nep-pbe New Economics Papers
on Public Economics
Issue of 2006‒10‒07
35 papers chosen by
Peren Arin
Massey University

  1. Time Consistency and Bureaucratic Budget Competition By Sebastian Kessing; Kai A. Konrad
  2. Preferential tax regimes with asymmetric countries By Bucovetsky, Sam; Haufler, Andreas
  3. The Samaritan’s Dilemma and public health insurance By Facundo Sepulveda
  4. Why have Corporate Tax Revenues Declined? Another Look By Alan Auerbach
  5. Corporate Taxation and Multinational Activity By Peter Egger; Simon Loretz; Michael Pfaffermayr; Hannes Winner
  6. Can Capital Income Taxes Survive? And Should They? By Peter Birch Sørensen
  7. Is there a Social Security Tax Wedge? By Alessandro Cigno
  8. FLAT TAX REFORMS IN THE U.S.: A BOON FOR THE INCOME POOR By Javier Díaz-Giménez; Josep Pijoan-Mas
  9. The Transitional Dynamics of Fiscal Policy in Small Open Economies By Ben J. Heijdra; Jenny Ligthart
  10. Corporate and Personal Income Tax Declarations By Laszlo Goerke
  11. Regional growth strategies: fiscal versus institutional governmental policies By Ingrid Ott; Susanne Soretz
  12. Increasing Longevity and Social Security Reforms By Torben Andersen
  13. Reforming the Taxation of Multijurisdictional Enterprises in Europe, a Tentative Appraisal By Marcel Gérard
  14. On the Theory and Practice of Fiscal Decentralization By Wallace E. Oates
  15. A Simple Explanation for the Unfavorable Tax Treatment of Investment Costs By Paolo Panteghini
  16. Identifying Strategic Interactions in Swedish Local Income Tax Policies By Edmark, Karin; Ågren, Hanna
  17. Institution Formation in Public Goods Games By Michael Kosfeld; Akira Okada; Arno Riedl
  18. The Impact of Referendums on the Centralisation of Public Goods Provision: A Political Economy Approach By Jan Schnellenbach; Lars P. Feld; Christoph A. Schaltegger
  19. Social Norms and Conditional Cooperative Taxpayers By Traxler, Christian
  20. Taxing Human Capital Efficiently: The Double Dividend of Taxing Non-Qualified Labour More Heavily Than Qualified Labour By Wolfram F. Richter
  22. The Impact of Thin-Capitalization Rules on Multinationals' Financing and Investment Decisions By Thiess Buettner; Michael Overesch; Ulrich Schreiber; Georg Wamser
  23. Plenty of Room? Fiscal Space in a Resource Abundant Economy By María Antonia Moreno; Francisco Rodríguez
  24. The Equity Trap, the Cost of Capital and the Firm’s Growth Path By Tobias Lindhe; Jan Södersten
  25. Optimum Commodity Taxation in Pooling Equilibria By Eytan Sheshinski
  26. Existence, Uniqueness and Some Comparative Statics for Ratio- and Lindahl Equilibria: New Wine in Old Bottles By Wolfgang Buchholz; Richard Cornes; Wolfgang Peters
  27. Estate Taxation with Both Accidental and Planned Bequests By Pierre Pestieau; Motohiro Sato
  28. Pigou's Dividend versus Ramsey's Dividend in the Double Dividend Literature By Eduardo L. Giménez Fernández; Miguel Rodríguez Méndez
  29. Disasters: Issues for State and Federal Government Finances By David E. Wildasin
  30. Tax competition, location, and horizontal foreign direct investment By Kristian Behrens; Pierre M. Picard
  31. Coping with missing public infrastructure: An analysis of Russian industrial enterprises By Solanko, Laura
  32. Technical Efficiency and Contractual Incentives: the Case of Urban Public Transport in France By William Roy
  33. Growth, Longevity and Public Policy By Gregory Ponthiere
  34. The Fox News Effect: Media Bias and Voting By DellaVigna, Stefano; Kaplan, Ethan
  35. The Impact of Stadium Announcements on Residential Property Values: Evidence from a Natural Experiment in Dallas-Fort Worth By Carolyn A. Dehring; Craig A. Depken, II; Michael R. Ward

  1. By: Sebastian Kessing; Kai A. Konrad
    Abstract: High employment protection in the public sector results in strategic over-employment if government divisions compete for budgets in a dynamic setting. Bureaucrats who are interested in maximising their divisions’ output employ excess labor, since this induces the sponsor to provide complementary inputs in the future. Restrictions on hiring decisions in the public sector can be regarded as provisions to reduce strategic hiring. We also provide evidence from a survey of decision makers in a public sector bureaucracy with very high employment protection. The results confirm that decision makers are aware of the strategic effects of their hiring decisions on budget allocation.
    Keywords: bureaucratic competition, time consistency, labor intensity, public sector
    JEL: H11 H61 H83
    Date: 2006
  2. By: Bucovetsky, Sam; Haufler, Andreas
    Abstract: Current policy initiatives taken by the EU and the OECD aim at abolishing preferential corporate tax regimes. This note extends Keen's (2001) analysis of symmetric capital tax competition under preferential (or discriminatory) and non-discriminatory tax regimes to allow for countries of different size. Even though size asymmetries imply a redistribution of tax revenue from the larger to the smaller country, a non-discrimination policy is found to have similar effects as in the symmetric model: it lowers the average rate of capital taxation and thus makes tax competition more aggressive in both the large and the small country.
    Keywords: corporate taxation; preferential tax regimes
    JEL: H H
    Date: 2006–10
  3. By: Facundo Sepulveda
    Abstract: When the government cannot commit to withdraw from providing charity health care, as is the case when it faces the Samaritan's Dilemma, a pub- lic health insurance scheme can be Pareto improving. However, the large heterogeneity in the design of such schemes observed around the world begs the question of what characterizes the optimal public health insurance plan. In this paper, we examine the distortions created by three plans, nested in terms of the constraints they place on the individual's decision problem. We ¯nd that linking public health insurance bene¯ts to the use of a certain type of health care, such as treatment in public hospitals, creates incentives against the e±cient use of higher quality health care. When such constraint is lifted, but the public insurance scheme still determines a minimum level of coverage for each illness, ¯rst best e±ciency is achieved. It turns out that placing constraints in the form of minimum levels of coverage for each illness is necessary for e±ciency. Removing such constraint decreases the relative price of high quality care for a subset of illnesses, and leads to too much high quality care used in equilibrium. This analysis suggests that the widespread practice of determining illness by illness coverage in public health insurance systems has an e±ciency rationale, despite the administrative and informational di±culties that it entails.
    Keywords: Samaritan's Dilemma, Health insurance.
    JEL: H21 I18
    Date: 2006–09
  4. By: Alan Auerbach
    Abstract: The relative constancy of nonfinancial corporate tax revenues as a share of U.S. GDP masks offsetting trends in the ratio of corporate profits to GDP (declining) and the average tax rate (increasing). The average tax rate rose steadily between 1996 and 2003, an increase largely attributable to the importance of tax losses. This rise casts some doubt on the role of tax planning activities in reducing corporate taxes. So, too, does the relative stability of the rate of profit (relative to net assets), which might be expected to have declined had the understatement of profits for tax purposes been increasing.
    JEL: G32 H25
    Date: 2006
  5. By: Peter Egger; Simon Loretz; Michael Pfaffermayr; Hannes Winner
    Abstract: This paper assesses the impact of corporate taxation on multinational activity. A numerically solvable general equilibrium model of trade and multinational firms is used to incorporate the following components of corporate taxation: parent and host country statutory corporate tax rates, withholding tax rates, and parent and host country depreciation allowances. We account for their differential impact under alternative methods of double taxation relief (i.e., credit, exemption, and deduction). The hypotheses regarding the effects of changes in the tax parameters are investigated in a panel of bilateral OECD outbound stocks of foreign direct investment (FDI) from 1991 to 2002. For this, we compile annual information on taxation to construct the largest existing panel of tax parameters at the bilateral level based on national tax law and bilateral tax treaties. Our findings indicate that the parent country's statutory corporate tax rate tends to foster outward FDI, whereas the host country's statutory corporate and withholding tax rates are negatively associated with outward FDI. Depreciation allowances exert a significant impact on FDI, as hypothesized.
    Keywords: corporate taxation, foreign, direct investment, panel econometrics
    JEL: C33 F21 F23 H25 H73
    Date: 2006
  6. By: Peter Birch Sørensen
    Abstract: The paper surveys some main results in the theory of capital income taxation in the open economy; reviews recent trends in international taxation, and discusses alternative blueprints for fundamental capital income tax reform from the perspective of an open economy faced with growing mobility of capital income tax bases.
    JEL: H21 H25
    Date: 2006
  7. By: Alessandro Cigno
    Abstract: A Beveridgean pension scheme invariably reduces the marginal return to labour, and will thus discourage labour. A Bismarckian scheme can do so only if it is not actuarially fair, or in the presence of credit rationing. In any case, the same pension contribution will discourage labour less if the scheme is Bismarckian than if it is Beveridgean. A Bismarckian scheme may even encourage labour.
    Keywords: tax wedge, labour, public pensions, Bismarck, Beveridge, implicit pension tax
    JEL: H31 H55 J38
    Date: 2006
  8. By: Javier Díaz-Giménez; Josep Pijoan-Mas (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: In this article we queantify the aggregate, distributional and welfare consequences of two revenue neutral flat-tax reforms using a model economy that replicates the U.S. distributions of earnings, income and wealth in very much detail. We find that the less progressive reform brings about a 2.4 percent increase in steady-state output and a more unequal distribution of after-tax income. In contrast, the more progressive reform brings about a -2.6 percent reduction is steady-state output and a distribution of aftertax income that is more egalitarian. We also find that in the less progressive flat-tax economy aggregate welfare falls by -0.17 percent of consumption, and in the more progessive flat-tax economy it increases by 0.45 percent of consumption. In both flat-tax refoms the income poor pay less income taxes and obtain sizeable welfare gains.
    Keywords: Flat-tax reforms, efficiency, inequality, earnings distribution, income distributions, wealth distribution.
    JEL: D31 E62 H23
    Date: 2006–07
  9. By: Ben J. Heijdra; Jenny Ligthart
    Abstract: The paper studies the dynamic macroeconomic effects of fiscal shocks of various duration (permanent and temporary) under different financing methods (lump-sum tax and government debt). To this end, we develop an intertemporal macroeconomic model for a small open economy, featuring monopolistic competition in the intermediate goods market, endogenous (intertemporal) labor supply, and finitely lived households. Endogenous labor supply is crucial in generating cyclical adjustment paths and yields faster convergence to the new steady state compared with exogenous labor supply. The quantitative output effects and transitional dynamics of fiscal policy differ substantially from those of an infinitely lived representative agent model. In addition, government debt is key in making the timing of shocks matter, thus yielding permanent output effects of temporary fiscal shocks.
    Keywords: fiscal policy, output multipliers, Blanchard-Yaari overlapping generations, monopolistic competition, small open economy
    JEL: E12 E63 L16
    Date: 2006
  10. By: Laszlo Goerke
    Abstract: Decisions by firms and individuals on the extent of their tax payments have generally been treated as separate choices. Empirically, a positive relationship between corporate and personal income tax evasion can be observed. The theoretical analysis in this paper shows that a manager's decision on the firm's behaviour will be independent of his personal preferences if the gain from reducing corporate tax payments is certain, as in the case of tax avoidance. If, however, the firm evades taxes so that the manager's income depends on whether the firm's activities are detected or not, corporate and personal income tax evasion choices cannot be separated.
    Keywords: firms, individuals, tax evasion, uncertainty
    JEL: H24 H25 H26
    Date: 2006
  11. By: Ingrid Ott (Institute of Economics, University of Lüneburg); Susanne Soretz (Institute of Economics, Leibnitz University of Hannover)
    Abstract: This paper analyzes the growth impact of fiscal and institutional governmental policies in a regional context. The government provides a productive input that is complementary to private capital. Institutional policies include the decision about the type of public input as well as on the size of the region as determined by the number of firms. Fiscal policies decide on the extent of the public input. Private capital accumulation incurs adjustment costs that depend upon the ratio between private and public investment. After deriving the decentralized equilibrium, fiscal and institutional policies as well as their interdependencies and welfare implications are discussed. Due to the feedback effects both policies may not be determined interdependently. It is also shown that depending on the region`s size different types of the public input maximize growth.
    Keywords: Fiscal and institutional policy, regional growth, adjustment costs, congested public inputs
    JEL: O41 H40 H54 R13
    Date: 2006–09–22
  12. By: Torben Andersen
    Abstract: Increasing longevity causes an upward trend in the dependency ratio in many countries. This raises concerns about the financial sustainability of social security schemes, and reform initiatives and proposals abound. It is shown that a fundamental policy choice inevitably arises since a given social security system cannot be maintained by simply indexing retirement ages and benefits to longevity. The political reform process is analysed using the so-called legislative procedure. When longevity increases, the young generation contributes more, and the old generation faces lower benefits and a retirement age that increases more than proportionally to the increase in longevity.
    Keywords: longevity, social security, political economy
    JEL: D72 H55 J11 J14 J18
    Date: 2006
  13. By: Marcel Gérard
    Abstract: In 2001, the European Commission proposed replacing the current system of taxation of multinational companies by the taxation of a consolidated base, computed at the level of all the European entities of a multijurisdictional enterprise, and then distributed for taxation purposes between the various jurisdictions in which these entities operate, according to pre-established criteria. In this paper, we propose a tentative appraisal of that reform based on a case study and an analytical exercise. We especially focus on two related issues, the choice of the formula and the composition of the consolidating area – either the entire EU or some Member States within an Enhanced Cooperation Agreement –, and on their impact on the size and interjurisdictional distribution of tax revenue and social welfare, and on the intensity of tax competition. Our tentative policy conclusion is that this paper supports the reform provided that (1) the formula puts emphasis on criteria that the firm may not too easily manipulate, (2) the activities of the multijurisdictional enterprise are enough mobile, (3) the consolidation is made compulsory within the consolidating area, and (4) the consolidating area protects its capacity to actually levy tax by adopting a crediting system vis-à-vis the rest of the world.
    Keywords: multinational enterprises, multinational companies, multijurisdictional enterprises, European taxation, tax consolidation, tax competition
    JEL: H32 H73 H87
    Date: 2006
  14. By: Wallace E. Oates (Department of Economics, University of Maryland, 3105 Tydings Hall College Park, MD 20742)
    Date: 2006–09
  15. By: Paolo Panteghini
    Abstract: The evidence shows that in most countries the present value of depreciation allowances is less than 100% of the cost of capital. In this article we use a real-option model with debt financing, and show that less favorable depreciation allowances are offset by tax benefits arising from debt financing. Allowing partial deduction of capital cost is thus a necessary condition for investment neutrality to hold.
    Keywords: capital structure, irreversibility, real options and taxation
    JEL: D92 G33
    Date: 2006
  16. By: Edmark, Karin (Department of Economics); Ågren, Hanna (Department of Economics)
    Abstract: This paper uses data on Swedish local governments to test for strategic interaction in tax setting. We make no a priori assumptions regarding the underlying behaviour of individuals, but instead attempt to test for the presence and type of underlying spatial process. First, we employ the estimation methods used in most earlier studies, however, we stress that these methods are limited in identifying the source of interaction. Hence, we make use of a number of additional, indirect predictions from the theories of tax competition and yardstick competition, in order to test for the presence of strategic interaction. Using such additional predictions of the theories serves a twofold purpose - first it helps us establish if the spatial coefficient is due to strategic interactions or merelyre?ecting spatial error correlation, and second, it helps identify the source of interaction. The analysis provides strong evidence for spatial dependence in tax rates among Swedish local governments. Moreover, we find weak evidence of tax competition or yardstick competition e¤ects in the setting of tax rates.
    Keywords: Local income tax; Spatial auto-correlation; Tax competition; Yardstick competition
    JEL: C52 D72 H73 H77
    Date: 2006–10–05
  17. By: Michael Kosfeld; Akira Okada; Arno Riedl
    Abstract: Centralized sanctioning institutions are of utmost importance for overcoming free-riding tendencies and enforcing outcomes that maximize group welfare in social dilemma situations. However, little is known about how such institutions come into existence. In this paper we investigate, both theoretically and experimentally, the endogenous formation of institutions in a public goods game. Our theoretical analysis shows that players may form sanctioning institutions in equilibrium, including those where institutions govern only a subset of players. The experiment confirms that institutions are formed frequently as well as that institution formation has a positive impact on cooperation rates and group welfare. However, the data clearly reveal that players are unwilling to implement institutions in which some players have the opportunity to free ride. In sum, our results show that individuals are willing and able to create sanctioning institutions, but that the institution formation process is guided by behavioral principles not taken into account by standard theory.
    Keywords: public goods, institutions, sanctions, cooperation
    JEL: C72 C92 D72
    Date: 2006
  18. By: Jan Schnellenbach; Lars P. Feld; Christoph A. Schaltegger
    Abstract: The paper compares decision-making on the centralisation of public goods provision in the presence of regional externalities under representative and direct democratic institutions. A model with two regions, two public goods and regional spillovers is developed in which uncertainty over the true preferences of candidates makes strategic delegation impossible. Instead, it is shown that the existence of rent extraction by delegates alone suffices to make cooperative centralisation more likely through representative democracy. In the non-cooperative case, the more extensive possibilities for institutional design under representative democracy increase the likelihood of centralisation. Direct democracy may thus be interpreted as a federalism-preserving institution.
    Keywords: centralisation, direct democracy, representative democracy, public good provision
    JEL: D78 H73 H77
    Date: 2006
  19. By: Traxler, Christian
    Abstract: This paper incorporates tax morale into the Allingham Sandmo (1972) model of income tax evasion. Tax morale is interpreted as a social norm for tax compliance. The norm strength, depending on the share of evaders in the society, is endogenously derived. Taxpayers act conditionally cooperative, as their evasion decision depends on the other agents' compliance. We characterize an equilibrium which accounts for this interdependence and study the impact of tax and deterrence policies on compliance. Our analysis is then extended to the case of a society which consists of heterogenous communities where individual evasion decisions are embedded in a complex social structure. In this scenario, behavior is crucially influenced by the norm compliance among morale reference groups. Within this framework, we discuss the role of belief management and belief leadership as alternative policy tools.
    Keywords: Tax Evasion; Tax Morale; Social Norms; Conditional Cooperation
    JEL: H26 Z13 K42
    Date: 2006–09
  20. By: Wolfram F. Richter (University of Dortmund and IZA Bonn)
    Abstract: Assuming decreasing returns to education and the endogenous supply of qualified and nonqualified labour it is shown to be efficient to supplement a consumption tax with positive incentives for education. If the return from education is isoelastic and if the choice is between (i) subsidizing the monetary cost of education and (ii) taxing non-qualified labour income more heavily than qualified labour income while keeping the effective cost of education constant, the latter policy is shown to be second-best efficient. In particular, any tax distortions should be constrained to labour choices while the choice of education should remain undistorted. The result holds for arbitrary utility functions.
    Keywords: endogenous choice of labour and education, efficient taxation, human capital investment, double dividend hypothesis
    JEL: H2 I2 J24
    Date: 2006–09
  21. By: Siva Athreya (Indian Statistical Institute); Rohini Somanathan (Delhi School of Economics)
    Abstract: We show how an optimization algorithm can be used to approximately quan-tify the costs to users of spatial misallocation in centrally provided public goods. This method can be employed to evaluate the large programs of public good construction that have been central features of economic plans in many developing countries. We apply these methods to the allocation of post-offices in an administrative block of South India between 1981-1991 and find that more appropriate choices for post office locations could have reduced aggregate costs of travel to citizens in this area by at least 20%.
    JEL: H41 C61
    Date: 2006–08
  22. By: Thiess Buettner (Ifo Institute for Economic Research, Poschingerstr. 5, D-81679 Munich, Mannheim, Germany); Michael Overesch (ZEW, L 7,1 D-68161 Mannheim, Postfach 103443 D-68034); Ulrich Schreiber (Mannheim University and ZEW, Mannheim Business School, L 5, 6, 68131 Mannheim, Deutschland); Georg Wamser (Ifo Institute for Economic Research, Poschingerstr. 5, D-81679 Munich, Mannheim, Germany)
    Abstract: This paper analyzes the role of Thin-Capitalization rules for capital structure choice and investment decisions of multinationals. A theoretical analysis shows that the imposition of such rules tends to affect not only the leverage and the level of investment but also their tax-sensitivity. An empirical investigation of leverage and investment reported for affiliates of German multinationals in 24 countries in the period between 1996 and 2004 offers some support for the theoretical predictions. While Thin-Capitalization rules are found to be effective in restricting debt finance, investment is found to be more sensitive to taxes if debt finance is restricted.
    Keywords: Corporate Income Tax, Multinationals, Leverage, Thin-Capitalization Rules, Firm-Level Data
    JEL: H25 H26 G32
    Date: 2006–09
  23. By: María Antonia Moreno (Universidad Central de Venezuela); Francisco Rodríguez (Economics Department, Wesleyan University)
    Date: 2006–09
  24. By: Tobias Lindhe; Jan Södersten
    Abstract: This paper reconsiders Sinn’s (1991) nucleus theory of the corporation by comparing two different regimes for the equity trap. In the first of these, all cash paid to the shareholders is taxed as dividends, in the second, shareholders are allowed a tax-free return of capital contributed through new issues. A substantial difference is found between the regimes in the size of initial equity injections, although in both regimes, no dividends are paid until a new long-run equilibrium is reached. Contrary to Sinn, we find that with optimal behavior, the cost of new equity is lower than suggested by conventional formulae.
    Keywords: dividend taxation, equity trap, cost of capital, nucleus theory, growth path
    JEL: H24 H25 H32
    Date: 2006
  25. By: Eytan Sheshinski
    Abstract: This paper extends the standard model of optimum commodity taxation (Ramsey (1927) and Diamond-Mirrlees (1971)) to a competitive economy in which some markets are inefficient due to asymmetric information. As in most insurance markets, consumers impose varying costs on suppliers but …firms cannot associate costs to customers and consequently all are charged equal prices. In a competitive pooling equilibrium, the price of each good is equal to average marginal costs weighted by equilibrium quantities. We derive modi…ed Ramsey-Boiteux Conditions for optimum taxes in such an economy and show that they include general-equilibrium effects which re‡flect the initial deviations of producer prices from marginal costs, and the response of equilibrium prices to the taxes levied. It is shown that condition on the monotonicity of demand elasticities enables to sign the deviations from the standard formula. The general analysis is applied to the optimum taxation of annuities and life insurance.
    Keywords: Asymmetric Information; Pooling Equilibrium; Ramsey-Boiteux Conditions; Annuities
    JEL: D43 H21
    Date: 2006–08
  26. By: Wolfgang Buchholz; Richard Cornes; Wolfgang Peters
    Abstract: We present a rigorous, yet elementary, demonstration of the existence of a unique Lindahl equilibrium under the assumptions that characterize the standard n-player public good model. Indeed, our approach, which exploits the aggregative structure of the public good model, lends itself to a transparent geometric representation. Moreover, it can handle the more general concept of the cost-share or ratio equilibrium. Finally, we indicate how it may be ex-ploited to facilitate comparative static analysis of Lindahl and cost share equilibria.
    Keywords: public goods, Lindahl equilibrium, ratio equilibrium
    JEL: H41
    Date: 2006
  27. By: Pierre Pestieau; Motohiro Sato
    Abstract: Actual inheritances are an hybrid of canonical types of bequests and in particular of accidental bequests and altruistic bequests. In this paper, bequeathed estate consists of two components: an amount intended by altruistic parents and an amount which results from the "premature" death of parents. Altruistic parents can also invest in their children’s education. Taxing those two types of bequests separately is known to have different implications. The purpose of this paper is to see the distributive incidence of estate taxation when those two components are indistinguishable. The substitutability between education and intended bequests plays a key role in the tax design.
    Keywords: estate taxation, inheritance, bequests motives
    JEL: D64 H20
    Date: 2006
  28. By: Eduardo L. Giménez Fernández (Universidad de Vigo); Miguel Rodríguez Méndez (Universidad de Vigo)
    Abstract: The aims of this paper are to highlight misinterpretations of policy assessments in the double dividend literature, to specify which of the efficiency costs and benefits should be ascribed to each dividend, and then, to propose a definition for the first dividend and the second dividend. We found the Pigou's dividend more appropiate for policy guidance than the usual Ramsey's dividend. Finally, the paper analyzes a green tax reform for the US economy to illustrate the advantages of the new definitions proposed in this paper: i) overcome some shortcoming of the mainstream current definitions in the literature regarding overestimation of the efficiency costs; and, ii) provide information by themselves and not as a partial view of the whole picture.
    Keywords: Double dividend, Green Tax Reforms, Ramsey's dividend, Pigou's dividend
    JEL: H23 Q58
    Date: 2006
  29. By: David E. Wildasin (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky)
    Abstract: Extreme events like hurricanes, earthquakes, or terrorist attacks present major challenges for fiscal systems at all levels of government. Analysts concerned with the fiscal and financial impacts of disasters must attempt to assess the likelihood of rare events of large magnitude such as Hurricane Katrina. Extreme value theory, applied here to flood damage data for Louisiana, offers one promising methodology for this purpose. The experience of Katrina and 9/11 also show that large disasters have large intergovernmental impacts. Individual states could, in principle, engage in more extensive ex ante financial and policy preparations for disasters, including disaster avoidance, but the “revealed institutional structure” exposed by recent experience shows that the US federal system shifts much of the economic incidence of local disasters to the rest of society through intergovernmental transfers. This raises policy questions regarding the assignment of responsibility for disaster avoidance in the US federation. In particular, Federal “ownership” of the consequences of disasters may invite or necessitate new forms of Federal “control” of subnational government.
    Date: 2006–09
  30. By: Kristian Behrens (CORE, Université catholique de Louvain, 34 voie du Roman Pays, 1348 Louvain-la-Neuve, Belgium); Pierre M. Picard (Université catholique de Louvain; Belgium; and University of Manchester, UK)
    Abstract: We develop a model of capital tax/subsidy competition in which imperfectly competitive firms choose both the number and the location of the plants they operate. The endogenous presence of horizontal multinationals is shown to attenuate the "race to the bottom" and yields some results that are opposite to traditional findings in the tax competition literature. First, in the presence of horizontal multinationals, increasing subsidies decrease firms' profits by exacerbating price competition due to more firms "going multinationa"’. Second, instead of being always subsidized, capital may actually be taxed in equilibrium. Third, taxes/subsidies become strategically independent policy instruments, instead of being strategic complements. Last, there may exist multiple equilibria with either low or high subsidies.
    Keywords: capital tax competition; international trade; horizontal multinationals; foreign direct investment; imperfect competition
    JEL: F12 F23 H27 H73 R12
    Date: 2006–10
  31. By: Solanko, Laura (BOFIT)
    Abstract: During the Soviet period industrial firms not only formed the backbone of the economy but also directly provided a wide range of benefits to their municipalities. Firms were in charge of supplying a great variety of social services, such as housing, medical care and day care. The need to divest at least some of these functions was generally accepted already in the early 1990s. Industrial firms' engagement in the provision of infrastructure services, such as heating, electricity and road upkeep has to date received much less attention. Using a unique dataset of 404 large and medium-sized industrial enterprises in 40 regions of Russia, this paper examines public infrastructure provision by Russian industrial enterprises. We find that, first, to a large degree engagement in infrastructure provision – as proxied by district heating production – is a Soviet legacy. Second, firms providing district heating to users outside their plant area are more likely to have close relations with the local public sector along many other dimensions.
    Keywords: Russia; infrastructure; firm performance
    JEL: H54 P31 P35
    Date: 2006–04–20
  32. By: William Roy (LET - Laboratoire d'économie des transports - [CNRS : UMR5593] - [Université Lumière - Lyon II] - [Ecole Nationale des Travaux Publics de l'Etat])
    Abstract: This paper studies the relative performances of contractual arrangements used in the French local public transport industry. Levels of inefficiency are estimated with a production frontier approach. The results confirm the theoretical properties of incentive contracts that lead to better technical efficiency.
    Keywords: Contracts ; Contractual Incentives ; Contractual arrangements ; Efficiency ; Performance ; Urban Public Transport ; Public service governance ; France
    Date: 2006–10–04
  33. By: Gregory Ponthiere
    Abstract: This paper studies the optimal long-run public intervention in a two-period OLG model where the probability of surviving the first period and the length of the second period can be influenced by distinct policies. While the optimal size of public intervention depends on the extra-productivity of public spendings in longevity, its optimal structure is determined by (1) differences in the productivity of each policy; (2) how growth would influence each longevity aspect under laissez-faire; (3) the dependence of each longevity aspect on past achievements. Given competing effects, the optimal intervention can hardly, under additive expected lifetime utility, be strongly unbalanced.
    Keywords: growth, longevity, public policy, rectangularization
    JEL: E13 H51 I12 O41
    Date: 2006
  34. By: DellaVigna, Stefano (UC Berkeley and NBER); Kaplan, Ethan (Institute for International Economic Studies, Stockholm University)
    Abstract: Does media bias affect voting? We analyze the entry of Fox News in cable markets and its impact on voting. Between October 1996 and November 2000, the conservative Fox News Channel was introduced in the cable programming of 20 percent of US towns. Fox News availability in 2000 appears to be largely idiosyncratic, conditional on a set of controls. Using a data set of voting data for 9,256 towns, we investigate if republicans gained vote share in towns where Fox News entered the cable market by the year 2000. We find a significant effect of the introduction of Fox News on the vote share in Presidential elections between 1996 and 2000. Republicans gained 0.4 to 0.7 percentage points in the towns which broadcast Fox News. Fox News also a􀀎ected the Republican vote share in the Senate and voter turnout. Our estimates imply that Fox News convinced 3 to 28 percent of its viewers to vote Republican, depending on the audience measure. The Fox News effect could be a temporary learning effect for rational voters, or a permanent effect for non-rational voters subject to persuasion.
    Keywords: -
    JEL: C53 H10
    Date: 2006–08–18
  35. By: Carolyn A. Dehring (Department of Insurance, Legal Studies and Real Estate, The University of Georgia); Craig A. Depken, II (Department of Economics, University of Texas at Arlington); Michael R. Ward (Department of Economics, University of Texas at Arlington)
    Abstract: We investigate the impact of a potential new sports venue on residential property values, focusing on the National Football League's Dallas Cowboys' search for a new host city in the Dallas-Fort Worth area. We find that residential property values in the city of Dallas increased following the announcement of a possible new stadium in the city of Dallas. At the same time, property values fell throughout the rest of Dallas County, which would have paid for the proposed stadium. These patterns reversed when the Dallas stadium proposal was abandoned. Subsequently, a series of announcements regarding a new publicly-subsidized stadium in nearby Arlington, Texas, had a deleterious effect on residential property values in Arlington. In aggregate, average property values declined approximately 1.5% relative to the surrounding area before stadium construction commenced. This decline was almost equal to the anticipated household sales tax burden, suggesting that the average expected amenity effect of hosting the Cowboys in Arlington was not significantly different from zero.
    Keywords: economic impact, event studies, sports, property values, stadiums
    JEL: L83 R53 H73
    Date: 2006–09

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