nep-pbe New Economics Papers
on Public Economics
Issue of 2008‒11‒11
twelve papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Agglomeration, tax competition, and fiscal equalization By Matthias Wrede
  2. Preferences for Childcare Policies : Theory and Evidence By Rainald Borck; Katharina Wrohlich
  3. Does urban sprawl increase the costs of providing local public services? Evidence from Spanish municipalities By Albert Solé-Ollé; Miriam Hortas-Rico
  4. Financial Control of a Competitive Economy without Randomness By Ioannis Karatzas; Martin Shubik; William D. Sudderth
  5. Tax Administration Reform and Fiscal Adjustment:The Case of Indonesia(2001-07) By Eric Le Borgne; John Brondolo; Frank Bosch; Carlos Silvani
  6. Property taxes and elderly mobility By Hui Shan
  7. Privatization and policy competition for FDI By AMERIGHI, Oscar; DE FEO, Giuseppe
  8. Grand Coalitions for Unpopular Reforms: Building a Cross-Party Consensus to Raise the Retirement Age By Martin Hering
  9. Everyone Is A Winner: Promoting Cooperation Through Non-Rival Intergroup Competition By Ernesto Reuben; Jean-Robert Tyran
  10. Estimates of employment and welfare effects of personal labour income taxation in a flat-tax country : The case of Estonia By Karsten Staehr
  11. Data games. Sharing public goods with exclusion. By DEHEZ, Pierre; TELLONE, Daniela
  12. The Political Economy of the U.S. Mortgage Default Crisis By Atif Mian; Amir Sufi; Francesco Trebbi

  1. By: Matthias Wrede (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: This paper analyzes the impact of fiscal equalization on asymmetric tax competition when positive agglomeration externalities are present. It shows that equalization of standardized tax revenue improves the spatial allocation of capital provided that agglomeration externalities are sufficiently strong.
    Keywords: Agglomeration, tax competition, fiscal equalization
    JEL: R12 H71 H73
    Date: 2008
  2. By: Rainald Borck; Katharina Wrohlich
    Abstract: We analyse preferences for public, private or mixed provision of childcare theoretically and empirically. We model childcare as a publicly provided private good. Richer households should prefer private provision to either pure public or mixed provision. If public provision redistributes from rich to poor, they should favour mixed over pure public provision, but if public provision redistributes from poor to rich, the rich and poor might favour mixed provision while the middle class favour public provision ('ends against the middle'). Using estimates for household preferences from survey data, we find no support for the ends-against-the-middle result.
    Keywords: Childcare, redistribution, political preferences, public provision of private goods
    JEL: J13 D72 H42 D19
    Date: 2008
  3. By: Albert Solé-Ollé (IEB, Universitat de Barcelona.); Miriam Hortas-Rico (IEB, Universitat de Barcelona.)
    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: 2008–11
  4. By: Ioannis Karatzas (Columbia University); Martin Shubik (Cowles Foundation, Yale University); William D. Sudderth (University of Minnesota)
    Abstract: The monetary and fiscal control of a simple economy without outside randomness is studied here from the micro-economic basis of a strategic market game. The government's bureaucracy is treated as a public good that provides services at a cost. A conventional public good is also considered.
    Keywords: Dynamic programming, Public goods, Bureaucracy, Taxation
    JEL: D53 H23 H41
    Date: 2008–10
  5. By: Eric Le Borgne; John Brondolo; Frank Bosch; Carlos Silvani
    Abstract: Tax administration reforms can play an important role in fiscal adjustment. This role is examined by reviewing Indonesia's tax reform cum fiscal adjustment experience since 2001. The paper describes Indonesia's fiscal adjustment strategy, its tax administration reforms, and assesses the impact of these reforms on fiscal adjustment. Evidence suggests tax administration improvements had a strong positive impact on the tax yield and a positive effect on the investment climate. Lessons are presented for designing tax administration reforms within the context of a fiscal adjustment program and reform priorities are identified for Indonesia's ongoing efforts to strengthen tax administration.
    Keywords: Indonesia , Tax administration , Tax reforms , Fiscal reforms , Investment ,
    Date: 2008–05–22
  6. By: Hui Shan
    Abstract: The recent housing market boom in the U.S. has caused sharp increases in residential property taxes. Housing-rich but income-poor elderly homeowners often complain about rising tax burdens, and anecdotal evidence suggests that some move to reduce their tax burden. There has been little systematic analysis, however, of the link between property tax levels and the mobility rate of elderly homeowners. This paper investigates this link using household-level panel data from the Health and Retirement Study (HRS) and a newly collected dataset on state-provided property tax relief programs. These relief programs generate variation in effective property tax burdens that is not due solely to arguably endogenous local community choices about taxes and expenditure programs. The findings provide evidence suggesting that higher property taxes raise mobility among elderly homeowners. The point estimates from instrumental variable estimation using relief programs to generate instruments suggest that a $100 increase in annual property taxes is associated with a 0.76 percentage point increase in the two-year mobility rate for homeowners over the age of 50. This is an eight percent increase from the baseline two-year mobility rate of nine percent. These results are robust to alternative specifications.
    Date: 2008
  7. By: AMERIGHI, Oscar (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); DE FEO, Giuseppe (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: In this paper, we provide an explanation of why privatization may attract foreign investors interested in entering a regional market. Privatization turns the formerly-public firm into a less aggressive competitor since profit- maximizing output is lower than the welfare-maximizing one. The drawback is that social welfare generally decreases. We also investigate tax/subsidy competition for FDI before and after privatization. We show that policy competition is irrelevant in the presence of a public firm serving just its domestic market. By contrast, following privatization, it endows the big country with an instrument which can be used either to reduce the negative impact on welfare of an FDI-attracting privatization or to protect the domestic industry from foreign competitors.
    Keywords: foreign direct investment, tax competition, public firm, privatization.
    JEL: F12 F23 H25 H73 L13 L33
    Date: 2008–01
  8. By: Martin Hering
    Abstract: This article argues that an increase of the retirement age from 65 years to 67 or higher, which is the most unpopular pension reform measure, is politically feasible if the major parties build either a formal or an informal grand coalition. It argues further that institutional rules and agreed standards, especially the goals expressed in relation to pension policy, facilitate the formation of a grand coalition and increase the autonomy of governments vis-à-vis trade unions. Specifically, by restricting key policy instruments for responding to fiscal pressures, they lead political parties to consider the controversial option of raising the retirement age and to engage in a coordinative discourse about the necessity of this change and the limits of other reform options. This argument implies that the success of a retirement age reform does not depend on a negotiated agreement between a government and trade unions. By examining the agenda-setting and decisionmaking processes in Germany from the mid-1990s to 2007, this article shows that governments raise the retirement age only if they face constraints that rule out tax increases and benefit cuts and that they are able to enact even comprehensive retirement age reforms that increase not only the normal age but also the earliest eligibility age for both public and private pensions.
    Keywords: welfare state, pension politics, retirement age, policy paradigms, institutional constraints, blame avoidance
    JEL: D70 H53 H55
    Date: 2008–10
  9. By: Ernesto Reuben (Northwestern University); Jean-Robert Tyran (Department of Economics, University of Copenhagen)
    Abstract: In this paper, we study the effectiveness of intergroup competition in promoting cooperative behavior. We focus on intergroup competition that is non-rival in the sense that everyone can be a winner. This type of competition does not give groups an incentive to outcompete others. However, in spite of this fact, we find that intergroup competition produces a universal increase in cooperation. Furthermore, in settings where there are strong incentives to compete, intergroup competition benefits a majority of individuals.
    Keywords: intergroup competition; cooperation; public goods; experiment
    JEL: H41 M52 C92
    Date: 2008–08
  10. By: Karsten Staehr
    Abstract: This paper presents estimates of the employment and welfare effects of personal labour income taxation in Estonia. The labour supply decision of individuals is estimated based on data from the 2005 Estonian Labour Force Survey. Economic incentives are found to affect the participation decisions of individuals, but not the number of hours worked by individuals already working. The participation elasticities are higher for individuals in the middle income groups than for individuals in the low and high income groups. Increasing the proportional tax rate by 1 percentage point is found to reduce total employment by 0.35 percentage points. The baseline estimate of the marginal cost of public funds is 1.6 if the proportional tax rate is increased and 1.8 if the basic exemption is lowered. The marginal cost of public funds varies across different income groups, which may suggest possible gains in efficiency from reallocating the taxation burden of the existing system of proportional taxation. The employment and welfare estimates are subject to substantial
    Keywords: taxation, labour supply, welfare, excess burden
    JEL: H21 H24 J21 J22
    Date: 2008–10–30
  11. By: DEHEZ, Pierre (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); TELLONE, Daniela (CEREC, Facultés Universitaires Saint-Louis)
    Abstract: A group of agents considers collaborating on a project which requires putting together elements owned by some of them. These elements are pure public goods with exclusion i.e. nonrival but excludable goods like for instance knowledge, data or information, patents or copyrights. The present paper addresses the question of how should agents be compensated for the goods they own. It is shown that this problem can be framed as a cost sharing game – called "data game" – to which standard cost sharing rules like the Shapley value or the nucleolus can then be applied and compared.
    Keywords: cost sharing, compensation, Shapley value.
    JEL: C71 D46 M41
    Date: 2008–02
  12. By: Atif Mian; Amir Sufi; Francesco Trebbi
    Abstract: We examine the determinants of congressional voting behavior on two of the most significant pieces of federal legislation in U.S. economic history: the American Housing Rescue and Foreclosure Prevention Act of 2008 and the Emergency Economic Stabilization Act of 2008. We find evidence that constituent interests and special interests influence voting patterns during the crisis. Representatives from districts experiencing an increase in mortgage default rates are significantly more likely to vote in favor of the AHRFPA. They are precise in responding only to mortgage related constituent defaults, and are significantly more sensitive to defaults of their own-party constituents. Increased campaign contributions from the financial services industry is associated with a higher likelihood of voting in favor of the EESA, a bill which transfers wealth from tax payers to the financial services industry. We also examine the trade-off between politician ideology and constituent and special interests, and find that conservative politicians are less responsive to constituent and special interest pressure. This latter finding suggests that politicians, through ideology, can commit against intervention even during severe crises.
    JEL: D72 G21 L51
    Date: 2008–11

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