nep-pbe New Economics Papers
on Public Economics
Issue of 2007‒12‒08
thirteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. A Bargaining Model of Tax Competition By Seungjin Han and John Leach
  2. Listen: I am angry! An experiment comparing ways of revealing emotions By Werner Güth; M. Vittoria Levati
  3. Pension Reform in Norway. Microsimulating effects on government expenditures, labour supply incentives and benefit distribution By Kyrre Stensnes and Nils Martin Stølen
  4. Does Italy need family income taxation? By Arnstein Aassve; Maria Grazia Pazienza; Chiara Rapallini
  5. A Contribution to the Positive Theory of Indirect Taxation By Canegrati, Emanuele
  6. Deficit sustainability and inflation in EMU: An analysis from the fiscal theory of the price level By Oscar Bajo-Rubio; Carmen Díaz-Roldán; Vicente Esteve
  7. Open Space Purchases, House Prices, and the Tax Base By Donald , Vandegrift; Michael, Lahr
  8. Innovation and Imitation Across Jurisdictions By Amihai Glazer; Hiroki Kondo
  9. Finanical and Tax Accounting: Transparency and 'Truth' By Judith Freedman
  10. Do Small States Get More Federal Monies? Myth and Reality about the US Senate Malapportionment By Valentino Larcinese; Leonzio Rizzo; Cecilia Testa
  11. How Global Rules are established and stabilized By Horst Siebert
  12. A Contribution to the Positive Theory of Direct Taxation By Emanuele, Canegrati
  13. The Laspeyres-Paradox: Tax Overshifting in Nineteenth Century Prussia By Spoerer, Mark

  1. By: Seungjin Han and John Leach
    Abstract: This paper develops a model in which competing governments offer financial incentives to induce individual firms to locate within their jurisdictions. Equilibrium is described under three specifications of the supplementary taxes. There is no misallocation of capital under two of these specifications, and there might or might not be capital misallocation under the third. This result contrasts strongly with that of the standard tax competition model, which does not allow governments to treat firms individually. That model finds that competition among governments almost always leads to capital misallocation.
    Keywords: tax competition, bargaining
    JEL: C7 H2 H4
    Date: 2007–12
  2. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); M. Vittoria Levati (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany)
    Abstract: We report on an experiment designed to explore whether allowing individuals to voice their anger prevents costly punishment. For this sake, we use an ultimatum minigame and distinguish two treatments: one in which responders can only accept or reject the other, and the other in which they can also scold the proposer. By an unannounced successive two-person public goods game, with either the same partner or a different one, we additionally explore how "having a voice" affects later behavior. The evidence supports the conclusion that voicing one's outrage crowds out the need to harm oneself and the other. Yet, this emotional reaction does not lead to increased future cooperation.
    Keywords: Ultimatum bargaining, Public goods game, Outrage, Punishment
    JEL: C72 C78 C92 H41
    Date: 2007–12–04
  3. By: Kyrre Stensnes and Nils Martin Stølen (Statistics Norway)
    Abstract: A much higher old-age dependency ratio, together with more generous pension benefits, will lead to a substantial increase in the future public pension expenditures burden in Norway. A pension reform implemented from 2010 will imply a shift to a quasi-actuarial system, seeking to neutralise the expenditure effect of further growth in life expectancy and strengthen ties between former earnings and pension benefits. Labour supply will be stimulated by lowering implicit tax rates and by aligning the social and private costs of early retirement. Using a large dynamic microsimulation model we find that the reform will stimulate labour supply and reduce the future tax burden, but also increase inequality in the benefits received by old age pensioners.
    Keywords: Pension reform; social security; retirement; pension expenditures
    JEL: H53 H55 J26
    Date: 2007–12
  4. By: Arnstein Aassve (Istituto Metodi Quantitavi Quantitativi, Università Bocconi); Maria Grazia Pazienza (Dipartimento Studi sullo Stato, Università degli Studi di Firenze); Chiara Rapallini (Dipartimento Studi sullo Stato, Università degli Studi di Firenze)
    Abstract: The possible implications of using the family as opposed to the individual as the unit of taxation are not clear. This applies both to work incentives and distributional outcomes. In this paper we evaluate the effects of a hypothetical reform for Italian income taxation with respect to labour supply. In particular, we analyze potential labour supply effects by considering a shift from the current system of individual taxation to a system of family taxation similar to the French family splitting approach. The analysis is based on an econometric model of labour supply that is embedded in a tax–benefit model. Using data from the Bank of Italy Survey of Household Income and Wealth, our simulation results show relatively small effects on the total labour supply but a decrease in female labour supply.
    Keywords: tax benefit system, fiscal reform, labour supply, microsimulation
    JEL: D31 H24 H31 J22 C15
    Date: 2007
  5. By: Canegrati, Emanuele
    Abstract: In this paper I analyse a probabilistic voting model where self-interested governments set their taxation policies in order to maximise the probabil- ity of winning elections. Society is divided into groups which have di¤erent preferences for the consumption of goods. Results show how candidates are captured by the most powerful groups, which not necessarily repre- sent the median voter but may be located at more extreme positions. The introduction of a probabilistic voting model characterized by the presence of single-minded groups overrules the classic results achieved by the me- dian voter theorem, because it is no longer the position on the income scale to drive the equilibrium policy but the ability of groups to focus on their most preferred goods, instead. This ability allows them to achieve a strong political power which candidates cannot help going along with, because they would lose elections otherwise.
    Keywords: Probabilistic Voting Theory; Single-mindedness; Indirect Taxation; Public Expenditure
    JEL: D11 H24 H53
    Date: 2007–12–05
  6. By: Oscar Bajo-Rubio (Universidad de Castilla-La Mancha and Instituto de Estudios Fiscales); Carmen Díaz-Roldán (Universidad de Castilla-La Mancha); Vicente Esteve (Universidad de Valencia)
    Abstract: Price determination theory typically focuses on monetary plicy, while the role of fiscal policy is ussually neglected. From a different point of view, the Fiscal Theory of Price Level takes into account monetary and fiscal policy interactions and assumes that fiscal policy may determine the price level, even if monetary authorities pursue an inflation targeting strategy. In this paper we try to test empirically whether the time path of the government budget in EMU countries would have affected price level determination. Our results point to the sustainability of fiscal policy in all the EMU countries but Finland, although no firm conclusions can be drawn about the prevalence of either monetary or fiscal dominance.
    Keywords: Fiscal Theory of the Price Level, monetary and fiscal dominance, central bank independence, fiscal solvency, inflation
    JEL: E62 H62 O52
    Date: 2007–04
  7. By: Donald , Vandegrift; Michael, Lahr
    Abstract: This paper examines the effect of public acquisitions of open space on house prices and the municipal tax base. While a series of studies show that open space acquisitions raise values of nearby properties, no research to date appears to focus upon the effect of open space acquisitions upon local tax base. Existing studies focus on the effect of open space acreage on house prices. We examine the effect of open space expenditures on house prices at the municipal level. We find that a one-dollar increase in open space expenditures per housing unit is associated with average house prices that are about $13 higher and with a tax base that is about $15 lower per acre. Open space expenditures per housing unit also show a consistent positive effect on the percentage change in house prices over the period 1995-2000. However, we find no statistically significant effect from open space expenditures on the percentage change in the tax base over the period 1995-2000. Local funding (rather than state funding) for open space has a smaller impact on house prices but the effect is significant only in some specifications. Despite the negative effect of open space purchases on the tax base, we find that higher open space expenditures are associated with lower tax rates. In addition, we find that while higher tax rates are associated with a lower tax base, a larger tax base does depress tax rates. The percentage change in the general property tax rate over the period 1995-2000 shows a significant negative effect on the percentage change in the tax base per acre over the period.
    Keywords: Open Space; Tax Base; Municipality; Tax Rate
    JEL: H4 H2 R51 R52
    Date: 2007–09–24
  8. By: Amihai Glazer (Department of Economics, University of California-Irvine); Hiroki Kondo (Department of Economics, Shinshu University)
    Abstract: We consider cities which can increase the income of landowners or of capital owners by improving the quality of public services. The improvement can come from innovation or from imitation. We find that when cities aim to benefit landowners, too many cities innovate; but too few cities innovate when the city aims to benefit capital owners. Redistribution across cities can ameliorate these inefficiencies.
    Keywords: Tax competition; Innovation; Interjurisdictional differences
    JEL: R13 H73
    Date: 2007–11
  9. By: Judith Freedman (University of Oxford)
    Abstract: In the USA there have been calls for greater conformity between the rules producing tax accounts and those used for financial reporting purposes. A number of benefits are claimed for this so-called ‘book-tax conformity’, including reduced compliance costs and better opportunities for monitoring. In Europe, the debate around use of the financial accounts for tax purposes has arisen from a different conceptual starting point as well as differences in surrounding circumstances. Linkage between tax and financial accounts is common in Europe, although it takes varying forms. This does not result in complete book-tax conformity, however, and recent developments in accounting may be increasing divergence rather than reducing it. Despite the strong arguments in favour of conformity, there are also good reasons for some divergences, meaning that the most likely outcome in any system, whatever the starting point, is partial convergence. The problem with a hybrid outcome of this kind is that, at the point of divergence, there can be conceptual confusion and difficulties in integrating and managing two conceptually very different rule systems. Clarity of the relationship between the rules and improved accounting disclosure requirements might be more important than convergence, and might be achieved with less distortion to either tax or financial accounting. The current UK position is used to illustrate these points.
    Date: 2007
  10. By: Valentino Larcinese (London School of Economics and STICERD); Leonzio Rizzo (University of Ferrara and Catholic University, Milan); Cecilia Testa (Department of Economics, Royal Holloway, University of London)
    Abstract: We analyze the relationship between senate malapportionment and the allocation of the US federal budget to the states during the period 1978-2002. A substantial literature originating from the influential paper by Atlas et al (1995, using a within estimation methodology finds that small and overrepresented states get significantly larger shares of federal funds. Revisiting the econometric specification used by the current empirical research, we show that the number of senators percapita is inappropriate to capture malapportionement in regressions using broad federal programs, and that the results obtained with this indicator are extremely non-robust to reasonable specification changes. In particular, senators percapita have a significant impact on federal spending only in regressions containing state fixed effects. Furthermore, the coefficients estimated using the within methodology are statistically different across states and, therefore, cannot be used to assess spending differentials between states. The magnitude and significance of those coefficients suggest a within state-specific inverse relationship between broad spending categories and population which is not systematically related to the size of the states and seems more compatible with incrementalist theories of budget allocation.
    Keywords: federal budget, malapportionment, small state advantage, overrepresentation
    JEL: H60 H61 H77
    Date: 2007–05
  11. By: Horst Siebert
    Abstract: This paper analyzes how international rules are established and stabilized, i.e. how an international institutional order develops. Rules emerge mainly through learning from negative experience and serve to reduce transaction costs. The paper looks at mechanisms that stabilize rule systems, at bargaining procedures for cooperation gains, dispute settlement, sanctions, side payments, self-enforcing contracts, waivers and regional integrations within a multilateral order. In addition it analyzes the prevention of negative spillovers, international courts and global public goods.
    Keywords: International rules, transaction costs, institutional competition, gains from cooperation, bargaining for cooperation gains, positive mechanisms, dispute settlement, sanctions, side payments, self-enforcing contracts, negative spillovers, international courts, global public goods
    JEL: A12 F02 F15 K00 N00 P00
    Date: 2007–12
  12. By: Emanuele, Canegrati
    Abstract: In this paper I analyse a probabilistic voting model where political candidates choose a direct taxation policy to maximise the probability of winning elections. Society is divided into groups which have di¤erent preferences for consumption of leisure or, in other words, are di¤erently single-minded on the amount of leisure. The use of a probabilistic voting model characterized by the presence of single-minded groups breaks down the classic results obtained by using the median voter theorem, because it is no longer only the level of income which drives the equilibrium policies but also the ability of groups to focus on leisure. The robustness of these results is also demonstrated in the presence of heterogeneity in the labour income. Finally, using data from the Luxemburg Income Study, I demon- strate that the cohort-speci…c inequality is signi…cantly a¤ected by the structure of the taxation system and that policies chosen by politicians do not seem to be originated by the goal of equality.
    Keywords: Probabilistic Voting Theory; Single-mindedness; Direct Tax- ation; Income Distribution
    JEL: D63 D31 H24 J22 D78
    Date: 2007–12–05
  13. By: Spoerer, Mark
    Abstract: Following the seminal work of late nineteenth century economist Etienne Laspeyres we analyse the incidence of the Prussian milling and slaughter tax shortly before its repeal in 1875. A comparison of flour prices in cities which levied this tax with cities that did not reveals unusually strong tax overshifting. Modern theories explain overshifting of a specific tax with quality improvements or imperfect competition. In pursuing these ideas we find that it was rather large surplus costs induced by tax collection and monitoring that caused unusually large excess burdens. The reason why the tax remained nevertheless basically unchanged for more than half a century is that the urban bourgeoisie successfully prevented its repeal, as the alternative would have been the introduction of municipal direct taxes (rent-seeking behaviour).
    Keywords: Laspeyres tax incidence overshifting
    JEL: H22 B19 N43
    Date: 2007–12–03

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