nep-pbe New Economics Papers
on Public Economics
Issue of 2007‒09‒09
thirteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Competing in Taxes and Investment under Fiscal Equalization By Hindriks, Jean J.G.; Peralta, Susana; Weber, Shlomo
  2. No Taxation without Infrastructure By Stefan Gruber; Luigi Marattin
  3. Cheap Talk and Secret Intentions in a Public Goods Experiments By Werner Güth; M. Vittoria Levati; Torsten Weiland
  4. Governance and Rural Public Expenditures in Latin America. The Impact on Rural Development. By Gustavo Anríquez
  5. Estate taxation, entrepreneurship, and wealth By Marco Cagetti; Mariacristina De Nardi
  6. Taxation, growth and welfare: Dynamic effects of Estonia’s 2000 income tax act By Funke, Michael; Strulik, Holger
  7. Fiscal Discipline as a Social Norm: The European Stability Pact By Jean-Paul Fitoussi; Francesco Saraceno
  8. Strategic Competition in Swedish Local Spending on Childcare, Schooling and Care for the Elderly By Edmark, Karin
  9. What Norms Trigger Punishment By Jeffrey Carpenter; Peter Hans Matthews
  10. Local Distributional Effects of Government Cash Transfers in Chile By Claudio Agostini; Phillip Brown
  11. Firms and public service provision in Russia By Haaparanta, Pertti; Juurikkala, Tuuli; Lazareva, Olga; Pirttilä, Jukka; Solanko, Laura; Zhuravskaya , Ekaterina
  12. Diesel price convergence and mineral oil taxation in Europe By Axel Dreher; Tim Krieger
  13. Infrastructure governance and corruption : where next ? By Kenny, Charles

  1. By: Hindriks, Jean J.G.; Peralta, Susana; Weber, Shlomo
    Abstract: The paper considers a model of federation with two heterogeneous regions that try to attract the capital by competing in capital income taxes and public investment that enhance the productivity of capital. Regions' choices determine allocation of capital across the regions and their revenues under a tax sharing scheme. This framework allows for the examination of different approaches to fiscal equalization schemes (Boadway and Flatters, 1982, and Weingast, 2006). We show that tax competition distorts (downwards) public investments and that the equalization grants discourage public investments with a little effect on equilibrium taxes. However, the equalization schemes remain beneficial not only for the federation and, under a low degree of regional asymmetry, also for each region.
    Keywords: equalization; fiscal; fiscal federalism; heterogeneous regions; public investments
    JEL: C72 H23
    Date: 2007–08
  2. By: Stefan Gruber (University of Innsbruck, Austria and University of Bologna and The Rimini Center for Economic Analysis, Italy.); Luigi Marattin (University of Bologna and University of Siena, Italy)
    Abstract: This paper presents a New Economic Geography model with distortionary taxation and endogenized transport costs. Tax revenues finance a public good, infrastructure. We show that the introduction of costly public investment in infrastructure leads to more pronounced agglomeration patterns. With respect to the regions sizes, in the periphery, the price-index for manufacturing goods decreases, whereas for the core, the price-index is rather high since the distortionary effect of taxes dominates. Free riding is beneficial for the periphery, which can devote all its tax revenue to local demand support, generating a positive home market effect and driving the catch-up process.
    Keywords: New Economic Geography, Taxation, Endogenous Transport Costs, Infrastructure
    JEL: F12 H25 H54 R12
    Date: 2007–07
  3. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); M. Vittoria Levati (Max Planck Institute of Economics, Strategic Interaction Group); Torsten Weiland (Max Planck Institute of Economics, Strategic Interaction Group)
    Abstract: In a public goods experiment, subjects can vary over a period of stochastic length two contribution levels: one is publicly observable (their cheap talk stated intention), while the other is not seen by the others (their secret intention). When the period suddenly stops, participants are restricted to choose as actual contribution either current alternative. Based on the two types of choice data for a partners and a perfect strangers condition, we confirm that final outcomes strongly depend on the matching protocol. As to choice dynamics, we distinguish different types of adaptations.
    Keywords: Public goods game, Cheap talk communication, Real-time protocol
    JEL: C72 H41 D82 D83
    Date: 2007–08–20
  4. By: Gustavo Anríquez (Agricultural and Development Economics Division, Food and Agriculture Organization)
    Abstract: In this paper we examine the effects of the composition (between private and public goods) of government expenditures in the rural world, and the effect that corruption has in the political game that determines these allocation decisions. In the first section of this paper we develop a political economy model where corruption and trade openness counteract to determine, within a political equilibrium, the amount of public funds to be devoted to the rural world, and their composition between public and private goods. In the second section we contrast the implications of the political economy model with recently released data on rural public expenditures in Latin America. We find that corruption reduces the amount of public funds that reach the rural world, but not its composition. We also find that after accounting for the endogeneity of public expenditure decisions, the composition of these expenditures significantly determines rural development (as proxied by agricultural GDP).
    Keywords: Corruption, trade openness, public spending, rural development, public goods.
    JEL: H2 H50 H41 O13 Q10
    Date: 2007
  5. By: Marco Cagetti; Mariacristina De Nardi
    Abstract: We study the effects of abolishing estate taxation in a quantitative and realistic framework that includes the key features that policy makers are worried about: business investment, borrowing constraints, estate transmission, and wealth inequality. We use our model to estimate effective estate taxation. We consider various tax instruments to reestablish fiscal balance when abolishing estate taxation. We find that abolishing estate taxation would not generate large increases in inequality, and would, in some cases, generate increases in aggregate output and capital accumulation. If, however, the resulting revenue shortfall were financed through increased income or consumption taxation, the immensely rich, and the old among those in particular, would experience a welfare gain, at the cost of welfare losses for the vast majority of the population.
    Keywords: Taxation ; Wealth
    Date: 2007
  6. By: Funke, Michael (BOFIT); Strulik, Holger (BOFIT)
    Abstract: This paper analyses the long-run effects of Estonia’s 2000 Income Tax Act with a dynamic general equilibrium model. Specifically, we consider the impact of the shift from an imputation system to one where companies only pay taxes on distributed profits. Balanced growth paths, transitional dynamics and welfare costs are computed. Our results indicate that the 2000 Income Tax Act leads to higher per capita income and investment, but lower welfare. A sensitivity analysis shows the results are rather robust.
    Keywords: growth; welfare; taxation; tax reform; Estonia
    JEL: H25 H32 O41 O52
    Date: 2007–09–06
  7. By: Jean-Paul Fitoussi (Observatoire Français des Conjonctures Économiques); Francesco Saraceno (Observatoire Français des Conjonctures Économiques)
    Abstract: This paper reviews the arguments for and against the ‘Stability and Growth Pact’ signed by the countries of the Euro area. We find the theoretical debate to be inconclusive, as both externality and credibility arguments can be used to yield opposite, and equally plausible conclusions. We also argue that evidence in favour of a Pact-like rule is scant. We therefore suggest the view that the Stability Pact is a public social norm, and that a country’s adherence to that norm is in fact a response to the need to preserve reputation among the other members of the European Union. Using this extreme but not implausible hypothesis, we build a simple model similar in spirit to Akerlof’s (1980) seminal paper on social norms, and we show that reputation issues may cause the emergence of a stable but inferior equilibrium. We further show that after the enlargement, with a number of countries anxious to prove their ‘soundness’ joining the club, the problems posed by the pact/social norm are likely to increase.
    Keywords: Stability Pact, Fiscal Rules, Fiscal Policy, Social Norms, Reputation, Enlargement
    JEL: D63 D71 E62 E63
    Date: 2007
  8. By: Edmark, Karin (Department of Economics)
    Abstract: This study tests for strategic competition in public spending on childcare and primary education, and care for the elderly, using panel data on Swedish municipalities over 1996-2005. The high degree of decentralization in the organization of the public sector implies that Swedish data is highly suitable for this type of study. The study is not limited to interactions in the same type of expenditure, but also allows for e¤ects across expenditures. The results give no robust support for the hypothesis that municipalities react on the spending policy of neighbouring municipalities in the decision on own spending on care of the elderly, childcare and education.
    Keywords: Strategic interactions; Spatial econometrics; Decentralization; Local Public Spending
    JEL: C31 H72 H77
    Date: 2007–09–03
  9. By: Jeffrey Carpenter; Peter Hans Matthews
    Abstract: Many experiments have demonstrated the power of norm enforcement-peer monitoring and punishment-to maintain, or even increase, contributions in social dilemma settings, but little is known about the underlying norms that monitors use to make punishment decisions. Using a large sample of experimental data, we empirically recover the set of norms used most often by monitors and show ?rst that the decision to punish should be modeled separately from the decision of how much to punish. Second, we show that absolute norms often ?t the data better than the group average norm often assumed in related work. Third, we ?nd that di?erent norms seem to in?uence the decisions about punishing violators inside and outside one’s own group.
    Keywords: public good, experiment, punishment, social norm, norm enforcement.
    JEL: C72 C92 H41
    Date: 2007–08
  10. By: Claudio Agostini (ILADES-Georgetown University, Universidad Alberto Hurtado); Phillip Brown (Colby College, Waterville, Maine, United States and International Food Policy Research Institute, Washington, D.C., United States.)
    Abstract: Despite rapid economic growth and poverty reduction, inequality in Chile has remained high and remarkably constant over the last 20 years,prompting academic and public interest in the subject. Due to data limitations, however, research on inequality in Chile has concentrated on the national and regional levels. The impact of cash subsidies to poor households on local inequality is thus not well understood. Using povertymapping methods to asses this impact, we find heterogeneity in the effectiveness of regional and municipal governments in reducing inequality via poverty-reduction transfers, suggesting that alternative targeting regimes may complement current practice in aiding the poor.
    Keywords: Inequality, poverty mapping, government cash transfers, Chile
    JEL: H53 I32 O15 D63
    Date: 2007–05
  11. By: Haaparanta, Pertti (BOFIT); Juurikkala, Tuuli (BOFIT); Lazareva, Olga (BOFIT); Pirttilä, Jukka (BOFIT); Solanko, Laura (BOFIT); Zhuravskaya , Ekaterina (BOFIT)
    Abstract: This paper reports first results from a survey of 404 middle-sized and large manufacturing firms from 40 Russian regions in April-June 2003. We examine the extent of social service and infrastructure provision by the firms and the firms’ assessment of the quality of public infrastructure and the regulatory environment. Background information of ownership, investment, performance, competition, and finance decisions of the firms is also gathered. <p> The data reveal that despite major divestments of social services during 1990s, a great majority of firms still provide at least some form of social services. For example, 56% of the firms have their own housing or support local housing, and 73% of the firms have recreation facilities or support employee’s recreation activities. While managers view the social service provision as non-essential and costly, many of the firms continue to provide these services, even to users other than their own workforce. <p> The quality of public infrastructure is generally assessed as being good or satisfactory; the respondents were the least satisfied with the quality of roads. Over a half of the firms provide their own heat, but mainly due to technological reasons – although public service interruptions do occur – and 24% of the firms give support to the maintenance and construction of public road network. <p> The regulatory burden the firms face continues to be severe. In more than half of the firms, for example, the general manager has to spend more than two weeks in negotiations about public infrastructure with the authorities. <p> These descriptive results indicate that there is still a lot scope for improvement in the quality and quantity of public service provision in Russia. Enterprises are still engaged rather heavily in social service provision, road network would require improvements, and the easing of regulatory burden should continue. Addressing these questions is likely to be vital for the sustainability of investments and growth in Russia. <p> The paper is part of the project “Infrastructure and Welfare Services in Russia: Enterprises as Beneficiaries and Service Providers” financed by the Academy of Finland (project number 200936), the World Bank, and Yrjö Jahnsson Foundation. The project has also received support from the Bank of Finland Institute for Economies in Transition.
    Date: 2007–09–06
  12. By: Axel Dreher (ETH Zurich, KOF Swiss Economic Institute); Tim Krieger (University of Paderborn)
    Abstract: We empirically analyze convergence of European producer and consumer prices for diesel fuel and investigate the role of excise taxation. By comparing the speed of convergence of prices and taxes we find a surprisingly fast speed of convergence for consumer prices. While this can in part be explained by fuel tourism, the main driving force is producer price dynamics. Tax convergence contributes weakly to price convergence, but the overall effect is to slow down consumer relative to producer price convergence.
    Keywords: price convergence, diesel, international taxation, European integration, panel unit roots
    JEL: F15 H7 Q48 C2
    Date: 2007–08
  13. By: Kenny, Charles
    Abstract: Governance is central to development outcomes in infrastructure, not least because corruption (a symptom of failed governance) can have significantly negative impact on returns to infrastructure investment. This conclusion holds whether infrastructure is in private or public hands. This paper looks at what has been learned about the role of governance in infrastructure, provides some recent examples of reform efforts and project approaches, and suggests an agenda for greater engagement - primarily at the sector level - to improve governance and reduce the development impact of corruption. The discussion covers market structure, regulation, state-owned enterprise reform, planning and budgeting, and project design.
    Keywords: Banks & Banking Reform,Public Sector Corruption & Anticorruption Measures,National Governance,Governance Indicators,Transport Economics Policy & Planning
    Date: 2007–08–01

This nep-pbe issue is ©2007 by Oliver Budzinski. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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