nep-pbe New Economics Papers
on Public Economics
Issue of 2008‒03‒25
ten papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. An auction mechanism for public goods provision: an experimental study By DIEV, Pavel; HICHRI, Walid
  2. Did the Single Market Cause Competition in Excise Taxes? Evidence from EU Countries By Lockwood, Ben; Migali, Giuseppe
  3. Institutions, Motivations and Public Goods: Theory, Evidence and Implications for Environmental Policy By Andrew Reeson
  4. Decentralization, local government elections and voter turnout in Pakistan: By Akramov, Kamiljon T.; Qureshi, Sarfraz; Birner, Regina; Khan, Bilal Hasan
  5. Spatial coordination in public good allocation: Nonparametric evidence from decentralized Indonesia By Yamauchi, Futoshi; Chowdhury, Shyamal; Dewina, Reno
  6. Decentralization and Public Delivery of Health Care Services in India By Singh, Nirvikar
  7. Redistributive Taxation and Public Expenditures By Sanghamitra Bandyopadhyay; Joan Esteban
  8. Fiscal Policy in India: past reforms and future challenges By Richard Herd; Willi Leibfritz
  9. Expanding taxable capacity and reaching revenue potential : cross-country analysis By Le, Tuan Minh; Moreno-Dodson, Blanca; Rojchaichaninthorn, Jeep
  10. The Increased Revenue from Finnish Corporate Income Tax in the 1990s By Tuomas Kosonen

  1. By: DIEV, Pavel; HICHRI, Walid
    Abstract: We experiment a new mechanism for the provision of a discrete public good: in a fixed period individuals can contribute several times; at any moment they can see the total amount collected; at the end of the period, the public good is provided if the amount covers the cost. We find that the ability of the mechanism to provide efficiently the public good decreases with the amount of the provision cost.
    Keywords: Public Goods; Experiments; Mechanism Design
    JEL: C92 H41
    Date: 2008
  2. By: Lockwood, Ben (University of Warwick); Migali, Giuseppe (Lancaster University)
    Abstract: The introduction of the Single Market resulted in a switch from destination to origin-based taxation of cross-border transactions by individuals. The theory of commodity tax competition predicts that this change should give rise to excise tax competition and thus intensify strategic interaction in the setting of excise taxes. In this paper, we provide an empirical test of this prediction using a panel data set of 12 EU countries over the period 1987-2004. We find that for all excise duties that we consider (still and sparkling wine, beer, ethyl alcohol, and cigarettes), strategic interaction between countries significantly increased after 1993, consistently with the theoretical prediction. Indeed, for all these products except for cigarettes, there is no evidence of strategic interaction prior to 1993, so our findings are consistent with the hypothesis that the single market caused tax competition. For beer and ethyl alcohol, there is evidence that the minimum taxes, also introduced in 1993, have intensified strategic interaction.
    Keywords: tax competition ; excise taxes ; cross-border shopping
    JEL: H70 H71 H77
    Date: 2008
  3. By: Andrew Reeson (CSIRO Sustainable Ecosystems, Australia)
    Abstract: In economic terms, the environment is largely a public good. Contributing to a public good is costly to an individual, while the benefits are enjoyed by all. Despite this, many people voluntarily contribute to public goods, both in laboratory economic experiments and through day-to-day environmental decisions. These voluntary contributions are largely motivated intrinsically, that is satisfaction comes from the act itself rather than external rewards. Policy interventions are often required to increase the provision of public goods to the socially optimal level, which usually take the form of extrinsic incentives such as payments or regulations. Theoretical and empirical evidence from psychology and economics suggests that such extrinsic incentives can crowd out the intrinsic motivations which underlie voluntary contributions. As a result, a policy may have less than the anticipated impact. It is even possible for a costly policy intervention to lead to a decrease in overall public good provision, as individuals cease to contribute voluntarily. This paper argues that environmental policy design should proceed with caution in the presence of intrinsic motivations. Weak regulations and small, competitive financial incentives have the greatest potential for negative effects. Recognising and supporting existing efforts can crowd in, rather than crowd out, voluntary contributions. With careful design and implementation, there is the potential to maintain and support intrinsic motivations while also providing robust extrinsic incentives.
    Keywords: public goods; environmental policy; intrinsic motivation; crowding out
    JEL: H4 Q0
    Date: 2008–01
  4. By: Akramov, Kamiljon T.; Qureshi, Sarfraz; Birner, Regina; Khan, Bilal Hasan
    Abstract: "Decentralization has the potential to improve the accountability of government and lead to a more efficient provision of public services. However, accountability requires broad groups of people to participate in local government. Thus, voter turnout at local government elections is an important component of government accountability. This study used survey data on the 2005 local government elections in Pakistan to analyze the impact of electoral mechanisms, the credibility of elections, and voters' socioeconomic characteristics on voter turnout. The rational-choice perspective is applied to develop the specifications of the empirical model. The empirical analysis is based on a series of standard and multilevel random-intercept logistic models. Our important findings reveal that (1) voter turnout is strongly associated with the personal and social gratifications people derive from voting; (2) the preference-matching ability of candidates for local government positions is marginal; and (3) the introduction of direct elections of the district nazims—a key position in local government—might improve electoral participation and thus create a precondition for better local government accountability. The findings also suggest that less educated people, farmers, and rural people are more likely to vote." Authors' Abstract
    Keywords: Decentralization, local government elections, political participation, voter turnout, Public service provision, Governance,
    Date: 2008
  5. By: Yamauchi, Futoshi; Chowdhury, Shyamal; Dewina, Reno
    Abstract: "This paper examines dynamics in public good accessibility and cross-community inequality in Indonesia, using village-level panel data from 2000 to 2006 from their decentralized public-good allocation system. The introduction of decentralization makes public-good investment dependent on initial local income and endowment, and makes it difficult to coordinate investment decisions across communities. Our analysis also shows that possible strategic interactions among communities connected with transportation infrastructure (externalities) implies spatial divergence. Empirical evidence on education and heath facilities, however, demonstrates that during the decentralized period, (1) accessibility to school has improved and school investments were effectively coordinated over space; (2) hospital access has improved only marginally; but (3) per-capita availability of schools and local medical clinics (puskesmas) in the community shows convergence toward low-level equilibria. Despite the coordination in spatial allocation even in the decentralization period (observed in intervillage accessibility), endogenous population mobility and growth partially cancel the benefits of the coordinated efforts in public-good allocation. This point requires further policy attention." from Authors' Abstract
    Keywords: Public goods, Education, health, Spatial coordination, Poverty dynamics,
    Date: 2007
  6. By: Singh, Nirvikar
    Abstract: This paper examines delivery of public health care services in India, in the broader context of decentralization. It provides an overview of the basic features and recent developments in intergovernmental fiscal relations and accountability mechanisms, and examines the implications of these institutions for the quality of public service delivery. It then addresses recent policy proposals on the public provision of health care, in the context of decentralization. Finally, it makes suggestions for reform priorities to improve public health care delivery.
    Keywords: federalism; decentralization; intergovernmental relations; accountability; service delivery; health care
    JEL: H1 H7 P35 P26
    Date: 2008–03–20
  7. By: Sanghamitra Bandyopadhyay; Joan Esteban
    Abstract: We introduce a model of redistributive income taxation and public expenditure. Besides redistributing personal income by means of taxes and transfers, the government supplies goods and services. The government chooses the tax schedule that is found acceptable by the largest share possible of the population. We show that there is a unique income tax schedule that is universally acceptable. The progressivity of the income tax is shown to depend on the composition of the public expenditure and on the substitutability between the goods and services supplied by the government and the consumption goods privately obtained through the market. We test the empirical implications of the model. Specifically, we use OECD data to observe the relationship between marginal tax rates and the distribution over the taxpayers of the benefits produced by the specific composition of the government expenditure in the provision of goods and services. We confirm that for lower elasticities of substitution between public and private goods, there is a negative relationship between marginal tax rates and pro-taxpayer-bias, and for higher elasticities, there is a positive relationship.
    Keywords: Government Policy, Income Taxation, Public Expenditure
    JEL: H23 H50 O50
    Date: 2007
  8. By: Richard Herd; Willi Leibfritz
    Abstract: This paper examines varies areas of India´s fiscal policy, in particular fiscal discipline, the structure of government spending, the tax system and fiscal federalism. It describes reforms over the past decades which, as part of the overall economic reform agenda, helped lifting the Indian economy to a higher growth path. It also discusses where further reforms are desirable to further reduce economic distortions and improve the provision of public services. It finds that after high fiscal deficits have often been recorded during the past two decades, after the adoption of the Fiscal Responsibility and Budget Management Act in 2003, fiscal discipline has significantly improved. As to government spending, it argues that, given the large share which is used to subsidise commercial undertakings, agriculture and food distribution, there is much room to improve the quality of spending and to target it better to improving infrastructure and reducing poverty. It describes the tax system which has undergone major reforms since the early 1990s. Nonetheless, there are still many exemptions and loopholes which suggest that a broadening of the tax bases would allow further reductions in tax rates and make the system simpler, fairer and more efficient. The paper also suggests that reforms of indirect taxes should focus on creating a common market within India so that goods can move between states without border controls. Finally, on fiscal federalism it finds that India's federal structure has led to a well-developed system of tax-sharing and transfers, both through constitutionally empowered bodies and delivered through the annual budget. While overall, India´s fiscal federalism has worked well moving resources towards the poorest states, it has become very complex and there are still some features which weaken fiscal discipline of the states. Furthermore, a major drawback is the lack of an effective local government system, most notably in rural areas and strengthening the local level would be important for improving accountability and responsiveness to citizens’ needs as three-quarters of the population live in states with over 50 million inhabitants. <P>La politique budgétaire en Inde : réformes passées et challenges pour l’avenir <BR>Nous examinons dans ce document différents aspects de la politique budgétaire indienne, notamment la discipline budgétaire, la structure des dépenses publiques, le système fiscal et le fédéralisme budgétaire. Nous décrivons les réformes mises en oeuvre au cours des dernières décennies, qui, dans le cadre du programme global de réformes économiques, ont contribué à rehausser la trajectoire de croissance de l'économie indienne. Nous nous demandons également si de nouvelles réformes sont souhaitables pour réduire encore certaines distorsions économiques, et améliorer la prestation des services publics. Nous parvenons à la conclusion qu'après deux décennies fréquemment marquées par de volumineux déficits budgétaires, la discipline budgétaire s'est sensiblement améliorée à la suite de l'adoption de la Loi de responsabilité et de gestion budgétaires de 2003. S'agissant des dépenses publiques, nous estimons que, dans la mesure où une grande partie des fonds est utilisée pour subventionner des entreprises commerciales, l'agriculture et la distribution de produits alimentaires, les autorités disposent de marges de manoeuvre considérables pour améliorer la qualité des dépenses et mieux les cibler, en vue d'améliorer les infrastructures et de faire reculer la pauvreté. Nous décrivons également le système fiscal, qui a fait l'objet de réformes de fond depuis le début des années 90. Il n'en demeure pas moins caractérisé par un grand nombre d'exonérations et de lacunes, ce qui laisse à penser qu'un élargissement de l'assiette des impôts permettrait de réduire davantage leur taux, tout en rendant le système fiscal plus simple, plus équitable et plus efficient. Nous estimons par ailleurs que les réformes des impôts indirects devraient être axées sur la création d'un marché commun en Inde, de manière que les biens puissent circuler entre les États de l'Union sans contrôle à leurs frontières. Enfin, s'agissant du fédéralisme budgétaire, nous parvenons à la conclusion que la structure fédérale de l'Inde a débouché sur un système étoffé de partage des recettes fiscales et de transferts, reposant sur des organismes constitutionnels ou s'inscrivant dans le cadre du budget annuel. Globalement, le fédéralisme budgétaire indien a bien fonctionné et permis de redistribuer des ressources aux États les plus démunis, mais il est devenu très complexe et présente encore des caractéristiques qui nuisent à la discipline budgétaire des États. En outre, un de ses inconvénients majeurs réside dans l'absence de système d'administration locale efficace, en particulier dans les zones rurales. À cet égard, il serait important de renforcer le niveau local d'administration pour responsabiliser davantage les autorités et les rendre plus attentives aux besoins des citoyens, dans la mesure où trois quarts de la population vivent dans des États de plus de 50 millions d'habitants.
    Keywords: taxation, fiscalité, fiscal policy, politique budgétaire, dépenses publiques, fiscal federalism, fédéralisme budgétaire, India, government spending
    JEL: H1 H2 H5 H6 H7
    Date: 2008–03–10
  9. By: Le, Tuan Minh; Moreno-Dodson, Blanca; Rojchaichaninthorn, Jeep
    Abstract: An effective tax system is fundamental for successful country development. The first step to understand public revenue systems is to establish some commonly agreed performance measurements and benchmarks. This paper employs a cross-country study to estimate tax capacity from a sample of 104 countries during 1994-2003. The estimation results are then used as benchmarks to compare taxable capacity and tax effort in different countries. Taxable capacity refers to the predicted tax-gross domestic product ratio that can be estimated with the regression, taking into account a country ' s specific economic, demographic, and institutional features. Tax effort is defined as an index of the ratio between the share of the actual tax collection in gross domestic product and the predicted taxable capacity. The authors classify countries into four distinct groups by their level of actual tax collection and attained tax effort. This classification is based on the benchmark of the global average of tax collection and a tax effort index of 1 (when tax collection is exactly the same as the estimated taxable capacity). The analysis provides guidance for countries with various levels of tax collection and tax effort.
    Keywords: Taxation & Subsidies,Debt Markets,Public Sector Economics & Finance,Emerging Markets,Economic Theory & Research
    Date: 2008–03–01
  10. By: Tuomas Kosonen
    Abstract: In 2000, revenues from corporate income tax (CIT) in Finland were seven times higher than in 1994. We decompose the aggregate development of CIT revenues in a number of ways in order to establish what aspects of corporate taxation changed. We present the average effective tax rate for corporations as calculated from micro data. We also describe the development of CIT revenues using distributional analysis and the decomposition of the aggregate growth rate. Our analysis suggests that the substantial increase in CIT revenues was not related to any concurrent change in the Finnish corporate tax system. This phenomenon can be ascribed to a few large corporations, that have domicile in Finland. We also find that exceptional increase in the profits of large Finnish corporations explain much of the increase in CIT revenues. Finland can be seen as a case study since CIT revenues also increased in some other European countries in the 1990s.
    Keywords: Tax revenue, corporate taxation, tax competition
    Date: 2007–05–25

This nep-pbe issue is ©2008 by Oliver Budzinski. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.