nep-pbe New Economics Papers
on Public Economics
Issue of 2007‒12‒15
fourteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. The Effects of Tax Competition when Politicians Create Rents to Buy Political Support By Wolfgang Eggert; Peter Birch Sørensen
  2. Tax Rate Variability and Public Spending as Sources of Indeterminacy By Teresa Lloyd-Braga; Leonor Modesto; Thomas Seegmuller
  3. The Globalization of Tax Policy: What German Politicians Believe By Heinemann, Friedrich; Janeba, Eckhard
  4. Tax Evasion in Kenya and Tanzania:Evidence from Missing Imports By Levin, Jörgen; Widell, Lars
  5. The composition of public expenditure and growth : a small-scale intertemporal model for low-income countries By Moreira, Emmanuel Pinto; Bayra ktar, Nihal
  6. Gender responsive budgeting and fiscal decentralisation in India: A preliminary appraisal. By Chakraborty, Lekha S.
  7. Public Universities, Tuition and Competition: A Tiebout Model By Schwager, Robert
  8. Infrastructure endowment and corporate income taxes as determinants of Foreign Direct Investment in Central- and Eastern European Countries By Christian Bellak; Markus Leibrecht; Joze P. Damijan
  9. Commuting, transport tax reform and the labour market: employer-paid parking and the relative efficiency of revenue recycling instruments By De Borger B.; Wuyts B.
  10. Taxation and R&D: An Investigation of Push and Pull Effects By Kenneth James McKenzie; Natalia Sershun
  11. Fiscal decentralisation and gender responsive budgeting in South Africa: An appraisal. By Chakraborty, Lekha S.; Bagchi, Amaresh
  12. Tracking functional devolution by states to panchayats. By Rajaraman, Indira; Sinha, Darshy
  13. Contracting Out Public Service Provision to Not-for-Profit Firms By John Bennett; Elisabetta Iossa
  14. Arm’s Length Provision of Public Services By Morten Bennedsen; Christian Schultz

  1. By: Wolfgang Eggert (University of Paderborn); Peter Birch Sørensen (Department of Economics, University of Copenhagen)
    Abstract: We set up a probabilistic voting model to explore the hypothesis that tax competition improves public sector efficiency and social welfare. In the absence of tax base mobility, distortions in the political process induce vote-maximising politicians to create rents to public sector employees. Allowing tax base mobility may be welfare-enhancing up to a point, because the ensuing tax competition will reduce rents. However, if tax competition is carried too far, it will reduce welfare by causing an underprovision of public goods. Starting from an equilibrium where tax competition has eliminated all rents, a coordinated rise in capital taxation will always be welfare-improving. For plausible parameter values it will even be welfare-enhancing to carry tax coordination beyond the point where rents to public sector workers start to emerge.
    Keywords: tax competition; rent seeking; probabilistic voting
    JEL: D72 D73 H87
    Date: 2007–12
  2. By: Teresa Lloyd-Braga (FCEE - Faculdade de Ciencias Economicas e Empresariais - Universidade Catolica Portuguesa); Leonor Modesto (FCEE - Faculdade de Ciencias Economicas e Empresariais - Universidade Catolica Portuguesa); Thomas Seegmuller (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I)
    Abstract: We consider a constant returns to scale, one sector economy with segmented asset markets of the Woodford (1986) type. We analyze the role of public spending, financed by labor income and consumption taxation, on the emergence of indeterminacy. We find that what is relevant for indeterminacy is the variability of the distortion introduced by government intervention. We further discuss the results in terms of the level of the tax rate, its variability with respect to the tax base and the degree of externalities in preferences due to the existence of a public good. We show that the degree of public spending externalities affects the combinations between the tax rate and its variability under which indeterminacy occurs. Moreover, in contrast to previous results, we find that consumption taxes can lead to local indeterminacy when asset markets are segmented.
    Keywords: Indeterminacy ; public spending ; taxation ; segmented asset markets
    Date: 2007–12–06
  3. By: Heinemann, Friedrich; Janeba, Eckhard
    Abstract: The process of globalization has an important impact on national tax policies. Most of the literature on taxation of capital in open economies does not focus directly on the political decision making process and assumes that the desired tax policy is responding to objective underlying tradeoffs. Based on an original survey of members of German national parliament (Bundestag) in 2006/7 we document a strong ideological bias among policy makers with respect to the perceived mobility of international tax bases (mobility of real capital and shifting of paper profits). Ideology via party affiliation influences also directly and indirectly the perceived national autonomy in tax setting and preferences for a EU minimum tax for companies. There seems little consensus as to what the efficiency cost of capital taxation in open economies are, even though our survey falls in period of extensive debate about and actual adoption of a company tax reform bill in Germany.
    Keywords: Globalization, business taxation, tax competition, beliefs, member of parliament
    JEL: D78 D83 H25
    Date: 2007
  4. By: Levin, Jörgen (Department of Business, Economics, Statistics and Informatics); Widell, Lars (Department of Business, Economics, Statistics and Informatics)
    Abstract: In this paper we estimate the amount of tax evasion in customs authorities in both Kenya and Tanzania by calculating measurement errors in reported trade flows between the two countries and correlate those errors with tax rates. We find that the measurement error is correlated with the tax rates in both Kenya and Tanzania. According to the Transparency International Corruption Perceptions Index, Kenya is more corrupt than Tanzania, but we find that the coefficient on tax is higher in Tanzania compared to Kenya implying that tax evasion on imported goods is higher in Tanzania compared to the Kenya. We also introduced a third country into our analysis, the United Kingdom, and tax evasion seems to be more severe in trade flows between Kenya and Tanzania compared to trade flows between the United Kingdom and Kenya/Tanzania. Finally we also find that the tax evasion coefficient is lower in the Kenya-United Kingdom case compared to the Tanzanian-United Kingdom case which supports our previous finding that tax evasion is more severe in the Tanzanian customs authority.
    Keywords: Tax evasion; corruption; trade; Kenya; Tanzania
    JEL: F14 H26
    Date: 2007–11–01
  5. By: Moreira, Emmanuel Pinto; Bayra ktar, Nihal
    Abstract: This paper presents a small-scale intertemporal model of endogenous growth that accounts for the composition of public expenditure and externalities associated with public capital. Government spending is disaggregated into various components, including maintenance, security, and investment in education, health, and core infrastructure. After studying its long-run properties, the model is calibrated for Haiti, using country-specific information as well as parameter estimates from the literature. A variety of policy experiments are then reported, including a reallocation of spending aimed at creating fiscal space to promote public investment; an improvement in fiscal management that leads to a reduction in tax collection costs; higher spending on security; and a composite fiscal package.
    Keywords: ,Debt Markets,Economic Theory & Research,Public Sector Economics & Finance,Public Sector Expenditure Analysis & Management
    Date: 2007–12–01
  6. By: Chakraborty, Lekha S. (National Institute of Public Finance and Policy)
    Keywords: Gender ; Fiscal decentralisation
    Date: 2007–05
  7. By: Schwager, Robert
    Abstract: A simple Tiebout model is presented where states provide university education to both immobile and mobile students. State governments choose the quality of public universities by trading off the value of education for the local immobile student population and the costs, net of tuition revenues, of running the university. The quality of education and the assignment of students to universities in an efficient allocation are characterised. It is shown that decentralised decisions result in efficient choices if states are allowed to choose tuition levels freely. If tuition is capped, ine±ciently low qualities are likely to arise.
    Keywords: higher education, migration, fiscal externality, club good, tuition
    JEL: H75 H77 I28
    Date: 2007
  8. By: Christian Bellak; Markus Leibrecht; Joze P. Damijan
    Abstract: This paper analyzes the importance of taxes on corporate income and production-related tangible infrastructure as determinants of Foreign Direct Investment (FDI) in Central- and Eastern European Countries (CEECs). We operationalize taxes using effective average tax rates on the bilateral level and employ indices derived from principal component analysis as a proxy for the infrastructure endowment. In the empirical analysis we control for a possible interrelation between taxes and infrastructure as determinants of FDI – an issue usually neglected in the literature. Thus, we posit that there are likely to be interaction effects between taxes and infrastructure as determinants of FDI. Specifically, a favorable infrastructure endowment may compensate for relatively high taxes. Hence, higher taxes may not deter FDI. The results from our panel econometric analysis of bilateral outward FDI flows of 7 home in 8 CEE host countries for the 1995-2004 period in an augmented gravity model setting show that (i) both taxes and infrastructure play a role in the location decisions made by Multinational Enterprises; (ii) telecommunication and transport infrastructure are of special significance to FDI; and (iii) the tax-rate sensitivity of FDI indeed decreases with the level of infrastructure endowment.
    Keywords: Foreign direct investment, transition economies, infrastructure, taxation
    JEL: F15 F21 F23
    Date: 2007
  9. By: De Borger B.; Wuyts B.
    Abstract: In this paper we study the welfare effects of a budgetary neutral increase in taxes on car commuters in a model that takes into account the presence of employer-paid parking at the workplace. Results include the following. First, we find that the presence of employer-paid parking substantially increases the welfare effect of such a tax reform, independent of the use of the revenues. The intuition is that congestion taxes not only correct congestion externalities, they also reduce the inefficiency caused by employer-paid parking. Second, different congestion effects of alternative recycling instruments and the presence of employer-paid parking jointly imply that recycling the tax revenues via higher public transport subsidies may yield much more favourable welfare effects than previously believed. It can easily outperform recycling the tax revenues via lower labour taxes. Third, cashing out parking costs to public transport users is found to generate substantial positive welfare effects. The theoretical predictions are illustrated using a numerical model calibrated on Belgian data.
    Date: 2007–10
  10. By: Kenneth James McKenzie; Natalia Sershun
    Abstract: We investigate the extent to which direct tax subsidies that lower the user cost of undertaking R&D (the "push" effect) and the overall competitiveness of the production tax system (the "pull" effect) independently impact upon aggregate R&D intensity across countries. The "push" effect of direct tax subsidies is measured by the after-tax user cost of R&D capital, and the "pull" effect of the production tax regime is measured by the effective tax rate on marginal production costs (ETRMC), which aggregates the marginal effective tax rates on production inputs (labour and capital) into an effective excise tax rate. A panel data set of nine countries over nineteen years is used to estimate a dynamic fixed effects model of aggregate R&D intensity. The short-run elasticity of the ratio of R&D to output with respect to the "push" effect of direct tax subsidies is significant, ranging from -0.15 to -0.22, while the long-run elasticity ranges from -0.46 to -0.77, depending upon the specification. The "pull" effect of the overall production tax system, as measured by the ETRMC, is significant as well, with the short-run elasticity ranging from -0.19 to -0.31 and the long-run elasticity from -0.58 to -0.93.
    Date: 2007–12–01
  11. By: Chakraborty, Lekha S. (National Institute of Public Finance and Policy); Bagchi, Amaresh (National Institute of Public Finance and Policy)
    Keywords: Gender ; Fiscal decentralisation
    Date: 2007–01
  12. By: Rajaraman, Indira (National Institute of Public Finance and Policy); Sinha, Darshy (National Institute of Public Finance and Policy)
    Abstract: The Eleventh Schedule added to the Constitution by the Seventy-third Amendment lists twenty-nine functions developable by States to Panchayati Raj Institutions (PRIs). States were free to set the speed and design of their approach to decentralization under the general framework of the Constitutional mandate. Fourteen years on, a quantitative measure is attempted in this paper of the extent to which functional transfers have been achieved through the budgetary transfer of funds, with respect to the fiscal year 2006-07, in four states Madhya Pradesh, Chhattisgarh, Rajasthan and Orissa. The approach taken here is thus radically different from that in official documents, where functional transfer to PRIs is dealt with in a purely qualitative manner, based on administrative notifications. Without an associated budgetary provision these do not carry any operational significance.
    Keywords: Function devolution ; Rural local bodies
    JEL: H72
    Date: 2007–05
  13. By: John Bennett; Elisabetta Iossa
    Abstract: In an incomplete contract setting, we analyze the contracting out of public service provision, comparing the performance of for-profit and notfor-profit firms (NPs). Two institutional arrangements are considered, with control rights lying either with the firm (’PPP’) or the government (’traditional procurement’). The use of an NP with traditional procurement is found never to be the preferred option in terms of social welfare. But for a range of parameter values an NP in a PPP is the preferred option. The development of PPP provision has thus created opportunities for the advantageous use of NPs in public services.
    Date: 2007–04
  14. By: Morten Bennedsen (Copenhagen Business School); Christian Schultz (Department of Economics, University of Copenhagen)
    Abstract: We analyze the economic consequences of strategic delegation of the right to decide between public or private provision of governmental service and/or the authority to negotiate and renegotiate with the chosen service provider. Our model encompass both bureaucratic delegation from a government to a privatization agency and electoral delegation from voters to a government. We identify two powerfull effects of delegation when contracts are incomplete: The incentive effect increases the incentive part of service providers’ remuneration and we show that strategic delegation may substitute formal incentive contracts. The bargaining effect improves the bargaining position vis a vis a private firm with market power and leads to a lower price for the service.
    Keywords: outsourcing; strategic delegation; incentives; incomplete contracting; market power; representative democracy
    JEL: D72 L33 L97
    Date: 2007–11

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