nep-pbe New Economics Papers
on Public Economics
Issue of 2008‒05‒24
six papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Effects of Flat Tax Reforms in Western Europe on Equity and Efficiency By Alari Paulus; Andreas Peichl
  2. Positional Concerns with Multiple Reference Points: Optimal Income Taxation and Public Goods in an OLG Model By Aronsson, Thomas; Johansson-Stenman, Olof
  3. Does partisan alignment affect the electoral reward of intergovernmental transfers? By Albert Solé-Ollé; Pilar Sorribas-Navarro
  4. Analysing the Effects of Tax-benefit Reforms on Income Distribution: A Decomposition Approach By Olivier Bargain; Tim Callan
  5. Does judicial review influence the quality of local authority services? By Kerman Calvo; Lucinda Platt; Maurice Sunkin
  6. Inequalities Within Couples: Market Incomes and the Role of Taxes and Benefits in Europe By Francesco Figari; Herwig Immervoll; Horacio Levy; Holly Sutherland

  1. By: Alari Paulus (Institute for Social and Economic Research); Andreas Peichl (University of Cologne)
    Abstract: The flat income tax has become increasingly popular recently, yet its implementation is limited to Eastern Europe. We analyse the distributional and efficiency effects of flat tax scenarios for Western European countries. Our simulations show that flat tax rates required to attain revenue neutrality with existing basic allowances improve labour supply incentives. However, they result in higher inequality and polarisation. Flat rates necessary to keep the inequality levels unchanged allow for some scope for flat taxes to increase both equity and efficiency. Our analysis suggests that Mediterranean countries are more likely to benefit from flat taxes.
    Keywords: flat tax, income inequality, microsimulation, tax reform
    Date: 2008–03
  2. By: Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, University of Gothenburg)
    Abstract: This paper concerns optimal income taxation and provision of a state-variable public good under asymmetric information in a two-type overlapping generations model, where people care about their relative consumption. Each individual may compare his/her own current consumption with his/her own past consumption as well as with other people’s current and past consumption. The appearance of positional concerns affects the policy choices via two channels: (i) the size of the average degree of positionality and (ii) positionality differences between the (mimicked) low-ability type and the mimicker. Under plausible empirical estimates, the marginal labor income tax rates become substantially larger, and the absolute value of the marginal capital income tax rate of the low-ability type becomes substantially smaller, compared to the conventional optimal income tax model. The extent by which the rule for public provision should be modified depends crucially on the preference elicitation format.
    Keywords: Optimal income taxation; asymmetric information; public goods; relative consumption; status; positional goods
    JEL: D62 H21 H23 H41
    Date: 2008–05–15
  3. By: Albert Solé-Ollé (Universitat de Barcelona (UB); Institut d'Economia de Barcelona (IEB); CESifo); Pilar Sorribas-Navarro (Universitat Barcelona (UB); Institut d'Economia de Barcelona (IEB))
    Abstract: In this paper we test the hypothesis that intergovernmental grants allocated to co-partisans buy more political support than grants allocated to local governments controlled by opposition parties. We use a rich Spanish database containing information about the grants received by 617 municipalities during the period 1993-2003 from two different upper-tier governments (Regional and Upper-local), as well as data of municipal voting behaviour at three electoral contests held at the different layers of government during this period. Therefore, we are able to estimate two different vote equations, analysing the effects of grants given to aligned and unaligned municipalities on the vote share of the incumbent party/parties at the regional and local elections. We account for the endogeneity of grants by instrumenting them with the average amount of grants distributed by upper-layer governments. The results suggest that grants given to co-partisans buy some political support, but that grants given to opposition parties do not bring any votes, suggesting that the grantee reaps as much political credit from intergovernmental grants as the grantor
    Keywords: Voting, parties, grants.
    JEL: C72 D72
    Date: 2008
  4. By: Olivier Bargain (School of Economics, Univeristy College Dublin, CHILD & IZA Bonn); Tim Callan (ESRI)
    Abstract: To assess the impact of tax-bene?t policy changes on income distribution over time, we suggest a methodology based on counterfactual simulations. We start by decomposing changes in inequal- ity/poverty indices into three contributions: reforms of the tax-bene?t structure (rules, rates, etc.), changes in nominal levels of market incomes and tax-bene?t parameters (bene?t amounts, tax bands, etc.), and all other changes in the underlying population (market income inequality, demographic composition, employment level, etc.). Then, the decomposition helps to extract an absolute measure of the impact of tax-bene?t changes on inequality when evaluated against a distributionally-neutral benchmark, i.e. a situation where tax-bene?t parameters are adjusted in line with income growth. We apply this measure to assess recent policy changes in twelve European countries. Finally, the full decomposition allows quantifying the relative role of policy changes compared to all other fac- tors. We provide an illustration on France and Ireland and check the sensitivity of the results to the decomposition order.
    Keywords: tax-benefit policy, inequality, poverty, decomposition, microsimulation
    JEL: H23 H53 I32
    Date: 2007–08–20
  5. By: Kerman Calvo (University of Essex); Lucinda Platt (Institute for Social and Economic Research); Maurice Sunkin (University of Essex)
    Abstract: This paper raises some of the key issues that have emerged from our study of the impact of judicial review litigation on the quality of local government services in England and Wales. Judicial Review is the High Court procedure by which those with a ‘sufficient interest’ can challenge decisions of public authorities on the grounds that authorities have failed to meet their legal obligations, including human rights obligations; or have acted unfairly or exceeded or abused their legal powers (or threatened to do these things). The paper discusses whether or not a greater engagement with public law litigation, as experienced in the UK in recent times, may be leading to improvements or declines – in access to services and in service delivery for individuals and classes of services user, to improvements in the clarity and accountability of processes within local authorities, and to greater levels of legal awareness, including the furtherance of the practical application of the rule of law. We focus on two areas of local authority activity: housing and homelessness and children’s services; and we distinguish in the paper between the impact of challenges, and the impact of judicial decisions. The paper draws on a series of qualitative interviews with ‘key informants’ in local authorities; and presents analyses of judicial review decisions of national significance in the area of children’s services. Our conclusions at this stage are tentative and indicate areas that we intend to pursue further. Our most general observation is that judicial review is a significant aspect of an environment that over the past two decades has subjected local authorities to an increasing range of external regulatory and controlling mechanisms. Against this background, we observe that judicial review is distinctive in various ways. We identify several potentially distinctive features of judicial review from a quality perspective, including its focus on individual problems, its ability to subject decisions to close scrutiny and its ability to provide authoritative statements as to local authorities’ duties. We also consider the circumstances under which decisions are likely to have most (or least) impact on the working and quality of local authority services.
    Keywords: public law, public services
    Date: 2007–12
  6. By: Francesco Figari (Institute for Social and Economic Research); Herwig Immervoll (Organisation for Economic Co-operation and Development); Horacio Levy (European Centre for Social Welfare Policy and Research); Holly Sutherland (Institute for Social and Economic Research)
    Abstract: In spite of there being few elements of tax or cash benefit systems in developed countries that are any longer explicitly gender-biased in a discriminatory sense, it is well recognised that they have significant gender effects. To the extent that women earn less than men on average under tax-benefit systems that are progressive, there is some redistribution from men to women overall. However, an aggregate perspective is insufficient for understanding how earning opportunities and public policies affect living arrangements at the family level in general and the circumstances of men and women in particular. Arguably, it is within the household that a gendered division of labour is most relevant. It is difficult to observe how income and other resources get allocated within households. We can, however, observe the incomes brought into the household and to what extent taxes and benefits mitigate (or indeed exacerbate) any inequality of income between men and women. We explore the effects of tax and benefit systems on differences in income and in incentives to earn income between men and women within couples in a selection of the member countries of the European Union (EU) using EUROMOD, the EU tax-benefit microsimulation model. This comparative perspective allows us to establish the relative effects of different policy regimes, given the underlying characteristics of each national population, using a consistent approach and set of incidence assumptions across countries.
    Keywords: europe, gender, inequality, taxation
    Date: 2007–11

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