nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒05‒30
twelve papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Fiscal behaviour in the European Union: rules, fiscal decentralization and government indebtedness. By António Afonso; Sebastian Hauptmeier
  2. Crowding Out and Crowding In of Private Donations and Government Grants By Garth Heutel
  3. Not It: Opting out of Voluntary Coalitions that Provide a Public Good By David M. McEvoy
  4. Irish Public Capital Spending in a Recession By Edgar Morgenroth
  5. The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review By Emmanuel Saez; Joel B. Slemrod; Seth H. Giertz
  6. Global Determinants of Stress and Risk in Public-Private Partnership ( PPP) in Infrastructure By Reside Renato E
  7. When do Legislators pass on"Pork"? the determinants of legislator utilization of a constituency development fund in India By Keefer, Philip; Khemani, Stuti
  8. Mobile criminals, immobile crime: the efficiency of decentralized crime deterrence By Martin Gregor; Lenka Šťastná
  9. Government Information Transparency By Facundo Albornoz; Joan Esteban; Paolo Vanin
  10. The referendum threat, the rationally ignorant voter, and the political culture of the EU By Giandomenico Majone
  11. The State and Local Drag on the Stimulus By Dean Baker; Rivka Deutsch
  12. Pay for Play? Tax Credits for Paid Time Off By Dean Baker

  1. By: António Afonso (Technical University of Lisbon, Department of Economics; UECE – Research Unit on Complexity and Economics, R. Miguel Lupi 20, 1249-078 Lisbon, Portugal.); Sebastian Hauptmeier (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: We assess the fiscal behaviour in the European Union countries for the period 1990-2005 via the responsiveness of budget balances to several determinants. The results show that the existence of effective fiscal rules, the degree of public spending decentralization, and the electoral cycle can impinge on the country’s fiscal position. Furthermore, the results also support the responsiveness of primary balances to government indebtedness. JEL Classification: C23, E62, H62.
    Keywords: fiscal regimes, fiscal rules, fiscal decentralization, European Union, panel Data.
    Date: 2009–05
  2. By: Garth Heutel
    Abstract: A large literature examines the interaction of private and public funding of public goods and charities, much of it testing if public funding crowds out private funding. This paper makes two contributions to this literature. First, the crowding out effect could also occur in the opposite direction: in response to the level of private contributions, the government may alter its funding. I model how crowding out can manifest in both directions. Second, with asymmetric information about the quality of a public good, one source of funding may act as a signal about that quality and crowd in the other source of funding. I test for crowding out or crowding in either direction using a large panel data set gathered from nonprofit organizations' tax returns. I find strong evidence that government grants crowd in private donations, consistent with the signaling model. Regression point estimates indicate that private donations crowd out government grants, but they are not statistically significant.
    JEL: H4 L31
    Date: 2009–05
  3. By: David M. McEvoy
    Abstract: Most coalitions that form to increase contributions to a public good do not require full participation by all users of the public good, and therefore create incentives for free riding. If given the opportunity to opt out of a voluntary coalition, in theory, agents should try to be among the first to do so, forcing the remaining undecided agents to bear the cost of participating in the coalition. This study tests the predicted sequence of participation decisions in voluntary coalitions using real-time threshold public goods experiments. We find that subjects’ behavior is more consistent with the theoretical predictions when the difference in payoffs between coalition members and free-riding non-members is relatively large. Key Words: voluntary coalitions, voluntary agreements, public goods experiments, free riding
    JEL: H41 C92 C72 Q50
    Date: 2009
  4. By: Edgar Morgenroth (ESRI)
    Abstract: In the past the first expenditure to be cut during an economic downturn was capital expenditure. However, the cuts in capital expenditure of the late 1980?s and 90?s had left Ireland with an infrastructure deficit. This note highlights a number of important issues, which should be considered before decisions to spend tax payer?s money to support the construction sector are taken. Overall the paper concludes that in the context of a relatively high cost per job created via public investment, public capital projects should be undertaken on the basis that they have a long-run return to the whole economy.
    Date: 2009–05
  5. By: Emmanuel Saez; Joel B. Slemrod; Seth H. Giertz
    Abstract: This paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates (ETI) using tax return data. First, we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis. We discuss what other parameters should be estimated when the elasticity is not a sufficient statistic. Second, we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the United States to illustrate those issues. Third, we provide a critical discussion of most of the taxable income elasticities studies to date, both in the United States and abroad, in light of the theoretical and empirical framework we laid out. Finally, we discuss avenues for future research.
    JEL: H24 H31
    Date: 2009–05
  6. By: Reside Renato E
    Abstract: This study analyzes the determinats of stress in public-private partnerships (PPPs) in infrastructure investment. The empirical analysis in this study yields a number of surprising results: 1.Strong growth and rigid currency regimes heighten risk by leading to adverse selection of proponents and moral hazard in project design 2.Many of the World Bank's indices of governance quality lead to perverse outcomes, suggesting that new governance standards must be used to judge PPPs 3.Except for political risk guarantees, loans and equity from multilateral institutions have no effects on outcomes ;however, political risk guarantees are rarely utilized ,suggesting that they may need to be redesigned or marketed better to be more useful. [WP 133]
    Keywords: Stress;Risk;Political Risk;Infrastructure;Public-Private Partnership Investments;Public-Private Partnership Outcomes;Governance;Macroeconomic Channels;Adverse Selection;Moral Hazard;Project Design
    Date: 2009
  7. By: Keefer, Philip; Khemani, Stuti
    Abstract: The authors examine a unique public spending program that is proliferating across developing countries, the constituency development fund, to investigate when legislators exert more effort on behalf of their constituents. Using data from India, they find that legislator effort is significantly lower in constituencies where voters are more attached to political parties. They are also lower in constituencies that are reserved for members of socially disadvantaged groups (lower castes), specifically in those reserved constituencies that are candidate strongholds. This result is robust to controls for alternate explanations and implies that legislators pass on pork when voters are more attached to political parties or influenced by identity issues. These findings have implications for the evaluation of constituency development funds. They also provide a new answer to a central issue in political economy, the conditions under which legislators seek to"bring home the pork"to constituents, that attaches great importance to the role of political parties.
    Keywords: Parliamentary Government,Microfinance,Political Systems and Analysis,Politics and Government,Government Policies
    Date: 2009–05–01
  8. By: Martin Gregor (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Lenka Šťastná (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: In this paper we examine a class of local crimes that involve perfectly mobile criminals, and perfectly immobile criminal opportunities. We focus on local non-rival crime deterrence that is more efficient against criminals pursuing domestic crimes than criminals pursuing crimes elsewhere. In a standard case of sincerely delegated politicians and zero transfers to other districts, we show that centralized deterrence unambiguously dominates the decentralized deterrence. With strategic delegation and voluntary in-kind transfers, the tradeoff is exactly the opposite: Decentralization achieves the social optimum, whereas cooperative centralization overprovides for enforcement. This is robust to various cost-sharing modes. We also examine the effects of the growing interdependence of districts, stemming from criminals' increasing opportunities to strategically displace. Contrary to the supposition in Oates's decentralization theorem, increasing interdependence makes centralization less desirable.
    Keywords: crime mobility; crime deterrence; decentralization; strategic delegation; side payments
    JEL: H41 H73 H76 R50
    Date: 2009–05
  9. By: Facundo Albornoz; Joan Esteban; Paolo Vanin
    Abstract: This paper studies a model of announcements by a privately in- formed government about the future state of the economic activity in an economy subject to recurrent shocks and with distortions due to income taxation. Although transparent communication would ex ante be desirable, we find that even a benevolent government may ex-post be non-informative, in an attempt to countervail the tax distortion with a `second best' compensating distortion in information. This re- sult provides a rationale for independent national statistical offices, committed to truthful communication. We also find that whether inequality in income distribution favors or harms government trans- parency depends on labor supply elasticity.
    Keywords: Government announcements, Cheap talk, Asymmetric information, Inequality
    JEL: D82 E61
    Date: 2009–05
  10. By: Giandomenico Majone
    Abstract: The chasm separating elite and popular opinion on the achievements and finality of European integration was never so visible as after the negative referendums on the Constitutional and the Lisbon Treaties. The public attitude prevailing in the past has been characterized as one of permissive consensus, meaning that the integration project was seemingly taken for granted by European publics as an accepted part of the political landscape. The current stage of the integration process is best understood as the end of permissive consensus, but EU leaders do not seem to be sufficiently aware of the far-reaching consequences entailed by this change in public attitude. One important reason for this inability, or unwillingness, to assess realistically the new situation is the peculiar political culture grown up in more than half a century of intense, if not always productive, integrationist efforts. A striking demonstration of the hold of this political culture on the minds of Euro-leaders is the view of popular referendums as an unconscionable risk for the integration process--the referendum roulette. One of the favourite arguments against ratification of European treaties by popular referendum is that voters cannot be expected to read and evaluate technically and legally complex texts running into hundreds of pages. It will be shown, however, that this argument is flawed in several respects; carried to its logical conclusion, it would lead to severe restrictions of the franchise even at the national level. The reasons of the current discontent are to be found in the fear of a EU without border and limits and in the loss of confidence among significant parts of the electorate in the EU’s ability to deal with everyday issues. The Union may be entering an age of diminished expectations: leaders realize that the current approach to European integration no longer delivers very much, but there is little demand for an alternative approach that might do better. Some form of differentiated integration may offer the only possibility of avoiding the dilemma of dissolution or irrelevance.
    Keywords: Constitution for Europe; democracy; differentiated integration; federalism; political culture; referendum; treaty reform
    Date: 2009–05–15
  11. By: Dean Baker; Rivka Deutsch
    Abstract: This report shows that the $787 billion included in the 2009 ARRA will not have as much of an immediate effect on the economy as initially anticipated. After subtracting the annual AMT patch and acounting for state level spending and tax cuts, the full effect of federal stimulus will equal a little more than 1 percent of GDP a year, falling far short of what is needed to re-ignite the economy. While the 2009 recovery act was a vital first step towards restoring the nations economic foundation, this paper puts some perspective on the immediate effects of the stimulus.
    Keywords: economic stimulus, fiscal stimulus, recession, ARRA, unemployment
    JEL: H H2 H25 H3 I I1 I18 E E2 E24 E6 E62 E64
    Date: 2009–05
  12. By: Dean Baker
    Abstract: Economists are increasingly coming to the recognition that the current downturn is likely to be longer and more severe than they had expected at the time the last stimulus package was approved in February. As a result, there is likely to be interest in additional stimulus in order to boost the economy and lower the unemployment rate. This paper briefly outlines a method for Congress to quickly boost demand in the economy, while at the same time promoting important public ends: an employer tax credit for paid time off. This paid time off can take the form of paid family leave, paid sick days, paid vacation, or a shorter workweek. This tax credit can both provide short-term stimulus and also provide an incentive to restructure workplaces in ways that are more family friendly. It is possible that many workplaces may leave in place changes made to take advantage of this tax credit even after it has expired.
    Keywords: economic stimulus, fiscal stimulus, ARRA, recession, paid time off
    JEL: H H2 H25 H3 I I1 I18 E E2 E24 E6 E62 E64
    Date: 2009–03

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