nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒02‒22
eight papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Flat Tax Reform.The Baltics 2000 – 2007. By Helmuts Azacis; Max Gillman
  2. Effective Corporate Income Tax Burden in Croatia By Hrvoje Šimović
  3. Rules vs. political discretion: evidence from constitutionally guaranteed transfers to local governments in Brazil By Stephan Litschig
  4. Why Praise Inequality? Public Good Provision, Income Distribution and Social Welfare By Dasgupta, Indraneel
  5. Individuals' Voting Choice and Cooperation in Repeated Social Dilemma Games By Annamaria Nese; Patrizia Sbriglia
  6. Cross-Cutting Literature Review on the Drivers of Local Council Accountability and Performance By Lankina, Tomila
  7. Immaterial rewards and sanctions in a voluntary contribution experiment By Peeters Ronald; Vorsatz Marc
  8. Regulatory federalism in network industries By Francesc Trillas

  1. By: Helmuts Azacis (Cardiff Business School); Max Gillman (Cardiff Business School, Institute of Economics - Hungarian Academy of Sciences)
    Abstract: The paper presents an endogenous growth economy with a representation of the tax rate system in the Baltic countries. Assuming that government spending is a given fraction of output, the papershows how a flat tax system balanced between labor and corporate tax rates can be second best optimal. It then computes how actual Baltic tax reforms from 2000 to 2007 affect the growth rate and welfare, including transition dynamics. Comparing the actual reform effects to hypothetical tax experiments, it results that equal flat tax rates on personal and corporate income would have increased welfare in all three Baltic countries by 24% more on average than the actual reforms. This shows how equal, balanced, flat rate taxes can be optimal in both theory and practice. Further, movement towards a more equal balance between labor and capital tax rates, through changing just one tax rate, achieved almost as high or higher utility gains as in actual law for all three countries under both open and closed economy cases. This shows benefits of moving towards the optimum.
    Keywords: tax reform, endogenous growth, transitional dynamics, flat taxes
    JEL: E13 H20 O11 O14
    Date: 2008–12
  2. By: Hrvoje Šimović (Faculty of Economics and Business, University of Zagreb)
    Abstract: This paper provides an analysis of corporate income tax (CIT) in Croatia. Given the fact that Croatia implements a consumption-based CIT and a number of tax incentives, the purpose of this paper is to establish the level of effective tax burden on companies in Croatia. In addition to analyzing the basic indicators of the CIT burden, the paper also presents a calculation of the effective tax rate based on the application of the Devereux-Griffith methodology. Apart from the cost of capital, the effective marginal tax rate (EMTR) and the effective average tax rate (EATR), also the EATR will be calculated for cases in which tax holidays are used.
    Keywords: Effective tax rates, corporate income tax, tax holidays, Croatia
    JEL: H25
    Date: 2009–02–17
  3. By: Stephan Litschig
    Abstract: Can rules be used to shield public resources from political interference? The Brazilian constitution and national tax code stipulate that revenue sharing transfers to municipal governments be determined by the size of counties in terms of estimated population. In this paper I document that the population estimates which went into the transfer allocation formula for the year 1991 were manipulated, resulting in significant transfer differentials over the entire 1990’s. I test whether conditional on county characteristics that might account for the manipulation, center-local party alignment, party popularity and the extent of interparty fragmentation at the county level are correlated with estimated populations in 1991. Results suggest that revenue sharing transfers were targeted at right-wing national deputies in electorally fragmented counties as well as aligned local executives.
    Keywords: Bureaucracy, institutions, redistributive politics, electoral competition
    JEL: H77 D72 D73
    Date: 2008–08
  4. By: Dasgupta, Indraneel (University of Durham)
    Abstract: We consider a two-person Cournot game of voluntary contributions to a public good with identical individual preferences, and examine equilibrium aggregate welfare under a separable, symmetric and concave social welfare function. Assuming the public good is pure, Itaya, de Meza and Myles (Econ. Letters, 57: 289-296; 1997) have shown that maximization of social welfare precludes income equality in this setting. We show that their case breaks down when the public good is impure: there exist individual preferences under which maximization of social welfare necessitates exact income equalization. Even if the public good is pure, any given, positive level of income inequality can be shown to be socially excessive by suitably specifying individual preferences. Thus, sans knowledge of individual preferences, one cannot reject the claim that a marginal redistribution from the rich to the poor will improve social welfare, regardless of how small inequality is in the status quo.
    Keywords: public goods, voluntary provision, income distribution, inequality, social welfare
    JEL: D31 D63 D74 Z13
    Date: 2009–01
  5. By: Annamaria Nese; Patrizia Sbriglia
    Abstract: In this paper we explore the relationship between the individual’s preference for cooperation and the establishment of cooperative norms. Our aim is to provide an experimental test of the evolutionary hypothesis (see Carpenter, 2004, Fehr and Gachter 2002; Gintis 2000; Boyd, Bowles, Gintis and Richerson 2003; Bowles and Gintis 2004), according to which individuals are prepared to punish defectors in experimental social dilemma games because they want to enforce a social (“altruistic”) norm which may conduce to increasing their future payoffs, as in the case of sanctions against free riding behaviour. According to this line of research , the high levels of cooperation we observe in our societies can, therefore, be strictly related to the establishment of social norms which are able to enforce and maintain cooperation in the long run. We study the results of two experiments in which the individuals decided both whether to participate in a common project and the institutional rule according to which the profits of the project had to be shared among each of the participants in the group. They could choose between 1) a regime where gains were shared equally, regardless of individuals’ contributions and without sanctions and rewards (System A); 2) a regime where individuals were paid according to their marginal contribution, but the profits of the investments were lower than in the other contexts (System B); finally 3) a regime in which gains were shared equally (as in System A), but individuals were allowed to punish (and\or reward) free riding (cooperative) behaviours as in Sefton, Shupp and Walker (2007). Before the experiments took place, our subjects were required to fill a questionnaire composed of four sections, where their attitude to cooperate and their opinions on civic values and free riding behaviours were thoroughly explored. We then monitored the behaviour of potential free riders and cooperators in the game and their institutional choices. Our results partly contradict the evolutionary hypothesis in as much as System A and B received the largest shares of votes in almost all rounds and they were voted by free riders and cooperators alike. Thus, most individuals do not like sanctions (incentives) against defectors and free riders (cooperators), and their institutional preferences do not seem to be related to their willingness to cooperate. The inspection of individual data, however, reveals some interesting points. In fact, we can assert that System C was mostly chosen by cooperative individuals in response to observed free riding behaviour. Furthermore, when a cooperative individual chose C, she would tend to punish free riders and reward cooperators. Our conclusion is that, as far as the institutional choices are concerned, beside the profit motivations underlined in the evolutionary hypothesis, the ethical and cultural unobserved individual preferences play an important role. There is a number of individuals (limited in our experiments, ranging between 15 and 30 per cent of the entire population) who see cooperation as the “right” thing to do, and therefore are prepared to implement institutional rules that may favour this collective outcome. Most people in our experiments did not share these same values.
    Keywords: public good games, experiments, voting choices
    JEL: C90 C91
    Date: 2009–02
  6. By: Lankina, Tomila
    Abstract: There is now a considerable body of literature on decentralization in diverse national contexts. Ascertaining factors that drive local accountability and performance have been the key concerns of these studies. Diverse ethodological instruments and approaches have been used—from large-n statistical analyses to in-depth case study techniques. And yet, the findings regarding the drivers of local performance and accountability remain inconclusive or even contradictory even when different scholars employ similar data.
    Keywords: Local Performance; Democracy; Rule of Law; Elections; Socio-Economic development; Political Culture; Corruption; Ethnic Diversity; Party System; Fiscal Decentralization; Local Government; Outsourcing; Leadership Skills.
    JEL: H70 H11 H0 A12 G18 H7 A11
    Date: 2008–07–16
  7. By: Peeters Ronald; Vorsatz Marc (METEOR)
    Abstract: In this paper, we compare the cause and effect of immaterial rewards and sanctions oncooperation in a voluntary contributions experiment. We find that both rewards andsanctions increase contributions only when subjects interact repeatedly, though rewardsseem to be more effective than sanctions. Moreover, in contrast to sanctions, rewards dohave an impact on future contributions. Although the direct effect is negative, there is apositive indirect effect that applies to subjects who contribute above (below) the groupaverage in a partner (stranger) matching. From this we conclude that sanctions andrewards are mainly used as a communication channel to coordinate on a more efficientoutcome. Nevertheless, subjects also seem to experience additional utility from receivingapproval, whereas they are insensitive to disapprovals.
    Keywords: public economics ;
    Date: 2009
  8. By: Francesc Trillas (Universitat de Barcelona & IEB)
    Abstract: This article starts by surveying the literature on economic federalism and relating it to network industries. Some new developments (which focus on the role of inter-jurisdictional externalities and multiple objectives) are then added and used to analyze regulatory arrangements in telecommunications and energy in the EU and the US. Although central or federal policy making is more focused and specialized and makes it difficult for more interest groups to organize, it is not clear that under all conditions central powers will not be associated with underinvestment. When technology makes the introduction of competition in some segments possible, the possibilities for organizing the institutional architecture of regulation expand.
    Keywords: Regulation, federalism, network industries.
    JEL: L50 L94 L96 L97 K23 H77
    Date: 2008

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