nep-pbe New Economics Papers
on Public Economics
Issue of 2006‒07‒09
forty-one papers chosen by
Peren Arin
Massey University

  1. Optimal Control of Externalities in the Presence of Income Taxation By Louis Kaplow
  2. Decentralization and Political Institutions By Ruben Enikolopov; Ekaterina Zhuravskaya
  3. On the Effectiveness of Debt Brakes: The Swiss Experience By Lars P. Feld; Gebhard Kirchgassner
  4. Investment Incentives in Closely Held Corporations and Finland's 2005 Tax Reform By Seppo Kari; Harri Hietala
  5. Australian Government Balance Sheet Management By Wilson Au-Yeung; Jason McDonald; Amanda Sayegh
  6. The reform and implementation of the Stability and Growth Pact By Richard Morris; Hedwig Ongena; Ludger Schuknecht
  7. Targeting inflation and the fiscal balance : what is the optimal policy mix? By Marcela Meirelles Aurelio
  8. Progressive Taxation Under Centralised Wage Setting By Pekka Sinko
  9. Taxation and Debt Financing of Home Acquisition: Evidence from the Finnish 1993 Tax Reform By Tuukka Saarimaa
  10. Optimal Stationary Monetary and Fiscal Policy under Nominal Rigidity By Michal Horvath
  11. Capital Gains Taxes and Asset Prices: Capitalization or Lock-In? By Zhonglan Dai; Edward Maydew; Douglas A. Shackelford; Harold H. Zhang
  12. Fool the markets? Creative accounting, fiscal transparency and sovereign risk premia By Kerstin Bernoth; Guntram Wolff
  13. Is Fiscal Policy Sustainable in Developing Economies? By Subrata Ghatak; José R. Sánchez-Fung
  14. Tax riots By Marco Bassetto; Christopher Phelan
  15. Cost of Capital for Cross-border Investment: The Fallacy of Estonia as a Tax Haven By Seppo Kari; Jouko Ylä-Liedenpohja
  16. Essays on Labour Taxation and Unemployment Insurance By Pekka Sinko
  17. Trends in Top Income Shares in Finland By Marja Riihelä; Risto Sullström; Matti Tuomala
  18. Separation of Powers and the Budget Process By Gene M. Grossman; Elhanan Helpman
  19. Inside the Black Box of ‘White Flight’: The Role of Suburban Political Autonomy and Public Goods (April, 2006) By Leah Platt Boustan
  20. Automobile Externalities and Policies By Parry, Ian W.H.; Walls, Margaret; Harrington, Winston
  21. Spending Preferences of Public Sector Officials. Survey Evidence from the Finnish Central Government By Takis Venetoklis; Jaakko Kiander
  22. On the General Relativity of Fiscal Language By Laurence J. Kotlikoff; Jerry Green
  23. Does the Diversity of Human Capital Increase GDP? A Comparison of Education Systems By Katsuya Takii; Ryuichi Tanaka
  24. Tax Treatment of Business Investments in Intellectual Assets: An International Comparison By Jacek Warda
  25. Bailouts, Taxation and Financial Supervision By Pereira, Luis Brites
  26. Federal Policy and the Rise in Disability Enrollment: Evidence for the VA%u2019s Disability Program By Mark Duggan; Robert Rosenheck; Perry Singleton
  27. Efficient expropriation: sustainable fiscal policy in a small open economy By Mark Aguiar; Manuel Amador; Gita Gopinath
  28. A Big Push to Deter Corruption: Evidence from Italy By Antonio Acconcia; Claudia Cantabene
  29. Does the Size of the Legislature Affect the Size of Government? Evidence from Two Natural Experiments By Per Pettersson-Lidbom
  30. Does Price Matter in Charitable Giving? Evidence From a Large-Scale Natural Field Experiment By Dean Karlan; John A. List
  31. Are Government Expenditures Productive? Measuring the Effect on Private Sector Production By Jaakko Kiander; Reino Hjerppe; Matti Virén
  32. What Kind of Job-broker is the Public Employment Service? Evidence from Finnish Job Vacancy Midrodata in 2002-2003 By Heikki Räisänen
  33. Shortening the potential duration of unemployment benefits does not affect the quality of post-unemployment jobs: evidence from a natural experiment By Ours,Jan C. van; Vodopivec,Milan
  34. Asylum Seekers in Europe: The Warm Glow of a Hot Potato By Giovanni Facchini; Oliver Lorz ( RWTH Aachen University); Gerald Willmann
  35. Trade and Growth with Heterogenous Firms By Richard E. Baldwin; Frédéric Robert-Nicoud
  36. Macroeconomic Models and the Determination of Crowding Out. By Lee C. Spector
  37. Comparative Analysis on the Job-Broking Market in Japan and Finland By Heikki Räisänen
  38. The Effects of Welfare-to-Work Program Activities on Labor Market Outcomes By Peter R. Mueser; Kyung-Seong Jeon; Andrew Dyke; Carolyn J. Heinrich; Kenneth R. Troske
  39. Economic Impacts of Immigration: A Survey By Sari Pekkala
  40. Dual Track Reforms: With and Without Losers By Jiahua Che; Giovanni Facchini
  41. A Multinomial Approach to Early Warning Systems for Debt Crises By Alessio Ciarlone; Giorgio Trebeschi

  1. By: Louis Kaplow
    Abstract: A substantial literature examines second-best environmental policy, focusing particularly on how the Pigouvian directive that marginal taxes should equal marginal external harms needs to be modified in light of the preexisting distortion due to labor income taxation. Additional literature is motivated by the possibility that distributive concerns should amend the internalization prescription. It is demonstrated, however, that simple first-best rules – unmodified for labor supply distortion or distribution – are correct in a natural, basic formulation of the problem. Specifically, setting all commodity taxes equal to marginal harms (and subsidies equal to marginal benefits) can generate a Pareto improvement. Likewise, a marginal reform in the direction of the first-best can yield a Pareto improvement. For other reforms, a simple efficiency test characterizing when a Pareto improvement is possible is offered. Qualifications and explanations for the substantial departure from results in previous work are also elaborated.
    JEL: D61 D62 D63 H21 H23 K32
    Date: 2006–06
  2. By: Ruben Enikolopov (Harvard University and CEFIR); Ekaterina Zhuravskaya (New Economic School/CEFIR and CEPR)
    Abstract: Does fiscal decentralization lead to more efficient governance, better public goods, and higher economic growth? This paper tests Riker’s theory (1964) that the results of fiscal decentralization depend on the level of countries’ political centralization. We analyze crosssection and panel data from up to 75 developing and transition countries for 25 years. Two of Riker’s predictions about the role of political institutions in disciplining fiscally-autonomous local politicians are confirmed by the data. 1) Strength of national political parties significantly improves outcomes of fiscal decentralization such as economic growth, quality of government, and public goods provision. 2) In contrast, administrative subordination (i.e., appointing local politicians rather than electing them) does not improve the results of fiscal decentralization.
    Date: 2006–05
  3. By: Lars P. Feld; Gebhard Kirchgassner
    Abstract: The Swiss fiscal system is characterised by an extensive fiscal federalism with high fiscal autonomy at all governmental levels, by direct popular rights which include fiscal referenda at the cantonal and local levels, and by particular constitutional and/or statutory fiscal restraints in order to prevent excessive public debt. In this paper, the effects of these constitutional clauses on public deficit and debt are investigated. Using a panel of the 26 Swiss cantons from 1980 to 1998, we provide evidence that fiscal constraints significantly reduce budget deficits, while direct democracy leads to significantly lower public debt.
    Keywords: Direct Democracy; Referenda; Initiatives; Public Debt; Budget Deficits
    JEL: H74 H77 D78
    Date: 2006–06
  4. By: Seppo Kari; Harri Hietala
    Abstract: This paper analyses the effects of the recent Finnish income tax reform on the behaviour of a closely held corporation (CHC) and its owners. The main elements of the reform are cuts in corporate and capital income tax rates and the replacement of the current full imputation system by a partial double taxation of distributed profits. Considerable exemptions are applied to relieve the taxation of dividends from CHCs. The analysis indicates that the change in the CHC?s cost of capital depends on the marginal tax rate (MTR) of the owner. In the case of a high-MTR entrepreneur, the cost of capital increases or is retained at the present level while at lower MTRs the cost of capital may well decrease. The latter observation is due to the increase in the tax rate gap between earned income and capital income. Thus the reform does not remove the earlier reported nonneutralities of the Finnish tax system. The reform also improves the position of wage income as a form of compensation. This will cushion the effect of the dividend tax changes on the CHC?s cost of capital.
    Keywords: Capital income taxation, dual income tax, tax reform
    Date: 2006–05–04
  5. By: Wilson Au-Yeung; Jason McDonald; Amanda Sayegh
    Abstract: Since almost eliminating net debt, the Australian Government’s attention has turned to the financing of broader balance sheet liabilities, such as public sector superannuation. Australia will be developing a significant financial asset portfolio in the ‘Future Fund’ to smooth the financing of expenses through time. This raises the significant policy question of how best to manage the government balance sheet to reduce risk. This paper provides a framework for optimal balance sheet management. The major conclusions are that: – fiscal sustainability depends on both the expected path of future taxation and the risks around that path; – optimal balance sheet management requires knowledge of how risks affect the balance sheet (and therefore volatility in tax rates); and – the government’s financial investment strategy should reduce the risk to government finances from macroeconomic shocks that permanently affect the budget. Based on this framework, we find that a Future Fund portfolio that included (amongst other potential investments) domestic nominal securities and equities of selected countries would reduce overall balance sheet risk.
    JEL: H5 H6
    Date: 2006–06
  6. By: Richard Morris (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Hedwig Ongena (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Ludger Schuknecht (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany)
    Abstract: Fiscal rules are instrumental for restraining deficit and spending biases in euro area Member States that could threaten the smooth functioning of Economic and Monetary Union (EMU). Ideally, fiscal rules should combine characteristics such as sufficient flexibility to allow for appropriate policy choices with the necessary simplicity and enforceability to actually discipline government behaviour. The Maastricht Treaty and the Stability and Growth Pact established such a rules-based framework for fiscal polices in EMU. However, the implementation of the Pact was less than fully satisfactory. One year ago, the Pact was reviewed and a reformed version adopted which emphasises more flexible rules and procedures, including more explicit room for judgement and discretion than in its original form. While its proponents argued that these revisions would strengthen commitment and implementation of the rules, others emphasised the risk of weakening the EU fiscal framework. A year on from the SGP reform, this paper takes stock of how the EU fiscal rules have evolved and how they have been implemented from the Maastricht Treaty to the present day, including initial experiences with the implementation of the reformed Pact. The first indications are of a smoother and consistent implementation, but with consolidation requirements that are rather lenient while fiscal targets and projections point to only slow and back-loaded progress towards sound public finances in many countries. The assessment of the implementation of the revised rules is therefore mixed. It is of the essence that the provisions of the revised SGP be rigorously implemented in order to ensure fiscal sustainability. JEL Classification: E61, E62, H6.
    Keywords: Stability and Growth Pact, Fiscal policy, Fiscal rules, EMU.
    Date: 2006–06
  7. By: Marcela Meirelles Aurelio
    Abstract: This paper identifies optimal policy rules in the presence of explicit targets for both the inflation rate and public debt. This issue is investigated in the context of a dynamic stochastic general equilibrium model that describes a small open economy with capital accumulation, distortionary taxation and nominal price rigidities. The model is solved using a second-order approximation to the equilibrium conditions. Optimal policy features a strong anti-inflation stance and strict fiscal discipline. Targeting a domestic inflation index - as opposed to CPI - improves welfare because it reduces the inefficiencies that stem from both price stickiness and income taxes.
    Keywords: Inflation (Finance) ; Prices ; Fiscal policy
    Date: 2006
  8. By: Pekka Sinko
    Abstract: The study reconsiders the effects of tax progression in imperfectly competitive labour markets. Allowing for the individual supply of working hours, we show that the results derived in the standard model of decentralised wage bargaining do not hold if the wage setting is centralised or highly coordinated. We show that increased progression is more likely to harm employment if either i) the initial tax system is progressive or ii) the wage setting is centralised or co-ordinated. If the wage setting institutions are centralised or strongly co-ordinated, increased progression may be bad for employment even when departing from a proportional tax system.
    Keywords: Tax progression, wage setting, employment.
    JEL: C10 J30 H20
    Date: 2004–12–01
  9. By: Tuukka Saarimaa
    Abstract: The 1993 Finnish tax reform reduced the incentives to use debt financing in home acquisition for high-income households. Before the reform mortgage interest was deductible according to a progressive schedule creating a so-called upside-down effect, which means that the benefit from the deduction was the greater the higher was taxpayer?s income. After the reform, the deduction is made according to a flat schedule, and thus, the size of the benefit no longer depends on taxpayer?s income. We use household level data from the Income Distribution Survey of Statistics Finland to study whether high-income households have responded to the reform. Using tobit, Heckman and two-part model on repeated cross-sectional data from 1990?2000 we find that the probability of having a mortgage debt is clearly less dependent on the income of household?s head after the tax reform. This income variable measures the tax deduction effect and we conclude that the 1993 tax reform was behind the observed behavioural change. The results for the amount of mortgage debt conditional on a positive amount are more ambiguous. It seems that the tax reform had no or very little effect on the demand for the amount of mortgage debt.
    Keywords: mortgage interest deduction, tax reform, mortgage demand
    JEL: C30 R30 D10 H20
    Date: 2005–04–06
  10. By: Michal Horvath
    Abstract: Several papers have recently argued that price stickiness implies non-stationarity in models of monetary-fiscal interactions. The policy implication is that policy makers should allow a permanent drift in variables such as public debt or the tax rate in response to shocks. At the same time, a growing volume of literature advocates formulating optimal policies by minimizing expected welfare losses over unconditional rather than conditional expectations. We demonstrate that policies that maximize the unconditional expectation of the welfare objective in a forward-looking linear-quadratic framework necessarily imply mean reversion for all policy-relevant endogenous variables. This has important practical and theoretical implications.
    Keywords: Optimal monetary and fiscal policy, timeless perspective, unconditional expectation, time consistency.
    JEL: C61 E52 E61 E63
    Date: 2006–06
  11. By: Zhonglan Dai; Edward Maydew; Douglas A. Shackelford; Harold H. Zhang
    Abstract: This paper examines the impact on asset prices from a reduction in the long-term capital gains tax rate using an equilibrium approach that considers both demand and supply responses. We demonstrate that the equilibrium impact of capital gains taxes reflects both the capitalization effect (i.e., capital gains taxes decrease demand) and the lock-in effect (i.e., capital gains taxes decrease supply). Depending on time periods and stock characteristics, either effect may dominate. Using the Taxpayer Relief Act of 1997 as our event, we find evidence supporting a dominant capitalization effect in the week following news that sharply increased the probability of a reduction in the capital gains tax rate and a dominant lock-in effect in the week after the rate reduction became effective. Nondividend paying stocks (whose shareholders only face capital gains taxes) experience higher average returns during the week the capitalization effect dominates and stocks with large embedded capital gains and high tax sensitive investor ownership exhibit lower average returns during the week the lock-in effect dominates. We also find that the tax cut increases the trading volume during the week immediately before and after the tax cut becomes effective and in stocks with large embedded capital gains and high tax sensitive ownership during the dominant lock-in week.
    JEL: H2 G1 D4 M4
    Date: 2006–06
  12. By: Kerstin Bernoth; Guntram Wolff
    Abstract: We investigate the effects of official fiscal data and creative accounting signals on interest rate spreads between bond yields in the European Union. Our model predicts that risk premia contained in government bond spreads should increase in both, the official fiscal position and the expected ”creative” part of fiscal policy. The relative importance of these two signals depends on the transparency of the country. Greater transparency reduces risk premia. The empirical results confirm the hypotheses. Creative accounting increases the spread. The increase of the risk premium is stronger if financial markets are unsure about the true extent of creative accounting. Fiscal transparency reduces risk premia. Instrumental variable egressions confirm these results by addressing potential reverse causality problems and measurement bias.
    Keywords: Risk premia; government bond yields; creative accounting; stock-flow adjustments; gimmickry; transparency
    JEL: G12 E43 E62 H6 F34
    Date: 2006–06
  13. By: Subrata Ghatak; José R. Sánchez-Fung
    Abstract: This paper investigates fiscal policy sustainability in Peru, the Philippines, South Africa, Thailand, and Venezuela using competing methodologies. Standard unit roots and cointegration analyses do not endorse the validity of the intertemporal budget constraint. In contrast, to varying degree across-countries, alternative testing employing a fiscal policy reaction function indicates sustainability defined as surplus adjustments in response to higher debt to income ratios. Corresponding debt-dynamics analyses show that corrective measures were put in place to revert non-sustainable trends in government debt. However, ancillary variables in the debt modeling produce statistically weak evidence of procyclical fiscal behavior in the Latin American countries.
    Keywords: fiscal policy sustainability, fiscal policy reaction functions, developing countries
    Date: 2006–03–21
  14. By: Marco Bassetto; Christopher Phelan
    Abstract: This paper considers an optimal taxation environment where household income is private information, and the government randomly audits and punishes households found to be underreporting. We prove that the optimal mechanism derived using standard mechanism design techniques has a bad equilibrium (a tax riot) where households underreport their incomes, precisely because other households are expected to do so as well. We then consider three alternative approaches to designing a tax scheme when one is worried about bad equilibria.
    Date: 2006
  15. By: Seppo Kari; Jouko Ylä-Liedenpohja
    Abstract: The initial cost of capital of a foreign subsidiary, financed by its parent from abroad, is dependent on repatriation taxes and this also applies to all follow-up investments financed from marginal foreign profits, representing the required return on the initial investment. Only investments financed from intra-marginal foreign profits are independent of repatriation taxes, but their cost of capital depends inversely on the dividend tax of the home-country parent?s owners. We calibrate the cost of capital formulae to the Estonian and Finnish parameters of taxing international investment income. The calculations show that Estonian subsidiaries, which pay no tax on undistributed profits but a corporate dividend tax, offer tax benefits to their parents only in terms of intra-marginal profits.
    Keywords: Direct investment, tax incentives, corporate tax
    JEL: H87 H32 H25
    Date: 2005–04–28
  16. By: Pekka Sinko
    Abstract: The study consists of four essays, which analyse the implications of labour taxation and unemployment insurance (UI) in the models of imperfectly competitive labour markets. The first essay studies the effects of labour taxation on unemployment and efficiency in a search equilibrium model with endogenous job destruction. It is shown that the adverse employment effect of labour taxes is mainly due to the prolonged spells of unemployment. A pure increase in the tax progression may reduce unemployment and facilitate the emergence of low-productivity jobs. In the second essay, the link between taxes and the public benefits is perceived owing to the centralised wage setting institutions. This is shown to promote wage moderation, make wages and employment less sensitive to wage taxation and reduce hours worked. The third essay considers alternative ways to organize the government subsidies in a model, where taxalike payments are collected by the industry level funds in order to finance unemployment benefits. It is shown that equilibrium unemployment is decreasing in the share of UI financed by the employed union members. The fourth essay analyses the effects of UI in a job search model with endogenous search effort. It is shown that UI with a limited potential duration induces more search effort among the long-term unemployed who have exhausted a considerable amount of the current benefits.
    Keywords: Labour taxation, unemployment insurance, trade union model, search model
    JEL: E24 J50 J30 H20
    Date: 2004–07–20
  17. By: Marja Riihelä; Risto Sullström; Matti Tuomala
    Abstract: This paper provides new evidence about the evolution of top incomes in Finland over the period 1966 - 2002. Using micro data we construct estimates of shares of top income groups. The paper shows how the proportion of income earned by the very richest one per cent has changed over time. It shows a U-shaped pattern over this period. The total share of the highest earners fell consistently between the mid 1960s and the beginning of the 1990s but then began to rise. The results bring out clearly how the major equalization from the mid 1960s to the mid 1990s has been reversed, taking the shares of top income groups back to levels of inequality or even higher found 40 years ago. The main factor that has driven up the top one per cent income share in Finland after the mid 1990s is in an unprecedented increase in the fraction of capital income which is in 2002 52 per cent of incomes in the top one per cent group. In 1990 this fraction was 14 per cent. Therefore the composition of high incomes at the end of period considered is very different from those earlier years of this period. We argue in this paper that the 1993 tax reform is one of the key factors responsible for this trend. Our results suggest that the decline in income progressivity since the mid 1990s is a central factor explaining the increase of top income shares in Finland.
    Keywords: Top income shares, inequality, taxation, income mobility
    JEL: D63 D30 H20
    Date: 2005–11–30
  18. By: Gene M. Grossman; Elhanan Helpman
    Abstract: We study budget formation in a model featuring separation of powers. In our model, the legislature designs a budget bill that can include a cap on total spending and earmarked allocations to designated public projects. Each project provides random benefits to one of many interest groups. The legislature can delegate spending decisions to the executive, who can observe the productivity of all projects before choosing which to fund. However, the ruling coalition in the legislature and the executive serve different constituencies, so their interests are not perfectly aligned. We consider settings that differ in terms of the breadth and overlap in the constituencies of the two branches, and associate these with the political systems and circumstances under which they most naturally arise. Earmarks are more likely to occur when the executive serves broad interests, while a binding budget cap arises when the executive’s constituency is more narrow than that of the powerful legislators.
    JEL: H61 D78 H41
    Date: 2006–06
  19. By: Leah Platt Boustan
  20. By: Parry, Ian W.H. (Resources for the Future); Walls, Margaret (Resources for the Future); Harrington, Winston (Resources for the Future)
    Abstract: This paper reviews theoretical and empirical literature on the measurement of the major automobile externalities, namely local pollution, global pollution, oil dependence, traffic congestion and traffic accidents. It then dicusses the rationale for traditional policies to address these externalities, including fuel taxes, fuel economy standards, emissions standards and related policies. Finally, it discusses emerging, more finely-tuned policies, such as congestion pricing and pay-as-you-drive insurance, that have become feasible with advances in electronic metering technology.
    Keywords: pollution, congestion, accidents, fuel tax, fuel economy standard, congestion pricing
    JEL: Q54 R48 H23
    Date: 2006–06–14
  21. By: Takis Venetoklis; Jaakko Kiander
    Abstract: We examine the determinants that shape the spending preferences of public sector employees on several budgetary appropriations. Following Niskanen?s (1971, 1975, 1994) budget maximising theory, we test whether these employees prefer larger budgetary appropriations rather than less. We measure their preferences to increase their own bureau?s appropriations and compare those against their preferences for other bureaux?s appropriations. The empirical evidence is gathered via a mail survey targeting high level officials from different Ministries in Finland. The analysis of the responses suggests that Niskanen?s theory is supported, in part.
    Keywords: Bureaucratic behaviour, budgetary determinants, budgetary process
    JEL: H61 D73 H83
    Date: 2004–10–29
  22. By: Laurence J. Kotlikoff; Jerry Green
    Abstract: A century ago, everyone thought time and distance were well defined physical concepts. But neither proved absolute. Instead, measures/reports of time and distance were found to depend on one’s reference point, specifically one’s direction and speed of travel, making our apparent physical reality, in Einstein’s words, “merely an illusion.” Like time and distance, standard fiscal measures, including deficits, taxes, and transfer payments, depend on one’s reference point/reporting procedure/language/labels. As such, they too represent numbers in search of concepts that provide the illusion of meaning where none exists. This paper, dedicated to our dear friend, David Bradford, provides a general proof that standard and routinely used fiscal measures, including the deficit, taxes, and transfer payments, are economically ill-defined. Instead these measures reflect the arbitrary labeling of underlying fiscal conditions. Analyses based on these and derivative measures, such as disposable income, private assets, and personal saving, represent exercises in linguistics, not economics.
    JEL: H3 H6
    Date: 2006–06
  23. By: Katsuya Takii (Osaka School of International Public Policy, Osaka University); Ryuichi Tanaka (Graduate School of Information Science and Engineering, Tokyo Institute of Technology)
    Abstract: This paper examines how different education systems affect GDP by influencing the diversity of human capital. We construct an overlapping generation model in which agents are heterogeneous in income and innate ability, and the final goods are produced with differentiated intermediate goods. We analyze an economy in which an income distribution converges to a stationary distribution. It is shown that the diversity of human capital induced by income inequality always lowers the GDP of the next period, while the diversity of human capital induced by heterogeneous ability can increase GDP, if the produced intermediate goods are sufficiently substitutable and firms have a large span of control. Hence, as public education equalizes education resources across households, it mitigates the negative effect of income inequality on GDP, while the effects of ability tracking crucially depend on the production structure of the economy.
    Keywords: Span of control, Complementarities, Human capital, Ability tracking
    JEL: D31 D72 H42 I22 O11 O15
    Date: 2006–07
  24. By: Jacek Warda
    Abstract: In a knowledge-based economy, business performance and overall levels of economic growth are increasingly dependent on the development and exploitation of intellectual assets. A number of OECD countries offer tax incentives to encourage and reward business expenditures on intellectual assets. This working paper examines the tax treatment of corporate expenditures on selected intellectual assets and develops an indicator of the relative generosity of tax systems in OECD countries to such investments. Five types of intellectual assets are considered: research and development (R&D), patents, workforce training, software and organisational change. The paper shows that although tax incentives have, to date, mainly favoured R&D expenditures, they are gradually embracing other types of intellectual assets, especially in those countries that provide more generous tax treatment of R&D. Nineteen OECD countries had specific R&D tax incentives in place in 2005, up from only 12 in 1996, and 6 offered tax incentives for corporate training. <BR>Dans une économie du savoir, la performance des entreprises et les taux de croissance économique globaux dépendent de plus en plus du développement et de l’exploitation d’actifs intellectuels. Un certain nombre de pays de l’OCDE appliquent des mesures d’incitation fiscale afin d’encourager et de valoriser les dépenses des entreprises portant sur des actifs intellectuels. Ce document de travail examine le régime fiscal des dépenses des entreprises portant sur certains actifs intellectuels et définit un indicateur de la générosité relative des systèmes fiscaux des pays de l’OCDE vis-à-vis de ces investissements. Cinq catégories d’actifs intellectuels sont envisagées : recherche et développement (R-D), brevets, formation de la main-d’oeuvre, logiciels et changement organisationnel. La note montre que, si les incitations fiscales ont surtout à ce jour favorisé les dépenses de R-D, elles s’appliquent aussi de plus en plus à d’autres catégories d’actifs intellectuels, surtout dans les pays qui accordent déjà un régime fiscal plus généreux à la R-D. Dix-huit pays de l’OCDE appliquaient des mesures d’incitation fiscale spécifique à la R-D en 2005, au lieu de 12 seulement en 1996, et 6 d’entre eux appliquaient des mesures d’incitation fiscale aux dépenses de formation des entreprises.
    Date: 2006–05–22
  25. By: Pereira, Luis Brites
    Date: 2006
  26. By: Mark Duggan; Robert Rosenheck; Perry Singleton
    Abstract: The fraction of non-elderly adults in the U.S. receiving disability benefits from the federal SSDI and/or SSI programs increased from 3.2 to 5.9 percent during the last two decades. Determining how much of this increase was caused by changes in policy versus other factors is difficult given that the programs are essentially uniform nationwide. In this study, we shed light on this issue by investigating the impact of a discrete change in the federal government’s third largest disability program, the Department of Veterans Affairs’ Disability Compensation (DC) program. In July of 2001, there was an expansion in the medical eligibility criteria for this program that applied only to Vietnam veterans. This change was motivated by an Institute of Medicine study, which linked exposure to Agent Orange and other herbicides used by the U.S. military in Vietnam, to the onset of diabetes. Using veterans who served shortly before and after the Vietnam War as our comparison group, we estimate that this policy change increased DC enrollment by 6.7 percentage points among Vietnam veterans. An additional 2.7 percent experienced an increase in their monthly DC benefit as a result of this policy change. The expanded eligibility criteria for Vietnam veterans can explain 60 percent of the recent acceleration in DC enrollment growth and increased the present value of DC spending by more than $30 billion. Our results further indicate that the policy change was responsible for an increase in the responsiveness of the program to local economic conditions. Our findings strongly suggest that even relatively narrow changes in the eligibility criteria for federal disability programs can have a powerful effect on program enrollment and expenditures.
    JEL: H55 H56 I10 I38
    Date: 2006–06
  27. By: Mark Aguiar; Manuel Amador; Gita Gopinath
    Abstract: We study a small open economy characterized by two empirically important frictions— incomplete financial markets and an inability of the government to commit to policy. We characterize the best sustainable fiscal policy and show that it can amplify and prolong shocks to output. In particular, even when the government is completely benevolent, the government’s credibility not to expropriate capital varies endogenously with the state of the economy and may be “scarcest” during recessions. This increased threat of expropriation depresses investment, prolonging downturns. It is the incompleteness of financial markets and the lack of commitment that generate investment cycles even in an environment where first-best capital stock is constant.
    Keywords: Fiscal policy
    Date: 2006
  28. By: Antonio Acconcia (Università di Napoli Federico II and CSEF); Claudia Cantabene (Università di Napoli Federico II)
    Abstract: During the first half of the 1990s a pool of Italian judges carried out an investigation, named Mani Pulite (literally clean hands), that led many people to be prosecuted and convicted because of corruption. The impact of Mani Pulite was so much influential that since then many indicators suggest a steadily decreasing path for bureaucratic corruption in Italy. This paper shows that Mani Pulite was mainly effective in deterring corruption as it broke up the feed due to infrastructure investments, mainly those related to public buildings, sanitation, and land reclamation.
    Keywords: Corruption, Public Investment, Deterrence
    JEL: D73 H54 K42
    Date: 2006–06–01
  29. By: Per Pettersson-Lidbom
    Abstract: Previous empirical studies have found a positive relationship between the size of legislature and the size of government. Those studies, however, do not adequately address the concerns of endogeneity. In contrast, this paper uses variation in legislature size induced by statutory council size laws in Finland and Sweden to estimate the causal effect of legislature size on government size. These laws create discontinuities in council size at certain known thresholds of an underlying continuous variable, which make it possible to generate ?near experimental? causal estimates of the effect of council size on government size. In contrast to previous findings, I find a negative relationship between council size and government size: on average, spending and revenues are decreased by roughly 0.5 percent for each additional council member.
    Keywords: government size, legislature, regression-discontinuity design, natural experiment
    JEL: H00 H30 E60 P16 D70 K10 H10 C90 H70
    Date: 2004–12–01
  30. By: Dean Karlan; John A. List
    Abstract: We conducted a natural field experiment to explore the effect of price changes on charitable contributions. To operationalize our tests, we examine whether an offer to match contributions to a non-profit organization changes the likelihood and amount that an individual donates. Direct mail solicitations were sent to over 50,000 prior donors. We find that the match offer increases both the revenue per solicitation and the probability that an individual donates. While comparisons of the match treatments and the control group consistently reveal this pattern, larger match ratios (i.e., $3:$1 and $2:$1) relative to smaller match ratios ($1:$1) had no additional impact. The results have clear implications for practitioners in the design of fundraising campaigns and provide avenues for future empirical and theoretical work on charitable giving. Further, the data provide an interesting test of important methods used in cost-benefit analysis.
    JEL: C93 D12 D72 H41 L31 M31
    Date: 2006–06
  31. By: Jaakko Kiander; Reino Hjerppe; Matti Virén
    Abstract: This paper analyses the productivity of public expenditures. It follows the branch of literature originated by Aschauer but has also some novel features. First of all, it focuses on the effect of both public investment and public consumption (investment part of public consumption) on private sector productivity. Secondly, empirical evidence is derived from relative large cross-country data that cover more than three decades. For the testing purpose, it uses a production function approach in which (alternative definitions of) public sector capital stocks are allowed to affect total factor productivity. The production relationships are estimated from a panel data that are derived from the data banks of OECD and the World Bank. Empirical findings suggest that, to some extent, the significant deceleration of economic growth in many OECD countries during the last two decades can, in the same way as in the original Aschauer analysis with the US data, be explained by a secular decrease in public sector investment.
    Keywords: Public sector, productivity, growth accounting, capital stock
    Date: 2006–03–03
  32. By: Heikki Räisänen
    Abstract: This study analyses the job-broking function of the Finnish Public Employment Service (PES). The empirical analysis is based on the Finnish job vacancy microdata in 2002 and 2003 including information on over 320,000 job vacancies each year. The open job vacancy period, the recruitment duration and various outcomes of the filling process are analysed mainly by applying logit regression estimations. As the duration of the recruitment process is of ultimate importance in taking into use the potential employment hidden into open job vacancies, the factors which have an effect on duration are analysed. Low risk for both long vacancy period and recruitment duration are found for job duration less than 3 months, filling the vacancy with PES job-seeker and using the job assignment. The effects of two alternative or additional policy methods, job assignments and job announcements are found consistent in all estimations: the more selective job assignment which may lead to sanctions for the job-seeker is much more effective when filling the vacancy with PES applicant than the job announcement of purely informative character, which seems to have little or no effect at all on the filling of vacancies. A policy conclusion is drawn to recommend cutting the excessive and costly use of announcements and to selectively increase the volume of assignments in cooperation with the employers.
    Keywords: job-broking, open vacancy duration, recruitment duration, vacancy filling, job assignment, job announcement
    JEL: J68 H41
    Date: 2005–01–14
  33. By: Ours,Jan C. van; Vodopivec,Milan (Tilburg University, Center for Economic Research)
    Abstract: This paper investigates how the potential duration of unemployment benefits affects the quality of post-unemployment jobs. It takes advantage of a natural experiment introduced by a change in Slovenia's unemployment insurance law that substantially reduced the potential benefit duration. Although this reduction strongly increased job finding rates, the quality of the postunemployment jobs remained unaffected: the paper finds that the law change had no effect on either the type of the contract (temporary vs. permanent), the duration of the post-unemployment jobs, or the wage earned in this job.
    Keywords: Unemployment insurance;potential benefit duration;job separation rates; post-unemployment wages
    JEL: C41 H55 J64 J65
    Date: 2006
  34. By: Giovanni Facchini (University of Illinois and University of Milan); Oliver Lorz ( RWTH Aachen University) (RWTH Aachen University); Gerald Willmann (University of Kiel)
    Abstract: The Common European Asylum System calls for increased coordination of the EU countries’ policies towards asylum seekers and refugees. In this paper, we provide a formal analysis of the effects of coordination, explicitly modelling the democratic process through which policy is determined. In a symmetric, two-country citizen-candidate setup, in which accepting asylum seekers in one country generates a cross-border externality in the other, we show that coordination is desirable. Internalizing the externality leads to a welfare improvement over the non–cooperative outcome. However, contrary to suggestions by many observers, we show that allowing for cross-country transfers in the cooperative outcome leads to a welfare inferior outcome because the possibility of compensation exacerbates strategic delegation effects.
    Keywords: Political Economy, Asylum Policy, Migration
    JEL: J61 H77 F22
    Date: 2005
  35. By: Richard E. Baldwin; Frédéric Robert-Nicoud
    Abstract: This paper explores the impact of trade on growth when firms are heterogeneous. We find that greater openness produces anti-and pro-growth effects. The Melitz-model selection effects raises the expected cost of introducing a new variety and this tends to slow the rate of new-variety introduction and hence growth. The pro-growth effect stems from the impact that freer trade has on the marginal cost of innovating. The balance of the two effects is ambiguous with the sign depending upon the exact nature of the innovation technology and its connection to international trade in goods and ideas. We consider five special cases (these include the Grossman-Helpman, the Coe-Helpman and Rivera-Batiz-Romer models) two of which suggest that trade harms growth; the others predicting the opposite.
    JEL: H32 P16
    Date: 2006–06
  36. By: Lee C. Spector (Department of Economics, Ball State University)
    Abstract: The importance of crowding out has been an ongoing question in the Economics literature for many years. Some economists believe that deficits replace private spending while other economists feel that most of this crowding out is offset by Ricardian equivalence. In an attempt to resolve this controversy, many economists have formulated macroeconomic models and have used these models to empirically test the notion of crowding out. This paper revisits this methodology. It examines four useful macroeconomic models and shows the relationship between the model assumed, the empirical results obtained and the conclusions concerning crowding out. We demonstrate that the same empirical results may be obtained from different models, but can yield very different conclusions concerning crowding out. It is concluded that the answer to this controversy involves, in part, a more complete understanding of the structural foundations of the macroeconomic models being tested.
    Date: 2005–12
  37. By: Heikki Räisänen
    Abstract: This study compares the job-broking market of Japan and Finland. The study is based on statistical and literature analysis and interviews at the Public Employment Service. The Japanese labour market can be divided into a new graduate market and a mid-career market. The Japanese recruitment market is more lively compared with the Finnish market. In Japan substituting those retired is an important reason for recruiting, as in Finland new jobs and turnover of labour force are main reasons. Recruiting new graduates is based on longer-term assessment is Japan. There are many similarities in job-broking technology between the Japanese and the Finnish PES. The use of the Internet is broad and efficient, but also selectivity is being emphasised. The PES sees its role in both countries as being one recruitment channel among others and the PES introduces all recruitment channels in a versatile way to its customers. The mobile phone is not considered as good as the Internet as to job-broking technology in either of the countries, because the amount of information is limited in the mobile technology. In the skill issues of the PES there are many differences between the countries. In Japan the PES sees its role being more between the employers and the job-seekers, as in Finland this traditional role is about to change more into promoting direct contacts between the two. The use of multiple and overlapping recruitment channels is more common in Finland than in Japan where the use of channels is more well-established.
    Keywords: Job-Broking, Job-Broking Technology, Skills, Recruitment, The Public Employment Service, Japan, Finland
    JEL: O57 J68 H41
    Date: 2005–11–30
  38. By: Peter R. Mueser (Department of Economics, University of Missouri-Columbia); Kyung-Seong Jeon (Department of Economics, University of Missouri-Columbia); Andrew Dyke; Carolyn J. Heinrich; Kenneth R. Troske
    Abstract: Our study examines the dynamic structure of welfare participation and the labor market involvement of recipients starting in the early 1990s and extending through 1999 in the core counties containing six major urban areas: Atlanta, Baltimore, Chicago, Fort Lauderdale, Houston, and Kansas City. By focusing on six major cities, we can examine the extent to which differences in state and local policy, administrative directives, and local labor market conditions contribute to observed trends.
    Keywords: Welfare Reform
    JEL: I38 I31 H43
    Date: 2006–02–03
  39. By: Sari Pekkala
    Abstract: This survey presents findings from recent empirical studies on economic impacts of immigration with particular emphasis on European and Nordic countries. The survey consists of three parts. First, we look at the extent of immigration as an economic phenomenon in various host countries. The second part deals with the assimilation of immigrant workers in host country labor markets and the use of social benefits by immigrants. Third, the effect of immigration on natives? labor market outcomes is discussed. And finally, we survey studies on the impact of immigration on the host country public sector.
    Keywords: Immigration, assimilation, employment, unemployment, earnings, social benefits, welfare, labor market outcomes, public sector
    JEL: J61 J68 H53 J31 J23
    Date: 2005–03–07
  40. By: Jiahua Che (Hong Kong University of Science Technology and William Davidson Institute); Giovanni Facchini (University of Illinois and University of Milan)
    Abstract: The dual track approach to market liberalization has been widely recognized as the key to the success of the Chinese economic reform. In this paper we study the effectiveness of this strategy in economic environments where the status quo government control is incomplete. We show that in a dynamic context intertemporal arbitrage will emerge, potentially resulting in efficiency losses and/or adverse distributional effects. Only when the status quo involves both price and quantity interventions by the government can dual track liberalization maintain its appeal. Our analysis thus suggests some caution as for the broader applicability of this reform mechanism.
    Keywords: Dual Track Liberalization, Intertemporal Arbitrage, Pareto Improving Reforms, China
    JEL: H2 P2 F1
    Date: 2005
  41. By: Alessio Ciarlone (Bank of Italy); Giorgio Trebeschi (Bank of Italy)
    Abstract: This paper develops an early warning system for sovereign debt crises, broadly defined as episodes of outright default, failure of a country to be current on external obligations and substantial access to IMF resources. It estimates a multinomial logit model that makes it possible to differentiate between three regimes labelled ‘tranquil’, ‘pre-crisis’ and ‘adjustment’. The model includes a large set of macroeconomic variables and is able to predict, in-sample, 78 per cent of onsets of crisis while sending false alarms in 34 per cent of tranquil cases; its out-of-sample performance is very similar, with 70 per cent of entries into crisis correctly predicted and 20 per cent of tranquil cases triggering false alarms.
    Keywords: emerging markets, early warning systems, debt crises, default
    JEL: H63 E66
    Date: 2006–05

This nep-pbe issue is ©2006 by Peren Arin. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.