nep-pbe New Economics Papers
on Public Economics
Issue of 2007‒12‒01
twelve papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Optimal federal taxes with public inputs. By Diego Martínez
  2. Fiscal Decentralization, Chinese Style: Good for Health Outcomes? By Uchimura, Hiroko; Jütting, Johannes P.
  3. Voluntary Provision of Public Goods for Bads: A Theory of Environmental Offsets By Matthew J. Kotchen
  4. Rule of Thumb Consumers, Public Debt and Income Tax By Rossi, Raffaele
  5. Merger Policy and Tax Competition By Haufler, Andreas; Schulte, Christian
  6. Taxes and the Global Allocation of Capital By David Backus; Espen Henriksen; Kjetil Storesletten
  7. Federations, Constitutions, and Political Bargaining By Anke S. Kessler; Christoph Luelfesmann; Gordon M. Myers
  8. Dual Provision of Public Policies in Democracy By Christoph Luelfesmann
  9. The Effect of Tax Treaties on Multinational Firms: New Evidence from Microdata By Davies, Ronald; Norback, Pehr-Johan; Tekin-Koru, Ayca
  10. Gender Based Taxation and the Division of Family Chores By Alberto Alesina; Andrea Ichino; Loukas Karabarbounis
  11. Commodity Taxation and Parallel Imports By Raimondos-Møller, Pascalis; Schmitt, Nicolas
  12. Long-Run Monetary and Fiscal Policy Trade-Off in an Endogenous Growth Model with Transaction Costs By Minea, A.; Villieu, P.

  1. By: Diego Martínez (Department of Economics, Universidad Pablo de Olavide)
    Abstract: This paper deals with the solution to vertical expenditure externalities in a federation with two levels of government sharing taxes. Under these circumstances, the Nash equilibrium does not satisfy the condition for production efficiency in the provision of public inputs. This vertical expenditure externality is removed when the federal government, behaving as Stackelberg leader, chooses the optimal tax rate on labor income. The sign of this tax rate depends on the elasticity of marginal productivity of the public input with respect to employment. Moreover, the previous result concerning both vertical (tax and expenditure) externalities are independent each other is confirmed here.
    Keywords: vertical externalities, public input, federal taxes.
    JEL: H2 H4 H7
    Date: 2007–11
  2. By: Uchimura, Hiroko; Jütting, Johannes P.
    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 with 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.
    Date: 2007
  3. By: Matthew J. Kotchen
    Abstract: This paper examines voluntary provision of a public good that is motivated, in part, to compensate for other activities that diminish the public good. Markets for environmental offsets, such as those that promote carbon neutrality to minimize the impact of climate change, provide an increasingly salient example. An important result, related to one shown previously, is that mean donations to the public good do not converge to zero as the economy grows large. Other results are new and comparable to those from the standard model of a privately provided public good. The Nash equilibrium is solved explicitly to show how individual direct donations and net contributions depend on wealth and heterogenous preferences. Comparative static analysis demonstrates how the level of the public good and social welfare depend on the technology, individual wealth, and an initial level of the public good. Application of the model in an environmental context establishes a starting point for understanding and making predictions about markets such as those for carbon offsets.
    JEL: H0 H41
    Date: 2007–11
  4. By: Rossi, Raffaele
    Abstract: This paper shows that the introduction of a set of rule of thumb consumers (ROTC) a' la Galí et al.(2007) in a standard New Keynesian model can reverse the traditional predictions of a change in government spending on the economy as a whole. In particular, we show that under a reasonable parametrization of the model, an increase in government spending can lead, against the common Keynesian wisdom, to a decrease in total output. Furthermore we analyze how the determinacy condition of the model is affected by the presence of a set of ROTC and a fiscal policy which levies a proportional income tax. In particular we find that, when the share of ROTC is above a specified threshold, the monetary-fiscal policy mix that guarantees a unique equilibrium requires both policies to be, following the definition of Leeper (1991), either active or passive. Finally we show that with the introduction of a distortive fiscal policy and independently of the parametrization used, private consumption responds negatively to a positive government spending shock.
    Keywords: Rule-of-thumb-consumers; monetary-fiscal policy interactions; distortive taxation; public spending; private consumption.
    JEL: E62 E32 H30
    Date: 2007–11–19
  5. By: Haufler, Andreas; Schulte, Christian
    Abstract: In many situations governments have sector-specific tax and regulation policies at their disposal to influence the market outcome after a national or an international merger has taken place. In this paper we study the implications for merger policy when countries non-cooperatively deploy production-based taxes. We find that whether national or international mergers are more likely to be enacted in the presence of nationally optimal tax policies depends crucially on the ownership structure of firms. When all firms are owned domestically in the pre-merger situation, non-cooperative tax policies are more efficient in the national merger case and smaller synergy effects are needed for this type of merger to be proposed and cleared. These results are reversed when there is a high degree of foreign firm ownership prior to the merger.
    Keywords: merger regulation; tax competition
    JEL: H21 H77 L13 L50
    Date: 2007–11–21
  6. By: David Backus; Espen Henriksen; Kjetil Storesletten
    Abstract: Despite enormous growth in international capital flows, capital-output ratios continue to exhibit substantial heterogeneity across countries. We explore the possibility that taxes, particularly corporate taxes, are a significant source of this heterogeneity. The evidence is mixed. Tax rates computed from tax revenue are inversely correlated with capital-output ratios, as we might expect. However, effective tax rates constructed from official tax rates show little relation to capital -- or to revenue-based tax measures. The stark difference between these two tax measures remains an open issue.
    JEL: E22 F21 H25 H32
    Date: 2007–11
  7. By: Anke S. Kessler (Simon Fraser University); Christoph Luelfesmann (Simon Fraser University); Gordon M. Myers (Simon Fraser University)
    Abstract: The paper studies a world where a region provides essential inputs for the successful implementation of a local public policy project with spill-overs, and where bargaining between different levels of government may ensure efficient decision making ex post. We ask whether the authority over the public policy measure should rest with the local government or be centralized, allowing financial relationships within the federation to be designed optimally. We show that centralization is always dominant when governments are benevolent, and that both governance structures are otherwise inefficient as long as political bargaining is disregarded. With bargaining, however, the first best can often be achieved under decentralization, but not under centralization. At the root of the result is the alignment of decision making over both essential inputs and final project size under decentralization.
    Keywords: Federalism, Constitutions, Decentralization, Grants, Political Bargaining.
    JEL: D23 D78 H21 H77
    Date: 2007–10
  8. By: Christoph Luelfesmann (Simon Fraser University)
    Abstract: This paper analyzes the provision of goods with consumption externalities (such as public policies) in hybrid settings: the `good' is provided in a democratic process by majority vote, but each individual agent is free to contribute additional amounts before or after the political decision has been made. Prominent examples include policy making in federal states, charities, and dual provision of health care. We show that regardless of the timing of private and public actions, the results of the median voter theorem apply. A move from a purely public system to a dual system with private ex-ante contributions is shown to be unambiguously preferred by everybody in society. In contrast, establishing an ex-post contribution regime may be opposed by a minority of high-preference individuals. The paper also derives results for a scenario with endogenous timing of private contributions. Most importantly, this general regime is shown to be majority preferred not only to the systems with ex-post and the ex-ante contributions, but also to an institutional setting with private but no public provision.
    Keywords: Public goods, Majority voting, private provision, dual provision, federalism, charities, health care.
    JEL: D02 D78 H11 H40 P16
    Date: 2007–10
  9. By: Davies, Ronald; Norback, Pehr-Johan; Tekin-Koru, Ayca
    Abstract: This paper uses affiliate level data from Swedish multinationals to examine the impact of tax treaties on both overall affiliate sales and the composition of those sales. In line with previous results, we find little evidence for an effect of treaties on the level of total sales. We do, however, find that a tax treaty increases the probability of investment by a firm in a given country. In addition, we find that a treaty reduces exports to the parent but increases imports of intermediate inputs from the parent. This is consistent with treaties increasing the effective host tax. This suggests that tax treaties impact the behavior of multinationals along some dimensions but not along others.
    Keywords: Tax Treaties; Multinational Firms; Foreign Direct Investment
    JEL: F23 H25 F21
    Date: 2007
  10. By: Alberto Alesina; Andrea Ichino; Loukas Karabarbounis
    Abstract: Gender Based Taxation (GBT) satisfies Ramsey's optimal criterion by taxing less the more elastic labor supply of (married) women. This holds when different elasticities between men and women are taken as exogenous and primitive. But in this paper we also explore differences in gender elasticities which emerge endogenously in a model in which spouses bargain over the allocation of home duties. GBT changes spouses implicit bargaining power and induces a more balanced allocation of house work and working opportunities between males and females. Because of decreasing returns to specialization in home and market work, social welfare improves by taxing conditional on gender. When income sharing within the family is substantial, both spouses may gain from GBT.
    JEL: D13 H21 J16 J20
    Date: 2007–11
  11. By: Raimondos-Møller, Pascalis; Schmitt, Nicolas
    Abstract: We examine the interaction between commodity taxes and parallel imports in a simple two-country model with imperfect competition. While governments determine non-cooperatively their commodity tax rate, the volume of parallel imports is determined endogenously by the retailing sector. We compare the positive and normative implications of having commodity taxes based on destination or origin principle. Origin taxes are shown to have very attractive properties: they lead to lower levels of optimal taxes, they converge as parallel imports increase (while destination taxes diverge), and they lead to higher welfare levels.
    Keywords: commodity taxation; market integration; Parallel import
    JEL: F12 F15 H21 H24
    Date: 2007–11
  12. By: Minea, A.; Villieu, P.
    Abstract: In this paper, we study maximizing long-run economic growth trade-off in monetary and fiscal policies in an endogenous growth model with transaction costs. We show that both monetary and fiscal policies are subject to threshold effects, a result that gives account of a number of recent empirical findings. Furthermore, the model shows that, to finance public expenditures, maximizing-growth government must choose relatively high seigniorage (respectively income taxation), if “tax evasion” and “financial repression” coefficients are high (respectively low). Thus, our model may explain why some governments resort to seigniorage and inflationary finance, and others rather resort to high tax-rate, as result of maximizing-growth strategies in different structural environments (notably concerning tax evasion and financial repression). In addition, the model allows examining how the optimal mix of government finance changes in response to different public debt contexts.
    Keywords: endogenous growth, threshold effects, monetary policy, fiscal policy, public deficit, policy mix, tax evasion, financial repression
    JEL: E5 E6 H6 O4
    Date: 2007

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