nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒09‒26
sixteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  2. The Tax-Spending Nexus: Evidence from a Panel of US State- Local Governments By Westerlund, Joakim; Mahdavi, Saeid
  3. Measuring Fiscal Decentralization in the Philippines By Uchimura, Hiroko; Suzuki, Yurika
  4. Public Provision of Private Goods and Nondistortionary Marginal Tax Rates: Some Further Results By Blomquist, Sören
  5. Intertwined Federalism: Accountability Problems under Partial Decentralization By Marcelin Joanis
  6. Multinationals, tax competition, and outside options By Olsen, Trond; Osmundsen, Petter
  7. Modernization of Tax Administrations and Optimal Fiscal Policies By Martin Besfamille; Cecilia Parlatore Siritto
  8. Mind the gaps: Managing Mutual Dependence in Relations among Levels of Government By Claire Charbit; Maria Varinia Michalun
  9. Income Redistribution and Public Good Provision in a Diverse Society By Selim Jürgen Ergun
  10. Communication in Asymmetric Group Competition over Public Goods By Jingjing Zhang
  11. Study on the implementation of the Tax Merger Directive By Ernst&Young
  12. Elderly Migration, State Taxes, and What They Reveal By Onder, Ali Sina; Schlunk, Herwig
  13. Good Government Means Different Things in Different Countries By Andrews, Matthew
  14. UCLG Policy Paper on Local Finance By UCLG Committee on Local Finance and Development UCLG
  15. Selling Digital Music: Business Models for Public Goods By Jens Leth Hougaard; Mich Tvede
  16. The political economy of balanced-budget rules By Jerome Creel; Etienne Farvaque

  1. By: Ungureanu, Carmen (Ecological University)
    Abstract: The tax burden has constantly increased in the countries of the European Union at the end of the 90’s, largely reflecting an expansion of the public sector. During that period, many EU countries adopted measures to lower taxes, but the tax system level is still high compared with other countries. The mix of tax policies is very different from country to country.
    Keywords: tax burden; public sector
    JEL: A10
    Date: 2009–09–24
  2. By: Westerlund, Joakim (Department of Economics, School of Business, Economics and Law, Göteborg University); Mahdavi, Saeid (University of Texas at San Antonio)
    Abstract: We re-examine the tax-spending nexus using a panel of 50 US state-local government units between 1963 and 1997. We find that, unlike tax revenues, expenditures adjust to revert back to a long-term equilibrium relationship. The evidence on the short-term dynamics is also consistent with the tax-and-spend hypothesis. One implication of this finding is that the size of the government at the state-local level is not determined by expenditure demand, but rather by resource supply. This is consistent with the fact that many US state and local governments operate under constitutional or legislative limitations that seek to constrain deficits.<p>
    Keywords: Tax-spend; State and local government; Public finance; Panel unit root; Panel cointegration
    JEL: C33 H71 H72
    Date: 2009–09–11
  3. By: Uchimura, Hiroko; Suzuki, Yurika
    Abstract: This paper focuses on the fiscal decentralization in the Philippines after the 1991 Local Government Code. It first examines the intergovernmental fiscal relationship between central and local governments by using fiscal decentralization indicators, and then investigates its impact on local finance. After fiscal decentralization, the local expenditure responsibility is expanded while the local fiscal capacity is not strengthened in the Philippines. Local governments consequently comes to depend heavily on fiscal transfers from the central government, internal revenue allotments (IRAs), which has a substantial influence on local finance. The heavy dependence on IRAs makes local finance unpredictable and unstable. The distribution of IRAs also affects the horizontal balance between provincial governments.
    Keywords: Fiscal Decentralization, Fiscal Decentralization Indicators, Horizontal Balance, The Philippines, Philippines, Decentralization, Local Finance
    JEL: H77
    Date: 2009–07
  4. By: Blomquist, Sören (Department of Economics)
    Abstract: The incidence and efficiency losses of taxes have usually been analyzed in isolation from public expenditures. This negligence of the expenditure side may imply a serious misperception of the effects of marginal tax rates. The reason is that part of the marginal tax may in fact be a payment for publicly provided goods and reflects a cost that the consumers should bear in order to face the proper incentives. Hence, part of the marginal tax may serve the same role as a market price in the sense that it conveys information about a real social cost of working more hours. <p> We develop this idea formally by studying an optimal income tax model in combination with a type of public provision scheme not analyzed before; the provision level is individualized and positively associated with the individual’s labor supply. As examples we discuss child care, elderly care, primary education and health care. We show that there is a potential gain in efficiency where public provision of such services replaces market purchases. We also show that it is necessary for efficiency that, other things equal, marginal income tax rates are higher than in economies where the services are purchased in the market. This because the optimal tax should be designed so as to face the taxpayers with the real cost of providing the services. Hence, it might very well be that economies with higher marginal tax rates have less severe distortions than economies with lower marginal tax rates.
    Keywords: Nonlinear income taxation; Marginal income tax rates; Public provision of private goods; In-kind transfers
    JEL: H21 H42 I38
    Date: 2009–09–18
  5. By: Marcelin Joanis
    Abstract: Decentralization reforms typically lead to the coexistence of multiple tiers of government in a given policy area. To analyze the welfare effects of such partial decentralization, this paper develops a political agency model in which two levels of government are involved in public good provision and voters are imperfectly informed about each government's contribution to the public good. The model predicts that a departure from the polar cases of complete centralization and complete decentralization is desirable only if the benefits of vertical complementarity in public good provision outweigh the costs of reduced accountability, which result from detrimental vertical strategic interactions operating through the electoral process. <P>La décentralisation mène typiquement à la coexistence de plusieurs niveaux de gouvernement dans un domaine donné de l’activité gouvernementale. Pour analyser les effets sur le bien-être d’une telle décentralisation partielle, cet article développe un modèle principal-agent dans lequel deux niveaux de gouvernement sont impliqués dans la fourniture d’un bien public et où les électeurs sont imparfaitement informés de la contribution de chaque gouvernement au bien public. Le modèle prédit qu’une dérogation aux cas limites de la centralisation complète et de la décentralisation complète n’est désirable que si les bénéfices associés à la complémentarité verticale dans la fourniture du bien public l’emportent sur les coûts découlant d’une imputabilité réduite. Ces derniers résultent des interactions stratégiques verticales opérant à travers le processus électoral.
    Keywords: decentralization, accountability, shared responsibility, federalism, vertical interactions. , décentralisation, imputabilité, responsabilité partagée, fédéralisme, interactions verticales.
    JEL: H77 D72 H11
    Date: 2009–09–01
  6. By: Olsen, Trond (NHH, Norwegian School of Economics and Business Administration); Osmundsen, Petter (University of Stavanger)
    Abstract: .
    Keywords: Tax competition; mobility; common agency; countervailing incentives
    JEL: D82 H21 L51
    Date: 2009–08–01
  7. By: Martin Besfamille; Cecilia Parlatore Siritto
    Abstract: Since Sandmo (1981), many articles have analyzed optimal fiscal policies in economies with tax evasion. All share a feature: they assume that the cost of enforcing the tax law is exogenous. However, governments often invest resources to reduce these enforcement costs. In a very simple model, we incorporate such investments in the analysis of an optimal fiscal policy. We characterize their optimal level and we show numerically how they interact with the other dimensions of the optimal fiscal policy. Finally, we highlight the differences between our results and those obtained in a model without investment in the tax administration.
    Keywords: Tax administration, Tax rates, Tax evasion, Enforcement, Audit costs.
    JEL: D82 H26 H83
    Date: 2009–07
  8. By: Claire Charbit; Maria Varinia Michalun
    Abstract: OECD member and non-member governments are actively looking for ways to facilitate and improve the relationships among levels of government. These relationships lie between the central and sub-national levels, as well as among peer levels (i.e., among ministries, across regions, between municipalities). They can also be seen in individual public management disciplines, such as fiscal relations, human resource management (HRM), regulatory management and e-government. This report arises from a request by the OECD's Public Governance Committee to look more closely at ways to build more effective relations among levels of government.
    Date: 2009–09–22
  9. By: Selim Jürgen Ergun (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: I analyze the post-electoral coalition formation process in a two dimensional political environment. The two dimensions are the degree of a proportional tax rate and the degree of a group-speci?c public good. Parties are o¢ ce-motivated and care instrumentally about policy. I analyze when stable coalitions exist and obtain that for that to occur o¢ ce bene?ts should exceed a certain level. I analyze how this critical level and the set of policies implemented are a¤ected by the income levels and the degree of diversity. For both o¢ ce and policy-motivated parties the same result holds but the critical level might be lower.
    Keywords: Electoral competition, coalition formation, public goods, income redistribution.
    JEL: D72 H40 H10
    Date: 2009–09–14
  10. By: Jingjing Zhang
    Abstract: This paper examines whether and how communication can help groups solve coordination and free-rider problems when they compete with another group for a public-good prize. We find that when group members make an anonymous individual decision on whether or not to contribute to the group success, within-group cheap talk communication significantly reduces miscoordination and free-riding. To measure how much miscoordination remains when communication is allowed, we employ a control treatment where we remove coordination and free-riding incentives by having group members reach a unanimous group decision on how much to contribute. We find that group level contributions are not significantly different in the two cases. Communication therefore completely eliminates miscoordination and free-riding within groups and leads group members to act as one agent in making decisions. Content analysis of group communication reveals that groups explicitly designate specific contributors following a rotation scheme and they understand the essence of implementing mixed strategy equilibrium.
    Keywords: Group contests; Threshold public goods; Coordination; Cheap talk Communication; Content analysis; Experiments
    JEL: C72 C91 C92 D72 H41
    Date: 2009–09
  11. By: Ernst&Young
    Abstract: The study carried out by Ernst & Young provides a comprehensive overview of the implementation of the Tax Merger Directive (Council Directive 90/434/EEC as amended) in the 27 EU Member States. The purpose of the survey is to enable the Commission to assess the need for further EU-wide action in this area. The main finding of the survey is that most Member States have correctly transposed the Tax Merger Directive, but it has been under-utilised due to the fact that the corporate law allowing cross border mergers has not been in place in many countries up to recently. The findings and conclusions of the study are those of the authors and should not be construed as reflecting the position of the European Commission.
    Keywords: European Union, taxation, corporate taxation
    JEL: H22
    Date: 2009–01
  12. By: Onder, Ali Sina (Uppsala Center for Fiscal Studies); Schlunk, Herwig (Vanderbilt University Law School)
    Abstract: Empirical results obtained from the 2000 Census elderly migration data using a general gravity model of migration flows confirm earlier findings of the ‘same sign problem’ in the literature, which means that the elderly both migrate from and to states where taxes are higher. The same sign problem is mainly an aggregation problem, and it can be attributed to the heterogeneity in public policies across states that attract the most migrants as well as across states that lose the most migrants. We propose that in a state-level aggregated dataset, it is possible to control for heterogeneity in states’ public policies by controlling for some characteristics of either the origin or the destination state. In a gravity equation estimation for elderly migration, when controlled for heterogeneity, the same sign problem fades away, and the gravity equation shows clearer patterns for elderly migration. In particular, local amenities, tax exemptions, and low inheritance taxes are shown to be significant variables in attracting the elderly into a state.
    Keywords: Tiebout Hypothesis; Migration; Taxation; State Taxes; Amenities
    JEL: H24 H25 H31
    Date: 2009–09–18
  13. By: Andrews, Matthew (Harvard University)
    Abstract: Recent work on good governance implies a one best way model of effective government. This work has isomorphic influences on academic, donor and reform engagements in developing countries. But the one best way model actually does not hold, even for governments that score highly on governance indicators. Governments actually look different, even if they are similarly called 'effective' or 'models of good government.' The current article examines this issue and proposes a contingent approach to explain why good governments can look different. It suggests that government structures need to be explained in terms of the governing context--not the isomorphic influence of what indicators suggest good governance is. Key contextual factors that a contingent approach would consider in appraising government include economic challenges, demographic realities, and socio and political structures. The paper draws these factors out of an inductive analysis of differences in a set of OECD countries considered examples of 'good government.'
    Date: 2008–11
  14. By: UCLG Committee on Local Finance and Development UCLG
    Abstract: The Policy Paper seeks to give voice to a local government vision on financing and stems from a shared understanding of the challenges we face. The Policy Paper contains 25 concrete recom- mendations for increasing local government access to infrastructure financing, particular- ly in developing country cities where infrastructure planning and construction have not kept pace with rapid urbanisation. At the global level, UCLG advocates that a fixed proportion of development aid and debt relief be allocated directly to local governments to enable them to address poverty reduction through public infrastructure provision.
    Keywords: urban finance, local finance, municipal finance, UNHABITAT, economics, infrastructure, urban infrastructure, public funding, urban development
    Date: 2009
  15. By: Jens Leth Hougaard (Department of Food and Resource Economics, University of Copenhagen); Mich Tvede (Department of Economics, University of Copenhagen)
    Abstract: This paper considers the market for digital music. We claim that the combination of the MP3 format and peer-to-peer networks has made music non-excludable and this feature is essential for the understanding of the economics of the music market. We study optimal business models for selling non-excludable goods and show that despite promising theoretical results, adding just a slight uncertainty about the number of customers has significant negative implications for profitability. Indeed, as the average number of customers tends to infinity the average payment per customer converges to zero. Therefore, the music industry should concentrate on alternative ways of creating profit such as selling access to listeners, concerts, merchandise, ringtones etc.
    Keywords: digital music; experience good; public good; music industry; piracy
    JEL: D2 D4
    Date: 2009–09
  16. By: Jerome Creel (Observatoire Français des Conjonctures Économiques); Etienne Farvaque (Université de Lille)
    Abstract: The paper first reviews the evolution of federal fiscal rules in the United States, showing a trend towards balanced-budget rules, not golden rules. An explanation to this trend is provided in a model that includes voter's preferences that are skewed by the history of the budget structure, and fiscal rules on the budget. Previous results in the literature are generalized, and the implications of fiscal rules for the use of debt as a strategic asset in the hands of politicians are derived. The inclusion of a golden rule of public finance is compared with that of a balanced-budget rule. Because of the presence of habits, we show that politicians are more prone to adopt balanced-budget rules than a golden rule.
    Keywords: Budget deficit, debt, political economy, fiscal rules, habit effect
    JEL: D72 D78 H62
    Date: 2009

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