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on Public Economics |
| By: | Sanghamitra Bandyopadhyay; Joan Esteban; |
| Abstract: | We introduce a model of redistributive income taxation and publicexpenditure. Besides redistributing personal income by means of taxesand transfers, the government supplies goods and services. Thegovernment chooses the tax schedule that is found acceptable by thelargest share possible of the population. We show that there is a uniqueincome tax schedule that is universally acceptable. The progressivity ofthe income tax is shown to depend on the composition of the publicexpenditure and on the substitutability between the goods and servicessupplied by the government and the consumption goods privatelyobtained through the market. We test the empirical implications of themodel. Specifically, we use OECD data to observe the relationshipbetween marginal tax rates and the distribution over the taxpayers of thebenefits produced by the specific composition of the governmentexpenditure in the provision of goods and services. We confirm that forlower elasticities of substitution between public and private goods, thereis a negative relationship between marginal tax rates and pro-taxpayerbias,and for higher elasiticities, there is a positive relationship. |
| Keywords: | Government policy, Income Taxation, Public Expenditure |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:stidar:95&r=pbe |
| By: | Karel Mertens; Morten O. Ravn |
| Abstract: | We provide empirical evidence on the effects of tax liability changes in the United States. We make a distinction between “surprise” and “anticipated” tax shocks. Surprise tax cuts give rise to a large boom in the economy. Anticipated tax liability tax cuts are instead associated with a contraction in output, investment and hours worked prior to their implementation. After their implementation, anticipated tax liability cuts lead to an economic expansion. We build a DSGE model with changes in tax rates that may be anticipated or not, estimate key parameters using a simulation estimator and show that it can account for the main features of the data. We argue that tax shocks are empirically important for U.S. business cycles and that the Reagan tax cut, which was largely anticipated, was a main factor behind the early 1980’s recession. |
| Keywords: | Fiscal policy, tax liabilities, anticipation effects, structural estimation |
| JEL: | E20 E32 E62 H30 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2008/05&r=pbe |
| By: | Serven, Luis; Lopez, J. Humberto; Goni, Edwin |
| Abstract: | Income inequality in Latin America ranks among the highest in the world. It can be traced back to the unequal distribution of assets (especially land and education) in the region. But the extent to which asset inequality translates into income inequality depends on the redistributive capacity of the state. This paper documents the performance of Latin American fiscal systems from the perspective of income redistribution using newly-available information on the incidence of taxes and transfers across the region. The findings indicate that: (i) the differences in income inequality before taxes and transfers between Latin America and Western Europe are much more modest than those after taxes and transfers; (ii) the key reason is that, in con trast with industrial countries, in most Latin American countries the fiscal system is of little help in reducing income inequality; and (iii) in countries where fiscal redistribution is significant, it is achieved mostly through transfers rather than taxes. These facts stress the need for fiscal reforms across the region to further the goal of social equity. However, different countries need to place different relative emphasis on raising tax collection, restructuring the tax system, and improving the targeting of expenditures. |
| Keywords: | Taxation & Subsidies,Emerging Markets,Debt Markets,Economic Theory & Research,Poverty Impact Evaluation |
| Date: | 2008–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4487&r=pbe |
| By: | Justina AV Fischer; Friedrich Schneider |
| Abstract: | Recent empirical growth literature suggests that cultural factors play a decisive role in economic development, while empirical evidence for their impact on government activity remains scant. In this paper, we conjecture based on Weber’s Protestant Ethics that ‚Protestant values’ such as self-reliance and austerity should affect both the size and scope of governments. More specifically, we hypothesize that smaller government budgets should be observable in more Protestant jurisdictions. Using a panel of subfederal expenditure in 26 Swiss cantons from 1980 to 1998 we find supporting evidence, observing that the share of Protestants in the cantonal residential population exerts a spending dampening impact. Our results suggest that cultural factors should not be omitted from future public finance analyses. |
| Keywords: | Protestantism, Culture, Government Spending, Public Finance |
| JEL: | H72 Z1 A13 H30 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:usg:dp2008:2008-03&r=pbe |
| By: | Stefania Albanesi (Department of Economics, Columbia University) |
| Abstract: | This paper studies optimal taxation of entrepreneurial capital with private information and multiple assets. Entrepreneurial activity is subject to a dynamic moral hazard problem and entrepreneurs face idiosyncratic capital risk. We first characterize the optimal allocation subject to the incentive compatibility constraints resulting from the private information. The optimal tax system implements such an allocation as a competitive equilibrium for a given market structure. We consider several market structures that differ in the assets or contracts traded and obtain three novel results. First, differential asset taxation is optimal. Marginal taxes on bonds depend on the correlation of their returns with idiosyncratic capital risk, which determines their hedging value. Entrepreneurial capital always receives a subsidy relative to other assets in the bad states. Second, if entrepreneurs are allowed to sell equity, the optimal tax system embeds a prescription for double taxation of capital income at the firm level and at the investor level. Finally, we show that taxation of assets is essential even with competitive insurance contracts, when entrepreneurial portfolios are also unobserved. |
| JEL: | D82 E22 E62 G18 H2 H21 H25 H3 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:clu:wpaper:0607-11&r=pbe |
| By: | Axel Dreher; Justina A.V. Fischer |
| Abstract: | Using panel data for a maximum of 109 countries over the years 1976-2000, we empirically analyze the impact of decentralization on the occurrence of transnational terror. Taking account of the potential simultaneity between terror and decentralization, our results show that expenditure decentralization robustly reduces the number of terror events in a country, while political decentralization has no impact. |
| Keywords: | Terrorism, Decentralization, Democracy |
| JEL: | D74 H70 H40 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:usg:dp2008:2008-01&r=pbe |
| By: | Recanatini, Francesca; Montoriol-Garriga, Judit; Kaufmann, Daniel |
| Abstract: | When seeking a public service, users may be required to pay in bribes more than the official price. Consequently, some users may be discouraged and choose not to seek a service due to the higher price imposed by the bribery " tax. " This paper explores the price and quantity components of the relationship betwee n governance and service delivery using micro-level survey data. The authors construct new measures of governance using data from users of public services from 13 government agencies in Peru. For some basic services, low-income users pay a larger share of their income than wealthier ones do; that is, the bribery tax is regressive. Where there are substitute private providers, low-income users appear to be discouraged more often and not to seek basic services. Thus, bribery may penalize poorer users twice - acting as a regressive tax and discouraging access to basic services. The paper explores the characteristics of households seeking public services. Higher education and age are associated with higher probability of being discouraged. Trust in state institutions decreases the probability of being discouraged, while knowledge of mechanisms to report corruption and extent of social network increase it, suggesting that households may rely on substitutes through networks. The study complements the household analysis with supply-side analysis based on data from public officials, and constructs agency-level measures for access to public services and institutional factors. Econometric results suggest that corruption reduces the supply of services, while voice mechanisms and clarity of the public agency ' s mission increase it. |
| Keywords: | Governance Indicators,Public Sector Corruption & Anticorruption Measures,National Governance,Public Sector Management and Reform,Public Sector Economics & Finance |
| Date: | 2008–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4492&r=pbe |
| By: | Timothy Besley; Rohini Pande; Vijayendra Rao |
| Abstract: | This paper uses data on elected village councils in South India to examine thepolitical economy of public resource allocation. We find that the pattern ofpolicy-making reflects politicians' self-interest. Elected councillors benefit fromimproved personal access to public resources. In addition, the headcouncillor's group identity and residence influences public resource allocation.While electoral incentives do not eliminate politician opportunism, votersappear able to use their electoral clout to gain greater access to publicresources. |
| Keywords: | decentralization, India, Panchayat. |
| JEL: | H76 H11 O12 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:stidep:49&r=pbe |