nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒10‒10
nineteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Gubernatorial Reputation and Vertical Tax Externalities: All Smoke, No Fire? By Fredriksson, Per; Mamun, Khawaja
  2. Migrants and mafia as global public goods By Fossati, Amedeo; Montefiori, Marcello
  3. Commodity tax competition – purchases of spirits in the Scandinavian countries By Odd Erik Nygård
  4. The Quality of Public Investment By Shankha Chakraborty; Era Dabla-Norris
  5. Empirical Evidence on the Effects of Tax Incentives By Alexander Klemm; Stefan van Parys
  6. Tobacco Politics and Electoral Accountability in the United States By Fredriksson, Per; Mamun, Khawaja
  7. The Political Economy of Conscription By Poutvaara, Panu; Wagener, Andreas
  8. Fiscal Incentive Effects of the German Equalization System By Sven Jari Stehn; Annalisa Fedelino
  9. Enhancing the efficiency of local government in the context of reducing the administrative expenditures By Matei, Ani; Savulescu, Carmen
  10. Where Does the Public Sector End and the Private Sector Begin? By Ian Lienert
  11. The legacy of the Swedish gift and inheritance tax, 1884-2004 By Ohlsson, Henry
  12. Optimal Policies and the Informal Sector By Katherine Cuff; Nicolas Marceau; Steeve Mongrain; Joanne Roberts
  13. Towards a Principal-Agent Based Typology of Risks in Public-Private Partnerships By André De Palma; Luc Leruth; Guillaume Prunier
  14. What determines local governments' technical efficiency? The case of road maintenance By Kalb, Alexander
  15. Is Tax sharing Optimal? An Analysis in a Principal-Agent Framework By Christelle Viauroux; Barnali Gupta
  16. Corruption in the public organizations. Towards a model of cost-benefit analysis for the anticorruption strategies By Matei, Lucica; Matei, Ani
  17. Inequity and Risk Aversion in Sequential Public Good Games By Sabrina Teyssier
  18. Advanced public financial management reforms in South East Europe By Mia Pavesic-Skerlep; E. Tandberg
  19. Public Sector Employees: Risk Averse and Altruistic? By Buurman, Margaretha; Dur, Robert; van den Bossche, Seth

  1. By: Fredriksson, Per (University of Louisville); Mamun, Khawaja (John F. Welch College of Business, Sacred Heart University)
    Abstract: This paper investigates whether reputation-building strategies guide U.S. governors’ responses to changes in federal cigarette taxes (i.e. vertical tax interactions). Using 1975-2000 state cigarette tax data, we find that reputation-building strategies affect the nature of vertical tax externalities. Lame duck governors exhibit a more negative response to changes in the federal cigarette tax. Thus, by reducing the state tax base and by causing a decline in the state tax, an increase in the federal tax rate reduces state tax revenues in states headed by lame ducks.
    Keywords: Vertical Tax Interactions; Fiscal Federalism; Reputation-building; Electoral Accountability; Political Institutions
    JEL: H71 H77 D72 D78
    Date: 2009–10
  2. By: Fossati, Amedeo; Montefiori, Marcello
    Abstract: Global public goods, differently from what it might be thought, are quite common in the real world. This work suggests that both the governments' struggle against Mafia and the prevention of immigration can be regarded as global public goods. We assume a federation of jurisdictions with two tiers of Government: the central and the local. Regional utility directly represents the preferences of citizens, since the local governments aim at individualistic utility maximization; central government uses the redistribution of resources among the members of the federation to maximize the social welfare which is given, as usual, by the sum of regional utilities. The Central Government aims at welfare maximization. To get its goal it has to find out the efficient way to fund and provide public goods taking into account not only their particular characteristics but also the fact that, in many circumstances, their production faces increasing cost, which may depend both on the quantity of good produced and on the type (high or low cost) of the producer (which, in this framework, coincides with the jurisdiction). Thus the first issue addressed by the paper concerns the choice between central and local provision. Furthermore, as far as the informational structure is concerned, the centre lacks information concerning the type of each region. Thus, the central government's key informational problem concerns the regional costs and quantities with regard both to the public and the private good. Indeed we assume that the centre can observe the expenditure levels but neither the costs nor the outputs associated with those expenditure levels.
    Keywords: global public good, asymmetric information, adverse selection, redistribution, Mafia
    JEL: H21 H41 H70
    Date: 2009–09
  3. By: Odd Erik Nygård (Statistics Norway)
    Abstract: A simulation model consisting of a representative consumer for each Scandinavian country is constructed and calibrated, in which consumers consume two goods: spirits and 'other goods'. Spirits is exposed to cross-border shopping, and the countries engage in tax competition. The equilibrium tax rates show large price differentials on spirits in Scandinavia. The findings also suggest that Norway and Denmark pay more attention to cross-border shopping and tax competition when setting the tax rates compared to Sweden. Furthermore, the equilibrium tax rates are rather robust with respect to the type of game that we consider, due to the fact that the utility maximizing tax rate for each country is rather insensitive with respect to other countries’ tax rates. Nevertheless, the sequential game equilibrium consists of somewhat higher taxes and utility levels for each country compared to the simultaneous game equilibrium, meaning that the former equilibrium Pareto-dominates the latter.
    Keywords: indirect taxes; excise taxes; cross-border shopping; commodity tax competition; alcohol; spirits; optimal taxation
    JEL: C7 D12 H1 H31
    Date: 2009–09
  4. By: Shankha Chakraborty; Era Dabla-Norris
    Abstract: This paper develops a growth model with specialized goods where inefficient and corrupt bureaucracies interact with the provision of public investment services in affecting the productivity of private capital, specialization, and growth. The model provides potential explanations for the contradictory empirical results on the effects of public investment found in the literature as well as for the role of the quality of public infrastructure investment in creating a gap between rich and poor countries. From a policy perspective, the paper suggests that the link between public investment and growth depends critically on the quality and efficiency of public capital.
    Keywords: Corruption , Economic growth , Economic models , Governance , Government expenditures , Infrastructure , Low-income developing countries , Private investment , Public investment ,
    Date: 2009–07–07
  5. By: Alexander Klemm; Stefan van Parys
    Abstract: This paper considers two empirical questions about tax incentives: (1) are incentives used as tools of tax competition and (2) how effective are incentives in attracting investment? To answer these, we prepared a new dataset of tax incentives in over 40 Latin American, Caribbean and African countries for the period 1985–2004. Using spatial econometrics techniques for panel data to answer the first question, we find evidence for strategic interaction in tax holidays, in addition to the well-known competition over the corporate income tax rate. We find no evidence, however, for competition over investment allowances and tax credits. Using dynamic panel data econometrics to answer the second question, we find evidence that lower corporate income tax rates and longer tax holidays are effective in attracting FDI, but not in boosting gross private fixed capital formation or growth.
    Keywords: Africa , Caribbean , Competition , Corporate sector , Corporate taxes , Cross country analysis , Developing countries , Economic growth , Foreign direct investment , Investment , Latin America , Tax incentives , Tax rates , Time series ,
    Date: 2009–07–07
  6. By: Fredriksson, Per (University of Louisville); Mamun, Khawaja (John F. Welch College of Business, Sacred Heart University)
    Abstract: This paper investigates whether reputation-building strategies guide U.S. governors’ state cigarette tax choices, and whether the federal cigarette tax influences such behavior. Using 1975-2000 data, we find evidence that governors in states with relatively important agricultural tobacco production and tobacco manufacturing, and which are densely populated by smokers, appear prone to reputation-building. Moreover, lame ducks are more prone to raise the state cigarette tax the lower the federal tax.
    Keywords: Agricultural tobacco, cigarette taxation, lobbying, reputation-building; electoral accountability; term limits; federalism
    JEL: H71 H77 D72 D78
    Date: 2009–10
  7. By: Poutvaara, Panu (University of Helsinki); Wagener, Andreas (University of Hannover)
    Abstract: Though in decline recently, military conscription is still a widely used mode of staffing armies. Since not many valid economic, social or military arguments in favor of the draft can be put forward, the question emerges why societies choose to rely on it. In this survey we explain the political allure of military conscription by its specific intra- and intergenerational incidence as a tax. From a public choice perspective, there is always a vast majority of people in favor of the introduction and maintenance of military draft, as compared to a professional army. Empirical evidence for this conclusion appears to be mixed, however. Political preferences with respect to conscription involve concerns about its unfairness and questionable record on social accounts. Special interests may also matter.
    Keywords: fairness, dynamic costs, military draft, public choice, taxation
    JEL: H56 D72
    Date: 2009–09
  8. By: Sven Jari Stehn; Annalisa Fedelino
    Abstract: Does reliance on transfers weaken fiscal discipline and encourage pro-cyclical fiscal policies in recipient subnational governments? Using fiscal reaction functions for a panel of the German Länder, this paper finds a positive answer to both questions. Net-recipient states (Länder, benefiting from the transfer system) have not reduced primary expenditure significantly in response to rising deficits, but have instead relied on vertical transfers from the federal government to ensure debt sustainability. Moreover, they have pursued pro-cyclical policies, particularly by raising expenditures in good times. Net-contributing Länder (paying into the transfer system), in contrast, have ensured fiscal sustainability through spending adjustments; they have also been less pro-cyclical. Panel vector auto-regressions confirm these findings.
    Keywords: Data analysis , Economic models , Fiscal policy , Fiscal reforms , Fiscal sustainability , Germany , Government expenditures , Tax policy , Tax reforms ,
    Date: 2009–06–09
  9. By: Matei, Ani; Savulescu, Carmen
    Abstract: The concerns on enhancing the efficiency of public administration, in particular the local government, are moreover present in the concerns of local authorities and specialised literature. Those concerns become more important taking into consideration the conditions of the actual economic crisis. Approached concurrently with public sector performance, enhancing the efficiency may have various resources. Among those resources it is worth to mention “better regulation” concerning public administration and reducing the administrative expenditures. Those two resources are not disjunctive, they are characterised by direct link and determination. Structured on three chapters, the paper focuses on a model aimed to determine the impact of reducing the administrative expenditures on the efficiency of local public services. This model inscribes in the efforts aiming to measure the efficiency in the public sector, efforts visible in the specialised literature.
    Keywords: efficiency;administrative expenditures
    JEL: H70 H83
    Date: 2009–04–29
  10. By: Ian Lienert
    Abstract: The boundary between the public and private sectors can be defined on the basis of ownership of institutional units. Nonmarket government-owned entities and corporations that are owned or controlled by government units belong to the public sector. “Economic ownership†is more important than majority ownership. Joint ventures, public-private partnerships, and social insurance funds (including for public employees) can be unambiguously allocated to the public or private sector on the basis of international public sector accounting standards. Boundary problems within the public sector are just as acute as those between the public and private sectors, mainly because of ambiguities in distinguishing “market†from “nonmarket†activities.
    Keywords: Corporate sector , Fiscal policy , Government accounting , Government Finance Statistics Manual , Private sector , Public sector ,
    Date: 2009–06–05
  11. By: Ohlsson, Henry (Uppsala Center for Fiscal Studies)
    Abstract: This paper has two objectives. The first is to study the revenue from the gift, inheritance, and estate taxes in Sweden during more than a century. The second is to focus on a unique episode during the second half of the 1940s when gifts and gift tax revenue exploded. This episode has never before been discussed in the research literature. It gives an extremely clear illustration of behavioural response to taxes in general, and the impact of expectations of future tax increases in particular. It is also a very interesting episode in the economic history of Sweden. I have access to aggregate tax revenue data since 1884. Moreover, I have constructed a rich micro data set of all gifts reported during the period 1942-1949 in one county. A first main result is that gift tax revenue during the 1940s started to increase long before a new estate tax and increased wealth taxation were decided an implemented. The increase even began before the legislative process started. Second, both the number and the average values of gifts increased. Promissory notes were, in value, the most common way to give. Finally, gifts, inheritances, and estates were never important sources of tax revenue. Revenue as a share of GDP reached a peak already in the 1930s. The role of these taxes has instead primarily been equity and to provide integrity for other tax bases.
    Keywords: gift tax; inheritance tax; estate tax; tax avoidance; expectations
    JEL: D10 D31 H24 N33 N34
    Date: 2009–09–22
  12. By: Katherine Cuff; Nicolas Marceau; Steeve Mongrain; Joanne Roberts
    Abstract: This paper characterizes optimal policies in the presence of tax evasion and undocumented workers. Equilibrium can be characterized as segmented or non-segmented, depending on whether domestic workers work exclusively in the formal sector (segmented) or also in the informal sector (non-segmented). Surprisingly, in equilibrium, wages are always equalized between domestic and undocumented workers, even if they do not work in the same sectors of the economy. This is driven by the interaction of firm level decisions with optimal government policy. We also find that enforcement may not always be decreasing in its cost, and that governments will optimally enforce segmentation if enforcement costs are not too high.
    Keywords: Informal Labour Market; Enforcement; Undocumented Workers; Public Good Provision
    JEL: H32 H26 K42
    Date: 2009–09
  13. By: André De Palma (ENS Cachan - Ecole Normale Supérieure de Cachan - Ecole Normale Supérieure de Cachan, Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Luc Leruth (IMF Office in Europe - EUO); Guillaume Prunier (Ecole Polytechnique Palaiseau - (-))
    Abstract: There is a strong economic rationale for close cooperation between the public and private sectors. This has resulted in a significant increase in the demand for the provision of public services through instruments combining public and private money such as public-private partnerships (PPPs or P3s). We describe these arrangements and explore how they can be analyzed using standard tools in economics (incentives and principal-agent theory). We discuss the implications of our approach in terms of identifying risks that are often overlooked before turining to the optimal risk-sharing between the public and private partners, in particular with respect to information asymmetries in risk perceptions. This allows us to propose a typology of the risks associated with PPPs, where both internal risks (the risks associated with the contract) and external risks (those associated with the project) are considered.
    Keywords: infrastructure financing, public-private partnerships, principal-agent framework, risk classification, transportation infrastructure, value for money
    Date: 2009–09–23
  14. By: Kalb, Alexander
    Abstract: In this paper we investigate the determinants of local governments' technical efficiency in road maintenance for a panel of German counties using a broad variety of estimation approaches. More specifically, we calculate efficiency indices using non-parametric (DEA) and parametric (stochastic frontier analysis) reference technologies, and examine how these efficiency indices can be explained by estimating and comparing four different regression models. The results of our analysis show that (controlling for numerous characteristics of the counties) the disposable income of the counties' citizens, intergovernmental grants (for county roads), and the payments to the counties influence efficiency negatively. Concerning political variables we find weak evidence that efficiency decreases with an increasing share of seats of left-wing parties in the county council; the hypothesis that efficiency decreases with the degree of political concentration in the county council could not be confirmed.
    Keywords: Technical efficiency,road maintenance,stochastic frontier analysis,data envelopment analysis,German counties
    JEL: H11 R30 R51
    Date: 2009
  15. By: Christelle Viauroux (UMBC); Barnali Gupta (Miami University)
    Abstract: We study the effects of a statutory wage tax sharing rule in a principal - agent framework with moral hazard (à la Holmstrom, 1979) using the approach of Bose, Pal, Sappington (2007) to model the stochastic relationship between the agent’s unobserved effort and his observed performance. The analysis indicates that tax sharing with positive legislated contributions from both the employer and employee does not maximize any of the outcomes - employee effort, wages, profits or welfare. Moreover, a rule which specifies a corner solution, with 100% of the tax statutorily levied on the employer will maximize effort, expected profit and expected welfare while 100% of the tax statutorily levied on the employee will maximize expected wages.
    Keywords: moral hazard, taxes, principal-agent model
    JEL: D8 H2
    Date: 2009–04–20
  16. By: Matei, Lucica; Matei, Ani
    Abstract: The paper aims to evaluate how the anticorruption strategies lead to minimizing the corruption phenomenon in the public organizations, with special reference to those from public administration and health system in Romania. Based on some essential features, stated by Banfield (1975) about the capacity of the public organizations to minimize corruption inside the organizations, the authors achieved two parallel sociological researches in the public administration system and the health system in Romania. Thus, the researches reveal a paradox in the finality of the mentioned public organizations between the exclusive preoccupation for an ethical behaviour and the other objectives of the organizations: effectiveness, flexibility, dynamics etc. In the context of very interesting studies, such as those by Rose-Ackerman (1975, 2005), the premises of research are based on the idea that “the anticorruption strategies should orient, firstly towards improvement of the economic, technical and operational efficiency” of the public organization. Therefore, we may speak about “optimal” level of corruption rather than “zero” level. We justify this fact through the costs of supporting the anticorruption strategies, their direct impact on organizational effectiveness and performance.
    Keywords: corruption; cost-benefit analysis
    JEL: H83 H00
    Date: 2009–05–11
  17. By: Sabrina Teyssier (Thurgau Institute of Economics, Kreuzlingen, Switzerland; University of Konstanz, Department of Economics, Germany)
    Abstract: This paper analyzes which type of intrinsic preferences drive an agent’s behavior in a sequential public good game depending on whether the agent is ï¬rst or second mover. Theoretical predictions are based on heterogeneity of individuals in terms of social and risk preferences. We modelize preferences according to the inequity aversion model of Fehr and Schmidt (1999) and to the assumption of constant relative risk aversion. Risk aversion is signiï¬cantly and negatively correlated with the contribution decision of ï¬rst movers. Second movers with sufficiently high advantageous inequity aversion free-ride less and reciprocate more than others. Both results are predicted by our model. Nevertheless, no effect of disadvantageous inequity aversion of ï¬rst movers is found in the data while theory predicted it. Our results underline the importance of taking into account the order of agents’ play to correctly understand which type of preferences influences cooperation in voluntary contribution mechanisms. They suggest that individuals’ behavior can be consistent between different experimental games.
    Keywords: inequity aversion, risk aversion, public good game, conditional contribution
    JEL: C72 C91 D63 D81 H41
    Date: 2009
  18. By: Mia Pavesic-Skerlep; E. Tandberg
    Abstract: This paper aims to clarify possible systemic bottlenecks to the introduction of advanced PFM reforms in the SEE countries. It relates key fiscal developments to PFM reform processes over the last 15 years. PFM reform strategies must be realistic, with clear objectives and timetables, and with strong country ownership. Among the advanced reforms, some aspects of medium-term budgeting seems to be somewhat less challenging than performance-oriented budgeting, and it could be rational to make sure that there is solid progress in this area first. When developing performance budgets, countries should consider focusing initial efforts on the areas that are most suitable for performance management, such as education and health.
    Keywords: Budgetary policy , Budgeting , Budgets , Cross country analysis , Financial management , Fiscal policy , Fiscal reforms , Fiscal sector , Government expenditures , Public finance , Southern Europe ,
    Date: 2009–05–15
  19. By: Buurman, Margaretha (Erasmus University Rotterdam); Dur, Robert (Erasmus University Rotterdam); van den Bossche, Seth (TNO Work and Employment)
    Abstract: We assess whether public sector employees have a stronger inclination to serve others and are more risk averse than employees in the private sector. A unique feature of our study is that we use revealed rather than stated preferences data. Respondents of a large-scale survey were offered a substantial reward and could choose between a widely redeemable gift certificate, a lottery ticket, or making a donation to a charity. Our analysis shows that public sector employees are significantly less likely to choose the risky option (lottery) and, at the start of their career, significantly more likely to choose the pro-social option (charity). However, when tenure increases, this difference in pro-social inclinations disappears and, later on, even reverses. Our results further suggest that quite a few public sector employees do not contribute to charity because they feel that they already contribute enough to society at work for too little pay.
    Keywords: public service motivation, risk aversion, revealed preferences data
    JEL: H1 J45 M52
    Date: 2009–09

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