nep-pbe New Economics Papers
on Public Economics
Issue of 2008‒06‒21
sixteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Globalisation, Tax Competition and the Harmonisation of Corporate Tax Rates in Europe: A Case of Killing the Patient to Cure the Disease? By Brigitte Unger; Killian McCarthy; Frederik van Doorn
  2. Rights of local jurisdictions and tax revenue distribution in Georgia By Narmania, David
  3. Public Goods, Social Norms and Naive Beliefs By Edward Cartwright; Amrish Patel
  4. Will an asymmetrical system of fiscal decentralisation resolve the conflicts in the republic of Georgia? By Kirn, Tanja; Khokrishvili, Elguja
  5. The Economic Incidence of Replacing a Retail Sales Tax by a Value-Added Tax: Evidence from Canadian Experience By Richard M. Bird; Michael Smart
  6. Does urban sprawl increase the costs of providing local public services? Evidence from Spanish municipalities By Albert Solé-Ollé; Miriam Hortas Rico
  7. Accounting Challenges for Semi-Autonomous Revenue Agencies (SARAs) in Developing Countries By Seth E. Terkper
  8. Sound taxation? On the use of self-declared value By Haan, M. A.; Heijnen, P.; Schoonbeek, L.; Toolsema, L. A.
  9. Studying the role of political competition in the evolution of government size over long horizons By Ferris, J. Stephen; Park, Soo-Bin; Winer, Stanley L.
  10. Political Economy of Ramsey Taxation By Daron Acemoglu; Michael Golosov; Aleh Tsyvinski
  11. The Underground Economy in the Late 1990s: Evading Taxes, or Evading Competition? By Liliane Karlinger
  12. The Tax Base for CCCTB: The Role of Principles By Judith Freedman; Graeme Macdonald
  13. The Retrenchment Hypothesis and the Extension of the Franchise in England and Wales By Aidt, T.S.; Daunton, M.; Dutta, J.
  14. Pareto Improving Taxes By John Geanakoplos; H M Polemchakis
  15. Status quo on fiscal decentralisation in Mongolia By Ariunaa Lkhagvadorj
  16. Assessing the assignation of public subsidies: Do the experts choose the most efficient R&D projects? By Néstor Duch-Brown; José García-Quevedo; Daniel Montolio

  1. By: Brigitte Unger; Killian McCarthy; Frederik van Doorn
    Abstract: This paper surveys the literature on tax competition, and uses it to analyse current European proposals to harmonise corporate tax rates. It begins, in the course of Section One, by introducing the phenomenon of international tax competition, and illustrates, with the use of secondary research, the reality of the regulatory "race to the bottom". Section Two, however, demonstrates the harmful consequences of tax competition - with reference to the immobile factors of production - and makes obvious the necessity of effective intervention. Section Three then introduces and evaluates the calibre of the current proposals to tackle tax competition through collusion and harmonisation, and concludes negatively in the process. As illustrated in this discussion, any efforts to harmonise corporate taxes above the international equilibrium will not only fail to solve the problem at hand, but will exacerbate them, and may even serve to undermine and destabilise the political Union. Section Four then introduce an alternative solution to the problem - in the form of the residence principle - and Section Five concludes.
    Keywords: International Competition, Europe, Public Finance, Taxation, Regulation
    JEL: E62 E65 F41 F42 H26 H87 O52
    Date: 2008–05
  2. By: Narmania, David
    Abstract: This paper describes the administrative powers of local jurisdictions in Georgia, emphasizing on the tax competences and the abilities to mobilize other sources of income. Having listed and explained the types of revenues and incomes, the articles continues to show their distribution among administrative levels according to the current tax code. Following a brief overview of the main laws underlying tax regulation, the existing problems of the status quo before 2007 and some perspectives for the immediate future are outlined.
    Keywords: iscal policy , local jurisdictions , tax distribution , state and local budgets
    JEL: H7 H2 H1
    Date: 2007–08
  3. By: Edward Cartwright; Amrish Patel
    Abstract: An individual’s contribution to a public good may be seen by others as a signal of attributes such as generosity or wealth. An individual may, therefore, choose their contribution so as to send an appropriate signal to others. In this paper we question how the inferences made by others will influence the amount contributed to the public good. Evidence suggests that individuals are naive and biased towards taking things at "face value". We contrast, therefore, contributions made to a public good if others are expected to make rational inferences versus contributions if others are expected to make naive inferences.
    Keywords: signalling; naive beliefs; public goods
    JEL: D8 H41
    Date: 2008–05
  4. By: Kirn, Tanja; Khokrishvili, Elguja
    Abstract: This paper discusses the problems regarding the decentralisation of a formerly communist country. In Georgia, the first steps towards decentralisation failed, since the transition process led to a power vacuum that escalated in bloody conflicts and secessionist movements. The status of Abkhazia and South Ossetia is still unclear and the intra-state tensions remain unsolved. This may be one of the reasons why the most recent attempts of decentralisation are rather hesitant. It is far from clear whether decentralisation in response to regional tensions would increase instability or political stability. We identify the limited autonomy at the local and regional levels as a major obstacle and challenge for the further reform process.
    Keywords: decentralisation , institutional reform , fiscal equalization , regional autonomy
    JEL: H77 H72 H71 H50 H41 H21 H11
    Date: 2008–01
  5. By: Richard M. Bird (University of Toronto); Michael Smart (University of Toronto)
    Abstract: A decade ago, several Canadian provinces replaced the retail sales taxes by value-added taxes. This paper estimates the effects of this tax substitution on consumer prices in the reforming provinces. Consistent with theory, we find that the resulting effective tax rate changes were shifted forward to consumers in most sectors of the economy. The overall effect on tax-inclusive consumer prices was small, albeit perhaps somewhat regressive.
    Keywords: tax incidence, sales tax, value-added tax, Canada
    JEL: H22 H25 H71
    Date: 2008–06
  6. By: Albert Solé-Ollé (Universitat de Barcelona & IEB); Miriam Hortas Rico (Universitat de Barcelona & IEB)
    Abstract: This paper examines the impact of urban sprawl, a phenomenon of particular interest in Spain, which is currently experiencing this process of rapid, low-density urban expansion. Many adverse consequences are attributed to urban sprawl (e.g., traffic congestion, air pollution and social segregation), though here we are concerned primarily with the rising costs of providing local public services. Our initial aim is to develop an accurate measure of urban sprawl so that we might empirically test its impact on municipal budgets. Then, we undertake an empirical analysis using a cross-sectional data set of 2,500 Spanish municipalities for the year 2003 and a piecewise linear function to account for the potentially nonlinear relationship between sprawl and local costs. The estimations derived from the expenditure equations for both aggregate and six disaggregated spending categories indicate that low-density development patterns lead to greater provision costs of local public services.
    Keywords: Urban sprawl, local public spending.
    JEL: H1 H72 R51
    Date: 2008
  7. By: Seth E. Terkper
    Abstract: The paper discusses the improvements which a semi-autonomous revenue agency (SARA) must make to its records to meet fiscal and financial accounting obligations. SARAs are legal entities, such as a service or a department, which are required to prepare accrual records that may diverge from a treasury's cash accounting records. Their records reflect revenues generated; budget funds for generating the revenues; and material programs administered for other agencies. The accounting records and financial statements (income statement, balance sheet and cash flow statement) must conform to generally-accepted accounting principles (GAAPs) or standards such as the International Public Sector Accounting Standards (IPSAS) of the International Federation of Accountants (IFAC)-and to the treatment of operating, investment and financing activities in the Government Finance Statistics (GFS) Manual.
    Keywords: Working Paper , Government accounting , Developing countries , Tax revenues , Tax administration , Fiscal transparency , Public finance , Public sector ,
    Date: 2008–05–05
  8. By: Haan, M. A.; Heijnen, P. (Universiteit van Amsterdam); Schoonbeek, L.; Toolsema, L. A.
    Abstract: In the 16th century, foreign ships passing through the Sound had to pay ad valorem taxes, known as the Sound Dues. To give skippers an incentive to declare the true value of their cargo, the Danish Crown reserved the right to purchase it at the declared value. We show that it is an equilibrium for the authorities to confiscate the cargo with some fixed probability independent of the declared value. This does not induce truth-telling, but does generate the desired tax revenue. Other applications of this framework include the dissolution of partnerships, and the auditing of income tax returns.
    Date: 2008
  9. By: Ferris, J. Stephen; Park, Soo-Bin; Winer, Stanley L.
    Abstract: We argue for the use of cointegration and error correction analysis as a method to combine economic factors that are nonstationary with political factors that are stationary into a dynamic, empirical model of the evolution of public policy over long periods. The approach we develop is applied to disentangle the contributions of economics and politics to the evolution of public expenditure by the Government of Canada over 130 years, from the origin of the modern state to the end of the 20th century. Political competition emerges robustly as the primary political factor affecting government size in the long run as well as over shorter horizons.
    Keywords: political competition, conditional convergence, cointegration, public expenditure, size of government, politics versus economics
    JEL: D7 H1 H3 H5
    Date: 2008–06
  10. By: Daron Acemoglu; Michael Golosov; Aleh Tsyvinski
    Date: 2008–06–09
  11. By: Liliane Karlinger
    Abstract: This paper studies the driving forces behind the considerable expansion of the underground economy during the late 1990s. I propose a novel explanation for this phenomenon: the sharp increase in market competition worldwide, which reduces prices and profits and drives firms into the shadow economy. Empirical evidence from a panel covering 42 countries from 1995 to 2000 shows that increased competition is indeed correlated with an expansion of the underground economy. The effect is weaker in high-income, high-tax, low-corruption countries that provide public services which make it worthwhile for firms to operate in the official economy despite growing competitive pressure.
    JEL: H26 L11 O17
    Date: 2008–06
  12. By: Judith Freedman (University of Oxford); Graeme Macdonald (University of Kent)
    Abstract: The European Commission is working on a proposal for a Common Consolidated Corporate Tax Base (CCCTB). A draft Directive is expected to be published during the course of 2008. The proposal aims to tackle some fundamental problems encountered as a result of lack of corporate tax harmonisation, especially in the areas of cross border losses and transfer pricing. There are several difficulties that must be tackled to make the proposal workable, not least the question of formulary apportionment of the consolidated profits of the corporate group as between Member States. This paper does not attempt to discuss the entire range of issues to which the CCCTB gives rise, important though they are, but focuses on the question of the tax base itself. The CCCTB project presents an opportunity to rethink the tax base. For the purposes of this paper it is assumed that there will be no radical re-appraisal of the way in which we tax corporations for the time being, but that the tax base will continue to be based on a concept of ‘profit’. This paper supports the use of International Financial Reporting Standards (IFRS) as a starting point in ascertaining profit. It acknowledges that some deviations will be necessary from IFRS for tax purposes and suggests that these deviations should be explicit and based on autonomous tax principles. Partial convergence gives rise to issues about the relationship between accounting and tax principles. Conceptual clarity is needed to manage the questions that will arise and appropriate institutional mechanisms need to be developed to deal with the task of interpretation and regulation of the evolving relationship between accounting developments and tax law. If the CCCTB is to be successful it must provide a comprehensive and autonomous set of rules. In fact it must be a Comprehensive Common Consolidated Corporate Tax Base (CCCCTB or C4TB) In view of the complexity of the issues arising in creating and applying the rules for a tax base, it is impossible to produce a Directive that will cover every necessary detail. Instead it needs to refer to IFRS as at the date of the Directive and to contain a set of tax principles as well as setting out institutional arrangements capable of managing the relationship. National tax law and national accounting standards are an inappropriate default for a C4TB. Thus the Directive should provide both a reference point for determining the scope of the tax base and a constitutionally valid framework for interpretation and application of the Directive and its implementing legislation in Member States.
    Keywords: CCCTB, Tax Base, Principles
    Date: 2008
  13. By: Aidt, T.S.; Daunton, M.; Dutta, J.
    Abstract: Does local democracy help or hinder the solution of collective action problems? We study this question in the context of public spending on health-related urban amenities in a panel of 75 municipal boroughs in England and Wales in 1868, 1871 and 1886. We .nd evidence of a U-shaped relationship between spending on urban amenities and the extension of the local voting franchise. We argue that this retrenchment e¤ect arose because middle class taxpayers were unwilling to pay the cost of poor sanitation and the urban elites, elected on a narrow franchise, were instrumental for sanitary improvements. Our model of taxpayer democracy suggests that the retrenchment e¤ect is related to forced enfranchisement of the middle class through nation-wide reforms.
    Keywords: Voting franchise, retrenchment, local public goods, sanitation.
    JEL: D62 D78 H71 N93
    Date: 2008–04
  14. By: John Geanakoplos; H M Polemchakis
    Date: 2008–06–10
  15. By: Ariunaa Lkhagvadorj
    Date: 2007–08
  16. By: Néstor Duch-Brown (IEB & Universitat de Barcelona); José García-Quevedo (IEB & Universitat de Barcelona); Daniel Montolio (IEB & Universitat de Barcelona)
    Abstract: The implementation of public programs to support business R&D projects requires the establishment of a selection process. This selection process faces various difficulties, which include the measurement of the impact of the R&D projects as well as selection process optimization among projects with multiple, and sometimes incomparable, performance indicators. To this end, public agencies generally use the peer review method, which, while presenting some advantages, also demonstrates significant drawbacks. Private firms, on the other hand, tend toward more quantitative methods, such as Data Envelopment Analysis (DEA), in their pursuit of R&D investment optimization. In this paper, the performance of a public agency peer review method of project selection is compared with an alternative DEA method.
    Keywords: Subsidies, R&D, DEA, Multi Criteria Decision Analysis, “peer review”.
    JEL: O32 C61 H25
    Date: 2008

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