nep-pbe New Economics Papers
on Public Economics
Issue of 2007‒02‒03
eight papers chosen by
Peren Arin
Massey University

  1. The impact of globalization on the composition of government expenditures: Evidence from panel data By Axel Dreher; Jan-Egbert Sturm; Heinrich W. Ursprung
  2. The impact of political leaders’ profession and education on reforms By Axel Dreher; Michael J. Lamla; Sarah M. Rupprecht; Frank Somogyi
  3. Economic Reform and Social Sector Expenditures: A Study of Fifteen Indian States 1980/81-1999/2000 By Tsujita, Yuko
  4. The Impact of Payroll Tax Reductions on Employment and Wages: A Natural Experiment Using Firm Level Data By Maarten Goos; Jozef Konings
  5. Cross-Country Determinants of Life Satisfaction: Exploring Different Determinants across Groups in Society By Christian Bjørnskova; Axel Dreher; Justina A.V. Fischer
  6. Sources of Investment Inefficiency: The Case of Fixed-Asset Investment in China By Duo Qin; Haiyan Song
  7. Does membership on the UN Security Council influence IMF decisions? Evidence from panel data By Axel Dreher; Jan-Egbert Sturm; James Raymond Vreeland
  8. Does Aid for Education Educate Children? Evidence from Panel Data By Axel Dreher; Peter Nunnenkamp; Rainer Thiele

  1. By: Axel Dreher (Department of Management, Technology, and Economics, ETH Zurich); Jan-Egbert Sturm (Department of Management, Technology, and Economics, ETH Zurich); Heinrich W. Ursprung (University of Konstanz, Department of Economics)
    Abstract: According to the disciplining hypothesis, globalization restrains governments by inducing increased budgetary pressure. As a consequence, governments shift their expenditures in favour of transfers and subsidies and away from capital expenditures. This expenditure shift is potentially enhanced by citizens’ preferences to be compensated for the risks of globalization (“compensation hypothesis”). Employing two different datasets and various measures of globalization, we analyze whether globalization has indeed influenced the composition of government expenditures. For a sample of 108 countries, we examine the development of four broad expenditure categories for the period 1970-2001: capital expenditures; expenditures for goods and services; interest payments; and subsidies and other current transfers. A second dataset provides a much more detailed classification: public expenditures, expenditures for defence, order, economic environment, housing, health, recreation, education, and social expenditures. However, this second data set is only available since 1990 – and only for the OECD countries. Our results show that globalization did not influence the composition of government expenditures.
    Keywords: globalization, economic policy, government expenditure composition, tax competition
    JEL: H7 H87 C23
    Date: 2006–06
  2. By: Axel Dreher (Department of Management, Technology, and Economics, ETH Zurich); Michael J. Lamla (Department of Management, Technology, and Economics, ETH Zurich); Sarah M. Rupprecht (Department of Management, Technology, and Economics, ETH Zurich); Frank Somogyi (Department of Management, Technology, and Economics, ETH Zurich)
    Abstract: This paper analyzes whether the educational and professional background of a head of government matters for the implementation of market-liberalizing reforms. Employing panel data over the period 1970-2002, we present empirical evidence based on a novel data set covering profession and education of more than 500 political leaders from 73 countries. Our results show that entrepreneurs, professional scientists, and trained economists are significantly more reform oriented. Contrary, union executives tend to impede reforms. We also highlight interactions between profession and education with time in office and the political leaning of the ruling party.
    Keywords: Reforms, Economic Policy, Economic Freedom, Interest Groups, Lobbying
    JEL: D72 E61 H11
    Date: 2006–09
  3. By: Tsujita, Yuko
    Abstract: This paper examines social sector expenditures in fifteen Indian states between 1980/81 and 1999/2000 to find out whether the far-reaching economic reforms that began in 1991 had any significant impact on the level and trend of these expenditures; and if there was any such impact, what were the reasons behind the ensuing changes. The empirical analysis in this study shows that revenue became a major determinant of social sector expenditures from the mid 1980s with the result that real per capita social sector expenditures in most states started to decline even before the economic reforms began as states' fiscal deficits worsened in the 1980s. Economic reforms, therefore, largely did not have a major negative impact on expenditures. In fact there was a positive impact on some states, which often were those that received more foreign aid than other states. By the late 1990s, states expending more on the social sector changed from states with a traditionally strong commitment to the social sector, such as Kerala, to states having higher revenues including aid from outside the country.
    Keywords: Economic reform, Public expenditures, Social sector, Economic policy, India
    JEL: H51 H52 H72 I19 I22
    Date: 2006–10
  4. By: Maarten Goos; Jozef Konings
    Abstract: Past evidence on the incidence of payroll tax subsidies on employment and wages for disadvantaged workers has been quite mixed. Therefore, this paper makes use of a unique panel of firm level data and a natural experiment to analyze the incidence of wage subsidies on full-time manual workers and pre-tax wages. Using a number of straightforward evaluation estimators we find that employment subsidies increased full-time manual employment and pre-tax wages. Moreover, we find that employment subsidies have increased employment but not wages by more in low-wage exporting industries. This is line with a textbook description of labor markets where it is predicted that the incidence of employment subsidies on employment and wages is larger the more elastic is product and therefore labor demand and where the employment effect is larger and the wage effect is smaller the more elastic is labor supply because of a binding minimum wage.
    Date: 2007
  5. By: Christian Bjørnskova (Aarhus School of Business); Axel Dreher (Department of Management, Technology, and Economics, ETH Zurich); Justina A.V. Fischer (STICERD, London School of Economics)
    Abstract: This paper explores a wide range of cross-country determinants of life satisfaction exploiting a database of 90,000 observations in 70 countries. We distinguish four groups of aggregate variables as potential determinants of satisfaction: political, economic, institutional, and human development and culture. We use ordered probit to investigate the importance of these variables on individual life satisfaction and test the robustness of our results with Extreme Bounds Analysis. The results show that only a small number of factors, such as openness, business climate, postcommunism, the number of chambers in parliament, Christian majority, and infant mortality robustly influence life satisfaction across countries while the importance of many variables suggested in the previous literature is not confirmed. This remains largely true when the analysis splits national populations according to gender, income and political orientation also.
    Keywords: Life Satisfaction, Happiness, Institutions, Extreme Bounds Analysis
    JEL: I31 H10 H40
    Date: 2006–08
  6. By: Duo Qin (Queen Mary, University of London); Haiyan Song (Hong Kong Polytechnic University)
    Abstract: This study attempts to measure the inefficiency associated with aggregate investment in a transitional economy. The inefficiency is decomposed into allocative and production inefficiency based on standard production theory. Allocative inefficiency is measured by disequilibrium investment demand. Institutional factors are then taken into consideration as possible explanatory variables of the disequilibrium. The resulting model is applied to Chinese provincial panel data. The main findings are: Chinese investment demand is strongly receptive to expansionary fiscal policies and inter-provincial network effects; and although there are signs of increasing allocative efficiency, the tendency of over-investment remains, even with improvements in production efficiency.
    Keywords: Over-investment, Efficiency, Disequilibrium, Soft-budget constraint
    JEL: E22 E62 H74 P3 C23
    Date: 2007–01
  7. By: Axel Dreher (Department of Management, Technology, and Economics, ETH Zurich); Jan-Egbert Sturm (Department of Management, Technology, and Economics, ETH Zurich); James Raymond Vreeland (Yale University, Department of Political Science, USA)
    Abstract: We investigate whether temporary members of the UN Security Council receive favorable treatment from the IMF, using panel data for 191 countries over the period 1951 to 2004. Our results indicate a robust positive relationship between temporary UN Security Council membership and participation in IMF programs, even after accounting for economic and political factors, as well as regional and country effects, and duration dependence. There is also evidence that UNSC membership reduces the number of conditions included in IMF programs. The size of the loan, however, is not affected by UNSC membership.
    Keywords: IMF, UN Security Council, Voting, Aid
    JEL: E5
    Date: 2006–09
  8. By: Axel Dreher (Department of Management, Technology, and Economics, ETH Zurich); Peter Nunnenkamp (The Kiel Institute for the World Economy); Rainer Thiele (The Kiel Institute for the World Economy)
    Abstract: This paper empirically analyzes the impact of aid on education for about 100 countries over the period 1970-2005. We estimate a system of equations to test whether and to what extent the impact of sector-specific aid on educational attainment depends on (i) the extent to which aid adds to overall educational expenditure of the recipient government, (ii) the strength of the link between government expenditure and education, (iii) the quality of institutions in the recipient country, and (iv) whether aid encourages institutional reforms. According to our results, aid significantly increases primary school enrolment. This result is robust to the method of estimation, employing instruments to control for the endogeneity of aid, and the measure of institutional quality employed. The degree of institutional quality, however, has no robust impact on this relationship.
    Keywords: Aid effectiveness, Education, Sector-specific aid
    JEL: F35 O11 H52 I22
    Date: 2006–08

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