nep-pbe New Economics Papers
on Public Economics
Issue of 2008‒04‒04
seven papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Social Preferences and Public Economics: Mechanism design when social preferences depend on incentives By Samuel Bowles; Sung Ha Hwang
  2. Continuous and Step-level Pay-off Functions in Public Good Games: A Conceptual Analysis By Abele, Susanne; Stasser, Garold
  3. The German sub-national government bond market: evolution, yields and liquidity By Schulz, Alexander; Wolff, Guntram B.
  4. Viewing tax policy through party-colored glasses: What German politicians believe By Friedrich Heinemann; Eckhard Janeba
  5. Does Stringency of Gubernatorial Term Limits Matter? By Peter Calcagno; Monica Escaleras
  6. Labour Supply and Taxes By Meghir, Costas; Phillips, David
  7. The impact of thin-capitalization rules on multinationals' financing and investment decisions By Büttner, Thiess; Overesch, Michael; Schreiber, Ulrich; Wamser, Georg

  1. By: Samuel Bowles (Santa Fe Institute, University of Siena and University of Massachusetts); Sung Ha Hwang (University of Massachusetts, Amherst)
    Abstract: Social preferences such as altruism, reciprocity, intrinsic motivation and a desire to uphold ethical norms are essential to good government, often facilitating socially desirable allocations that would be unattainable by incentives that appeal solely to self-interest. But experimental and other evidence indicates that conventional economic incentives and social preferences may be either complements or substitutes, explicit incentives crowding in or crowding out social preferences. We investigate the design of optimal incentives to contribute to a public good under these conditions. We identify cases in which a sophisticated planner cognizant of these non-additive effects would make either more or less use of explicit incentives, by comparison to a naive planner who assumes they are absent. JEL Categories: D52, D64, H21. H41
    Keywords: Social preferences, implementation theory, incentive contracts, incomplete contracts, framing, motivational crowding out, ethical norms, constitutions
    Date: 2008–03
  2. By: Abele, Susanne (Miami University, Department of Psychology); Stasser, Garold (Miami University, Department of Psychology)
    Abstract: Conflicts between individuals’ and collective interests are ubiquitous in social life. Numerous experimental studies have investigated the resolution of such conflicts using public good games with either continuous or step-level payoff functions. A conceptual analysis using both classic game theory and social exchange theory shows that these two types of games are fundamentally different. A continuous function game is a social dilemma in that it contains a conflict between individual and collective interests whereas a step-level game is primarily a social coordination game. Thus, we conclude that one can not safely generalize results from step-level to continuous form games. Additionally, our analysis shows that the distinction between continuous and single-step games can be blurred by segmenting a continuous function into steps or adding steps to a single-step game. We identify characteristics of the payoff function that conceptually mark the transition from a dilemma to a coordination problem.
    Date: 2007–12–17
  3. By: Schulz, Alexander; Wolff, Guntram B.
    Abstract: The paper presents a comprehensive data set of all bonds issued by the sixteen German states (L¨ander) since 1992. It thus provides a complete picture of a capital market comparable in size to funds raised in the German fixed income market for corporations. The quantitative analysis reveals that L¨ander follow different issuing strategies: while some concentrate to a greater extend on large issues or issue joint bonds with other L¨ander (Jumbos), others rely more on comparatively small but frequent issues. Moreover, some L¨ander issue a significant volume-share of their bonds in foreign currencies. Suitable bonds are used to compute yields for the respective L¨ander at a daily frequency. In addition, we construct a measure of liquidity based on the standard deviation of yields of those bonds that are used to compute the average yield.
    Keywords: sovereign bond market, yields, liquidity, fiscal federalism, Germany
    JEL: E43 E44 G10 G12 G18 H63 H74
    Date: 2008
  4. By: Friedrich Heinemann (Centre for European Economic Research (ZEW)); Eckhard Janeba (University of Mannheim, CESifo)
    Abstract: The process of globalization has an important impact on national tax policies. Most of the literature 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 (real capital and 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 costs of capital taxation in open economies are, even though our survey falls in a period of extensive debate about and actual adoption of a company tax reform bill in Germany. From a comparative politics perspective our results document the strong role of party discipline in a parliamentary democracy as the actual voting behaviour within a party is much more cohesive than the survey evidence suggests.
    Keywords: Globalization, business taxation, beliefs, member of parliament, profit shifting, party discipline, yardstick competition
    JEL: D78 D83 H25
    Date: 2008
  5. By: Peter Calcagno (Department of Economics and Finance, College of Charleston); Monica Escaleras (Department of Economics, Florida Atlantic University)
    Abstract: Political institutions within a society often serve to establish the rules governing the economic actions of members, help establish norms of appropriate economic behavior between the members, and ultimately help to explain the relative economic performance of the society. Institutional details like the role of budgetary constraints, party ideology, term limits, and voting methods have been analyzed with particular emphasis on the interplay of political and economic variables. Within this field, we believe that the study of term limits is of particular importance. Hence, this paper empirically investigates the link between the level of stringency of term limits and state expenditures after controlling for other characteristics of political institutions. Using panel data from 37 states in the U.S. between 1971 and 2000, the empirical results indicate that the stringency of term limits is an important factor in determining state expenditures.
    Keywords: State Expenditures, State government, Term Limits, Party Alternation
    JEL: D72 H72
    Date: 2007–07
  6. By: Meghir, Costas (University College London); Phillips, David (Institute for Fiscal Studies, London)
    Abstract: In this paper we provide an overview of the literature relating labour supply to taxes and welfare benefits with a focus on presenting the empirical consensus. We begin with a basic continuous hours model, where individuals have completely free choice over their hours of work. We then consider fixed costs of work, the complications introduced by the benefits system, dynamic aspects of labour supply and we place the analysis in the context of the family. The key conclusion of this work is that in order to estimate the impact of tax reform and be able to generalise results, a structural approach that takes account of many of these issues is desirable. We then discuss the “new Tax Responsiveness” literature which uses the response of taxable income to the marginal tax rate as a summary statistic of the behavioural response to taxation. Underlying this approach is the unsatisfactory nature of using hours as a proxy for labour effort for those with high levels of autonomy on the job and who already work long hours, such as the self employed or senior executives. After discussing relevant theory we then provide a summary of empirical estimates and the methodology underlying the studies. Our conclusion is that hours of work are relatively inelastic for men, but are a little more responsive for married women and lone mothers. On the other hand, participation is quite sensitive to taxation and benefits for women. Within this paper we present new estimates form a discrete participation model for both married and single men based on the numerous reforms over the past two decades in the UK. We find that the participation of low education men is somewhat more responsive to incentives than previously thought. For men with high levels of education, participation is virtually unresponsive; here the literature on taxable income suggests that there may be significant welfare costs of taxation, although much of this seems to be a result of shifting income and consumption to non-taxable forms as opposed to actual reductions in work effort.
    Keywords: labour supply, income taxation, welfare benefits, tax credits, incentive effects
    JEL: J22 H24 H31
    Date: 2008–03
  7. By: Büttner, Thiess; Overesch, Michael; Schreiber, Ulrich; Wamser, Georg
    Abstract: This paper analyzes the e®ectiveness of thin-capitalization rules in preventing debt finance by intercompany loans and explores their consequences for corporate decisions. A theoretical discussion emphasizes that limitations of the deduction of interest owed to foreign affiliates would not only affect multinationals' capital structure choice but also investment. An empirical investigation exploits a large firm-level panel dataset of multinationals in order to analyze the impact of thin-capitalization rules on capital structure choice and investment in the OECD and some further European countries in the time period between 1996 and 2004. The results indicate that thin-capitalization rules are effective in curbing tax planning via intercompany loans. However, investment is found to be adversely affected.
    Keywords: Corporate Income Tax, Multinationals, Leverage, Thin-Capitalization Rules, Firm-Level Data
    JEL: G32 H25 H26
    Date: 2008

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