nep-pbe New Economics Papers
on Public Economics
Issue of 2007‒02‒24
38 papers chosen by
Peren Arin
Massey University

  1. Debt and the Effects of Fiscal Policy By Favero, Carlo A; Giavazzi, Francesco
  2. The Significance and Composition of Deferred Tax Assets and Liabilities By James Poterba; Nirupama Rao; Jeri Seidman
  3. Evaluating the Effects of the Employment Tax Credit of 1977 By Orley Ashenfelter
  4. The Unified Enterprise Tax and SOEs in China By John Whalley; Li Wang
  5. The Effects of Public Capital on Regional Convergence in Turkey By Özlem Önder; Metin Karadag; Ertugrul Deliktas
  6. National accounts, fiscal rules and fiscal policy. Mind the hidden gaps By Maurizio Bovi
  7. Wage Formation and Redistribution By Engström, Per
  8. On the Relationship between Fiscal Plans in the European Union: An Empirical Analysis Based on Real-Time Data By Beetsma, Roel; Giuliodori, Massimo
  9. Public Goods, Taxes, and Takings By Thomas Miceli
  10. An Estimate of the Tax Rate in a Public Assistance System. By John Rowlatt
  11. Tax avoidance - a natural experiment By Ohlsson, Henry
  12. Taxation and Democracy in the EU By Ganghof, Steffen,; Philipp Genschel
  13. The Vanishing Bequest Tax: The Comparative Evolution of Bequest Taxation in Historical Perspective By Bertocchi, Graziella
  14. The Political Economy of Public Investment By Beetsma, Roel; van der Ploeg, Frederick
  15. The Reform of Equalization Payments By Dan Usher
  16. The Production and Consumption Accounting Principles as a Guideline for Designing Environmental Tax Policy By Mònica Serrano
  17. Fiscal Policy Switching: Evidence from Japan, the U.S., and the U.K. By Arata Ito; Tsutomu Watanabe; Tomoyoshi Yabu
  18. The Farm, the City and the Emergence of Social Security By Caucutt, Elizabeth; Cooley, Thomas F; Guner, Nezih
  19. Earmarking: Bundling to Signal Quality By Amihai Glazer; Stef Proost
  20. Simplicity of the Tax Systems: The Chilean Case. (in Spanish) By Barra, Patricio
  21. E-ZTax: Tax Salience and Tax Rates By Amy Finkelstein
  22. Pension systems, Intergenerational Risk Sharing and Inflation By Beetsma, Roel; Bovenberg, A Lans
  23. The Brazilian ’Tax War’: The Case of Value-Added Tax Competition Among the states By Luiz de Mello
  24. Public Action for Public Goods By Abhijit Banerjee; Lakshmi Iyer; Rohini Somanathan
  25. The changing face of public funding of higher education, with special reference to South Africa By Pierre de Villiers; Gert Steyn
  26. The Impact of Income Taxation on the Ratio between Reservation and Market Wages and the Incentives for Labour Supply By Marco Caliendo; Ludovica Gambaro; Peter Haan
  27. Why do North African firms involve in corruption ?. By Clara Delavallade
  28. Labor Supply Effects of the Recent Social Security Benefit Cuts: Empirical Estimates Using Cohort Discontinuities By Giovanni Mastrobuoni
  29. Longevity Adjustment of Pension Benefits By Jukka Lassila; Tarmo Valkonen
  30. Minimum Wages, the Earned Income Tax Credit, and Employment: Evidence from the Post-Welfare Reform Era By David Neumark; William Wascher
  31. Privatisation in Poland: What Was the Government Trying to Achieve? By De Fraja, Gianni; Roberts, Barbara M
  32. Outsourcing Tariff Evasion: A New Explanation for Entrepôt Trade By Fisman, Raymond; Moustakerski, Peter; Wei, Shang-Jin
  33. Job Creation and Job Destruction over the Life Cycle: The Older Workers in the Spotlight By Jean-Olivier Hairault; Arnaud Chéron; François Langot
  34. Enhancing the Public Provision of Education: The Economics of Education Reform in Developing Countries By Rossana Patrón
  35. Imperfect Tagging Revisited By Rehn, Eric
  37. Does limited access to mortgage debt explain why young adults live with their parents? By Nuno Martins; Ernesto Villanueva
  38. A Note on Infrastructure Quality in South Africa By Johan Fourie

  1. By: Favero, Carlo A; Giavazzi, Francesco
    Abstract: Empirical investigations of the effects of fiscal policy shocks share a common weakness: taxes, government spending and interest rates are assumed to respond to various macroeconomic variables but not to the level of the public debt; moreover the impact of fiscal shocks on the dynamics of the debt-to-GDP ratio is not tracked. We analyze the effects of fiscal shocks allowing for a direct response of taxes, government spending and the cost of debt service to the level of the public debt. We show that omitting such a feedback can result in incorrect estimates of the dynamic effects of fiscal shocks. In particular the absence of an effect of fiscal shocks on long-term interest rates - a frequent finding in research based on VAR’s that omit a debt feedback - can be explained by their mis-specification, especially over samples in which the debt dynamics appears to be unstable. Using data for the U.S. economy and the identification assumption proposed by Blanchard and Perotti (2002) we reconsider the effects of fiscal policy shocks correcting for these shortcomings.
    Keywords: fiscal policy; government budget constraint; public debt
    JEL: E62 H60
    Date: 2007–02
  2. By: James Poterba; Nirupama Rao; Jeri Seidman
    Abstract: This paper investigates the importance of deferred tax assets and liabilities for a sample of large U.S. corporations between 1993 and 2004 and documents substantial heterogeneity in the deferred tax positions of different firms. In 2004, 25 firms in a sample of 73 reported net deferred tax assets and 48 reported net deferred tax liabilities. Firms differ substantially in the composition of their deferred tax assets and liabilities. The largest components of deferred tax assets for sample firms are Loss and Credit Carryforwards and Employment and Post-employment Benefits. The largest components of deferred tax liabilities are Property, Plant & Equipment and Leases. Total deferred tax assets for sample firms with net deferred tax assets in 2004 were $61.9 billion, while total deferred tax liabilities for sample firms with net deferred tax liabilities were $223.8 billion. A five percentage point decline in the federal statutory corporate tax rate could reduce net income at sample firms with net deferred tax assets by as much as $8.8 billion, since a statutory rate cut would reduce the value of deferred tax assets and this change would be reflected on the income statement. We use data on the sales, market value, and assets of sample firms, relative to aggregate data for the U.S. corporate sector, to estimate the aggregate value of deferred tax assets and liabilities.
    JEL: H25 M41
    Date: 2007–02
  3. By: Orley Ashenfelter
  4. By: John Whalley; Li Wang
    Abstract: Currently proposals are actively circulating in China to move to a unified enterprise tax structure with similar tax treatment of state-owned enterprises (SOEs), other private enterprises (OPE) and foreign investment enterprises (FIEs). FIEs presently receive significant tax preferences through a sharply lower tax rate, tax holidays and other provisions. Here we use analytical representations of SOE behavior, which differ from that of the competitive firm, to argue that a unified tax structure may not be a desirable tax change and that typically a higher tax rate on SOEs is called for on efficiency grounds. Using a worker control model with endogenously determined shirking, taxes on SOEs reduce shirking and a reduced SOE tax rate under a unified tax relaxes discipline on SOEs and losses result. Our results indicate a 0.26% of GDP welfare loss using 2004 data from a unified tax, and larger loss relative to an optimal tax scheme. Alternatively, if we use a managerial control model variant, we find a 0.19% welfare loss from a unified tax, and larger losses relative to initial higher SOE tax rates.
    JEL: H2 P3 P35
    Date: 2007–02
  5. By: Özlem Önder; Metin Karadag; Ertugrul Deliktas (Department of Economics, Ege University)
    Abstract: In recent years there have been many studies that explore the impact of public capital formation on economic growth at regional level, because public capital might give rise to reducing regional disparities across regions. Regarding Turkey, investigating the effects of public capital on economic convergence at the regional level gains importance since significant regional disparities exist between the regions. This study attempts to explore the dynamic effects of public capital on output per capita in terms of convergence in the Turkish regions. A conditional convergence model based on per capita GDP and public capital is estimated using the panel data set of Turkish regions at NUTS 1 level for the time period 1980-2001. The spatial effects are also investigated. The results show that there exists conditional convergence. The results also reveal that in some of the models public capital has a positive and significant effect on output per capita. However, in the models with spatial effects the public capital does not have a significant effect on regional convergence.
    Keywords: Regional development, public capital, convergence, Turkish regions, spatial effects
    JEL: H54 R11
    Date: 2007–01
  6. By: Maurizio Bovi (ISAE - Institute for Studies and Economic Analyses)
    Abstract: Underground activities affect crucial fiscal ratios generating “gaps” both in government revenues and in national accounts. I address this topic exploiting the peculiarities of the Italian situation. First, I describe the pros and cons of the Italian method to estimate the (non trivial share of) shadow economy. This sheds some light on the reliability of GDP estimates and allows unraveling some policy-relevant national accounts gaps. Second, I examine the links between undeclared incomes, tax burden and fiscal policy in a system possibly suffering from unpleasant arithmetic. Data suggest that government revenues and tax evasion go hand-in-hand and highlight the difficulties of policymaking.
    Keywords: Fiscal Rules, National Accounts, Shadow Economy, Taxation.
    JEL: C32 C53 E26 H26
    Date: 2007–01
  7. By: Engström, Per (Department of Economics)
    Abstract: The paper extends the basic Stiglitz (1982) model of optimal nonlinear income taxation into a model featuring endogenous unemployment and wages. This means that the government needs to consider the effects on wages and unemployment when designing the optimal tax function. The tax systems’ effects on the wage formation and the unemployment rates result in new intricate redistribution channels. A key result of the paper is that the government may, in order to redistribute, use the marginal tax rates to raise the unemployment rate for the high-skilled and lower it for the low-skilled workers.
    Keywords: Optimal Non-Linear Income Taxation; Wage Formation; Tax Progressivity; Unemployment
    JEL: H21 J22 J41 J64
    Date: 2007–02–13
  8. By: Beetsma, Roel; Giuliodori, Massimo
    Abstract: We investigate the interdependence of fiscal policies, and in particular deficits, in the European Union using an empirical analysis based on real-time fiscal data. There are many potential reasons why fiscal policies could be interdependent, such as direct externalities due to cross-border public investments, yardstick competition, tax competition and peer pressure among governments. The advantage of using real-time data is that they better reflect the policymakers’ intentions than revised data. Real-time data allow us to investigate how available information is mapped into policymakers’ plans, while revised data are generally 'polluted' with ad hoc reactions to unexpected developments that have taken place after the plan was made. Controlling for a large set of relevant determinants of primary cyclically adjusted deficits, we find indeed evidence of fiscal policy interdependence. However, the interdependence is rather asymmetrically distributed: the fiscal stances of the large countries affect the fiscal stances of the small countries, but not vice versa.
    Keywords: European Union; fiscal policy interdependence; monetary union; primary cyclically adjusted deficit; real-time data
    JEL: E62 H60
    Date: 2007–02
  9. By: Thomas Miceli (University of Connecticut)
    Abstract: Blume, Rubinfeld, and Shapiro (1984) first showed that compensation for takings can lead to a moral hazard problem that results in overinvestment in land suitable for public use. To the contrary, this paper shows that the compensation rule is irrelevant regarding the level of investment landowners make in their property, as well as the amount of land they authorize the government to acquire, both of which will be efficient. Intuitively, landowners recognize the equivalence of taxes and takings in budgetary terms, causing the distortionary effects of compensation and property taxation to cancel each other out through the balanced budget condition.
    Keywords: Compensation for takings, eminent domain, moral hazard, public goods
    JEL: H41 K11 R52
    Date: 2007–02
  10. By: John Rowlatt
  11. By: Ohlsson, Henry (Department of Economics)
    Abstract: The objective of this paper is to empirically study if and to what extent people legally reduce their tax payments. There are few empirical studies of tax avoidance although avoidance may seriously affect the possibilities to raise tax revenue. I use a sample of Swedish siblings receiving inheritances in 2004. These children of deceased had the opportunity to avoid inheritance taxes by partly or fully ceding their inheritances to the grandchildren. My first main result is that almost two thirds of the children avoid taxes. The likelihood of avoiding taxes decreases with age. The more of the taxes a child potentially can avoid, the more she avoids. Second, only one out of four minimize their tax payments. The more of the taxes a child potentially can avoid, the more likely he is to minimize taxes. And third, siblings tend to make the same choices whether or not to avoid taxes and to minimize taxes.
    Keywords: tax avoidance; inheritances; cede to children
    JEL: D10 H24 H26
    Date: 2007–02–20
  12. By: Ganghof, Steffen,; Philipp Genschel
    Abstract: Abstract Is corporate tax competition a threat to democracy in the EU? The answer dependscrucially on a positive analysis of the effects of tax competition on national policy autonomy.Most analyses focus on direct effects on corporate tax rates and revenues. Wecontend that this focus is too narrow. It overlooks the fact that corporate tax competitionalso has important indirect effects on the progressivity and revenue-raising potentialof personal income taxation. We elaborate on these indirect effects theoreticallyand empirically, and explore the implications for the normative debate on the EU'sdemocratic defi cit. Our fi ndings show that European integration can constrain nationalredistribution in a major way: the democratic defi cit is real. Greater political contestationover the EU's policy agenda is desirable in order to mitigate this defi cit.
    Keywords: tax policy; tax competition; democracy; harmonisation; harmonisation; normative political theory; majority voting; European Commission
    Date: 2007–02–13
  13. By: Bertocchi, Graziella
    Abstract: Several countries have recently abolished or significantly reduced their taxes on bequests. Bequest taxes, on the other hand, were among the first to be introduced when modern systems of taxation were developed at the end of the nineteenth century. We propose an explanation for these facts which is based on a dynamic political economy model where redistribution is determined not only by wealth inequality but also by sectoral reallocation from agriculture to manufacturing. The model shows that the dynamics of capital accumulation induce a reduction of wealth inequality, which is further accelerated by the redistributive impact of the bequest tax. Through a standard politico-economic mechanism, wealth equalization pushes toward a reduced role of the bequest tax. At the same time, however, a second mechanism is at work, with structural reallocation from agriculture to manufacturing shifting the tax base from hard-to-avoid taxes on land toward easy-to-avoid taxes on capital. The differential treatment of land and capital introduces a source of asymmetry in the tax system which interferes with the determination of the dynamic political equilibrium of the model. Its effect is to compress bequest taxation but also to delay its gradual reduction due to declining wealth inequality. A number of extensions to the basic model allow to match our theory with the long-term evolution of bequest taxation in modern democracies and with the drastic discrepancies currently observed between tax systems in developed and underdeveloped countries.
    Keywords: bequest tax; redistribution; structural reallocation; voting; wealth inequality
    JEL: H20 N40 P16
    Date: 2007–02
  14. By: Beetsma, Roel; van der Ploeg, Frederick
    Abstract: The political distortions in public investment projects are investigated within the context of a bipartisan political economy framework. The role of scrapping and modifying projects of previous governments receives special attention. The party in government has an incentive to overspend on large ideological public investment projects in order to bind the hands of its successor. This leads to a bias for excessive debt, especially if the probability of being removed from office is large. These political distortions have implications for the appropriate format of a fiscal rule. A deficit rule, like the Stability and Growth Pact, mitigates the overspending bias in ideological investment projects and improves social welfare. The optimal second-best restriction on public debt exceeds the level of public debt that would prevail under the socially optimal outcome. Social welfare may be boosted even more by appropriate investment restrictions: with a restriction on (future) investment in ideological projects, the current government perceives a large benefit of a debt reduction. However, debt and investment restrictions are not needed if investment projects only have a financial return.
    Keywords: bipartisan; deficit rule; golden rule; ideological projects; investment restriction; market projects; political economy; public investment; scrapping public investment
    JEL: E6 H6 H7
    Date: 2007–02
  15. By: Dan Usher (Queen's University)
    Abstract: A reasonable and fair interpretation of the mandate for equalization payments in Section 36(2) of the Canadian Constitution differs from the present equalization formula in these respects: Transfers to the poorer provinces would be financed by transfers from the richer provinces rather than from the Federal government. Entitlement to equalization payments would depend on provincial income rather than upon a tax-by-tax comparison of the provinces’ many tax bases. For this comparison, provincial income would include revenue accruing directly to the provincial governments as well as private income of the residents of the province. Compensation would be made for the exemption of provincial resource revenue from Federal income tax. The most pronounced effect of these proposals would be to transfer the greater burden of equalization payments from Ontario to Alberta which is now, by far, the richest province.
    Keywords: Equilization, Federal-provincial transfers
    JEL: H77 H72
    Date: 2007–02
  16. By: Mònica Serrano (Universitat de Barcelona)
    Abstract: This paper evaluates two alternative tax policies aimed at reducing atmospheric pollutant emissions. One based upon an environmental tax that burdens directly firms’ emissions, and the other one that burdens both directly and indirectly household consumption’s emissions. Applying input-output approach, we reallocate the emissions generated in the economy according to the responsibility definition, i.e. the production or the consumption accounting principle. Afterwards, we analyse the effects on the products’ prices of implementing an ad-quantum environmental tax based on the Producer Pays Principle (PPP) and/or on the User Pays Principle (UPP). The results obtained, show that both PPP and UPP environmental tax have the same effect on the final products’ prices. However, the price of the intermediate products is only affected by the PPP environmental tax, whereas the UPP environmental tax keeps the prices unchanged.
    Keywords: Input-Output Analysis, Environmental Taxes, Atmospheric Pollutants
    JEL: C67 H23 Q53
    Date: 2007–01
  17. By: Arata Ito (Graduate Student, Graduate School of Economics, Hitotsubashi University (E-mail:; Tsutomu Watanabe (Institute of Economic Research and Research Center for Price Dynamics, Hitotsubashi University (E-mail: tsutomu.w@srv; Tomoyoshi Yabu (Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: This paper estimates fiscal policy feedback rules in Japan, the United States, and the United Kingdom for more than a century, allowing for stochastic regime changes. Estimating a Markov-switching model by the Bayesian method, we find the following: First, the Japanese data clearly reject the view that the fiscal policy regime is fixed, i.e., that the Japanese government adopted a Ricardian or a non-Ricardian regime throughout the entire period. Instead, our results indicate a stochastic switch of the debt-GDP ratio between stationary and nonstationary processes, and thus a stochastic switch between Ricardian and non-Ricardian regimes. Second, our simulation exercises using the estimated parameters and transition probabilities do not necessarily reject the possibility that the debt-GDP ratio may be nonstationary even in the long run (i.e., globally nonstationary). Third, the Japanese result is in sharp contrast with the results for the U.S. and the U.K. which indicate that in these countries the government's fiscal behavior is consistently characterized by Ricardian policy.
    Keywords: Fiscal Policy Rule, Fiscal Discipline, Markov-Switching Regression
    JEL: E62
    Date: 2007–02
  18. By: Caucutt, Elizabeth; Cooley, Thomas F; Guner, Nezih
    Abstract: During the period from 1880 to 1950 publicly managed retirement security programs became an important part of the social fabric in most advanced economies. In this paper we study the social, demographic and economic origins of social security. We describe a model economy in which demographics, technology, and social security are linked together. We study an economy with two locations (sectors), the farm (agricultural) and the city (industrial). The decision to migrate from rural to urban locations is endogenous and linked to productivity differences between the two locations and survival probabilities. Furthermore, the level of social security is determined by majority voting. We show that a calibrated version of this economy is consistent with the historical transformation in the United States. Initially a majority of voters live on the farm and do not want to implement social security. Once a majority of the voters move to the city, the median voter prefers a positive social security tax, and social security emerges.
    Keywords: migration; political economy; social security
    JEL: D72 H3 H55
    Date: 2007–02
  19. By: Amihai Glazer (Department of Economics, University of California-Irvine); Stef Proost (Faculty of Economics and Applied Economics, Catholic University of Leuven)
    Abstract: Earmarking is a form of bundling in which government adopts a tax policy while specifying the uses of the revenue. This paper explores how bundling can enhance efficiency: it can inform the public of the quality of a program proposed, or of the quality of the agency that will be responsible for designing and implementing the program.We show that policies that appear inefficient in isolation may become justified when bundled.
    Keywords: Earmarking; Asymmetric information; Bureaucracy; Project evaluation
    JEL: D73 D83 H43
    Date: 2007–02
  20. By: Barra, Patricio
    Abstract: The objective of this paper is to evaluate the concept of the simplicity in a tax system. The analysis approaches the different scopes in which the tax simplicity is observed. For this purpose, the main aspects of the Chilean tax system are analyzed, by using indicators that try to define the concept in a quantitative frame. The analysis of the Chilean case is used to infer some implications that could also be valid in other Latin American tax systems.
    Keywords: simplicidad tributaria; política tributaria; administración tributaria
    JEL: H20 H11
    Date: 2006–05–02
  21. By: Amy Finkelstein
    Abstract: This paper tests the hypothesis that the salience of a tax system affects equilibrium tax rates. To do this, I analyze how toll rates change after toll facilities adopt electronic toll collection. Unlike manual toll collection, in which the driver must hand over cash at the toll collection plaza, electronic toll collection automatically debits the toll amount as the car drives through the toll plaza, thereby plausibly decreasing the salience of the toll. I find robust evidence that toll rates increase following the adoption of electronic toll collection. My estimates suggest that, in steady state, toll rates are 20 to 40 percent higher than they would have been without electronic toll collection. Consistent with the hypothesis that decreased tax salience is responsible for the increase in toll rates, I also find evidence that the short run elasticity of driving with respect to the actual toll declines (in absolute value) following the adoption of electronic toll collection. I consider a variety of alternative explanations for these results and conclude that these are unlikely to be able to explain the findings.
    JEL: H11 H72 R48
    Date: 2007–02
  22. By: Beetsma, Roel; Bovenberg, A Lans
    Abstract: We investigate intergenerational risk sharing in two-pillar pension systems with a pay-as-you-go pillar and a funded pillar. We consider shocks in productivity, depreciation of capital and inflation. The funded pension pillar can be either defined contribution or defined benefit, with benefits defined in real or nominal terms or indexed to wages. Optimal intergenerational risk sharing can be achieved only in the presence of a defined benefit pension system with appropriate restrictions on investment policy of the funded pillar. In this way, both generations have similar exposures to financial and human capital risks.
    Keywords: (funded) pensions; fiscal policy; nominal assets; overlapping generations; risk sharing
    JEL: E21 H55 J18
    Date: 2007–02
  23. By: Luiz de Mello
    Abstract: This paper tests for horizontal tax competition in the VAT for a sample of Brazilian states in the period 1985-2001. The states have considerable autonomy to set their VAT rates and bases, often using this tax as an industrial policy tool. The empirical findings, based on the estimation of a tax reaction function in an error-correction set-up, confirm the hypothesis of horizontal tax competition: the states react strongly to changes in their neighbours? VAT code, especially those that belong to the same geo-economic region. Also, there appears to be a Stackelberg leader among the states, with the remaining jurisdictions responding strongly to its policy moves. There is no co-occupancy of tax bases between different levels of government and hence limited scope for vertical externalities in tax setting. But the fact that the federal government shares with the states part of the revenue of its more elastic taxes, such as the income tax, appears to affect the opportunity cost of horizontal tax competition. <P>La "guerre fiscale" au Brésil : La concurrence des états sur la taxe sur la valeur ajoutée <BR>Ce document présente une analyse empirique de la concurrence horizontale sur la taxe sur la valeur ajoutée (TVA) parmi les états du Brésil durant la période 1985-2001. Les états brésiliens ont une autonomie considérable en matière de politique fiscale pour établir le taux d’imposition et l’assiette de leur TVA. Ils se servent souvent de cet impôt comme instrument de politique industrielle. Les résultats de l’analyse empirique basée sur l’estimation d’une fonction de réaction fiscale avec un mécanisme de correction d’erreur confirme l’hypothèse de concurrence horizontale parmi les états: ils réagissent fortement aux changements des taux d’imposition de la TVA de leurs voisins, surtout ceux qui appartiennent à la même région géo-économique. Par ailleurs, il y a un leader Stackelberg parmi les états, puisque les autres administrations réagissent fortement à sa politique fiscale. Les différents niveaux d’administration ne partagent pas les mêmes assiettes de sorte que les externalités verticales associées à la politique fiscale sont assez limitée au Brésil. Néanmoins, le fait que l’administration fédérale partage avec les états une part importante des recettes de ses impôts plus élastiques, tel que l’impôt sur le revenu, affecte le coût d’opportunité de la concurrence horizontale parmi les états en terme de politique fiscale.
    JEL: H2 H7
    Date: 2007–02–14
  24. By: Abhijit Banerjee; Lakshmi Iyer; Rohini Somanathan
    Abstract: This paper focuses on the relationship between public action and access to public goods. It begins by developing a simple model of collective action which is intended to capture the various mechanisms that are discussed in the theoretical literature on collective action. We argue that several of these intuitive theoretical arguments rely on special additional assumptions that are often not made clear. We then review the empirical work based on the predictions of these models of collective action. While the available evidence is generally consistent with these theories, there is a dearth of quality evidence. Moreover, a large part of the variation in access to public goods seems to have nothing to do with the "bottom-up" forces highlighted in these models and instead reflect more "top-down" interventions. We conclude with a discussion of some of the historical evidence on top-down interventions.
    JEL: H41 O12
    Date: 2007–02
  25. By: Pierre de Villiers (Department of Economics, University of Stellenbosch); Gert Steyn (Institutional Planning Division, University of Stellenbosch)
    Abstract: Higher education displays characteristics of both private and public goods and there is a trend worldwide to expect individuals to pay more of the costs of their higher education. In South Africa public funding of higher education decreased from 0.86% of GDP in 1986 to only 0.66% in 2006. Due to the decrease in state appropriations, student tuition fees had to be increased to compensate for this loss of income. In the process staff numbers were kept relatively constant, while student numbers increased at a much faster rate. Two future scenarios, based on public higher education expenditure as a percentage of GDP and on real state allocation per WFTES, are included. Although the qualifications awarded per FTE academic staff member increased over time, the graduation rates of the higher education institutions in South Africa are worsening. High-level research, measured in publication units per FTE academic staff member, shows a disturbing decreasing trend since 1997.
    Keywords: Higher education, education financing, qualifications
    JEL: H52 I22 I23
    Date: 2007
  26. By: Marco Caliendo (DIW Berlin, IAB Nuremberg and IZA); Ludovica Gambaro (London School of Economics); Peter Haan (DIW Berlin and Free University Berlin)
    Abstract: This paper extends previous research about the determinants of reservation wages by analysing the effect of progressive income taxation on the ratio between reservation and net market wages. Based on micro data for Germany (SOEP) we show that joint income taxation in Germany which discriminates by marital status, has a strong and highly significant impact on the reservation/market wage ratio. Relative to single filers, this leads to strong negative labour supply incentives for secondary earners and to positive incentives for first earners in married couples.
    Keywords: reservation/ market wage ratio, income taxation, labour supply, microsimulation
    JEL: J22 H24 H31
    Date: 2007–02
  27. By: Clara Delavallade (Centre d'Economie de la Sorbonne)
    Abstract: This paper empirically analyzes the main microeconomic determinants of different forms of corruption supply. Our study is based on a new database of near 600 Algerian, Moroccan and Tunisian firms. We show that the undeclared part of firms' sales is a major factor of their involvement in administrative corruption. The latter increases with the part of the firm's informal activity as far as it is inferior to 55% of total sales, before slightly decreasing. State capture is rather strengthened by a failing enforcement of property and contract rights. Moreover, both forms of corruption help to compensate a loss of competitiveness, which contradicts previous results on this issue. Finally, we draw a comparison of the factors of corruption in North Africa, Uganda and transition countries and derive policy recommendations.
    Keywords: Supply of corruption, administrative corruption, state capture, informal activity, competitiveness, North Africa.
    JEL: C2 D73 O17 H32
    Date: 2007–01
  28. By: Giovanni Mastrobuoni (Princeton University)
    Abstract: In response to a crisis in Social Security financing two decades ago Congress implemented an increase in the Normal Retirement Age (NRA) of two months per year for cohorts born in 1938 and after. These cohorts began reaching retirement age in 2000. This paper studies the effects of these benefit cuts on recent retirement behavior. The evidence strongly suggests that the mean retirement age of the affected cohorts has increased by about half as much as the increase in the NRA. If older workers continue to increase their labor supply in the same way, there will be important implications for the estimates of Social Security trust fund exhaustion that have played such a major role in recent discussions of Social Security reform.
    Date: 2006–12
  29. By: Jukka Lassila; Tarmo Valkonen
    Abstract: In anticipation of future gains in life expectancy, several countries have passed laws that automatically adjust pensions, if life expectancy changes. In this paper we study the effects of longevity adjustment under demographic uncertainty in Finland. If longevity increases, the adjustment decreases the contribution rate, and the reduction is bigger the higher the rate would have been without the reform. On the other hand, longevity adjustment increases the uncertainty in replacement rates. The current middle-aged generations, whose pensions are reduced more than contributions, are likely to experience the largest losses. The full gains are observed far in future. The quantitative results depend on, besides demographic realisations, the specifics of the pension system. Longevity adjustment significantly weakens the defined-benefit nature of the Finnish pension system and brings in a strong defined-contribution flavour.
    Keywords: pensions, longevity, demographic uncertainty
    JEL: H55 J11
    Date: 2007–02–14
  30. By: David Neumark; William Wascher
    Abstract: We study the effects of minimum wages and the EITC in the post-welfare reform era. For the minimum wage, the evidence points to disemployment effects that are concentrated among young minority men. For young women, there is little evidence that minimum wages reduce employment, with the exception of high school dropouts. In contrast, evidence strongly suggests that the EITC boosts employment of young women (although not teenagers). We also explore how minimum wages and the EITC interact, and the evidence reveals policy effects that vary substantially across different groups. For example, higher minimum wages appear to reduce earnings of minority men, and more so when the EITC is high. In contrast, our results indicate that the EITC boosts employment and earnings for minority women, and coupling the EITC with a higher minimum wage appears to enhance this positive effect. Thus, whether or not the policy combination of a high EITC and a high minimum wage is viewed as favorable or unfavorable depends in part on whose incomes policymakers are trying to increase.
    JEL: H24 I38 J2 J38
    Date: 2007–02
  31. By: De Fraja, Gianni; Roberts, Barbara M
    Abstract: This paper uses the sequencing of privatisation to infer the objective pursued by the Polish government in the privatisation of its large manufacturing firms in the second half of the 1990's. We construct a model of mixed oligopoly, and use it to evaluate the privatisation process; our analysis is based on the assumption that firms which furthered the government's objective function the most would be chosen to be privatised first. Our empirical analysis identifies the features of the firms that were chosen for early privatisation, and suggests that the welfare maximisation was more important than the desire to maximise the revenues from privatisation and the government's budget, or to minimise employment losses.
    Keywords: Eastern Europe; mixed oligopoly; Poland; privatisation
    JEL: D63 I28
    Date: 2007–02
  32. By: Fisman, Raymond; Moustakerski, Peter; Wei, Shang-Jin
    Abstract: Traditional explanations for indirect trade through an entrepôt have focused on savings in transport costs and on the role of specialized agents in processing and distribution. We provide an alternative perspective based on the possibility that entrepôts may facilitate tariff evasion. Using data on direct exports to mainland China and indirect exports via Hong Kong SAR, we find that the indirect export rate rises with the Chinese tariff rate, even though there is no legal tax advantage to sending goods via Hong Kong SAR. We undertake a number of extensions to rule out plausible alternative hypotheses based on existing explanations for entrepôt trade.
    Keywords: corruption; middleman; tax evasion
    JEL: F1 H2
    Date: 2007–02
  33. By: Jean-Olivier Hairault (EUREQua, University of Paris I, CEPREMAP and IZA); Arnaud Chéron (GAINS, University of Le Mans and EDHEC); François Langot (GAINS, University of Le Mans, CEPREMAP and EUREQua)
    Abstract: This paper extends the job creation - job destruction approach to the labor market to take into account the life-cycle of workers. Forward looking decisions about hiring and firing depend on the time over which to recoup adjustment costs. The equilibrium is typically featured by increasing (decreasing) firing (hiring) rates with age, and a hump-shaped age-dynamics of employment. The empirical plausibility of the model is assessed by incorporating existing age-specific labor market policies in France. Finally we show that the age-dynamics of employment is optimal when the Hosios condition holds and we design the optimal agepattern for employment policies when this condition does not apply.
    Keywords: job search, matching, life cycle
    JEL: J22 J26 H55
    Date: 2007–02
  34. By: Rossana Patrón (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: The paper argues that a comprehensive evaluation of education reform in particular in developing countries needs considering the triangle’ quality-quantity-equity of educational policies in the short, medium and long term in a broader context than the education system itself. There is no simple “recipe” for improving quality and internal and external efficiency in the public education system but some general results are found. Firstly, that the elasticity of the return of the reform is decreasing with the size of increased budget, making anti-economical the reliance on a reform consisting in more resources only to significantly improve the poor performance of the system. Indeed, very modest target set to improve the system performance, would require -without more sophisticated policies- huge increments in budget with a poor return. In this sense the paper investigate the capacity of focused policies to improve the productivity of the education expenditure, in particular toward basic education or the disadvantaged students. Secondly, the timing of the reform matters: most policies with very different return in the long term are almost undistinguishable by their short run merits, and policies that are more productive in the short term may be less convenient than competing alternatives in the longer term, so the actual policy may be influenced by the time horizon chosen by the policy makers. Thirdly, effects of the reform are accumulative, and to evaluate the reform by modest, in general, short run merits is myopic and may put the reform at risk of reversion or to deter future investment in the sector.
    Keywords: public education, developing countries, development of human resources
    JEL: I28 O15
    Date: 2006–10
  35. By: Rehn, Eric (Department of Economics, Lund University)
    Abstract: Revisiting Parsons' 1996 article about disability insurance with imperfect tagging in a two type-economy -- individuals are either able or disabled. Here Parsons' analysis is extended in several directions. The model is generalized to allow for different utility functions over work status. The analysis extends to three different cases of a two-type economy. Finally Parsons' model is extended to three types: able, partially disabled and disabled - adapting the model to disability insurances allowing for more than two degrees of disability. The results are consistent with Parsons', but a complete ranking of the consumption allocations cannot be achieved in the general case.
    Keywords: social insurance; imperfect tagging; partial disability
    JEL: H21 H53
    Date: 2007–02–19
  36. By: Marcelo Medeiros (International Poverty Centre); Joana Costa (International Poverty Centre)
    Abstract: We propose two different concepts of feminization of poverty and analyze household survey data to verify if there is an ongoing feminization of poverty in eight Latin American countries, according to each of these concepts. We also verify if our results respond to changes in values of poverty lines and to different scenarios of intra-household inequalities, concluding that poverty may be higher among women, but there is no clear evidence of a recent and widespread feminization of poverty in the countries studied.
    Keywords: Feminization of poverty, Gender inequalities, Poverty, Female headed households, Latin America
    JEL: I3 D31 H2 H3
    Date: 2006–05
  37. By: Nuno Martins (Universidade Nova de Lisboa); Ernesto Villanueva (Banco de España)
    Abstract: Young adults leave their parents' home at a higher rate in Northern Europe and the United States than in Southern Europe, with broad implications on labor mobility, intergenerational sharing of resources and on fertility. This paper assesses if differences in household structure can be traced back to restricted access to credit for the young. To study the causal impact of getting a loan on the probability of "leaving the nest", we exploit two reforms of a Portuguese program that subsidized interest rate on mortgages signed by low- and medium- income young adults. Using a unique dataset that merges a Labor Force Survey with administrative debt records, we estimate that getting a mortgage loan increases the rate of leaving home by between 31 and 54 percentage points. We combine those estimates with an European household panel to document that if our preferred estimates held for all countries, differential use of credit markets would explain between 16% and 20% of the North-South differences in home leaving.
    Keywords: living arrangements, family structure, credit markets
    JEL: D91 J12 H53
    Date: 2006–10
  38. By: Johan Fourie (Department of Economics, University of Stellenbosch)
    Abstract: The emphasis, both in research and in policy making, seems to be on more infrastructure, rather than better infrastructure. This research note aims to critically analyse the lack of quality indicators in infrastructure empirics and to redirect attention to improving infrastructure quality in its various forms in South Africa.
    Keywords: Infrastructure, South Africa, quality, international trade, port facilities, binding constraints
    JEL: H54
    Date: 2007

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