nep-pbe New Economics Papers
on Public Economics
Issue of 2008‒11‒18
thirteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Strengthening local government budgeting and accountability By Schaeffer, Michael; Yilmaz, Serdar
  2. Local Autonomy, Tax Morale and the Shadow Economy By Benno Torgler; Friedrich Schneider; Christoph A. Schaltegger
  3. Wealth Distribution and the Provision of Public Goods: Evidence from the United States By Vollrath, Dietrich
  4. Populist fiscal policy By Khemani, Stuti; Wane, Waly
  5. Decentralization as a disincentive for transnational terror? System stability versus government efficiency: an empirical test By Axel Dreher; Justina Fischer
  6. Sovereign rents and the quality of tax policy and administration By Knack, Stephen
  7. Public Provision of Private Child Goods By Masako Kimura; Daishin Yasui
  8. The welfare costs of national standards: a contribution to the debate on the outcomes of de/centralization By Brosio, Giorgio; Zanola, Roberto
  9. The Efficiency and Stability of National Borders By Enrico Spolaore
  10. The dual corporate income tax in China: the impact of unification By van der Hoek, M. Peter; Kong, Shuhong; Li, Zhenzi
  11. Assessing the assignation of public subsidies: Do the experts choose the most efficient R&D projects? By Nestor Duch-Brown; José García-Quevedo; Daniel Montolio
  12. Do Corporate Taxes Reduce Productivity and Investment at the Firm Level? Cross-Country Evidence from the Amadeus Dataset By Jens Arnold; Cyrille Schwellnus
  13. Catching Up or Falling Behind? The Effect of Infrastructure Capital on Technology Adoption in Transition Economies By Schiffbauer, Marc

  1. By: Schaeffer, Michael; Yilmaz, Serdar
    Abstract: In many developing and middle-income countries, decentralization reforms are promoting changes in governance structures that are reshaping the relationship between local governments and citizens. The success of these decentralization reforms depends on the existence of sound public financial systems both at the central and local levels. This paper focuses on the role of budgeting as a critical tool in reform efforts, highlighting problems that might impede successful local government budget development and implementation. The attainment of effective local government accountability and transparency is not an end itself, but rather it represents the means to support better decision-making on national and local budgeting. Community based schemes for enhancing local government accountability need to combine legal, political, and administrative mechanisms with proactive community involvement. Of particular importance are the legal and budgetary instruments that require input from local community members on certain local government decisions and instruments that increase accessibility for the press or the general public at large to information on government activities.
    Keywords: National Governance,Public Sector Expenditure Analysis&Management,Debt Markets,Public Sector Corruption&Anticorruption Measures,Public Sector Economics&Finance
    Date: 2008–11–01
  2. By: Benno Torgler; Friedrich Schneider; Christoph A. Schaltegger
    Abstract: Policymakers often propose strict enforcement strategies to fight the shadow economy and to increase tax morale. However, there is also a bottom-up approach such as, for example, decentralizing the political power to those who are close to the problems. Thus, this paper analyses the relationship between local autonomy and tax morale or the size of the shadow economy. We use data on tax morale at the individual level and macro data of the size of the shadow economy to systematically analyse the relevance of local autonomy and compliance in Switzerland, a country where the degree of federalism varies across different cantons. The findings suggest that there is a positive (negative) relationship between local autonomy and tax morale (size of the shadow economy).
    Keywords: Tax Morale; Shadow Economy; Tax Compliance; Tax Evasion; Local Autonomy; Federalism; Institution
    JEL: H26 H73 D70
    Date: 2008–10
  3. By: Vollrath, Dietrich
    Abstract: This paper examines the role of inequality in the provision of public goods. County level data from the U.S. in 1890 provides comparable units of analysis operating with similar property tax systems, ensuring that we do not empirically confuse differences in tax systems with differences in public goods provision. Climatic data is used as an instrument for land inequality to provide identification of the effect of inequality. The results indicate that land inequality caused significantly lower overall property tax rates. This effect is driven almost exclusively by the effect of land inequality on taxes related directly to schooling. In contrast, non-school funding was not significantly affected by inequality. While informative about the effect of land inequality on public goods provision, an examination of the details of the tax system suggests that these results should not necessarily be taken as a rejection of median voter predictions.
    Keywords: Land distribution; Inequality; Public Goods; Property Taxes
    JEL: N51 O13 Q15
    Date: 2008–11–10
  4. By: Khemani, Stuti; Wane, Waly
    Abstract: Political economy explanations for fiscal profligacy are dominated by models of bargaining among organized interest groups over group-specific targeted benefits financed by generalized taxation. These models predict that governments consisting of a coalition of political parties spend more than single-party regimes. This paper presents an alternative model-that of populist pressure on political parties to spend more on the general public good, financed by costly income taxation-and obtains the opposite prediction. According to this model, public spending and taxes are lower under coalition governments that can win elections more cheaply. Indeed, in order to win elections, coalition partners need to satisfy a smaller share of swing voters than does a single-party government that enjoys narrower support from its core constituency. A coalition government therefore spends less on the public good to capture the share of the swing vote necessary for re-election. Using data from more than 70 countries during the period 1970-2006, the paper provides robust supporting evidence for this alternative model.
    Keywords: Parliamentary Government,Public Sector Economics&Finance,Debt Markets,Economic Theory&Research,E-Government
    Date: 2008–10–01
  5. By: Axel Dreher; Justina Fischer
    Abstract: Using panel data for a maximum of 109 countries over the years 1976-2000, we empirically analyze the impact of decentralization on the occurrence of transnational terror. Our results show that expenditure decentralization robustly reduces the number of terror events in a country, while political decentralization has no impact. The effects of decentralization do not transmit through government efficiency and effectiveness, in line with the system stability hypothesis of Frey and Luechinger (2004).
    Keywords: Terrorism, Decentralization, Democracy, Governance quality, Government effectiveness
    Date: 2008
  6. By: Knack, Stephen
    Abstract: The availability of windfall revenues from natural resource exports or foreign aid potentially weakens governments'incentives to design efficient tax systems. Cross-country data for developing countries provide evidence for this hypothesis, using a World Bank indicator of"efficiency of revenue mobilization."Aid's negative effects on the quality of tax systems are robust to correcting for potential reverse causality, to changes in the sample, and to alternative estimation methods. Fuel export revenues are also associated with lower-quality tax policy and administration, but this finding is somewhat sensitive to outliers. Non-fuel resource exports, in contrast, show no relationship to the efficiency of revenue mobilization.
    Date: 2008–11–01
  7. By: Masako Kimura (Institute of Economic Research, Kyoto University); Daishin Yasui (Graduate School of Economics, Kyoto University)
    Abstract: This paper analyzes the public provision of private goods for children in a politicoeconomic model with endogenous fertility. The government provides every child with goods that can also be purchased by parents in private markets, and the level of provision is determined by majority rule. Households with many children benefit from the public provision more than those with fewer children; thus, a political conflict arises between them. The distribution of the number of children across households, which is a crucial factor for determining which group is politically dominant, is endogenously determined by householdsf fertility decision. The sequential interaction between fertility and political decisions might lead to multiple equilibria: equilibrium with high-fertility and low-private/public-spending-ratio and equilibrium with lowfertility and high-private/public-spending-ratio. Our model could explain the large differences in fertility and structure of child-related spending across countries.
    Keywords: Fertility, Publicly Provided Private Goods
    JEL: I28 J13 H42
    Date: 2008–11
  8. By: Brosio, Giorgio; Zanola, Roberto
    Abstract: This paper analyzes the welfare losses deriving from centralized, uniform levels of public provision of good and services deriving from standards set up by a given level of government. The aim of the paper is to contribute to the growing literature on the e?ective outcomes of decentralization by looking at the other side of the coin, namely at the impact of centralized provision. It develops a simple theoretical model and tests it with reference to public health care provision in Italy. The evidence shows that, while levels of satisfaction increase with income, which is a standard result of the theory, they are lower in the poorer regions where, due to the standards, the share of income absorbed by health care is substantially higher than in the richer regions.
    Date: 2008–10
  9. By: Enrico Spolaore
    Abstract: This paper summarizes a talk Enrico Spolaore gave at the inaugural lecture of the VIVES centre. Key questions addressed are (1) what explains existing national borders and their changes? (stability of national borders). (2) Are national borders and their changes “optimal” or “suboptimal”? (efficiency of national borders) and (3) how are the “efficiency” and “stability” of borders related to economic and political variables such as international integration, inter-regional redistribution and decentralization and federalism.
    Date: 2008
  10. By: van der Hoek, M. Peter; Kong, Shuhong; Li, Zhenzi
    Abstract: For many years, foreign funded companies in China enjoyed a relatively low tax rate and a series of preferential policies which were aimed at encouraging foreign direct investment in China. By adopting a new law in 2007, however, the National People's Congress proclaimed the end of the dual corporate-income-tax system. From 2008, the preferential tax treatment of foreign capital will be phased out. As a result, the income tax rate for domestic and foreign funded companies will be unified at the rate of 25%. This paper explores the impact of the dual corporate income tax system on both domestic and foreign funded enterprises and discusses the possible effects of the unification.
    Keywords: dual corporate income tax; China; unification; foreign funded enterprises
    JEL: H25
    Date: 2008–05
  11. By: Nestor 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: 2008–11
  12. By: Jens Arnold; Cyrille Schwellnus
    Abstract: This paper uses a stratified sample of firms across OECD economies over the period 1996-2004 to analyse the effects of corporate taxes on productivity and investment. Applying a differences-in-differences estimation strategy which exploits differential effects of corporate taxes on firms with different profitability, it is found that corporate taxes have a negative effect on productivity at the firm level. The effect is negative across firms of different size and age classes except for the small and young, which may be attributable to the relatively low profitability of small and young firms. The negative effect of corporate taxes is particularly pronounced for firms that are catching up with the technological frontier. In the investment analysis, the results suggest that corporate taxes reduce investment through an increase in the user cost of capital. This may partly explain the negative productivity effects of corporate taxes if new capital goods embody technological change.
    Keywords: Productivity; growth; corporate income tax; firm level data; fiscal policy
    JEL: D21 D24 E22 E62 H25 H32
    Date: 2008–09
  13. By: Schiffbauer, Marc (ESRI)
    Abstract: This paper demonstrates that a link between infrastructure capital and productivity growth can lead to multiple balanced growth equilibria if one accounts for the endogenous provision of infrastructure. Starting with the contribution of Barro (1990), the literature on infrastructure and growth mainly focuses on the relation between private and public capital investments. In contrast, we focus on the relationship between the provision of infrastructure capital and a country's innovative capacity. This is consistent with recent empirical evidence that reports a positive link between the two variables. The framework leads to bivariate causality between the rate of technical change and the provision of infrastructure services and generates scope for multiple strictly positive balanced growth equilibria.
    Date: 2008–02

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