nep-pbe New Economics Papers
on Public Economics
Issue of 2007‒05‒12
forty-two papers chosen by
Peren Arin
Massey University

  1. Growth, Income Inequality, and Fiscal Policy: What are the Relevant Tradeoffs? By Cecilia Garcia-Penalosa; Stephen Turnovsky
  2. Fighting Tax Competition in the Presence of Unemployment: Complete versus Partial Tax Coordination By Sven Wehke
  3. Do fiscal rules cause budgetary outcomes? By Signe Krogstrup; Sébastien Wälti
  4. Pension Reform and Labor Market Incentives By Walter H. Fisher; Christian Keuschnigg
  5. Voting, Lobbying, and the Decentralization Theorem By Lockwood, Ben
  6. Measuring Fiscal Decentralisation: An Entropic Approach By Duc Hong Vo
  7. The flat tax in Romania. A good economic strategy? By Socol, Cristian; Marinas, Marius; Socol, Aura Gabriela
  8. Tax Treatment of Dividends and Capital Gains and the Dividend Decision Under Dual Income Tax By Seppo Kari; Hanna Karikallio
  9. "Overcoming the Zero Interest-Rate Bound: A Quantitative Prescription" By Kenneth Lewis; Laurence Seidman
  10. Women and Budget Deficits By Signe Krogstrup; Sébastien Wälti
  11. Factors explaining local privatization: A meta-regression analysis By Germà Bel; Xavier Fageda
  12. Fiscal decentralisation, efficiency, and growth By Andrés Rodríguez-Pose; Sylvia A. R. Tijmstra; Adala Bwire
  13. Nordic Dual Income Taxation of Entrepreneurs By Seppo Kari; Vesa Kanniainen; Jouko Ylä-Liedenpohja
  14. Changes in the demand for private medical insurance following a shift in tax incentives By Marisol Rodríguez; Alexandrina Stoyanova
  15. Unit Versus Ad Valorem Taxes : The Private Ownership of Monopoly In General Equilibrium By Blackorby, Charles; Murty, Sushama
  16. Why Do Most Countries Set High Tax Rates on Capital? By Nicolas Marceau; Steeve Mongrain; John D. Wilson
  17. The McKenna Rule and UK World War I Finance By James M Nason; Shaun P Vahey
  18. The Demand for Vice: Inter-Commodity Interactions with Uncertainty By Kenneth W Clements; Yihui Lan; Xueyan Zhao
  19. Bribery in Health Care in Peru and Uganda By Jennifer Hunt
  20. Value Added Tax Treatment of Financial Services: An Assessment and Policy Proposal for Developing Countries By Pierre-Pascal Gendron
  21. Public Expenditure Composition and Economic Growth: Optimal Adjustment by Using Gradient Method By Tatsuyoshi Miyakoshi; Yoshihiko Tsukuda; Tatsuhito Kono; Makoto Koyanagi
  22. Worker Sorting, Taxes and Health Insurance Coverage By Kevin Lang; Hong Kang
  23. Like Mother Like Son? Experimental Evidence on the Transmission of Values from Parents to Children By Marco Cipriani; Paola Giuliano; Olivier Jeanne
  24. Policy Brief: How pro-poor is the South African Health System? By Ronelle Burger
  25. Gems in LGU Fiscal Management: a Compilation of Good Practices By Manasan, Rosario G.; Villanueva, Eden C.
  26. Changing Progressivity as a Means of Risk Protection in Investment-Based Social Security By Andrew A. Samwick
  27. The Welfare Cost of Market Power. Accounting for Intermediate Good Firms By Geir H. Bjertnæs
  28. How Globalisation Shapes Public Policy? A Case of Azerbaijan By Gugushvili, Alexi
  29. Will Privatization Reduce Costs? By Lindqvist, Erik
  30. Competition and Crowding-Out among Public, Non-Profit and For-Profit Organizations: Evidence from Outpatient Substance Abuse Treatment By Andrew M. Cohen; Beth A. Freeborn; Brian McManus
  31. A Systems Approach to Public Policies By Luis C. Ortigueira
  32. The Distributional Consequences of Diversity-Enhancing University Admissions Rules By Chan, Jimmy; Eyster, Erik
  33. Lowering blood alcohol content levels to save lives: The european experience By Daniel Albalate
  34. Why Reform Fails: The ‘Politics of Policies’ in Costa Rican Telecommunications Liberalization By Bert Hoffmann
  35. Identity and Redistribution By Lindqvist, Erik; Östling, Robert
  36. Detecting Collusion through Exchange of Favors in Repeated Procurement Auctions By Rieko Ishii
  37. Optimal Timing of Environmental Policy; Interaction Between Environmental Taxes and Innovation Externalities By Reyer Gerlagh; Snorre Kverndokk; Knut Einar Rosendahl
  38. From Bottom to Top: The Entire Distribution of Market Income in Germany, 1992 - 2001 By Stefan Bach; Giacomo Corneo; Viktor Steiner
  39. Voting as a Lottery. By Giuseppe Attanasi, Luca Corazzini, Francesco Passarelli
  40. Robust Correlates of County-Level Growth in the U.S. By Higgins, Matthew; Young, Andrew; Levy, Daniel
  41. Convergence and economic Integration in Africa: case of cfa countries By DRAMANI, Latif
  42. About the economic study of regional indicators By Mourao, Paulo

  1. By: Cecilia Garcia-Penalosa; Stephen Turnovsky
  2. By: Sven Wehke (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: In this paper, we analyze the welfare consequences of tax coordination agreements which cover taxes on mobile capital and immobile labor, respectively. In doing so, we take into account two important institutional details. First, we incorporate decentralized wage bargaining, giving rise to involuntary unemployment. Second, we distinguish between complete tax coordination, which effectively covers both tax instruments, and the more plausible case of partial tax coordination, where one tax is marginally increased by all countries, while the other tax rate can still be freely chosen by all countries. It is shown that complete tax coordination remains to be welfare enhancing in the presence of unemployment. In contrast, for partial tax coordination, the welfare effects become ambiguous and are different to the case of competitive labor markets.
    Keywords: factor taxation, (partial) tax coordination, wage bargaining, unemployment
    JEL: H21 H87 J51
    Date: 2007–03
  3. By: Signe Krogstrup (The Graduate Institute of International Studies, Geneva); Sébastien Wälti (Department of Economics, Trinity College Dublin)
    Abstract: This paper focuses on the observed empirical relationship between fiscal rules and budget deficits, and examines whether this correlation is driven by an omitted variable, namely voter preferences. We make use of two different estimation methods to capture voter preferences in a panel of Swiss sub-federal jurisdictions. First, we include a recently constructed measure of fiscal preferences. Second, we capture preferences through fixed effects with a structural break as women are enfranchised. We find that fiscal rules continue to have a significant impact on real budget balances.
    Keywords: Fiscal policy, fiscal rules, fiscal institutions, budget deficits, fiscal preferences, endogeneity
    JEL: C2 D7 E6 H6
    Date: 2007–04
  4. By: Walter H. Fisher; Christian Keuschnigg
    Abstract: This paper investigates how parametric reform in a pay-as-you-go pension system with a tax benefit link affects retirement incentives and work incentives of prime-age workers. We find that postponed retirement tends to harm incentives of prime-age workers in the presence of a tax benefit link, thereby creating a policy trade-off in stimulating aggregate labor supply. We show how several popular reform scenarios are geared either towards young or old workers, or, indeed, both groups under appropriate conditions. We also provide a sharp characterization of the excess burden of pension insurance and show how it depends on the behavioral supply elasticities on the extensive and intensive margins and the effective tax rates implicit in contribution rates.
    Keywords: Pension reform, retirement, hours worked, tax benefit link, actuarial adjustment, excess burden
    JEL: H55 J26
    Date: 2007–04
  5. By: Lockwood, Ben (University of Warwick and CEPR)
    Abstract: This paper revisits the fiscal "decentralization theorem", by relaxing the role of the assumption that governments are benevolent, while retaining the assumption of policy uniformity. If instead, decisions are made by direct majority voting, (i) centralization can welfare-dominate decentralization even if there are no externalities and regions are heterogenous ; (ii) decentralization can welfare-dominate centralization even if there are positive externalities and regions are homogenous. The intuition is that the insensitivity of majority voting to preference intensity interacts with the different inefficiencies in the two fiscal regimes to give second-best results. Similar results obtain when governments are benevolent, but subject to lobbying, because now decisions are too sensitive to the preferences of the organised group.
    Keywords: Decentralization, majority voting, lobbying, local public goods.
    JEL: H41 H70 H72
    Date: 2007
  6. By: Duc Hong Vo (UWA Business School, University of Western Australia)
    Abstract: Fiscal decentralisation has attracted attention from government, academic studies, and international institutions with the aims of enhancing economic growth in recent years. One of the difficult issues is to measure satisfactorily the degree of fiscal decentralisation across countries. This study helps resolve the problem by developing the fiscal decentralisation index which accounts for both fiscal autonomy and fiscal importance of subnational governments. While the index is an advance on current practice, it is still not perfect as it assumes there is no dispersion of revenue and expenditure across regions. In response to this weakness, fiscal entropy and fiscal inequality measures are developed using information theory (Theil, 1967). It is shown how fiscal inequality can be decomposed regionally and hierarchically. These ideas are illustrated with Australia data pertaining to federal, state and local levels of governments.
    Keywords: Fiscal Decentralisation, Fiscal Autonomy, Fiscal Importance, Australia
    JEL: H77
    Date: 2006
  7. By: Socol, Cristian; Marinas, Marius; Socol, Aura Gabriela
    Abstract: This paper evaluates the main effects of the implementation of tax flat system in Romanian economy. If accompanying measures are not going to be enforced, the introduction of the flat rate of 16% in Romania will lead to unsustainable budgetary deficits and inflationist pressures. The flat tax favors the workers with big salaries and also big and financially solid companies (which, mainly “export” the profit). It will attack the fragile macroeconomic stability. It is uncertain if it will lead to the increase of the degree of employment, having in view the fact that the contributions to the social insurances have a very high level. The alternative scenario is simple. Romania should have chosen to continue what it was confirmed to be a valid element of the economic evolution towards a European standard (progressive fiscal system).
    Keywords: flat tax; fiscal policy; inflation; AD-AS model
    JEL: E62 E31 H21
    Date: 2007–04–05
  8. By: Seppo Kari; Hanna Karikallio
    Abstract: The paper analyses efficiency aspects of a dual income tax system with a higher tax on capital gains than dividends. It argues that apart from the distortions to investments claimed in earlier literature, the system puts even more emphasis in creating incentives for entrepreneurs to participate in tax planning. The paper suggests that the owner of a closely held company can avoid all personal taxes on entrepreneurial income by two tax-planning strategies. The first is the avoidance of distributions, which would be taxed at the tax rate on labour income. These funds would instead be invested in the financial markets. The second strategy is a distribute-and-call-back policy, converting retained profits into new equity capital. Interestingly, the outcome is that investment in real capital is not distorted in the long-run equilibrium. Empirical evidence using micro data is also provided.
    JEL: H24 H25
    Date: 2007–04–05
  9. By: Kenneth Lewis (Department of Economics,University of Delaware); Laurence Seidman
    Abstract: Two recent empirical studies of the 2001 recession published in the American Economic Review imply that an old-fashioned Keynesian fiscal stimulus—a cash transfer (“tax rebate”) or tax cut to households-- can overcome the zero interest-rate bound problem. We provide a quantitative estimate of the cash transfer that would achieve recovery from a severe recession when confronted with the zero bound. We obtain our result by adapting and simulating a macro-econometric model that has been recently econometrically estimated. With the interest rate near zero, a cash transfer equal to 3% of quarterly GDP repeated four times (quarterly) would reduce the unemployment rate nearly a full percentage point.
    Keywords: Recession, Fiscal Policy, Tax Rebate
    Date: 2006
  10. By: Signe Krogstrup (IUHEI, The Graduate Institute of International Studies, Geneva); Sébastien Wälti
    Abstract: If women have different economic preferences than men, then female economic and political empowerment is likely to change policy and household decisions, and in turn macroeconomic outcomes. We test the hypothesis that female enfranchisement leads to lower government budget deficits due gender differences in preferences over fiscal outcomes. Estimating the impact of women's vote on budget deficits in a differences-in-differences regression for Swiss cantonal panel data, we find that including women in the electorate reduces average per capita budget deficits by a statistically significant amount.
    Keywords: Budget deficits; Economics-of-gender; enfranchisement; fiscal policy; women; time preference; altruism
    JEL: D7 E6 H6 J16
    Date: 2007–04
  11. By: Germà Bel (Grup de Recerca en Polítiques Públiques i Regulació Económiques (GPRE), Institut de Recerca d'Economia Aplicada (IREA), Departament de Política Econòmica i EEM, Universitat de Barcelona); Xavier Fageda (Grup de Recerca en Polítiques Públiques i Regulació Económiques (GPRE), Institut de Recerca d'Economia Aplicada (IREA), Departament de Política Econòmica i EEM, Universitat de Barcelona)
    Abstract: Privatization of local public services has been implemented worldwide in the last decades. Why local governments privatize has been the subject of much discussion, and many empirical works have been devoted to analyzing the factors that explain local privatization. Such works have found a great diversity of motivations, and the variation among reported empirical results is large. To investigate this diversity we undertake a meta-regression analysis of the factors explaining the decision to privatize local services. Overall, our results indicate that significant relationships are very dependent upon the characteristics of the studies. Indeed, fiscal stress and political considerations have been found to contribute to local privatization specially in the studies of US cases published in the eighties that consider a broad range of services. Studies that focus on one service capture more accurately the influence of scale economies on privatization. Finally, governments of small towns are more affected by fiscal stress, political considerations and economic efficiency, while ideology seems to play a major role for large cities.
    Keywords: Meta-regression analysis, privatization, contracting-out, local governments.
    JEL: L33 R51 H72 C25
    Date: 2006–10
  12. By: Andrés Rodríguez-Pose (London School of Economics); Sylvia A. R. Tijmstra (London School of Economics); Adala Bwire (London School of Economics)
    Abstract: Much of the recent worldwide trend towards devolution has been driven by the belief that fiscal decentralization is likely to have a positive effect on government efficiency and economic growth. It is generally assumed that the transfer of powers and resources to lower tiers of government allows for a better matching of public policies to local needs and thus for a better allocation of resources. These factors, in turn, are expected to lead to an improvement in regional economic performance, if subnational authorities shift resources from current to capital expenditures in search of a better response to local needs. This paper tests these assumptions empirically by analysing the evolution of subnational expenditure categories and regional growth in Germany, India, Mexico, Spain, and the USA. We find that, contrary to expectations, decentralisation has coincided in the sample countries with a relative increase in current expenditures at the expense of capital expenditures, which has been associated with lower levels of economic growth in countries where devolution has been driven from above (India and Mexico), but not in those where it has been driven from below (Spain). The paper hypothesises that the differences in legitimacy between the central or federal government and subnational governments in top-down and bottom-up processes of devolution may be at the origin of the diverse capacity to deliver greater allocative and productive efficiency and, eventually, greater economic growth by devolved governments.
    Keywords: devolution; fiscal decentralisation; subnational expenditure; economic growth; Germany; India; Mexico; Spain; United States
  13. By: Seppo Kari; Vesa Kanniainen; Jouko Ylä-Liedenpohja
    Abstract: The paper shows how entrepreneurial taxes interact with the career choice of individuals, the quality of entrepreneurs, and their investment behavior. It is particularly relevant to differentiate the early effects on start-up enterprises with substantial uncertainty from the tax effects on mature firms where the uncertainty is resolved. Conditions are derived for the Nordic dual income tax to be neutral and they are found to be stringent. Profit expectations matter. The Nordic dual encourages (discourages) the establishment of new enterprises by entrepreneurs who anticipate high (low) profitability.
    JEL: H25
    Date: 2007–04–05
  14. By: Marisol Rodríguez (Grup de Recerca en Economia del Benestar (CREB, Departament de Política Econòmica i Estructura Econòmica Mundial, Universitat de Barcelona); Alexandrina Stoyanova (Grup de Recerca en Economia del Benestar (CREB), Departament d'Economia i Empresa, Universitat de Barcelona)
    Abstract: The 1998 Spanish reform of the Personal Income Tax eliminated the 15% deduction for private medical expenditures including payments on private health insurance (PHI) policies. To avoid an undesirable increase in the demand for publicly funded health care, tax incentives to buy PHI were not completely removed but basically shifted from individual to group employer-paid policies. In a unique fiscal experiment, at the same time that the tax relief for individually purchased policies was abolished, the government provided for tax allowances on policies taken out through employment. Using a bivariate probit model on data from National Health Surveys, we estimate the impact of said reform on the demand for PHI and the changes occurred within it. Our findings suggest that the total probability of buying PHI was not significantly affected. Indeed, the fall in the demand for individual policies (by 10% between 1997 and 2001) was offset by an increase in the demand for group employer-paid ones, so that the overall size of the market remained virtually unchanged. We also briefly discuss the welfare effects on the state budget, the industry and society at large.
    Keywords: Private health insurance, tax reform, Spain.
    JEL: I10 H31
    Date: 2006–12
  15. By: Blackorby, Charles (Department of Economics,University of Warwick and GREQAM); Murty, Sushama (Department of Economics, University ofWarwick)
    Abstract: In an earlier paper [Blackorby and Murty ; 2007] we showed that if a monopoly sector is imbedded in a general equilibrium framework and profits are taxed at one hundred percent, then unit (specific) taxation and ad valorem taxation are welfare-wise equivalent. In this paper, we consider private ownership of the monopoly sector. Given technical difficulties in making a direct general equilibrium comparison of unit and ad valorem taxation, we adopt a technique due to Guesnerie [1980] and Quinzii [1992] in a somewhat different context of increasing returns and non-convex economies to show that neither ad valorem taxation nor unit taxation Pareto dominates the other; although, generally, the two are not welfare-wise equivalent.
    Keywords: Ad valorem taxes ; unit taxes ; monopoly
    JEL: H21
    Date: 2007
  16. By: Nicolas Marceau; Steeve Mongrain; John D. Wilson
    Abstract: We consider tax competition in a world with tax bases exhibiting different degrees of mobility, modeled as mobile and immobile capital. An agreement among countries not to give preferential treatment to mobile capital results in an equilibrium where mobile capital is nevertheless taxed relatively lightly. In particular, one or two of the smallest countries, measured by their stocks of immobile capital, choose relatively low tax rates, thereby attracting mobile capital away from the other countries, which are then left to set revenue maximizing taxes on their immobile capital. This conclusion holds regardless of whether countries choose their tax policies sequentially or simultaneously. In contrast, unrestricted competition for mobile capital results in the preferential treatment of mobile capital by all countries, without cross-country differences in the taxation of mobile capital. Nevertheless our main result is that the non-preferential regime generates larger global tax revenue, despite the sizable revenue loss from the emergence of low-tax countries. By extending the analysis to include cross-country differences in productivities, we are able to resurrect a case for preferential regimes, but only if the productivity differences are sufficiently large.
    Keywords: Tax Competition, Capital Mobility
    JEL: F21 H87
    Date: 2007
  17. By: James M Nason; Shaun P Vahey (Reserve Bank of New Zealand)
    Abstract: This paper argues that UK WWI fiscal policy followed the ‘English method’ identified by Sprague (1917) and his discussants, and revived by the US to finance the Korean War (see Ohanian 1997). During WWI, UK fiscal policy adopted the “McKenna rule” named for Reginald McKenna, Chancellor of the Exchequer (1915-16). McKenna presented his fiscal rule to Parliament in June 1915. The McKenna rule guided UK fiscal policy for the rest of WWI and the interwar period. We draw on narrative evidence to show that motivation for the McKenna rule came from a desire to treat labour and capital fairly and equitably, not pass WWI costs onto future generations, and commit to a debt retirement path and higher taxes. However, a permanent income model suggests the McKenna rule adversely affected the UK because a higher debt retirement rate produces a lower consumption-output ratio. Data from 1916-37 supports this prediction.
    JEL: E6 N4
    Date: 2007–04
  18. By: Kenneth W Clements (UWA Business School, The University of Western Australia); Yihui Lan (UWA Business School, The University of Western Australia); Xueyan Zhao (Department of Econometrics and Business Statistics, Monash University)
    Abstract: This paper analyses consumption patterns of vice -- marijuana, tobacco and alcohol. To deal with imperfect marijuana data, we exploit the interdependencies in the consumption of the three drugs identified in prior research, and introduce a Monte Carlo simulation procedure to formally account for the inherent uncertainty in marijuana-related data and parameters. To illustrate the application of the framework, we use Australian data to simulate the impact on the consumption of vice of a reduction in the price of marijuana; changes in pre-existing taxes on tobacco and alcohol; legalisation of marijuana, which is then subject to taxation; and a tax tradeoff involving the introduction of a revenue-neutral tax on marijuana that is offset by reduced alcohol taxation. The revenue-maximising tax rate for marijuana of about 50% is estimated to yield additional revenue of about 15% of the pre-existing proceeds from vice taxation. The role of uncertainty surrounding marijuana is highlighted by providing the entire probability distributions of all endogenous variables in a consistent multivariate framework.
    JEL: H2 K0 I0 D5 C6
    Date: 2006
  19. By: Jennifer Hunt (McGill University, NBER and IZA)
    Abstract: In this paper, I examine the role of household income in determining who bribes and how much they bribe in health care in Peru and Uganda. I find that rich patients are more likely than other patients to bribe in public health care: doubling household consumption increases the bribery probability by 0.2-0.4 percentage points in Peru, compared to a bribery rate of 0.8%; doubling household expenditure in Uganda increases the bribery probability by 1.2 percentage points compared to a bribery rate of 17%. The income elasticity of the bribe amount cannot be precisely estimated in Peru, but is about 0.37 in Uganda. Bribes in the Ugandan public sector appear to be fees-for-service extorted from the richer patients amongst those exempted by government policy from paying the official fees. Bribes in the private sector appear to be flat-rate fees paid by patients who do not pay official fees. I do not find evidence that the public health care sector in either Peru or Uganda is able to pricediscriminate less effectively than public institutions with less competition from the private sector.
    Keywords: corruption, bribery, governance, health care
    JEL: H4 K4 O1
    Date: 2007–04
  20. By: Pierre-Pascal Gendron (The Business School, Humber College Institute of Technology & Advanced Learning, Toronto, and International Tax Program, Joseph L. rotman School of Management, University of Toronto)
    Abstract: How to tax financial services is in many ways the key frontier issue for VAT in developed countries. No convincing conceptually correct and practical solution for capturing the bulk of financial services under the VAT has yet been developed anywhere. Developing and transitional countries face constraints that make the taxation of financial services an even more formidable challenge. Since developed economies with sophisticated financial institutions and markets and capable tax administrations have opted with few exceptions (such as Québec) to exempt such activities, it is not surprising that exemption also rules in almost all developing and transitional countries. Surprisingly, however, it may not be that difficult to collect at least some VAT on financial services even in such countries. This article examines the current VAT treatment of financial services in Canada and around the world, as well as its rationales and economic effects. It then outlines alternatives to that treatment, focusing on developing and transitional economies and their tax policy constraints. Finally, it outlines best practices for tax reform and proposes a new alternative to the exempt treatment: a hybrid system designed to capture VAT revenues in developing and transitional economies in a practical way.
    Keywords: value added tax, financial services, Canada, developing and transitional countries
    JEL: H24 O23
    Date: 2007
  21. By: Tatsuyoshi Miyakoshi (Osaka School of International Public Policy, Osaka University); Yoshihiko Tsukuda (Graduate School of Economics, Tohoku University); Tatsuhito Kono (Graduate School of Engineering, Tohoku University); Makoto Koyanagi (Graduate School of Economics, Tohoku University)
    Abstract: Previous researches studied how the components of fiscal spending affect the economic growth but did not explicitly enquire into how to adjust the components in order to achieve the highest rate of economic growth starting from the present shares of components. We investigate how to determine the optimal adjustment by introducing a gradient method which explicitly takes account for the adjustment cost and incorporates the constraint that shares of components are summed up to one. The resulting optimal adjustment shares are proportional to the deviations from the average over elements of a gradient vector and independent from the choice of regression equations. The optimal adjustment share is completely estimated by using the linear regression with any choice of omitted variable if the adjustment cost is given. The result is free from multicollinearity problem but is considering all adjustment costs unlike most of previous researches. The paper also provides an illustrative example taken from the annual panel data for the Japanese prefectural governments.
    Keywords: Economic growth; Public expenditure composition; Adjustment
    JEL: E62 E23 H50
    Date: 2007–05
  22. By: Kevin Lang; Hong Kang
    Abstract: We develop a model in which firms hire heterogeneous workers but must offer all workers insurance benefits under similar terms. In equilibrium, some firms offer free health insurance, some require an employee premium payment and some do not offer insurance. Making the employee contribution pre-tax lowers the cost to workers of a given employee premium and encourages more firms to charge. This increases the offer rate, lowers the take-up rate, increases (decreases) coverage among high (low) demand groups, with an indeterminate overall effect. We test the model using the expansion of section 125 plans between 1987 and 1996. The results are generally supportive.
    JEL: H22 H24 I11 J32
    Date: 2007–04
  23. By: Marco Cipriani (George Washington University); Paola Giuliano (Harvard University, IMF and IZA); Olivier Jeanne (IMF)
    Abstract: This paper studies whether prosocial values are transmitted from parents to their children. We do so through an economic experiment, in which a group of Hispanic and African American families play a standard public goods game. The experimental data presents us with a surprising result. We find no significant correlation between the degree of cooperation of a child and that of his or her parents. Such lack of cooperation is robust across age groups, sex, family size and different estimation strategies. This contrasts with the typical assumption made by the theoretical economic literature on the inter-generational transmission of values. The absence of correlation between parents' and children's behavior, however, is consistent with part of the psychological literature, which emphasizes the importance of peer effects in the socialization process.
    Keywords: culture, intergenerational transmission, public good games
    JEL: C92 H41 Z1
    Date: 2007–04
  24. By: Ronelle Burger (Department of Economics, University of Stellenbosch)
    Abstract: This chapter investigates how effective recent changes in the South African public health care system have been in transforming the inequitable system inherited from the apartheid-era government. How has post-apartheid budget reallocations, decentralisation, the elimination of primary health care user fees and expansion of the network of clinics changed the incidence of spending and the quality of services provided? Have these changes benefited the poor? The results from research conducted indicate that the distribution of health spending on hospitals and clinics is driven by utilisation patterns. The decision by the affluent to opt-out of the public health system means that the most affluent receive a dramatically smaller proportion of the budget than the rest. There is, however, not much evidence of pro-poor targeting for the rest of the income distribution. However, in terms of spending equity, South Africa compares well with other developing countries. It is clear that health services have become more accessible and more affordable for the poor. Yet, the government is still far from achieving universal access and the desired degree of equity. In addition, there are concerns regarding the quality of services provided by public sector clinics and hospitals. Dissatisfaction among users of public sector services has increased and complaints include long waiting times, staff rudeness and problems with the availability of drugs.
    Keywords: Fiscal incidence, South Africa, health
    JEL: H51 I18
    Date: 2007
  25. By: Manasan, Rosario G.; Villanueva, Eden C.
    Abstract: Recognizing that the lack of financial resources to support the provision of basic services and to fund local development plans is a critical concern at the local level to attain improvements in key human development outcomes, the paper discusses the different sources of LGU revenues, both traditional and nontraditional. Moreover, the study presents corresponding issues (e.g., complex tax structures) that hamper efficient revenue generation/mobilization and at the same time emphasizes that there is some scope for local initiative and for some LGUs to do better than others by presenting examples of “good practices” which show innovative ways of some LGUs to overcome these hurdles. From here, a menu of policy actions that is aimed at enhancing not just LGU revenue generation and mobilization but also strategic allocation was drawn.
    Keywords: resource mobilization, revenue generation, LGU revenue sources, LGU good practices
    Date: 2006
  26. By: Andrew A. Samwick
    Abstract: This paper analyzes changes in the progressivity of the Social Security benefit formula as a means of lessening the risk inherent in investment-based Social Security reform. Focusing on a single cohort of workers, it simulates the distribution of benefits subject to both earnings and financial risks in a reformed system in which solvency has been restored and traditional benefits have been augmented by personal retirement accounts (PRAs). The simulations show that some investment in equities is desirable in all cases. However, switching from the current benefit formula to the maximally progressive formula -- a flat benefit independent of earnings -- improves the welfare of the the bottom 30 percent of the earnings distribution even if they reduce their PRA investments in equity to zero. An additional 30 percent of earners can lessen their equity investments without loss of welfare under the maximally progressive formula. Intermediate approaches in which traditional benefit replacement rates for lower earnings are reduced by less than those for higher earnings allow about half of the equity risk to be eliminated for the lowest earnings decile. Sensitivity tests show that these patterns are robust to different assumptions about risk aversion, the equity premium, and the size of the personal retirement accounts established by the reform.
    JEL: D31 H55 J26
    Date: 2007–04
  27. By: Geir H. Bjertnæs (Statistics Norway)
    Abstract: The market power of firms in intermediate good markets is found to generate a substantial welfare cost. Markup pricing of intermediate good firms contributes to increase the wedge between the marginal product of labor and the wage rate received by workers, as intermediate good firms add additional markups to the unit cost of a consumer good. This creates an additional wedge in the labor market, and is costly due to the existing substantial tax wedge in the labor market. The welfare cost of distortions in the supply of labor created by market power of firms is found to be more than 40 times larger than the welfare cost of distortions in the allocation of consumer goods created by differences in market power of firms. This welfare cost is substantial compared to previous estimates.
    Keywords: Monopoly; Taxation; Welfare costs
    JEL: D60 H20
    Date: 2007–04
  28. By: Gugushvili, Alexi
    Abstract: Is globalisation a conductive or destructive force for public policy development in the countries of transition? The problem is investigated through an example of oil-rich Azerbaijan. This paper first presents the current situation in the country, defines links between globalisation and public policy and describes empirical research and its main findings. The paper then explores the circumstances that have prompted such a development and concludes with the possible policy implications.
    Keywords: Azerbaijan; Globalisation; Public Policy; Corruption
    JEL: H0 D73 F50
    Date: 2006–08
  29. By: Lindqvist, Erik (Dept. of Economic Statistics, Stockholm School of Economics)
    Abstract: I develop a model of public sector contracting based on the multitask framework by Holmström and Milgrom (1991). In this model, an agent can put effort into increasing the quality of a service or reducing costs. Being residual claimants, private owners have stronger incentives to cut costs than public employees. However, if quality cannot be perfectly measured, providing a private firm with incentives to improve quality forces the owner of the firm to bear risk. As a result, private firms will always be cheaper for low levels of quality but might be more expensive for high levels of quality. Extending the model to allow for differences in task attractiveness, I find that public firms shun unattractive tasks, whereas private firms undertake them if incentives are strong enough.
    Keywords: Privatization; public sector contracting; incomplete contracts; contracting out
    JEL: H11 H40 L32 L33
    Date: 2007–03–05
  30. By: Andrew M. Cohen (Federal Reserve Board of Governors); Beth A. Freeborn (Department of Economics, College of William and Mary); Brian McManus (Olin School of Business, Washington University)
    Abstract: U.S. markets for outpatient substance abuse treatment (OSAT) include clinics that are private for-profit, private non-profit, and public (i.e., government-run). We study the market structure of OSAT using recently-developed methods from the empirical industrial organization literature on equilibrium market structure in differentiated product markets. These methods allow us to describe OSAT clinics as heterogeneous in their objectives, their responses to exogenous market characteristics, and their responses to one another. We find that the presence of a public clinic in a market reduces the probability that a private clinic will also participate in the market, which is consistent with crowding-out between public and private provision of OSAT. Crowding out appears to be more prevalent in markets with larger white populations.
    Keywords: discrete games, multiple equilibria, structural estimation, healthcare markets, substance abuse treatment, crowding out
    JEL: C35 C72 H4 I1 L1 L3
    Date: 2007–05–04
  31. By: Luis C. Ortigueira (Department of Business Administration, Universidad Pablo de Olavide)
    Abstract: The paper puts forward a systems conception of the public policies associated with any organisation. Using this approach it illuminates diverse questions of great theoretical and practical significance of the denominated "System for public policies", such as their boundaries, external and internal relationships and their epistemological problems. Other important considerations include the states and forms of representation, external and internal properties, and aspects of dynamic character.
    Keywords: public policies, system for public policies.
    Date: 2007–04
  32. By: Chan, Jimmy; Eyster, Erik
    Abstract: This paper examines public attitudes towards university admissions rules by focusing on the imposition of the costs of racial diversity across majority citizens. High-income majority citizens, who tend to have better academic qualifications, favour more diversity under affirmative action, which imposes its costs on marginal majority candidates. Lower-income majority citizens prefer less diversity under affirmative action and would rather achieve diversity by de-emphasizing academic qualifications. Increasing income inequality among majority citizens tends to reduce the median citizen's support for affirmative action. Our results explain why affirmative action has become increasing uppopular among white voters, and why white voters who oppose affirmative action may support top-x-percent rules like those recently introduced in Texas, California and Florida.
    Keywords: Affirmative Action; College Admissions; University Admissions
    JEL: D72 H75 I23
    Date: 2007–05
  33. By: Daniel Albalate (Grup de Recerca en Polítiques Públiques i Regulació Económiques (GPRE), Institut de Recerca d'Economia Aplicada (IREA), Departament de Política Econòmica i EEM, Universitat de Barcelona)
    Abstract: Road safety has become an increasing concern in developed countries due to the significant amount of mortal victims and the economic losses derived. Only in 2005 these losses rose to 200.000 million euros, a significant amount - approximately the 2% of its GDP- that easily justifies any public intervention. One tool used by governments to face this challenge is the enactment of stricter policies and regulations. Since drunk driving is one of the most important concerns of public authorities on this field, several European countries decided to lower their illegal Blood Alcohol Content levels to 0.5 mg/ml during the last decade. This study evaluates for the first time the effectiveness of this transition using European panel-based data (CARE) for the period 1991-2003 using the Differences-in-Differences method in a fixed effects estimation that allows for any pattern of correlation (Cluster-Robust). My results show the existence of positive impacts on certain groups of road users and for the whole population when the policy is accompanied by some enforcement interventions. Moreover, a time lag of more than two years is found in that effectiveness. Finally, I also assert the importance of controlling for serial correlation in the evaluation of this kind of policies.
    Keywords: Road Safety; Policy Evaluation; Differences-in-Differences; Drunk Driving; Illegal Blood Alcohol Content Levels (BAC).
    JEL: I18 H73 K32 R41
    Date: 2006–12
  34. By: Bert Hoffmann (GIGA Institute of Latin American Studies)
    Abstract: As the 'Washington Consensus' reforms are losing momentum in Latin America, the Inter- American Development Bank (IDB) is calling for shifting the focus from the content of policy choices to the political process of their implementation. As this paper studies the paradigmatic case of telecommunications reform in Costa Rica it underscores the importance of these 'politics of policies'. The analysis finds, however, that the failure of repeated liberalization initiatives was not only due to policy-makers' errors in steering the project through 'the messy world of politics' (IDB); instead, as liberalization remained unpopular, policy content indeed mattered, and only the interaction of both explains the outcome. Particular attention is drawn to the political feed-back effects, as the failed reform, precisely because it had been backed by bi-partisan support, became a catalyst for the disintegration of the country's long-standing two-party system.
    Keywords: Liberalization, privatization, telecommunications, public enterprises, Costa Rica, development model, Inter-American Development Bank
    JEL: E61 E65 H42 L33 L96
    Date: 2007–04
  35. By: Lindqvist, Erik (Dept. of Economics, Stockholm School of Economics); Östling, Robert (Dept. of Economics, Stockholm School of Economics)
    Abstract: This paper models the interaction between individuals' identity choices and redistribution. Both redistributive polices and identity choices are endogenous, and there might be multiple equilibria. The model is applied to ethnicity and social class. In an equilibrium with high taxes, the poor identify as poor and favor high taxes. In an equilibrium with low taxes, at least some of the poor identify with their ethnic group and favor low taxes. The model has two main predictions. First, redistribution is highest when society is ethnically homogenous, but the effect of ethnic diversity on redistribution is not necessarily monotonic. Second, when income inequality is low, an increase in income inequality might induce the poor to identify with their ethnic group and therefore favor lower taxes.
    Keywords: Redistribution; social identity; income inequality; ethnic fractionalization; ethnic diversity; social class
    JEL: H20 J15
    Date: 2006–12–19
  36. By: Rieko Ishii (Institute of Social and Economic Research, Osaka University)
    Abstract: It is known that bid rigging in public-work auctions in Japan often takes the form of exchanging favors. In such a scheme, the winner is designated based on the amount of favor he has given to other members of the ring. By explicitly modeling gfavorh as an explanatory variable, this paper analyzes data from the public-works auctions for consulting works in Naha, Japan, to confirm that such a collusion scheme is in operation.
    Keywords: Bid rigging, repeated auction.
    JEL: D44 H57 L44
    Date: 2007–05
  37. By: Reyer Gerlagh (University of Manchester); Snorre Kverndokk (Ragnar Frisch Centre for Economic Research); Knut Einar Rosendahl (Statistics Norway)
    Abstract: This paper addresses the impact of endogenous technology through research and development (R&D) and learning by doing (LbD) on the timing of environmental policy. We develop two models, the first with R&D and the second with LbD. We study the interaction between environmental taxes and innovation externalities in a dynamic economy and prove policy equivalence between the second-best R&D and the LbD model. Our analysis shows that the difference found in the literature between optimal environmental policy in R&D and LbD models can partly be traced back to the set of policy instruments available, rather than being directly linked to the source of technological innovation. Arguments for early action in LbD models carry over to a second-best R&D setting. We show that environmental taxes should be high compared to the Pigouvian levels when an abatement industry is developing. We illustrate our analysis through numerical simulations on climate change policy.
    Keywords: Environmental Policy, Technological Change, Research and Development, Learning by Doing
    JEL: H21 O30 Q42
    Date: 2007–04
  38. By: Stefan Bach; Giacomo Corneo; Viktor Steiner
    Abstract: We analyze the distribution and concentration of market incomes in Germany in the period 1992 to 2001 on the basis of an integrated data set of individual tax returns and the German Socio-Economic Panel. The unique feature of this integrated data set is that it encompasses the whole spectrum of the population, from the very poor to the very rich. We find a modest increase in overall inequality of market incomes as measured by the Gini coefficient. However, we also document a substantial drop of median income and a remarkable income growth at the top 0.1% of the income distribution. The increase of income inequality was stronger in East Germany than in West Germany. In both regions, the income concentration process strongly benefited the economic elite, which we define as the richest 0.001% persons in the population. While the elite mainly obtains its income from business and capital, the income share that it receives in form of wage income is increasing.
    Keywords: Income Distribution, Top Incomes, Inequality
    JEL: D31 D33 H24
    Date: 2007
  39. By: Giuseppe Attanasi, Luca Corazzini, Francesco Passarelli (ISLA, Universita' Bocconi, Milano)
    Abstract: Voting is a lottery in which an individual wins if she belongs to the majority or loses if she falls into the minority. The probabilities of winning and losing depend on the voting rules. The risk of losing can be reduced by increasing the majority threshold. This however has the negative effect of also lowering the chance to win. We compute the individuals preferred majority threshold, as a function of her risk attitudes, her voting power and her priors about how the other individuals will vote. We find that the optimal threshold is higher when an individual is more risk averse, less powerful, and less optimistic about the chance that the others will vote like her. De facto, raising the threshold is a form of protection against the higher risk of being tyrannized by an unfavorable majority.
    Keywords: optimal majority rule, super-majority, risk aversion, weighted votes, voter optimism.
    JEL: D72 D81 H11
    Date: 2007–05
  40. By: Higgins, Matthew; Young, Andrew; Levy, Daniel
    Abstract: Higgins et al. (2006) report several statistically significant partial correlates with U.S. per capita income growth. However, Levine and Renelt (1992) demonstrate that such correlations are hardly ever robust to changing the combination of conditioning variables included. We ask whether the same is true for the variables identified as important by Higgins et al. Using the extreme bounds analysis of Levine and Renelt, we find that the majority of the partial correlations can be accepted as robust. The variables associated with those partial correlations stand solidly as variables of interest for future studies of U.S. growth.
    Keywords: Economic Growth; Conditional Convergence; Extreme Bounds Analysis; County-Level Data;
    JEL: O40 R11 O51 H50 O47 O18 H70 O11
    Date: 2007–05–04
  41. By: DRAMANI, Latif
    Abstract: Ce papier étudie la convergence dans les économies des pays en développement, spécifiquement en Afrique dans les zones UEMOA et CEMAC à l’aide de la théorie de la convergence inspirée par les modèles de croissance endogène. La littérature récente apporte de nouvelles pistes de recherches sur l’étude de la convergence des économies avec l’approche par la bêta-convergence, la sigma- convergence, la convergence stochastique ainsi que l’utilisation de l’analyse des données spatiales. En effet ces dernières années les études portant sur la convergence des économies utilisant la théorie de la convergence en l’occurrence celle de la bêta convergence et de la sigma convergence ont été améliorés avec la prise en compte des phénomènes spatiaux jusqu’alors négligés dans la spécification des modèles. L’objectif de cette étude est de mesurer avec une validation économétrique sur coupes transversales et sur données de panel un certain nombre d’hypothèses dont les principales sont la convergence des économies de la zone UEMOA et CEMAC à travers certaines variables économiques et budgétaires, l’existence des effets de débordements, ainsi que la recherche d’un sentier de croissance commun pour les économies de la zone. Les résultats que nous avons trouvés, montrent que le processus de convergence n’est pas uniforme dans la zone franc. En effet le processus de convergence et donc d’intégration est beaucoup plus accentué dans les pays de la zone UEMOA que ceux de la zone CEMAC. D’autre part la technique d’estimation du modèle de convergence conditionnelle a permis de mettre en évidence l’existence de variables clés permettant de maximiser la vitesse de convergence dans la zone. Une approche plus fine de la convergence, en utilisant les similarités par rapport aux facteurs de production, les similarités par rapport aux avantages naturelles, a permis de mettre en lumière la présence de club de convergence. L’étude a également révélé une convergence selon les périodes des pays produisant du Coton, du café ainsi que des pays côtiers. Ceci démontre que l’hypothèse d’un sentier commun de convergence est battue en brèche par les résultats de notre étude dans les pays de la zone Franc. L’analyse des effets spatiaux met en évidence l’existence d’effets inhibiteurs sur la vitesse de convergence. En effet l’effet frontière prise en compte a contribué à faire baisser la vitesse de convergence en moyenne de moitié sur la période après dévaluation, et du cinquième sur la période PAS.
    Keywords: Convergence; sigma convergence; convergence stochastique; données de panels; économétrie spatiale; co-intégration; intégration économique; convergence conditionnelle.
    JEL: H50 H52 F50 O11
    Date: 2007–04–30
  42. By: Mourao, Paulo
    Abstract: What is an indicator? Seemingly, the solution is so clear that it can deceive us, economists and other social scientists. This work aims at enlightening the answer to the suggested question, discussing the methodological dimensions of the economic indicators – since the phase of production until the phase of readings, highlighting the context of the regional economic indicators.
    Keywords: Indicator; Regional Economics; Scientific Methodology
    JEL: H11 R13 R15
    Date: 2006

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