nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒03‒07
eleven papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Federalism and Public Choice By Hills, Roderick
  2. Reasons behind public goods provision By M. Raimondi
  3. How can the power of Leviathans be measured? By Göbel, Jürgen
  4. The role of mobility in tax and subsidy competition By Alexander Haupt; Tim Krieger
  5. The Elasticity of Taxable Income: Estimates and Flat Tax Predictions using the Hungarian Tax Changes in 2005 By Péter Bakos; Péter Benczúr; Dora Benedek
  6. Judicial Review Litigation as an Incentive to Change in Local Authority Public Services in England & Wales By Platt L; Sunkin M; Calvo K
  7. Spatial Interdependence of Local Public Expenditures: Selected Evidence from the Czech Republic By Lenka Gregorová
  8. A theoretical and practical study on linear reforms of dual taxes By Samuel Calonge; Oriol Tejada
  9. Reforming the EU Budgetary Procedure: Is Codecision a Step Forward? By Giuriato, Luisa
  10. Lasting Bang for the Stimulus Buck: Priorities for the 2009 Federal Budget By William B.P. Robson; Alexandre Laurin; Finn Poschmann
  11. Wine Taxes, Production, Aging and Quality By Rachael E. Goodhue; Jeffrey LaFrance; Leo K. Simon

  1. By: Hills, Roderick
    Abstract: This paper is a draft chapter for an edited collection on Law and Public Choice being published by Edward Elgar and edited by Dan Farber and Anne Joseph O’Connell. The chapter provides an overview of public choice literature regarding three aspects of federalism - exit-based normative justifications for federal regimes, voice-based normative justifications for federal regimes, and positive theories for how federal regimes are sustained through the political process. In general, I suggest that the most promising trend in public choice theory is the effort of economists, political scientists, and lawyers to tackle the thorny question of “voice” in federal regimes - that is, how subnational politics differs in federal regimes from the politics of unitary states. Moreover, the case for federalism based on exit critically depends on the argument for federalism based on improvement of ”voice.” Otherwise, migration from one city or state to another to escape predatory regimes would simply be pointless movement out of a ”Leviathan” frying pan into a ”Leviathan” fire. Public choice theorists seem to have an inveterate suspicion of claims that subnational government facilitates political participation, perhaps because the entire tradition of public choice is based on the theoretical impossibility that collective action can accurately represent individuals’ preferences and values. Yet nothing in the conventional account of how decentralization improves political ”voice” is inconsistent with the abstract principles of public choice theory.
    Keywords: Public Choice; federalism; political process; predatory regimes; Leviathan; collective action;
    JEL: H77 H7 A12 A10
    Date: 2009
  2. By: M. Raimondi
    Abstract: In order to examine the role of non-economically measurable factors into the models of voluntary provision of public goods, Experimental Economics showed two systematic findings: (a) in early rounds of game, individual contributions are surprisingly high and increasing, but they tend to decrease progressively for all the agents and to reach a level of cooperation close to zero and (b) complete free riding is never observed. In explaining these evidences, experimental economists have pointed out the importance of factors such as kindness, confusion and strategic cooperation and most laboratory experiments have used clever designs to control for particular factors in order to isolate the effects of others. However, attempts to disentangle and measure the relevant variables of voluntary cooperation are partially and mainly realised comparing pairs of variables, which leaves one of the three hypotheses unexplained. In particular, there are at least two aspects left to be explained: (1) which has more influence in determining the level of contributions: kindness or confusion? (2) What is the role of strategic cooperation? Earlier experiments appear not able to include kindness, confusion and strategic cooperation in the same model and it seems to be very important to separate strategic cooperation from other altruistic motivations. In this work I aim at providing evidence on the way that kindness, confusion and strategic cooperation all affect contributions and to discuss new findings in the measurement and in the disentanglement of these variables made by using a new experimental design with the Voluntary Contribution Mechanism (VCM). I will adopt the same approach as Andreoni (1995), subtracting one component in each treatment and leaving other components as reasonable (and measurable) explanations for cooperation.
    Keywords: Experimental Economics; Social Dilemmas; Collective Action; Public Goods
    JEL: C92 D64 D80 H41
    Date: 2009
  3. By: Göbel, Jürgen
    Abstract: In certain respects, it seems expedient to describe a government as a homogeneous and self-interested entity, called ’Leviathan’. To optimize fiscal constraints, we need to know how powerful a Leviathan really is. This paper presents a new approach to measure the power of Leviathans. This new approach defines fiscal power in terms of income deviation. It supposes that there exists a positive connection between fiscal power and intergovernmental grants. To examine the approach empirically, we use data on U.S. counties in the period 1999-2002. Equations of fiscal power are estimated on the full and on stratified samples. Overall, the results support the new approach. Nonetheless, further research on the highly significant control variables would be needed to derive recommendations for more efficient fiscal constraints.
    Keywords: Leviathan; measurement; income deviation; grants
    JEL: H11 H72 H30
    Date: 2009–02–28
  4. By: Alexander Haupt (University of Plymouth and CESifo); Tim Krieger (University of Paderborn)
    Abstract: In this paper, we analyse the role of mobility in tax and subsidy competition. Our primary result is that increasing ‘relocation’ mobility of firms leads to increasing ‘net’ tax revenues under fairly weak conditions. While enhanced relocation mobility intensifies tax competition, it weakens subsidy competition. The resulting fall in the governments’ subsidy payments overcompensates the decline in tax revenues, leading to a rise in net tax revenues. We derive this conclusion in a model in which two governments are first engaged in subsidy competition and thereafter in tax competition, and firms locate and potentially relocate in response to the two political choices.
    Keywords: Tax competition, subsidy competition, capital and firm mobility,foreign direct investment
    JEL: H71 H87 F21 H25
    Date: 2009–02
  5. By: Péter Bakos; Péter Benczúr; Dora Benedek
    Abstract: Many Central and Eastern European countries are adopting flat tax schemes in order to boost their economies and tax revenues. Though there are signs that some countries do manage to improve on both fronts, it is in general hard to distinguish the behavioral response to tax changes from the effect of increased tax enforcement. This paper addresses this gap by estimating the elasticity of taxable income in Hungary, one of the outliers in terms of not having a flat tax scheme. We analyze taxpayer behavior using a medium-scale tax reform episode in 2005, which changed marginal and average tax rates but kept enforcement constant. We employ a Tax and Financial Control Office (APEH) panel dataset between 2004 and 2005 with roughly 215,000 taxpayers. Our results suggest a relatively small but highly significant tax price elasticity of about 0.06 for the population earning above the minimum wage (around 70% of all taxpayers). This number increases to around 0.3 when we focus on the upper 20% of the income distribution, with some income groups exhibiting even higher elasticities (0.45). We first demonstrate that such an elasticity substantially modifies the response of government revenues to the 2004-2005 tax changes, and then quantify the impact of a hypothetical flat income tax scheme. Our calculations indicate that though there is room for a parallel improvement of budget revenues and after-tax income, those gains are modest (2% and 1.4%, respectively). Moreover, such a reform involves important adverse changes in income inequality, and its burden falls mostly on lower-middle income taxpayers.
    Keywords: elasticity of taxable income, tax reform, behavioral response, revenue estimation, flat tax
    JEL: H24 H31
    Date: 2008–08–04
  6. By: Platt L (Institute for Social and Economic Research); Sunkin M (University of Essex); Calvo K (University of Essex)
    Abstract: In this paper we consider the relationship between levels of judicial review litigation and the quality of local government services. The findings indicate that judicial review may be making a positive contribution to local government in England and Wales. The paper also considers the way local government officials perceive judicial review and argues that reactions cannot be wholly understood in terms of incentives. Judicial review makes a positive contribution to public administration at least partly because it promotes values that are central to the ethos of public administration and assists officials in resolving tensions between individual and collective justice.
    Date: 2009–02–26
  7. By: Lenka Gregorová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: Local expenditures in neighbouring municipalities can be spatially interdependent due to spillovers, cooperation effects, competition effects or mimicking. In this paper, we aim to test the spatial interdependence of local public expenditures using data on 205 Czech municipalities. We found positive spatial interdependence in expenditures on housing and culture and negative spatial interdependence for expenditures on industry and infrastructure and environmental protection. Additionally, we observed that political characteristics affect the size of spending; left-wing parties tend to increase expenditures on culture and decrease expenditures on industry and infrastructure; and higher party fragmentation decreases overall capital expenditures and expenditures on housing.
    Keywords: spillovers, fiscal competition, local public finance
    JEL: C72 H77 R12
    Date: 2009–03
  8. By: Samuel Calonge; Oriol Tejada (Universitat de Barcelona)
    Abstract: We extend the linear reforms introduced by Pf ahler (1984) to the case of dual taxes. We study the relative effect that linear dual tax cuts have on the inequality of income distribution -a symmetrical study can be made for dual linear tax hikes-. We also introduce measures of the degree of progressivity for dual taxes and show that they can be connected to the Lorenz dominance criterion. Additionally, we study the tax liability elasticity of each of the reforms proposed. Finally, by means of a microsimulation model and a considerably large data set of taxpayers drawn from 2004 Spanish Income Tax Return population, 1) we compare different yield-equivalent tax cuts applied to the Spanish dual income tax and 2) we investigate how much income redistribution the dual tax reform (Act 35/2006) introduced with respect to the previous tax.
    Keywords: lattices, dual taxes, lorenz domination, linear reforms
    JEL: E60 E62
    Date: 2009
  9. By: Giuriato, Luisa
    Abstract: Codecision is the main European Union legislative procedure and the 2007 Reform Treaty draft has adopted it to improve the budgetary process. However, at close examination, codecision and the current budgetary process show an identical structure. Both are designed as non-cooperative alternating offers bargaining games between institutions and both, although in different measure, have gone through periods of interinstitutional deadlocks and conflicts, which can be ascribed to the insufficiency of the non-cooperative bargaining setup with respect to the task of providing for joint-decision making by the Parliament and the Council of Ministers: in particular, the opportunistic interpretation of the Treaty provisions by the Parliament in the 1980s was one of the consequences of the strict bargaining design. The article argues that the lacking elements for joint decision making have been gradually inserted in the procedures by means of informal negotiation institutions, which are not only mechanisms for equilibrium selection but also corrective devices to strict non-cooperative procedures. Informal institutions will play a fundamental role also in the change from the current budgetary procedure to the one designed in the 2007 Reform Treaty, where the Parliament does not seem to gain a ‘dominant position’, the Commission improves its scope for action and the Council consolidates its role.
    Keywords: EU finances; legislative codecision; budgetary procedure; informal institutions; 2007 Reform Treaty.
    JEL: D73 H77 D78
    Date: 2009
  10. By: William B.P. Robson (C.D. Howe Institute); Alexandre Laurin (C.D. Howe Institute); Finn Poschmann (C.D. Howe Institute)
    Abstract: Unusual economic and political circumstances surround the framing of the 2009 federal budget. A period of global spending outrunning productive capacity has ended with financial crisis and recession in much of the world, Canada included. The sudden slump has prompted demand for, and expectations of, fiscal action.
    Keywords: fiscal policy, Canadian government budget
    JEL: E62 E61 E66
    Date: 2009–01
  11. By: Rachael E. Goodhue; Jeffrey LaFrance; Leo K. Simon (School of Economic Sciences, Washington State University)
    Abstract: We consider the impact of taxes on the quantity and quality produced of goods, such as wine, for which market value accrues with age by a competitive producer. Any pair of taxes that includes a volumetric sales tax and any one of three other types of tax – an ad valorem sales tax, an ad valorem storage tax, or a volumetric storage tax – spans the full range of feasible tax revenues with positive tax rates. For any tax system that reduces quality relative to the firm’s no-tax equilibrium, there is another tax system that increases tax revenues, eliminates the quality distortion, and does not increase the quantity distortion. Many wine industry observers believe that most, if not all, existing tax systems tend to result in the suboptimal provision of quality. Our results suggest that the wide variety of wine tax systems is not prima facie evidence that these systems, or most of them, are inefficient. Provided the system includes a volumetric sales tax it may be efficient, regardless of which of the other instruments, or how many of them, are used. Assertions regarding inefficiency must be evaluated on an empirical case-by-case basis. Our analysis provides a theoretical framework for such research.
    Keywords: aging, Alchian-Allen effect, tax policy, wine
    Date: 2009–02

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