nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒01‒03
fourteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Framing Effects in Public Goods: Prospect Theory and Experimental Evidence By Iñigo Iturbe Ormaetxe; Giovanni Ponti; Josefa Tomás; Luis Ubeda
  2. Tax Competition in an Expanding European Union By Ronald B. Davies; Johannes Voget
  3. Competition for status acquisition in public good games By Felix Munoz-Garcia
  4. The dos and don'ts of leadership in sequential public goods experiments By Maria Fernanda Rivas; Matthias Sutter
  5. Holding India together: The role of institutions of federalism By Singh, Nirvikar
  6. Public-Sector Efficiency and Interjurisdictional Competition - an Empirical Investigation By Daniel Becker
  7. Federalism and economic development in India: An assessment By Singh, Nirvikar; Srinivasan, T.N.
  8. Fiscal Equalisation and the Soft Budget Constraint By Plachta, Robert
  9. Integration, decentralization, taxation, and revenue sharing : good governance, sustainable fiscal policy and poverty reduction as peace-keeping strategies By Hans-Georg Petersen
  10. Goods and services tax for India. By Rao, R. Kavita
  11. On the Segregative Properties of Endogenous Jurisdiction Formation with a Central Government By Rongili Biswas; Nicolas Gravel; Rémy Oddou
  12. How Low Business Tax Rates Attract Multinational Headquarters: Municipality-Level Evidence from Germany By Becker, Sascha O.; Egger, Peter H.; Merlo, Valeria
  13. On Capital Gain Taxation By Miglo, A.
  14. Tax challenges facing developing countries. By Bird, Richard M.

  1. By: Iñigo Iturbe Ormaetxe (Universidad de Alicante); Giovanni Ponti (Universidad de Alicante); Josefa Tomás (Universidad de Alicante); Luis Ubeda (Universidad de Alicante)
    Abstract: This paper studies, both theoretically and experimentally, frame effects in the context of a public good game in which players have to make a costly contribution either i) to achieve or ii) not to lose a non excludable monetary prize. Our protocol leads to public good provision (not deterioration) only if a certain contribution level is achieved. Since both frames differ with respect to the reference point, we use Prospect Theory to derive testable predictions. In particular, Prospect Theory predicts more contribution in the second frame. Our evidence suggests that a) subjects¿ behavior is highly sensitive to frames and b) the theoretical prediction is confirmed except when the threshold is low. We also estimate the parameters which better suit our experimental evidence, partly confirming previous results in the literature.
    Keywords: Public goods provision, framing, prospect theory
    JEL: C92 D81 H40
    Date: 2008–10
  2. By: Ronald B. Davies (University College Dublin); Johannes Voget (Oxford University Centre for Business Taxation)
    Abstract: This paper empirically examines whether expansion of the EU has increased international tax competition. To do so, we use a simple model of tax competition to determine how a given country weights the taxes of others when choosing its own tax. This indicates that the market potential of a country (which includes both domestic consumption and exports) is the appropriate weight. This is an improvement on the ad-hoc and often endogenous weighting schemes used elsewhere. Unlike those studies, we find robust evidence for tax competition. In particular, our estimates suggest that EU membership affects responses with EU members responding more to the tax rates of other members. This lends credence to the above-noted concerns.
    Keywords: Corporate taxation; Tax Competition, European Union
    JEL: F1 H2 H7
    Date: 2008
  3. By: Felix Munoz-Garcia (School of Economic Sciences, Washington State University)
    Abstract: This paper examines the role of status acquisition as a motive for giving in voluntary contri- butions to public goods. In particular, every donor?s status is given by the di¤erence between his contribution and that of the other donor. Speci?cally, I show that contributors give more than in standard models where status is not considered, and their donation is increasing in the value they assign to status. In addition, players?contributions are increasing in the value that their opponents assign to status, re?ecting donors? intense competition to gain social status. Furthermore, I consider contributors?equilibrium strategies both in simultaneous and sequen- tial contribution mechanisms. Then, I compare total contributions in both of these mechanisms. I ?nd that the simultaneous contribution order generates higher total contributions than the sequential mechanism only when donors are su¢ ciently homogeneous in the value they assign to status. Otherwise, the sequential mechanism generates the highest contributions.
    Keywords: Public goods games, Status acquisition, Competition.
    JEL: C7 H41
    Date: 2008–07
  4. By: Maria Fernanda Rivas; Matthias Sutter
    Abstract: We study the effects of leadership in the provision of public goods by examining (i) the relative importance of reward and punishment as leadership devices, (ii) whether endogenous leadership is more efficient than exogenously enforced leadership, and (iii) whether leaders contributing last, instead of first, also increase contributions. The experimental results are: (i) Reward options yield lower contributions than punishment through exclusion. (ii) Endogenous leadership is much more efficient than exogenously imposed leadership. (iii) Sequentiality itself is not beneficial for contributions since groups where the leader contributes as the last member do not contribute more than groups without a leader.
    Keywords: Public goods experiment, Leadership, Exclusion power, Reward, Endogeneity
    JEL: C72 C92 H41
    Date: 2008–12
  5. By: Singh, Nirvikar
    Abstract: India is a large, heterogeneous and complex nation, with multiple languages, religions and ethnicities, and over one billion people. It stands out in having held together while sustaining a working democracy for over five decades, at relatively low levels of income. One of the main institutional aspects of managing heterogeneity to preserve national unity is the structures of Indian federalism. This paper traces some of the features of Indian federal institutions, focusing on their contribution to this ‘holding together.’ It reviews the conceptual and analytical underpinnings of the role of federal structures in sustaining unity, and summarizes historical developments and current institutional structures of the Indian case. It assesses the role of federal dimensions of political, administrative and judicial structures in the holding together function. It also examines fiscal federal institutions and their impacts, including distributional and growth issues. It also separately focuses specifically on the special treatment of what may be characterized as India’s periphery.
    Keywords: federalism; decentralization; intergovernmental relations
    JEL: H1 H7 P35 P26
    Date: 2008–10
  6. By: Daniel Becker (University of Rostock)
    Abstract: This paper investigates the performance and efficiency of the public sector in countries worldwide for the years 1990 and 1995. Similar to what is done in Afonso / Schuhknecht / Tanzi (2005, Public Choice), I calculate performance measures for various fields of government policy, including education, health, security or macroeconomic stability. These performance measures are then used as output variables in a non-parametric FDH (free disposable hull) and DEA (data envelopment analysis) approach for the calculation of efficiency scores. Government expenditure is used as input for the evaluation of efficiency. In the last step the efficiency scores are regressed upon variables that describe the environment of government policy. I find that smaller public sectors tend to be more efficient, but the effect is not very sizeable. The same is true for countries that are more globalised. The pattern of (in-)efficiency can be large explained by continent-dummies.
    Keywords: Public-Sector Efficiency, Free Disposable Hull, Data Envelopment Analysis
    JEL: C14 H50
    Date: 2008
  7. By: Singh, Nirvikar; Srinivasan, T.N.
    Abstract: This paper examines India’s federal system in the context of prospects for India’s future economic growth and development. After a brief review of India’s recent policy reforms and economic development outcomes, and of the country’s federal institutions, the analysis focuses on the major issues with respect to India’s federal system in terms of their developmental consequences. We examine the impacts of tax assignments, expenditure authority and the intergovernmental transfer system on the following aspects of India’s economy and economic performance: the quality of governance and government expenditure, the efficiency of the tax system, the fiscal health of different tiers of government, and the impacts on growth and on regional inequality. In each case, we discuss recent and possible policy reforms. We make comparisons with China’s federal system where this is instructive for analyzing the Indian case. Finally, we provide a discussion of potential reforms of aspects of India’s federal institutions.
    Keywords: India; China; federalism; economic development;fiscal federalism; intergovernmental transfers; decentralization
    JEL: H1 H7 P35 H5 H2 P26 H6
    Date: 2006–06
  8. By: Plachta, Robert
    Abstract: This paper assesses the interactions of horizontal fiscal equalisation schemes with debt policy by sovereign regional governments. Local public goods are either financed by debt or taxation. A horizontal equalisation scheme eleviates regional public revenue disparities under horizontal and vertical tax competition. We show that fiscal equalisation schemes have no impact on the optimal central government grant whereas they can either soften or harden the regional budget constraint depending on the specific formulae. Revenue equalisation softens the budget constraint whereas tax base equalisation hardens the budget constraint of poor states.
    Keywords: Fiscal federalism, public debt, soft budget constraint, fiscal equalisation, tax competition
    JEL: E62 H7
    Date: 2008
  9. By: Hans-Georg Petersen
    Abstract: The paper tries to shed some light on the problems of centralization and decentralization within an economic union and the federal member states. Integration and decentralization are not opposite policy strategies but both meaningful if the single public goods and services supplies are analyzed in more detail. Both strategies doubtlessly have advantages, which can be realized if the manifold possibilities are combined in an efficient approach of good governance. Best practice approaches in inter- or supra-national integration, fiscal federalism and taxation do exist and have to be successfully implemented. Obviously such a modern fiscal policy has to be accompanied by an appropriate monetary policy, which in an economic union has to be carried out by an independent central bank as one of the necessary countervailing powers in a democratic setting. A modern fiscal policy strategy efficiently controls budget deficits, which naturally have to be limited to finance reliable public investments. Such strategy has to be safeguarded through modern methods of budgeting and fiscal planning. Modern public management with a clear code of conduct for the government officials ensures corruption free administration.
    Keywords: centralization, decentralization, ethnic differences, fiscal federalism, fiscal planning, good governance, harmonization, integration, nation building, revenue sharing, sustainable fiscal policy, tax reform
    JEL: H7 F5 F15 H8 N4 O2 H2
    Date: 2008–08
  10. By: Rao, R. Kavita (National Institute of Public Finance and Policy)
    Date: 2008–11
  11. By: Rongili Biswas (CSH, Delhi); Nicolas Gravel (University of the Mediterranean,Idep-Greqam); Rémy Oddou (University of the Mediterranean,Idep-Greqam)
    Abstract: This paper examines the segregative properties of endogenous processes of jurisdiction formation à la Tiebout in the presence of a central government who redistributes income across jurisdictions by maximizing a welfarist objective. Choice of location by households, of local public good provision by jurisdiction, and of redistribution by the central government are assumed to be made simultaneously, taking the choices of others as given. Two welfarist objectives for the central government are considered in turn: Leximin and Utilitarianism. If the central government pursues a Leximin objective, it is easily shown that the only stable jurisdiction structure that can emerge is essentially the trivial one in which all households live in the same jurisdiction. A richer class of stable jurisdiction structures are compatible with a central utilitarian government. Yet, it happens that, if individual preferences are additively separable, the class of preferences that garantee the segregation of any stable jurisdiction structure remains unchanged by the presence of a central government.
    Date: 2008–05–29
  12. By: Becker, Sascha O.; Egger, Peter H.; Merlo, Valeria
    Abstract: Most existing empirical evidence on the impact of profit taxation on multinational firm activity is based on cross-country data. One major drawback of such data is that countries differ not only with regard to taxes but along other dimensions which might be hard to capture by means of observable characteristics. We compile a database of more than 11,000 municipalities in Germany to analyze the sensitivity of the location decisions of foreign MNEs with respect to business tax rates which are levied directly by the municipalities. Using count data models suited for cross-sectional and panel data, we find that higher business tax rates have a negative effect on the number of foreign MNE headquarters, after controlling for other determinants of firm location decisions. On average, a one-percent reduction of the municipal business tax rate (equivalent to a decline by about 0.14 percentage points) leads to an increase in the number of headquarters of foreign MNEs by about 0.05. Hence, the average municipality needs to reduce its business tax rate by 20% to attract one foreign MNE.
    Keywords: Multinational firms; Profit taxation; Regional public finance; Count d ata
    Date: 2008–12
  13. By: Miglo, A.
    Abstract: This note provides an explanation for why tax rates on capital gains are usually lower than ordinary income tax rates based on manager's agency problem related to "empire-building" or the underinvestment problem.
    Date: 2008
  14. By: Bird, Richard M. (National Institute of Public Finance and Policy)
    Date: 2008–03

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