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on Public Economics |
| By: | Mehmet Tosun (Department of Economics, University of Nevada, Reno) |
| Abstract: | This paper uses a two-region, two-period overlapping generations model with international labor mobility to examine the efficacy of using tax policy to internalize the externalities created by international labor migration. While a brain drain tax has a substantial limiting effect on labor migration and a small negative effect on per worker growth, it is found to be a viable solution to the negative externality problem. It is also found that the brain-drain tax can raise substantial tax revenue for the SMCs which could be used to enhance human capital in the region. |
| Keywords: | International labor mobility, brain-drain tax, population aging, overlapping generations, endogenous tax policy, Euro-Mediterranean region |
| JEL: | E62 F22 H23 H24 H41 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:unr:wpaper:06-007&r=pbe |
| By: | George Hammond; Mehmet S. Tosun (Department of Economics, University of Nevada, Reno) |
| Abstract: | This paper extends the recent empirical literature on the relationship between local decentralization and growth using data from both metropolitan and non-metropolitan regions in the U.S. The analysis utilizes both metropolitan and non-metropolitan regions, and thus avoids the possible selection bias present in previous research. The results for non-metropolitan regions indicate a relatively weak or negative relationship between the local decentralization measures and local economic growth compared to a positive relationship suggested by a recent study on metropolitan regions. Results for the non-metro regions also suggest that there are different impacts across population and income than we observe for metropolitan regions. |
| Keywords: | Decentralization, metropolitan, non-metropolitan, economic growth |
| JEL: | E62 H7 R11 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:unr:wpaper:06-002&r=pbe |
| By: | Zsolt Darvas (Corvinus University of Budapest); Andrew K. Rose (University of California, Berkeley); György Szapáry (Magyar Nemzeti Bank) |
| Abstract: | Using a panel of 21 OECD countries and 40 years of annual data, we find that countries with similar government budget positions tend to have business cycles that fluctuate more closely. That is, fiscal convergence (in the form of persistently similar ratios of government surplus/deficit to GDP) is systematically associated with more synchronized business cycles. We also find evidence that reduced fiscal deficits increase business cycle synchronization. The Maastricht “convergence criteria,” used to determine eligibility for EMU, encouraged fiscal convergence and deficit reduction. They may thus have indirectly moved Europe closer to an optimum currency area, by reducing countries’ abilities to create idiosyncratic fiscal shocks. Our empirical results are economically and statistically significant, and robust. |
| Keywords: | European, monetary, union, policy, Maastricht, criteria, optimum, Mundell |
| JEL: | F42 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:mkg:wpaper:0504&r=pbe |
| By: | Parry, Ian W.H. (Resources for the Future); Laxminarayan, Ramanan (Resources for the Future); West, Sarah E. |
| Abstract: | This paper develops and implements an analytical framework for estimating the optimal levels and welfare effects of alcohol taxes and drunk-driver penalties, accounting for externalities and how policies interact with the broader fiscal system. We find that the fiscal component of the optimal alcohol tax exceeds the externality-correcting component under many parameter scenarios and assumptions about revenue recycling; overall, the optimal tax is anything from three to more than ten times the current tax. For more incremental reforms, however, welfare gains from stiffer drunk-driver fines and non-pecuniary penalties are larger, even though they involve implementation costs, possible first-order deadweight losses, and fiscal considerations play a minor role. In contrast to current practice, fiscal considerations warrant relatively heavier taxation of beer and relatively lighter taxation of spirits. |
| Keywords: | alcohol tax, drunk-driver penalty, fiscal effects, external costs, welfare effects |
| JEL: | I18 H21 H23 |
| Date: | 2006–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-06-51&r=pbe |
| By: | Eduardo Haddad; Alexandre A. Porsse; Eduardo P. Ribeiro |
| Abstract: | Interjurisdictional tax competition is a controversial theme little studied in an empirical approach in spite of the great advance in the theoretical debate at last decades. This paper aims to build a bridge between such theoretical issues and the empirical tools using an interregional general equilibrium model to evaluate the welfare effects of an experimental game of tax competition between two regional governments of the Brazilian federal system. The model recognizes the horizontal and vertical fiscal linkages underlying the Brazilian federalism. The results imply in a welfare-improving Nash equilibrium, in opposition with many theoretical issues. It can be seen that the fiscal externalities of tax competition does matter for such output not only due the mobility of the regional tax base but also because the substitution effect between regional goods and international goods since tax competition reduces the domestic prices. Additionally, the constitutional rules impose a rigid mechanism of fiscal transfers from central government to regional governments and contribute to alleviate the reduction pressures on the regional public goods because the increase in central government’s tax base also increase the regional government revenues. Then, interjurisdicional tax competition in the Brazilian federal system can be associated with gains in private consumption that overcome the reduction in regional public good provisions, reinforcing the welfare-improving equilibrium. |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa06p359&r=pbe |
| By: | Diego Martinez Lopez (Centro de Estudios Andaluces and Department of Economics, Universidad Pablo de Olavide); A. Jesus Sanchez Fuentes (Department of Economics, Universidad Pablo de Olavide) |
| Abstract: | This paper studies the optimal level of public inputs under two different tax settings: with lump-sum taxes and with labor taxes. With this aim, we adapt the approach by Gronberg and Liu (2001) to the case of productivity-enhancing public spending. On this basis, it is not analytically clear whether or not the first-best level of public spending is higher than the second-best level. A numerical simulation has been carried out to shed some light on this issue. After taking account the type of public input (firm or factor-augmenting), we achieve the conclusion that the second-best level is below the first-best level. |
| Keywords: | Second best, excess burden, public input. |
| JEL: | H21 H3 H41 H43 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:pab:wpaper:06.34&r=pbe |
| By: | A. Jesus Sanchez Fuentes (Department of Economics, Universidad Pablo de Olavide); Diego Martinez Lopez (Centro de Estudios Andaluces and Department of Economics, Universidad Pablo de Olavide) |
| Abstract: | This paper describes a new method for solving non-regular constrained optimization problems when standard methodologies do not work properly. Our method (the Rational Iterative Multisection Procedure, RIMP) consists of different stages that can be interpreted as different requirements of precision by obtaining the optimal solution. We have performed an application of RIMP to the case of public inputs provision under two tax settings. We prove that the RIMP and the standard Newton-Raphson (NR) method achieve the same results with regular optimization problems while the RIMP takes advantage over NR when facing non-regular optimization problems. |
| Keywords: | numerical analysis, constrained optimization, multisection, optimal taxation, public input. |
| JEL: | C6 H21 H3 H41 H43 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:pab:wpaper:06.35&r=pbe |
| By: | Klaas Stahl (IIW, University Bonn, Lennéstraße 37, 53113, Bonn, Germany. kstaal@unibonn.de) |
| Abstract: | This paper studies the equilibrium size of countries. Individuals in small countries have greater influence over the nature of political decision making while individuals in large countries have the advantage of more public goods and lower tax rates. The model implies that (i) there exists excessive incentives to separate, though this need not be the case for all sets of secession rules studied; (ii) an exogenous increase in public spending decreases country size; (iii) countries with a presidential-congressional democracy are larger than countries with a parliamentary democracy. |
| Keywords: | country size, public spending, structure of government |
| JEL: | D7 H1 H2 H7 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:187&r=pbe |
| By: | Singh, Nirvikar |
| Abstract: | This paper provides a self-contained overview of the present problems of state finances in India. It begins with an overview of historical evolution and current institutional structures, including economic, political, administrative and fiscal aspects of India’s federal system. The paper then reviews the current situation of India’s state government finances, going on to consider various developments that have shaped the states’ current fiscal situation, including the roles of national economic reform, the intergovernmental transfer system, tax reform, and local government reform. Policy options for reforming institutions of fiscal federalism system, borrowing mechanisms for the states, and governance are then discussed, with an emphasis on the principle that states should have appropriate incentives for fiscal discipline at the margins of revenue and expenditure. |
| Keywords: | fiscal policy; intergovernmental transfers; incentives; institutional reform |
| JEL: | P2 H1 H7 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1281&r=pbe |
| By: | Rao, M. Govinda; Singh, Nirvikar |
| Abstract: | This article examines recent and potential reforms in India’s fiscal federal system. We summarize key federal institutions in India, including tax and expenditure assignments, and mechanisms for Center-state transfers. We discuss the institutional process by which reforms can and do take place, including the role of academics, political influences, and especially institutions such as the Finance Commission. In contrast to the past, recent commissions have played a greater role in articulating an agenda for fiscal federal reform, which then proceeds through political bargaining. This change has taken place in the context of, and been influenced by, broader economic reform in India. |
| Keywords: | intergovernmental transfers; economic reform; federalism; regional inequalities |
| JEL: | H1 P35 H7 P26 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1279&r=pbe |
| By: | Elliott Parker (Department of Economics, University of Nevada, Reno); Judith Thornton (Department of Economics, University of Washington) |
| Abstract: | In this paper we review the fiscal evolution of China and Russia, asking how the process of creating a separate, tax-financed public sector in the two countries differed. We observe that the size of China's budget sector was consistently smaller than in Russia and that budget decentralization was consistently greater. We see both pros and cons in China's decentralization. Local governments that were allowed to keep marginal increases in local tax revenue had incentives to pursue growth-supporting policies, including support for foreign investment and export-oriented production. However, in the absence of financial markets, there were barriers to investment outside the local region, resulting in inefficient use of capital and protectionism. Fiscal deficits and rapid expansion of credit have threatened stability in both countries, but China has proved more successful than Russia in managing macroeconomic policies. Finally, we argue that Russia's status as a petro-state makes management of the public sector particularly difficult. In Russia, recentralization has been associated with expansion of state ownership of enterprises and production by territorial governments, state ministries, state banks, and the natural monopolies. |
| Keywords: | Fiscal decentralization, Russia, China, regional growth |
| JEL: | H6 H7 P35 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:unr:wpaper:06-013&r=pbe |
| By: | Lipatov, Vilen |
| Abstract: | Accounting specialists do not always help to fill in tax reports properly. In fact, in many cases they help to evade taxes. Employing a game of incomplete information played by tax authority, corporate taxpayers and accounting specialist, we find out that fines on firms as opposed to specialist are most effective in deterring such evasion. We also show that when the sophisticated evasion is very common, the best way to fight it is stricter enforcement. When the evasion is modest, auditing and accounting costs are more effective in curbing it. |
| Keywords: | tax evasion; tax avoidance; sophisticated evasion |
| JEL: | H32 H26 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1250&r=pbe |
| By: | Sanchez-Romero, Miguel (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.) |
| Abstract: | This paper focuses on comparing public and private individual wealth over the life-cycle, when individuals face an uncertain length of life. We also analyze how a fully funded and actuarially fair Social Security affects the desire to annuitize private wealth. Within this framework, we find that a social security system can contribute to reaching a higher national wealth, even when the economy is composed of selfish individuals. Thus, by means of some simulations we obtain the result that a payroll tax of 6 percent increases individual wealth up to 17 percent. This increment, however, is obtained under the assumption that insurance companies offer fair annuities. On the contrary, under an unfair private annuity market, individual wealth can decrease around 10 percent for the same payroll tax. |
| Keywords: | Actuarially Fair Funded Social Security; Crowding Out Effect; Public and Private Wealth Pro-files |
| JEL: | D01 D31 D81 D91 G11 H31 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpaper:200607&r=pbe |
| By: | Canale, Rosaria Rita |
| Abstract: | The aim of this paper is to point out the shortcomings of propositions that deny economic policy any active role and propose a simple model by which public expenditure is still recognised as performing an active and positive function. The core of our thesis is that public deficit, because it actually has positive effects on the rate of growth, does not automatically increase public debt but rather reduces it. These positive effects are greater if the Central Bank’s monetary policy rule does not change. The policy authority has no reason to change its behaviour since there is no strict relation between fiscal expansions and inflation. The smaller the economic weight of the country considered in terms of the whole Monetary Union, the weaker is the link. These conclusions suggest we should rethink the limits imposed by the Stability and Growth Pact to the action of governments and subordinate the possibility of spending to the inflationary effects of deficit on the whole Union. |
| Keywords: | fiscal policy; monetary union |
| JEL: | E52 E62 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1432&r=pbe |
| By: | Graeme Roy |
| Abstract: | By spending more than they are able to raise, sub-central governments typically depend heavily upon central transfers to meet their expenditure responsibilities. While grants remain the most popular method of transfer, the possible use of tax sharing arrangements as an alternative method of finance has received increased attention in recent years. In nearly all tax sharing systems that we are aware of, central governments play a dominant role in determining the amount of revenue each sub-central unit receives from the shared source. It has therefore, become common in the academic literature to interpret grants and tax sharing as equivalent tools of central fiscal control over sub-central tiers. However, we caution against this. In our paper, we demonstrate that only in a particular special case is it correct to conclude that the level of central control of sub-central finances is the same under a system of grants as it is under tax sharing. |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa06p74&r=pbe |
| By: | Beaudry, Paul (University of British Columbia, and NBER.); Blackorby, Charles (University of Warwick and GREQAM); Szalay, Dezso (University of Warwick) |
| Abstract: | This paper explores how to optimally set tax and transfers when taxation authorities : (1) are uninformed about individuals’ value of time in both market and non-market activities and (2) can observe both market-income and time allocated to market employment. We show that optimal redistribution in this environment involves distorting market employment upwards for low wage individuals through decreasing wage-contingent employment subsidies, and distorting employment downwards for high wage individuals through positive and increasing marginal income tax rates. In particular, we show that whether a person is taxed or subsidized depends primarily on his wage, that is, the optimal program involves a cut-off wage whereby workers above the cutoff are taxed as they increase their income, while workers earning a wage below the cutoff receive an income supplement (an earned income tax credit) as they increase their income. Finally, we show that the optimal program transfers zero income to individuals who choose not to work. |
| Keywords: | Taxation ; Redistribution ; Wage Subsidies Screening |
| JEL: | D82 H21 H23 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:779&r=pbe |
| By: | Lipatov, Vilen |
| Abstract: | We consider corporate tax evasion as a decision affecting business partners. There are costs of uncoordinated tax reports, both in terms of catching inspectors' attention and running accounts. If these costs are small, there exist a unique Nash equilibrium of the game between the tax authority and a population of heterogenous firms. In this equilibrium, the miscoordination costs enhance non-compliance if and only if more than 50% of the firms are cheating. This provides one rationale for developing countries to be cautious with employing refined auditing schemes and for developed countries to promote complicated accounting procedures. |
| Keywords: | tax evasion; coordination; business partners |
| JEL: | H32 H26 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1251&r=pbe |
| By: | Aristovnik, Aleksander; Berčič, Boštjan |
| Abstract: | In the article, we review recent literature on fiscal sustainability with particular reference to problems that are specific to transition countries. While the original literature on fiscal sustainability is chiefly focused on industrial countries there are by now few works that have focused on fiscal sustainability in transition countries. Consequently, the article’s purpose is to assess the short-, medium- and long-term sustainability of fiscal policy (under set assumptions) on the national level in the great majority of transition countries which we divide into three main groups, i.e. Central and Eastern Europe (CEE), Southern and Eastern Europe (SEE) and the Commonwealth of Independent States (CIS). Based on simple mainstream theory measures of fiscal sustainability, the results indicate that fiscal sustainability seems to be a problem in many transition countries, particularly in CEE (e.g. Czech Republic, Hungary, and Poland) and the SEE region (e.g. Albania and Croatia). |
| Keywords: | transition; public sector; fiscal policy; sustainability; forecasting |
| JEL: | E17 H62 H00 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:122&r=pbe |
| By: | Parry, Ian W.H. (Resources for the Future) |
| Abstract: | Energy models suggest that the cost of reducing carbon emissions from the transportation sector is high relative to other sectors, such as electricity generation. However, this paper shows that taxes to reduce passenger vehicle emissions produce large net benefits, rather than costs, when account is taken of (a) their impact on reducing non-carbon externalities from passenger vehicle use, and (b) interactions with the broader fiscal system. Both of these considerations also strengthen the case for using a tax-based approach to reduce emissions over fuel economy regulation, while fiscal considerations strengthen the case for taxes over (non-auctioned) emissions permits. |
| Keywords: | carbon policies, passenger vehicles, externalities, welfare costs |
| JEL: | Q54 R48 H23 |
| Date: | 2006–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-06-14-rev&r=pbe |
| By: | Suman Ghosh (Department of Economics, College of Business, Florida Atlantic University); Alexander Karaivanov (Department of Economics, Simon Fraser University); Mandar Oak (Department of Economics, Williams College) |
| Abstract: | We extend the model of voluntary contributions to multiple public goods by allowing for bundling of the public goods. Specifically, we study the case where agents contribute into a common pool which is then allocated towards the financing of two pure public goods. We explore the welfare implications of allowing for such bundling vis-a-vis a separate contributions scheme. We show that when agents have homogeneous preferences, they cannot be made better off with a bundling scheme. On the contrary, in the generic case when agents are heterogenous in their incomes and preferences, bundling may increase joint welfare compared to a separate contribution scheme, in particular for higher income inequality among the agents. It is interesting to note that the welfare improvement occurs despite a decrease in total contributions. Our findings have implications for the design of charitable institutions and international aid agencies. |
| Keywords: | Private provision, Public goods, Bundling |
| JEL: | H41 D61 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:fal:wpaper:05005&r=pbe |
| By: | Singh, Nirvikar; Srinivasan, T.N. |
| Abstract: | This paper examines India’s federal system in the context of prospects for India’s future economic growth and development. After a brief review of India’s recent policy reforms and economic development outcomes, and of the country’s federal institutions, the analysis focuses on the major issues with respect to India’s federal system in terms of their developmental consequences. We examine the impacts of tax assignments, expenditure authority and the intergovernmental transfer system on the following aspects of India’s economy and economic performance: the quality of governance and government expenditure, the efficiency of the tax system, the fiscal health of different tiers of government, and the impacts on growth and on regional inequality. In each case, we discuss recent and possible policy reforms. We make comparisons with China’s federal system where this is instructive for analyzing the Indian case. Finally, we provide a discussion of potential reforms of aspects of India’s federal institutions. |
| JEL: | H1 H77 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1273&r=pbe |
| By: | Rachel Croson (University of Pennsylvania); Enrique Fatas (Universitat de València); Tibor Neugebauer (University Hannover) |
| Abstract: | Experimental and empirical evidence identifies the existence of socialpreferences and proposes competing models of such preferences. In this paper, wefurther examine one such social preference: conditional cooperation. We run threeexperimental public goods games, the traditional voluntary contribution mechanism(VCM, also called the linear public goods game), the weak-link mechanism (WLM) andthe best-shot mechanism (BSM). We then analyze the existence and types ofconditional cooperation observed. We find that participants are responsive to the pastcontributions of others in all three games, but are most responsive to differentcontributions in each game: the median in the VCM, the minimum in the WLM and themaximum in the BSM. We conclude by discussing implications of these differences forbehavior in these three mechanisms. This paper thus refines our notions of conditionalcooperation to allow for different types of public good production functions and byextension, other contexts. |
| Keywords: | experimental economics, conditional cooperation, public goods |
| JEL: | C72 C92 D44 H41 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2006-24&r=pbe |
| By: | Pashev, Konstantin |
| Abstract: | Measures of corruption are based on the concept of bribes as extra business costs. Drawing evidence from corruption surveys of business and tax service in Bulgaria, this paper looks at the bribe as a price paid by the taxpayer in exchange for income-maximizing services supplied by corrupt tax officials. It distinguishes between corruption for tax evasion and corruption related to excessive voluntary compliance costs. The latter is closer to the concept of bribes as costs imposed on business, but is limited in scale relative to the former. It is in this framework that the study analyses the drivers of the demand and supply of corruption “services” and proposes an indicator framework for “sizing up” the problem, evaluating the strength of the underlying factors and formulating anti-corruption policies whose effect can be monitored and evaluated using that framework. |
| Keywords: | tax corruption |
| JEL: | H26 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:974&r=pbe |
| By: | Ramiro Gil-Serrate; Julio Lopez-Laborda |
| Abstract: | This paper is an empirical sequel to our previous theoretical analysis of the relationship between tax decentralisation and economic growth. Taking such theoretical work as a point of departure, we ask whether the process of fiscal decentralisation experienced by the Spanish economy since the early eighties supports our main findings. Following recent analytical considerations for fiscal decentralisation measurement, several revenue decentralisation indicators for the Spanish case are proposed. According with the results, we might conclude that revenue control decentralisation to lower levels of government in Spain has generated a positive effect on economic growth. JEL classification: C32; H77;O47 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa06p214&r=pbe |
| By: | Niku Määttänen; Panu Poutvaara |
| Abstract: | We study the welfare effects of earnings testing flat-rate old-age benefits in a quantitative overlapping generations model with idiosyncratic labor income risk. In our model economy, even a moderate earnings testing reduces individuals´ expected lifetime utility. Moreover, it also lowers the realized lifetime utilities of those at the bottom of the lifetime utility distribution. |
| Keywords: | social security, retirement, means-testing, computational models |
| JEL: | H55 J26 C68 |
| Date: | 2006–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:1062&r=pbe |
| By: | Julia Darby; Anton Muscatelli; Graeme Roy |
| Abstract: | In this paper we examine how sub-central governments respond to significant changes in their grant allocations. We focus on the reactions of State, Regional and Local governments in fifteen countries over a period of 20 to 30 years to significant exogenous increases and decreases in their grant allocations. We observe that when grants are cut, sub-central governments respond by cutting spending on their wage bill and, disproportionately, on capital expenditure. Therefore, while centrally imposed cuts do result in expenditure restraint at the sub-central level, the composition of the adjustment appears to suffer from short-termism. In addition, our results suggest that sub-central politicians seek to further defend current spending programs by significantly increasing local/regional taxation. In contrast, during periods of significant expansions in grants, these revenues remain constant with the full extent of the grants increase passed on to current expenditures. Taken together these two results imply a kind of asymmetric 'fly-paper’ effect. Finally, we trace the different responses of governments according to their degree of expenditure decentralisation and tax and borrowing autonomy. |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa06p508&r=pbe |
| By: | Lipatov, Vilen |
| Abstract: | In this paper we analyze a tax evasion game with taxpayer learning by imitation. If the authority commits to a fixed auditing probability, a positive share of cheating is obtained in equilibrium. This stands in contrast to the existing literature that yields full compliance of audited taxpayer who are rational, have a lot of information and thus do not need to interact. When the authority adjusts auditing probability every period, cycling in cheating-auditing occurs. Thus, the real life phenomenon of compliance fluctuations is explained within the model rather than by exogenous parameter shifts. |
| Keywords: | tax evasion; imitation; learning |
| JEL: | C73 H26 |
| Date: | 2003–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:966&r=pbe |
| By: | Suman Ghosh (Department of Economics, College of Business, Florida Atlantic University); Alexander Karaivanov (Department of Economics, Simon Fraser University) |
| Abstract: | We show that a seemingly paradoxical result is possible—an increase in one's wage can reduce one's welfare. Such outcome can occur in an economy populated by agents who value a private good bought using labor income and a public good produced by voluntary time contributions. A raise in the wage (in general, opportunity cost of time) makes each agent substitute away from contributing to the public good, failing to internalize the negative externality imposed on others. The result is a decrease in public good provision. Under quite general conditions, the implied cumulative negative effect on agents' welfare can more than offset the positive effect of the wage raise from increased private good consumption and lead to an equilibrium in which all agents are worse off. Our result is particularly relevant for developing economy settings as it holds for relatively low initial wage levels. We discuss the applicability of our findings to a number of important problems in development, such as market integration, cooperation in common pool resource conservation and social capital. |
| Keywords: | Private provision of public good, Economic development, Externalities |
| JEL: | O12 D62 H41 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:fal:wpaper:05004&r=pbe |
| By: | Simon Gaechter (University of Nottingham); Benedikt Herrmann (University of Nottingham) |
| Abstract: | We report evidence from public goods experiments with and without punishment which we conducted in Russia with 566 urban and rural participants of young and mature age cohorts. Russia is interesting for studying voluntary cooperation because of its long history of collectivism, and a huge urban-rural gap. In contrast to previous experiments we find no cooperation-enhancing effect of punishment. An important reason is that there is substantial spiteful punishment of high contributors in all four subject pools. Thus, spite undermines the scope for self-governance in the sense of high levels of voluntary cooperation that are sustained by sanctioning free riders only. |
| Keywords: | social norms, free riding, punishment, spite, experiments |
| JEL: | H41 C91 D23 C72 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:cdx:dpaper:2006-13&r=pbe |
| By: | Niku Määttänen; Mika Maliranta |
| Abstract: | TAX INCENTIVES FOR R&D AND FIRM DYNAMICS We compare different tax incentive schemes for private R&D investments using a numerical model of R&D-investments and firm dynamics. We find that tax incentives that are based on the incremental annual spending increase firms´ R&D spending much more than tax incentives that are based on the level of R&D spending. However, incremental incentives also distort the allocation of R&D personnel across different firms much more than level-based tax incentives. This effect tends to lower aggregate output. We also find that whether the tax benefits are targeted to only profit-making firms, which pay corporate income tax, or given to all firms, does not make a big difference in terms of aggregate R&D spending or aggregate output. |
| Keywords: | research and development, tax incentives, firm dynamics |
| JEL: | H25 O38 L11 |
| Date: | 2007–01–05 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:1065&r=pbe |
| By: | W. Robert Reed (University of Canterbury) |
| Abstract: | I estimate the relationship between taxes and economic growth using data from 1970-1999 and the forty-eight continental U.S. states. I find that taxes used to fund general expenditures are associated with significant, negative effects on economic growth. Further, this finding is robust across (i) alternative variable specifications, (ii) alternative estimation procedures, (iii) alternative ways of dividing the data into ¡°five-year¡± periods, and (iv) allowing for individual-specific time and state effects. I also provide an explanation for why previous research has had difficulty identifying this ¡°robust¡± relationship. |
| Keywords: | U.S. states; Economic development; Economic growth; Fiscal policy; Taxes; Tax burden; Panel data |
| JEL: | H71 O18 R11 |
| Date: | 2006–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:06/13&r=pbe |
| By: | Elliott Parker (Department of Economics, University of Nevada, Reno) |
| Abstract: | In this brief paper, I consider whether five common political beliefs have any basis in fact. Does the economy grow faster when Republicans are in charge? Does the size of the government actually keep expanding? If so, is this growth correlated with Democrats being in charge? Does bigger government lead to slower growth? Finally, is it accurate to characterize Democrats as the “tax and spend” party? While correlation is not causation and theoretical relationships are complex, the data on U.S. economic performance during the postwar period does not appear to support any of these beliefs, and in fact tends more to support the alternative hypotheses. |
| Keywords: | deficits, government spending, economic growth, political parties |
| JEL: | H00 H50 H60 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:unr:wpaper:06-008&r=pbe |
| By: | Silvia Rocha-Akis (Department of Economics, Vienna University of Economics & B.A.) |
| Abstract: | In a model with a unionised immobile labour force we analyse how labour taxes and transfers towards unemployed workers are optimally chosen when a welfare maximising government faces oligopolistic and partly mobile firms. We consider two polar types of government: one whose objective consists of maximising the sum of domestic producer's and consumers' surplus and one that aims at maximising employed and unemployed workers' payoffs. We show that depending on the combination of foreign labour costs, the degree of domestic union bargaining power, and the sunk costs of relocation, the former type of government may choose to set taxes so as to induce an outward relocation of production. |
| JEL: | H30 J30 J50 L13 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp099&r=pbe |
| By: | Miguel Amaral (ATOM – U. of Paris I Sorbonne); Stéphane Saussier (ADIS – U. of Paris 11 & ATOM – U. of Paris I Sorbonne); Anne Yvrande-Billon (ATOM – U. of Paris I Sorbonne) |
| Abstract: | In this paper we investigate the relationship between auctions’ results and the number of bidders for local transportation contracts in London. Using an original database concerning 294 local transportation routes we find that a higher number of bidders is associated with a lower cost of service. This finding, in addition of being one of the first empirical test of a crucial and understudied theoretical issue has important policy implications, especially for countries in which bids are organized such that only few bidders are allowed to answer (e.g. France). |
| Keywords: | public services, transportation, franchise bidding, public-private partnerships, winner’s curse, auctions |
| JEL: | H0 H7 K00 L33 |
| Date: | 2006–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:cni:wpaper:2006-14&r=pbe |
| By: | Presbitero, Andrea F.; Arnone, Marco |
| Abstract: | In this paper we stress the limits of the current debt sustainability framework used in the IMF-WB HIPC Initiative and the necessity to include domestic public debt into the analysis. The standard sustainability analysis does not take into account the fully-fledged budget constraint and the feedback effects of the fiscal and monetary adjustment required by multilateral programs. The switch from foreign to domestic borrowing, and rising domestic real interest rates are likely to undermine the overall sustainability and the success of debt relief programs. This work focuses on the evaluation of public debt sustainability in a simple accounting framework. We use data on external public debt (multilateral and bilateral) and on domestic public debt to underline how the inclusion of domestic debt into the analysis undermines the sustainability target. |
| Keywords: | HIPC; Domestic debt; Debt sustainability; Debt Relief |
| JEL: | O19 H63 F34 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1396&r=pbe |
| By: | Tim Krieger (Department of Economics, University of Paderborn) |
| Abstract: | In a median-voter framework with pensions and immigration we show that too few unskilled immigrants are allowed into the country because the unskilled native median voter is concerned with negative effects on his wage. He does not consider the positive effects to other groups in society. When return migration is allowed for, the median voter is more willing to accept immigration because he can shift some of the burden to future generations. |
| Keywords: | migration, return migration, unfunded pension system, voting |
| JEL: | H55 J61 D72 |
| Date: | 2006–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:pdn:wp2006:0602&r=pbe |
| By: | Higgins, Matthew; Young, Andrew; Levy, Daniel |
| Abstract: | We use new US county level data (3,058 observations) from 1970 to 1998 to explore the relationship between economic growth and the size of government at three levels: federal, state and local. Using 3SLS-IV estimation we find that the size of federal, state and local government all either negatively correlate with or are uncorrelated with economic growth. We find no evidence that government is more efficient at more or less decentralized levels. Furthermore, while we cannot separate out the productive and redistributive services of government, we document that the county-level income distribution became slightly wider from 1970 to 1998. Our findings suggest that a release of government-employed labor inputs to the private sector would be growth-enhancing. |
| Keywords: | Economic Growth; Federal Government; State Government; Local Government; and County-Level Data |
| JEL: | H50 O47 H70 R11 |
| Date: | 2006–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1014&r=pbe |
| By: | Grischa Perino (University of Heidelberg, Department of Economics) |
| Abstract: | The performance of market based environmental regulation is affected by patents and vice versa. This interaction is studied for a new type of innovation where new technologies reduce emissions of a specific pollutant but at the same time cause a new type of damage. A robust finding is that the efficiency of permits is affected by monopoly pricing of the patent-holding firm. This result carries over to other types of innovation. Taxes are inefficient if technologies produce perfect substitutes and share all scarce inputs. Moreover, the optimal tax on pollution might be negative. |
| Keywords: | Innovation; Environment; Instrument Choice; Patents; Monopoly Pricing |
| JEL: | Q55 L5 H23 O3 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0426&r=pbe |
| By: | Andreas Kopp (OECD/ECMT Transport Research Centre) |
| Keywords: | political economy, transport, infrastructure |
| JEL: | D23 H54 L91 |
| Date: | 2006–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:cni:wpaper:2006-10&r=pbe |
| By: | Govori, Fadil |
| Abstract: | Issuers of securities usually are the Treasury, government and government-sponsored agencies, municipalities, corporations, and mortgage issuers. The security issuers in foreign countries are quite similar. The existence of particular types of issuers depends upon the size and sophistication of financial markets. |
| Keywords: | Securities; Financial Instruments; Debt instruments; Bonds; Bills; Notes |
| JEL: | H63 G11 H74 G21 G28 G12 |
| Date: | 2006–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1012&r=pbe |
| By: | Canegrati, Emanuele |
| Abstract: | I analyse a yardstick competition game using a spatial voting model, where voters vote for a candidate according to the distance between their Ideal Point and the policy selected by a candidate. The policy which is closest to a voter’s IP provides the voter with a higher utility so that minimizing the distance means maximising the utility. I demonstrate that in the presence of asymmetrical information the existence of yardstick competition entails a selection device but not a discipline device, suggesting the existence of a trade off between these two goals. In the second part, I analyse an economic environment characterised by the presence of shocks, whose sign and magnitude are private information of incumbents. This time, the introduction of yardstick competition acts both as a selection and a discipline device. |
| JEL: | H73 D72 I38 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1017&r=pbe |
| By: | Laure Athias (ATOM, Université de Paris Sorbonne); Antonio Nuñez (Laboratoire d’Economie des Transports, Université de Lyon) |
| Abstract: | In this paper, we empirically assess the effects of the winner’s curse in auctions for road concession contracts. Such auctions are private- and common-value auctions, and they are on concession contracts which are incomplete contracts prone to pervasive renegotiations (Guasch 2004, Engel 2005, Athias-Saussier 2006). We address three questions in turn. First, we investigate the overall effects of the winner’s curse on bidding behaviour in such auctions. Second, we examine the effects of the winner’s curse on contract auctions with differing levels of common-value components. Third, we investigate how the winner’s curse affects bidding behaviour in such auctions when we account for the possibility for bidders to renegotiate. Using a unique dataset of 37 road concessions worldwide, we show that the winner’s curse effect is particularly strong in toll road concession contract auctions, implying the prevalence of common value components over private value components in such auctions. Thus, we show that bidders bid less aggressively in toll road concession auctions when they expect more competition. Besides, we observe that this winner’s curse effect is even larger for projects where the common uncertainty is greater. Perhaps more interestingly, we show that the winner’s curse effect is weaker when the likelihood of renegotiation is higher, i.e. bidders will bid more strategically in weaker institutional frameworks, in which renegotiations are easier. |
| Keywords: | Theory of contract auctions, common value, winner’s curse, concession, opportunistic behaviour, incomplete contract |
| JEL: | D44 D82 H11 H54 H57 L9 L51 |
| URL: | http://d.repec.org/n?u=RePEc:cni:wpaper:2006-16&r=pbe |
| By: | Sanchez-Romero, Miguel (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.) |
| Abstract: | This paper extends the annuity demand theory, giving new reasons for the small annuities demand. Regarding this problem, Yaari (1965) claims, under the condition that no one can die in debt, that a selfish consumer will fully annuitized her savings, insofar as annuity asset yield dominate conventional assets yield. However, we demonstrated mathematically that, in a standard life-cycle model, when borrowings are unconstrained and financial markets are complete, a selfish consumer may prefer not to annuitize her savings. In addition, we analyze the desire to purchase annuities according to the risk aversion coefficient and wealth composition. |
| Keywords: | Annuities Demand; Complete Markets; Myopic-selfish Behavior; Life-cycle Model |
| JEL: | D11 D80 D91 G22 H55 J14 J17 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpaper:200502&r=pbe |
| By: | Valente, Simone |
| Abstract: | This paper analyzes overlapping-generations models where natural capital is owned by selfish agents. Transfers in favor of young agents reduce the rate of depletion and increase output growth. It is shown that intergenerational transfers may be preferred to laissez-faire by an indefinite sequence of generations: if the resource share in production is sufficiently high, the welfare gain induced by preservation compensates for the loss due to taxation. This conclusion is reinforced when other assets are available, e.g. man-made capital, claims on monopoly rents, and R&D investment. Transfers raise the welfare of all generations, except that of the first resource owner: if resource endowments are taxed at time zero, all successive generations support resource-saving policies for purely selfish reasons. |
| Keywords: | Distortionary Taxation; Intergenerational Transfers; Overlapping Generations; Renewable Resources; Sustainability; Technological Change |
| JEL: | Q01 H30 Q20 |
| Date: | 2006–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1042&r=pbe |
| By: | Bernhard Wieland (Faculty of Transportation Sciences “Friedrich List”, Dresden Technical University) |
| Keywords: | transport, political economy, regulation |
| JEL: | H54 L51 L91 |
| URL: | http://d.repec.org/n?u=RePEc:cni:wpaper:2006-13&r=pbe |
| By: | Giang, Thanh Long |
| Abstract: | In the next fifty years, according to the United Nations Population Prospect (2004), an aging population is expected in Vietnam. The operation of a pay-as-you-go defined benefit pension scheme will inevitably elevate pension liabilities. These liabilities, in turn, threaten the financial sustainability of the scheme, and affect generational relations. This paper estimates the size of pension liabilities of the current pension scheme in Vietnam, and analyzes generational relations under various economic scenarios. Pension liabilities are considered by a closed-group approach. The estimated results show that pension liabilities account for a small part of 2002 GDP, and this is partially explained by two primary factors: (i) the method of estimation currently employed by the scheme, and (ii) the fact that currently the scheme covers only a small portion of the total population and labour force. It is, however, obvious that the government will have to pay existing pension liabilities, which will affect generational relations in the longer term, particularly from an economic point of view. Whether the impacts on generational relations will be serious or not depends upon payment settings and reforms of the scheme. |
| Keywords: | aging; inter (intra)generational relations; pension liabilities/debts; Vietnam |
| JEL: | H55 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:970&r=pbe |
| By: | Candau, Fabien |
| Abstract: | The contribution of this paper is twofold. Firstly, we explore the e¤ects of trade liberalization and commuting costs on the location of entrepre- neurs. The model reveals a dispersion-agglomeration-dispersion con…g- uration when trade gets freer. Furthermore we prove that when both commuting costs and trade integration are high, then dispersion Pareto dominates agglomeration. Secondly, we use this framework to investigate the e¤ect of trade on corruption at di¤erent levels of democracy and in- stability. We show that corruption is bell-shaped with respect to trade liberalization in stable and democratic regimes but also in unstable dic- tatorships. |
| Keywords: | Economic geography; Cities; Trade; Corruption. |
| JEL: | R12 H25 |
| Date: | 2006–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1156&r=pbe |
| By: | M. Dolores Collado (Universidad de Alicante); Martín Browning (University of Copenhagen) |
| Abstract: | We examine demand behaviour for intertemporal dependencies, using Spanishpanel data. We present evidence that there is both state dependence and correlatedheterogeneity in demand behaviour. Our specific findings are that food outside thehome, alcohol and tobacco are habit forming whereas clothing and small durablesexhibit durability. We conclude that demand analyses using cross-section data thatignore these effects may be seriously biased. On the other hand, the degree ofintertemporal dependence is not sufficiently strong to make composite `consumption'significantly habit forming, as has been suggested in some recent analyses. |
| Keywords: | Habits, State dependence, correlated heterogeneity. |
| JEL: | C72 C92 D44 H41 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2006-25&r=pbe |
| By: | Pashev, Konstantin |
| Abstract: | This paper draws on the experience of Bulgaria in identifying the types and modus operandi of VAT frauds with a focus on the abuse of tax credit. It analyses the elements of tax design permissive of such abuses and discusses the possible solutions in the light of the international and domestic experience and the capacity of the tax dministration. It offers a critical analysis of the Bulgarian anti-fraud device the VAT account, as well as the various alternative policy and administrative measures proposed or applied as barriers to abuse of VAT credit, including those pertaining to the domain of commercial registration, or those related to indicative “market” prices of commercial transactions. The study concludes that the possible solutions should be sought along the lines of optimizing risk management and the principle of joint liability rather than through tighter controls at entry and on the conduct of business. |
| Keywords: | VAT fraud VAT account |
| JEL: | H30 |
| Date: | 2006–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:998&r=pbe |
| By: | Dmitri V. Vinogradov (Universität Heidelberg, Alfred-Weber-Institut für Wirtschaftswissenschaften; Universität Heidelberg, Alfred-Weber-Institut für Wirtschaftswissenschaften) |
| Abstract: | Banking regulators often practice forbearance and ambiguity in insolvency resolutions. The paper examines the effects of regulatory forbearance and ambiguity in a context of allocational efficiency. Bailouts, liquidations and their stochastic policy mix lead to suboptimal allocations if banks do not internalize insolvency costs. The policy of forbearance may make banks internalizing such costs and improves the efficiency of intermediation. |
| Keywords: | Banks, insolvency resolution, forbearance, constructive ambiguity |
| JEL: | D50 E44 G21 G28 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0431&r=pbe |
| By: | Roger Vickerman (Centre for European, Regional and Transport Economics, University of Kent, UK) |
| Abstract: | The traditional approach to transport investment appraisal assumed that such investments were taking place in a world where transport users were operating under perfect competition. There has been considerable work in recent years improving the methods for the economic and financial appraisal of transport investments where this assumption does not hold and thus there are wider economic benefits. This paper examines the situation where the market for transport provision operates under a regulatory regime. The impact of regulation has tended to focus on the price and output decision rather than the investment decision. In this paper we look in more detail at the implications for appraisal. This develops further the issues which arise in the appraisal of investments by public-private partnerships where essentially different objectives may be used by the private and public sectors, for example differential consideration of the wider economic benefits arising from the investment. The paper discusses the theoretical issues involved in different forms of regulatory regime and examines the experience with investments in regulated transport markets in the UK and in the case of appraising Trans-European Networks to provide some empirical evidence and the implications for the development of appraisal. |
| Keywords: | Transport investment appraisal, regulation, wider economic benefits, public-private partnerships |
| JEL: | D61 H44 L51 R42 |
| URL: | http://d.repec.org/n?u=RePEc:cni:wpaper:2006-12&r=pbe |