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on Public Economics |
| By: | Brülhart, Marius; Jametti, Mario |
| Abstract: | We study the impact of tax competition on equilibrium taxes and welfare, focusing on the jurisdictional fragmentation of federations. In a representative-agent model of fiscal federalism, fragmentation among jurisdictions with benevolent tax-setting authorities unambiguously reduces welfare. If, however, tax-setting authorities pursue revenue maximization, fragmentation, by pushing down equilibrium tax rates, may under certain conditions increase citizen welfare. We exploit the highly decentralized and heterogeneous Swiss fiscal system as a laboratory for the estimation of these effects. While for purely direct-democratic jurisdictions (which we associate with benevolent tax setting) we find that tax rates increase in fragmentation, fragmentation has a moderating effect on the tax rates of jurisdictions with some degree of delegated government. Our results thereby support the view that tax competition can be second-best welfare enhancing by constraining the scope for public-sector revenue maximization. |
| Keywords: | direct democracy; fiscal federalism; government preferences; optimal taxation; tax competition |
| JEL: | D7 H2 H7 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6512&r=pbe |
| By: | Peter Claeys (Faculty of Economics, University of Barcelona.) |
| Abstract: | I reconsider the short-term effects of fiscal policy when both government spending and taxes are allowed to respond to the level of public debt. I embed the long-term government budget constraint in a VAR, and apply this common trends model to US quarterly data. The results overturn some widely held beliefs on fiscal policy effects. The main finding is that expansionary fiscal policy has contractionary effects on output and inflation. Ricardian effects may dominate when fiscal expansions are expected to be adjusted by future tax rises or spending cuts. The evidence supports RBC models with distortionary taxation. We can discard some alternative interpretations that are based on monetary policy reactions or supply-side effects. |
| Keywords: | fiscal policy, sustainability, spending, taxes, common trends, SVAR. |
| JEL: | E42 E63 E65 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:200715&r=pbe |
| By: | Kazi Iqbal (World Bank); Stephen Turnovsky (University of Washington) |
| Abstract: | This paper studies optimal taxation in the context of provision of public goods when benefits are age-dependent. We develop a two period overlapping generations model with endogenous labor supply in both periods. We examine how the optimal Ramsey capital and labor income taxes change when the government fails to choose the optimal public provision for each cohort. The deviations of public expenditure from the optimal level create distortions at the intra and inter temporal margins and taxes are required to correct these distortions. We show that regardless of preferences, the government may choose to tax capital in the long run if spending on each cohort is not optimal. We also show that when sufficient tax instruments are available the Ramsey equilibrium can attain the first-best optimum. |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:udb:wpaper:uwec-2007-21-fc&r=pbe |
| By: | Holmlund, Bertil (Department of Economics); Söderström, Martin (National Institute of Economic Research) |
| Abstract: | elasticity of taxable income with respect to the net-of-tax rate, i.e., one minus the marginal tax <p> rate. We offer new evidence on this matter by making use of a large panel of Swedish tax payers over the period 1991-2002. Changes in statutory tax rates as well as discretionary changes in tax bracket thresholds provide exogenous variations in tax rates that can be used to identify income responses. We estimate dynamic income models which allow us to distinguish between short-run and long-run effects in a straightforward fashion. The estimates of the long-run elasticity of income with respect to the net-of-tax rate typically hover in a range between 0.20 and 0.30. The short-run elasticities are in general smaller but less precisely estimated. We use the estimates to simulate the fiscal consequences of a tax reform that reduces the top marginal tax rate by five percentage points. Such a reform turns out to have negligible effects on tax revenues and may even yield a fiscal surplus. |
| Keywords: | marginal tax rates; progressive taxes; earned income; tax reform |
| JEL: | H24 H31 J22 |
| Date: | 2007–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2007_025&r=pbe |
| By: | Bernardi, Luigi; Barreix, Alberto; Marenzi, Anna; Profeta, Paola |
| Abstract: | This paper is part of a wider research concerning taxation systems an reforms carried on ar the Departemnt of Pubic economics of the Uiversity of Pavia -I taly. These country studies refer to Argentina, Brazil, Chile, Costa Rica, Colombia, Mexico, Paraguay and Uruguay and are due to eminent native esperts. The papers depict and discuss the tax systems ad reforms in the aforementioned countries since the early 1990 to 2006. |
| Keywords: | Tax Systems; Tas reofoerms; Latin American countries |
| JEL: | H24 H2 H23 |
| Date: | 2007–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5223&r=pbe |
| By: | Tatiana Damjanovic; David Ulph |
| Abstract: | This article applies a traditional industrial organization framework to the issue of tax compliance. First, we model the "tax advice" industry where the supplier helps taxpayers reduce their tax liability. Then we exploit the fact that more convex demand function results in lower equilibrium price and higher equilibrium quantity. Finally we uncover the factors determining the convexity of the demand for the tax minimisation industry and hence the equilibrium price and output. In particular, we find that lower pre-tax income inequality as well as a less progressive tax code may cause more tax minimisation activities. Therefore, the reduction of the highest tax rate may fail as a policy directed at improving tax discipline. One way of offsetting the possible harm to tax compliance from a less progressive tax could be an adjustment of penalty and monitoring functions. |
| Keywords: | tax compliance, tax administration, inequality, tax progressivity,tax monitoring, penalty function |
| JEL: | H21 H23 H26 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:san:wpecon:0712&r=pbe |
| By: | Iftikhar Ahmed (Pakistan Institute of Development Economics, Islamabad.); Usman Mustafa (Pakistan Institute of Development Economics, Islamabad.); Mahmood Khalid (Pakistan Institute of Development Economics, Islamabad.) |
| Abstract: | This study explores the evolution of fiscal resource distribution in Pakistan. Pakistan is a federation comprising four provinces, federally-administered areas, and the Islamabad Capital Territory. Being a central type of government, most of the revenues are collected by the centre and then redistributed vertically between the federal and the provincial governments, and horizontally among the provinces. Provinces then also redistribute revenues among lower tiers of the government, through a revenue-sharing formula. A thorough look at the history indicates that this process has been complex and has a far-reaching impact. A less systematic approach has been adopted to decentralise the financial matters. Over time, the divisible pool has expanded due to heavy reliance on indirect taxes as well as improvement in the collection. Population is the sole distribution criteria, adopted in all NFC awards from the divisible pool. This has raised friction among the provinces, necessitating inclusion of other potential variables evolved from international best practices. In addition to that, absence of technical experts and permanency of the NFC is another impediment. The NFC is supposed to provide the framework for amicable distribution of resources between the federal and the provincial governments for the joint goal of development and prosperity. |
| Keywords: | NFC, Pakistan, Fiscal Federalism, Rule and Discretion, Political Economy, Population, Subventions, Doing the Business of Government |
| JEL: | H71 H72 H73 H77 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pid:wpaper:2007:33&r=pbe |
| By: | Alessandro Petretto (Università degli Studi di Firenze, Dipartimento di Scienze Economiche) |
| Abstract: | In this note we reconstruct the process by a which the decisions of a regulated local public utility, in terms of productive efficiency and quality of the service provided, impact on prices of final consumption goods, supplied in a oligopolistic market operating in the same geographic area. We obtain some formula for these effects which can be quantified by estimating firms’ conditional input demand function of the public service and firms’ inverse demand function for the public good, non-rival, component of this. |
| Keywords: | regulation, x-efficiency, oligopoly |
| JEL: | L51 D11 D21 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2007_06&r=pbe |
| By: | Mogues, Tewodaj; Ayele, Gezahegn; Paulos, Zelekawork |
| Abstract: | "This paper explores and compares the impact of different types of public spending on rural household welfare in Ethiopia. The analysis of public financial and household-level data reveals that returns to road investments are significantly higher than returns to other spending, but are much more variable across regions. This regional variability in returns to road investment suggests that the government should carefully consider region-differentiated investment priorities. Some evidence suggests that the returns to road spending are increasing over time, with higher returns to road investments seen in areas with better-developed road networks. Among the other types of public spending, the household expenditure impacts of per capita public expenditure in agriculture and education are smaller, but these effects are also less variable across regions than the effects of road infrastructure spending. The largest effects of agricultural expenditures on rural households are observed in the most urbanized regions, pointing to the potentially important impact of market proximity on returns to public interventions in agriculture. Despite the importance of agriculture to the economy of Ethiopia we found that returns to agricultural spending were fairly low, suggesting the need for further research into the drivers of efficiency and effectiveness of public investments in this important sector." from Authors' Abstract |
| Keywords: | Public investments, Public spending, Rural welfare, |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:00702&r=pbe |
| By: | Chemingui, Mohamed Abdelbasset |
| Abstract: | "This study is part of a collaborative project between the International Food Policy Research Institute and the Arab Planning Institute in Kuwait on public policy and poverty reduction in the Arab region. The purpose of this paper is to assess the impact of an increase in public spending in priority areas on economic growth and poverty reduction in Yemen. To accomplish this objective, the study builds a dynamic Computable General Equilibrium model to provide a baseline scenario of changes in the economy and poverty levels in Yemen during the period 1998-2016. Alternative scenarios are then compared to isolate the specific impact of several policies on poverty. The scenarios assume an increase in public spending devoted to three priority areas (agriculture, education, and health), which affect the economy through an increase in sectoral or economy-wide technical factor productivity. Results of public spending experiments show that targeting increased amounts of public spending towards education and health services will generate more economic growth and poverty reduction than increasing public spending solely on the agricultural sector. However, when an oil sector is a prominent part of the economy, as in Yemen, additional public spending on health and education does not improve productivity in the oil sector. Therefore, spending on agriculture becomes the most important channel for poverty reduction and economic growth. While increasing public spending in priority areas appears to be the best solution available for the government to reduce poverty during the next decade, the road is still long for Yemen to be able to achieve its Millennium Development Goals for poverty reduction. Re-allocating public expenditures from defense to key sectors appears to be an additional option for reducing poverty, given the financial constraints facing Yemen. However, in the current context of terrorism concerns, it will be difficult to convince policy-makers to reduce spending on defense and security. Seeking additional resources from international donors seems to be the only option available to increase benefits from increased public spending in the priority areas identified and assessed in this study." from Authors' Abstract |
| Keywords: | Public investments, Poverty, economic growth, |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:00701&r=pbe |
| By: | Siddig, El Fatih Ali; El-Harizi, Khalid; Prato, Bettina |
| Abstract: | "Despite the 2005 Comprehensive Peace Agreement, which brought to an end 20 years of civil war in the Sudan, this country continues to experience smaller-scale conflicts, particularly around access to and control of natural resources. Some observers lay the blame for this on ethnopolitical or tribal divisions. However, this paper argues that there are a variety of factors at play behind these conflicts, notably the combination of resource scarcity with a crisis of governance that is particularly evident in transitional areas like the Kordofan region. To gain a sense of the range of conflicts around natural resources in Kordofan, the authors reviewed existing records such as government archives; conducted interviews with politicians, federal and state government officials, farmers, pastoralists, and Native Administration leaders; and investigated findings in the field. Interviews also served to examine people's knowledge about government natural resource policies and their perceptions of the roles played by government and the Native Administration in conflict management and resolution. The paper presents 20 cases of stalemate competition or open conflict over natural resources in Kordofan. The cases center on (1) conflicts between farmers and herders over stock routes, gum arabic forests, gardens, watering points, and the use of dars (tribal homelands); (2) conflicts between herders and small farmers and government agents or large private investors over mechanized farming areas, oil infrastructure, and other private investments. In their analysis of natural resource governance in Sudan, the authors find that natural resources policies have often been weak foundations for sustainable resource use, and in some cases they have actually contributed to conflict. In addition, the volatile path of government devolution efforts concerning natural resources has undermined governance of these resources. While conflicts between farmers and herders were managed relatively successful in the past through customary land tenure systems, this is less and less the case today as a result of larger herds, reduced water and pasture, instability and prejudices stirred up by the war, and a proliferation of arms among herders. In addition, patron–client politics, weak natural resource management and development policies, and top-down government institutions have encouraged ethnic polarization and social divisions. The authors find that measures are needed to reform the process of natural resource management, making land use planning more comprehensive, building on local livelihood systems, and increasing public spending on infrastructure. In addition, sustainable property rights on farmland and on mobile resources should be redefined, and informal conflict management mechanisms restored to the extent that this is possible." Authors' Abstract |
| Keywords: | Conflict management, Natural resource management, Small farmers, Land use, Livelihoods, Public spending, infrastructure, Property rights, Governance, Sustainability, |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:00711&r=pbe |
| By: | Angelino Viceisza |
| Abstract: | This study reports theory-testing laboratory experiments on the effect of yardstick competition on corruption. On the incumbent side, yardstick competition acts as a corruption-taming mechanism if the incumbent politician is female. On the voter side, voters focus on the difference between the tax rate in their own jurisdiction and that in another. If the tax rate is deemed unfair compared to the one in another jurisdiction, voters re-elect less. The findings support the claim by Besley and Case (1995) that incumbent behavior and tax setting are tied together through the nexus of yardstick competition. This renders generalizability to these laboratory experiments and addresses some concerns raised by Levitt and List (2007). |
| Keywords: | Corruption, Yardstick Competition, Political Agency, Asymmetric |
| JEL: | C92 D72 D73 D82 H73 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:exc:wpaper:2007-09&r=pbe |
| By: | Neicheva, Maria |
| Abstract: | The paper focuses on the non-Keynesian effects of fiscal policy, specifically government expenditure on output in Bulgaria. The main finding of the study is that the size of the fiscal impulse is the most important determinant of the non-Keynesian outcome. Also, the results imply that the “balanced-budget rule” does not automatically assure growth; the regulations regarding the budgetary categories themselves should also be considered. |
| Keywords: | Fiscal policy; Non-Keynesian effects; balanced-budget rule; Stability and Growth Pact |
| JEL: | E62 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5277&r=pbe |
| By: | Filippo Gregorini (DISCE, Università Cattolica; DEFAP, Università Cattolica) |
| Abstract: | This paper studies the effect of the introduction of income inequalities in a model of geopolitical organization. We assume the existence of two groups of agents with different incomes. We focus on the policy effects of changes in income differential between the groups and changes in the fraction of the population belonging to the two groups. In the optimal solution, if size is endogenous and public good provision exogenous size increases as income inequality increases; if both size and public good provision are endogenously determined size is neutral to changes in income inequalities and public good provision decreases as inequality increases. There are cases where a stable solution does not exist and the possibility of non existence increases together with inequality, if both size and public good provision are endogenously determined. |
| Keywords: | Country Size, Public Good, Income Inequality, Tax Distortion |
| JEL: | D6 H4 D3 H2 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie6:itemq0746&r=pbe |