nep-pbe New Economics Papers
on Public Economics
Issue of 2006‒12‒01
thirty papers chosen by
Peren Arin
Massey University

  1. Determinants of Public Health Outcomes: A Macroeconomic Perspective By Francesco Ricci; Marios Zachariadis
  2. Optimal Taxation and Transboundary Externalities - Are Endogenous World Market Prices Important? By Aronsson, Thomas; Persson, Lars; Sjögren, Tomas
  3. Reforming the taxation of Multijurisdictional Enterprises in Europe, "Coopetition" in a Bottom-up Federation By Marcel Gerard
  4. Public Debt, Fiscal Solvency, and Macroeconomic Uncertainty in Latin America: The Cases of Brazil, Colombia, Costa Rica, and Mexico By Mendoza, Enrique G.; Oviedo, P. Marcelo
  5. Agglomeration, Migration and Tax Competition By Kurt A. Hafner
  6. Sustainable Fiscal Policy with Rising Public Debt-to-GDP Ratios By Oviedo, P. Marcelo
  7. Using a discontinuous grant rule to identify the effect of grants on local taxes and spending By Matz Dahlberg; Eva Mörk; Jørn Rattsø; Hanna Ågren
  8. Public Capital, Fiscal Deficit and Growth By Massimo Antonini
  9. Committed to Deficit: The Reverse Side of Fiscal Governance By Martin Gregor
  10. Public Goods, Unemployment and Policy Coordination By Aronsson, Thomas; Wehke, Sven
  11. Taxation and The Crowding-Out Effect of Corporate Social Responsibility By Jérôme Ballet; Damien Bazin; Abraham Lioui; David Touahri
  12. Size and Soft Budget Constraints By Ernesto Crivelli; Klaas Staal
  13. Decomposition of s-Concentration Curves By Makdissi, Paul; Mussard, Stéphane
  14. Merged Municipalities, Higher Debt: On Free-riding and the Common Pool Problem in Politics By Jordahl, Henrik; Liang, Che-Yuan
  15. Poverty alleviation in a welfarist framework of optimal linear income taxation By ZOLI MARIANGELA
  16. Reform Redux: Measurement, Determinants and Reversals By Nauro F. Campos; Roman Horváth
  17. Fiscal rules for debt sustainability in emerging markets: the impact of volatility and default risk By Adrian Penalver; Gregory Thwaites
  18. Fiscal Implications of Pension Refprms in Italy By BRUGIAVINI AGAR; PERACCHI FRANCO
  19. The Dilemmas of Tax Coordination in the Enlarged European Union By Jens Brøchner; Jesper Jensen; Patrik Svensson; Peter Birch Sørensen
  20. Between-Group Transfers and Poverty-Reducing Tax Reforms By Makdissi, Paul; Mussard, Stéphane
  22. On Taxation in a Two-Sector Endogenous Growth Model with Endogenous Labor Supply By Paul A. de Hek
  23. Debt ceiling and fiscal sustainability in Brazil: a quantile autoregression approach By Luiz Renato Lima; Raquel M. B. Sampaio; Wagner Piazza Gaglianone
  24. Public-Private Partnerships in Flanders By Geert Leemans
  25. The effects of partisan alignment on the allocation of intergovernmental transfers. Differences-in-differences estimates for Spain By Albert Solé-Ollé; Pilar Sorribas-Navarro
  26. Public Infrastructure and Economic Growth in Mexico By Antonio Noriega; Matias Fontenla
  27. Multi-government cost-benefit analysis: shadow prices and incentives By Massimo FLORIO
  28. On the Definition of Economic Efficiency By Paul Makdissi
  29. Non-Smooth Sustainable Development With Overshooting By Hassan Benchekroun; Seiichi Katayama; Ngo Van Long
  30. Poverty Alleviation Programs: Monitoring vs. Workfare By Oliveira, Márcia; Côrte-Real, Paulo

  1. By: Francesco Ricci; Marios Zachariadis
    Abstract: This paper investigates the nature of the aggregate production function of health services. We build a model to analyze the role of public policy in determining social health outcomes, taking into account households choices concerning education, health related expenditures and saving. In the model, education has a positive external effect on health outcomes. Next, we perform an empirical analysis using a data set covering 80 countries from 1961 to 1995. We find strong evidence for a dual role of education as a determinant of health outcomes. In particular, we find that society’s tertiary education attainment levels contribute positively to how many years an individual should expect to live, in addition to the role that basic education plays for life expectancy at the individual household level. This finding uncovers a key externality of the educational sector on the ability of society to take advantage of best practices in the health service sector.
    Keywords: Education, life expectancy, external effects, absorptive capacity.
    JEL: O30 O40
    Date: 2006–06
  2. By: Aronsson, Thomas (Department of Economics, Umeå University); Persson, Lars (Department of Economics, Umeå University); Sjögren, Tomas (Department of Economics, Umeå University)
    Abstract: This paper concerns income and commodity taxation in a multi-jurisdictional <p> framework with transboundary environmental damage. We assume that each jurisdiction <p> is large in the sense that its government is able to influence the world <p> market prices via public policy. In such a framework, a noncooperative Nash equilibrium <p> does not only imply that the commodity tax on the externality-generating <p> good is inefficiently low seen from the perspective of global well-being; it also <p> means that the marginal income tax rate is inefficiently high, and that too much <p> resources are spent on public goods. With the noncooperative Nash equilibrium <p> as a starting point, we also consider the welfare effects of policy coordination with <p> respect to taxation and public expenditures.
    Keywords: Trade and Environment; Optimal Taxation; Externalities
    JEL: F18 H21 H23
    Date: 2006–11–20
  3. By: Marcel Gerard (FUCaM, Catholic University of Mons, ARPEGE, Dept Economics and Sociology, chaussee de Binche 151, B-7000 Mons, Belgium)
    Abstract: This paper investigates replacing separate taxation by consolidation and formulary apportionment in a Bottom-up Federation, when a multijurisdictional firm is mobile in various respects. The reform is decided cooperatively by all the jurisdictions or by some of them, while tax rates remain within the competence of each jurisdiction. The paper sets forth the conditions for the reform to be social welfare enhancing, while not increasing tax competition. Among them, the formula should emphasize criteria that the Multijurisdictional Enterprise cannot easily manipulate and the consolidating area should protect its capacity to levy taxes by adopting a crediting system, possibly extended to accrued capital gains, vis-à-vis the rest of the world. Policy conclusions are suggested accordingly.
    Keywords: taxation of multinational enterprises, consolidation and formulary apportionment, fiscal federalism
    JEL: H32 H73 H87
    Date: 2006–11
  4. By: Mendoza, Enrique G.; Oviedo, P. Marcelo
    Abstract: The ratios of public debt as a share of GDP of Brazil, Colombia, and Mexico were 12 percentage points higher on average during the period 1996-2005 than in the period 1990-1995. Costa Rica's debt ratio remained stable but at a high level near 50 percent. Is there reason to be concerned for the solvency of the public sector in these economies? We provide an answer to this question based on the quantitative predictions of a variant of the framework proposed by Mendoza and Oviedo (2006). This methodology yields forward-looking estimates of debt ratios that are consistent with fiscal solvency for a government that faces revenue uncertainty and can issue only non-state-contingent debt. In this environment, aversion to a collapse in outlays leads the government to respect a ``natural debt limit" equal to the annuity value of the primary balance in a ``fiscal crisis." A fiscal crisis occurs after a long sequence of adverse revenue shocks and public outlays adjust to their tolerable minimum. The debt limit also represents a credible commitment to remain able to repay even in a fiscal crisis. The debt limit is not, in general, the same as the sustainable debt, which is driven by the probabilistic dynamics of the primary balance. The results of a baseline scenario question the sustainability of current debt ratios in Brazil and Colombia, while those in Costa Rica and Mexico are inside the limits consistent with fiscal solvency. In contrast, current debt ratios are found to be unsustainable in all four countries for plausible changes to lower average growth rates or higher real interest rates. Moreover, sustainable debt ratios fall sharply when default risk is taken into account.
    Keywords: fiscal sustainability; public debt; sovereign default
    JEL: F3
    Date: 2006–11–27
  5. By: Kurt A. Hafner
    Abstract: The paper focuses on tax competition and international migration in R&D sectors as agglomeration forces and trade restrictions are present. Core countries in economically integrating regions adapt tax rates to keep their industrial status quo. Unlike the often discussed “race to the bottom” result, tax rates are increased and the provision of public goods is maintained. Additionally, tax rates that redistribute between mobile and immobile labor lead to a tax burden that favors mobile labor. As economic integration continues, the cutback of factor mobility restrictions for skilled labor supports economic development in core countries at the expense of periphery countries.
    Keywords: Economic Geography, Agglomeration, Migration, Tax Competition
    Date: 2006–06
  6. By: Oviedo, P. Marcelo
    Abstract: In financial and economic policy circles concerned with public debt in developing countries, a rising debt-GDP ratio is interpreted as a signal of overborrowing, warning of debt defaults if strong fiscal corrections are not adopted in time. This paper shows that this interpretation is incorrect. It does so by building a simple model of fiscal policy in which upward-sloping debt paths are observed even though the probability of default is equal to zero ``almost surely".
    Keywords: public debt, fiscal policy, debt sustainability, debt limits
    JEL: F3
    Date: 2006–11–27
  7. By: Matz Dahlberg (Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden and CESifo); Eva Mörk (Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden); Jørn Rattsø (Department of Economics, Norwegian University of Science & Technology, N-7491 Trondheim, Norway); Hanna Ågren (Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden)
    Abstract: When investigating the effects of federal grants on the behavior of lower-level governments, it is hard to defend the handling of grants as an exogenous factor affecting local governments; federal governments often set grants based on characteristics and performance of local governments. In this paper we make use of a discontinuity in the Swedish grant system in order to estimate the causal effects of general intergovernmental grants on local spending and local tax rates. The formula for the distribution of funds is used as an exclusion restriction in an IV-estimation. We find evidence of crowding-in, where federal grants are shifted to more local spending, but not to reduced local tax rates. Our results thus confirm a flypaper effect for Sweden.
    Keywords: Fiscal federalism, grants, flypaper effect, local taxation, local government expenditure, causal effects
    JEL: H21 H71 H77 R51
    Date: 2006–11
  8. By: Massimo Antonini
    JEL: O23 E62 H62
    Date: 2005–06
  9. By: Martin Gregor (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: Common wisdom dictates that fiscal governance (i.e. procedural fiscal rules) improves fiscal discipline. We rather find that selected fiscal constraints protect the coalitional status quo from logrolling. In effect, fiscal governance may deteriorate fiscal position. In political economy with heterogeneous agents, we examine four procedural fiscal rules: limits on amendments in legislative committees, timing of a vote on the budget size, deficit targets, and spending level targets. We find that fiscal governance protects the budgetary contract of governing coalition from attractive compromises with the opposition. When parties are evenly distributed across single policy dimension, and minimum winning connected coalitions are equiprobable, this protection is shown to magnify volatility in taxes and spending. Moreover, the volatility may increase in more fragmented party systems. We conclude fiscal governance not always and not necessarily reduces fiscal costs of fragmentation.
    Keywords: Fiscal Governance; Party Fragmentation
    JEL: D78 H61 H62
    Date: 2005
  10. By: Aronsson, Thomas (Department of Economics, Umeå University); Wehke, Sven (Otto-von-Guericke-University Magdeburg, Faculty of Economics and Management)
    Abstract: Earlier literature on tax competition and policy coordination typically assumes that the labor market is competitive; a description less suitable for Europe, where trade unions have had a strong position in the labor market for a long time. This paper concerns factor income taxation and public good provision in small open economies characterized by capital mobility and imperfect competition in the labor market. We assume that each national government collects public revenues via taxes on labor, capital and profit income, and that the revenues are spent on a public consumption good and a public input good, where the latter enters the economic system in terms of an `externality production factor'. The overall purposes are to characterize the tax and expenditure policies, if decided upon at the national level, and analyze the welfare effects of policy coordination with respect to taxes and public expenditures. Among the results, we show that tax coordination contributes to higher welfare if it reduces the net interest rate and the wage rate, and that the relative overprovision of the public input good derived by Keen and Marchand (1997) in the context of a competitive economy may no longer hold, if the labor market is non-competitive.
    Keywords: optimal taxation; wage bargaining; public goods; policy coordination
    JEL: H21 H41 J51
    Date: 2006–11–24
  11. By: Jérôme Ballet (C3ED - Centre d'économie et d'éthique pour l'environnement et le développement - [IRD : UR063] - [Université de Versailles-Saint Quentin en Yvelines]); Damien Bazin (C3ED - Centre d'économie et d'éthique pour l'environnement et le développement - [IRD : UR063] - [Université de Versailles-Saint Quentin en Yvelines]); Abraham Lioui (Department of Economics - [Bar Ilan University, Ramat Gan, Israel.]); David Touahri (LEST - Laboratoire d'économie et de sociologie du travail - [CNRS : UMR6123] - [Université de Provence - Aix-Marseille I][Université de la Méditerranée - Aix-Marseille II])
    Abstract: We address in this paper the issue of the existence or not of a crowding-out effect of Corporate Social Responsability by government intervention through a lump sum tax. For this purpose, we build a model of impur altruism for firms. We show that in general it will happen to be that public policy crowds out corporate (private) contribution but the crowding-out will not be complete. Two interesting findings are that i) the intensity of the crowding-out depends upon the relative performance of the government in producing the public good and ii) that public policy has an impact on wages in the economy since it is the opportunity cost for firms that spend time on Corporate Social Responsibility.
    Keywords: Corporate Social Responsibility; Crowding-out effect; Taxation
    Date: 2006–11–14
  12. By: Ernesto Crivelli (University of Bonn, BGSE, Lennestr. 43, Bonn, Germany, 53113); Klaas Staal (University of Bonn, IIW, Lennestr. 37, Bonn, Germany, 53113)
    Abstract: There is much evidence against the so-called "too big to fail" hypothesis in the case of bailouts to sub-national governments. We look at a model where districts of di_erent size provide local public goods with positive spillovers. Matching grants of a central government can induce socially-e_cient provision, but districts can still exploit the intervening central government by inducing direct _nancing. We show that the ability of a district to induce a bailout from the central government and district size are negatively correlated.
    Keywords: bailouts, soft-budget constraints, jurisdictional size, public goods, spillovers
    JEL: H4 H7 R1
    Date: 2006–11
  13. By: Makdissi, Paul (GREDI, Université de Sherbrooke); Mussard, Stéphane (CEPS/INSTEAD, GREDI, GEREM)
    Abstract: For any given order of stochastic dominance, standard concentration curves are decomposed into contribution curves corresponding to within-group inequalities, between-group inequalities, and transvariational inequalities. We prove, for all orders, that contribution curve dominance implies systematically welfare-improving tax reforms and conversely. Accordingly, we point out some undesirable fiscal reforms since a welfare expansion may be costly in terms of particular inequalities.
    Keywords: Concentration curves; Contribution curves ; Stochastic dominance ; Tax reforms
    JEL: D63 H20
    Date: 2006–10
  14. By: Jordahl, Henrik (Research Institute of Industrial Economics); Liang, Che-Yuan (Uppsala University)
    Abstract: We use the 1952 Swedish municipal amalgamation reform to study free-riding and the common pool problem in politics. We expect municipalities that were affected by the reform to increase their debt in anticipation of a merger, and this effect to be larger if they were merged with many other populous municipalities (i.e. facing a large common pool). We use ordinary least squares and matching on the complete cross section of rural municipalities for the period 1947-1951, fixed effects when exploiting the panel features, as well as a geographical instrumental variables strategy. We find an average treatment effect close to the amount that the average merged municipality increased its debt with during this period, which corresponds to 2.8 percent of average income or 63 percent of the average increase in income. However, we do not find larger increases in municipalities that were part of a larger common pool.
    Keywords: Common Pool; Municipal Amalgamation; Local Governments
    JEL: D72 H73 H74 H77 R53
    Date: 2006–11–22
    Abstract: This paper develops a framework that allows to treat the typically ”non welfarist” goal of poverty alleviation as a ”welfarist” one. Such result is obtained by adopting a censored social welfare function, in which only variations in incomes below the poverty line affect social welfare. Optimal linear income tax structures derived assuming different social objective functions are then explicitly compared. Under quite general conditions, we show that the poverty-minimising income taxation is more redistributive than the standard welfare-maximising one. Under more restrictive assumptions on the income distribution, however, we find that the opposite result may occur. Specifically, when the poor are close enough to the poverty line, a smaller redistribution may be required to minimise poverty rather than maximise welfare. JEL classification: H21, I30
    Keywords: redistributive taxation, welfarism, poverty
    Date: 2006–05
  16. By: Nauro F. Campos (Brunel University); Roman Horváth (Czech National Bank, Prague, Czech Republic; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: We construct objective measures of privatization, internal and external liberalization reform efforts, across countries over time, and investigate their determinants, reversals and macroeconomic impacts. We find that GDP growth determines external liberalization and privatization, concentration of political power drives internal liberalization, and democracy underpins all three. We find that FDI inflows reduce the probability of privatization reversals, labour strikes increase that of internal liberalization reversals, and terms of trade shocks increase that of external liberalization reversals. We replicate previous studies and find that the macroeconomic effects of reform (when measured objectively) tend to be larger and more precisely estimated.
    Keywords: reform; liberalization; privatization; political economy; transition
    JEL: E23 D72 H26 O17
    Date: 2006–04
  17. By: Adrian Penalver; Gregory Thwaites
    Abstract: The determinants of public debt dynamics – real interest rates, the real exchange rate, output growth and the primary fiscal balance – are typically more volatile in emerging market economies than in industrialised countries. Capital markets also typically demand higher interest rates from emerging markets when their debt dynamics deteriorate. This paper considers how these characteristics affect the choice of fiscal policy rules in emerging markets. We estimate an econometric model of the determinants of public debt dynamics on Brazilian data and use this model to simulate the effect of different fiscal policy rules for future paths of debt. We then derive the set of fiscal policy rules which stabilise public debt dynamics. We find that macroeconomic forecast uncertainty and feedback among the endogenous variables (principally from the debt-GDP ratio to interest rates) force the policy rule to be significantly more responsive to changes in public debt. Rules that would stabilise debt in a fully known world may not do so when the policymaker is faced with a realistic pattern of shocks. The method we employ may be a useful addition to the toolkit of domestic and international policymakers when assessing fiscal rules and debt sustainability.
    Abstract: -
    Date: 2005–02
  19. By: Jens Brøchner (The Danish Ministry of Finance); Jesper Jensen (TECA TRAINING ApS); Patrik Svensson (Quartz Strategy Consultants); Peter Birch Sørensen (Department of Economics, University of Copenhagen, Studiestraede 6, 1455 Copenhagen K, Denmark)
    Abstract: This study evaluates the economic effects of corporate tax coordination in the enlarged European Union using a computable general equilibrium model and a comprehensive set of scenarios for both a common corporate EU tax base and for full harmonisation of tax bases and tax rates. Our main findings are as follows: (i) Corporate tax coordination can yield modest aggregate welfare gains, but the details of the coordination policies determine outcomes and economic gains cannot be taken for granted. (ii) All scenarios for coordination leave some EU Member States as winners and others as losers. An agreement on tax coordination is therefore likely to require elaborate compen¬sation mechanisms. (iii) The large and diverse country effects suggest that Enhanced Cooperation for a subset of the Member States may be the most likely route towards tax coordination. Coordination among a subset of relatively homogenous Member States will lead to less radical policy changes, but also to smaller gains. (iv) Identifying winners and losers from coordination for the purpose of a compensation mechanism may be problematic, since countries experiencing gains in GDP and welfare tend to lose tax revenues, and vice versa.
    Date: 2006–11
  20. By: Makdissi, Paul (GREDI (Université de Sherbrooke)); Mussard, Stéphane (CEPS/INSTEAD, GREDI, GEREM)
    Abstract: In this paper, we propose the conception of within-group CD-curve, to apprehend the impact of indirect tax reforms on truncated distributions of consumption expenditures. This confers decision makers the ability to perform within-group transfers as well as between-group transfers to reduce poverty in particular groups or to obtain an overall poverty alleviation. Between-group transfers are implemented in order to introduce a fairness element into the indirect tax framework, allowing to test for the robustness of reducing-tax reforms, for any order of stochastic dominance.
    Keywords: CD-curve; Redistribution ; Stochastic dominance ; Tax reforms
    JEL: D63 H20
    Date: 2006–10
  21. By: José Ramón Ruiz Tamarit (Universitat de València); Manuel Sánchez Moreno (Universitat de València)
    Abstract: This paper develops a two-sector model for a renewable natural resource based economy. Pareto efficient results show the optimal harvesting rate that allows for sustained long-run optimal growth, which is upper-bounded by the biological rate of reproduction. Regulation prevents from resource over-exploitation and exhaustion which arise under open access. The Ramsey policy allowing the competitive economy to reach the first-best solution, leads the government to tax harvesting activity from firms and distribute the receipts among households. In the short-run the tax is variable. In the long-run, the lower the intrinsic rate of reproduction the higher the constant unit tax on the resource use.
    Keywords: Natural Resources, Efficiency, Open Access, Ramsey Regulation, Growth.
    JEL: C62 D90 O41 Q2 H2
    Date: 2006–11
  22. By: Paul A. de Hek
    Abstract: This paper studies the effects of taxation on long-run growth in a two-sector endogenous growth model with (i) physical capital as an input in the education sector and (ii) leisure as an additional argument in the utility function. Due to the flexibility of labor supply, taxation of income may induce agents to spend more or less time on leisure activities. Income taxation - the same rate applies for capital and labor income - reduces the growth rate. The contribution of endogenous leisure in this case is confined to reducing or increasing the size of the effect on the growth rate. The same is true if only labor income is taxed. However, if only capital income is taxed, the sign of the effect may reverse. In that case, the positive effect of the increase in total non-leisure time dominates the direct negative effect, implying that capital taxation increases the long-run growth rate.
    Date: 2005–06
  23. By: Luiz Renato Lima; Raquel M. B. Sampaio; Wagner Piazza Gaglianone
    Date: 2006–11
  24. By: Geert Leemans
    Abstract: Belgium’s Flemish government recently approved a EUR 1 billion investment in school infrastructure through public-private partnerships, its first major initiative of this kind. The Flemish Community’s variant of public-private partnerships in school building allows the government to meet urgent needs in the short run, but also to spread the costs over a longer period.
    Keywords: public private partnerships, financing, maintenance, management
    Date: 2006–11
  25. By: Albert Solé-Ollé (Facultat de Ciències Econòmiques, Universitat de Barcelona, Avda. Diagonal 690, torre 4, planta 2, 08034 Barcelona, Spain); Pilar Sorribas-Navarro (Facultat de Ciències Econòmiques, Universitat de Barcelona, Avda. Diagonal 690, torre 4, planta 2, 08034 Barcelona, Spain)
    Abstract: In this paper we test the hypothesis that municipalities aligned with upper-tier grantor governments (i.e., controlled by the same party) will receive more grants than those that are unaligned. We use a rich Spanish database, which provides information on grants received by nearly 900 municipalities during the period 1993-2003 from three different upper-tier governments (i.e., Central, Regional and Upper-local). Since three elections were held at each tier during this period, we have enough within-municipality variation in partisan alignment to provide differences-in-differences estimates of the effects of alignment on the amount of grants coming from each source. Moreover, the fact that a municipality may simultaneously receive grants from aligned and unaligned grantors allows us to use a triple-differences estimator, which consists of estimating the effects of changing alignment status on the change in grants coming from the aligned grantors relative to the change in grants coming from the unaligned ones. The results suggest that partisan alignment has a sizeable positive effect on the amount of grants received by municipalities. Length: 33 pages
    Keywords: grant allocation, alignment, electoral competition
    JEL: C72 D72
    Date: 2006–11
  26. By: Antonio Noriega; Matias Fontenla
    Abstract: We develop a model where investment in infrastructure complements private investment. We then provide time series evidence for Mexico on both the impact of public infrastructure on output, and on the optimality with which levels of infrastructure have been set. In particular, we look at the long-run effects of shocks to infrastructure on real output. We compute Long-Run Derivatives for kilowatts of electricity, roads and phone lines, and find that shocks to infrastructure have positive and significant effects on real output for all three measures of infrastructure. For electricity and roads, the effect becomes significant after 7 and 8 years, respectively, whereas for phones, the effect on growth is significant only after 13 years. These effects of infrastructure on output are in agreement with growth models where long-run growth is driven by endogenous factors of production. However, our results indicate that none of these variables seem to be set at growth maximizing levels.
    Date: 2005–06
  27. By: Massimo FLORIO
    Abstract: Europe needs a huge investment effort for (broadly defined) infrastructure in the next decade. A combination of EU grants, loans by the EIB and the EBRD, and their leverage effect on private capital is going to mobilise a huge amount of savings. Planners should establish priorities and criteria. Microeconomic social accounting, i.e. cost-benefit analysis, despite its limitations, is needed as a support to investment planning and evaluation. The key message of modern CBA theory is that shadow prices are not proxies of perfect markets outcome, but are planning signals that solve a (policy–constrained) social planner’s problem. Planners must compute shadow prices, evaluators should use them for project appraisal, and the two functions should not be confused. In principle this distinction applies at each planning level, but a consensus decision-set should emerge from this process, using a bottom-up approach. In a multi-government setting there are, however, information asymmetries that need to be addressed, and we have to turn to incentive theory. The paper proposes to move away from the current low-powered incentive EU co-financing mechanism, essentially an investment cost part-reimbursement scheme, towards a more incentive-based system. Financial and economic analysis, ex ante and ex post, should be linked to an economic performance bonus for more socially deserving projects. Examples are given of such mechanisms. Planners, managers and evaluators should be given appropriate incentives to use CBA as a cooperative learning game
    Keywords: Cost-Benefit Analysis, Incentives, Infrastructure Planning, Evaluation
    JEL: R58 D61 H53
    Date: 2006–11
  28. By: Paul Makdissi (GREDI, Département d'économique, Université de Sherbrooke)
    Abstract: This paper analyzes the definition of economic efficiency. The standard definition used in economic literature is the Pareto Optimum which is based in the space of individual utilities. This paper proposes new definitions based on alternative spaces. The paper also introduces a dominance criterion for efficiency over a set of social evaluation spaces.
    Keywords: Efficiency, Social justice, Dominance.
    JEL: D63 H20
    Date: 2006
  29. By: Hassan Benchekroun; Seiichi Katayama; Ngo Van Long
    Abstract: We show that, in a model with substitutability between capital and resources, the path of sustainable development may be non-smooth, and may exhibit the overshooting property: starting from low levels of capital and resources, the economy may accumulate capital beyond its steady-state level, before converging to it in finite time. <P>Nous démontrons que, dans un modèle avec la substitution entre le capital et les ressources naturelles, le sentier du développement peut être non-monotone. Si l’on commence avec un niveau faible de capital et de ressources naturelles, le sentier optimal peut dépasse le niveau du capital de l’état stationnaire. La convergence s’effectue en temps fini.
    Keywords: sustainable development, renewable resources, développement soutenable, ressources naturelles renouvelables
    JEL: C73 H41 D60
    Date: 2006–11–01
  30. By: Oliveira, Márcia; Côrte-Real, Paulo
    Abstract: The role of Poverty Alleviation Programs (PAP) in …ghting poverty and ensuring the satisfaction of basic economic needs is well known. How- ever, informational asymmetries create the need for adequate instruments to prevent fraud. This paper provides a static model of adverse selection where the gov- ernment (principal) aims to minimize the costs of a PAP that ensures that all individuals have access to an exogenously de…ned minimum in- come level. Agents may di¤er in their income-generating ability and disutility of labor. Under the di¤erent informational environments, we study the ef- fectiveness of workfare (that involves unpaid and unproductive work in the public sector) as a screening device, based on the comparison with standard monitoring. We …nd that when disutility of labor is the only unobservable variable, a workfare policy is ine¢ cient because it crowds outprivate sector work and signi…cantly increases the costs of the program. Under this informa- tional context, monitoring may be the best instrument for preventing fraud. When income-generating ability is the only unobservable variable, choosing between workfare and monitoring depends not only on the cost function associated with the latter, but also on income distribution. The analysis of this case would suggest that a workfare policy might be inef- …cient in the context of undeveloped countries where income distribution exhibits strong inequalities, but appropriate in developed ones. These conclusions suggest that a mixed policy combining workfare and monitor- ing may be optimal when both income-generating ability and disutility of labor are unknown.
    Keywords: Poverty Alleviation Programs; fraud; monitoring; work- fare.
    JEL: H2 I3 D82
    Date: 2006

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