nep-pbe New Economics Papers
on Public Economics
Issue of 2008‒02‒23
thirteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. The Important Thing Is not (Always) Winning but Taking Part: Funding Public Goods with Contests By Marco Faravelli
  2. A Prize to Give for: An Experiment on Public Good Funding Mechanisms By Luca Corazzini; Marco Faravelli; Luca Stanca
  3. Collective Lobbying in Politics: Theory and Empirical Evidence from Sweden By Liang, Che-Yuan
  4. Single versus Multiple Prize Contests to Finance Public Goods: Theory and Experimental Evidence By Marco Faravelli; Luca Stanca
  5. Will Corporate Tax Consolidation improve Efficiency in the EU ? By Albert van der Horst; Leon Bettendorf; Hugo Rojas-Romagosa
  6. How do Expenditure Rules affect Fiscal Behaviour? By Peter Wierts
  8. Tax/benefit Systems and Growth Potential of the EU By Kari E. O. (ed.) Alho
  9. Emissions Standard System: A monetary regime for provision of global public goods By KOBAYASHI Keiichiro
  10. From Roads to Rinks: Government Spending on Infrastructure in Canada, 1961 to 2005 By Roy, Francine
  11. Why are some Spanish regions so much more efficient than others? By Jaume Puig; Jaime Pinilla
  12. The Costs and Benefits of Providing Open Space in Cities By Jan Rouwendal; J. Willemijn van der Straaten
  13. Plaintiffs exploiting Plaintiffs By Alexander Stremitzer

  1. By: Marco Faravelli
    Abstract: This paper considers a public good game with heterogeneous endowments and incomplete information affected by extreme free-riding. We overcome this problem through the implementation of a contest in which several prizes may be awarded. We identify a monotone equilibrium, in which the contribution is strictly increasing in the endowment. We prove that it is optimal for the social planner to set the last prize equal to zero, but otherwise total expected contribution is invariant to the prize structure. Finally, we show that private provision via a contest Pareto-dominates public provision and is higher than the total contribution raised through a lottery.
    Keywords: Contests; Public Goods; Prizes.
    JEL: D44 H41
    Date: 2008–01
  2. By: Luca Corazzini; Marco Faravelli; Luca Stanca
    Abstract: This paper investigates fund-raising mechanisms based on a prize as a way to overcome free riding in the private provision of public goods, under the assumptions of income heterogeneity and incomplete information about income levels. We compare experimentally the performance of a lottery, an all-pay auction and a benchmark voluntary contribution mechanism. We find that prize-based mechanisms perform better than voluntary contribution in terms of public good provision after accounting for the cost of the prize. Comparing the prize-based mechanisms, total contributions are significantly higher in the lottery than in the all-pay auction. Focusing on individual income types, the lottery outperforms voluntary contributions and the all-pay auction throughout the income distribution
    Keywords: Auctions; Lotteries; Public Goods; Laboratory Experiments.
    JEL: C91 D44 H41
    Date: 2007–12
  3. By: Liang, Che-Yuan (Department of Economics)
    Abstract: This paper first formulates a model of how the politicians in a local government collectively lobby to raise intergovernmental grants to their local government. The model identifies a relationship between council size and grants received. I then study this relationship empirically using the distribution of intergovernmental grants to the Swedish local governments. I use a fuzzy regression-discontinuity design that exploits a council size law to isolate exogenous variation in council size and find a large negative council size effect. This pattern provides indirect evidence for the occurrence of lobbying. The direction of the effect could be explained by free-riding incentives in individual lobbying effort contribution caused by a collective action problem in grant-raising among local government politicians.
    Keywords: lobbying; rent-seeking; collective action problem; group size paradox; local governments; intergovernmental grants; regression-discontinuity
    JEL: D72 D73 D78 H71 H72 H73 H77
    Date: 2008–02–07
  4. By: Marco Faravelli; Luca Stanca
    Abstract: This paper investigates single and multiple prize contests as incentive mechanisms for the private provision of public goods, under the assumptions of income heterogeneity and incomplete information about income levels. We compare experimentally a one-prize contest with a three-prize contest in a case where theory predicts that several prizes maximise revenues. We find that, contrary to the theoretical predictions, total contributions are significantly higher in the one-prize contest. In both treatments contributions converge towards theoretical predictions over successive rounds, but the effects of repetition are different: convergence is fast in the one-prize treatment, while gradual and with some undershooting in the three-prize treatment. Focusing on individual income types, the better performance of the single-prize contest is largely explained by the contributions of high income individuals: a single larger prize provides a more effective incentive for richer individuals than three smaller prizes.
    Keywords: Auctions; Public Goods; Laboratory Experiments
    JEL: C91 D44 H41
    Date: 2007–12
  5. By: Albert van der Horst (CPB, The Hague); Leon Bettendorf (Erasmus University Rotterdam); Hugo Rojas-Romagosa (CPB, The Hague)
    Abstract: The European Commission favours the introduction of a consolidated corporate tax base to overcome the distortions arising from the existing system of separate accounting. The blueprints for consolidation are simulated with the applied general equilibrium model CORTAX. We show that the benefits of a common consolidated tax base are limited due to two weaknesses. Formula apportionment, which is needed to allocate the consolidated taxable profits across jurisdictions, creates for MNEs new tax planning possibilities to exploit tax rate differentials in the European Union. In addition, it triggers tax competition as the incentives for member states to attract foreign investment by reducing their tax rates are enforced. The second weakness arises from the unlevel playing field, which is introduced if only part of the firms chooses to participate in the consolidation. The gains from consolidation can be fully grasped if it is obliged for all firms and accompanied by harmonisation of the tax rate.
    Keywords: corporate tax; consolidation; formula apportionment; European Union; applied general equilibrium model
    JEL: H87 H21 H25 F21
    Date: 2007–09–24
  6. By: Peter Wierts
    Abstract: This paper investigates the role of self-enforced national expenditure rules in limiting the expenditure bias and procyclical expenditure increases/decreases due to revenue windfalls/shortfalls. A simple model predicts that expenditure rules can have the intended effects, but only if the political and institutional costs of non compliance are sufficiently large. Empirical estimations provide some support that expenditure rules affect expenditure outcomes in the hypothesised manner, especially when there are revenue shortfalls. We cannot disentangle, however, whether our results reflect a causal effect of expenditure rules on expenditure outcomes, or whether they are driven by a third variable of political preferences for addressing high expenditure to GDP ratios.
    JEL: E62 H50 H61
    Date: 2008–02
  7. By: Argentino Pessoa (Faculdade de Economia da Universidade do Porto, Portugal)
    Abstract: The developing world needs far more financing for infrastructure than can be provided by domestic public finances alone and through ODA (Official Development Aid). Around middle 1980s a new strategy based on the use of public-private agreements, relying on ODA to enhance the quality of projects, reduce risks and raise profitability was gradually implemented for the provision of infrastructures and public utilities. This paper evaluates the more typical forms of private sector involvement and its actual importance (by type of public utility and by region), and shows that the new strategy has failed in improving the provision of infrastructures in the developing world.
    Keywords: infrastructures, ODA, outsourcing, public-private partnership, public utilities, regulation
    JEL: H4 H54 I18 I28 L33
    Date: 2008–02
  8. By: Kari E. O. (ed.) Alho
    Abstract: ABSTRACT : The EU has ambitious goals in terms of economic performance. The goals are to be reached in combination with social cohesion and sustainable development in terms of environment. The key economic policy instruments to be used by the EU member states are comprised of taxes and benefits. The economic and political framework for carrying out measures in this field is currently delineated, both encouraged and constrained, by factors such as ageing, globalisation and more intense international system competition in tax and social policies. The aim of the project Tax/benefit systems and potential growth of the EU - TAXBEN (SCS8-CT-2004-502639), as outlined in SSP Priority 8 Topic 3.1. Task 4, has been to carry out an in-depth analysis of tax/benefit policies in five broad themes, where these policies play a crucial role in terms of the key EU goals : Employment; Corporate taxes under tax competition; Productivity growth and convergence; Macroeconomic policies under a single monetary policy; and Environment and climate change. The project was carried out by seven European economic policy research institutes within the ENEPRI (European Network of Economic Policy Research Institutes) network. The project team has used many novel approaches, especially in building new tools that rely on the approach of general equilibrium models so that both the direct and indirect effects of taxation can be analysed. Also new applications of existing large-scale multi-country models were carried out to evaluate the impact of tax policies. In addition, recourse was taken to econometric estimation of the relationships between key economic target variables, on the one hand, and tax/benefit and other fiscal policies and other labour market indicators, on the other, using large international data sets. A number of theoretical approaches on economic policies under the single currency were carried out, too. The analysis covered the EU-15 countries, the New Member States, in some cases other OECD countries as well, and some research efforts made had a global approach to policy making. Altogether, the project’s output was 24 working papers in the five Work packages, and five seminars held, in addition to the Final Conference. The project delivered, on the one hand, a large number of research insights on actual behaviour related to tax/benefit systems and, on the other hand, reached conclusions which should be taken into account while considering policy-making in, and reforms related to, tax/benefit policies in the EU. The project’s web site at provides detailed information on the whole output and events arranged within the project. Contact person is Kari E.O. Alho :, scientific co-ordinator of TAXBEN.
    Keywords: tax/benefit systems, EU, employment, tax competition, productivity, EMU, climate policies
    Date: 2008–02–14
  9. By: KOBAYASHI Keiichiro
    Abstract: This paper theoretically examines an imaginary monetary regime in which the private provision of global public goods that reduce greenhouse gases ("emissions reducers," e.g., forests) is enhanced and the public goods are held in the private sector as monetary assets. We consider a monetary regime where the government or the central bank makes public goods a means of payment by committing itself to conversion of emissions reducer into cash (and probably by adopting appropriate banking regulations). Using a simple cash-in-advance setting, we show that the monetary regime internalizes the externality of public goods by endowing them with a private function as a means of payment. In the monetary regime, private agents buy and hold emissions reducers voluntarily, and the government need not impose caps on emissions nor pay any costs for public goods provision. Moreover, in an economic boom when greenhouse gas emissions increase, emissions reducers may also increase automatically. Due to the network externalities of money, emissions reducers may become used as money internationally and thus the international free-rider problem may be mitigated. Our results imply that the monetary regime may be a promising extension of existing policy plans for global warming.
    Date: 2008–02
  10. By: Roy, Francine
    Abstract: The overall growth of government-owned infrastructure has been very similar across most regions over the past 44 years. With the exception of the Atlantic Provinces, the range of average annual capital growth from one region to the next has been very narrow, falling between 1.8% and 2.2% since 1961, according to a new study released in September 2007 in the Canadian Economic Observer. Since 2000, governments have increased their infrastructure capital more than at any time since the 1960s and 1970s. However, the growth has not been strong enough to prevent more and more signs of wear in our infrastructure (the data are net of depreciation and in constant 1997 dollars). This is due to cuts in the 1990s when governments were grappling with significant budgetary deficits, as well as many of the assets built in the post-war infrastructure boom reaching the end of their life span. This study analyses, from 1961 to 2005, government investment in infrastructure by different levels of government and type of asset by region.
    Keywords: Environment, Government, Culture and leisure, Families, households and housing, Transportation,
    Date: 2008–02–07
  11. By: Jaume Puig; Jaime Pinilla
    Abstract: This article investigates the main sources of heterogeneity in regional efficiency. We estimate a translog stochastic frontier production function in the analysis of Spanish regions in the period 1964-1996, to attempt to measure and explain changes in technical efficiency. Our results confirm that regional inefficiency is significantly and positively correlated with the ratio of public capital to private capital. The proportion of service industries in the private capital, the proportion of public capital devoted to transport infrastructures, the industrial specialization, and spatial spillovers from transport infrastructures in neighbouring regions significantly contributed to improve regional efficiency.
    Keywords: Regional efficiency, Regional spillovers, Human capital, Public capital
    JEL: C23 H54 R11 R53
    Date: 2008–02
  12. By: Jan Rouwendal (VU University Amsterdam); J. Willemijn van der Straaten (VU University Amsterdam, and CPB Netherlands Bureau for Economic Policy Analysis, The Hague)
    Abstract: Although many researchers have investigated the value of open space in cities, few of them have compared them to the costs of providing this amenity. In this paper, we use the monocentric model of a city to derive a simple cost-benefit rule for the optimal provision of open space. The rule is essentially the Samuelson-condition for the optimal provision of a public good, with the price of land as the appropriate indicator for its cost. The condition is made operational by computing the willingness to pay for public and private space on the basis of empirical hedonic price functions for three Dutch cities. The conclusions with respect to the optimal provision of open space differ between the three cities. Further investigation reveals that willingness to pay for parks and public gardens increases with income, although not as fast as that for private residential space.
    Keywords: spatial planning; provision of public goods; cost-benefit analysis
    JEL: R52 H41 D61
    Date: 2008–01–07
  13. By: Alexander Stremitzer (University of Bonn, Wirtschaftspolitische Abteilung, Adenauerallee 24-42, 53113 Bonn, Germany;
    Abstract: We consider a model of a single defendant and N plaintiffs where the total cost of litigation is fixed on the part of the plaintiffs and shared among the members of a suing coalition. By settling and dropping out of the coalition, a plaintiff therefore creates a negative externality on the other plaintiffs. It was shown in Che and Spier (2007) that failure to internalize this externality can often be exploited by the defendant. However, if plaintiffs make sequential take-it-or-leave-it settlement offers, we can show that they will actually be exploited by one of their fellow plaintiffs rather than by the defendant. Moreover, if litigation is a public good as is the case in shareholder derivative suits, parties may fail to reach a settlement even having complete information. This may explain why we observe derivative suits in the US but not in Europe.
    Keywords: litigation, settlement, bargaining, contracting with externalities, derivative suits, public goods
    JEL: K41 C7 H4
    Date: 2008–01

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