nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒01‒31
eighteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Decentralization, competition and the local tax mix: evidence from Flanders By Geys, Benny; Revelli Federico
  2. Partial Tax Coordination in a Repeated Game Setting By Itaya, Jun-ichi; Okamura, Makoto; Yamaguchi, Chikara
  3. How Globalization Affects Tax Design By James R. Hines, Jr.; Lawrence H. Summers
  4. Green goods: are they good or bad news for the environment? Evidence from a laboratory experiment on impure public goods By Munro, Alistair; Valente, Marieta
  5. Wealth Distribution and the Provision of Public Goods: Evidence from the United States By Dietz Vollrath
  6. Environmental Taxes in an Economy with Distorting Taxes and a Heterogeneous Population By Hoel , Michael
  7. Tax Competition in an Expanding European Union By Ronald B. Davies and Johannes Voget
  8. The Economic Effects of Federalism and Decentralization – A Cross-Country Assessment By Stefan Voigt; Lorenz Blume
  9. Truth or Efficiency? Communication in a Sequential Public Good Game By Serra Garcia, M.; Damme, E.E.C. van; Potters, J.J.M.
  10. Russian federalism and post-Soviet integration: Divergence of development paths By Libman, Alexander
  11. State Reputation as a Public Good By William Phelan
  12. I Don't Want to Hear About it: Ration Ignorance among Duty-Oriented Consumers By Nyborg, Karine
  13. Political Institutions, State Capabilities and Public Policy - International Evidence By Carlos Scartascini; Ernesto Stein; Mariano Tommasi
  14. We the People and the Others: The Co-founding of Democratic States By Hans Agné
  15. Does Arbitration Blossom when State Courts are Bad? By Stefan Voigt
  16. Dynamic Tax Depreciation Strategies By De Waegenaere, A.M.B.; Wielhouwer, J.L.
  17. Public infrastructure: definition, classification and measurement issues By Torrisi, Gianpiero
  18. Fiscal Federalism, State Lobbying and Discretionary Finance in India By Rongili Biswas

  1. By: Geys, Benny; Revelli Federico (University of Turin)
    Abstract: While numerous studies analyse the determinants of the level and composition of local public spending, little attention has been given to what shapes the choice of tax instruments used by decentralised governments. This paper bridges this gap by investigating the economic and political determinants of the local tax mix in the Flemish region of Belgium, where local governments enjoy extensive fiscal autonomy and have a wide variety of tax instruments available. Specifically, using panel data of 289 Flemish municipalities over the period 1995-2002, we estimate a system of five reduced-form tax revenue-share equations (income, property, business, user fees and other own revenues). The analysis highlights a number of important economic determinants of the observed tax mix (especially the tax base and revenue requirement), while political variables turn out to play a relatively minor role. Finally, the analysis uncovers virtually no evidence of inter-municipal dependence in the determination of the local tax mix.
    Date: 2009–01
  2. By: Itaya, Jun-ichi; Okamura, Makoto; Yamaguchi, Chikara
    Abstract: This paper addresses the problem of partial tax coordination among regional or national sovereign governments in a repeated game setting. We show that partial tax coordination is more likely to prevail if the number of regions in a coalition subgroup is smaller and the number of existing regions in the entire economy is larger. We also show that under linear utility, partial tax coordination is more likely to prevail if the preference for a local public good is stronger. The main driving force for these results is the response of the intensity of tax competition. The increased (decreased) intensity of tax competition makes partial tax coordination more (less) sustainable.
    Keywords: Partial tax coordination, Repeated game, Tax competition,
    Date: 2008–10–19
  3. By: James R. Hines, Jr.; Lawrence H. Summers
    Abstract: The economic changes associated with globalization tighten financial pressures on governments of high-income countries by increasing the demand for government spending while making it more costly to raise tax revenue. Greater international mobility of economic activity, and associated responsiveness of the tax base to tax rates, increases the economic distortions created by taxation. Countries with small open economies have relatively mobile tax bases; as a result, they rely much less heavily on corporate and personal income taxes than do other countries. The evidence indicates that a ten percent smaller population in 1999 is associated with a one percent smaller ratio of personal and corporate income tax collections to total tax revenues. Governments of small countries instead rely on consumption-type taxes, including taxes on sales of goods and services and import tariffs, much more heavily than do larger countries. Since the rapid pace of globalization implies that all countries are becoming small open economies, this evidence suggests that the use of expenditure taxes is likely to increase, posing challenges to governments concerned about recent changes in income distribution.
    JEL: H20
    Date: 2009–01
  4. By: Munro, Alistair; Valente, Marieta
    Abstract: An impure public good is a commodity that combines public and private characteristics in fixed proportions. Green goods such as dolphin-friendly tuna or green electricity programs provide increasings popular examples of impure goods. We design an experiment to test how the presence of impure public goods affects pro-social behaviour. We set parameters, such that from a theoretical point of view the presence of the impure public good is behaviorally irrelevant. In a baseline setting, where the impure public good provides only small contributions to the public good. We observe that on aggregate pro-social behaviour, defined as total contributions to the public good, is lower in the presence of the impure good. Some individuals do not alter their decisions, but roughly two fifths of subjects make a lower contribution to the public good in the presence of the impure public good. On the contrary, in the case where the impure public good favours the public good component at the expense of private earnings, individuals are unaffected in their behaviour. We conclude that the presence of green goods which have only a small environmental component may reduce pro-environmental behaviour.
    Keywords: green goods; impure public goods; pro-social behaviour; social norms; experimental economics
    JEL: Q50 H41 D64 C91
    Date: 2008–10–30
  5. By: Dietz Vollrath (Department of Economics, University of Houston)
    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: O13 N51 Q15
    Date: 2008–11
  6. By: Hoel , Michael (Dept. of Economics, University of Oslo)
    Abstract: During the last couple of decades, there has been a large literature discussing how the properties of emission taxes are affected by the existence of distortionary taxes. Most of this literature ignores distributional aspects of environmental taxes and other types of environmental policy instruments. The present paper considers a very simple model with heterogeneous households, differing in income earning ability. The tax system i s not necessarily fully optimal. Instead, a tax function is assumed the be exogenously given, but the parameters of this tax function are opmtimally chosen. The rule for the second-best opmtimal environmental tax is derived and compared with the Pigovian rule. The results derived in the present paper are related to the results from the literature on public goods provision under distortionary taxes.
    Keywords: Environmental taxes; public goods; distortionary taxation
    JEL: H23 H41 Q58
    Date: 2008–02–01
  7. By: Ronald B. Davies and Johannes Voget
    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 adhoc 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.
    Date: 2008–01–15
  8. By: Stefan Voigt (Marburg Center for Institutional Economics, Philipps University Marburg); Lorenz Blume (Department of Economics, Universitaet Kassel)
    Abstract: This paper is based on the conjecture that institutional details matter and that attempts to estimate the economic effects of federalism by drawing on a simple dummy variable neglect potentially important institutional details. Based on a principal component analysis, seven aspects of both federalism and decentralization are used as variables for explaining differences in (1) fiscal policy, (2) government effectiveness, (3) economic productivity, and (4) happiness. The results show that institutional details do, indeed, matter. Different aspects of federalism impact on the outcome variables in different degrees. This study adds to our knowledge on the transmission mechanisms of federalism and decentralization.
    Keywords: Federalism, Federalism, decentralization, Fiscal federalism, Economic Effects of constitutions, constitutional economics.
    JEL: H71 H11
    Date: 2009
  9. By: Serra Garcia, M.; Damme, E.E.C. van; Potters, J.J.M. (Tilburg University, Center for Economic Research)
    Abstract: We examine communication in a 2-player sequential public good game in which the leader has private information about the return from contributing to it. The leader decides first and the follower observes the leader's contribution, before de- ciding whether or not to contribute. Without communication, the unique equilib- rium is fully efficient. We study whether the introduction of communication about returns can destroy efficiency. Communication can be precise (about the exact re- turn), or vague. If leaders would communicate precisely and truthfully, they would reveal that followers would do best to free ride, thereby distorting both players' incentives to invest and destroying efficiency. We show that leaders lie in order to avoid these negative consequences. If vague messages are allowed, the extent of lying drops and vague messages are used instead. Overall, followers contribute when the leader does, and the introduction of communication neither increases nor decreases contributions to the public good.
    Keywords: Communication; Efficiency; Lying; Public Goods.
    JEL: C72 C92 D83 H41
    Date: 2008
  10. By: Libman, Alexander
    Abstract: The paper compares the development of two institutional systems organizing the intergovernmental relations in the former Soviet Union: Russian federalism and post-Soviet regional integration. In spite of common origins, random selections of actors and common development trends in the first decade of their existence, in the 2000s both systems experienced significant divergence. The paper discusses the interaction of four factors explaining differences in the development of post-Soviet integration and Russian federalism: formal vs. informal nature of political property rights of elites; impact of economic asymmetry on political bargaining; role of (potential) federal political arena in terms of interests of territorial elites; and impact of large business groups. It also addresses direct links between the centralization in Russia and the regional integration in the post-Soviet space.
    Keywords: post-Soviet integration; Russian federalism; decentralization
    JEL: F15 H77
    Date: 2009
  11. By: William Phelan
    Abstract: A state’s concern for its reputation is widely considered the most powerful mechanism for inducing rational egoist states to comply with costly commitments. A state with a diversity of interests will accept costs on organised groups in the expectation of future benefits derived from a reputation for meeting its international commitments. Although the scope of the effectiveness of this argument has been qualified by subsequent scholarship, reputational incentives remain a central causal mechanism in institutionalist approaches to international relations. This paper introduces a new, more fundamental criticism: a state’s reputation for complying with international obligations is a public good so far as diverse politically influential domestic constituents are concerned: each constituent has an incentive not to accept costs towards the maintenance of a states’ overall reputation for fulfilling its obligations. We should therefore expect that states will not, in general, fulfil costly obligations out of respect for their reputation, unless gains from reputation can be reliably internalised in the form of private goods or where domestic politics provides reliable solutions to the relevant domestic collective action problems.
    Date: 2008–01–15
  12. By: Nyborg, Karine (Dept. of Economics, University of Oslo)
    Abstract: Individuals with a preference for keeping moral obligations may dislike learning that voluntary contributions are socially valuable: Such informa- tion can trigger unpleasant feelings of cognitive dissonance. I show that if initial beliefs about the social value of contributions are sufficiently low, duty-oriented consumers are willing to pay to avoid information. Attitude campaigns can increase contributions from such consumers by providing them with unwanted information. Consequentialist warm glow types with low initial beliefs, however, will seek low-cost information on their own initiative; thus, campaigns will have less effects for such consumers.
    Keywords: Voluntary contributions: public goods; responsibility; altruism; information campaigns; cognitive dissonance
    JEL: D11 D62 D64 D89 H41 Q21
    Date: 2008–07–10
  13. By: Carlos Scartascini; Ernesto Stein; Mariano Tommasi
    Abstract: This paper introduces preliminary evidence from a cross-country database of policy characteristics and potential uses of that database. While most databases have emphasized either the content of policies (e.g., size of government deficits) or countries’ formal institutions (e.g., political regime, electoral system), the variables in this database reflect the policymaking capabilities of different polities. The paper attempts to explain these policy characteristics as depending on the workings of political institutions, using a logic emphasizing intertemporal political compromise. The paper also contrasts this logic with alternatives such as the veto players approach. The paper concludes by suggesting the use of these policy characteristics or state capabilities as explanatory variables for the effectiveness of public spending in various social areas.
    Keywords: Political institutions, Public policies, Government capabilities, Veto players, Intertemporal cooperation, Development, Human Development Index, Public expenditures, Policy index, Adaptability, Stability, Judicial independence, Party institutionalization, Congress capabilities, Cabinet stability
    JEL: D72 D78 H10 H50 O10
    Date: 2008–12
  14. By: Hans Agné
    Abstract: In democratic theory it goes without saying that people should establish their own political orders.1 Perhaps the most famous expression of this moral intuition is found in the preamble of the American constitution. By the opening phrase ‘we the people … establish this constitution’ the founders sent a message to revolutionary movements throughout the world that people may establish not only the rights and obligations that will regulate their public life, i.e. their own constitutions, but also the organisations which will exercise supreme power over the territories in which they live, i.e. their own states. However, the making of new states, or new constitutions in existing states, sometimes involves people with no intention of subjecting themselves to the political orders that they seek to establish. The US-led imposition of new regimes in Afghanistan and Iraq is one example and the UN administration of postconflict societies in Kosovo and East Timor is another (Zaum 2007). Could such policies be reconciled with the idea that people should establish their own political orders?
    Keywords: economics; democracy; law; diversity/homogeneity
    Date: 2008–12–01
  15. By: Stefan Voigt (Marburg Center for Institutional Economics, Philipps University Marburg)
    Abstract: It is often conjectured that non-state dispute resolution blossoms when state courts are not independent or are perceived as low-quality courts. This conjecture implies a substitutive relationship between state and non-state dispute resolution. An alternative hypothesis argues that both the quality and the frequency of use of these two alternative mechanisms are complementary: societies with high-quality state courts would also be able to provide high-quality non-state dispute resolution. This is the first study that puts these hypotheses to an empirical test. It turns out that the lower the perceived quality of state courts, the less frequently conflicting firms resort to them. Second, firms in common-law countries turn away from state courts significantly more often than firms in civil-law countries. This result sheds doubt on the robustness of results generated within the legal traditions literature. Finally, in states that have created the preconditions for arbitration, businesspeople resort significantly more often to state courts. We interpret this as evidence in favor of the complementarity hypothesis.
    Keywords: Alternative Dispute Revolution, Quality of Justice, Judicial Independence, Corruption, Private Provision of Public Goods.
    JEL: H42 K42 O17
    Date: 2009
  16. By: De Waegenaere, A.M.B.; Wielhouwer, J.L. (Tilburg University, Center for Economic Research)
    Abstract: The tax depreciation decision potentially has significant impact on the prof- itability of firms and projects. Indeed, the depreciation method chosen for tax purposes affects the timing of tax payments, and, as a consequence, it also affects the after-tax net present value of investment projects. Previous research focusses on the optimal choice of depreciation method under the assumption that the de- preciation method has to be set ex ante and cannot be changed during the useful life of the asset. In reality however, changes are allowed under certain circum- stances. This paper develops a dynamic programming approach to determine the firm’s optimal choice with regard to the initial depreciation method, and whether changes of method are proposed in later periods.
    Keywords: Tax depreciation;Net Present Value;Dynamic Programming.
    JEL: C61 M41
    Date: 2008
  17. By: Torrisi, Gianpiero
    Abstract: Beginning from the end of the 1980s many studies analysing the relation between infrastructures endowment and economic development have been realised. A general consensus is achieved around the idea that basic infrastructure facilities are important features related to economic performance, although both magnitude and causality direction are debated. A peculiar feature of these studies is that, across them, different empirical and theoretical entities are referred to infrastructure. Although the vast body of literature on infrastructures economic impact have been largely reviewed less attention have been paid to the term infrastructure per se. This article, aiming to provide a helpful instrument to critically interpret the existing literature, zooms in on infrastructure definition and then reviews different categories of infrastructures utilised in literature, namely: personal, institutional, material, immaterial, economic, social, core and not-core, basic and complementary, network, nucleus, and territory infrastructures. The final part deals with problems related to infrastructures measurement describing some financial-based measures and physical-based measures highlighting that both measures - due to economic and strictly computational problems - present pitfalls so that, in turn, both types of measures have critical aspects to be considered when interpreting results concerning infrastructures.
    Keywords: infrastructure; public expenditure
    JEL: H54 H76
    Date: 2009–01
  18. By: Rongili Biswas
    Abstract: The paper attempts to construct political influence variables and explain discrepancies in fund disbursement through proper econometric specification in the Indian context.
    Keywords: political, fund, discretionary, fiscal, federalism, central, state, centre, disbursement, econometric, Indian, economists, politics, finance,
    Date: 2009

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