nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒05‒09
seven papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Shadow Budgets, Fiscal Illusion and Municipal Spending: The Case of Germany By Peter Haug
  2. Axiomatic foundation for Lindahl pricing in the NIMBY context By Laurent-Lucchetti, Jérémy; Leroux, Justin
  3. The dinamic adjustment of local government budgets: does Spain behave differently? By Albert Solé-Ollé; Pilar Sorribas-Navarro
  4. The determinants of public deficit volatility By Luca Agnello; Ricardo M. Sousa
  5. Collaborating By Alessandro Bonatti; Johannes Horner
  6. Government Instability Indicators and the Exercise of limited "Consensus" in post-communist Romania 1992-2004 By Olimid, Anca Parmena
  7. Choosing and Sharing By Laurent-Lucchetti, Jérémy; Leroux, Justin

  1. By: Peter Haug
    Abstract: The paper investigates the existence of fiscal illusion in German municipalities with special focus on the revenues from local public enterprises. These shadow budgets tend to increase the misperception of municipal tax prices and seem to have been neglected in the literature. Therefore, an aggregated expenditure function has been estimated for all German independent cities applying an “integrated budget” approach, which means that revenues and expenditures of the core budget and the local public enterprises are combined to one single municipal budget. The estimation results suggest that a higher relative share of local public enterprise revenues might increase total per capita spending as well as spending for non-obligatory municipal goods and services. Empirical evidence for other sources of fiscal illusion is mixed but some indications for debt illusion, renter illusion or the flypaper effect could be found.
    Keywords: fiscal illusion, municipal enterprises, panel data regression
    JEL: H72 L32 H71
    Date: 2009–04
  2. By: Laurent-Lucchetti, Jérémy; Leroux, Justin
    Abstract: The siting of public facilities, such as prisons, airports or incinerators for hazardous waste typically faces social rejection by local populations (the "NIMBY" syndrome, for Not In My BackYard). These public goods exhibit a private bad aspect which creates an asymmetry: all involved communities benet from their existence, but only one (the host community) bears the local negative externality. We view the siting problem as a cost sharing issue and provide an axiomatic foundation for Lindahl pricing in this context. The set of axioms we introduce are specically designed to overcome the asymmetry of the problem.
    Keywords: Public goods; Externalities; NIMBY; Location; Cost sharing.
    JEL: D63 H41
    Date: 2009–04
  3. By: Albert Solé-Ollé (Universitat de Barcelona); Pilar Sorribas-Navarro (Universitat de Barcelona)
    Abstract: The aim of this paper is to analyze whether Spanish municipalities adjust in response to budget shocks and (if so) which elements of the budget they are more likely to adjust. The methodology we use to answer these questions is a vector error-correction model (VECM), estimated with data from a panel of Spanish municipalities during the period 1988-2006. Our results confirm, first, that municipalities do indeed make adjustments in response to fiscal shocks (i.e., the deficit is stationary in the long run). Second, we find that most of the adjustment to a revenue shock is borne by the municipalities themselves as they proceed to cut expenditures, with a minor role being played by grant financing. By contrast, adjustments to expenditure shocks are shared on largely equal terms by the municipality –through the raising of taxes– and higher tiers of government –through the raising of grants. These results suggest that the viability of the local finance system is feasible with different institutional arrangements.
    Keywords: Fiscal adjustment, intergovernmental transfers, local government.
    JEL: H70 H72 H77
    Date: 2009
  4. By: Luca Agnello (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Ricardo M. Sousa (University of Minho, Department of Economics and Economic Policies Research Unit (NIPE), Campus of Gualtar, 4710-057 - Braga, Portugal.)
    Abstract: This paper empirically analyzes the political, institutional and economic sources of public deficit volatility. Using the system-GMM estimator for linear dynamic panel data models and a sample of 125 countries analyzed from 1980 to 2006, we show that higher public deficit volatility is typically associated with higher levels of political instability and less democracy. In addition, public deficit volatility tends to be magnified for small countries, in the outcome of hyper-inflation episodes and for countries with a high degree of openness. JEL Classification: E31, E63.
    Keywords: Public deficit, volatility, political instability, institutions.
    Date: 2009–04
  5. By: Alessandro Bonatti (Dept. of Economics, Yale University); Johannes Horner (Cowles Foundation, Yale University)
    Abstract: This paper examines moral hazard in teams over time. Agents are collectively engaged in an uncertain project, and their individual efforts are unobserved. Free-riding leads not only to a reduction in effort, but also to procrastination. The collaboration dwindles over time, but never ceases as long as the project has not succeeded. In fact, the delay until the project succeeds, if it ever does, increases with the number of agents. We show why deadlines, but not necessarily better monitoring, help to mitigate moral hazard.
    Keywords: Moral hazard, Teams, Experimentation, Collaboration, Public goods, Learning
    JEL: C72 C73 D83
    Date: 2009–04
  6. By: Olimid, Anca Parmena
    Abstract: During the 1990s post communist societies faced similar challenges at the level of executive government. Since the early studies of Rosenthal (1978), political science literature’s focus is on the different continuums of political stability.In recent years there has been an increased interest in analyzing the effects of political instability in post communist Romania. This article is an effort to look at the indicators of political instability (redefined as Government instability) in an unconsolidated democracy. The issue of political stability in post-communist Romania must of course be analyzed in relation to the challenges of reform and the sources of the limited consensus in government coalition in Romania (1992-2004).
    Keywords: government; post-communist society; political stability;crisis of governality
    JEL: H11
    Date: 2008–11–22
  7. By: Laurent-Lucchetti, Jérémy; Leroux, Justin
    Abstract: Implementing a project, like a nationwide nuclear waste disposal, which benefits all involved agents but brings major costs only to the host is often problematic. In practice, revelation issues and redistributional concerns are significant obstacles to achieving stable agreements. We address these issues by proposing the first mechanism to implement the efficient site (the host with the lowest cost) and share the exact cost while retaining total control over realized transfers. Our mechanism is simple and in the vein of the well-known Divide and Choose procedure. The unique Nash equilibrium outcome of our mechanism coincides with truthtelling, is budget-balanced, individually rational and immune to coalitional deviations. More generally, our mechanism can also handle the symmetric case of positive local externalities (e.g., Olympic Games) and even more complex situations where the usefulness of the project---regardless of its location---is not unanimous.
    Keywords: Public goods; local externalities; NIMBY; implementation; mechanism design; VCG mechanisms.
    JEL: H41 D61 C70
    Date: 2009–04

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