nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒01‒17
nine papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Constitutional reforms, fiscal decentralization and regional fiscal flows in Italy By Maria Flavia Ambrosanio; Massimo Bordignon; Floriana Cerniglia
  2. Pooling Sovereignty and Subsidiarity Principle By Michele Giuranno;
  3. Public Sector decentralization and school performance. International evidence By Torberg Falch; Justina AV Fischer
  4. The Impact of Corporate Taxation on Foreign Direct Investment: a Survey By Svetlana Raudonen
  5. Reducing Current Taxes to Raise Future Revenue By Amihai Glazer
  6. Taxes in Latin America: Do wealth and inequality matter? By Bárbara Castelletti
  7. Revenue functions and Dupuit curves for indirect taxes with cross-border shopping By Jørgen Aasness and Odd Erik Nygård
  8. Free Riders, Holdouts, and Public Use: A Tale of Two Externalities By Thomas J. Miceli
  9. Tax uniformity: A commitment device for restraining opportunistic behaviour. By Gerda Dewit; Dermot Leahy

  1. By: Maria Flavia Ambrosanio (DISCE, Università Cattolica); Massimo Bordignon (DISCE, Università Cattolica); Floriana Cerniglia (Università Milano Bicocca)
    Abstract: In the last 15 years, Italy has been involved in a complex, confuse and unfinished process of fiscal decentralization. In this context, data on fiscal flows are continuously produced and thrown in the political arena by several actors, political parties, interest groups and media alike, with little scientific underpinnings and often with limited adherence to reality. This paper discusses at length the issue of fiscal federalism in Italy and presents a careful attempt to measure regional redistribution, or fiscal flows across regions. It describes the decentralization process in Italy from the beginning of the ‘90’s to date and presents a few data on the main features of the Italian decentralization process, that only happened on the financing side, with little effects on the allocation of expenditure responsibility between levels of governments. The focus is however on the measurement of regional fiscal flows and on the problems concerning the regionalization of public expenditure and revenues. Our basic conclusions can be summarised as follows. Fiscal flows in Italy are huge and are mostly driven by the large difference in economic development between the different areas of the country. The public sector generally works in the direction of equalizing per capita (current) public expenditure across regions, at least for fundamental services. However, the distance in economic development, and therefore in tax revenues among regions, is so large that even this partial equalization is enough to generate consistent fiscal flows across the national territory. Clearly, fiscal federalism has some chances of success in Italy only if it works in the direction of reducing the distance between territorial areas and the Italian debate on fiscal federalism, rich in ideology and poor in facts, would certainly benefit by an improved quality of regional data and by official estimations, based on clear and transparent methodology, of regional fiscal flows.
    Keywords: fiscal federalism, net fiscal flows, regional redistribution
    JEL: H7 H73 H77
    Date: 2008–11
  2. By: Michele Giuranno;
    Abstract: This paper focuses on the choice of centralization of public policy in an economy with two government levels. It argues that centralization by subsidiarity principle stresses a conflicting interest between different jurisdictions instead of working it out. The extent of the conflict of interest is affected by spillovers and differences in public spending tastes. Spending decisions are made by negotiation in the centralized legislature of local representatives, unless they fail to reach an agreement. In the latter case, policy is provided non-cooperatively by local governments. Results show that pooling sovereignty by subsidiarity principle fails to fully internalize spillovers and may produce misallocation of public resources.
    Keywords: Public goods; Centralization; Bargaining
    JEL: D78 H0 H40
    Date: 2009–01
  3. By: Torberg Falch; Justina AV Fischer
    Abstract: Using a panel of international student test scores, 1980 – 2000, panel fixed effects estimates suggest that government spending decentralization is conducive to student performance. The effect does not appear to be mediated through levels of, or decentralization in, educational spending.
    Keywords: Fiscal decentralization, Student achievement, federalism, PISA, TIMSS, education, school quality
    Date: 2008
  4. By: Svetlana Raudonen (Department of Economics at Tallinn University of Technology)
    Abstract: This paper reviews the literature on factors influencing the allocation of foreign direct investments, with respect to the significant role of corporate taxation policy. The review includes Bucovetsky’s tax competition model where countries are assumed to be asymmetric. Empirical studies of S¸rensen (2000), Root and Ahmed (1978), Mooij and Ederveen (2003) are touched upon in the survey. The paper helps to understand the importance of tax policy in attracting foreign investments to the country. The survey assumes effective enforcement to highlight the impact of taxation on foreign investment.
    Keywords: impact of tax policy, foreign direct investments, determinants of foreign direct investments, tax competition
    JEL: E2 F2 H2
    Date: 2008
  5. By: Amihai Glazer (Department of Economics, University of California-Irvine)
    Abstract: A government which raises taxes in the current period may induce workers to invest in finding ways to reduce their tax payments, and so may reduce the government's ability to raise revenue in the future. Therefore, a government that fears it may have to raise much revenue in the future may set taxes in the current period at a lower level than that which would maximize revenue, or that would maximize social welfare in that period.
    Keywords: Tax evasion; Intertemporal taxation
    JEL: H26 H60
    Date: 2008–12
  6. By: Bárbara Castelletti
    Abstract: To meet pressing development challenges, Latin American states need fiscal resources. The good news is that in the last decade, favourable macroeconomic conditions and the design of better tax systems pushed up fiscal revenues in Latin America. Notably, tax revenues have increased by close to 1.8 per cent annually between 1990 and 2006, reflecting a widespread strengthening of taxes levied on income, profits and capital gains and general goods and services.
    Date: 2008–10
  7. By: Jørgen Aasness and Odd Erik Nygård (Statistics Norway)
    Abstract: The partial revenue from each indirect tax and the total revenue from all indirect taxes on consumer goods are derived as functions of all commodity prices, the tax rates of each commodity, total expenditure and demographic variables using a complete demand system. Within this framework we define Dupuit curves, or Laffer curves, and analyze their existence and maximum points theoretically and empirically. The macro demand system is based on exact aggregation across all households in the economy, and on exact aggregation across commodities within a detailed non-homogeneous utility tree. An empirical application for Norway with 55 commodity groups is presented. For beer, wine, spirits and tobacco, consumers can choose among buying at home, cross-border shopping/ tax-free shopping and smuggling. These substitution possibilities increase substantially the price elasticities for these goods. The partial revenue from wine as function of the tax share on wine has a single maximum value close to the actual tax rate in Norway in 1999, conditioned on all the other exogenous variables. The total revenue as a function of the tax share on wine also has a single maximum value, larger than that for the partial revenue. The same results are valid for spirits. For beer and tobacco there is no revenue maximizing tax share.
    Keywords: Revenue functions; indirect taxes; complete demand systems; cross-border shopping; tax-free shopping; smuggling; alcohol; tobacco
    JEL: D12 D6 H2 H31
    Date: 2009–01
  8. By: Thomas J. Miceli (University of Connecticut)
    Abstract: Free riders and holdouts are market failures that potentially impede the completion of otherwise beneficial transactions. The key difference is that the free rider problem is a demand side externality that requires taxation to compel payment for a public good, while the holdout problem is a supply side externality that requires eminent domain to force the sale of land for large scale projects. This paper highlights that distinction between these two problems and uses the resulting insights to clarify the meaning of the public use requirement of the Fifth Amendment takings clause.
    Keywords: Eminent domain, free riders, holdouts, public use, takings
    JEL: H41 K11
    Date: 2009–01
  9. By: Gerda Dewit (Economics, National University of Ireland, Maynooth); Dermot Leahy (Economics, National University of Ireland, Maynooth)
    Abstract: We investigate whether and to what extent uniform and differentiated tax systems diverge in their propensity to create distortionary opportunistic behavoiur. The set-up in which we carry out our analysis features polluting firms that are confronted with existence a Pigovian emission tax. Firms can invest in pollution abatement. We first show that the existence of emmission taxes, although optimally chosen, create strategic incentives for firms to distort their abatement investment. Second, we find that a system of differentiated emission taxes has a greater propensity to foster strategic distortions in abatement investment than a uniform emission tax regime.
    Keywords: Uniform tax, Differentiated taxes, Emission tax, Short-run policy commitment, Pollution-abating investment, Strategic investment.
    JEL: H23 C72 Q58 L10
    Date: 2008

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