nep-pbe New Economics Papers
on Public Economics
Issue of 2007‒04‒09
sixty-five papers chosen by
Peren Arin
Massey University

  1. Coordination of Monetary and Fiscal Policy in a Monetary Union: Policy Issues & Analytical Models* By Matthew Canzoneri
  2. Public Attitudes Toward Corruption and Tax Evasion: Investigating the Role of Gender Over TIme By Benno Torgler; Neven T. Valev
  4. Fiscal Policy in Developing Countries: A Synoptic View By Raghbendra Jha
  5. Tax Competition for Heterogeneous Firms with Endogenous Entry: The Case of Heterogeneous Fixed Costs By Ronald B. Davies; Carsten Eckel
  6. A Dynamic Theory of Public Spending, Taxation and Debt By Marco Battaglini; Stephen Coate
  7. Expenditure reform in industralised countries : a case study approach By Hauptmeier, Sebastian; Heipertz, Martin; Schuknecht, Ludger
  8. Fiscal policy rules in practice By Thams, Andreas
  9. Expansionary fiscal consolidations in Europe: part of conventional wisdom? By António Afonso
  10. Public Sector Efficiency: The Roles of Political and Budgetary Institutions, Fiscal Capacity and Democratic Participation By Lars-Erik Borge; Torberg Falch; Per Tovmo
  11. A Single-Mindedness model with n generations By Emanuele, Canegrati
  12. Tax Morale after the Reunification of Germany: Results from a Quasi-Natural Experiment By Benno Torgler; Lars P. Feld
  13. With or Against the People? The Impact of a Bottom-Up Approach on Tax Morale and the Shadow Economy By Benno Torgler; Friedrich Schneider; Christoph A. Schaltegger
  14. Retirement, health, unemployment, the business cycle and automatic stabilization in the OECD By Julia Darby; Jacques Mélitz
  15. Taxation and capital structure choice : evidence from a panel of German multinationals By Büttner, Thiess; Overesch, Michael; Schreiber, Ulrich; Wamser, Georg
  16. Redealing the Cards: How the Presence of an Eco-Industry Modifies the Political Economy of Environmental Policies By Joan Canton
  17. Taxes and Decision Rights in Multinationals By Nielsen, Søren Bo; Raimondos-Møller, Pascalis; Schjelderup, Guttorm
  18. Flatliners: Ideology and Rational Learning in the Diffusion of the Flat Tax By Alexander Baturo; Julia Grey
  19. A simulation of the effects of the personal income tax reform on the tax burden By Isabel Argimón; Francisco de Castro; Ángel Luis Gómez
  20. Will corporate tax consolidation improve efficiency in the EU? By Albert van der Horst; Leon Bettendorf; Hugo Rojas-Romagosa
  21. A Fresh Assessment of the Underground Economy and Tax Evasion in Pakistan: Causes, Consequences, and Linkages with the Formal Economy By M. Ali Kemal
  22. Shadow Economy, Tax Morale, Governance and Institutional Quality: A Panel Analysis By Benno Torgler; Friedrich Schneider
  23. The Impact of Thin-Capitalization Rules on Multinationals’ Financing and Investment Decisions By Büttner, Thiess; Overesch, Michael; Schreiber, Ulrich; Wamser, Georg
  24. Structural balances and revenue windfalls - the role of asset prices revisited By Richard Morris; Ludger Schuknecht
  25. Singapore’s Recurrent Budget Surplus The Role of Conservative Growth Forecasts By Tilak Abeysinghe; Ananda Jayawickrama
  26. Dynamic environmental taxes in an international duopoly By Shuichi Ohori
  27. Educational Federalism and the Quality Effects of Tuition Fees By Alexander Kemnitz
  28. A Blue Print For Germany’s Pension Reform By Börsch-Supan, Axel
  29. The Future of Social Security By Martin Gonzalez-Eiras; Dirk Niepelt
  30. Funding, Competition and Quality in Higher Education By Alexander Kemnitz
  31. Factions and Political Competition By Nicola Persico; José Carlos Rodríguez-Pueblita; Dan Silverman
  32. The Impact Of The European Union Fiscal Rules On Economic Growth By Castro, Vítor
  33. Carbon Taxes and Joint Implementation By Böhringer, Christoph; Conrad, Klaus; Löschel, Andreas
  34. Empirical Macromodels Under Test By Buscher, Herbert S.; Buslei, Hermann; Göggelmann, Klaus; Koschel, Henrike
  35. Income Instability of Lone Parents, Singles and Two-Parent Families in Canada, 1984 to 2004 By Morissette, Rene; Ostrovsky, Yuri
  36. The German Savings Puzzle By Börsch-Supan,Axel; Reil-Held, Anette; Rodepeter, Ralf; Schnabel, Reinhold
  37. Property Rights and the Urban Environment: Local Public Goods in Indonesian Cities By Hoy, M.; Jimenez, E.
  38. Competition for Firms in an Oligopolistic Industry: Do Firms or Countries Have to Pay? By Haufler, Andreas; Wooton, Ian
  39. Fiscal Discipline and Stability under Currency Board Systems By Oliver Grimm
  40. Can Immigrant Employment Alleviate the Demographic Burden? The Role of Union Centralization By Alexander Kemnitz
  41. Does the IMF cause moral hazard and political business cycles? Evidence from panel data By Dreher, Axel; Vaubel, Roland
  42. Competition in Transportation Models and the Provision of Infrastructure Services By Conrad, Klaus
  43. Public Sector Sponsored Continuous Vocational Training in East Germany: Institutional Arrangements, Participants, and Results of Empirical Evaluations By Eichler, Martin; Lechner, Michael
  44. Rethinking Pension Reform: Ten Myths about Social Security Systems By Börsch-Supan,Axel
  45. How unobservable Bond Positions in Retirement Accounts affect Asset Allocation By Raimond Maurer; Marcel Marekwica
  46. Age and Cohort Effects in Saving and the German Retirement System By Börsch-Supan, Axel
  47. The case of two self-enforcing international agreements for environmental protection By Dritan Osmani; Richard S.J. Tol
  48. Assessing the performance of the public sector By Pierre Pestieau
  49. Pension reform, capital markets, and the rate of return By Börsch-Supan, Axel; Heiss, Florian; Winter, Joachim
  50. Environmental Taxation and International Eco-Industries By Joan Canton
  51. Strategic Delegation and Voting Rules By Bard Hastad
  52. Optimal Gradual Annuitization: Quantifying the Costs of Switching to Annuities By Raimond Maurer; Wolfram Horneff; Michael Stamos
  53. Does an Aging Population Increase Inequality? By v. Weizsäcker, Robert K.
  54. Voluntary Environmental Agreements, Emission Taxes and International Trade: The Importance of the Timing of Strategies By Conrad, Klaus
  55. Does the Wagner’s Law hold for Thailand? A Time Series Study By Sinha, Dipendra
  56. Geographic Redistribution of the U.S. Manufacturing and The Role of State Development Policy By Yoonsoo Lee
  57. Preferences, Information, and Parental Choice Behavior in Public School Choice By Justine S. Hastings; Richard Van Weelden; Jeffrey Weinstein
  58. Aging and International Capital Flows By Börsch-Supan, Axel; Ludwig, Alexander; Winter, Joachim
  59. The Productivity Argument for Investing in Young Children By James J. Heckman; Dimitriy V. Masterov
  60. The Value of a Statistical Life: a Meta-Analysis with a Mixed Effects Regression Model By François Bellavance; Georges Dionne; Martin Lebeau
  61. Unemployment, Technology and the Welfare Effects of Immigration By Alexander Kemnitz
  62. Use, misuse and proper use of national accounts statistics By Bos, Frits
  63. And Then There Were Four... : How Many (and Which) Measures of Active Labor Market Policy Do We Still Need? ; Finding a Balance after the Evaluation of the Hartz Reforms in Germany By Werner Eichhorst; Klaus F. Zimmermann
  64. Values, Beliefs and Development By Jeffry Jacob; Thomas Osang
  65. Celebrating Pork: The Dubious Success of the Medicare Drug Benefit Health Insurance for the Elderly By Dean Baker

  1. By: Matthew Canzoneri (Department of Economics Georgetown University)
    Abstract: Non
    Date: 2007–02–02
  2. By: Benno Torgler; Neven T. Valev
    Abstract: In recent years the topics of illegal activities such as corruption or tax evasion have attracted a great deal of attention. However, there is still a lack of substantial empirical evidence about the determinants of compliance. The aim of this paper is to investigate empirically whether women are more willing to be compliant than men focusing on corruption and tax evasion and whether we observe (among women and in general) differences in attitudes among similar age groups in different time periods (cohort effect) or changing attitudes of the same cohorts over time (age effect). Method. Thus, this paper will use data from eight Western European countries from the World Values Survey and the European Values Survey that span the period from 1981 to 1999. Results. The results reveal higher willingness to comply among women and an age rather than a cohort effect. Conclusions. Thus, our results are in line with previous studies that found strong gender differences but are not in line with the equality and role theory that would suggest a decrease of gender differences with greater equality of status between men and women over time.
    Date: 2007–04–03
  3. By: Iris Claus
    Abstract: This paper develops an open economy model to assess the long-run effects of taxation where firms are finance constrained. Finance constraints arise because of imperfect information between borrowers and lenders. Only borowers (firms) can costlessly observe actual returns from production. Imperfect information and finance constraints magnify the effects of taxation. A reduction (rise) in income taxation increases (lowers) firms' internal funds and their ability to assess external finance to expand production. The findings thus underline the importance of incorporating access to finance into models that assess the impact of taxation.
    JEL: H2 E44 F41
    Date: 2006–08
  4. By: Raghbendra Jha
    Abstract: This paper presents a broad overview of fiscal issues confronting developing countries. Three of these are (i) developing countries have low tax/GDP and expenditure/GDP ratios compared to developed countries, even though developing countries need more public expenditure; (ii) developing country fiscal stance is often pro-cyclical; (iii) developing country tax resources are more volatile than those of developed countries. I also consider the issue of budgetary deficits and problems arising therefrom in developing countries. I then discuss some widely accepted norms for tax and expenditure reforms as also some issues of intergovernmental transfers in federal developing countries.
    Keywords: Fiscal Policy, tax, expenditure, fiscal transfers
    JEL: H20 H24 H25 H63 H77
    Date: 2007
  5. By: Ronald B. Davies (University of Oregon Economics Department); Carsten Eckel (University of Goettingen)
    Abstract: This paper models tax competition for mobile firms that are differentiated by the amount of labor needed to cover fixed costs. Because tax competition affects the distribution of firms, it affects both relative equilibrium wages across countries and equilibrium prices. These in turn influence the equilibrium number of firms. From the social planner's perspective, optimal tax rates are harmonized, providing the optimal number of firms, and set such that income is efficiently distributed between private and public consumption. As is common in tax competition models, in the Nash equilibrium tax rates are inefficiently low, yielding underprovision of public goods. Furthermore, there exist a variety of situations in which equilibrium tax rates differ. As a result, too many firms enter the market as governments compete to be the low-tax, high-wage country. This illustrates a new distortion from tax competition and provides an additional benefit from tax harmonization.
    Keywords: Tax Competition, Foreign Direct Investment, Tax Harmonization
    JEL: F12 F23 H25
  6. By: Marco Battaglini; Stephen Coate
    Abstract: This paper presents a dynamic political economy theory of public spending, taxation and debt. Policy choices are made by a legislature consisting of representatives elected by geographically-defined districts. The legislature can raise revenues via a distortionary income tax and by borrowing. These revenues can be used to finance a national public good and district-specific transfers (interpreted as pork-barrel spending). The value of the public good is stochastic, reflecting shocks such as wars or natural disasters. In equilibrium, policy-making cycles between two distinct regimes: “business-as-usual” in which legislators bargain over the allocation of pork, and “responsible-policy-making” in which policies maximize the collective good. Transitions between the two regimes are brought about by shocks in the value of the public good. In the long run, equilibrium tax rates are too high and too volatile, public good provision is too low, and debt levels are too high. In some environments, a balanced budget requirement can improve citizen welfare.
  7. By: Hauptmeier, Sebastian; Heipertz, Martin; Schuknecht, Ludger
    Abstract: This study examines reforms of public expenditure in industrialised countries over the past two decades. We distinguish ambitious and timid reformers and analyse in detail reform experiences in eight case studies of ambitious reform episodes. We find that ambitious reform countries reduce spending on transfers, subsidies and public consumption while largely sparing education spending. Such expenditure retrenchment is also typically part of a comprehensive reform package that includes improvements in fiscal institutions as well as structural and other macroeconomic reforms. The study finds that ambitious expenditure retrenchment and reform coincides with large improvements in fiscal and economic growth indicators.
    Keywords: public expenditure, expenditure reform, economic growth, deficit, debt, employment, case studies, fiscal institutions
    JEL: H5 H6 O57
    Date: 2006
  8. By: Thams, Andreas
    Abstract: This paper analyzes German and Spanish fiscal policy using simple policy rules. We choose Germany and Spain, as both are Member States in the European Monetary Union (EMU) and underwent considerable increases in public debt in the early 1990s. We focus on the question, how fiscal policy behaves under rising public debt ratios. It is found that both Germany and Spain generally exhibit a positive relationship between government revenues and debt. Using Markov-switching techniques, we show that both countries underwent a change in policy behavior in the light of rising debt/output ratios at the end of the 1990s. Interestingly, this change in policy behavior differs in its characteristics across the two countries and seems to be non-permanent in the case of Germany.
    Keywords: Fiscal policy; policy rule; policy interaction; sustainability of fiscal policy; regime switches
    JEL: E61 E62 E65
    Date: 2007–04
  9. By: António Afonso (ECB and ISEG/UTL-Technical University of Lisbon)
    Abstract: In order to assess whether expansionary fiscal consolidations can be part of conventional wisdom, panel data models for private consumption are estimated for the EU15 countries, using annual data over the period 1970–2005. Three alternative approaches to determine fiscal episodes are used, and the level of government indebtedness is also taken into account. The results show some evidence in favour of the existence of expansionary fiscal consolidations, for a few budgetary spending items (general government final consumption, social transfers, and taxes), depending on the specification and on the time span used. On the other hand, the possibility of asymmetric effects of fiscal episodes does not seem to be corroborated by the results
    Keywords: fiscal policy, expansionary fiscal consolidations, non-Keynesian effects, panel data models, European Union
    JEL: C23 E21 E62
    Date: 2007–02–02
  10. By: Lars-Erik Borge (Department of Economics, Norwegian University of Science and Technology); Torberg Falch (Department of Economics, Norwegian University of Science and Technology); Per Tovmo (Department of Economics, Norwegian University of Science and Technology)
    Abstract: The purpose of this paper is to investigate whether efficiency in public service provision is affected by political and budgetary institutions, fiscal capacity, and democratic participation. In order to address this issue we take advantage of a new global efficiency measure for Norwegian local governments. There is strong evidence that high fiscal capacity and a high degree of party fragmentation contributes to low efficiency. In addition we find that increased democratic participation tends to increase efficiency, while a centralized top down budgetary process is associated with low efficiency.
    Keywords: Public sector efficiency; Political and budgetary institutions; Fiscal capacity; Democratic Participation
    JEL: H72 H75
    Date: 2007–05–01
  11. By: Emanuele, Canegrati
    Abstract: In this paper I will analyse the redistribution of income amongst n generations using the Single-mindedness Theory. I will introduce a new expression for the balanced-budget constraint, no longer based on lump- sum transfers as in the traditional literature, but rather on more realistic labour income taxation. Since the Government has to clear the budget, some generations obtain a benefit, whilst some other must pay the entire cost of social secutiry systems. I will demonstrate that generations which are more single-minded on leisure are the most better off since they are more able to capture politicians in the political competition. Further- more, it could be the case that candidates are not forced to undertake the same policies in equilibrium and I will demonstrate that this result holds only once an endogenous density function for individual preferences for politicians is considered.
    Keywords: income distribution; probabilistic voting models; Single-mindedness; overlapping generations
    JEL: H50 D63 H61 D72 I38 H11 H55 D31 H24 J13 D11 D30 C72 H53 H23 J26 D71 H31 J2 H60 J22 D74
    Date: 2007–04
  12. By: Benno Torgler; Lars P. Feld
    Abstract: This paper provides a comparison of tax morale between inhabitants of East and West Ger¬many in its post-reunification period, using three World Values Survey/European Values Sur¬vey waves between 1990 and 1999. German reunification is particularly inter¬esting for the ana¬¬ly¬sis of tax morale as it is close to a natural experiment. Many factors can be controlled be¬¬cause they are similar, as, e.g., a common language, similar education systems and a shared cultural and political history prior to the separation after the Second World War. As a conse¬quence, an East-West comparison has a methodological advantage compared to cross-country studies. Our findings show higher tax morale in East than in West Germany. However, in only 9 years after reunification, tax morale values strongly converged, especially due to a strong change in the level of tax morale in the East. We suggest that this convergence in tax morale between East and West Germany, despite efforts of the federal government to increase de¬terrence, indicates that tax morale is more strongly driven by other factors than deterrence.
    Keywords: Tax Morale, Tax Evasion, Deterrence, Quasi-Natural Experiment
    JEL: H26 H73 D78 C93
    Date: 2007–03–01
  13. By: Benno Torgler; Friedrich Schneider; Christoph A. Schaltegger
    Abstract: Policymakers often propose strict enforcement strategies to fight the shadow economy and to increase tax morale. However, there is also a bottom-up approach: decentralizing the political power to those who are close to the problems and give them a direct political say. This paper analyses the impact of direct democracy and local autonomy on tax morale and the size of the shadow economy. We use two different data sets on tax morale at the individual level (World Values Survey and International Social Survey Programme), and macro data of the size of the shadow economy to systematically analyse the effects of institutions in Switzerland, a country where participation rights and the degree of federalism vary across different cantons. The findings suggest that direct democratic rights and local autonomy, have a significantly positive effect on tax morale and the size of the shadow economy.
    Keywords: Tax Morale, Shadow Economy, Tax Compliance, Tax Evasion, Direct Democracy, Local Autonomy
    JEL: H26 H73 D70
    Date: 2007–02–01
  14. By: Julia Darby (University of Strathclyde); Jacques Mélitz (University of Strathclyde, CREST-INSEE, and CEPR)
    Abstract: Official adjustments of the budget balance to the cycle assume that the only category of gov-ernment spending that responds automatically to the cycle is unemployment compensation. But estimates show otherwise. Payments for pensions, sickness, subsistence, invalidity, childcare and subsidies of all sorts to firms respond automatically and significantly to the cycle as well. In addition, it is fairly common to use official figures for cyclically adjusted budget balances, di-vide by potential output, and use the resulting ratios to study discretionary fiscal policy. But if potential output is not deterministic but subject to supply shocks, then apart from anything else, those ratios are inefficient estimates of the cyclically-independent ratios of budget balances di-vided by potential output. (A fortiori, they are inefficient estimates of the cyclically adjusted ratios of budget balances to observed output.) Accordingly, the paper makes use of detailed data from the OECD’s Social Expenditure database to produce separate estimates of the impact of the cycle on disaggregated components of the budget balance, both in levels and in the form of their ratios to output. In addition, we discuss the relation between the two sorts of estimates. When the focus is on ratios of expenditure and revenue to output, the cyclical adjustments de-pend more on inertia in government spending on goods and services than they do on taxes (which are largely proportional to output). But they depend even still more on transfer pay-ments. Besides calling for different series for discretionary fiscal policy if ratios serve, these results also raise questions about the general policy advice to “let the automatic stabilizers work.â€
    Keywords: automatic stabilization, discretionary fiscal policy, cyclically adjusted budget balances
    JEL: E0 E6
    Date: 2007–02–02
  15. By: Büttner, Thiess; Overesch, Michael; Schreiber, Ulrich; Wamser, Georg
    Abstract: This paper analyzes the impact of taxes and lending conditions on the financial structure of multinationals’ foreign affiliates. The empirical analysis employs a large panel of affiliates of German multinationals in 26 countries in the period from 1996 until 2003. In accordance with the theoretical predictions, the effect of local taxes on leverage is positive for both types of debt. Moreover, while adverse local credit market conditions are found to reduce external borrowing, internal debt is increasing, supporting the view that the two channels of debt finance are substitutes.
    Keywords: Corporate Income Tax, Multinationals, Capital Structure, Firm-Level Data
    JEL: G32 H25 H26
    Date: 2006
  16. By: Joan Canton (GREQAM, Université de la Méditerranée)
    Abstract: An incumbent government maximizes its chances of being reelected. Its objective function encompasses both social welfare and political contributions. Its only instrument is a pollution tax. In an open-economy context, we introduce an eco-industry in addition to lobbies of polluting firms and environmentalists. Not only does the eco-industry lobby add a new political contribution toward a higher environmental tax, it also modifies the incentives of the usual lobbies. When the foreign environmental policy is constant, environmentalists can be in favor of a decrease in the local tax in order to reduce foreign pollution. It could also be in the interest of a vertical industrial pressure group to lobby toward more stringent environmental policy. In general, the impact of lobbying activities on the politically optimal tax is ambiguous as pressure groups push in different directions.
    Keywords: Eco-Industry, Environmental Taxation, Lobbies, Political Economy
    JEL: H23 D72
    Date: 2007–02
  17. By: Nielsen, Søren Bo (Department of Economics, Copenhagen Business School); Raimondos-Møller, Pascalis (Department of Economics, Copenhagen Business School); Schjelderup, Guttorm (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: We examine how a multinational’s choice to centralize or de-centralize its decision structure is affected by country tax differentials. Within a simple model that emphasizes the multiple conflicting roles of transfer prices in MNEs — here, as a strategic pre-commitment device and a tax manipulation instrument —, we show that decentralization is preferred in case of small tax differentials, whereas centralization can be more profitable, when tax differentials are large. In essence, the organizational flexibility of MNEs is triggered by the scope for tax minimization. Our analysis allows for both commitment and non-commitment to transfer prices, and for alternative modes of competition.
    Keywords: Centralized vs. de-centralized decisions; taxes; transfer prices; MNEs
    JEL: F23 H25 L23
    Date: 2007–03–27
  18. By: Alexander Baturo; Julia Grey
    Abstract: What factors explain the wave of adoption of the flat tax in Eastern Europe — a policy that was all but unmentionable in the rest of the world? We argue that, once the first few successes were underway, governments with liberal outlooks toward taxation adopted the reform through a process of rational learning: an often-radically new government will tend to adopt the policy based on successful implementation of its neighbors. Our contribution to the literature on the political economy of taxation is threefold. First, we show that, both theoretically and empirically, the existing work on taxation does not apply to the flat tax revolution in the post-communist countries. Second, we take into consideration the need and the difficulty of measuring ideology of Eastern European political parties. Third, we approach the issue of policy diffusion by explicitly modeling the different mechanisms that might underlie the process. We also find that the presence of other market-minded reforms do not predict adoption of the flat tax.
    Date: 2007–04–04
  19. By: Isabel Argimón (Banco de España); Francisco de Castro (Banco de España); Ángel Luis Gómez (Banco de España)
    Abstract: The new Personal Income Tax Law came into force in January 2007. The main changes with respect to the previous regulation are the new tax treatment of personal and family circumstances and saving returns. This study aims to quantify the overall effect of the reform on tax revenue and to assess its redistributive impact by considering the different main income sources. In order to attain these objectives, we have used an Instituto de Estudios Fiscales sample of 2002 income tax returns to construct a baseline scenario for 2007 to simulate the reform. The reform will involve a moderate tax cut in relation to the baseline scenario. However, in relative terms, the tax reduction will be especially intense for lowest income and joint returns. Pensioners, recipients of business and professional incomes and dependent employees, though to a lower extent, would benefit from lower taxes. Lastly, the reform of the personal income tax is estimated to increase progressivity moderately, although lower tax revenues will imply lower redistributive capacity.
    Keywords: personal income tax reform, cost of the reform, effective tax rates, income sources, population deciles
    JEL: H24 K34 E62 D31
    Date: 2007–03
  20. By: Albert van der Horst; Leon Bettendorf; Hugo Rojas-Romagosa
    Abstract: Consolidation of the tax base in the European Union is expected to curve compliance costs and reduce profit shifting. A number of proposals for consolidation from the European Commission are simulated with the applied general equilibrium model CORTAX. We show that the benefits from consolidation are offset by two weaknesses in the proposals for a common consolidated tax base. Formula apportionment, which is needed to allocate the consolidated taxable profits across jurisdictions, creates new tax planning possibilities for MNEs and allows them to benefit from existing tax rate differentials in the European Union. In addition, it triggers tax competition as member states may attract foreign investment by reducing their tax rates. The second distortion is an unlevel playing field, which is introduced if only part of the firms participate in the consolidation. The gains from consolidation can be fully grasped if it is obliged for all firms and if it is accompanied by a harmonisation of the tax rate.
    Keywords: corporate tax; consolidation; formula apportionment; European Union; general equilibrium model
    JEL: H87 H21 H25 F21
    Date: 2007–03
  21. By: M. Ali Kemal (Pakistan Institute of Development Economics, Islamabad)
    Abstract: Rise in the underground economy creates problems for the policy-makers to formulate economic policies, especially the monetary and fiscal policies. It is found that if there was no tax evasion, budgets balance might have been zero and positive for some years and we would not have needed to borrow as much as we had borrowed. It is concluded that the impact of the underground economy is significant to the movements of the formal economy, but the impact of formal economy is insignificant in explaining the movements in the underground economy. In the long run, underground economy and official economy are positively associated. It is estimated that the underground economy ranges between Rs 2.91 trillion and Rs 3.34 trillion (54.6 percent of GDP to 62.8 percent of GDP respectively) in 2005 and tax evasion ranges between Rs 302 billion and Rs 347 billion (5.7 percent of GDP to 6.5 percent of GDP respectively) in 2005. Underground economy and tax evasion were increasing very rapidly in the early 1980s but the rate of increase accelerated in the 1990s. It declined in 1999, but reverted to an increasing trend until 2003. It declined again in 2004 and 2005
    Keywords: Underground Economy, Tax Evasion
    JEL: E26 H26
    Date: 2007
  22. By: Benno Torgler; Friedrich Schneider
    Abstract: This paper analyses how governance or institutional quality and tax morale affect the shadow economy, using an international country panel and also within country data. The literature strongly emphasizes the quantitative importance of these factors to understand the level and changes of shadow economy. However, the limited number of investigations use cross-sectional country data with a relatively small number of observations, and hardly any paper has investigated tax morale and provides evidence using within country data. Using more than 25 proxies that measure governance and institutional quality we find strong support that its increase leads to a smaller shadow economy. Moreover, an increase in tax morale reduces the size of the shadow economy.
    Keywords: Shadow economy, tax morale, governance quality, government intervention, corruption.
    JEL: D73 D78 H2 H26 O17 O5
    Date: 2007–02–01
  23. By: Büttner, Thiess; Overesch, Michael; Schreiber, Ulrich; Wamser, Georg
    Abstract: This paper analyzes the role of Thin-Capitalization rules for capital structure choice and investment decisions of multinationals. A theoretical analysis shows that the imposition of such rules tends to affect not only the leverage and the level of investment but also their tax-sensitivity. An empirical investigation of leverage and investment reported for affiliates of German multinationals in 24 countries in the period between 1996 and 2004 offers some support for the theoretical predictions. While Thin-Capitalization rules are found to be effective in restricting debt finance, investment is found to be more sensitive to taxes if debt finance is restricted.
    Keywords: Corporate Income Tax, Multinationals, Leverage, Thin-Capitalization Rules, Firm-Level Data
    JEL: G32 H25 H26
    Date: 2006
  24. By: Richard Morris (Corresponding author: European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main; Germany.); Ludger Schuknecht (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: In this paper we revisit one of the “missing links” between budget balances and the economic cycle, namely the impact of asset prices on fiscal revenues. We estimate revenue elasticities with respect to equity and real estate price indices for 16 OECD countries, as well as for a synthetic euro area aggregate. For a sub-sample of euro area countries, we use these elasticities to investigate the impact of asset prices on budget balances and the assessment of the fiscal stance by adjusting existing estimates of cyclically adjusted balances for the asset price “cycle”. The results support the view that asset price movements are a major factor behind unexplained changes in the cyclically adjusted balance, which, if not accounted for, can lead to erroneous conclusions regarding underlying fiscal developments. JEL Classification: H2, H6, E6, G1.
    Keywords: Fiscal policies, deficits, asset prices, tax revenues.
    Date: 2007–03
  25. By: Tilak Abeysinghe (Department of Economics, National University of Singapore); Ananda Jayawickrama (Department of Economics, National University of Singapore)
    Abstract: Aided by strong economic growth the Singapore government has been able to keep both the tax rate and the government expenditure rate low and yet generate healthy budget surpluses year after year. Although the gap between the tax rate and the government expenditure rate is the obvious source of the surplus, this paper shows the presence of another subtle source, a surplus generated by conservative growth forecasts that lay the base for revenue projections. An omitted variable bias in a model based on the tax smoothing hypothesis led us to consider the role played by the growth forecast error in predicting the budget surplus. Our computations show that on average the underprediction of the tax base (GDP) must have contributed about $376 million per year to the realized budget surplus over the period 1990-2005. This appears to be simply a byproduct of the Government’s philosophy of “fiscal prudence”.
    Keywords: Tax smoothing model, Reported and adjusted budget surplus, GDP forecast errors.
    JEL: H61 H62
  26. By: Shuichi Ohori (Institute of Economic Research, Kyoto University)
    Abstract: This paper studies a dynamic game of environmental taxes between two countries in a Cournot duopoly. Based on the assumption of linear demand functions, we demonstrate that the environmental tax in the steady-state equilibrium is lower in a dynamic environmental tax game than in a static environmental one. Therefore, the dynamic behavior of the governments results in an increase in the environmental damage. Further, as a result of international cooperation on environmental taxes between two countries in the first period, there is an increase in the optimal environmental tax; this is due to the decrease in the effect of the rent-shifting.
    Keywords: environmental tax, dynamic programming, international duopoly
    JEL: F18 H23 Q58
    Date: 2007–01
  27. By: Alexander Kemnitz (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: This paper investigates how the abolishment of a ban on tuition fees affects the quality of higher education with centralized and decentralized decision making. It is shown that tuition fees fully crowd public funds under centralization and quality of university education does not improve. However, with decentralized decisions total higher education spending increases in the tuition level. Therefore, decentralization can lead to a higher quality of university education than centralization although the opposite holds when funding is restricted to be public.
    JEL: H77 I22 D78
  28. By: Börsch-Supan, Axel (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: Germany relies almost exclusively on a public pay-as-you-go pension system for old-age income provision. This mandatory “retirement insurance” has become under severe pressure, mainly from population aging and from incentive effects that have reduced labor supply. This paper argues Germany needs a pension reform with three main elements: 1) A reformed pay-as-you-go pillar which is actually fair, features a transparent notional account set-up, and freezes contribution rates at the current level. 2) A second funded pillar which is based on US 401(k)-style grouped accounts that finance the impending aging burden. 3) Augmented by redistributive features that guarante a minimum pension and strengthen human capital formation. The paper briefly discusses the sources of the current problems, details the reform proposal, in particular the cohort-and time-varying transition burden which turns out to be rather moderate, and sheds light on the side effects of such a transition on the German macro economy which are more subtle than is often claimed.
  29. By: Martin Gonzalez-Eiras (Universidad de San Andres); Dirk Niepelt (Study Center Gerzensee, IIES, Stockholm University and CEPR)
    Abstract: We analyze the effect of the projected demographic transition on the political support for social security, and equilibrium outcomes. Embedding a probabilistic-voting setup of electoral competition in the Diamond (1965) OLG model, we find that intergenerational transfers arise in the absence of altruism, commitment, or trigger strategies. Closed-form solutions predict population ageing to lead to higher social security tax rates, a rising share of pensions in GDP, but eventually lower social security benefits per retiree. The response of equilibrium tax rates to demographic shocks reduces old-age consumption risk. Calibrated to match features of the U.S. economy, the model suggests that, in response to the projected demographic transition, social security tax rates will gradually increase to 16 percent; other policies that distort labor supply will become less important; and in contrast with frequently voiced fears, labor supply therefore will rise.
    Date: 2007–02
  30. By: Alexander Kemnitz (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: This paper explores the impact of university finance reforms on teaching quality. It is shown that the graduate tax can achieve efficiency with tuition fees administered by the government, while student grants, pure and income contingent loans are bound to fail. All options are inefficient when universities have the autonomy to set tuition fees. Then, pure loans dominate the graduate tax and are more efficient than income contingent loans unless peer group effects are strong. However, properly chosen uniform administered fees create an even higher surplus. Moreover, pure loans may make the majority of students worse off than a central assignment system with very poor quality incentives.
    JEL: H52 I22 L13
  31. By: Nicola Persico; José Carlos Rodríguez-Pueblita; Dan Silverman
    Abstract: This paper presents a new model of political competition where candidates belong to factions. Before elections, factions compete to direct local public goods to their local constituencies. Voters view the public goods as a credible signal that their local candidate is in the right (i.e., powerful) faction. The model of factional competition delivers a rich set of implications relating the internal organization of the party to the allocation of resources. Several key theoretical predictions of the model find a counterpart in our empirical analysis of newly coded data on the provision of water services in Mexico.
    JEL: D72 D73 H4 H54
    Date: 2007–04
  32. By: Castro, Vítor (University of Warwick, University of Coimbra and NIPE)
    Abstract: This study intends to provide an empirical answer to the question of whether Maastricht and SGP fiscal rules have affected growth of European Union countries. A growth equation augmented with fiscal variables and controlling for the period in which fiscal rules were implemented in Europe is estimated over a panel of 15 EU countries (and 8 OECD countries) for the period 1970-2005 with the purpose of answering this question. The equation is estimated using both a dynamic fixed effects estimator and a recently developed pooled mean group estimator. GMM estimators are also used in a robustness analysis. Empirical results show that growth of real GDP per capita in the EU was not negatively affected in the period after Maastricht. This is the case when the recent performance of EU countries is compared both with their past performance and with the performance of other developed countries. Results even show that growth is slightly higher in the period in which the fulfilment of the 3% criteria for the deficit started to be officially assessed. Therefore, this study concludes that the institutional changes that occurred in Europe after 1992, especially the implementation of Maastricht and Stability and Growth Pact fiscal rules, should not be blamed for being harmful to growth in Europe.
    Keywords: European Union ; Economic Growth ; Fiscal rules ; Pooled mean group estimator
    JEL: E62 H6 O47
    Date: 2007
  33. By: Böhringer, Christoph; Conrad, Klaus; Löschel, Andreas (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: In this paper, we investigate whether an environmental tax reform cum joint implementation (JI) provides employment and overall efficiency gains as compared to an environmental tax reform stand-alone (ETR). We address this question in the framework of a large-scale general equilibrium model for Germany and India where Germany may undertake joint implementation with the Indian electricity sector. Our main finding is that joint implementation offsets adverse effects of carbon emission constraints on the German economy. JI significantly lowers the level of carbon taxes and thus reduces the total costs of abatement as well as negative effects on labor demand. In addition, JI triggers direct investment demand for energy efficient power plants produced in Germany. This provides positive employment effects and additional income for Germany. For India, joint implementation equips its electricity industry with scarce capital goods leading to a more efficient power production with lower electricity prices for the economy and substantial welfare gains.
    JEL: D24 D58 F20 Q25
  34. By: Buscher, Herbert S.; Buslei, Hermann; Göggelmann, Klaus; Koschel, Henrike (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: This paper examines the employment effects of a revenue-neutral cut in the social-security contribution rate in Germany by running policy simulations in four different types of macroeconomic models. Two models are based on time-series data where the labor market is modeled basically demand orientated, whereas the other two models are supply orientated computable general equlibrium models. While the predicted employment effects of the cut in the contribution rate are qualitatively similar across modles three years after the cut, they differ considerably in magnitude. These differences can to a large extent be attributed to differnces in the basic structure of the modles. Of special importance is how prices and wages react in each model to the cut in the social security tax rate on one side, and the necessary increase of the indirect tax rate on the other side. The results, therefore, provide a guideline for assessing the outcome of policy simulations and for the further development of macroeconomic models suitable for this kind of experiments.
    JEL: C50 C53 E17 H55 C68
  35. By: Morissette, Rene; Ostrovsky, Yuri
    Abstract: This paper examines income instability of lone parents, singles and two-parent families in Canada in the past two decades using tax data. We attempt to answer the following questions: Has there been a widespread increase in earnings instability among lone parents (especially lone mothers) and unattached individuals over the past 20 years? How do the trends in earnings instability among lone parents and unattached individuals compare to the trends among the two-parent families? What is the role of government transfers and the progressive tax system in mitigating differences in earnings instability across different segments of the earnings distribution among the above-mentioned groups? We find little evidence of a widespread increase in earnings instability in the past two decades and show that government transfers play a particularly important role in reducing employment income instability of lone mothers and unattached individuals.
    Keywords: Labour, Income, pensions, spending and wealth, Wages, salaries and other earnings, Employment insurance, social assistance and other transfers, Low income and inequality
    Date: 2007–03–29
  36. By: Börsch-Supan,Axel; Reil-Held, Anette; Rodepeter, Ralf; Schnabel, Reinhold (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: Germany has one of the most generous public pension and health insurance systems of the world, yet private savings are high until old age. Savings remain positive in old age, even for most low income households. How can we explain what we might want to term the "German savings puzzle"? We provide a complicated answer that combines historical facts with capital market imperfections, housing, tax and pension policies. The first part of the paper describes how German households save, based on a synthetic panel of four cross sections of the German Income and Expenditure Survey ("Einkommens- und Verbrauchsstichproben") collected between 1978 and 1993. The second part links saving behaviour with public policy, notably tax and pension policy.
  37. By: Hoy, M.; Jimenez, E.
    Date: 2006
  38. By: Haufler, Andreas; Wooton, Ian
    Abstract: We set up a model of generalised oligopoly where two countries of different size compete for an exogenous, but variable, number of identical firms. The model combines a desire by national governments to attract internationally mobile firms with the existence of location rents that arise even in a symmetric equilibrium where firms are dispersed. As economic integration proceeds, equilibrium taxes decline, switching from positive to negative levels, and then rise as trade costs fall even further. A range of trade costs is identified where economic integration raises the welfare of the small country, but lowers welfare in the large country.
    Keywords: tax and subsidy competition; oligopolistic markets
    JEL: H25 H73 F15
    Date: 2007–03
  39. By: Oliver Grimm (Center of Economic Research (CER-ETH) at ETH Zurich)
    Abstract: In economic discussions, currency board systems are frequently described as arrangements with self-binding character to the monetary authorities by their strict rules and establishments by law. Hard pegs and especially currency boards are often seen as remedies to overcome economic and financial turmoils and to return to low inflation. A sustainable debt level closely linked to a disciplined fiscal policy is, however, a premise for medium-term success. We show in a two-period model that the choice of a currency board can increase fiscal discipline compared to a standard peg regime. We derive, furthermore, the conditions for a currency boards to gain a stability advantage compared to a common peg system.
    Keywords: currency board, fixed exchange rate, commitment, inflation bias, fiscal discipline, public debt, time-inconsistency problem
    JEL: E52 E58 E62 F33
    Date: 2007–03
  40. By: Alexander Kemnitz (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: This paper investigates the effect of labor immigration on public pensions when wage setting by a centralized trade union leads to unemployment. It is shown that immigration improves the financial soundness of pay-as-you-go pensions if and only if it diminishes total employment. This occurs if the absolute value of the elasticity of labor demand exceeds the unemployment rate.
    JEL: F22 H55 J51
  41. By: Dreher, Axel; Vaubel, Roland (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: Using panel data for 106 countries in 1971 - 1997, we estimate generalized least squares regressions to explain IMF lending as well as monetary and fiscal policies in the recipient countries. With respect to moral hazard, we find that a country`s rate of monetary expansion and its government budget deficit is higher the less it has exhausted its borrowing potential in the Fund and the more credit it has recieved from the Fund. As for political business cycles, our evidence indicates that, even with a considerable number of control variables, IMF credits in the more democratic recipient countries are larger in pre-election and post-election years. Thus, IMF lending seems to faciliate the generation of political business cycles, while IMF conditionality may serve as a scapegoat for unpopular corrective measures after the election. The paper concludes with implications for IMF reform.
    JEL: D72 F33 F34
  42. By: Conrad, Klaus (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: The purpose of this paper is to model competition in freight transport and to work out the role of the government in providing infrastructure for the competitors. Freight transport could in principle be provided by the firm itself by using firm-owned trtracks or transportation services could be outsourced by purchasing these services from rail and/or track transport firms. We link productionin the rest of the economy to transport demand provided by two competing modes of transport. Since congestion is an increasing cost component in densely populated countries, we develop an index of congestion which can be controlled by investing in highway infrastructure. Given infrastructure, a fuel tax on the stock of vehicles, we first derive the conditional demand functions of the economy for truck and rail services. The two transport firms know these demand functions and compete in prices. We then propose a transportation policy which choosestwo types of infrastructure, highways and railway systems, and a fuel tax in order to maximize welfare. The economic aspects for an optional provision of the two types of infrastructure can be expressed by a set of unknown elasticities which measure the impact of infrastructure services on prices in the rail and truck industries, on the volume of transport, on congestion, and on utilization of the stock of transportation equipment.
    JEL: H54 L13 L92 R41
  43. By: Eichler, Martin; Lechner, Michael (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: After unification of the East and West German economies in July 1990 the public sector devoted substantial resources to train the labour force of the former centrally planned East German economy. In this paper we describe the basic trends of the rules and
  44. By: Börsch-Supan,Axel (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: Before coming to substance, a brief introductory remark: Although the paper claims to be deliberately provocative, I found only one really provocative statement in it, on the bottom of the first page, namely that the paper is "nuanced".<br>"Nuanced" is certainly a matter of perspective. The paper's narrow-minded view may be helpful for a perspective centering on the United Kingdom or the United States where the development has gone far in the direction of private defined contribution (DC) plans. However, this is not the world, and this a World Bank conference. In fact, there are many parts of the world - actually a majority of the countries - which have only one monolithic public defined benefit (DB) system, and this paper does little to do justice to the many attempts of starting small moves towards more balanced systems which combine elements of public defined benefit and private defined contribution (DC) plans. A nuanced view would take at least a bit of a glimpse on the problems of those countries. I say this with quite a bit of frustration as a European, specifically as a German, where in spite of all kinds of serious troubles ahead the reform towards a more balanced system has been stalled over and again.
  45. By: Raimond Maurer; Marcel Marekwica
    Abstract: Many tax-codes around the world allow for special taxable treatment of savings in retirement accounts. In particular, profits in retirement accounts are usually tax exempt which allow investors to increase an asset’s return by holding it in such a retirement account. While the existing literature on asset location shows that risk-free bonds are usually the preferred asset to hold in a retirement account, we explain how the tax exemption of profits in retirement accounts affects private investors’ asset allocation. We show that total final wealth can be decomposed into what the investor would have earned in a taxable account and what is due to the tax exemption of profits in the retirement account. The tax exemption of profits can thus be considered a tax-gift which is similar to an implicit bond holding. As this tax-gift’s impact on total final wealth decreases over time, so does the investor’s equity exposure.
    JEL: G11 H24
    Date: 2007–03
  46. By: Börsch-Supan, Axel (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: As the public pay-as-you-go pension systems of the aging industrialized countries are likely to become seriously strained under the growing dependency burden, the question arises whether a society should rely on private savings to finance old-age consumpt
  47. By: Dritan Osmani; Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: Non-cooperative game theoretical models of self-enforcing international environmental agree- ments (IEAs) that employ the cartel stability concept of d'Aspremont et al. (1983) frequently use the assumption that countries can sign a single agreement only. We modify the assump- tion by considering two self-enforcing IEAs. Extending a model of Barrett (1994a) on a single self-enforcing IEA, we demonstrate that there are many similarities between one and two self- enforcing IEAs. But in the case of few countries and high environmental damage we show that two self-enforcing IEA work far better than one self-enforcing IEA in terms of both welfare and environmental equality
    Keywords: self-enforcing international environmental agreements, non-cooperative game theory, stability, nonlinear optimization.
    JEL: C61 C72 H41
    Date: 2005–08
  48. By: Pierre Pestieau
    Abstract: Amazingly, one is used to hearing harsh statements about inefficient public services. Nor is it surprising to see public sector performance questioned. What is surprising is that what is meant by performance, and how it is measured, does not seem to matter to either the critics or the advocates of the public sector. The purpose of this paper is to suggest a definition, and a way to measure the performance of the public sector or rather of its main components. Our approach is explicitly rooted in the principles of welfare and production economics. We will proceed in four stages. First of all we present what we call the "performance approach" to the public sector. This concept rests on the principal-agent relation that links a principal, i.e., the State, and an agent, i.e., the person in charge of the public sector unit, and on the definition of performance as the extent to which the agent fulfils the objectives assigned by the principal. The performance is then measured by using the notion of productive efficiency and the "best practice" frontier technique. In the second stage we move to the issue of measuring the performance of some canonical components of the public sector (education, health care and railways transport), assuming that there is no constraint as to data availability. The idea is to disentangle the usual confusion between conceptual and data problems. In the third stage, we move to real world data problems. The question is then that given the available data, does it make sense to assess and measure the performance of such public sector activities. The final stage is to explain performance or rather lack thereof and to look at the contribution of such an exercise for public policy. Finally we argue that when the scope is not components but the entirety of the public sector, one should restrict the performance analysis to the outputs and not relate it to inputs.
    Date: 2007
  49. By: Börsch-Supan, Axel; Heiss, Florian; Winter, Joachim (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: This paper discusses the consequences of population aging and a fundamental pension reform – that is, a shift towards more pre-funding – for capital markets in Germany. We use a stylized overlapping generations model to predict rates of return over a long horizon taking demographic projections as given. Our simulations show that a transition to a partially funded system crowds out existing savings only partially. The capital stock increases initially, but decreases when the babyboom generations enter retirement. The corresponding decrease in the rate of return, which results from both population aging and pre-funded pensions, is only modest, less than one percentage point in the closed economy, fixed-technology case. The return on capital can be improved by international diversification, that is, by investing pension funds in countries with a more favorable demographic transition path. Feedback effects from strengthened capital markets and improved corporate governance, which are unlikely to be achieved with capital market reforms alone, will raise capital performance further.
    JEL: E27 G15 G34 H55 J11
  50. By: Joan Canton (GREQAM, Université de la Méditerranée)
    Abstract: Environmental policies are discussed when two countries differ in their ability to abate pollution. Northern eco-industries (the industry supplying abatement activities) are more efficient than Southern ones. Segmented environmental markets and a Northern monopoly yield identical second-best taxes in both countries. When markets are global, Southern countries underestimate the market power of eco-industries. Introducing competition creates positive (resp. negative) rent-shifting distortions in South (resp. North). Cooperation could reduce Northern pollution but has ambiguous consequences in South.
    Keywords: Eco-Industry, Strategic Environmental Policy, Asymmetric Oligopolies
    JEL: D62 H23 F12
    Date: 2007–02
  51. By: Bard Hastad
    Abstract: When making collective decisions, principals (voters or districts) typically benefit by strategically delegating their bargaining and voting power to representatives different from themselves. There are conflicting views in the literature, however, of whether such a delegate should be "conservative" (status quo biased) or instead "progressive" relative to his principal. I show how the answer depends on the political system in general, and the majority requirement in particular. A larger majority requirement leads to conservative delegation, but "sincere" delegation is always achieved by the optimal voting rule.
    Keywords: Strategic delegation, collective decisions, voting rules
    JEL: D71 D72 F53 H11
  52. By: Raimond Maurer; Wolfram Horneff; Michael Stamos
    Abstract: We compute the optimal dynamic asset allocation policy for a retiree with Epstein-Zin utility. The retiree can decide how much he consumes and how much he invests in stocks, bonds, and annuities. Pricing the annuities we account for asymmetric mortality beliefs and administration expenses. We show that the retiree does not purchase annuities only once but rather several times during retirement (gradual annuitization). We analyze the case in which the retiree is restricted to buy annuities only once and has to perform a (complete or partial) switching strategy. This restriction reduces both the utility and the demand for annuities.
    JEL: D91 G11 G22 H55 J26
    Date: 2007–02
  53. By: v. Weizsäcker, Robert K. (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: The paper reviews recent research on the impact of an aging population on the distribution of income. After briefly discussing the demographic conditions responsible for population aging, a short account is given of demographic trends in the industrialize
    JEL: D31 H55 J18
  54. By: Conrad, Klaus (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: The purpose of the paper is to narrow the gap between the widespread use of voluntary agreements and research on the rationale of such approaches. A topical example are voluntary agreements of many industries to reduce carbon dioxide emissions because of
    JEL: D43 F13 H23
  55. By: Sinha, Dipendra
    Abstract: Wagner’s Law suggests that as the GDP of a country increases, so does its government expenditure. We test for the Law for Thailand using recent advances in econometric techniques. Both total and per capita GDP and government expenditure are used. Ng-Perron unit root tests show that all variables are integrated of order 1. Toda-Yamamoto tests of Granger causality show that there is no causality flowing from either direction between GDP and government expenditure. Autoregressive Distributed Lag (ARDL) tests of cointegration show very weak evidence of a long-run relationship between GDP and government expenditure. Thus, we do not find much evidence that the Wagner’s Law holds for Thailand.
    Keywords: Wagner's Law; causality
    JEL: O11 H50 C22
    Date: 2007–02–26
  56. By: Yoonsoo Lee
    Abstract: Competition among state and local governments to lure businesses has attracted considerable interest from economists, as well as legislators and policy makers. This paper quantifies the role of plant relocations in the geographic redistribution of manufacturing employment and examines the effectiveness of state development policy. Only a few studies have looked at how manufacturing firms locate their production facilities geographically; they have used either small manufacturing samples or small geographic regions. This paper provides broader evidence of the impact of plant relocations using confidential establishment level data from the U.S. Census Longitudinal Research Database (LRD), covering the full population of manufacturing establishments in the United States over the period from 1972 to 1992. This paper finds a relatively small role for relocation in explaining the disparity of manufacturing employment growth rates across states. Moreover, it finds evidence of very weak effects of incentive programs on plant relocations.
    Keywords: entry, exit, relocation, tax incentive
    JEL: J23 H25 H73 R58
    Date: 2007–03
  57. By: Justine S. Hastings; Richard Van Weelden; Jeffrey Weinstein
    Abstract: The incentives and outcomes generated by public school choice depend to a large degree on parents' choice behavior. There is growing empirical evidence that low-income parents place lower weights on academics when choosing schools, but there is little evidence as to why. We use a field experiment in the Charlotte-Mecklenburg Public School district (CMS) to examine the degree to which information costs impact parental choices and their revealed preferences for academic achievement. We provided simplified information sheets on school average test scores or test scores coupled with estimated odds of admission to students in randomly selected schools along with their CMS school choice forms. We find that receiving simplified information leads to a significant increase in the average test score of the school chosen. This increase is equivalent to a doubling in the implicit preference for academic performance in a random utility model of school choice. Receiving information on odds of admission further increases the effect of simplified test score information on preferences for test scores among low-income families, but dampens the effect among higher-income families. Using within-family changes in choice behavior, we provide evidence that the estimated impact of simplified information is more consistent with lowered information costs than with suggestion or saliency.
    JEL: D8 I2 L3
    Date: 2007–03
  58. By: Börsch-Supan, Axel; Ludwig, Alexander; Winter, Joachim (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: Throughout the world, population aging is a major challenge that will continue well into the 21 st century. While the patterns of the demographic transition are similar in most countries, timing differs substantially, in particular between industrialized and less developed countries. To the extent that capital is internationally mobile, population aging will therefore induce capital flows between countries. In order to quantify these international capital flows, we employ a multi- country overlapping generations model and combine it with long-term demographic projections for several world regions over a 50 year horizon. Our simulations suggest that capital flows from fast-aging industrial countries (such as Germany and Italy) to the rest of the world will be substantial. Closed-economy models of pension reform are likely to miss quantitatively important effects of international capital mobility.
    JEL: E27 F21 G15 H55 J11
  59. By: James J. Heckman; Dimitriy V. Masterov
    Abstract: This paper presents a productivity argument for investing in disadvantaged young children. For such investment, there is no equity-efficiency tradeoff.
    JEL: H52 I28
    Date: 2007–04
  60. By: François Bellavance; Georges Dionne; Martin Lebeau
    Abstract: The value of a statistical life (VSL) is a very controversial topic, but one which is essential to the optimization of governmental decisions. Indeed, our society faces any number of risks (health, transportation, work, etc.) and, as resources are limited, their complete elimination is impossible. The role of governments is to act as effectively as possible in reducing these risks. To do so, one must first determine the value that society is willing to pay in order to save a human life. However, we see a great variability in the values obtained from different studies. The source of this variability needs to be understood, in order to offer public decision-makers better guidance in choosing a value and to set clearer guidelines for future research on the topic. This article presents a meta-analysis based on 40 observations obtained from 37 studies (from nine different countries) which all use a hedonic wage method to calculate the VSL. Our meta-analysis is innovative in that it is the first to use the mixed effects regression model (Raudenbush, 1994) to analyze studies on the value of a statistical life. The outcome of our meta-analysis allows us to conclude that the variability found in the results studied stems in large part from differences in methodologies.
    Keywords: Value of a statistical life, meta-analysis, mixed effects regression model, hedonic wage method, risk
    JEL: D80 D13 D61 H43 H51 H53 I18 J38 J58
    Date: 2006
  61. By: Alexander Kemnitz (Institut für Volkswirtschaft und Statistik (IVS))
    Abstract: This paper explores the effects of high and low skilled immigration to a host country with unionized low skilled labor and an unemployment insurance scheme. It is shown that the consequences for the labor market and the welfare of natives depend crucially on the host country's production structure. When high and low skilled labor are close substitutes, low skilled immigration boosts employment and can increase total native income. We provide conditions under which low skilled immigration is Pareto-improving. While high skilled immigration has adverse employment effects, the Endings reverse for the case of close complementarity.
    JEL: F22 J5 H53 J61 J65
  62. By: Bos, Frits
    Abstract: In this paper, the relevance of national accounts statistics and their underlying conceptual framework is investigated for their four roles: description and object of analysis, tool for analysis and forecasting, tool for communication and decision-making and input for alternative accounts budgetary rules and estimates. For each role, the merits and limitations of national accounts statistics are described and discussed. Proper use should be stimulated by improving education and marketing and by supplementing national accounts with information about their meaning and reliability.
    Keywords: National accounts; relevance and reliability; forecasting; economic and fiscal policy
    JEL: H00 C0 E01
    Date: 2007
  63. By: Werner Eichhorst; Klaus F. Zimmermann
    Abstract: Through the Hartz reforms, German active labor market policy was fundamentally restructured and has since been systematically evaluated. This paper reviews the recent evaluation findings and draws some conclusions for the future setup of active labor market policies in Germany. It argues in favor of a reduced range of active labor market policy schemes focusing on programs with proven positive effects (that are wage subsidies, training, start-up grants and placement vouchers) and calls for a systematic evaluation of all instruments not scrutinized so far.
    Keywords: Active labor market policy, Germany, evaluation
    JEL: J68 H43 D61
    Date: 2007
  64. By: Jeffry Jacob (St. John’s University); Thomas Osang (SMU)
    Abstract: This paper investigates the consequences of religion for economic development. In particular, we examine whether religious attitudes, beliefs, participation and preference contribute to differences in per capita income across countries. Using a large scale international survey on values and religious behavior, we estimate both cross-section and panel data models, controlling for the “deep determinants” of development: Institutions, geography and trade. Our results indicate that religion plays an important role in economic development, but mostly in a non-linear manner. Countries with moderate religious values and behavior tend to have higher income levels than countries on both ends of the religious spectrum.
    Keywords: Development, Economics of Religion, Institutions, Openness, Geography
    JEL: O1 Z12 N1 H1 F1
    Date: 2007–03
  65. By: Dean Baker
    Abstract: Projected costs for Medicare Part D have been revised downward, causing some analysts to claim that the program has proven itself a success. This report explores the factors behind the lower cost projections and reaches far different conclusions. It finds two main reasons: 1) a slowdown in the rate of growth in drug prices that preceded the introduction of the benefit; and 2) fewer people are expected to enroll in the program. The report recommends changes to the program that could save $30 billion a year.
    JEL: I18 L12 H51 H21
    Date: 2007–03

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