nep-pbe New Economics Papers
on Public Economics
Issue of 2008‒07‒20
nine papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Taxation, infrastructure, and endogenous trade costs in New Economic Geography By Gruber, Stefan; Marattin, Luigi
  2. Rate Cutting Tax Reforms and Corporate Tax Competition in Europe By Heinemann, Friedrich; Overesch, Michael; Rincke, Johannes
  3. Heterogeneous Social Preferences and the Dynamics of Free Riding in Public Good Experiments By Urs Fischbacher; Simon Gaechter
  4. Active and Passive Waste in Government Spending: Evidence from a Policy Experiment By Oriana Bandiera; Andrea Prat; Tommaso Valletti
  5. Increased efficiency through consolidation and formula apportionment in the European Union? By Michael P Devereux; Simon Loretz
  6. How to Determine whether Regional Markets are Integrated? Theory and Evidence from European Electricity Markets By Janos Feidler; Klaas Staal
  7. Tax Toleration and Tax Compliance: How Government Affects the Propensity of Firms to Enter the Unofficial Economy By Douglas A. Hibbs, Jr.; Violeta Piculescu
  8. Cooperation in local and global groups By Gerlinde Fellner; Gabriele K. Lünser
  9. Federalism, Education-Related Public Good and Growth when Agents are Heterogeneou By Floriana Cerniglia; Riccarda Longaretti

  1. By: Gruber, Stefan; Marattin, Luigi
    Abstract: This paper presents a New Economic Geography model with distortionary taxation and endogenized trade costs. Tax revenues finance a public good, infrastructure. We show that the introduction of costly public investment in infrastructure increases agglomerative tendencies. With respect to the regions' sizes, in the periphery, the price-index for manufacturing goods decreases, whereas for the core, the price-index is rather high since the distortionary effect of taxes dominates. 'Free riding' - or, in terms of regional policy, externally funded infrastructure investment - is beneficial for the periphery, which can devote all its tax revenue to local demand support, generating a positive home market effect and driving the catch-up process.
    Keywords: New Economic Geography; Taxation; Endogenous Trade Costs; Infrastructure; Regional Policy
    JEL: H54 F12 H25 R12
    Date: 2008–07–09
  2. By: Heinemann, Friedrich; Overesch, Michael; Rincke, Johannes
    Abstract: While there is a large and growing number of studies on the determinants of corporate tax rates, the literature has so far ignored the fact that the behavior of governments in setting tax rates is often best described as a discrete choice decision problem. We set up an empirical model that relates a government's decision whether to cut its corporate tax rate to the country's own inherited tax and taxes in neighboring countries. Using comprehensive data on corporate tax reforms in Europe since 1980, we find evidence suggesting that the position in terms of the tax burden imposed on corporate income relative to geographical neighbors strongly affects the probability of rate cutting tax reforms. Countries are particularly likely to cut their statutory tax rate if the inherited tax is high and if they are exposed to low-tax neighbors.
    Keywords: Tax reform, tax competition, corporate taxes
    JEL: H20 H25 H71
    Date: 2008
  3. By: Urs Fischbacher; Simon Gaechter
    Keywords: Public goods experiments, social preferences, conditional cooperation, free riding
    Date: 2008
  4. By: Oriana Bandiera (London School of Economics); Andrea Prat (London School of Economics); Tommaso Valletti (Faculty of Economics, University of Roma "Tor Vergata")
    Abstract: We propose a distinction between active waste and passive waste as determinants of the cost of public services. Active waste entails utility for the public decision maker (as in the case of bribery) whereas passive waste does not (as in the case of ineffciency due to red tape). To assess the empirical relevance of both forms of waste, we analyze purchases of standardized goods by Italian public bodies and exploit a policy experiment associated with a national procurement agency. A revealed preference argument implies that if public bodies with higher costs are more likely to buy from the procurement agency rather than from traditional suppliers, cost differences are more likely to be due to passive waste. We find that: (i) Some public bodies pay systematically more than others for observationally equivalent goods and such price differences are sizeable; (ii) Differences are correlated with governance structure: the central administration pays at least 22% more than semi-autonomous agencies (local government is at an intermediate level); (iii) The variation in prices across public bodies is principally due to variation in passive rather than active waste; (iv) Passive waste accounts for 83% of total estimated waste.
    Date: 2008–07–14
  5. By: Michael P Devereux; Simon Loretz
    Abstract: This paper assesses the efficiency properties of recent corporation tax reform proposals of the European Union to introduce international loss consolidation and formula apportionment. We extend the effective tax rate methodology of Devereux and Griffith (1999) to allow for a potential loss and use a large firm level data set to identify the distortions under the current system and following proposed tax reforms. We assess the efficiency of the overall tax system using the two concepts of capital export neutrality and market neutrality. Allowing international loss consolidation in the current system would signify a movement away from both notions of efficiency. A common consolidated tax base with formula apportionment system would move the system towards market neutrality, while improving capital export neutrality only little.
    Keywords: Corporate Taxation; International Loss Consolidation; Apportionment Rules; Common Consolidated Tax Base;
    JEL: H25 H87
    Date: 2008
  6. By: Janos Feidler; Klaas Staal (University of Bonn; University Bonn and IIW. Address: IIW, Lennestr.37, 53113Bonn, Germany.)
    Abstract: We model the trade-off between centralized and decentralized decision making over the provision of local public goods. Centralized decisions are made in a legislature of locally elected representatives, and this creates a conflict of interest between citizens in different jurisdictions. The legis lature can be self-interested or benevolent and this can result in either efficient, excessive or misallocative provision of public goods. Decisions are influenced by spill over effects and differences in jurisdictional size. Furthermore, we look at the incentives for centralization.
    Keywords: Decentralization, Local public goods
    JEL: H40 H70 P51
    Date: 2008–05
  7. By: Douglas A. Hibbs, Jr.; Violeta Piculescu (Göteborg University; European University Institute)
    Abstract: We propose a model of how government-supplied institutional benefits and the taxation and regulation of producers affect the propensity of private firms to enter the unofficial economy and evade taxation. Our analysis implies that the incentive of firms to produce underground depends on tax rates relative to firmspecific thresholds of tax toleration that are decisively affected by quality of governance — in particular by the presence of high-grade institutions delivering services that profit-maximizing firms deem worth paying for. Some key predictions of the model concerning the determinants of firms’ tax toleration and tax compliance receive broad support from empirical analyses of enterprise-level data from the World Bank’s World Business Environment Surveys.
    Keywords: -
    Date: 2008–05–31
  8. By: Gerlinde Fellner (Department of Economics, Vienna University of Economics & B.A.); Gabriele K. Lünser (University College London, Department of Economics & ELSE)
    Abstract: Multiple group memberships are the rule rather than the exception. Locally operating groups frequently offer the advantage of providing social recognition and higher marginal benefits to the individual, whereas globally operating groups may be more beneficial from a social perspective. Within a voluntary contribution environment we experimentally investigate the tension that arises when subjects belong to a smaller local and a larger global group. When the global public good is more efficient individuals first attempt to cooperate in the global public good. However, this tendency quickly unravels and cooperation in the local public good builds up.
    JEL: C92 D71 D82 H41
    Date: 2008–07
  9. By: Floriana Cerniglia; Riccarda Longaretti
    Abstract: In this paper we use an endogeneous-growth model with human capital and heterogeneous agents to analyse the relationship between fiscal federalism and economic growth. Results show that federalism, which allows education-related public good levels to be tailored on the human capital of heterogeneous agents, increases human capital accumulation. This in turn leads to higher rates of growth. The benefits of federalism are stronger the larger the intra-jurisdiction variance of agents’ human capital.
    Keywords: Fiscal Federalism, Endogenous Economic Growth, Overlapping Generations, Heterogeneous Agents
    JEL: H77 J24 O41
    Date: 2008–05

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