nep-pbe New Economics Papers
on Public Economics
Issue of 2006‒07‒15
thirty-two papers chosen by
Peren Arin
Massey University

  1. Determinants of Public Health Outcomes: A Macroeconomic Perspective By Marios Zachariadis; Francesco Ricci
  2. Political Economy of Fiscal Institutions By Jürgen von Hagen
  3. What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU By Jürgen von Hagen; Guntram B. Wolff
  4. Budget Processes: Theory and Experimental Evidence By Karl-Martin Ehrhart; Roy Gardner; Jürgen von Hagen; Claudia Keser
  5. Optimal Income Taxation with Multidimensional Taxpayer Types By Kenneth L. Judd; Che-Lin Su
  6. Tax-Deferred Savings and Early Retirement By Gaobo Pang; University of Maryland
  7. The design of fiscal rules and forms of governance in European Union countries By Mark Hallerberg; Rolf Strauch; Jürgen von Hagen
  8. Flat Tax Reforms in the U.S.: a Boon for the Income Poor By Javier Diaz-Gimenez
  9. Bank Profitability and Taxation By Ugo Albertazzi
  10. The GST Cut and Fiscal Imbalance By Michael Smart
  11. Fiscal Rules and Fiscal Performance in the EU and Japan By Jürgen von Hagen
  12. Optimal Monetary Policy Response to Distortionary Tax Changes By Michael Krause
  13. Local public goods in a democracy: Theory and evidence from rural India. By S. Gupta; Raghbendra Jha
  14. Distortionary Taxation, Debt, and the Price Level By A. Schabert; University of Amsterdam
  15. What Do We Know About the Effects of Fiscal Policy Shocks? A Comparative Analysis By Christophe Kamps; Dario Caldara
  16. Migration and the Welfare State: The Economic Power of the Non-Voter? By Kira Börner; Silke Uebelmesser
  17. The Effect of Taxes and Bans on Passive Smoking By Jérôme Adda; Francesca Cornaglia
  18. Corruption and Bureaucratic Structure in a Developing Economy By JOhn Bennett; Saul Estrin;
  19. Fiscal Policy in an estimated open-economy model for the EURO area. By Ratto Marco; European Commission
  20. The Rates and Revenue of Bank Transaction Taxes By Jorge Baca-Campodónico; Luiz de Mello; Andrei Kirilenko
  21. Financial Autonomy of the European Union after Enlargement By Maciej Cieslukowski; Rui Henrique Alves
  22. Sovereign Risk Premiums in the European Government Bond Market By Kerstin Bernoth; Jürgen von Hagen; Ludger Schuknecht
  23. The “New” Stability and Growth Pact: More Flexible, Less Stupid? By Rui Henrique Alves; Óscar Afonso
  24. Demographic Uncertainty and Labour Market Imperfections in Small Open Economy By Juha Kilponen
  25. Natural volatility, welfare and taxation By Olaf Posch
  26. Ratcheting in Renewable Resources Contracting By Urs Steiner Brandt; Frank Jensen; Lars Gårn Hansen; Niels Vestergaard
  27. Nothing Ventured, Nothing Gained: The Long-run Fiscal Reward of Structural Reforms By Peter Hoeller; Claude Giorno
  28. “To Deficit or Not to Deficit”: Should European Fiscal Rules Differ Among Countries? By Óscar Afonso; Rui Henrique Alves
  29. Private Provision of a Complementary Public Good By Richard Schmidtke
  30. Competition as a Socially Desirable Dilemma By Christoph Engel
  31. Taxes, Government Expenditures, and State Economic Growth: The Role of Nonlinearities By Niel Bania; Jo Anna Gray; Joe Stone
  32. Economic, Neurobiological and Behavioral Perspectives on Building America's Future Workforce By Eric I. Knudsen; James J. Heckman; Judy L. Cameron; Jack P. Shonkoff

  1. By: Marios Zachariadis (Department of Economics, ,University of Cyprus); Francesco Ricci (Department of Economics University of Cyprus; THEMA)
    Keywords: Education, life expectancy, external effects.
    JEL: O30 O40
    Date: 2006–07–04
  2. By: Jürgen von Hagen (ZEI, University of Bonn, Indiana University, and CEPR)
    Abstract: We discuss two essential problems of the political economy of public finances: The principal agent problem between voters and elected politicians and the common pool problem arising from the fact that money drawn from a general tax fund is used to pay for policies targeting more or less narrow groups in society. Three institutional mechanisms exist to deal with these problems, ex-ante rules controlling the behavior of elected policy makers, electoral rules creating accountability of and competition among policy makers, and budgeting processes internalizing the common pool externality. We review recent theoretical and empirical research and discuss its implications for research and institutional design.
    Keywords: electoral systems, fiscal rules, budgeting processes
    JEL: H11 H61 H62
    Date: 2005–11
  3. By: Jürgen von Hagen (Institut für Internationale Wirtschaftspolitik, University of Bonn, CEPR, and Indiana University, Walter-Flex-Str. 3, 53113 Bonn, Germany, Tel: +49 228 73 9199,; Guntram B. Wolff (Deutsche Bundesbank, ZEI-University of Bonn and UCIS-University of Pittsburgh, Wilhelm-Epstein-Straße 14, 60431 Frankfurt am Main, Germany, Tel: +49 69 9566 3353,
    Abstract: Fiscal rules, such as the Excessive Deficit Procedure and the Stability and Growth Pact (SGP), aim at constraining government behavior. Milesi-Ferretti (2003) develops a model in which governments circumvent such rules by reverting to creative accounting. The amount of this depends on the reputation cost for the government and the economic cost of sticking to the rule. We provide empirical evidence of creative accounting in the European Union. We find that the SGP rules have induced governments to use stock-flow adjustments, a form of creative accounting, to hide deficits. The tendency to substitute stock-flow adjustments for budget deficits is especially strong for the cyclical component of the deficit, as in times of recession the cost of reducing the deficit is particularly large.
    Keywords: Fiscal rules, stock-flow adjustments, debt-deficit adjustments, stability and growth pact, excessive deficit procedure, ESA 95
    JEL: E62 H61 H62 H63 H70
    Date: 2006–01
  4. By: Karl-Martin Ehrhart (University of Karlsruhe); Roy Gardner (Indiana University and ZEI, University of Bonn); Jürgen von Hagen (University of Bonn, Indiana University, and CEPR); Claudia Keser (IBM T.J. Watson Research Center and CIRANO, Montreal)
    Abstract: This paper studies budget processes, both theoretically and experimentally. We compare the outcomes of bottom-up and top-down budget processes. It is often presumed that a top-down budget process leads to a smaller overall budget than a bottom-up budget process. Ferejohn and Krehbiel (1987) showed theoretically that this need not be the case. We test experimentally the theoretical predictions of their work. The evidence from these experiments lends strong support to their theory, both at the aggregate and the individual subject level.
    Keywords: Budget processes, voting equilibrium, experimental economics
    JEL: H61 C91 C92
    Date: 2006–04
  5. By: Kenneth L. Judd (Hoover Institution); Che-Lin Su (CMS-EMS Kellogg School of Management, Northwestern University)
    Keywords: optimal income taxation, multidimensional types, adverse selection, nonlinear optimization
    JEL: H21
    Date: 2006–07–04
  6. By: Gaobo Pang (Dept. of Economics University of Maryland); University of Maryland
    JEL: E21 H55 H31
    Date: 2006–07–04
  7. By: Mark Hallerberg (Department of Political Science, Emory University, 1555 Dickey Drive Atlanta, GA 30322, USA); Rolf Strauch (b) European Central Bank, Kaiserstr. 29, 60311 Frankfurt a.M., Germany); Jürgen von Hagen (Institut für Internationale Wirtschaftspolitik, University of Bonn, CEPR, and Indiana University, Walter-Flex-Str. 3, 53113 Bonn, Germany, Tel: +49 228 73 9199,
    Abstract: This paper uses a new data set on budgetary institutions in Europe to examine the impact of fiscal rules and budget procedures in EU countries on public finances. It briefly describes the main pattern of budgetary institutions and their determinants across the EU 15 member states. Empirical evidence for the time period 1985-2004 suggests that the centralisation of budgeting procedures restrains public debt. In countries with one-party governments or coalition governments where parties are closely aligned and where political competition among them is low, this is achieved by the delegation of decision-making power to the minister of finance. Fiscal contracts that require countries to set multi-year targets and that reinforce those targets increase fiscal discipline in countries with ideologically dispersed coalitions and where parties regularly compete against each other.
    Keywords: public indebtedness, budgetary procedures, fiscal rules, European public finances
    JEL: H11 H61 H62
    Date: 2006–06
  8. By: Javier Diaz-Gimenez (Universidad Carlos III)
    Keywords: Flat-tax reforms; Efficiency; Inequality; Earnings distribution; Income distribution
    JEL: D31 E62 H23
    Date: 2006–07–04
  9. By: Ugo Albertazzi (Research Department Banca d'Italia)
    Keywords: Tax-Shifting, Corporate Income Tax, Bank Profitability
    JEL: C53 G20 G21
    Date: 2006–07–04
  10. By: Michael Smart (International Tax Program, Rotman School of Management, University of Toronto)
    Abstract: The federal government is reducing its GST rate from 7% to 5%. We examine a broader reform in which this reduction in federal tax rates and revenues is accompanied by a similar reduction in federal transfers to the provinces. At the same time, the provinces may if they wish increase their own sales tax rates to make up the difference, while some provinces, including Ontario, reform their retail sales taxes to emulate the federal GST more closely. We analyze the likely impacts of such reforms on provincial revenues, tax incidence, and business investment. The result of combining these measures would be (1) a better ‘balanced’ federation, with less room for ‘blame-shifting’ between levels of government and consequently greater accountability at all levels, and (2) owing to the removal of the present surprisingly heavy tax on investment imposed by the provincial retail sales taxes an expansion in investment and, over time, in productivity, employment, and perhaps economic growth.
    Keywords: GST, fiscal imbalance, provincial sales taxes, accountability, competitiveness
    JEL: H25 H77
    Date: 2006–06
  11. By: Jürgen von Hagen (Institut für Internationale Wirtschaftspolitik, University of Bonn, Indiana University, and CEPR)
    Abstract: Fiscal rules specify quantitative targets for key budgetary aggregates. In this paper, we review the experience with such rules in Japan and in the EU. Comparing the performance of fiscal policy in the 1980s and 1990s until 2003, we find that the fiscal rule of the 1980s exerted some but not much disciplinary influence on Japanese fiscal policy. The fiscal rule of the Maastricht Treaty had a significant impact on political budget cycles in the EU, but did little to constrain fiscal policy in the large member states. Since the start of the European Monetary Union, the disciplinary effect of the fiscal rule in the EU has vanished. Next, we discuss the importance of budgetary institutions for the effectiveness of fiscal rules. In Europe, a number of countries adopted strong fiscal rules, i.e., a fiscal rule combined with a design of the budget process enabling governments to commit to the rule. We find that strong fiscal rules have been effective. We conclude with some suggestions for the design of a strong fiscal rule in Japan.
    Keywords: Fiscal policy, political budget cycles, government budgeting
    JEL: H11 H61 H62
    Date: 2006–06
  12. By: Michael Krause (Department of Economics Deutsche Bundesbank)
    Keywords: Nominal and real rigidities, distortionary taxation, optimal monetary policy
    JEL: E52 E63
    Date: 2006–07–04
  13. By: S. Gupta; Raghbendra Jha
    Abstract: This paper examines allocation of local public goods over jurisdictions (villages) with individuals with identical tastes and different incomes, in a model with democratic institutions and majority rule. The median voter (in income) in each jurisdiction determines the probability of re-election for the incumbent government. The jurisdiction with the median of these median voters is most favoured. With identical median voters in jurisdictions, and with re-election requiring less than 50mandate, jurisdictions with higher income inequality get favoured. Results from a survey data (from NCAER) on infrastructure provision in 1669 Indian villages confirm this hypothesis. Ethnic fragmentation does not affect public good provision but political fragmentation does. Finally, villages with the median population are the most favoured for public goods allocation. Sparsely populated and too densely populated villages are relatively neglected.
    Keywords: median voter, local public good, reservation utility
    JEL: H41 H72
    Date: 2006
  14. By: A. Schabert; University of Amsterdam
    Keywords: Monetary and fiscal policy, Distortionary taxes, Price level determination, Balanced budget policy
    JEL: E E
    Date: 2006–07–04
  15. By: Christophe Kamps (European Central Bank); Dario Caldara (Economics IIES)
    Keywords: Fiscal Policy Shocks, VAR analysis
    JEL: C32 E20 E60
    Date: 2006–07–04
  16. By: Kira Börner (Department of Economics, University of Munich, Akademiestr. 1/III, 80799 Munich,; Silke Uebelmesser (Center for Economic Studies, Schackstr. 4, 80539 Munich,
    Abstract: This paper investigates the impact of emigration on the political choice regarding the size of the welfare state. Mobility has two countervailing effects: the political participation effect and the tax base effect. With emigration, the composition of the constituency changes. This increases the political influence of the less mobile part of the population. The new political majority has to take into account that emigration reduces tax revenues and thereby affects the feasible set of redistribution policies. The interaction of the two effects has so far not been analyzed in isolation. We find that the direction of the total effect of migration depends on the initial income distribution in the economy. Our results also contribute to the empirical debate on the validity of the median-voter approach for explaining the relation between income inequality and redistribution levels.
    Keywords: migration, redistribution, voting
    JEL: F22 H50 D31 D72
    Date: 2005–07
  17. By: Jérôme Adda (University College London and Institute for Fiscal Studies); Francesca Cornaglia (University College London, CEP and IZA Bonn)
    Abstract: This paper evaluates the effect of excise taxes and bans on smoking in public places on the exposure to tobacco smoke of non-smokers. We use a novel way of quantifying passive smoking: we use data on cotinine concentration – a metabolite of nicotine – measured in a large population of non-smokers over time. Exploiting state and time variation across US states, we show that excise taxes have a significant effect on passive smoking but smoking bans have contrasting effects on non-smokers. While bans in public transportation or in schools decrease the exposure of non smokers, bans in recreational public places perversely increase their exposure by displacing smokers to private places where they contaminate non smokers, and in particular young children. Bans affect socio-economic groups differently: we find that smoking bans increase the exposure of poorer individuals, while it decreases the exposure of richer individuals.
    Keywords: passive smoking, bans, taxes
    JEL: I1
    Date: 2006–07
  18. By: JOhn Bennett; Saul Estrin;
    Abstract: We address the impact of corruption in a developing economy in the context of an empirically relevant hold-up problem - when a foreign firm sinks an investment to provide infrastructure services. We focus on the structure of the economy’s bureaucracy, which can be centralized or decentralized, and characterize the ‘corruptibility’ of bureaucrats in each case. Results are explained in terms of the noninternalization, under decentralization, of the ‘bribe externality’ and the ‘price externality.’ In welfare terms, decentralization is favoured, relatively speaking, if the tax system is less inefficient, funding is less tight, bureaucrats are less venal, or compensation for expropriation is ungenerous.
    Keywords: Corruption, Bureaucratic Structure, Developing Economy
    JEL: D73 H11 H77
    Date: 2006–02–01
  19. By: Ratto Marco; European Commission
    Keywords: DSGE Models, Fiscal Policy
    JEL: E12 E62 C13
    Date: 2006–07–04
  20. By: Jorge Baca-Campodónico; Luiz de Mello; Andrei Kirilenko
    Abstract: This paper provides cross-country empirical evidence on the productivity of bank transaction taxes (BTTs). Our data set comprises six Latin American countries that have levied BTTs since the late 1980s: Argentina, Brazil, Colombia, Ecuador, Peru and Venezuela. We find that, for a given tax rate, revenue declines over time. Therefore, in order to meet a fixed revenue target in real terms, the tax rate needs to be raised repeatedly. However, we also find that successive increases in the tax rate erode the tax base by more than they raise revenue yield and that the higher the increase in the tax rate, the more and faster the tax base is eroded. We conclude that BTTs do not provide a reliable source of revenue, especially over the medium term. <BR>Ce document fournit une étude empirique de comparaison internationale sur la productivité des impôts sur les transactions bancaires (ITB). Notre base de données correspond à 6 pays d’Amérique latine qui ont un impôt sur les transactions bancaires: Argentine, Brésil, Colombie, Équateur, Pérou et Venezuela. Nous trouvons que le revenu diminue au fil du temps pour un taux d’imposition donné. Pour cette raison, le taux d’imposition doit être augmenté régulièrement en vue d’atteindre une cible de revenu en terme réel. Cependant, nous voyons que les augmentations successives des taux d’imposition réduisent l’assiette d’imposition plus que le rendement obtenu, et plus grande est la hausse du taux d’imposition, plus rapide est l’érosion de l’assiette d’imposition. Nous concluons que l’imposition des transactions bancaires ne fournit pas une source de revenu fiable, particulièrement sur le moyen terme.
    Keywords: bank transaction tax, bank debit tax , tax productivity, impôts sur les transactions bancaires, impôt sur les retraits bancaires, productivité des impôts
    JEL: G28 G29 H21 H22
    Date: 2006–06–30
  21. By: Maciej Cieslukowski (Posznan University of Economics); Rui Henrique Alves (Faculdade de Economia do Porto, Universidade do Porto)
    Abstract: One of the most important and current problems in the European Union (EU) public finance concerns its system of own resources. Almost all economists involved in the subject agree that the present system needs a comprehensive reform, as it does efficiently allows to deal with the new reality of the enlarged European Union. However, there is quite a divergence on how to do the reform, the problem lying in its range and directions. In general some economists postulate to extend the EU tax base by the creation of one or more new EU taxes whereas others opt for simplifying the system by replacing traditional and VAT resources with the so called ”fourth resource”. These differences mainly result from dissimilar approaches of economists to the criterion of financial autonomy. The main aim of this paper is to evaluate the present system of EU own resources and the proposals of its reform owing to the criterion of financial autonomy.
    Keywords: EU budget, own resources, financial autonomy
    JEL: H77 H71 F36
    Date: 2006–07
  22. By: Kerstin Bernoth (De Nederlandsche Bank (DNB), ZEI-University of Bonn.; Jürgen von Hagen (Institut für Internationale Wirtschaftspolitik, University of Bonn, CEPR, and Indiana University, Walter-Flex-Str. 3, 53113 Bonn, Germany, Tel: +49 228 73 9199,; Ludger Schuknecht (European Central Bank,
    Abstract: This paper provides a study of bond yield differentials among EU government bonds issued between 1993 and 2005 on the basis of a unique dataset of issue spreads in the US and DM (Euro) bond market. Interest differentials between bonds issued by EU countries and Germany or the USA contain risk premiums which increase with fiscal imbalances and depend negatively on the issuer's relative bond market size. The start of the European Monetary Union has shifted market attention to debt service payments as the key measure of indebtedness and eliminated liquidity premiums in the euro area.
    Keywords: asset pricing, determination of interest rates, fiscal policy, government debt
    JEL: G12 E43 E62 H63
    Date: 2006–05
  23. By: Rui Henrique Alves (Faculdade de Economia do Porto, Universidade do Porto); Óscar Afonso (CEMPRE, Faculdade de Economia do Porto, Universidade do Porto)
    Abstract: Since the beginning of the European single currency project, the adoption of fiscal binding rules, restraining the use of the single policy instrument left for national authorities, has been challenged by many authors and politicians. The discussion has been rekindled in recent years, following a period of economic recession or stagnation in several Member-Countries and some criticisms linking the Stability and Growth Pact (SGP) to the general economic situation. Some of the questions raised by those who criticised the initial framework for fiscal discipline may have been taken into account in the recent revision of the SGP (March 2005), which followed the suspension of the Pact for Germany and France and eventually made the SGP more flexible and “less stupid”. In this paper, we evaluate the changes contained in the “new” SGP, by taking account of the properties for ideal fiscal rules put forward by Kopits and Symansky (1998) and comparing with some recently published studies on the same topic. The main result of our analysis points towards a clear increase in flexibility together with the probable emergence of new enforcement problems. In this context, an insufficient output in terms of fiscal discipline could arise, leading to the need for new improvements within the European framework for the definition and implementation of national fiscal policies.
    Keywords: EMU, SGP, Fiscal Rules, Fiscal Discipline
    JEL: H62 H63 H77
    Date: 2006–07
  24. By: Juha Kilponen (Bank of Finland)
    Keywords: Demographics, Uncertainty, DSGE, Labour Markets
    JEL: E62 E27 H55
    Date: 2006–07–04
  25. By: Olaf Posch (Department of Economics University of Hamburg)
    Keywords: Endogenous fluctuations and growth, welfare analysis, taxation, stochastic continuous time model, Poisson uncertainty
    JEL: E32 H3 O33
    Date: 2006–07–04
  26. By: Urs Steiner Brandt (Department of Environmental and Business Economics, University of Southern Denmark); Frank Jensen (Institute of Local Government Studies, Denmark); Lars Gårn Hansen (Institute of Local Government Studies, Denmark); Niels Vestergaard (Department of Environmental and Business Economics, University of Southern Denmark)
    Abstract: Real life implies that public procurement contracting of renewable resources results in repeated interaction between a principal and the agents. The present paper analyses ratchet effects in contracting of renewable resources and how the presence of a resource constraint alters the “standard” ratchet effect result. We use a linear reward scheme to influence the incentives of the agents. It is shown that for some renewable resources we might end up both with more or with less pooling in the first-period compared to a situation without a resource constraint. The reason is that the resource constraint implies a smaller performance de-pendent bonus, which reduces the first-period cost from concealing information but at the same time the resource constraint may also imply that second-period benefits from this concealment for the efficient agent are reduced. In situations with high likelihood of first-period pooling, the appropriateness of applying lin-ear incentive schemes can be questioned.
    Keywords: Political support function, political economy, environmental regula-tion, lobbyism, rent-seeking, taxation, auction, grandfathering, emission trad-ing, European Union, interest groups, industry, consumers, environmentalists
    JEL: Q28 H2 H4
    Date: 2004–09
  27. By: Peter Hoeller; Claude Giorno
    Abstract: The recent reform of the Stability and Growth Pact provides more leeway for EU governments to temporarily breach the 3% deficit limit if this facilitates the implementation of initially expensive reforms. But the implementation of this principle is not obvious as budgets would need to specify the initial and multi-annual budgetary cost and benefit profile of reforms. Budgets should also be explicit about the fiscal cost of inaction to allow a balanced judgment of countries? trade-offs between the various options available. This paper first assesses the information requirements to implement this new form of flexibility built into the Stability and Growth Pact. It then provides simulation exercises to highlight the positive budgetary effects of coordinated structural reforms in the euro area as well as the need for an adequate monetary policy response to make sure that demand adjusts to the improved supply conditions swiftly. The budgetary gains would still depend on the type of reform and their impact on employment and productivity. On the other hand, national policy initiatives by a single country may only have a limited impact, especially in the short term and in the case of a large country. Indeed, in monetary union, the strength of endogenous adjustment mechanisms appears to be weaker in larger countries. Finally, the experience of New Zealand and Australia has shown that the longer-term benefits of reforms both in terms of the budget and overall economic performance are significant. Even so, it is not easy to disentangle the various forces at play. Fundamentally, structural reform and the implementation of smart fiscal frameworks tend to go hand in hand ? indeed may be two sides of the same coin. <P>Qui ne risque n'a rien : Les bénéfices budgétaires à long terme des réformes structurelles <BR>La réforme récente du Pacte de stabilité et de croissance fournit davantage de marges aux gouvernements des pays de l'UE pour dépasser la limite de 3 % du déficit public si cela facilite la mise en oeuvre de réformes initialement coûteuses. L'application de ce principe n'est cependant pas évidente car les budgets devraient indiquer le profil des coûts et bénéfices budgétaires attendus de ces réformes, non seulement dans l'immédiat mais aussi dans une perspective pluriannuelle. Les budgets devraient aussi être explicites sur le coût budgétaire de l'inaction pour permettre une évaluation équilibrée des dilemmes auxquels doivent faire face les pays en fonction des diverses options disponibles. Cet article fournit d'abord une évaluation des besoins d'information pour mettre en oeuvre les nouveaux éléments de flexibilité inclus dans le Pacte de stabilité et de croissance. Il présente ensuite des exercices de simulation afin d'illustrer les effets budgétaires positifs de réformes structurelles coordonnées dans la zone euro ainsi que la nécessité d'une réponse de politique monétaire adéquate afin d'assurer que la demande s'ajuste rapidement à l'amélioration des conditions d'offre. Les gains budgétaires seraient alors variables selon le type de réformes réalisées et leur impact sur l'emploi et la productivité. D'un autre côté, des réformes menées dans un pays isolé pourraient n'avoir qu'un effet limité, notamment à court terme dans le cas d'un grand pays. En effet, dans l'union monétaire, la force des mécanismes d'ajustement endogènes semble plus faible dans les grands pays. Enfin, l'expérience de la Nouvelle Zélande et de l'Australie montre que les bénéfices à long terme des réformes sont importants à la fois sur le plan budgétaire et pour les performances économiques d'ensemble, même s'il n?est pas aisé de distinguer l'influence des différentes forces en jeu. Fondamentalement, la réforme structurelle et la mise en place d'un cadre budgétaire pertinent tendent à aller de pair - et semblent en effet être les deux faces d'une même pièce.
    Keywords: réforme structurelle, fiscal policy, politique budgétaire, structural reforms, monetary union, union monétaire
    JEL: E37 E62 E63 E65 H6 P52
    Date: 2006–06–30
  28. By: Óscar Afonso (CEMPRE, Faculdade de Economia do Porto, Universidade do Porto); Rui Henrique Alves (Faculdade de Economia do Porto, Universidade do Porto)
    Abstract: The creation of the European Monetary Union has led to a substantial increase in the discussion of the importance of fiscal discipline and adequate fiscal rules in such a monetary union. The “European” solution has been challenged by many authors and politicians: among the main questions discussed in recent years, we find the use of the same rules for different situations in Member-Countries, particularly in terms of economic dimension and economic level of development. We develop a model of a monetary union between two countries that may differ in economic dimension and in the level of development. By solving transitional dynamics towards the steady state through numerical computation, the model allows us to examine the impact of fiscal shocks that may lead to excessive deficits. Our results suggest that the implications of such deficits depend on whether they occur in the small and less developed country or in the big and more developed one. In this context, we argue that an excessive deficit should be temporarily allowed in the case of the small and less developed country, in order to improve economic convergence and wages within the union.
    Keywords: Monetary Union; SGP; Excessive Deficits; Technological-Knowledge Gap; Numerical Computation.
    JEL: C61 E62 H6 O3
    Date: 2006–07
  29. By: Richard Schmidtke (Department of Economics, University of Munich, Akademiestr. 1/III, 80799 Munich, Germany, Tel.: +49-89-2180 3957, Fax.: +49-89-2180 2767,
    Abstract: For several years, an increasing number of firms are investing in Open Source Software (OSS). While improvements in such a non-excludable public good cannot be appropriated, companies can benefit indirectly in a complementary proprietary segment. We study this incentive for investment in OSS. In particular we ask how (1) market entry and (2) public investments in the public good affects the firms' production and profits. Surprisingly, we find that there exist cases where incumbents benefit from market entry. Moreover, we show the counter-intuitive result that public spending does not necessarily lead to a decreasing voluntary private contribution.
    Keywords: Open Source Software, Private Provision of Public Goods, Cournot-Nash Equilibrium, Complements, Market Entry
    JEL: C72 L13 L86
    Date: 2006–06
  30. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: A cartel is socially not desirable. But is it a normative problem? And has merger control reason to be concerned about tacit collusion? Neither is evident once one has seen that the members of a cartel face a problem of strategic interaction. It is routinely analysed in terms of game theory. Much less frequently, however, an obvious parallel is drawn. For cartel members, the formation of the cartel and cartel discipline are a public good. Making the parallel explicit is elucidating both at the theoretical and at the experimental levels. The paper contrasts oligopoly theory with public goods theory, and oligopoly experiments with public goods experiments.
    Keywords: Oligopoly, Public Good, Experiment
    JEL: C D D H K L L
    Date: 2006–05
  31. By: Niel Bania (University of Oregon Department of Planning, Public Policy, and Management); Jo Anna Gray (University of Oregon Economics Department); Joe Stone (University of Oregon Economics Department)
    Abstract: BarroÕs (1990) model of endogenous growth implies that economic growth will initially rise with an increase in taxes directed toward ÒproductiveÓ expenditures (e.g., education, highways, and streets), but will subsequently decline. Previous tests of the model, including Barro (1989, 1990) and recently Bleaney et al (2001), focus on whether the linear incremental effect of taxes is positive, negative, or zero, with substantial evidence for all three conclusions. In this study, we test for nonlinearity directly by incorporating nonlinear effects for taxes, and based on U.S. states find that the incremental effect of taxes directed toward productive government expenditures is initially positive, but eventually declines. U.S. states on average appear to under invest in expenditures on productive government activities.
    Date: 2006–06–01
  32. By: Eric I. Knudsen (Stanford University School of Medicine); James J. Heckman (University of Chicago and IZA Bonn); Judy L. Cameron (University of Pittsburgh); Jack P. Shonkoff (Brandeis University)
    Abstract: A growing proportion of the U.S. workforce will have been raised in disadvantaged environments that are associated with relatively high proportions of individuals with diminished cognitive and social skills. A cross-disciplinary examination of research in economics, developmental psychology, and neurobiology reveals a striking convergence on a set of common principles that account for the potent effects of early environment on the capacity for human skill development. Central to these principles are the findings that early experiences have a uniquely powerful influence on the development of cognitive and social skills, as well as on brain architecture and neurochemistry; that both skill development and brain maturation are hierarchical processes in which higher level functions depend on, and build on, lower level functions; and that the capacity for change in the foundations of human skill development and neural circuitry is highest earlier in life and decreases over time. These findings lead to the conclusion that the most efficient strategy for strengthening the future workforce, both economically and neurobiologically, and for improving its quality of life is to invest in the environments of disadvantaged children during the early childhood years.
    Keywords: child development, early experience, economic productivity, critical and sensitive periods, brain development
    JEL: H43 I28 J13
    Date: 2006–07

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