nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒02‒14
sixteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Common Fate, Game Harmony and Contributions to Public Goods: Experimental Evidence. By Luca Corazzini, Robert Sugden.
  2. Centralization, Decentralization, and Conflict in the Middle East and North Africa By Tosun, Mehmet Serkan; Yilmaz, Serdar
  3. Regulation and competition on local public utilities By Daniele Sabbatini
  4. Project finance in local public services: little finance and little project? By Chiara Bentivogli; Eugenia Panicara; Alfredo Tidu
  5. Distribution of Local Government Revenue Sources and Citizen Well-Being By Amanor-Boadu, Vincent; Zereyesus, Yacob A.; Ross, Kara
  6. Optimal Provision of a Discrete Public Good: Linear Equilibria in the Private-Information Subscription Game By Stefano Barbieri; David A. Malueg
  7. Identifying an Australian 'Shadow' Benefit / Cost Ratio for Public Projects By Lawrence, C
  8. Estimating dynamic income responses to tax reforms: Swedish evidence By Holmlund, Bertil; Söderström, Martin
  9. Fighting Income Tax Evasion with Positive Rewards: Experimental Evidence By Cécile Bazart; Michael Pickhardt
  10. Threshold Uncertainty in the Private-Information Subscription Game By Stefano Barbieri; David A. Malueg
  11. Water services in Italy: implementation of the reform and efficiency of providers By Michele Benvenuti; Elena Gennari
  12. Institutional aspects of economic integration – economic integration and political integration By Duduiala-Popescu, Lorena
  13. The Italian public finances in the period 1998-2007: temporary factors, medium-term trends and discretionary measures By Maria Rosaria Marino; Sandro Momigliano; Pietro Rizza
  14. Explaining Government Spending: a Cointegration Approach By Abel Costa Fernandes
  15. Role of media in curbing corruption: the case of Uganda under President Yoweri K. Museveni during the “no-party” system By Monica Nogara
  16. Efficient Risk Sharing in the Presence of a Public Good By Christine Hauser

  1. By: Luca Corazzini, Robert Sugden.
    Abstract: We experimentally study the effects of common fate on voluntary contributions to linear public goods. In each period, earnings are assigned to subjects according to the outcome of a lottery. We manipulate the level of common fate across treatments by varying the degree of harmony in the lottery structure. We observe higher contributions and stronger reciprocity in the most harmonious manipulation. Surprisingly, we find a positive relation between contributions and having experienced a favourable lottery outcome in the previous period, with the strength of this effect being inversely associated with the degree of harmony.
    Keywords: Public Goods, Common Fate, Laboratory Experiment.
    JEL: C91 C92 H40 H41
    Date: 2009–02
  2. By: Tosun, Mehmet Serkan (University of Nevada-Reno); Yilmaz, Serdar (The World Bank)
    Abstract: This paper examines broadly the intergovernmental structure in the Middle East and North Africa region, which has one of the most centralized government structures in the world. The authors address the reasons behind this centralized structure by looking first at the history behind the tax systems of the region. They review the Ottoman taxation system, which has been predominantly influential as a model, and discuss its impact on current government structure. They also discuss the current intergovernmental structure by examining the type and degree of decentralization in five countries representative of the region: Egypt, Iran, West Bank/Gaza, Tunisia, and Yemen. Cross-country regression analysis using panel data for a broader set of countries leads to better understanding of the factors behind heavy centralization in the region. The findings show that external conflicts constitute a major roadblock to decentralization in the region.
    Keywords: Fiscal decentralization; intergovernmental relations; Middle East and North Africa
    JEL: H77 H87 N45 O53
    Date: 2008–11–01
  3. By: Daniele Sabbatini (Banca d'Italia)
    Abstract: This paper outlines the evolution of the regulatory framework for the supply of local public utilities, social and health services since the early nineties. That framework is rendered complex by frequent legislative reforms, the overlap of general rules and specific rules for some services, and the division of legislative powers among the European Community, the central government and regional governments. The various reform acts, both horizontal and sector-specific, have not always pursued homogenous goals, seeking in some cases to foster and in others to restrain competition. The rules for local public utilities have recently changed again: competitive tendering is now the standard mechanism for awarding contracts to supply services, but local authorities may still supply services through in-house providers or use other contract award procedures where they deem it impossible to introduce competitive mechanisms.
    Keywords: regulation, local public utilities
    JEL: K23 L50
    Date: 2008–09
  4. By: Chiara Bentivogli (Banca d'Italia); Eugenia Panicara (Banca d'Italia); Alfredo Tidu (Banca d'Italia)
    Abstract: This paper analyzes the potential and the limits of project finance for the provision of local public services and compares them with alternative instruments in the light of current regulation. The main requirements for project finance, even in non “pure” forms, to justify its complex network of contracts, appear to be the presence of synergies between construction and service provision, the allocation of a substantial part of market risk to the private partner, and infrastructure that is large in scale. The available data and a survey carried out in the Emilia-Romagna region show that instruments similar to project finance are widespread in local public services. Yet the actual features of public finance in Italy seem to be far from those that would normally justify its use. The main reason for using project financing has often been to avoid an immediate and direct financial burden to the public administration or to bypass overly rigid rules in the public management of some services.
    Keywords: project finance, local public services, infrastructure, risk allocation
    JEL: D61 D81 H44 H54 H76 L33 L90
    Date: 2008–09
  5. By: Amanor-Boadu, Vincent; Zereyesus, Yacob A.; Ross, Kara
    Abstract: The paper aims at examining how sources and distribution of revenue at the local government level influence the economic well-being of citizens. The results of this study help to illuminate the effect of revenue sources on local government efforts on economic development and their capacity to influence the well-being of their citizens. We hypothesized that the distribution of local government revenue influenced the wealth status of its citizens. Three empirical proxy measures for citizen well-being were used in the estimation of three different panel data models. Results from the estimations suggest that local government revenue generated from its citizens (e.g., taxes, insurance and charges) have more influence on citizen well-being than non-citizen generated revenue sources (e.g., inter-governmental transfers). The analysis provides insights into how economic development policies may be conceived in local governments, especially small communities, to ensure sustained economic prosperity of its citizens.
    Keywords: Local government, revenues, tax, citizen well-being, Community/Rural/Urban Development,
    Date: 2009
  6. By: Stefano Barbieri (Department of Economics, Tulane University); David A. Malueg (Department of Economics, UC Riverside)
    Abstract: We analyze a symmetric Bayesian game in which two players individually contribute to fund a discrete public good; contributions are refunded if they do not meet a threshold set by the seller of the good. We provide a general characterization of symmetric equilibrium strategies that are continuous and nonconstant over the set of values for which the good has a positive chance of provision. Piecewise-linear strategies are our special focus. We characterize the distributions of players' private values that can support a continuous piecewise-linear symmetric equilibrium, and we calculate such equilibria for these distributions. Allowing the seller to charge a nonrefundable entry fee before players make their private contributions, we show these piecewise-linear equilibria can maximize the seller's expected utility, which may include an altruistic component, over all incentive compatible selling mechanisms.
    Keywords: discrete public good, subscription game, Revelation Principle
    JEL: H41 D61 D82
    Date: 2009–02
  7. By: Lawrence, C
    Abstract: This paper examines the social opportunity cost of a hypothetical public project in Australia and compares these values with the cost of the project as measured by factor prices. Since 2001, the Australian taxation system has included an ad valorem tax, the Goods and Services Tax, however relatively little analysis of the impact of this tax on public project evaluation methods has been undertaken. This tax creates divergences between social opportunity cost and conventional cost measures. Therefore it is recommended that shadow prices be applied to pubic projects. Following Campbell (1975), a shadow price can be introduced into Australian project evaluation in the form of a cut-off benefit cost ratio. The calculations reported on in the paper indicate that this ratio lies between 1 and 1.3 for public projects in Australia.
    Keywords: allocative efficiency; cost benefit analysis; efficiency; optimal taxation; project evaluation; social discount rate
    JEL: H21 H43 D61
    Date: 2009–02–11
  8. By: Holmlund, Bertil (Department of Economics, Uppsala University); Söderström, Martin (Ministry of Finance)
    Abstract: We study income responses to income tax changes by using a large panel of Swedish tax payers over the period 1991–2002. Changes in statutory tax rates as well as discretionary changes in tax bracket thresholds provide exogenous variations in tax rates that can be used to identify income responses. We estimate dynamic income models which allow us to distinguish between short-run and long-run effects in a straightforward fashion. For men, the estimates of the long-run elasticity of income with respect to the net-of-tax rate hover in a range between 0.10 and 0.30. The estimates for women are imprecise and statistically insignificant. We simulate the fiscal consequences of a tax reform that reduces the top marginal tax rate by five percentage points. Such a reform may have negligible effects on tax revenues even for relatively small elasticities when the interactions between income taxes and other taxes are taken into account.
    Keywords: Marginal tax rates; progressive taxes; earned income; tax reform
    JEL: H24 H31 J22
    Date: 2008–12–03
  9. By: Cécile Bazart; Michael Pickhardt
    Abstract: This paper provides experimental evidence regarding the influence of positive rewards on income tax evasion behavior. In particular, we experimentally test the impact of positive rewards in form of individual lottery winnings for honest taxpayers. Among other things, we find that these positive rewards lead to a significantly higher rate of tax compliance. Moreover, there are two gender effects. Males not only evade taxes to a much higher extent than females, they also show a stronger positive response to the lottery scheme. This allows us to draw some interesting policy recommendations.
    Date: 2009–01
  10. By: Stefano Barbieri (Department of Economics, Tulane University); David A. Malueg (Department of Economics, UC Riverside)
    Abstract: We introduce threshold uncertainty, a la Nitzan and Romano (1990), into a private-values model of voluntary provision of a discrete public good. Players are allowed to make any level of contribution toward funding the good, which is provided only if the cost threshold is reached. Otherwise, contributions are refunded. Conditions ensuring existence and uniqueness of a Bayesian equilibrium are established. Further restricting the threshold uncertainty to a uniform distribution, we show the equilibrium strategies are very simple, even allowing for any number of players with asymmetric distributions of values. Comparative statics with respect to changes in players' distributions are derived, allowing changes in both the intensity and the dispersion of values. Finally, we show the equilibrium is interim incentive inefficient. The sharpness of our results greatly contrasts with the more qualified insights of earlier private-values models with known cost threshold, which relied on there being two symmetric players and generally exhibited multiple equilibria.
    Keywords: discrete public good, subscription game, threshold uncertainty
    JEL: H41 D61 D82
    Date: 2009–02
  11. By: Michele Benvenuti (Banca d'Italia); Elena Gennari (Banca d'Italia)
    Abstract: The paper investigates the organization of the Italian water sector in the light of the reforms of public utilities. The aim is to examine the degree of implementation of the water sector reform (the so-called Galli Law of 1994) and assess the performance of operators through a study of their financial indicators and a non-parametric efficiency analysis. The information sources include two Bank of Italy surveys carried out in 2007 on local public water authorities and local water service providers. Financial indicators point to a low return on equity: for more than half of the firms it is lower than the risk-free interest rate. The non-parametric efficiency analysis does not reveal significant economies of scope and highlights a certain degree of variability of technical efficiency scores. This suggests that there is room for efficiency gains through the introduction of comparative competitive mechanisms such as the yardstick competition.
    Keywords: water supply, data envelopment analysis, public utilities, natural monopoly, regulation
    JEL: K23 L95 Q25 C61 D24 H42 L51
    Date: 2008–09
  12. By: Duduiala-Popescu, Lorena
    Abstract: Economic integration is defined as the elimination of economic borders between two or more savings. In turn, an economic border demarcation over which any actual or potential mobility of goods, services and factors of production and communication flows, is relatively low. On both sides of a frontier economy, pricing and quality of goods, services and factors are only marginally influenced by flows across borders.
    Keywords: economic integration; political integration; effective competition; potential competition; federation
    JEL: F22 F59 F43 A11 F15 F02 A19 F01 F36
    Date: 2009–02–08
  13. By: Maria Rosaria Marino (Banca d'Italia); Sandro Momigliano (Banca d'Italia); Pietro Rizza (Banca d'Italia)
    Abstract: The paper examines the development of Italy’s public finances after the consolidation period 1992-97, which secured participation in the European Monetary Union from the outset. The “structural” developments in the main budgetary components are assessed, excluding the effects of the economic cycle and of temporary measures. The analysis shows a rapid deterioration in the years 1998-2003, whose roots can be traced back to the consolidation of the early 1990s, achieved primarily by means of tax increases and cuts in capital expenditure. Since 2004 there has been a structural improvement, initially modest but substantial in 2006 and 2007. Sustaining this adjustment and making further progress may again prove difficult, as the fiscal correction is similar in nature to the previous consolidation effort. Looking at the whole period 1998-2007, the deterioration of the public finances seems attributable to the difficulty to restrain the growth of current primary expenditure.
    Keywords: structural budget, business cycle, temporary measures, public finances
    JEL: H62 H20 H50 E69
    Date: 2008–07
  14. By: Abel Costa Fernandes (Faculdade de Economia, Universidade do Porto)
    Abstract: Based on a comprehensive theoretical model we investigate the determinants of government spending. Besides GDP, commonly associated with either Walra´s law or Keynesian macro stabilization policies, we consider some variables identified with the public choice approach, namely median voters, pressure groups and the ideology of the government in power. These other variables are women, elderly population and population occupied in agriculture. The model is tested empirically using Johansen´s cointegration technique for the cases of Australia and Canada with data on general government expenditure, thus covering all government sectors, including social security. For the most part, we find long-run relationships among the variables and with the expected signs.
    Keywords: Public Economics, Public Choice, Government spending, Interest groups
    JEL: H20 H39 H50
    Date: 2009–02
  15. By: Monica Nogara
    Abstract: Free, independent and hard-hitting media can play an important role in curbing corruption. Media in Uganda has enjoyed considerable freedom in this regard since Museveni came to power in 1986. The evolving power structure and a changing media landscape, however, have presented both challenges and opportunities for media’s watchdog role on corruption. This paper will explore how this environment defined such role between 1986 and 2006 during Museveni’s “no-party” rule. It argues that, although media won important battles to promote accountability in public offices, the regime’s complex power structure has consistently challenged their role as an instrument of public accountability.
    Keywords: corruption, media, press freedom, governance, rule of law
    JEL: D72 D73 D81 D82 D83 H11 K40 L82
    Date: 2009–01
  16. By: Christine Hauser
    Abstract: This paper studies the provision of a public good between two agents under lack of commitment and applies it to the problem of children's consumption in separated couples, where children are considered to be public goods. The custodial mother controls the child's consumption, whereas the father can contribute indirectly by making monetary transfers to the mother, but has no control over how the mother spends them. Using minmax punishments, I look for the Pareto frontier of the Subgame Perfect Equilibrium payoffs, and characterize the equilibrium and long term implications of the model. As in the previous literature, agents' consumptions and continuation values covary positively with their income levels. In the case where the constraint for the public good provision binds, both agents' private consumptions increase relative to the public good provision. In the long run, if some first best allocation is sustainable, the long-term equilibrium will converge to a first best allocation. Otherwise, agents' utilities oscillate over a finite set of values. I then study the theoretical implications of one-sided enforcement when the public good provider has the authority to enforce transfers from the second agent. This is motivated by the wave of US policy reforms to enforce child support payments from fathers. The model predicts an increase in the ratio of the mother's consumption to the child's.
    Keywords: insurance, lack of commitment, optimal dynamic contract, public good
    JEL: C72 C73 D90 E21
    Date: 2008

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