nep-pbe New Economics Papers
on Public Economics
Issue of 2008‒08‒14
twelve papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Tax Competition, Imperfect Capital Mobility and the gain from non-preferential agreements By Kaushal Kishore
  2. Tax reform in Brazil:an evaluation at the crossroads By Rogério L. F. Werneck
  3. On Sequential and Simultaneous Contributions under Incomplete Information By Parimal Bag; Santanu Roy
  4. Reforming the Polish Tax System to Improve its Efficiency By Alain de Serres
  5. Market Mechanisms in Public Service Provision By Hansjörg Blöchliger
  6. Achievable Outcomes in Smooth Dynamic Contribution Games By Steven A. Matthews
  7. The Impossibility of Social Choice and the Possibilities of Individual Values: Political and Philosophical Liberalism Reconsidered By Werner Güth; Hartmut Kliemt
  8. Cooperativeness and Impatience in the Tragedy of the Commons By Fehr, Ernst; Leibbrandt, Andreas
  9. How important is pro-social behaviour in the delivery of public services? By Paul Gregg; Paul A. Grout; Anita Ratcliffe; Sarah Smith; Frank Windmeijer
  10. Mackerels in the Moonlight: A Duopoly Model of Political Agency By Evrenk, Haldun
  11. On the (In)Effectiveness of Some Commonly Proposed Anti-Corruption Reforms By Evrenk, Haldun
  12. Corruption and Power in Democracies By Francesco Giovannoni; Daniel J. Seidmann

  1. By: Kaushal Kishore (Southern Methodist University)
    Abstract: The gain to competing governments from entering into binding non-preferential tax agree- ments (that prevents discriminatory taxation in favor of mobile capital) depends on the extent of capital mobility between jurisdictions. In particular the gain is increasing in the cost of re- location of capital and the fraction of the domestic tax base which is relatively immobile. We show this in a symmetric model of capital tax competition between two governments where all capital is imperfectly mobile and di¤er only in their cost of relocation.
    Keywords: Tax Competition, Capital Mobility, Non-Preferential Regime.
    JEL: F15 F21 H26 H87
    Date: 2008–07
  2. By: Rogério L. F. Werneck (Department of Economics, PUC-Rio)
    Abstract: Tax reform has been a central issue of the Brazilian economic debate for at least a decade. But despite the supposedly reformist resolution of several governments, very little was in fact achieved. The idea of reforming the country’s indirect taxation system is, once again, in the forefront of the government’s agenda. The complexity of Brazil’s fiscal federalism has been often and rightly mentioned as a major difficulty to the advancement of the tax reform. This paper tries to look beyond fiscal federalism and focus on difficulties of a different kind, that have to do with the sheer magnitude of the reform and the uneven sectoral distribution of the indirect-tax burden in the country. After an initial section providing a brief historical and institutional background, section B discusses the various tax-reform attempts that took place since 1997, and draws useful insights for the analysis of the political economy of the taxreform deadlock. Sections C and D look into indirect taxation in Brazil, calling attention to challenges entailed by the scale of the intended reform and the uneven sectoral distribution of the tax burden. The political economy of the involved difficulties is discussed in section E. Concluding remarks are presented in section F.
    Date: 2008–06
  3. By: Parimal Bag (National University of Singapore, Singapore.); Santanu Roy (Southern Methodist University, Dallas, Texas.)
    Abstract: Under incomplete information about (independent) private valuations of a public good, we establish sufficient conditions under which, despite the incentive to free ride on future contributors, the expected total amount of voluntary contributions is higher when agents contribute sequentially (observing prior contributions) rather than simultaneously. We establish this in a conventional framework with quasi-linear utility where agents care only about the total provision of the public good (rather than individual contribution levels) and there is no non-convexity in provision of the public good. We allow for arbitrary number of agents and fairly general distribution of types.
    Keywords: Contribution games, public good, incomplete information.
    JEL: D73 H41 L44
    Date: 2008–08
  4. By: Alain de Serres
    Abstract: The Polish tax system is characterised by high social security contributions for both employers and employees. As a result, Poland has one of the highest tax wedges in the OECD, despite relatively low personal income tax rates. This, combined with a relatively high minimum wage and generous early-retirement and disability benefit programmes, contributes to low employment rates, in particular among low-skilled workers. The system also relies heavily on consumption taxes, whereas relatively little revenue is collected from such bases as environment externalities, inheritances and, in particular, property. One of the key implications of the tax structure is that the system as a whole is one of the least redistributive among OECD countries. This paper reviews the main features of the tax system and explores options to improve its efficiency, including possibilities to broaden existing tax bases as well as to shift the tax burden from labour towards less mobile and distorting sources such as property. <P>Réformer le système fiscal polonais afin d’améliorer son efficience <BR>Le système fiscal polonais se caractérise par des cotisations patronales et salariales de sécurité sociale élevées. Par conséquent, la Pologne compte l’un des coins fiscaux les plus élevés de l’OCDE, malgré des taux de l’impôt sur le revenu des personnes physiques relativement bas. Cette situation, associée à un salaire minimum relativement conséquent et à des indemnités généreuses de retraite anticipée et d’invalidité, contribue à la faiblesse des taux d’emploi, surtout parmi les travailleurs peu qualifiés. Par ailleurs, le système s’appuie massivement sur les impôts sur la consommation, tandis que les recettes provenant d’autres sources telles que les taxes sur les produits polluants, les droits de mutation et surtout les impôts fonciers sont relativement minimes. L’une des principales conséquences de cette structure fiscale est que le système est, dans son ensemble, l’un des moins redistributifs parmi les pays de l’OCDE. Cette étude examine les principales caractéristiques du régime fiscal polonais et envisage différentes solutions pour améliorer son efficience, comme l’élargissement des assiettes d’imposition existantes et le transfert de la charge fiscale du travail vers des sources moins mobiles et entraînant moins de distorsions, telles l’immobilier.
    Keywords: taxation, fiscalité, tax reform, impôt sur le revenu, property tax, taxe foncière, TVA, labour tax wedge, VAT, personal income tax, corporate income tax, polish tax system, réforme de la taxation, coin fiscal, impôt sur les profits, système de taxation polonais
    JEL: H20 H22 H23 H24 H25
    Date: 2008–08–01
  5. By: Hansjörg Blöchliger
    Abstract: This paper presents a new set of institutional indicators that assess how sub-central governments harness market mechanisms such as tendering, outsourcing, user choice and competition, user fees and output-related funding when providing public services. Services put under scrutiny comprise primary, secondary and tertiary education, hospital care, childcare and elderly care, public transport, and waste collection. Results indicate that governments are often reluctant to apply market mechanisms when providing public services. “Technical” services such as transport or waste collection are more open to market mechanisms than “social” services like education or health care. Regulatory innovations such as tendering, competition or user choice are more advanced than financial innovations like user fees or output-related funding for service providers. <P>Le rôle des mécanismes du marché dans les services publics <BR>Ce document présent un nouvel ensemble d’indicateurs institutionnels qui évaluent comment les administrations infranationales en tant que prestataires de services publics font appel aux mécanismes du marché comme les appels d’offres, la sous-traitance, le choix des usagers, la concurrence, les redevances et le financement lié au résultat. Les services examinés ici comprennent l’éducation primaire, secondaire et tertiaire, les soins hospitaliers, les soins à la petite enfance et aux personnes âgées, les transports publics et la collecte des déchets. Les résultats montrent que les administrations publiques sont souvent réticentes à appliquer les mécanismes du marché. Les services « techniques » tels que les transports ou la collecte des déchets sont plus ouverts aux mécanismes du marché que les services « sociaux » tels que l’éducation ou les soins de santé. Les innovations réglementaires comme les appels d’offre, la concurrence ou le choix des usagers sont plus nombreuses que les innovations financières comme les redevances ou le financement lié au résultat.
    Keywords: competition, privatisation, user choice, choix de l'usager, fiscal federalism, concurrence, privatisation, fédéralisme financier, public services, services publics
    JEL: H42 H50 H77
    Date: 2008–08–04
  6. By: Steven A. Matthews (Department of Economics, University of Pennsylvania)
    Abstract: This paper studies a class of dynamic voluntary contribution games in a setting with discounting and neoclassical payoffs (differentiable, strictly concave in the public good, and quasilinear in the private good). An achievable profile is the limit point of a subgame perfect equilibrium path -- the ultimate cumulative contribution vector of the players. A profile is shown to be achievable only if it is in the undercore of the underlying coalitional game, i.e., the profile cannot be blocked by a coalition using a component-wise smaller profile. Conversely, if free-riding incentives are strong enough that contributing zero is a dominant strategy in the stage games, then any undercore profile is the limit of achievable profiles as the period length shrinks. Thus, in this case when the period length is very short, (i) the set of achievable contributions does not depend on whether the players can move simultaneously or only in a round-robin fashion; (ii) an efficient profile can be approximately achieved if and only if it is in the core of the underlying coalitional game; and (iii) any achievable profile can be achieved almost instantly.
    Keywords: dynamic games, monotone games, core, public goods, voluntary contribution, gradualism
    JEL: C7
    Date: 2008–07–31
  7. By: Werner Güth (Max Planck Institute of Economics, Jena, Strategic Interaction Group); Hartmut Kliemt (Frankfurt School of Finance and Management)
    Abstract: Though the social choice of social institutions or social results is impossible - there is, strictly speaking, no social choice - individual evaluations of social institutions or results trivially are possible. Such individual evaluations can be deemed liberal either because they emphasize political institutions that embody liberal values (political liberalism) or because individuals make up their mind in a specifically "liberal" way of forming ethical judgment (philosophical liberalism). Seen in this light the Paradox of Liberalism is of theoretical or philosophical interest but not a practical problem of political (institutional) liberalism.
    Keywords: Philosophical Liberalism, Political Liberalism, Public Choice, Social Choice
    JEL: B3 B52 D6 D7 D71
    Date: 2008–08–12
  8. By: Fehr, Ernst (University of Zurich); Leibbrandt, Andreas (University of Zurich)
    Abstract: This paper examines the role of other-regarding and time preferences for cooperation in the field. We study the preferences of fishermen whose main, and often only, source of income stems from using a common pool resource (CPR). The exploitation of a CPR involves a negative interpersonal and inter-temporal externality because individuals who exploit the CPR reduce the current and the future yield for both others and themselves. Accordingly, economic theory predicts that more cooperative and more patient individuals should be less likely to exploit the CPR. Our data supports this prediction because fishermen who exhibit a higher propensity for cooperation in a laboratory public goods experiment, and those who show more patience in a laboratory time preference experiment, exploit the fishing grounds less in their daily lives. Moreover, because the laboratory public goods game exhibits no inter-temporal spillovers, measured time preferences should not predict cooperative behavior in the laboratory. This prediction is also borne out by our data. Thus, laboratory preference measures are useful to capture important dimensions of field behavior.
    Keywords: cooperation, common pool resource, experiments, generalizability, methodology
    JEL: B4 C9 D8 O1
    Date: 2008–08
  9. By: Paul Gregg; Paul A. Grout; Anita Ratcliffe; Sarah Smith; Frank Windmeijer
    Abstract: A number of papers have posited that there is a relationship between institutional structure and pro-social behaviour, in particular donated labour, in the delivery of public services, such as health, social care and education. However, there has been very little empirical research that attempts to measure whether such a relationship exists in practice. This is the aim of this paper. Including a robust set of individual and job-specific controls, we find that individuals in the non-profit sector are significantly more likely to donate their labour, measured by unpaid overtime, than those in the for-profit sector. We can reject that this difference is simply due to implicit contracts or social norms. We find some evidence that individuals differentially select into the non-profit and for-profit sectors according to whether they donate their labour.
    Keywords: pro-social behaviour; public services; donated labour; motivation
    JEL: H11 J32 J45 L31 L32
    Date: 2008–05
  10. By: Evrenk, Haldun (Suffolk University, Department of Economics)
    Abstract: I study political competition between two candidates who could differ in their ability, popularity, and ethics. In elections, each candidate proposes a flat (income) tax rate and a public good level. A high(er)-ability candidate can produce the public good using less funds. Collected taxes that are not used in public goods production are stolen by the elected politician. The voting decision is probabilistic; it depends on a candidate's fiscal policy and his popularity. I prove that the pure strategy Nash Equilibrium exists and that there are at most two separate equilibria. I also provide a fully solved example.
    Keywords: Political Agency; Political Corruption; Nash Equilibrium
    JEL: D72 H30 H83 K42
    Date: 2008–04–25
  11. By: Evrenk, Haldun (Suffolk University, Department of Economics)
    Abstract: Using a theoretical model of two-candidate political competition under probabilistic voting, I study the effectiveness of the following anti-corruption reforms: (i) higher wages for politicians, (ii) higher penalties for political corruption, and (iii) constitutional constraints on the tax rates and the public good levels. In the setup I study, the competing candidates may differ in their popularity, (non-verifiable) ability, and corruptibility. I find that the reforms are more likely to be effective when the candidates are (almost) identical. When the candidates differ significantly from each other, each reform may increase equilibrium level of corruption or reduce voters' welfare.
    Keywords: Anti-Corruption Reform; Political Corruption; Constitutional Constraints
    JEL: D72 H30 H83 K42
    Date: 2008–05–15
  12. By: Francesco Giovannoni; Daniel J. Seidmann
    Abstract: According to Acton: “Power corrupts and absolute power corrupts absolutely”. We study the implications of Acton’s dictum in models where citizens vote (for three parties) and governments then form in a series of elections. In each election, parties have fixed tastes for graft, which affect negotiations to form a government if parliament hangs; but incumbency changes tastes across elections. We argue that combinations of Acton’s dictum with various assumptions about citizen sophistication and inter-party commitments generate tight and testable predictions which cover plausible dynamics of government formation in an otherwise stationary environment.
    Keywords: Corruption, government dynamics
    JEL: H11 D72
    Date: 2008–02

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