from the fact that a tax on capital income is equivalent to a tax on future consumption: thus, capital income should not be taxed if the elasticity of consumption is constant over time. However, while in infinitely lived representative agent (ILRA) models this condition is necessarily satisfied in the long run, along the transition path, instead, it holds only if the utility function is assumed to be (weakly) separable in consumption and leisure and homothetic in consumption. Another source of taxation can derive from the presence of externalities, which gives room to nonzero taxation as a Pigouvian correction device. Abandoning the standard ILRA framework in favour of Overlapping Generation models with life cycle (OLG-LC) has delivered another important case of nonzero capital income taxation. This outcome can be understood by reckoning that in such a setup optimal consumption and labor (or, more precisely, the general equilibrium elasticity of consumption) are generally not constant over life and even at the steady state, due to life-cycle behavior. A similar reasoning can be applied to estate taxation. Note that this corresponds to a dierential treatment of savings for own future consumption, on the one hand, and of savings for bequest, on the other hand. Thus, the first aspect to note is that the optimality of a nonzero tax on capital income does not necessarily imply the optimality of a nonzero tax on estates. In fact the latter can be justified on arguments analogous to those presented above: a nonzero estate tax could stem either from the violation of (weak) separability between ”expenditure” on estate and (previous period) leisure or from a dierence between the donor’s and the donee’s general equilibrium elasticities of consumption, according to the framework being analyzed. Another reason for levying a tax on inheritance could be correcting for an externality. Atkinson (1971) and Stiglitz (1987) consider the positive externality deriving from the fact that transfers benefit those who receive them. Holtz-Eakin et al. (1993), Imbens et al. (1999), Joulfaian et al. (1994) consider instead the negative externality deriving, in the presence of an income tax, from a fall in heirs’ labor eorts. In the field of estate and transfers in general, the analysis of the motives for giving is another important aspect. In fact, different motives are associated to dierent forms of utility functions and, as a consequence, to dierent policy eects. Altruism, joy of giving, exchange related motives, accidental bequests have been widely studied in the literature (see Davies, 1996; Masson and Pestieau, 1997; Stark, 1999; Kaplow, 2001). In this paper we consider altruism motivated bequests. However, we introduce an element that is not considered in the existing models, i.e. the presence of migration. Moreover, we allow for a disconnection in the economy, in that we assume altruism to be limited to own descendants4. This element turns out to be a relevant determinant of taxation once it is embedded in the social welfare function, and precisely in the sense that the policymaker takes into account the demographic evolution of the population. In fact, the zero capital income and inheritance tax result applies only if the disconnection of the economy is disregarded. We identify instead a number of ways in which the demographic evolution of the population can be accounted for within the social welfare function via appropriate intergenerational weights, leading to dierent combinations of the inheritance and capital income tax rates, with at least one of them being nonzero. The work proceeds as follows: in section 2 we present the model and derive the equilibrium conditions for the decentralized economy. Next, we characterize the Ramsey problem by adopting the primal approach. Finally, we present the results by focusing on the new ones. Concluding remarks and a technical appendix will end the work. |
| Keywords: | optimal dynamic taxation, migration, altruism, inheritance taxation, capital income taxation |
| JEL: | E62 H21 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:wpc:wplist:wp11_06&r=pbe |
| By: | Cyril Hariton (Toulouse Business School); Gwenäel Piaser (Department of Economics, University Of Venice Cà Foscari); Gwenaël Piaser |
| Abstract: | We introduce labor contracts, in a framework of optimal redistribution: firms have some local market power and try to discriminate among heterogeneous workers. In this setting we show that if the firms have perfect information, i.e, they perfectly discriminate against workers and take all the surplus, the best tax function is flat. If the firms have imperfect information, i.e, if they offert incentive contracts, then (under some assumptions) the best redistributive taxation is regressive. |
| Keywords: | Income Taxation, Redistribution, Labor market, Multi-principals, Adverse selection, Mechanism design |
| JEL: | D21 D82 H21 L14 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:30_06&r=pbe |
| By: | Patricia Apps; Ray Rees |
| Abstract: | In this paper we compare gender differences in the allocation of time to market work, domestic work, child care, and leisure over the life cycle. Time use profiles for these activity categories are constructed on survey data for three countries: Australia, the UK and Germany. We discuss the extent to which gender differences and life cycle variation in time use can be explained by public policy, focusing on the tax treatment of the female partner and on access to high quality, affordable child care. Profiles of time use, earnings and taxes are compared over the life cycle defined on age as well as on phases that represent the key transitions in the life cycle of a typical household. Our contention is that, given the decision to have children, life cycle time use and consumption decisions of households are determined by them and by public policy. Before children arrive, the adult members of the household have high labour supplies and plenty of leisure. The presence of pre-school children, in combination with the tax treatment of the second earner’s income and the cost of bought-in child care, dramatically change the pattern of time use, leading to large falls in female labour supply. We also highlight the fact that, in the three countries we study, female labour supply exhibits a very high degree of heterogeneity after the arrival of children, and we show that this has important implications for public policy. |
| Keywords: | Gender, Time Allocation, Labour Supply, Household Taxation, Life Cycle |
| JEL: | J16 J22 H31 D91 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:500&r=pbe |
| By: | Katja Funke (International Monetary Fund, 700 19th Street, N.W., Washington, D. C. 20431, USA.); Christiane Nickel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper analyses the empirical relationship between fiscal policy and the trade account. Research prior to this paper did not consider that the components of private and public demand in the import demand equation exhibit different elasticities. Using pooled mean group estimation for annual panel data of the G7 countries for the years 1970 through 2002, we provide empirical evidence that the composition of overall demand – i.e. the distribution among public demand, private demand and export demand – has an impact on the magnitude of the trade account deficit. |
| Keywords: | Fiscal policy, trade account, trade elasticities, panel cointegration. |
| JEL: | F32 E62 F41 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060620&r=pbe |
| By: | Christian Kleiber; Martin Sexauer; Klaus Wälde |
| Abstract: | This paper examines the role of bequests and of taxation on bequests for the distribution of wealth. We investigate a model with overlapping generations and heterogeneous households where parents derive utility directly from their bequests. Using the coefficient of variation as the measure of inequality, bequests per se diminish the inequality of wealth since they raise private savings and hence average wealth holdings more than the variance of wealth. From a policy perspective, taxing bequests and redistributing government revenue lump-sum among the young generation further decreases wealth inequality. |
| Keywords: | bequest, taxation, wealth inequality, OLG model, analytical solution |
| JEL: | D31 H23 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1723&r=pbe |
| By: | Andreas Knabe; Ronnie Schöb; Joachim Weimann |
| Abstract: | In this paper, we attempt to renew the interest in marginal employment subsidies. Such subsidies are paid only for a firm's additional employment exceeding some reference level and create larger employment stimuli at lower fiscal costs than general wage subsidies for all workers. If the hiring of a new employee also entails subsidizing an incumbent worker (double marginal subsidization), the replacement of regular paid workers by outsourcing employment to newly established firms – a standard critique of marginal employment subsidies – can be avoided. This additional subsidy reduces the incentive to crowd out regular employment and results in even larger employment effects. Applying the subsidy scheme to the low-skill labor market in Germany, we show that employment can be substantially increased without imposing additional fiscal burden. |
| Keywords: | unemployment, marginal employment subsidies |
| JEL: | H25 J38 J68 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1707&r=pbe |
| By: | Andrew Leigh |
| Abstract: | How are hourly wages affected by the Earned Income Tax Credit? Two strategies are utilized to determine the relationship between the credit and hourly wages. First, I use variation in state EITC supplements, which magnify the effect of the federal EITC. I find that a 10 percent increase in the generosity of the EITC is associated with a 4 percent fall in the wages of high school dropouts and a 2 percent fall in the wages of those with only a high school diploma, while having no effect on the wages of college graduates. Given standard estimates of labor demand, this is consistent with the common finding that the EITC boosts labor supply. Although workers with children receive a more generous tax credit than childless workers, and the effect of the credit on labor force participation is larger for those with children, the hourly wages of both groups are similarly affected by an increase in the overall generosity of the EITC. A second strategy is then implemented, based on the insight that the impact of the EITC on wages is determined by the typical EITC parameters in an employee’s labor market, rather than by the individual’s own EITC eligibility. Constructing a simulated instrument for the EITC parameters in an employee’s labor market, I find that wages respond to variation in the fraction of eligible employees and the average EITC rate, but do not respond systematically to changes in the marginal EITC rate. |
| Keywords: | taxation incidence, labor supply, simulated instrument |
| JEL: | H22 H23 J22 J30 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:494&r=pbe |
| By: | James Marton (Martin School of Public Policy and Administration, University of Kentucky); David E. Wildasin (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky) |
| Abstract: | US states provide both cash and health insurance benefits for the poor, partially financed by fiscal transfers from the Federal government. The 1996 welfare reform drastically reduces Federal support for cash transfers at the margin, lowering the relative price to states of providing benefits to the poor through Medicaid. This paper analyzes the comparative-statics response of state governments to such changes in intergovernmental transfers, showing (in central cases) that they can contribute not only to reductions in state expenditures on cash benefits but to increases in expenditures on Medicaid, whether or not beneficiary populations are mobile among states. Length: 27 pages |
| Keywords: | Intergovernmental Transfers, Welfare Reform, Medicaid |
| JEL: | H77 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:ifr:wpaper:2006-01&r=pbe |
| By: | A Baujard (CREM - CNRS) |
| Abstract: | A public decision maker needs to decide to allocate some subsidy towards the conditions for public transportation or for private transportation. If she wants to improve the collective welfare of the community based on the individual preferences between public and private transportation, she needs to learn about the latter. A possible way to infer individual preferences lies in the revealed preference theory. With Saaris's technique of probability calculus, it becomes possible to study how much information is reliable for plausible assumptions about the conditions of data observations. We conclude that public decision makers may hardly get the relevant welfarist information to circumvent the problem raised by the lack of independence condition. This counter-example provides an operational argument against the use of strict technical welfarism in public economics. |
| Keywords: | Welfarism, non-welfarism, public decision, information basis for public decision, revealed preference theory, probability calculus |
| JEL: | C81 D63 H40 I38 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:200608&r=pbe |
| By: | Richard Toikka (The Lewin Group); Thomas Gais (The Rockefeller Institute of Government); Plamen V Nikolov (The Lewin Group/Cornell University); Patricia Billen (The Rockefeller Institute of Government) |
| Abstract: | Social welfare programs strive to improve the well-being of needy and vulnerable populations. The fact that states spend different amounts on these programs is well known, but why they do so is less understood, including the extent to which differences are affected by states’ relative fiscal capacity, defined as their ability to raise revenue through taxation. The federal government has long played an important role in offsetting state fiscal disparities. However, recent changes in federal grant programs might have affected poor and rich states in different ways. For the purpose of this study, we measure fiscal capacity—and thus distinguish between rich and poor states—using states’ real per capita income. By social welfare spending, we mean per capita state spending on programs intended to support lower-income households, usually programs that are means tested. These programs might include cash assistance programs such as Aid to Families with Dependent Children (AFDC) or cash payments under AFDC’s replacement, Temporary Assistance for Needy Families (TANF); health programs such as Medicaid and state child health insurance programs (SCHIP); and a wide variety of non- health service programs providing child care, foster care, low-income energy assistance, and social services to the physically disabled and programs funded by the Social Services Block Grant (SSBG). The Study Conducted over 21 months, the study involved two major activities: Analysis of expenditures across 50 states. Our analysis examined variation in spending patterns across the 50 states and the District of Columbia. Our team analyzed 24 years of data on state and local social welfare spending patterns for four categories of social welfare spending and a residual category of all other state and local spending. These categories encompassed cash assistance; Medicaid; non-health social services, such as child care, child welfare, energy assistance, and services to the aged and disabled; public hospitals; and all other non- social welfare spending. We approached the analysis of spending in three ways: (1) employing descriptive data to analyze trends and patterns, (2) developing and estimating econometric models of state spending to estimate how differences in states’ fiscal capacity affect spending, and (3) using the results from the descriptive and econometric analysis to better understand the spending variations we observed between rich and poor states. Case studies. We collected and analyzed qualitative and quantitative data from six states— Arizona, Louisiana, Mississippi, New Mexico, South Carolina, and West Virginia—selected for their high needs relative to their fiscal capacities. Findings from the econometric analysis were used to compare states on their propensities to spend on certain types of social welfare. Comparisons were drawn between rich states (i.e., states with high fiscal capacity) and poor states (i.e., states with low fiscal capacity) and among the six states selected for case studies. To obtain in-depth information about how state fiscal capacity affects state spending on social programs, we conducted site visits to case study states. Four questions guided our interviews: · How do states with the greatest needs and the least resources make financial decisions regarding their social welfare programs? · How do these states respond to short-term financial challenges, such as the recent state fiscal crises? · Why do some poor states spend more on social welfare programs than other poor states? And why did some spend more on certain programs and less on others? |
| Keywords: | welfare economics state spending welfare reform expenditures |
| JEL: | D6 D7 H |
| Date: | 2004–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwppe:0410006&r=pbe |
| By: | John Roberts |
| Abstract: | This paper asks whether the costs of providing public services in low-income developing countries tend to rise when expenditure on these services increases - as has been found to be the case in developed countries. It offers elements of an answer to this question by reference to evidence from country case studies relating to episodes of expenditure growth, mainly in the 1990s, in the fields of primary education, road maintenance and childhood immunisation. |
| Keywords: | public expenditure, scaling up, primary education, road maintenance, childhood immunisation, public services |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:odi:wpaper:15&r=pbe |
| By: | Lundberg, Mattias; Lall, Somik V. |
| Abstract: | The availability and quality of basic public services are important determinants of urban quality of life. In many cities, rapid population growth and fiscal constraints are limiting the extent to which urban governments can keep up with increasing demand for these services. It therefore becomes important to prioritize provision of those services to best reflect local demand. The authors present a strategy to estimate the demand for public services, which is sensitive to heterogeneity in preferences across types of households, and the nonparametric estimation addresses problems arising from functional form restrictions. Using data from Pune, India, they estimate the demand for public services, as represented by the marginal change in the self-assessed monthly rental price of dwellings from the services. The authors find that the value of publicly provided services accruing to the poor is greater than that going to wealthier households, and even untargeted across-the-board investment in specific services can be progressive. |
| Keywords: | Housing & Human Habitats,Public Sector Economics & Finance,Municipal Financial Management,Economic Theory & Research,Public Sector Management and Reform |
| Date: | 2006–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3924&r=pbe |
| By: | Robin Boadway (Queen's University); Motohiro Sato (Hitotsubashi University) |
| Abstract: | Politicians typically do not know what policies are best for achieving their broad objectives, so rely on bureaucrats for advice. Bureaucrats are better informed, so can manipulate outcomes by proposing policies that suit their interests. We capture this conflict of interests using a model of political decision-making that focuses on the interaction between politicians and the bureaucracies that advise them. In the basic model, a representative bureaucrat, knowing the characteristics of a given project, recommends to a representative politician whether to adopt it. If the politician chooses to adopt the project, its characteristics are revealed ex post. On the basis of the revealed outcome, the politician decides whether to discipline the bureaucrat. The bureaucrat anticipates imperfectly the chances of discipline when making an ex ante recommendation. When project characteristics are multi-dimensional, the politician can choose whether to seek advice from one bureaucrat or more than one. We compare outcomes in these centralized and decentralized regimes. |
| Keywords: | bureaucracy, governance |
| JEL: | H11 D73 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1070&r=pbe |
| By: | Katinka Pantzy; Anthony Ziegelmeyer |
| Abstract: | We consider a modified pure public good game characterized by a pre-play negotiation stage, on which pairs of players can form binding cooperation commitments. As the introduced mechanism only supports pairwise rather than more inclusive commitments, it does not implement the efficient outcome. We theoretically derive the incentive compatible and efficient cooperative networks and evaluate the behavioral efficacy of the suggested mechanism to promote and stabilize cooperation. We present the results of two separate experiments. The first experiment serves to provide necessary methodological prerequisites and establishes that neither repetition with an unknown end nor voluntary costly monitoring are behaviorally sufficient to induce cooperative outcomes. In the second experiment we introduce the pairwise commitment mechanism. We show that the mechanism induces aggregate cooperation rates not only beyond the rates observed under the voluntary contribution mechanism operationalized in the first experiment, but also beyond the rate which is supported by the formation of incentive compatible networks. We observe a large heterogeneity between groups: while some groups converge to full cooperation by managing to coordinate on the formation of efficient networks over time, both networks and cooperation rates unravel in other groups. An extended version of our theoretical setting with inequity averse players in the form suggested by Fehr and Schmidt (1999) captures the stylized facts of both experiments. |
| Keywords: | Strategic formation of networks, Social dilemma, Positive externalities, Experiments |
| JEL: | C92 D85 H41 Z13 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:esi:discus:2005-32&r=pbe |
| By: | Pierre Lefebvre; Philip Merrigan |
| Abstract: | On September 1st, 1997, a new childcare policy was initiated by the provincial government of Québec in Canada. Childcare services licensed by the Ministry of the Family (not-for-profit centre, family-based, and for-profit centre under the agreement) began offering daycare spaces at the reduced parental contribution of $5 per day per child for children of age 4. For each following year, the government reduced the age requirement and engaged in a plan to create new childcare facilities and pay for the cost of additional $5 per day daycare spaces. On September 2000, the low-fee policy applied to all children aged 0-59 months (not in kindergarten) and the number of subsidized places increased from 82,000 in 1997 to 163,000 by the end of year 2002, while the number of eligible children, zero to four years old, declined from 445,000 to 373,000 over the same period. Using annual data (1993 to 2002), drawn from Statistics Canada’s Survey on Labour and Income Dynamics (SLID), this study attempts to estimate the effect of the policy on the labour supply behaviour of Québec mothers with pre-school children, aged from 0 to 5 years old. The analysis examines the impact of the policy on the following outcomes: labour force participation, number of annual weeks and hours worked, annual earned income and whether the job was full-time or part-time for mothers who declared having a job during the reference year. A non-experimental evaluation framework based on multiple pre- and post-treatment periods is used to estimate the effect of the childcare regime.<P> The econometric results support the hypothesis that the childcare policy, simultaneously with the transformation of public kindergarten from a part-time to a full-time basis, had a large and statistically significant impact on the labour supply of Québec’s mothers with pre-school children. The estimates also suggest, though less convincingly, that the size of the impact increased simultaneously with the positive growth in the number of low-fee spaces. <P>Le 1er septembre 1997, le gouvernement du Québec instaurait une nouvelle politique de subventions aux services de garde. Les milieux de garde reconnus par le ministère de la Famille et de l’Enfance ont commencé à offrir des places à contribution réduite (5 $/jour) pour les enfants qui avaient atteint l'âge de 4 ans au 30 septembre. En outre, le gouvernement s’engageait à réduire progressivement (chaque année) l’âge d’admissibilité à ces places et à augmenter leur nombre dans le réseau des services de garde subventionnés. Malgré l’ampleur des dépenses publiques pour ce programme, il n’y a pas d’étude qui a porté sur la réalisation des objectifs poursuivis par cette politique. Cette étude vise à combler en partie cette lacune en analysant les effets de la politique de garde sur l’offre de travail des mères québécoises. Elle s’appuie sur les données annuelles recueillies de 1993 à 2002 par l’Enquête sur la dynamique du travail et des revenus (EDTR) de Statistique Canada. L’évaluation des effets de la politique de garde sur différents indicateurs du marché du travail (taux d’occupation d’un emploi, semaines et heures annuelles travaillées, revenu annuel de travail, participation à temps plein au marché du travail) adopte une approche « quasi expérimentale », c’est-à-dire que les différences entre les mères québécoises (groupe traitement) et les mères des autres provinces (groupe de contrôle) sont comparées avant et après la mise en place du régime de subventions aux services de garde. Nos résultats sont conformes à l’hypothèse selon laquelle le programme de soutien aux services de garde mis en place par le gouvernement du Québec, en même temps que la maternelle cinq ans gratuite et à temps plein, ont eu un impact important et statistiquement significatif sur l’offre de travail des mères ayant des enfants de 5 ans ou moins. Les résultats économétriques soutiennent aussi, quoique de façon moins convaincante, que l’ampleur de l’effet a augmenté parallèlement à l’augmentation du nombre de places à contribution réduite de 1998 à 2002. En effet, nous ne pouvons rejeter l’hypothèse selon laquelle l’effet de la politique est le même pour les années 1999 à 2002. Cependant, la régularité de la progression de cet effet pour toutes les variables d’offre de travail laisse croire que l’augmentation du nombre de places a eu un rôle important à jouer dans l’augmentation de l’offre de travail. |
| Keywords: | labor supply of mothers, childcare policy, panel data, offre de travail des mères, politique des services de garde, données de panel |
| JEL: | H42 J21 J22 |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2005s-09&r=pbe |
| By: | Clifford J. Carrubba (Department of Political Science, Emory University); Matthew Gabel (Department of Political Science, University of Kentucky) |
| Abstract: | The European Court of Justice (ECJ) is commonly described as a powerful international force for legal integration. Indeed, past studies indicate that the ECJ has developed a supranational legal order that trumps national law in a broad range of economic policy areas. But this depiction of an autonomous Court driving European integration beyond the desires of the member-states is dubious. We would expect the Court, whose existence depends on an international treaty and whose authority depends on national enforcement, to have strong incentives to decide cases with an eye to concerns of national governments. We argue that past studies -- which were based on a small number of case studies -- cannot demonstrate whether the Court is or is not sensitive to member-state interests. Based on novel dataset of all ECJ decisions over three years, we develop an empirical test of member-state influence on ECJ decisions and demonstrate that the Court does temper its decisions to accommodate member-state concerns. |
| JEL: | H77 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:ifr:wpaper:2005-06&r=pbe |
| By: | Giacomo Corneo; Christina M. Fong |
| Abstract: | This paper proposes a model that can be implemented to estimate the willingness to pay for distributive justice. A formula is derived that allows one to recover the willingness to pay for distributive justice from the estimated coefficients of a probit regression and fiscal data. Using this formula and data from a 1998 Gallup Social Audit, we find that the monetary value of justice in the United States is about one fifth of GDP. We find no evidence that the value of justice varies across types of people. |
| Keywords: | distributive justice, governmental redistribution, fairness |
| JEL: | D63 H24 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1706&r=pbe |
| By: | Clifford J. Carrubba (Department of Political Science, Emory University); Matthew Gabel (Department of Political Science, University of Kentucky); Lacey Murrah (Department of Political Science, Emory University); Ryan Clough (Department of Political Science, Emory University); Elizabeth Montgomery (Department of Political Science, Emory University); Rebecca Schambach (Department of Political Science, Emory University) |
| Abstract: | Political parties play an important role in structuring political competition at different levels of governance in the European Union (EU). The political parties that contest national elections also participate in the EU legislative institutions, with the governing parties at the national level participating in the Council of Ministers and a broad range of national parties represented in the European Parliament (EP). Recent research indicates that national parties in the EP have formed ideological coalitions -- party groups -- that represent transnational political interests. These party groups appear to manage legislative behavior such that national interests -- which dominate the Council of Ministers -- are subjugated to ideological conflict. In this paper, we demonstrate that the roll-call vote evidence for the impact of party groups in the EP is misleading. Because party groups have incentives to select votes for roll call so as to hide or feature particular voting patterns, the true character of political conflict is never revealed in roll calls. |
| JEL: | H77 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:ifr:wpaper:2005-04&r=pbe |
| By: | Shihe Fu |
| Abstract: | Urban amenities can be capitalized into land values or property values. However, little attention has been paid to the capitalization of social amenities. This paper classifies three types of social-interaction-based social amenities: human capital, social capital, and cultural capital at residential neighborhood levels. We use the restricted version of the 1990 Massachusetts Census data and estimate hedonic housing models with social amenities. The findings are as follows: (1) Human capital has significant positive effects on property values. This tests the Lucas conjecture. (2) Different types of social capital have different effects on property values: an increase in the percentage of new residents has significant positive effects on property values, probably due to the strength of weak ties. However, an increase in the percentage of single-parent households has negative effects on property values. An increase in the home ownership rate has positive effects at large geographic levels. (3) Cultural capital effects vary from high to low geographic levels, the effects of English proficiency and racial homogeneity are positive at and beyond the tract level, but insignificant at the block level. This may imply that cultural capital is more important in social interactions at large geographic scale. |
| Keywords: | Urban amenities, capitalization, property values, human capital, social capital, cultural capital, hedonic model, social interaction |
| JEL: | A14 C21 D62 H41 R31 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:05-25&r=pbe |
| By: | Nauro F. Campos; Francesco Giovannoni; |
| Abstract: | During the transition from plan to market, managers and politicians succeeded in maintaining control of large parts of the stock of socialist physical capital. Despite the obvious importance of this phenomenon, there have been no efforts to model, measure and investigate this process empirically. This paper tries to fill this gap by putting forward theory and econometric evidence. We argue that asset stripping is driven by the interplay between the firm’s potential profitability and its ability to influence law enforcement. Our econometric results, for about 950 firms in five transition economies, provide support for this argument. |
| Keywords: | Asset stripping, law enforcement, corruption, transition. |
| JEL: | H82 K42 O17 P26 P31 |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2005-786&r=pbe |
| By: | Patricia Apps; Ray Rees |
| Abstract: | This paper combines income and expenditure with time use data to provide a unique picture of the time paths of labour supplies, saving and full consumption for two-adult households over the life cycle. These data are used to test the life cycle model presented in the paper, at the core of which is the hypothesis that households face a borrowing interest rate that rises sharply with the amount of non collateral based borrowing. The household members jointly choose time paths of time use, consumption and saving over their life cycle in the face of this capital market imperfection. This model explains the data much better than does the alternative hypothesis of a perfect capital market. Finally, households are shown to differ significantly in their saving behaviour in a way that depends on secondary earner labour supply, with a strong positive association between saving and the secondary earner's income. |
| Keywords: | saving; labour supply; imperfect capital market; life cycle |
| JEL: | D13 D91 H31 J2 |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:475&r=pbe |
| By: | John H. A. Munro |
| Abstract: | The debate about mandatory retirement is fundamentally a moral issue, about human rights, but one strongly related to several major economic issues. Mandatory retirement is a form of age discrimination that seems to be strictly prohibited by section 15(1) of the Canadian Charter of Rights. But the Charter provides an important qualification: in that ‘it guarantees the rights and freedoms set out in it subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society’. That provision was cited in the majority decision of the Supreme Court of December 1990, known as McKinney v University of Guelph, which upheld the right of Ontario (and other Canadian) universities to impose mandatory retirement at 65, if not otherwise constrained by provincial legislation. The reasons that the majority cited to explain this decision bear directly upon important economic issues; and this paper seeks to refute all those arguments, chiefly if not exclusively on economic grounds. The first set of arguments were those contending that mandatory retirement, in a supposedly ‘closed’ system of Canadian universities, is necessary to open employment and promotion opportunities for younger workers, with fresher, more innovative ‘new blood’, i.e., by forcing academics to leave at 65 (an argument akin to one used in the past against employing females: on the grounds that they took jobs from ‘male family-breadwinners’). This basically involves the still widely held ‘lump of labour fallacy’; and it is refuted by not only economic logic but by the historical evidence from jurisdictions that have abolished mandatory retirement in full: Quebec, from 1983 (the only Canadian province so far to do so); and the United States, from 1994. Various studies now demonstrate that an end to mandatory retirement has encouraged very few to continue past the normal age of retirement, has not appreciably altered the average age of retirement, and has had no discernible consequences for the employment and advancement of much younger faculty. The second related Supreme Court argument was that mandatory retirement is necessary to obviate the need to monitor productivity in order to dismiss unproductive elderly faculty, and thus also to protect tenure (to guarantee academic freedom). This paper argues that performance monitoring is a normal feature of academic life in major North American universities; that there is no evidence that academic productivity declines with, and only with, the onset of the 60s; that in jurisdictions without mandatory retirement none of the predicted adverse consequences has taken place; and that tenure remains intact. The third argument concerns the validity of freely-negotiated labour contracts, containing provisions for mandatory retirement. In the case of the University of Toronto and many other Ontario universities, this paper demonstrates that mandatory retirement was imposed unilaterally, without negotiated contracts; but the paper also discusses the nature, and economic rationale, of such contracts that involve the suppression of individual rights in the presumed favour of the majority (if and when freely negotiated). The paper also addresses labour union concerns to protect normal retirement benefits at 65 (when most do wish to retire). The paper also considers two other economic issues not considered by the Supreme Court: (1) mandatory retirement as an employment tool to ensure greater diversity of Canadian faculty – and thus whether one may engage in one form of discrimination to combat the presumed consequences of another; and (2) mandatory retirement as a fiscal necessity, when government grants have been shrinking. Quite clearly universities do gain by rehiring forcibly retired academics to do stipendiary teaching (making a mockery of their reasons for mandatory retirement). Against this is set the costs of mandatory retirement: in promoting the flow of some productive and renowned faculty to the US; or in encouraging productive senior faculty to seek alternative employment in Canada; and in hindering (or even preventing) the recruitment of renowned senior faculty from jurisdictions that prohibit mandatory retirement. |
| Keywords: | labour, the Canadian Charter of Rights, Supreme Court, age discrimination, university employment, diversity in employment, productivity, tenure, collective bargaining, contracts, individual and collective rights, retirement, pensions, university financing. |
| JEL: | H30 H52 I22 I28 J10 J14 J15 J23 J24 J26 J33 J38 J44 J48 J53 J62 J78 J82 J83 K12 K31 L31 |
| Date: | 2005–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:munro-04-02&r=pbe |
| By: | Chris Ryan; Louise Watson |
| Abstract: | Government subsidies have provided a major source of funds to private schools in Australia for three decades. The increasing level of private school subsidies since the mid-1970s has contributed to a steady increase in the proportion of students enrolled in private schools. This growth in the private school share of enrolments was not inevitable, but has been the outcome of government policies. We use an economic framework that focuses jointly on the price and quality of schooling and find that private schools have used government subsidies to increase the quality of their services (ie. to reduce staff: student ratios) rather than to reduce their fees. This strategy has ensured that the 10 percentage point increase in the enrolment share of private schools since 1975 has not substantially altered the socio-economic composition of their student body. One consequence is that a higher proportion of government school students now come from low socio-economic status (SES) backgrounds than 30 years ago. Therefore, schools in the government sector now educate more students from lower SES backgrounds than in 1975. The implications for public policy of these phenomena are discussed and directions for future research identified. |
| Keywords: | private schooling, choice, government subsidies, student background |
| JEL: | I21 I28 H52 |
| Date: | 2004–09 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:479&r=pbe |
| By: | Migali, Giuseppe (University of Warwick) |
| Abstract: | In a world where graduate incomes are uncertain (observation of the UK graduate wages from 1993 to 2003) and the higher education is financed through governmental loan (UK Higher Education Reform 2004), we build a theoretical model to show which scheme between an income contingent loan and a mortgage loan is preferred for higher level of uncertainty. Assuming a single lifetime shock on graduate incomes, we compare the individual expected utilities under the two loan schemes, for both risk neutral and risk averse individuals. We extend the analysis for graduate people working in the public sector and private sector, to stress on the extreme difference on the level of uncertainty. To make the model more realistic, we allow for the effects of the uncertainty each year for all the individual working life, assuming that the graduate income grows following a geometric Brownian motion. In general, we find that an income contingent loan is preferred for low level of the starting wage and high uncertainty. |
| Keywords: | Choice ; Risk Aversion ; Uncertainty |
| JEL: | D81 H20 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:740&r=pbe |
| By: | Morris Sebastian |
| Abstract: | In this paper we discuss the stylised problems relating to water and irrigation in India and argue that most of the inefficiencies, misuse and environmental damage have their roots in the mispricing of water and electricity. Since the only kind of subsidies thus far used are price based input subsidies they end up distorting the allocative prices, from which the other distortions follow. The problems of the sector can be overcome by changing the method of subsidisation. Converting price based or tariff subsidies to direct subsidies and endowments with improved tradability would solve most of the problems in the water and electricity sectors. Administrative and managerial initiatives by themselves would not succeed without this crucial tariff and subsidy reform. Such reform would also result in political capital for its initiators, and should make private and public financing of water (and electricity) projects possible. The issues related to pricing, water rights, subsidies and financing are deeply interlinked, and the correct pricing would necessarily have to recognise the financing dimension. Water being a scarce commodity with major composition and coordination economies in its use, its pricing cannot be discussed without a consideration of the rights (implicit or otherwise). This study, unlike many previous diagnostic studies, has been led by the need to find solutions to a fast deteriorating situation: rising implicit subsidies, movement away from optimal use in a major way, huge distortions and resulting social costs in the use and misuse of water, and as much as 30% of the irrigation water supplied being wasted. The environmental effects of such inappropriate use and waste increase by the day. Our approach to the problem calls for a strategic shift in so far as we argue that reform is not possible if the present approach to work around major policy and design infirmities rather than remove them in the first place continues. This is because the distortions have been so deep rooted as to have fed back into the governance and institutional structure of water management in the country. We also argue for solutions that are incentive compatible in the sense that the designs for pricing & regulation and financing (within the appropriate policy and rights framework) are internally consistent and would work without depending continually upon political commitment, administrative initiatives and managerial energies. Incentive compatible policies are those which by design meet the criteria that the actors, civil servants, proposed water companies and cooperatives, electricity companies, farmers have the correct incentives to do what is right for efficient production, management, allocation and consumption of the resource without administrative direction or urging or demanding the presence of persons with exceptional morals, or leadership qualities. Key elements of our recommendations are: The right to water of a state to the rivers and other water bodies should include the right to trade i.e. to sell the water. This would be consistent with the fact that the bulk of he water is for commercial use today. A formal, perhaps constitutional basis of sharing the waters of interstate rivers rather than national level optimal use being pursued weakly through agreements as is the case today is important. The irrigation sector at all levels is opened to the private sector through frameworks for various kinds of private finance initiatives including the DBF /DBFO type initiatives. Rather than cost plus, it would be far more useful to institute regulation which is incentive in approach and price cap in form, though uniform caps across the country would not be possible nor desirable. Price caps could be the same across fairly large regions. All subsidies whether for electricity or water would have to be direct subsidies delivered to the farmer. An identification exercise carried out once that allows the endowments of a farmer to be fixed, so that he can be issued electricity coupons and water coupons periodically, is necessary. This ensures the political commitment of the farmer since now he has nothing to lose but a lot to gain. Without such commitment and certainly with their hostility as the current agenda to eliminate or reduce subsidies implies, no reform is possible. With all subsidies going direct, there need not be restraints on commercial behaviour and orientation of all participants in the market. The productive organisations – bulk water companies, retail companies and distributors including (WUAs), and farmers can all relate to the regulated bulk, and retail market prices. Current subsidies in irrigation are converted to endowments in units of water and provided to the farmer in the form of coupons with which (as also with cash) he can buy water, and even sell the same subject to certain restraints. Thereby prices are allowed to perform their function of ensuring allocative and use efficiency. Since water supplies may be limited (because of natural factors, and because of limited existing capacity to produce /store) bulk water rates ought to be regulated, with only small opportunity for water companies (bulk and distribution) to gain out of the (high) retail water market prices. Regulated prices could be long run marginal cost (LRMC), in which case the difference between the commercial viability prices and the LRMC prices is made up for the private /commercial bulk water producer through annuities in an appropriate private finance initiative (PFI) deal. The benefit of the difference between the regulated retail prices at which water is supplied to the farmer and the retail water market prices in the command area/ayacut is to the account of the farmer. Since the farmer is able to internalise this benefit with reference to the price, there are strong incentives for judicious use, and optimal trade. In water scare regions it would restore and enhance the incentives for even investments in water saving technologies. A little of the same benefits is designed to be internalised by the water distribution entity so that it has strong incentives to save water in distribution, recover losses, and make investments for repairs, rehabilitation and augmentation Tradability across an entire command is a desirable objective, which can be introduced as experience is gained of the system. Cross command tradability should also slowly emerge subject to certain safeguards against the monopolisation of access rights to water. Water distribution companies are ideally structured as WUAs i.e., cooperatives but with some allowed asymmetry in shareholding. But they ought not to be limited to WUAs or even to farmers’ companies. Bidding for distribution business should be open to entirely private companies too, so that the process of decentralised distribution does not necessarily have to be constrained by the ‘free rider’ problem in cooperation. For entirely new projects requiring construction of new distribution assets, the access rights can be sold at prefixed prices/market prices but strictly limited to farmers with operational/own holdings of land in the command area/ayacut, to raise the capital to construct the distribution system. This can be done separately for each of the distribution areas, since the bid prices are likely to vary depending upon such factors as the alternative supplies including from ground water available. Such purchase of the rights to water would lead to much flow of finance into the sector, and in a way that is functional and entirely incentive compatible. Banks and rural development finance institutions without any subsidy could then support the participation of farmers in the equity of distribution companies. Tanks systems would also require a certain recasting with formally defined rights and prices for use of ground water and surface irrigation. The need here is to minimise the free-rider problem that is inherently a barrier in the management and judicious use of tank irrigation (a common resource in many ways). Herein the key to reform is to lead the system to an explicit relative valuation of the direct and indirect output of the tank (canal water and ground water) through bids restricted to farmers from within the ayacut. A prior fixation of the shares of each farmer in the ‘tank’ business that includes already existing use of wells is the key. Tradability among members of such ‘rights water’ would ensure its judicious use, and the expansion /savings in supplies would follow from the large profits that farmer would make in avoiding leakages and siltation. |
| Keywords: | India, Irrigation, Electricity, Reform, Subsidy, distortion, Privatisation, commercialisation, Water-users-Association, water-rights, pricing, financing, public-private-partnership |
| JEL: | H4 |
| Date: | 2005–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:iim:iimawp:2005-11-05&r=pbe |
| By: | Robin Boadway (Queen's University); Motohiro Sato (Hitotsubashi University) |
| Abstract: | Entrepreneurs starting new firms face two sorts of asymmetric information problems. Information about the quality of new investments may be private, leading to adverse selection in credit markets. And, entrepreneurs may not observe the quality of workers applying for jobs, resulting in adverse selection in labor markets. We construct a simple model to illustrate some consequences of new firms facing both sorts of asymmetric information. Multiple equilibria can occur. Stable equilibria can be in the interior, or at a corner in which no entrepreneurs enter. Stable interior equilibria can involve involuntary unemployment, as well as credit rationing. Equilibrium outcomes mismatch workers to firms, and will generally result in an inefficient number of new firms. With involuntary unemployment, there will be too few new firms, but with full employment, there may be too many or too few. Taxes or subsidies on new firms and employment can be used to achieve a second-best optimum. Alternative information assumptions are explored. |
| Keywords: | entrepreneurship, asymmetric information, adverse selection |
| JEL: | D82 G14 H25 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1069&r=pbe |