nep-pbe New Economics Papers
on Public Economics
Issue of 2007‒03‒10
forty-two papers chosen by
Peren Arin
Massey University

  1. The economic effects of exogenous fiscal shocks in Spain: a SVAR approach By Francisco de Castro; Pablo Hernández de Cos
  2. Walking up the down escalator : public investment and fiscal stability By Easter ly, William; Irwin, Timothy; Serven, Luis
  3. International Evidence on Fiscal Solvency: Is Fiscal Policy "Responsible"? By Enrique G. Mendoza; Jonathan D. Ostry
  4. Are Fiscal Adjustments less Successful in Decentralized Governments? By Christoph A. Schaltegger; Lars P. Feld
  5. Anticipated Fiscal Policy and Adaptive Learning By George W. Evans; Seppo Honkapohja; Kaushik Mitra
  6. Taxation without Commitment By Reis, Catarina
  7. Corrupt Bureaucracy and Growth By Djumashev, Ratbek
  8. Corporate Taxes in the World Economy: Reforming the Taxation of Cross-Border Income By Harry Grubert; Rosanne Altshuler
  9. Intertemporal Labor Supply Effects of Tax Reforms By Peter Haan
  10. Optimal Non-Linear Income Tax when Highly Skilled Individuals Vote with their Feet By Laurent Simula; Alain Trannoy
  11. WHY DO INDIVIDUALS EVADE PAYROLL AND INCOME TAXATION IN ESTONIA? By Kenneth A. Kriz Author-Name: Jaanika Meriküll Author-Name: Alari Paulus Author-Name: Karsten Staehr
  12. Growth, Public Investment and Corruption with Failing Institutions By David de la Croix; Clara Delavallade
  13. Deregulation of Business By Evgeny Yakovlev; Ekaterina Zhuravskaya
  14. A Contribution to the Theory of Optimal Utilitarian Income Taxation By Martin Hellwig
  15. To Segregate or to Integrate: Education Politics and Democracy By David de la Croix; Matthias Doepke
  16. Social spending and demographics: The role of public policies in the intergenerational redistribution of income. Empirical evidence from Spain and Catalonia By Guillem López; Ana Mosterin
  17. Harmonization of Corporate Tax Systems and its Effect on Collusive Behavior By Schindler, Dirk; Schjelderup, Guttorm
  18. The Optimum Quantity of Money Revisited: Distortionary Taxation in a Search Model of Money By Ritter, Moritz
  19. Targeted Transfers, Investment Spillovers, and the Tax Environment By Lynne Pepall; Daniel Richards
  20. Public Action for Public Goods By Banerjee, Abhijit; Iyer, Lakshmi; Somanathan, Rohini
  21. Universal Basic Income and Negative Income Tax: Two Different Ways of Thinking Redistribution By Davide, Tondani
  22. Entrepreneurship and State Public Policy By Steven F. Kreft; Elham Mafi-Kreft
  23. 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
  24. Fiscal policies and business cycles in an enlarged euro area By Karsten Staehr
  25. Debt sustainability and procyclical fical policies in Latin America By Enrique Alberola; José M. Montero
  26. An Efficiency Comparison of City Managers and Elected Mayors By Steven F. Kreft
  27. Social Security Reform with Uninsurable Income Risk and Endogenous Borrowing Constraints By Juan A. Rojas; Carlos Urrutia
  28. Performance Indicators for Public Spending Efficiency in Primary and Secondary Education By Douglas Sutherland; Robert Price; Isabelle Joumard; Chantal Nicq
  29. When in Rome, do as the Romans do: the coevolution of altruistic punishment, conformist learning, and cooperation By Guzmán, Ricardo Andrés; Rodríguez-Sickert, Carlos; Rowthorn, Robert
  30. The Impact on Growth of Higher Efficiency of Public Spending on Schools By Frédéric Gonand
  31. Schooling and Citizenship : Evidence from Compulsory Schooling Reforms By Thomas Siedler
  32. Social Interaction Effects in Disability Pension Participation. Evidence from Plant Downsizing By Mari Rege, Kjetil Telle and Mark Votruba
  33. Productivity in Public Services By Helen Simpson
  34. Political Rents in a Non-Corrupt Democracy By Svaleryd, Helena; Vlachos, Jonas
  35. Long-Run Changes in the Concentration of Wealth: An Overview of Recent Findings By Waldenström, Daniel; Ohlsson, Henry; Roine, Jesper
  36. Public Voluntary Programs Reconsidered By Thomas P. Lyon; John W. Maxwell
  37. Organisational Innovations and Health Care Decentralisation: A Perspective from Spain By Guillem López
  38. Government Expenditures on Education, Health, and Infrastructure: A Naïve Look at Levels, Outcomes, and Efficiency By Antonio Estache; Marianela González; Lourdes Trujillo
  39. Health Care Management Autonomy: Evidence from the Catalonian Hospital Sector in a Decentralised Spain By Guillem López; David McDaid; Joan Costa-Font
  40. Water price and water reallocation in Andalusia. A computable general equilibrium approach By Esther Velázquez; M. Alejandro Cardenete; Geoffrey J.D. Hewings
  41. On the Importance of Equity in International Climate Policy: An Empirical Analysis By Lange, Andreas; Vogt, Carsten; Ziegler, Andreas
  42. Conservation policies, environmental valuation and the optimal size of jurisdictions By Giovanni B. Concu

  1. By: Francisco de Castro (Banco de España); Pablo Hernández de Cos (European Central Bank)
    Abstract: This paper estimates the effects of exogenous fiscal policy shocks in Spain in a VAR framework. Government expenditure expansionary shocks are found to have a positive impact on output in the short term at the cost of higher inflation and public deficits and lower output in the medium and long term. Tax increases are found to have a negative impact on economic activity in the medium term while having only a temporary effect on the improvement of the public deficit. The application of these results to the analysis of fiscal policy in Spain since the mid nineties point to the conclusion that the consolidation process does not seem to have involved costs in terms of output growth and the stance of fiscal policy has become more counter cyclical.
    Keywords: var, fiscal shocks, fiscal multipliers
    JEL: E62 H30
    Date: 2006–02
  2. By: Easter ly, William; Irwin, Timothy; Serven, Luis
    Abstract: Fiscal adjustment becomes like walking up the down escalator when growth-promoting spending is cut so much as to lower growth and thus the present value of future tax revenues to a degree that more than offsets the improvement in the cash deficit. Although short-term cash flows matter, a preponderant focus on them encourages governments to invest too little. Cash flow targets also encourage governments to shift investment spending off budget, by seeking private investment in public projects-irrespective of its real fiscal or economic benefits. To evade the action of cash flow targets, some have suggested excluding from their scope certain investments (such as those undertaken by public enterprises deemed commercial or financed by multilaterals). These stopgap remedies might sometimes help protect investment, but they do not provide a satisfactory solution to the underlying problem. Governments can more effectively reduce the biases created by the focus on short-term cash flows by developing indicators of the long-term fiscal effects of their decisions, including accounting and economic measures of net worth, and where appropriate including such measures in fiscal targets or even fiscal rules, replacing the exclusive focus on liquidity and debt.
    Keywords: Public Sector Expenditure Analysis & Management,Public Sector Economics & Finance,Investment and Investment Climate,Economic Stabilization,Fiscal Adjustment
    Date: 2007–03–01
  3. By: Enrique G. Mendoza; Jonathan D. Ostry
    Abstract: This paper looks at fiscal solvency and public debt sustainability in both emerging market and advanced countries. Evidence of fiscal solvency, in the form of a robust positive conditional relationship between public debt and the primary fiscal balance, is established in both groups of countries, as well as in the sample as a whole. Evidence of fiscal solvency is much weaker, however, at high debt levels. The debt-primary balance relationship weakens considerably in emerging economies as debt rises above 50 percent of GDP. Moreover, the relationship vanishes in high-debt countries when the countries are split into high- and low-debt groups relative to sample means and medians, and this holds for industrial countries, emerging economies, and in the combined sample. These findings suggest that many industrial and emerging economies, including several where fiscal solvency has been the subject of recent debates, appear to conduct fiscal policy responsibly. Yet our results cannot reject the hypothesis of fiscal insolvency in groups of countries with high debt ratios, where the response of the primary balance to increases in debt is not statistically significant.
    JEL: E62 F34 F41 H6 H68
    Date: 2007–03
  4. By: Christoph A. Schaltegger; Lars P. Feld
    Abstract: A common political claim is that decentralized governments undermine policy makers’ ability to fight fiscal imbalance. This paper examines how different fiscal institutions influence the likeli-hood of a successful fiscal adjustment. Using a panel of the Swiss cantons from 1981 to 2001, we first analyze the episodes of tight fiscal policy and their macroeconomic consequences. Then, we empirically investigate the determinants of successful long-la¬sting deficit reductions. Contrary to the popular claim, we find that fiscal decentralization increases the probability of a successful fiscal consolidation. In addition, the results point to an important role of intergovernmental grants and the circumstances, in particular the size of fiscal imbalance in the years before the consolida-tion in determining a successful adjustment policy. Furthermore, coalition governments and large parliaments less likely implement successful fiscal stabilizations. Finally, there is some weak evidence that spending cuts are more promising in reaching a long-lasting fiscal adjustment than revenue increases.
    Keywords: Fiscal Adjustment; Consolidation Policy; Fiscal Decentralization; Fiscal Institutions
    JEL: E61 E63 H61
    Date: 2007–03
  5. By: George W. Evans; Seppo Honkapohja; Kaushik Mitra
    Abstract: We consider the impact of anticipated policy changes when agents form expectations using adaptive learning rather than rational expectations. To model this we assume that agents combine limited structural knowledge with a standard adaptive learning rule. We analyze these issues using two well-known set-ups, an endowment economy and the Ramsey model. In our set-up there are important deviations from both rational expectations and purely adaptive learning. Our approach could be applied to many macroeconomic frameworks.
    Keywords: Taxation, expectations, Ramsey model
    JEL: E62 D84 E21 E43
    Date: 2007–02
  6. By: Reis, Catarina
    Abstract: This paper considers a Ramsey model of linear capital and labor income taxation in which a benevolent government cannot commit ex-ante to a sequence of taxes for the future. In this setup, if the government is allowed to borrow and lend to the consumers, the optimal capital income tax is zero in the long run. This result stands in marked contrast with the recent literature on optimal taxation without commitment, which imposes budget balance and typically finds that the optimal capital income tax does not converge to zero. Since it is efficient to backload incentives, breaking budget balance allows the government to generate surplus that reduces its debt or increases its assets over time until the lack of commitment is no longer binding and the economy is back in the full commitment solution. Therefore, while the lack of commitment does not change the optimal capital tax in the long run, it may impose an upper bound on the level of long run debt.
    Keywords: Fiscal Policy; Optimal Taxation; Incidence; Debt
    JEL: H22 E62 H62 H21
    Date: 2006–12
  7. By: Djumashev, Ratbek
    Abstract: In this paper, we analyze implications of corruption on growth. We extend existing growth models by incorporating ubiquitous corruption as a by-product of the public sector. Corruption affects both taxation and public good provision, and therefore causes income redistribution and inefficiencies in the public sector. These effects of corruption lead to lower growth through distortions of investment incentives and resources allocation.
    Keywords: Corruption; growth; public goods; tax evasion
    JEL: H40 D92 O17 E60
    Date: 2006
  8. By: Harry Grubert (U.S. Treasury Department, Office of Tax Analysis); Rosanne Altshuler (Rutgers University, Department of Economics)
    Abstract: Proposals for the reform of the taxation of cross-border income are evaluated within the general context of the corporate tax in an open economy. We focus on the various behavioral decisions that can be affected such as the location of income and its repatriation. The two income tax proposals considered are: (1) dividend exemption and (2) burden neutral worldwide taxation in which all foreign subsidiary income is included currently in the U.S. worldwide tax base, and at the same time the corporate tax rate is lowered and overhead allocations to foreign income are eliminated so as to keep the overall U.S. tax burden on foreign income the same. We also consider the attractiveness of destination-based and origin-based consumption taxes. Our evaluation of reform options makes use of the best available information. We also present new information on the burden of the current system. However, there are many important unknown behavioral parameters required to judge international tax systems and this missing information, some of which may ultimately be unknowable, makes it difficult to make definitive recommendations. The burden neutral worldwide option seems to offer greater efficiency gains among the two income tax options, particularly because of reduced incentives for income shifting which wastes resources and distorts effective tax rates on investment. To be sure, the burden neutral worldwide option would increase effective tax rates on investment in low-tax countries while not increasing the average U.S. tax rate on foreign source income. The option requires a substantial reduction in the U.S. corporate tax rate. We suggest that increased capital mobility makes changing the mix of corporate and personal level taxation of business income appropriate even apart from the special issues of cross-border taxation such as repatriation taxes and income shifting opportunities that are the main subject of the paper.
    Keywords: international taxation, multinational corporations, tax reform
    JEL: H20 H25 H87
    Date: 2007–03–01
  9. By: Peter Haan
    Abstract: In the year 2000, the German government passed the most ambitious tax reform in post-war German history aiming at a significant tax relief for households. One central aim of this tax reform was to improve work incentives and, thereby, foster employment. In this paper, I estimate an intertemporal discrete choice model of female labor supply that allows to analyze the behavioral effects of the tax reform on the labor supply of married and cohabiting women over time. Using the Markov chain property, I analyze the dynamics of labor supply behavior and derive the short- and long-run labor supply effects of the tax reform.
    Keywords: Intertemporal labor supply of married women, tax reform, Panel data, microsimulation
    JEL: C33 H24 H31 J22
    Date: 2007
  10. By: Laurent Simula; Alain Trannoy
    Abstract: This paper examines how allowing individuals to emigrate to pay lower taxes changes the optimal non-linear income tax scheme in a Mirrleesian economy. Type-dependent participation constraints are borrowed from contract theory. An individual emigrates if his domestic utility is less than his utility abroad net of migration costs, utilities and costs both depending on productivity. Three social criteria are distinguished according to the agents whose welfare matters. Mobility significantly alters the closed-economy results qualitatively, but also quantitatively as veri.ed by simulations. A curse of the middle-skilled occurs in the first-best. In the second-best, the middle-skilled can support the highest average tax rates and the marginal tax rates can be negative. Moreover, preventing emigration of the highly-skilled is not necessarily optimal.
    Keywords: Optimal Taxation, Income Tax, Emigration, Participation Constraints
    JEL: H21 H31 D82 F22
    Date: 2006–10
  11. By: Kenneth A. Kriz Author-Name: Jaanika Meriküll Author-Name: Alari Paulus Author-Name: Karsten Staehr
    Abstract: This paper employs micro-level data to determine the factors characterizing individuals who evade payroll and income taxation in Estonia. Using logit estimation on three different cross-sectional datasets, we estimate the marginal effects of different individual characteristics on tax evasion. The three datasets give broadly analogous results. Payroll and income tax evasion is most prevalent in small firms and in the construction and agricultural sectors. Evasion is more common among individuals who work part-time, are of non-Estonian ethnicity, have relatively short education, earn a low income and are men. Tax evasion is more frequent among the young and the elderly than among the middle-aged. There are clear regional differences. The overall picture is that the relatively disenfranchised are most likely to evade payroll and income taxation in Estonia.
    Keywords: Tax evasion, unreported work, incentives, tax system
    JEL: H26 H24 D19
    Date: 2007
  12. By: David de la Croix (Department of Economics and CORE, Université Catholique de Louvain); Clara Delavallade (Panthéon Sorbonne Economie, Université Paris 1, CNRS)
    Abstract: Corruption is thought to prevent poor countries from catching-up. We analyze one channel through which corruption hampers growth: public investment can be distorted in favor of specific types of spending for which rent-seeking is easier and better concealed. To study this distortion, we propose an optimal growth model where households vote for the composition of public spending subject to an incentive constraint reflecting individuals’ choice between productive activity and rent-seeking. At equilibrium, the intensity of corruption and the structure of public investment are determined by the predatory technology and the distribution of political power. Among different regimes, the model shows a possible scenario of distortion without corruption in which there is no effective corruption yet still the possibility of corruption distorts the allocation of public investment, thus hampering growth. We test the implications of the model on a panel of countries estimating a system of equations with instrumental variables. We find that countries with a high predatory technology invest more in housing and physical capital in comparison with health and education. For equal initial conditions, such countries grow slower and have higher corruption, in particular when political power is concentrated
    Keywords: Public investment, optimal growth, corruption, political power.
    JEL: O41 H50 D73
    Date: 2007
  13. By: Evgeny Yakovlev (UC Berkeley); Ekaterina Zhuravskaya (NES, CEFIR. CERP)
    Abstract: What determines the enforcement of deregulation reform of business activities? What are the outcomes of deregulation? We address these questions using an episode of a drastic reform in Russia between 2001 and 2004 which liberalized registration, licensing, and inspections. Based on the analysis of micro-level panel data on regulatory burden, we find that: 1) The reform reduced administrative costs of firms, on average; but, the progress of reform had substantial geographical variation. 2) The enforcement of deregulation reform was better in regions with a transparent government,low corruption, strong fiscal incentives (i.e., reliance of local budgets on local taxes rather than fiscal transfers) and a powerful industrial lobby. 3) Using the exogenous variation in regulation generated by the interaction of reform and its institutional determinants, we find a substantial positive effect of deregulation on entry and small business employment and no effect on pollution and morbidity. The results support the “tollbooth” theory of the nature of regulation and are inconsistent with either the public interest theory or the regulatory capture theory.
    Date: 2007–02
  14. By: Martin Hellwig (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: The paper provides a new formulation of the Mirrlees-Seade theorem on the positivity of the optimal marginal income tax, under weaker assumptions and in a more general model. The formulation of the theorem is independent of whether the model involves finitely many types or a continuous type distribution. The formal argument makes the underlying logic transparent, relating the mathematics to the economics and showing precisely how each assumption enters the analysis.
    Keywords: Optimal Income Taxation, Utilitarian Welfare Maximization, Redistribution
    JEL: D63 H21
    Date: 2007–02
  15. By: David de la Croix (Department of Economics and CORE, Université Catholique de Louvain); Matthias Doepke (University of California, Los Angeles, CEPR, and NBER)
    Abstract: The governments of nearly all countries are major providers of primary and secondary education to its citizens. In some countries, however, public schools coexist with private schools, while in others the government is the sole provider of education. In this study,we askwhy different societiesmake different choices regarding the mix of private and public schooling. We develop a theory which integrates private education and fertility decisionswith voting on public schooling expenditures. In a given political environment, high income inequality leads to more private education, as rich people opt out of the public system. Comparing across political systems, we find that concentration of political power can lead to multiple equilibria in the determination of public education spending.
    JEL: D72 I21 H42 O10
    Date: 2007
  16. By: Guillem López; Ana Mosterin
    Abstract: The demographic shift underway in Southern Europe requires a revision of some of the fundamental principles of the traditional welfare state. We analyze the evolution of several aspects of welfare and social expenditure over the last two decades. We find that in the context of the present demographic changes and real estate boom current social and pension policy leads to a new distribution of benefits and burdens which is highly intergenerationally unequal. We argue for a revised definition of public policy based on Musgrave's proposition as a possible rule for an intergenerationally fair distribution.
    Keywords: Elderly, young, Musgrave, intergenerational equity, pensions, social expenditure, life cycle, income distribution, welfare state
    JEL: I32 I38 J14 H53 H55
    Date: 2006–11
  17. By: Schindler, Dirk (Meteorological Institute, University of Freiburg); Schjelderup, Guttorm (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: We study how harmonization of corporate tax systems affects the stability of international cartels. We show that tax base harmonization reinforces collusive agreements, while harmonization of corporate tax rates may destabilize or stabilize cartels. We also find that bilateral and full harmonization to a common standard is worse from society’s point of view than unilateral harmonization to a minimum tax standard.
    Keywords: Corporate tax systems; tacit collusion
    JEL: H87 L10
    Date: 2007–03–01
  18. By: Ritter, Moritz
    Abstract: This paper incorporates a distortionary tax into the microfoundations of money framework and revisits the optimum quantity of money. An optimal policy may consist of both a positive tax rate and a positive nominal interest rate: if the buyer’s surplus share is inefficiently small, the intensive margin is distorted and the constrained optimal policy combines a sales tax with a money growth rate above that prescribed by the Friedman rule. Monetary, but not fiscal, policy alters the agent’s bargaining position, leaving a special role for a deviation from the Friedman rule. Under similar conditions, this conclusion carries over to competitive pricing.
    Keywords: Money; Search; Friedman Rule; Sales Tax
    JEL: H21 E63 E62
    Date: 2007–02–27
  19. By: Lynne Pepall; Daniel Richards
    Abstract: We examine the informational role of targeted tax transfers used by local governments to attract corporate investment projects. The transfer may potentially be used to solve an information externality in which subsequent investments that follow the initial project may fail to occur even though they are profitable. The targeted transfer may be used to signal the profitability of such ancillary investments and thereby attract them. We show that this signaling role implies that an environment of either generally high corporate tax rates or low gains from secondary investments paradoxically yields an equilibrium in which the necessary government subsidy is lower.
    Keywords: taxes, transfers, externalities
    JEL: H23 H25
    Date: 2007
  20. By: Banerjee, Abhijit; Iyer, Lakshmi; Somanathan, Rohini
    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.
    Keywords: collective action; public goods
    JEL: H41
    Date: 2007–03
  21. By: Davide, Tondani
    Abstract: This article examines two redistributive programs: Negative Income Tax and Universal Basic Income. Its aim is to show that, even if the two programs – through the implementation of an appropriate tax-benefit system – can get the same distributive outcome, they are deeply different both from an economic point of view and an ethic perspective. The approach adopted integrates positive and normative analysis so that an explicit attention to ethical issues can provide a more complete descriptive economics. We show that Negative Income Tax scheme is consistent with the libertarian idea of distributive justice, while Basic Income matches with the egalitarian thought.
    Keywords: Basic Income; Negative Income Tax; Redistribution; Distributive Justice
    JEL: D63 D31 H53 H24
    Date: 2007–03–03
  22. By: Steven F. Kreft (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Elham Mafi-Kreft (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: Many state and local governments have focused on enacting policies to promote entrepreneurship in an effort to enhance economic growth. This paper will test the relationship between entrepreneurial activity and state economic freedom in a Granger causality framework. We build a panel data set of freedom scores and entrepreneurial activity measures within the fifty US states from 1981 to 2003, and our results show that, as a whole, economic freedom causes entrepreneurship. However, we find evidence that once entrepreneurs are in place, they increase the size of government spending, which is contradictory to economic freedom.
    Keywords: entrepreneurship, public Policy, economic freedom
    JEL: H7 H4 H1
    Date: 2007–01
  23. By: Marco Caliendo; Ludovica Gambaro; Peter Haan
    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
  24. By: Karsten Staehr
    Abstract: This paper compares the cyclical properties of fiscal policies across the 12 original eurozone countries and the future members from Central and Eastern Europe. For the sample period 1995-2005, the fiscal balance exhibits less inertia and is more counter-cyclical in Central and Eastern European countries than in members of the eurozone. The main differences arise from the revenue side. Differences in the formation of fiscal policy between current and future eurozone countries decrease over time. Autonomous fiscal policy has little or no effect on cyclical variability in either of the two groups of countries. Counter-cyclical fiscal policy appears to be effective in Central and Eastern European countries, but largely ineffective in eurozone countries
    Keywords: fiscla policy determinants, fiscal policy effects, eurozone expansion
    JEL: E62 E63 E32
    Date: 2007–03–08
  25. By: Enrique Alberola (Banco de España); José M. Montero (Banco de España)
    Abstract: The computation of structural primary balances for the nine main Latin American countries and their comparison of their changes with their cyclical position during the period 1981 2004 confirms that fiscal policy is procyclical in the region. From this evidence, the paper shows strong evidence that the fiscal behaviour is closely linked to the financial vulnerability position of the economies and in particular to the perception on the sustainability of debt. The current threshold balance, defined as the primary balance which would render the debt stable under the existing economic and financial conditions, is used as our gauge for measuring debt sustainability at each point in time. The empirical analysis reveals that the fiscal stance tightens when the debt sustainability perceptions worsen, and that this effect is stronger the less sustainable debt is perceived. The results are robust to different specifications and estimation methods.
    Keywords: procyclical fiscal policy, debt sustainability
    JEL: H6 E6 F3
    Date: 2006–05
  26. By: Steven F. Kreft (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: Previous research has concluded that there are no efficiency differences between elected mayor-council (EMC) and council-manager (CM) city governments. However, the CM form has recently surpassed the EMC form to become the most popular U.S. city government. This paper provides an alternative method of testing the relative efficiency of the two forms of government. Relying on capitalization theory of local public goods, I develop a hedonic price model for Ohio metropolitan home sales. Results show that houses within a CM city have a pricing premium that can be attributed to the relative efficiency of the CM government.
    Keywords: city manager, government efficiency, local public goods, hedonic, capitalization
    JEL: H7 H4 H1
    Date: 2007–01
  27. By: Juan A. Rojas (Banco de España); Carlos Urrutia (Centro de Investigación Económica, Instituto Tecnológico Autónomo de México (ITAM))
    Abstract: We study the aggregate effects of a social security reform in a large overlapping generations model where markets are incomplete and households face uninsurable idiosyncratic income shocks. We depart from the previous literature by assuming that, because of lack of commitment in the credit market, the borrowing constraint in the unique asset is endogenously determined by the agents' incentives to default on previous debts. We find that a model with fixed borrowing constraints overestimates the positive effect of reforming social security on the capital stock and the saving rate, compared to our model with endogenous borrowing limit. The reason is that, in the latter, the size of precautionary savings is smaller because after the reform the incentives to default on previous debts are lower and consequently households face more relaxed borrowing limits. Adding retirement accounts to the basic model does not change these conclusions, although the quantitative importance of endogenizing borrowing constraints is reduced.
    Keywords: social security, borrowing constraints, retirement accounts
    JEL: E6 G23 H55
    Date: 2006–02
  28. By: Douglas Sutherland; Robert Price; Isabelle Joumard; Chantal Nicq
    Abstract: This paper assesses the potential to raise public spending efficiency in the primary and secondary education sector. Resource availability per pupil has increased significantly over the past decade in a number of countries; often in attempting to exploit the link between educational attainment and growth. However, available evidence reveals only a weak correlation between increased resource availability and pupil performance. In order to draw cross-country comparisons... <P>Indicateurs de performance de l'efficacité des dépenses publiques d'éducation dans l'enseignement primaire et secondaire <BR>Ce document évalue les possibilités d'accroître l'efficacité des dépenses publiques d'éducation dans l'enseignement primaire et secondaire. Les ressources disponibles par élève se sont accrues sensiblement au cours de la dernière décennie dans un certain nombre de pays, souvent dans l?espoir d'exploiter le lien entre niveau d'instruction et croissance. Pourtant les études disponibles ne révèlent qu'une faible corrélation entre la disponibilité croissante des ressources...
    Keywords: education, dépenses publiques, éducation, public spending, efficiency, efficacité, nonparametric methods, méthodes non paramétriques, data envelopment analysis, analyse par enveloppement des données, stochastic frontier analysis, analyse de frontière stochastique
    JEL: C14 C21 D24 H41 H52 I21 I22 I28
    Date: 2007–02–27
  29. By: Guzmán, Ricardo Andrés; Rodríguez-Sickert, Carlos; Rowthorn, Robert
    Abstract: We model the coevolution of behavioral strategies and social learning rules in the context of a cooperative dilemma, a situation in which individuals must decide whether or not to subordinate their own interests to those of the group. There are two learning rules in our model, conformism and payoff-dependent imitation, which evolve by natural selection, and three behavioral strategies, cooperate, defect, and cooperate plus punish defectors, which evolve under the influence of the prevailing learning rules. Group and individual level selective pressures drive evolution. We also simulate our model for conditions that approximate those in which early hominids lived. We find that conformism can evolve when the only problem that individuals face is a cooperative dilemma, in which prosocial behavior is always costly to the individual. Furthermore, the presence of conformists dramatically increases the group size for which cooperation can be sustained. The results of our model are robust: they hold even when migration rates are high, and when conflict among groups is infrequent.
    Keywords: Evolution of behavior; Social learning; Cooperation; Conformism; Altruistic punishment; Public good games
    JEL: Z13 Z1 H41
    Date: 2006–04–06
  30. By: Frédéric Gonand
    Abstract: This paper assesses the impact on economic growth of increased efficiency of public spending in primary and lower-secondary education. Higher efficiency in public spending in schools can bolster growth through two main channels. On the one hand, it can allow a transfer of labour from the public sector to the business sector at unchanged educational output. On the other, it can enhance educational output and productivity of the future labour force at unchanged public employment and expenditures. The paper argues that, in most cases, efficiency gains... <P>Effet sur la croissance d'un système éducatif primaire et secondaire plus efficace <BR>Ce document de travail évalue l'effet sur le PIB d'une efficacité accrue de la dépense publique dans le secteur de l'éducation primaire et secondaire. Une plus grande efficacité du système éducatif peut soutenir l'activité notamment grâce à des transferts d'effectifs du secteur public vers le secteur privé, ou une hausse de la performance des élèves et de leur productivité future à dépenses...
    Keywords: human capital, réforme structurelle, capital humain, structural reforms, Public education, Public spending efficiency, Education nationale, Efficacité de la dépense publique, long-run economic growth, croissance à long terme
    JEL: H11 I20 I28
    Date: 2007–02–27
  31. By: Thomas Siedler
    Abstract: This paper examines whether schooling has a positive impact on individual's political interest, voting turnout, democratic values, political involvement and political group membership, using the German General Social Survey (ALLBUS). Between 1949 and 1969 the number of compulsory years of schooling was increased from eight to nine years in the Federal Republic of Germany, gradually over time and across federal states. These law changes allow one to investigate the causal impact of years of schooling on citizenship. Years of schooling are found to be positively correlated with a broad range of political outcome measures. However, when exogenous increase in schooling through law changes is used, there is no evidence of a causal effect running from schooling to citizenship in Germany.
    Keywords: Voting, civic engagement, education, externalities, instrumental variables estimation
    JEL: I2 H4 H23
    Date: 2007
  32. By: Mari Rege, Kjetil Telle and Mark Votruba (Statistics Norway)
    Abstract: We estimate the magnitude of social interaction effects in disability pension participation among older workers in Norway. Specifically, we investigate how a worker’s propensity to draw disability benefits is affected by a plausibly exogenous shock to the disability entry rate of similarly-aged workers in his or her neighborhood. The problem of omitted variable bias is addressed by employing a novel instrumental variable (IV) strategy, using plant downsizing at neighbors’ plants of employment as an instrument for the disability entry rate among one’s previously employed neighbors. Our IV estimates suggest that a one percentage point increase in the participation rate of previously employed neighbors increased the subsequent 4-year entry rate of workers by about one-half a percentage point. Numerous robustness and specification tests appear to support the validity of the identifying assumption in our IV strategy.
    Keywords: disability; downsizing; layoffs; plant closings; social insurance; social interaction; welfare norms
    JEL: H55 I12 I38 J63 J65
    Date: 2007–03
  33. By: Helen Simpson
    Abstract: This paper discusses issues arising in the measurement of productivity in public services. Compared to measuring productivity in the private sector difficulties arise because the output of public services is often un-priced and because some public services are consumed collectively. A key problem is measuring the full range of outputs and quality improvements delivered by public sector organisations that are valued by society. Without comprehensive measures of output productivity statistics may be misleading. I outline methods used in the measurement of both private and public sector productivity and discuss the measurement of public sector productivity in practice. Finally I discuss studies that examine factors underlying productivity differences and productivity growth in public and private sector organisations. Public sector reforms and the use of pilot schemes in public sector organisations present opportunities for research to identify causal effects on productivity.
    Keywords: Productivity; Public enterprises
    JEL: D24 H4 L32
    Date: 2007–01
  34. By: Svaleryd, Helena (Research Institute of Industrial Economics); Vlachos, Jonas (Stockholm University)
    Abstract: A fundamental problem in all political systems is that the people in power may extract rents to the detriment of the general public. In a democracy, electoral competition and information provided by the media may keep such rent extraction at bay. We develop a simple model where rents are decreasing in the degree of political competition and voter information. In line with our theoretical predictions, we find that both increased political competition and increased local media coverage reduce direct measures of (legal) political rents among local governments in a non-corrupt democracy (Sweden). Our findings also indicate that the two dimensions of accountability are substitutes rather than complements.
    Keywords: Accountability; Political Competition; Media; Political Rents
    JEL: D72 H10 H70
    Date: 2007–02–16
  35. By: Waldenström, Daniel (Research Institute of Industrial Economics); Ohlsson, Henry (Department of Economics); Roine, Jesper (Department of Economics)
    Abstract: The objective of this paper is to study the dynamics of the wealth distribution over the path of economic development. More specifically, we are interested in distinguishing between changes which seem to be country specific and characteristics shared by all countries. A historical account of the evolution of the wealth distribution in developed countries is interesting in itself, but it can also hold implications for countries that are currently in an early stage of development or in transition. The data used originates from the taxation of wealth and estates.
    Keywords: Wealth Concentration; Inequality; Income Distribution; Wealth Distribution; Sweden
    JEL: D31 H20 J30 N30
    Date: 2007–02–22
  36. By: Thomas P. Lyon (Ross School of Business, University of Michigan); John W. Maxwell (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: “Public voluntary programs” (PVPs) involve government offers of positive publicity and technical assistance to firms that reach certain environmental goals. A growing body of empirical evidence suggests these programs often have little impact on the behavior of their participants. A natural policy conclusion would be to eliminate these programs, but this paper offers several reasons not to jump to such a conclusion. We first present a political-economic framework in which PVPs are viewed as modest subsidies used when political opposition makes stronger environmental regulation infeasible. We then explore the design of PVPs in detail, showing how PVPs can potentially enhance the diffusion of cost-effective techniques for pollution abatement, so long as the information involved is not competitively sensitive. Identifying the effects of PVPs econometrically is difficult because information is likely to diffuse to non-participants. Thus, after the early phases of even a successful PVP, it may well be impossible to detect a difference in performance between participants and non-participants.
    Date: 2007
  37. By: Guillem López
    Abstract: Recent policy developments in public health care systems lead to a greater diversity in health care. Decentralisation, either geographically or at an institutional level, is the key force, because it encourages innovation and local initiatives in health care provision. The devolution of responsibilities allows for a sort of ‘de-construction’ of the status quo by changing both organizational forms and service provision. The new organizations enjoy greater freedom in the way they pay their staff, and are judged according to their results. These organizations may retain financial surpluses, develop ‘spin-off’ companies and commission a range of specialised services (such as Diagnostic and Treatment Centres in UK) from providers outside the institutional setting in order to have more access to capital markets. However this diversity may generate a feeling of lack of commitment to a national health service and ultimately a loss of social cohesion. By fiscal decentralisation to regional authorities or planned delegation of financial agreements to the providers, financial incentives are more explicit and may seem to place profit-making above a commitment to better health care. An evaluation of the ‘myths and realities’ of the decentralization process is needed. Here, I offer an assessment ‘pros’ and ‘cons’of the decentralization process of health care in Spain, drawing on the experience of regional reforms from the pioneering organisational innovations implemented in Catalonia in 1981, up to the observed dispersion of health care spending per capita among regions at present.
    Keywords: Fiscal decentralisation, management autonomy, hospital innovation, National Health system, Spain, regional health service, Catalonia
    JEL: H11 H51 H73 H77 H83 I18
    Date: 2006–11
  38. By: Antonio Estache; Marianela González; Lourdes Trujillo (Department of Economics, City University, London and DAEA, Universidad de Las Palmas de Gran Canaria)
    Abstract: All interested parties seem to agree that it’s important to be able to monitor public-sector performance at the sectoral level, but most current work based on multicountries databases doesn’t lend itself to country-specific conclusions. This is due to a large extent to major data limitations both on sectoral expenditures and on sectoral outcomes. This paper discusses the related issues and shows what we can do with the current data in spite of the drastic limitations. The main conclusion of the paper is that any efforts to assess country specific performances in relative terms are likely to be difficult in view of the data problems. A rough sense of performance across sectors can be estimated for groups of countries, allowing some modest benchmarking exercises. These estimates show that low income countries generally lag higher income countries significantly. However, efficiency has improved during the 1990s in energy and education but has not improved significantly in transport.
    Date: 2007–02
  39. By: Guillem López; David McDaid; Joan Costa-Font
    Abstract: The organisation of inpatient care provision has undergone significant reform in many southern European countries. Overall across Europe, public management is moving towards the introduction of more flexibility and autonomy . In this setting, the promotion of the further decentralisation of health care provision stands out as a key salient policy option in all countries that have hitherto had a traditionally centralised structure. Yet, the success of the underlying incentives that decentralised structures create relies on the institutional design at the organisational level, especially in respect of achieving efficiency and promoting policy innovation without harming the essential principle of ‘equal access for equal need’ that grounds National Health Systems (NHS). This paper explores some of the specific organisational developments of decentralisation structures drawing from the Spanish experience, and particularly those in the Catalonia. This experience provides some evidence of the extent to which organisation decentralisation structures that expand levels of autonomy and flexibility lead to organisational innovation while promoting activity and efficiency. In addition to this pure ‘managerial decentralisation’ process, Spain is of particular interest as a result of the specific regional NHS decentralisation that started in the early 1980’s and was completed in 2002 when all seventeen autonomous communities that make up the country had responsibility for health care services. Already there is some evidence to suggest that this process of decentralisation has been accompanied by a degree of policy innovation and informal regional cooperation. Indeed, the Spanish experience is relevant because both institutional changes took place, namely managerial decentralisation – leading to higher flexibility and autonomy- alongside an increasing political decentralisation at the regional level. The coincidence of both processes could potentially explain why some organisation and policy innovation resulting from policy experimentation at the regional level might be an additional feature to take into account when examining the benefits of decentralisation.
    Keywords: Management autonomy, hospital innovation, National Health system, Spain, regional health service, Catalonia
    JEL: H11 H51 H73 H77 H83 I18
    Date: 2006–11
  40. By: Esther Velázquez (Department of Economics, Universidad Pablo de Olavide); M. Alejandro Cardenete (Department of Economics, Universidad Pablo de Olavide); Geoffrey J.D. Hewings (Regional Economics Application Laboratory and University of Illinois)
    Abstract: The objective of this work is to analyze the effects that an increase in the price of the water delivered to the agriculture sector to promote the conservation of this resource would have on the efficiency of the consumption of water and the possible reallocation of water to the remaining productive sectors. The analysis is motivated by the fact that the agriculture consumes a disproportionately large amount of water at very low prices. The methodology that will be used to explore the implications on the economy will be a computable general equilibrium model (CGE), previously designed for an analysis of the direct taxes of the Andalusian economy (Cardenete and Sancho, 2003), but now enhanced and extended to include emissions of pollutants and the introduction of environmental taxes (André, Cardenete and Velázquez, 2005). This model has been further modified to introduce the variations in the water price that we will try to analyze by means of a tariff applied on the production structure. The main conclusion drawn indicates that, although the tax policy applied does not correspond to a significant water saving in the above-mentioned sector, a reallocation of this resource is achieved which seems to generate a more efficient and more rational behavior from a production point of view.
    Keywords: environmental tax reforms, computable general equilibrium, water price
    JEL: D58 H21 H22
    Date: 2007–03
  41. By: Lange, Andreas; Vogt, Carsten; Ziegler, Andreas
    Abstract: Based on unique data from a world-wide survey of agents involved in international climate policy, this paper empirically analyzes the importance of equity in this field. We find that equity issues are considered highly important in international climate negotiations and that the polluter-pays rule and the accompanying poor losers rule are the most widely accepted equity principles. Our econometric analysis shows a strong influence of the economic or emission performance of the agents’ country on the importance of equity issues and principles: (i) Equity issues are seen as more important by individuals from G77/China countries or from countries with less current per capita GDP and less future per capita CO2 emissions. (ii) Agents from richer countries are less in favor of incorporating the polluter-pays and the ability-to-pay principle in future international climate agreements. (iii) The poor losers rule is more strongly supported by individuals from G77/China countries or by individuals from countries with less current per capita GDP. While these results are consistent with pure economic self-interest, the support for the egalitarian principle runs contrary to economic intuition: In the long-run, agents from richer countries are more in favor of incorporating the egalitarian principle. Furthermore, the effect of the economic performance variables on the desired degree of incorporating the polluter-pays principle interestingly becomes less significant in the long-run. This indicates that future international climate agreements could possibly be based on a combination of the polluter-pays, the egalitarian, and the poor losers rule.
    Keywords: International Climate Policy, International Environmental Negotiations, Equity Issues, Probit Models
    JEL: D63 H41 Q48 Q54
    Date: 2006
  42. By: Giovanni B. Concu (Risk and Sustainable Management Group, University of Queensland)
    Abstract: The size of a jurisdiction is crucial in determining the efficiency, equity or efficacy of environmental regulations. However, jurisdictions are usually taken to coincide with political boundaries even if environmental externalities may transcend them. This paper illustrates the design and implementation of a Choice Modelling experiment to determine the spatial distribution of environmental benefits of Kings Park (Western Australia). The objective is to understand if federal, state or local resources are the appropriate form of funding a conservation policy. Results indicate that there are interstate spillovers of benefits, hence justifying federal contributions to Kings Park. They also show that some benefits are homogeneously spread within Western Australia, and this is an indication that state funding is also appropriate. Other benefits are distance-dependent; some level of local/council funding is warranted
    Keywords: federal regulation, decentralised policies, benefits spillovers, environmental valuation, choice modelling, distance
    JEL: H77 Q51 Q58
    Date: 2006–11

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