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on Public Economics |
| By: | Gilbert E. Metcalf |
| Abstract: | Federal deductibility for state and local taxes constitutes one of the largest tax expenditures in the federal budget and provides a significant source of federal support to state and local governments. Deductibility was restricted in the Tax Reform Act of 1986 by removing the deduction for general sales taxes. More recently the President's Advisory Panel on Federal Tax Reform recommended eliminating the deduction altogether as one of several revenue-raising initiatives to finance comprehensive tax reform. I carry out a number of distributional analyses – considering both variation across income and across states – of the subsidy from deductibility as well as the distributional impact of potential partial reforms. In addition, I consider three counterfactuals for 2004 – a tax system without the Bush tax cuts for 2001 and 2003, a tax system without the 2004 AMT patch, and a tax system without the AMT – to see how the benefits of deductibility are affected by these changes in the tax law. Next I consider how behavioral responses affect the tax expenditure estimates. Feldstein and Metcalf (1987) argued that tax expenditures overestimate the revenue gain from eliminating deductibility as they do not take into account a likely shift away from once-deductible taxes to non-deductible taxes and fees in the absence of deductibility. Many of these latter taxes and fees are paid by businesses. As business costs rise, federal business tax collections would fall, offsetting some of the gains of ending deductibility. Feldstein and Metcalf also found that ending deductibility would have little if any impact on state and local spending itself. Using a large panel of data on state and local governments, I revisit this issue and find that the Feldstein-Metcalf results are robust to adding more years of analysis. |
| JEL: | H2 H71 H77 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14023&r=pbe |
| By: | Andreas Irmen (University of Heidelberg, Department of Economics); Johanna Kühnel (University of Heidelberg, Department of Economics) |
| Abstract: | We provide a comprehensive survey of the recent literature on the link between productive government expenditure and economic growth. Starting with the seminal paper of Robert Barro (1990) we show that an understanding of the core results of the ensuing contributions can be gained from the study of their respective Euler equations. We argue that the existing literature incorporates many relevant aspects, however, policy recommen- dations tend to hinge on several knife-edge assumptions. Therefore, future research ought to focus more on idea-based endogenous growth models to check the robustness of policy recommendations. Moreover, the inclusion of hitherto unexplored types of government expenditure, e. g., on the "rule of law", would be desirable. |
| Keywords: | Economic Growth, Government Expenditure, Public Goods, Fiscal Policy |
| JEL: | E62 H10 H21 H41 H54 O41 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0464&r=pbe |
| By: | Christopher R. Berry; Jacob E. Gersen |
| Abstract: | There are more than 500,000 elected officials in the United States, 96 percent of whom serve in local governments. Electoral density—the number of elected officials per capita or per governmental unit—varies greatly from place to place. The most electorally dense county has more than 20 times the average number of elected officials per capita. In this paper, we offer the first systematic investigation of the link between electoral density and fiscal policy. Drawing on principal-agent theories of representation, we argue that electoral density presents a tradeoff between accountability and monitoring costs. Increasing the number of specialized elected offices promotes issue unbundling, reducing slack between citizen preferences and government policy; but the costs of monitoring a larger number of officials may offset these benefits, producing greater latitude for politicians to pursue their own goals at the expense of citizen interests. Thus, we predict diminishing returns to electoral density, suggesting a U-shaped relationship between the number of local officials and government fidelity to citizen preferences. Using a county-level dataset of all elected officials in the United States, we evaluate this theory along with competing theories from the existing literature. Empirically, we find evidence that public sector size decreases with electoral density up to a point, beyond which budgets grow as more officials are added within a community. |
| Keywords: | local government, elected officials, efficiency, funding |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:har:wpaper:0713&r=pbe |
| By: | Xavier Fageda (Faculty of Economics, University of Barcelona); Germa Bel (Faculty of Economics, University of Barcelona) |
| Abstract: | Several empirical studies have analyzed the factors that influence local privatization. Variables related to fiscal stress, cost reduction, political processes and ideological attitudes are the most common explanatory variables used in these studies. In this paper, we add to this literature by examining the influence of transaction costs and political factors on local governments’ choices through new variables. In addition to this, we consider the role of additional aspects, such as intermunicipal cooperation as a potential alternative to privatization in order to exploit scale economies or scope economies. We consider two relevant services: solid waste collection and water distribution. Results from our estimates show that privatization (that is, contracting out to a private firm) is less common for water distribution than for solid waste collection. Higher transaction costs in water distribution are consistent with this finding. Furthermore, we find that municipalities with a conservative ruling party privatize more often regardless of the ideological orientation of the constituency. This shows that those political interests able to influence local elections are more important in determining the form of delivery than is the basic ideological stance of the constituency. Finally, we find that intermunicipal cooperation is an alternative to local privatization. |
| Keywords: | Privatization, contracting-out, local governments |
| JEL: | L33 R51 H72 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:200804&r=pbe |
| By: | Colin Scott (Professor of EU Regulation and Governance, School of Law, University College Dublin) |
| Date: | 2008–02–04 |
| URL: | http://d.repec.org/n?u=RePEc:ucd:wpaper:200804&r=pbe |
| By: | Lyttkens, Carl Hampus (Department of Economics, Lund University) |
| Abstract: | This paper explores the mutual influence between the institutional development in Athens in the archaic and classical periods and the contemporary changes in economic life. This enhances our understanding of the causes and consequences of institutional change. It is also worth exploring in view of the suggested connections between economic development, markets and democracy. Between 600 and 322 B.C., Athenian society underwent significant institutional change. Rule by a birth aristocracy gave way to (changing) democratic institutions. Political pay was introduced for magistrates, jurors, and assemblymen. Legislation and execution was transferred to the Assembly and to the courts. The nature and extent of taxation changed. In the same period, economic life changed both qualitatively and quantitatively. Trade and specialisation increased, coinage was introduced and self-sufficient farming gradually gave way to reliance on imports and on the market for necessary goods. These changes not only influenced institutional change, they also affected people’s perception of the world. The influence of institutions on the presence and nature of economic transactions is obvious. The influence on institutional change from changes in economic behaviours and outlook seems however potentially equally important. |
| Keywords: | institutional change; democracy; market; Athens; antiquity |
| JEL: | D72 H30 N43 O17 P16 |
| Date: | 2008–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2008_009&r=pbe |
| By: | Bruce D. Meyer |
| Abstract: | In this paper, I first summarize how the U.S. Earned Income Tax Credit (EITC) operates and describe the characteristics of recipients. I then discuss empirical work on the effects of the EITC on poverty and income distribution, and its effects on labor supply. Next, I discuss a few policy concerns about the EITC: possible negative effects on hours of work and marriage, and problems of compliance with the tax system. I then briefly discuss some possible reforms to the structure of the current EITC. |
| Keywords: | EITC, poverty |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:har:wpaper:0720&r=pbe |