nep-pbe New Economics Papers
on Public Economics
Issue of 2008‒01‒19
ten papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Fiscal Sustainability Across Government Tiers By Peter Claeys; Raúl Ramos; Jordi Suriñach
  2. Fiscal harmonization in the presence of public inputs By Gonzalo Fernández-de-Córdoba; José L. Torres
  3. Rule of Thumb Consumers, Public Debt and Income Tax By Raffaele Rossi
  4. Bilateral Effective Tax Rates and Foreign Direct Investment By Peter Egger; Simon Loretz; Michael Pfaffermayr; Hannes Winner
  5. Do Agglomeration Economies Reduce the Sensitivity of Firm Location to Tax Differentials? By Marius BRÜLHART; Mario JAMETTI; Kurt SCHMIDHEINY
  6. Law, State Power, and Taxation in Islamic History By Metin Cosgel; Rasha Ahmed; Thomas Miceli
  7. What Should the EU Do? A Multidisciplinary Analysis By Filipa Figueira
  8. Planning ahead: eliciting intentions and beliefs in a public goods game By Luis G. Gonzalez; M. Vittoria Levati
  9. The Concept of a World Economic Order By Horst Siebert
  10. Regional and National Industrial Policies in Italy, 1950s-1993. Where Did the Subsidies Flow?" By Anna Spadavecchia

  1. By: Peter Claeys (Grup d'Anàlisis Quantitativa Regional(AQR) i Institut de Recerca en Economia Aplicada (IREA), Departament d'Econometria, Estadística i Economia Espanyola. Facultat de Ciències Econòmiques i Empresarials de la Universitat de Barcelona.); Raúl Ramos (Grup d'Anàlisis Quantitativa Regional(AQR) i Institut de Recerca en Economia Aplicada (IREA), Departament d'Econometria, Estadística i Economia Espanyola. Facultat de Ciències Econòmiques i Empresarials de la Universitat de Barcelona.); Jordi Suriñach (Grup d'Anàlisis Quantitativa Regional(AQR) i Institut de Recerca en Economia Aplicada (IREA), Departament d'Econometria, Estadística i Economia Espanyola. Facultat de Ciències Econòmiques i Empresarials de la Universitat de Barcelona.)
    Abstract: This paper analyses how fiscal adjustment comes about when both central and sub-national governments are involved in consolidation. We test sustainability of public debt with a fiscal rule for both the federal and regional government. Results for the German Länder show that lower tier governments bear a relatively smaller part of the burden of debt consolidation, if they consolidate at all. Most of the fiscal adjustment occurs via central government debt. In contrast, both the US federal and state levels contribute to consolidation of public finances.
    Keywords: Fiscal policy, fiscal rules, EMU, SGP, fiscal federalism.
    JEL: E61 E62 H11 H72 H77
    Date: 2007
  2. By: Gonzalo Fernández-de-Córdoba (Universidad de Salamanca); José L. Torres (Universidad de Málaga)
    Abstract: Fiscal harmonization for the European Union member states is a goal that encounters major difficulties for its implementation. Each country faces a particular trade-off between fiscal revenues generated by taxation and the productive efficiency loss induced by their respective tax code. Countries for which a particular harmonized tax code requires more taxation will have to face an increased efficiency loss, whereas those required to decrease their taxes will have to face a loss in fiscal revenue. This paper provides a quantitative measure of these trade-offs, for a number of taxes and for the European Union member states, using a DGE model with public inputs. Calibration of the model for the EU-15 member states gives us the following results: i) The maximum tax revenue level is not far away from the current tax levels for most countries, ii) The cases of Sweden, Denmark and Finland are anomalous, as productive efficiency can be gained by lowering tax rates without affecting fiscal revenues, iii) In general, countries would obtain efficiency gains without changing fiscal revenues by reducing the capital tax and increasing the labor tax and iv) Capital tax harmonization to the average capital tax rate can be done with quite small changes in both fiscal revenues and output for the majority of countries.
    Keywords: Fiscal harmonization, applied general equilibrium
    JEL: E43 E62
    Date: 2007–05
  3. By: Raffaele Rossi
    Abstract: This paper analyzes a New Keynesian model with Rule-of-Thumb consumers (ROTC) as in Galí et al.(2007) and a fiscal policy which levies a proportional income tax. We …nd that, when the share of ROTC is above a specified threshold and di¤erently from the usual Leeper (1991) result, the determinacy condition requires for both monetary and fiscal policy to be either active of passive. Furthermore we show that the introduction of a set of ROTC can reverse the traditional predictions of a change in government spending on the economy as a whole: 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. Finally we point out 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 spend- ing, private consumption.
    JEL: E32 E62 H30
    Date: 2007–12
  4. By: Peter Egger (Ifo Institute and University of Munich); Simon Loretz (Oxford University Centre for Business Taxation); Michael Pfaffermayr (Department of Economics and Statistics, University of Innsbruck); Hannes Winner (Baker Institute for Public Policy, Rice University)
    Abstract: This paper computes effective (marginal and average) tax rates that account for bilateral aspects of taxation and, therefore, vary across country-pairs and years. These tax rates serve to estimate the impact of corporate taxation on outbound stocks of bilateral foreign direct investment (FDI) among OECD countries between 1991 and 2002. The findings indicate that outbound FDI is positively related to the parent and host country tax burden and negatively associated with bilateral effective tax rates. Relying only on unilateral (country and time variant) rather than on both unilateral and bilateral (country-pair and time variant) effective tax rates leads to biased estimates of the impact of corporate taxation on FDI.
    Keywords: Corporate taxation, Foreign direct investment, Panel econometrics
    JEL: H25 H73 F21 F23 C33
    Date: 2008
    Abstract: Low corporate taxes can help attract new .firms. This is the main mechanism underpinning the standard "race-to-the-bottom" view of tax competition. A recent theoretical literature has qualified this view by formalizing the argument that agglomeration forces can reduce firms' sensitivity to tax differentials across locations. We test this proposition using data on firm startups across Swiss municipalities. We find that, on average, high corporate income taxes do deter new firms, but that this relationship is significantly weaker in the most spatially concentrated sectors. Location choices of firms in sectors with an agglomeration intensity at the twentieth percentile of the sample distribution are estimated to be twice as responsive to a given difference in local corporate tax burdens as firms in sectors with an agglomeration intensity at the eightieth percentile. Hence, our analysis confirms the theoretical prediction: agglomeration economies can neutralize the impact of tax differentials on firms' location choices.
    Keywords: firm location; agglomeration economies; local taxation; count models; Switzerland
    JEL: R3 H32
    Date: 2007–12
  6. By: Metin Cosgel (Economics Dept., The University of Connecticut.); Rasha Ahmed (Economics Dept., The University of Connecticut.); Thomas Miceli (Economics Dept., The University of Connecticut.)
    Abstract: This paper studies the unique nature, institutional roots, and economic consequences of the ruler’s political power in Islamic History. An influential interest group in Islamic societies has been the legal community, whose power could range from being able to regulate the rulers to being entirely under their control. The struggle was over the provision of legal goods and services, the legal community gradually gaining control of the law in history and the rulers seeking to appropriate political power by controlling the legal community. The economic consequence of power was the ability to dictate the choice of tax bases and rates.
    Keywords: state power, taxation, political economy, Islamic Law, legal community
    JEL: K3 H2
    Date: 2008–01–15
  7. By: Filipa Figueira
    Abstract: The issue of What the EU Should Do, or what should be the competences of the European Union, is gaining more relevance with the increasing level of EU integration. The academic analysis on the competences of the EU has so far not fully answered this question. The political science literature has focused on the "democratic deficit" and lack of legitimacy of the EU, assuming that solving these problems would naturally lead to the correct allocation of competences. The economic literature on the contrary focuses on fiscal federalism, analysing which policies can be done more efficiently at the EU level, but ignoring whether it is seen as legitimate to reduce national sovereignty on those policies. This paper argues that only a combination of the two approaches can lead to useful results. It adapts the theory of fiscal federalism to the EU, by incorporating the concept of legitimacy into the analysis. Legitimacy is assessed through three factors proposed by the literature: normative justifiability, popular acceptability and accountability. The analysis is applied to different areas of policymaking. Results show that this modified form of fiscal federalism leads to more complete and realistic insights.
    Keywords: European Union, EU competences, fiscal federalism, legitimacy
    JEL: H77 F02
    Date: 2007–12
  8. By: Luis G. Gonzalez (Max Planck Institute of Economics, Jena, Germany); M. Vittoria Levati (Max Planck Institute of Economics, Jena, Germany)
    Abstract: In a two-person ï¬nitely repeated public goods experiment, we use intentions data to interpret individual behavior. Based on a random-utility model speciï¬cation, we develop a relationship between a player's beliefs about others' behavior and his contributions' plans, and use this relationship to identify the player's most likely preference "type". Our estimation analysis indicates that players are heterogeneous in their preferences also at the intentional level. Moreover, our data show that deviations from intended actions are positively related to changes in beliefs, thereby suggesting that people are able to plan.
    Keywords: Public goods games, Experiments, Latent-class logit, Conditional cooperation
    JEL: C70 C72 C92 H41
    Date: 2007–12–20
  9. By: Horst Siebert
    Abstract: This paper studies the concept of an international economic order, i.e. an institutional arrangement of international rules. Such rules emerge from negative experiences – historical disasters – that inflict severe hardship on people. A taxonomy for rules reducing transaction costs is developed, for instance through decentralization of decisions, property rights, territoriality and the internalization of border-crossing negative externalities and mechanisms for global public goods. Some aspects of the rule system are studied including the process of ceding sovereignty and philosophical thoughts on international rules.
    Keywords: International rules, transaction costs, welfare gains of rules, property rights, hierarchy of rules, concept of order, Freiburg school, philosophical ideas
    JEL: A12 F02 F15 K00 N00 P00
    Date: 2008–01
  10. By: Anna Spadavecchia (Department of Management, University of Reading)
    Abstract: This paper compares the magnitude and distribution of regional subsidies to Southern industry to those of subsidies available in the country as a whole through the national industrial policy. The comparison highlights the fact that from the second half of the 1970s, industry located in the most prosperous region of Italy, the North-West, was the main beneficiary of subsidised credit. These findings refine our understanding of the regional policy for Southern Italy and the reasons for its limited achievements. Moreover, the redirection of subsidies away from the South cast doubts on the extent of the Italian government’s commitment to its programme of regional development.
    Keywords: Regional policy; Industrial policy; Regional pattern of government spending
    JEL: R58 H50 N94
    Date: 2007

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