nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒06‒17
nineteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Equilibrium effects of public goods: The impact of community water fluoridation on dentists By Katherine Ho; Matthew Neidell
  2. Optimal Taxation in Theory and Practice By N. Gregory Mankiw; Matthew Weinzierl; Danny Yagan
  3. The increase of the collection level of tax levies - a source of budgetary revenue By Cioponea, Cristina Mariana
  4. Is a Federal European Constitution for an Enlarged European Union Necessary? Some Preliminary Suggestions using Public Choice Analysis By Friedrich Schneider
  5. An overview of decentralization and local governance in Eastern and Southern Africa By Kundishora, Phillip
  6. Centralization of Decentralized Governance - Evidence from West Bengal Panchayat By Misra, Jaydev
  7. "The Return of the State: The New Investment Paradigm" By Marshall Auerback
  8. Infrastructure and growth in the European Union: an empirical analysis at the regional level in a spatial framework By Chiara DEL BO; Massimo FLORIO
  9. Mises on the Nation and the State By Cachanosky, Nicolas
  10. The capitalization of taxes in bond prices: Evidence from the market for Government of Canada bonds By Landon, Stuart
  11. Why do underground reducing policies often fail their scope? Some answers from the Italian experience By Bruno Chiarini; Marco Di Domizio; Elisabetta Marzano
  12. Incorporation and Taxation: Theory and Firm-level Evidence By Peter Egger; Christian Keuschnigg; Hannes Winner
  13. Optimal tax policy when firms are internationallly mobile By Johannes Becker; Clemens Fuest
  14. A multilevel analysis on the economic impact of public infrastructure and corruption on Italian regions By Torrisi, Gianpiero
  15. Regulation and consumer satisfaction from public services: an individual fixed effects approach By Simona GRASSI; Riccardo PUGLISI
  16. The Economics of Public Sector Information By Pollock, R.
  17. Choosing the extent of private participation in public services: A computable general equilibrium perspective By Chisari, Omar O.; Lambardi, Germán D.; Romero, Carlos A.
  18. How big is the visible hand of the state in the Russian banking industry? By Glushkova, Ekaterina; Vernikov, Andrei
  19. Tax Policies for Low-Carbon Technologies By Gilbert E. Metcalf

  1. By: Katherine Ho; Matthew Neidell
    Abstract: In this paper we consider how the dental industry responded to the addition of fluoride to public drinking water. We take advantage of the staggered introduction of fluoridation throughout the country to analyze the changes in numbers of within-county dentists relative to physicians in the years surrounding the change in fluoridation status. We find a significant decrease in the number of dental establishments and an even larger reduction in the number of employees per firm following fluoridation. We also find that fluoridation in neighboring markets was associated with an increase in own-market dental supply, suggesting that dentists responded to the demand shock by moving from fluoridated areas to close-by markets. Further analysis suggests that some dentists may have retrained as specialists rather than moving geographically. Our estimates imply that the 8 percentage point change in exposure to water fluoridation from 1974 to 1992 may have led to the loss of as many as 0.6 percent of dental establishments and 2.1 percent of dental employees, suggesting a substantial net impact of this public good on the dental profession since its inception.
    JEL: H41 H51 I11 J24 L22
    Date: 2009–06
  2. By: N. Gregory Mankiw; Matthew Weinzierl; Danny Yagan
    Abstract: We highlight and explain eight lessons from optimal tax theory and compare them to the last few decades of OECD tax policy. As recommended by theory, top marginal income tax rates have declined, marginal income tax schedules have flattened, redistribution has risen with income inequality, and commodity taxes are more uniform and are typically assessed on final goods. However, trends in capital taxation are mixed, and capital income tax rates remain well above the zero level recommended by theory. Moreover, some of theory's more subtle prescriptions, such as taxes that involve personal characteristics, asset-testing, and history-dependence, remain rare in practice. Where large gaps between theory and policy remain, the difficult question is whether policymakers need to learn more from theorists, or the other way around.
    JEL: H21 H24 H25
    Date: 2009–06
  3. By: Cioponea, Cristina Mariana (Universitatea Spiru Haret, Facultatea de Finante si Banci)
    Abstract: Our country, as a recent member of The European Union must improve tax collection, simplify tax low and improve the activity of fiscal administration.
    Keywords: arierate fiscale; control fiscal; executare silita
    JEL: G28
    Date: 2009–06–01
  4. By: Friedrich Schneider
    Abstract: In order to guarantee a further successful functioning of the enlarged European Union a Federal European Constitution is proposed. Six basic elements of a future European federal constitution are developed: the European commission should be turned into an European government and the European legislation should consist of a two chamber system with full responsibility over all federal items. Three further key elements are the subsidiarity principle, federalism and the secession right, which are best suited to limiting the domain of the central European authority to which certain tasks are given, such as defense, foreign and environmental policy. Another important feature is direct democracy, which provides the possibility for European voters to participate actively in the political decision making, to break political and interest group cartels, and to prevent an unwanted shifting of responsibilities from EU member states to the European federal level.
    JEL: D72 D78 H7 H11
    Date: 2009–05–28
  5. By: Kundishora, Phillip
    Abstract: This paper reviews the decentralization process in Eastern and Southern Africa. It begins with an analysis of the socio-economic as well as the political challenges confronting most countries in the region. This analysis places the decentralization debate into context as these challenges have a bearing on the outcome of any reforms undertaken. The paper goes on to define decentralization and local democracy in order to come up with a clear understanding of the different forms of decentralization as well as the tenets of local democracy.
    Keywords: decentralization; local governance; democracy.
    JEL: H77 H7
    Date: 2009–02
  6. By: Misra, Jaydev
    Abstract: Democratic decentralization in the state of West Bengal, of its own, are not producing systems that are more effective or more accountable to local needs and interests. The formal mechanisms matter less than the informal institutions that underpin local political economies. And the understanding of it by the poor may have been reflected in the ballot box of last Panchayat election held in 2008. If 'only alternative of the left is better left', then the left strategy of democratic decentralization must have to be replaced by alternative model with more accountability, less corruption and abolition of those clientilsm.
    Keywords: Democratic decentralization; participation; access; control; sustainable development; clientelism
    JEL: R58 R0
    Date: 2008–06
  7. By: Marshall Auerback
    Abstract: To save America--indeed, the global economy as a whole--the private/public sector balance has to shift, and the neoliberal economic model on which the country has been based for the past 25 years has to be modified. In this new working paper, Marshall Auerback details why the role of the state needs to be reemphasized. The abandonment of a mixed economy and corresponding diminution of the role of government was hailed as the "rebirth of individualism," yet it caused rising inequality and the decline of median wages, and led to the widespread neglect of public goods vital to its citizens' welfare. Meanwhile, the country ran through the public investment it had made from the 1930s to the 1970s, with few serious challenges from policymakers or mainstream economists. The neoliberal model was also aggressively exported: the "optimal" growth strategy for all emerging economies was supposedly one that emphasized limited government, corporate governance, rule of law, and higher levels of state-owned and -influenced enterprise—in spite of significant historical evidence to the contrary. Not even the economic wreckage in Mexico, Argentina, Thailand, Indonesia, and Russia seemed sufficient to challenge, let alone overturn, the prevailing paradigm. That is, until now: in reaction to the financial crisis, many governments—led by the United States—are enacting massive economic stimulus packages and taking a central role in promoting economic growth strategies. This reemergence of state-driven capitalism constitutes a "back to the future" investment paradigm, one that is consistent with a long and successful pattern of economic development. But once we get beyond the pothole patching and school repairing, what industries can be pushed forward using public seed capital or through Sematech-like consortiums? What must be brought to the fore is the need for a new growth path for the United States, one in which the state has a significant role. There are already indications that the private sector is beginning to adapt to this new, collaborative paradigm.
    Date: 2009–05
  8. By: Chiara DEL BO; Massimo FLORIO
    Abstract: In this paper we examine the return of public investment in the EU regions. We consider different forms of infrastructure capital by examining the relationship between a set of infrastructure indicators and economic performance at the NUTS2 level with an empirical model derived from the production-function approach. From a social planner’s perspective, we want to see which form of infrastructure investment has higher returns, considering structural differences in regions. The main contribution of this paper is to consider the impact of different types of infrastructure on growth, disaggregated at the regional level in the European Union, with an explicit focus on the New Member States, and correcting for spatial dependence and heterogeneity issues. We find that the highest rates of return are associated mainly with TLC, quality and accessibility of the region’s transportation network, while endowment of traditional road and railway infrastructure has a positive but slightly lower impact. We also contribute to the debate on convergence, finding that the β-convergence hypothesis holds also when the model encompasses several controls.
    Keywords: Infrastructure capital, regional growth, convergence, spatial econometrics.
    JEL: H54 O11 E62 R11
    Date: 2008–11–21
  9. By: Cachanosky, Nicolas
    Abstract: This article discusses the distinction Mises (1919) draws between the nation and the state as well as the relation of this distinction with the role of the state in the free society. A previous version of this article received the 1st Prize of the European Center of Austrian Economics Foundation’s 2007 Vernon Smith Essay Contest.
    Keywords: nation; state; Mises; institutions
    JEL: K00 B25 B15
    Date: 2009–05–20
  10. By: Landon, Stuart
    Abstract: This paper provides estimates of the extent to which corporate and personal income taxes are capitalized in bond prices. The methodology yields estimates of the degree of tax capitalization, rather than an implied tax rate. This makes it straightforward to identify the marginal investor and test for changes in tax capitalization. The empirical approach also makes it unnecessary to jointly estimate the degree of tax capitalization and the entire yield curve. Corporate taxes are found to have been fully capitalized in pre-tax Government of Canada bond yields during the period 1986-1993. Since 1994, taxes have not been capitalized in yields. These results are consistent with the existence of a marginal investor, but the identity of the marginal investor changed from a financial sector firm to a non-taxed entity in the early 1990s.
    Keywords: tax capitalization; bond yields
    JEL: G12 H2
    Date: 2009–03–20
  11. By: Bruno Chiarini; Marco Di Domizio; Elisabetta Marzano (Department of Economic Studies, Parthenope University of Naples)
    Keywords: Irregular labour input; enforcement; Fiscal Authority efficiency; regularization policy; incentives in the firm’s tax structure
    Date: 2008–08
  12. By: Peter Egger (Ifo Institute, University of Munich, WIFO and CESifo); Christian Keuschnigg (University of St. Gallen (IFF-HSG)); Hannes Winner (University of Salzburg)
    Abstract: This paper provides a theory and firm-level evidence on the incorporation decision of entrepreneurs in a model of taxes and corporate governance. The theory explains how the incorporation decision of entrepreneurs is driven by taxation (corporate and personal income taxes), corporate transparency, access to external capital and limited liability. We estimate features of this model using a large cross-section of more than 540, 000 firms in European manufacturing. We find that higher personal income tax rates favor incorporation while higher corporate tax rates reduce the probability to incorporate. These findings are robust to the inclusion of other economic and institutional determinants of external financing and choice of organizational form.
    Keywords: Incorporation, governance, taxes, discrete choice models
    JEL: H25 H73 F23 C21
    Date: 2009
  13. By: Johannes Becker (Oxford University Centre for Business Taxation); Clemens Fuest (Oxford University Centre for Business Taxation)
    Abstract: The standard tax theory result that investment should not be distorted is based on the assumption that profits are locally bound. In this paper we analyze the optimal tax policy in a model where firms are internationally mobile. We show that the optimal policy response to increasing firm mobility may be taxation, subsidization or non-distortion of the marginal investment, depending on whether the mobile firms are more or less profitable than the average firm in the economy. Our findings may contribute to understanding recent tax policy developments in many OECD countries.
    Keywords: Corporate taxes, Optimal Tax Policy, Multinational Firms
    JEL: H21 H25 F23
    Date: 2009
  14. By: Torrisi, Gianpiero
    Abstract: This paper uses data contained in the Regional Public Accounts database to investigate the heterogeneity of the impact of public infrastructure across Italian regions basing the analysis also on institutional and political ground. The issue is here addressed linking the analysis of the impact of infrastructure on GDP with the issue of corruption by means of a random coefficient panel data model approach. I consider a novel objective measure of corruption that consists of the difference between a measure of the physical quantities of public infrastructure and the cumulative price government pays for public capital stocks. The empirical analysis confirms the existence of parameter heterogeneity across Italian regions and is also consistent with theoretical considerations that corruption negatively affects economic performance.
    Keywords: orruption; public expenditure; infrastructure; random coefficients; regional public accounts.
    JEL: H54 R58 O18 R11
    Date: 2009–05
  15. By: Simona GRASSI; Riccardo PUGLISI
    Abstract: When survey-based, self-reported measures of satisfaction are used as dependent variables in a regression framework, the estimates may be biased and inconsistent. We adopt the measurement error perspective introduced by Bertrand and Mullainathan [2001], and propose an individual fixed-effects technique to tackle some of the consistency issues deriving from the potential correlation between the explanatory variables and the biases in the reported level of satisfaction. We apply the fixed-effects method to the analysis of the correlation between reported levels of satisfaction derived from the consumption of services of general interests collected in the Eurobarometer special surveys, and measures of the regulatory and competitive environment collected in the REGREF database.
    Keywords: Consumer surveys, consumer satisfaction, survey response
    JEL: C42 D12 L97
    Date: 2008–06–21
  16. By: Pollock, R.
    Abstract: We give an overview of the economics of `public sector information' (PSI) focusing on the question of funding and regulatory structure. That is: who should pay to maintain public sector information and what regulatory structure should be put in place to support this.
    Date: 2009–05–09
  17. By: Chisari, Omar O.; Lambardi, Germán D.; Romero, Carlos A.
    Abstract: What determines the propensity to reduce or widen the extent of public ownership? Why has there been a tendency to privatise and concede public utilities during the nineties? The answers to these questions depend both on macroeconomic and microeconomic considerations. And correct answers could also help to avoid or prevent inefficient reversals and frustrations that jeopardize reform processes. An alternative perspective, that combines micro and macro arguments, is given by general equilibrium models. The objective of this paper is to explore the rationality of the decision of choosing the implicit “technologies” of private and public operators of utilities in an economy that has fiscal budget and trade balance in equilibrium. The simulations confirm that the choice of the technology to be used for servicing infrastructure depends on deep parameters of efficiency and costs. The model shows that there are plausible scenarios where the selection is not unique.
    Keywords: Computable General Equilibrium; Trade balance; public services
    JEL: C68 F32 L97
    Date: 2007–09
  18. By: Glushkova, Ekaterina; Vernikov, Andrei
    Abstract: This paper tackles state participation in the Russian financial sector. We take the case of the banking industry to suggest criteria for a more accurate definition of public sector boundaries and an assessment of the actual scale of state presence in the national banking market. The approach for the assessment of the extent of state participation is based on the analysis of the peculiarity of the Russian banking industry due to the high extent and institutional specificity of government intervention in the financial system. The results presented in this paper provide evidence that the existing channels of state influence over banks are not limited to equity ownership with governance and other methods of control being employed as well and prove the hypothesis about the presence of downward bias in official estimates of the existing scale of state penetration.
    Keywords: public sector; banks; Russia; ownership; state control; state-owned companies
    JEL: P35 P31 G28 G21
    Date: 2009–06
  19. By: Gilbert E. Metcalf
    Abstract: The U.S. tax code provides a number of subsidies for low-carbon technologies. I discuss the difficulties of achieving key policy goals with subsidies as opposed to using taxes to raise the price of pollution-related activities. In particular, subsidies lower the cost of energy (on average) rather than raising it. Thus consumer demand responses work at cross purposes to the goal of reducing emissions (especially as average cost pricing is used for electricity). Second, it is difficult to achieve technology neutrality with subsidies -- here defined as an equal subsidy cost per ton of CO2 avoided. Third, many subsidies are inframarginal. Finally, subsidies often suffer from unintended interactions with other policies. I conclude with some observations on the use of price-based instruments. In particular I discuss how a carbon tax could be designed to achieve environmental goals of emission caps over a control period.
    JEL: H23 Q48
    Date: 2009–06

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