nep-pbe New Economics Papers
on Public Economics
Issue of 2007‒08‒27
fourteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking By Hikaru Ogawa; David Wildasin
  2. Does Fiscal Decentralization Promote Fiscal Discipline? By Bilin Neyapti; Nida Cakir
  3. Myopic or constrained by balanced-budget-rules? The intertemporal spending behavior of Norwegian local governments By Lars-Erik Borge; Per Tovmo
  4. Regional Financing: Spanish Autonomous Communities Versus German Laenders By Carmen Lopez Martin; Pedro Pablo Perez Hernandez; Araceli Rios Berjillos
  5. Municipal Bonds for Financing Development of infrastructure: A way forward for KCC and Local Governments in Uganda By Mayanja, Abubaker; Mayengo, Israel
  6. Fiscal Decentralization, Chinese Style: Good for Health Outcomes? By Uchimura, Hiroko; Jütting, Johannes
  7. Escape from the City? The Role of Race, Income, and Local Public Goods in Post-War Suburbanization By Leah Platt Boustan
  8. Industry Compensation and the Costs of Alternative Environmental Policy Instruments By A. Lans Bovenberg; Lawrence H. Goulder; Mark R. Jacobsen
  9. Assessing the impact of a change in the composition of public spending - a DSGE approach. By Roland Straub; Ivan Tchakarov
  10. Fiscal policy in Mediterranean countries – Developments, structures and implications for monetary policy By Michael Sturm; François Gurtner
  11. Fiscal Prefunding in Response to Demographic Uncertainty By Alex Armstrong; Nick Draper; André Nibbelink; Ed Westerhout
  12. Pre-Emption: Federal Statutory Intervention in State Taxation By David Wildasin
  13. Managing the coordination of service delivery in metropolitan cities : the role of metropolitan governance By Slack, Enid
  14. have collapses in infrastructure spending led to cross-country divergence in per capita gdp? By Francisco Rodriguez

  1. By: Hikaru Ogawa (School of Economics, Nagoya University); David Wildasin (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky)
    Abstract: In this paper, we analyze a class of models in which there are interjurisdictional spillovers among heterogeneous jurisdictions, as illustrated for instance by CO2 emissions that affect the global environment. Each jurisdiction’s emissions depend upon the local stock of private capital. Capital is interjurisdictionally-mobile and may be taxed to help finance local public expenditures. We show that decentralized policymaking leads to efficient resource allocations in important cases, even in the complete absence of corrective interventions by higher-level governments or coordination of policy through Coasian bargaining. In particular, even when the preferences and production technologies differ among the agents, the decentralized system can still result in globally efficient allocation.
    JEL: H23 H87 D62
    Date: 2007–08
  2. By: Bilin Neyapti; Nida Cakir
    Date: 2007
  3. By: Lars-Erik Borge (Department of Economics & Centre for Economic Research, Norwegian University of Science and Technology); Per Tovmo (Centre for Economic Research, Norwegian University of Science and Technology)
    Abstract: The paper analyzes the intertemporal spending behavior of Norwegian local governments with particular attention to liquidity constraints imposed by balanced-budget-rules (BBRs). The main findings are: (i) On average, local government spending behavior is neither perfectly forward looking nor fully myopic. (ii) Local governments with good fiscal conditions behave more forward looking than other local governments. (iii) A high degree of party fragmentations is associated with less forward looking behavior. The overall assessment is that the departure from rational forward looking behavior reflects both liquidity constraints imposed by BBRs and myopic behavior.
    Keywords: Balanced-budget-rules; Intertemporal spending behavior; Consumption smoothing; Local government
    JEL: D91 H72
    Date: 2007–06–15
  4. By: Carmen Lopez Martin; Pedro Pablo Perez Hernandez; Araceli Rios Berjillos
    Abstract: Spanish state descentralization is very similar to the most important federal countries. In spite of the advances in the regional financing system it hasn’t been able to give the needed autonomy and financial sufficiency to fund the transferred competencies in the Spanish Autonomies. From 1987 to nowdays four different models of financiation have been implemented. The last one, approved in 2001 and though it seemed to be succesfull, it is going to be remodelled shortly . There are objective reasons to justify the system modification: evolution of the public expenses, inmigration, in general terms, society evolution. However, it is a political reason what has brought this topic on. Last proposal comes from the Catalonian Government. Some parts of the proposal take as model the German länder financial system, specially the basket tax and the interregional solidarity system. The aim of this research is to compare socioeconomic features in regions belonging to Germany and Spain as well as their financial system in order to know what can be useful to Autonomic Spanish financial system taken from the German one. The methodology used is the following one: a) First of all, we have studied the main socioeconomic features of Spanish regions and of German länders. In this part of the work, we have been able to get similarities between regions in both countries. Similarities that can justify directly or indirectly some aspects of the financing. b) Secondly, it has been made a description of the financial system applied in German länders and in the Spanish Autonomies. It has been specially compared the extent of autonomy and solidarity in each system. c) Thirdly, it has been studied the reform proposed by the Catalonian Government identifying its relation to the German regional financial system. d) And finally, it has been made a valoration about the Catalonian Government proposals and some other conclusions have been drawn over the possibility to implement German system to Spanish regions.
    Date: 2006–08
  5. By: Mayanja, Abubaker; Mayengo, Israel
    Abstract: The world over municipalities and cities often rely on capital markets for their long term financing needs. It is envisaged that such debt issues accelerate the development of cities. The rationale is that since the projects are supposed to benefit the public over time, the issuance of debt to spread the payments between generations is optimal. Municipal bonds are still unexplored as a mechanism of financing capital projects of municipalities in Uganda. This study assesses the legality, the advantages and challenges as well as likely projects to initiate the Municipal bond market in Uganda. It is legally possible for local governments to issue bonds; they can borrow up to 25 percent of their revenue. However, the conditionality in the law that requires them to maintain a balanced budget may be a limiting factor. It is important to note that a yield curve exits for government bonds that can be used as a benchmark for pricing Municipal bond. It is our view that the size of the bond market is already encouraging enough to be confident that the market may receive such issues favourably
    Keywords: Sub-National Finance; Municipal bonds; Public infrastructure development
    JEL: H72 H76 H74
    Date: 2007–06–25
  6. By: Uchimura, Hiroko; Jütting, Johannes
    Abstract: This study analyzes the effect of fiscal decentralization on health outcomes in China using a panel data set with nationwide county-level data. We find that counties in more fiscal decentralized provinces have lower infant mortality rates compared to those counties in which the provincial government retains the main spending authority, if certain conditions are met. Spending responsibilities at the local level need to be matched with county government’s own fiscal capacity. For those local governments that have only limited revenues, their ability to spend on local public goods such as health care depends crucially upon intergovernmental transfers. The findings of this study thereby support the common assertion that fiscal decentralization can indeed lead to more efficient production of local public goods, but also highlights the necessary conditions to make this happen.
    Keywords: Fiscal decentralization, Health outcomes, China, Fiscal policy, Decentralization, Local government, Public health
    JEL: H75 I18
    Date: 2007–07
  7. By: Leah Platt Boustan
    Abstract: Suburbs allow for sorting across towns, increasing inequality in resources for education and other local public goods. This paper demonstrates that postwar suburbanization was, in part, a flight from the declining income and changing racial composition of city residents. I estimate the marginal willingness to pay for town-level demographics -- holding neighborhood composition constant -- by comparing prices for housing units on either side of city-suburban borders (1960-1980). A one standard deviation increase in residents' median income was associated with a 3.5 percent housing price increase. Homeowners value the fiscal subsidy associated with a higher tax base, and the fiscal isolation from social problems (for example, spending on police). In addition, white households avoided racially diverse jurisdictions, particularly those that experienced rioting or underwent school desegregation.
    JEL: H71 H72 H73 N92 R21
    Date: 2007–08
  8. By: A. Lans Bovenberg; Lawrence H. Goulder; Mark R. Jacobsen
    Abstract: This paper explores how the costs of meeting given aggregate targets for pollution emissions change with the imposition of the requirement that key pollution-related industries be compensated for potential losses of profit from the pollution regulation. Using analytically and numerically solved equilibrium models, we compare the incidence and economy-wide costs of emissions taxes, fuel (intermediate input) taxes, performance standards and mandated technologies in the absence and presence of this compensation requirement. Compensation is provided either through lump-sum industry tax credits or industry-specific cuts in capital tax rates. We decompose the added costs from the compensation requirement into (1) an increase in "intrinsic abatement cost," reflecting a lowered efficiency of pollution abatement, and (2) a "lump-sum compensation cost" that captures the efficiency costs of financing the compensation. The compensation requirement affects these components differently and thus can alter the cost-rankings of policies. When compensation is provided through tax credits, the lump-sum compensation cost is higher under the emissions tax than under performance standards and mandated technologies -- a reflection of the emission tax's higher compensation requirements. If in this setting the required pollution reduction is modest, imposing the compensation requirement causes the emissions tax to become more costly than command and control policies. In contrast, if required abatement is extensive, the emissions tax emerges as the most cost-effective policy because its relatively low intrinsic abatement costs assume greater importance.
    JEL: H21 H23 Q58
    Date: 2007–08
  9. By: Roland Straub (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.); Ivan Tchakarov (International Monetary Fund (IMF) Asia and Pacific Department, 700 19th Street NW, Washington, DC 20431, USA.)
    Abstract: Despite intense calls for safeguarding public investment in Europe, public investment expenditure, when measured in relation to GDP, has steadily fallen in the last three decades, evoking fears that economic activity may be correspondingly negatively affected. At the same time, however, public consumption in the EU-12 countries has trended up. In this paper, we provide a macroeconomic assessment of the observed change in the composition of public spending in the euro area in a medium-scale two-country dynamic stochastic general equilibrium (DSGE) model. First, we analyze the channels through which, both temporary and permanent public investment shocks generate larger fiscal multipliers than exogenous increases in public consumption. Furthermore, we quantify the negative impact of a change in fiscal stance, characterized by a permanent rise in public consumption and a permanent fall in public investment, keeping thereby the overall level of public spending constant. The key message of the paper is that calls for reversing the observed trend in the composition of public spending are well justified. JEL Classification: F41, F42.
    Keywords: Public investment, Public consumption, Euro area, DSGE models.
    Date: 2007–08
  10. By: Michael Sturm (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); François Gurtner (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Southern and eastern Mediterranean countries have many fiscal challenges in common with other emerging market and mature economies concerning deficit and debt reduction and the maintenance of fiscal discipline. However, most countries in the region also face some specific fiscal issues, such as relatively high public debt, dependence on some form or another of donor dependence or concessional financing, high budgetary exposure to fluctuations in hydrocarbon prices, high defence expenditure and weak tax bases. Against this background, this paper reviews fiscal developments and fiscal policy issues in the ten countries that are participants or observers in the EU’s Barcelona process. The main focus is on the implications of these developments and issues for macroeconomic stability, given that countries in the region have made considerable progress in terms of macroeconomic stabilisation over the last two decades, which is reflected in particular in lower inflation rates. The analysis distinguishes between non-oil-producing and oil-producing countries in the region, as they exhibit different fiscal features and are confronted with different challenges. In the case of non-oil-producing countries, the key challenges stem from high deficits and debt levels, including implicit and contingent liabilities, notwithstanding some progress in fiscal consolidation in most of these countries over the last years. In the case of oil-producing countries, whose fiscal situation has significantly improved in recent years in the wake of high oil prices, the key challenges for fiscal management stem from the heavy reliance on an exhaustible source of revenues and a large exposure to fluctuations in international hydrocarbon prices. A shock originating from – or being transmitted via and exacerbated by – the fiscal sector appears to be the single most important macroeconomic risk in many countries.
    Date: 2007–08
  11. By: Alex Armstrong; Nick Draper; André Nibbelink; Ed Westerhout
    Abstract: Uncertainty in demographic developments lowers expected future welfare levels. Increasing current tax rates and decreasing expected future tax rates may compensate part of the welfare loss that is due to demographic uncertainty. In doing so, the government effectively pursues a precautionary fiscal policy analogous to the precautionary life-cycle saving behaviour that households may exhibit in the presence of income uncertainty.
    Keywords: Fiscal policy; Demographic Uncertainty
    JEL: H2 D50
    Date: 2007–07
  12. By: David Wildasin (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky)
    Abstract: This paper examines the implications of Federal statutory restrictions on state government taxing powers. Such pre-emption can prevent states from pursuing policies that are best adapted to their economic circumstances and objectives, inefficiently constraining decentralized state tax policymaking. States policy choices may, however, harm the efficient operation of the US federation as a whole; in such cases, the “visible hand” of Federal pre-emption may lead to improved policy outcomes. Existing and proposed statutes that regulate state taxation of retail sales, retirement savings distributions, and corporation income illustrate the potential advantages and disadvantages of pre-emption.
    Date: 2007–08
  13. By: Slack, Enid
    Abstract: This paper examines different models of governing structure found in metropolitan areas around the world. It evaluates how well these models achieve the coordination of service delivery over the entire metropolitan area as well as the extent to which they result in the equitable sharing of costs of services. Based on theory and case studies from numerous cities in developed and less developed countries, the paper concludes that there is no " one size fits all " model of metropolitan governance. Other observations from the case studies highlight the impo rtance of the process of implementing a metropolitan structure, the need to match fiscal resources with expenditure responsibilities, the need to have a governance structure that covers the entire economic region, and the critical importance of having a strong regional structure that ensures that services are delivered in a coordinated fashion across municipal boundaries.
    Keywords: Transport Economics Policy & Planning,Municipal Financial Management,National Governance,Public Sector Economics & Finance,Public Sector Corruption & Anticorruption Measures
    Date: 2007–08–01
  14. By: Francisco Rodriguez
    Abstract: This paper explores whether the post-1980 decline in infrastructure investment in developing countries is a source of growing disparities in world per capita GDP. I start by reviewing the literature on the infrastructure-productivity link, arguing that a balanced reading of previous studies points to a significant effect of infrastructure provision on productivity. I then empirically study whether retrenchments in infrastructure provision have played a role in growing disparities using a data set of country-level infrastructure stocks for 121 countries since 1960. Cutbacks in infrastructure investment appear to be at most a minor cause of growing divergence in per capita incomes.
    Keywords: infrastructure, public capital, convergence, productivity, economic growth
    JEL: H54 O11
    Date: 2007–07

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