nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒08‒16
thirteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Moral Judgments in Social Dilemmas: How Bad is Free Riding? By Robin Cubitt; Michalis Drouvelis; Simon Gachter; Ruslan Kabalin
  2. E-Government Partnerships Across Levels of Government By Charbit, Claire; Michalun, Varinia
  3. Bank transactions: pathway to the single tax ideal A modern tax technology;the Brazilian experience with a bank transactions tax (1993-2007) By Cintra, Marcos
  4. Informal Taxation By Benjamin A. Olken; Monica Singhal
  5. Why Can Modern Governments Tax So Much? An Agency Model of Firms as Fiscal Intermediaries By Henrik Jacobsen Kleven; Claus Thustrup Kreiner; Emmanuel Saez
  6. Redistributive effect of personal income taxation in Pakistan By Ahmed, Vaqar; O'Donoghue, Cathal
  7. Voluntary pension savings: the effects of the Finnish tax reform on savers' behaviour By Jarkko Harju
  8. Politicians at work. The private returns and social costs of political connections By Federico Cingano; Paolo Pinotti
  9. The Simple Economics of Salience and Taxation By Raj Chetty
  10. European Governance, or Governmentality? Reflections on the EU‘s System of Government By Chris Shore
  11. Does Decentralization Matter for Regional Disparities? A Cross-Country Analysis By Roberto Ezcurra; Andrés Rodríguez-Pose
  12. Coping with Externalities in Tourism - A Dynamic Optimal Taxation Approach By Schubert, Stefan Franz
  13. Local Authorities and the Downturn: A Review of Issues, Experience and Options By Ian Gordon; Tony Travers; Christine Whitehead

  1. By: Robin Cubitt; Michalis Drouvelis; Simon Gachter; Ruslan Kabalin
    Abstract: In the last thirty years economists and other social scientists investigated people's normative views on principles of distributive justice. Here we study people's normative views in social dilemmas, which underlie many situations of economic and social significance. Using insights from moral philosophy and psychology we provide an analysis of the morality of free riding. We use experimental survey methods to investigate people's moral judgments empirically. We vary others' contributions, the framing ("give-some" vs. "take-some") and whether contributions are simultaneous or sequential. We find that moral judgments depend strongly on others' behaviour; and that failing to give is condemned more strongly than withdrawing all support.
    Keywords: moral judgments, framing effects, public goods experiments, free riding
  2. By: Charbit, Claire; Michalun, Varinia
    Abstract: E-government Partnerships across Levels of Government, is an overview of the challenges and approaches to creating a collaborative and cooperative partnership across levels of government for e-government development and implementation.
    Keywords: E-Governance; cooperative partenership; decentralization; federalism
    JEL: H7
    Date: 2009–03
  3. By: Cintra, Marcos
    Abstract: Globalization is eroding the efficiency of conventional taxes, such as VAT´s (value added taxes). Meanwhile, a new form of taxation, levied on bank transactions, was successfully used in Brazil (1993-2007). Based on digital technology, this tax innovation proved to be evasion-proof, more efficient and less costly than orthodox tax models. Furthermore, the significant revenue-raising capacity of bank transactions taxation revived the centuries old ideal of the Single Tax. This book carries out a qualitative and quantitative in-depth comparison of the efficiency, equity and compliance costs of a bank transactions tax relative to orthodox tax systems, and opens new perspectives for the use of modern banking technology in tax reform across the world.
    Keywords: bank debit tax; tax reform; taxation; bank transactions tax;
    JEL: H22 H21 H26
    Date: 2009–07
  4. By: Benjamin A. Olken; Monica Singhal
    Abstract: Informal payments are a frequently overlooked source of local public finance in developing countries. We use microdata from ten countries to establish stylized facts on the magnitude, form, and distributional implications of this "informal taxation." Informal taxation is widespread, particularly in rural areas, with substantial in-kind labor payments. The wealthy pay more, but pay less in percentage terms, and informal taxes are more regressive than formal taxes. Failing to include informal taxation underestimates household tax burdens and revenue decentralization in developing countries. We propose a simple model of information and enforcement constraints that parsimoniously explains the patterns in the data.
    JEL: H27 H41 O17
    Date: 2009–08
  5. By: Henrik Jacobsen Kleven; Claus Thustrup Kreiner; Emmanuel Saez
    Abstract: This paper presents a simple agency model to explain why third-party income reporting by employers dramatically improves income tax enforcement. Modern firms have a large number of employees and carry out complex production tasks, which requires the use of accurate business records. Because such records are widely used within the firm, any single employee can denounce collusive tax cheating between employees and the employer by revealing the true records to the government. We show that, if a firm is large enough, such whistleblowing threats will make tax enforcement successful even with low penalties and low audit rates. Embedding this agency model into the standard Allingham-Sandmo tax evasion model, we show that third-party reporting improves tax enforcement if the government disallows self-reported losses or audits such losses more stringently, which fits with actual tax policy practices. We also embed the agency model into a simple macroeconomic growth model where the size of firms grows with exogenous technological progress. In early stages of development, firms are small, tax rates are severely constrained by enforcement, and the size of government is too small. As firm size increases, the enforcement constraint is slackened, and government size is growing. In late stages of development, firm size is sufficiently large to make third-party tax enforcement completely effective and government size is socially optimal.
    JEL: H11 H20
    Date: 2009–08
  6. By: Ahmed, Vaqar; O'Donoghue, Cathal
    Abstract: This paper studies the redistribution effect of personal income tax in Pakistan. We decompose the overall tax system in order to evaluate the contribution of rate, allowances, deductions, exemptions and credits. The structure given in Income Tax Ordinance, 2001, is applied to gross household incomes in 2002 (low growth year) and 2005 (high growth year). Our findings reveal that the reforms laid down in this Ordinance resulted in a greater redistribution of incomes. The redistributive effect increases as we move from 2002 to 2005 tax assessment. Deductions for salaried tax payers contribute the most towards progressivity. This is different from countries with advanced taxation systems relying mainly on allowances followed by tax rate and exemptions.
    Keywords: Income Taxation; Microsimulation; Redistribution; Inequality
    JEL: D3 D6 H2
    Date: 2009–07–03
  7. By: Jarkko Harju
    Abstract: Many countries tax voluntary pension savings using the so-called EET model, based on tax-deductible savings and taxable withdrawals. In Finland the tax reform of 2005 changed the tax rate schedule from progressive to proportional, while the basic structure of the EET model was retained. This paper is an empirical study of changes in savers? behaviour as a result of the reform using individual level data. The econometric estimations indicate that the reform altered pension saving behaviour by reducing the labour income and age effects on saving contributions in a statistically significant way. Also, the reform reduced the number of pension savers among high income-earners.
    Keywords: Voluntary pension savings, tax reform, tax incentives
    Date: 2009–06–17
  8. By: Federico Cingano (Bank of Italy, Economic Research Department); Paolo Pinotti (Bank of Italy, Economic Research Department)
    Abstract: We quantify the private returns and social costs of political connections exploiting a unique longitudinal dataset that combines matched employer-employee data for a representative sample of Italian firms with administrative archives on the universe of individuals appointed in local governments over the period 1985-97. According to our results, the revenue premium granted by political connections amounts to 5% on average, it is obtained through changes in domestic sales but not in exports, and it is not related to improvements in firm productivity. The connection premium is positive for upstream producers for the public administration only, and larger (up to 25%) in areas characterized by high public expenditure and high levels of corruption. These findings suggest that the gains in market power derive from public demand shifts towards politically connected firms. We estimate such shifts reduce the provision of public goods by approximately 20%.
    Keywords: political connections, social welfare, productivity, employer-employee data
    JEL: D21 D73 H72 J31
    Date: 2009–05
  9. By: Raj Chetty
    Abstract: This paper derives empirically implementable formulas for the incidence and efficiency costs of taxation that account for tax salience effects as well as other optimization errors. Contrary to conventional wisdom, the formulas imply that the economic incidence of a tax depends on its statutory incidence and that a tax can create deadweight loss even if it induces no change in demand. The results are derived using simple supply and demand diagrams and familiar notions of consumer and producer surplus. The approach to welfare analysis proposed here yields robust formulas because it does not require specification of a positive theory for why agents fail to optimize with respect to tax policies.
    JEL: H0 H2
    Date: 2009–08
  10. By: Chris Shore
    Abstract: This paper offers a critical exploration of the term ‘governance’, its rise to prominence within EU political discourse, and the new forms of authority and expertise it has come to be associated with within the EU’s evolving political regime. Its argues that a critical understanding of EU governance might be advanced if scholars look beyond the conventional political science literature (where governance is often ontologized as that form of politics and authority which reflects the social reality of administering complex societies), and interpret it instead in terms of recent debates about neoliberal governmentality. I ask, what does the Commission’s appropriation of this ambiguous concept reveal about the way EU politicians, experts and policy makers are re-conceptualising Europe and the problem of European government?
    Date: 2009–09–01
  11. By: Roberto Ezcurra; Andrés Rodríguez-Pose
    Abstract: This paper looks at the relationship between fiscal and political decentralization and theevolution of regional inequalities in a panel of 26 countries - 19 developed and 7 developing- for the period between 1990 and 2006. Using an instrumental variables method, it finds thatwhereas for the whole sample decentralization is completely dissociated for the evolution ofregional disparities, the results are highly contingent on the level of development, the existinglevel of territorial inequalities, and the fiscal redistributive capacity of the countries in thesample. Decentralization in high income countries has, if anything, been associated with areduction of regional inequality. In low and medium income countries, fiscal decentralizationhas been associated with a significant rise in regional disparities, which the positive effects ofpolitical decentralization have been unable to compensate. Policy preferences by subnationalgovernments for expenditure in economic affairs, education, and social protection havecontributed to this trend.
    Keywords: Fiscal decentralization, political decentralization, regional disparities, territorialinequality, fiscal redistribution
    JEL: H11 H71 R11
    Date: 2009–07
  12. By: Schubert, Stefan Franz
    Abstract: The paper studies optimal taxation (subvention) when tourism is associated with „multiple externalities“, using a simple dynamic model of a small open economy, which is completely specialized in the production of tourism services and populated by a large number of intertemporally optimizing agents. Depending on the volume of tourism production, the externality can be either positive or negative. We show that the first best optimum, achieved by a central planner, recognizing the externality, can be replicated in a decentralized economy by using a time-varying tax rate. This ensures that (i) the steady state of the first best optimum is reached and that (ii) the speed of convergence to steady state is socially optimal.
    Keywords: tourism demand; externalities; dynamic optimal taxation
    JEL: H21 R13 F21 H23
    Date: 2009–07
  13. By: Ian Gordon; Tony Travers; Christine Whitehead
    Abstract: This report considers the potential/appropriate role for local authorities (LAs) in relation to thedownturn phase of the current recession. It focuses on the most valuable functions which they canfulfil in this context, and takes a cautious view about the potential for extending any boost to localauthority activity beyond this phase. It offers a rapid survey of roles, opportunities and constraints,drawing both on general principles (grounded in economic analysis) and an appreciation of practicalexperience. It proceeds from a brief review/comparison of the experience of the last two recessions,via a typology of potentially relevant LA roles in the present one, to a set of general issues that needto be addressed in considering what they should/could appropriately do in this situation. It thenfocuses on two more specific issues. The first is the significance of financial and other constraintsfor what LAs are likely/able to do. The second addresses LAs' role in the field of housingmarket/financial issues, which is identified as the one where their contribution can be most crucial.
    Date: 2009–06

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