nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒11‒27
nine papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Governance decentralization and local infrastructure provision in Indonesia: By Chowdhury, Shyamnal; Yamauchi, Futoshi; Dewina, Reno
  2. Why Pay Taxes When No One Else Does? By Gil S. Epstein; Ira N. Gang
  3. Political Support and Tax Compliance: A Social Interaction Approach By Fershtman, Chaim; Lipatov, Vilen
  4. Tax Interactions with Asymmetric Information and Nonlinear Instruments By Florence TOUYA
  5. Does Public Governance Always Matter? How Experience of Poor Institutional Quality Influences FDI to the South By Darby, Julia; Desbordes, Rodolphe; Wooton, Ian
  6. How Expensive is the Welfare State?: Gross and Net Indicators in the OECD Social Expenditure Database (SOCX) By Willem Adema; Maxime Ladaique
  7. How Large Are the Effects of Tax Changes? By Favero, Carlo A; Giavazzi, Francesco
  8. The Political Economy of Ethnolinguistic Cleavages By Desmet, Klaus; Ortuño-Ortín, Ignacio; Wacziarg, Romain
  9. Families as Roommates: Changes in U.S. Household Size from 1850 to 2000 By Salcedo, Alejandrina; Schoellman, Todd; Tertilt, Michèle

  1. By: Chowdhury, Shyamnal; Yamauchi, Futoshi; Dewina, Reno
    Abstract: This paper examines the recent decentralization of governance in Indonesia and its impact on local infrastructure provision. The decentralization of decisionmaking power to local jurisdictions in Indonesia may have improved the matching of public infrastructures provision with local preferences. However, decentralization has made local public infrastructures depend on local resources. Due to differences in initial endowments, this may result in the divergence of local public infrastructures in rich and poor jurisdictions. Using data from village-level panel surveys conducted in 1996, 2000, and 2006, this paper finds that (1) local public infrastructures depend on local resources, (2) decentralization has improved the availability of local public infrastructures, (3) local jurisdictions are converging to a similar level of local public infrastructure, and (4) to some extent, decentralized public infrastructures' provision reflects local preferences.
    Keywords: Decentralization, local public goods, indonesia,
    Date: 2009
  2. By: Gil S. Epstein (Bar-Ilan University); Ira N. Gang (Rutgers University)
    Abstract: In this paper we try to understand the phenomena whereby a large proportion of the population evades tax payments. We present a model which incorporates elements from the theory of information cascades with the standard model of tax evasion and analyze the connection between the decision of a potential tax evader, the number of tax evaders and the number caught in previous periods. General conditions exist under which any expected utility maximizing potential tax evaders will decide to emulate other tax evaders.
    Keywords: Tax evasion, Information Cascades, Uncertainty
    JEL: H26 H31 D82
    Date: 2009–04–27
  3. By: Fershtman, Chaim; Lipatov, Vilen
    Abstract: People may express their political opinion by adopting different measures of civil disobedience. Tax compliance is an example of an economic decision that may be affected by anti-goverment sentiment. We consider a model in which political opinion as well as tax compliance decisions are both formed as part of a social interaction process in which individuals interact, exchange ideas and observe behavior. Tax compliance is affected by the level of government support and political opinion may be affected by government's auditing policy. The government's role is to set a social spending program which is viewed differently by rich and poor individuals. The paper focuses on the interdependence between tax compliance, government's social policies and political support, embedding this interdependence in a dynamic social interaction process.
    Keywords: political opinion; social interaction; tax evasion
    JEL: H26 H50 P16
    Date: 2009–11
  4. By: Florence TOUYA
    Abstract: Tax Interactions with Asymmetric Information and Nonlinear Instruments
    Date: 2009–11
  5. By: Darby, Julia; Desbordes, Rodolphe; Wooton, Ian
    Abstract: This paper investigates whether the higher prevalence of South multinational enterprises (MNEs) in risky developing countries may be explained by the experience that they have acquired of poor institutional quality at home. We confirm the intuitions provided by our analytical model by empirically showing that the positive impact of good public governance on foreign direct investment (FDI) in a given host country is moderated significantly, and even in some cases eliminated or reversed, when MNEs have had prior experience of poor institutional quality at home. In contrast, MNEs with little experience are deterred much more by bad public governance conditions than could have been inferred from an unconditional estimation of the effects of public governance on FDI.
    Keywords: Institutions; Public governance; South-South FDI
    JEL: F23
    Date: 2009–11
  6. By: Willem Adema; Maxime Ladaique
    Abstract: This paper first presents information on trends and composition of social expenditure across the OECD. Gross public social expenditure on average across OECD increased from 16% of GDP in 1980 to 21% in 2005, of which public pensions (7% of GDP) and public health expenditure (6% of GDP) are the largest items. This paper then accounts for the effects of the tax system and private social expenditure which leads to a greater similarity in social expenditure-to-GDP ratios across countries and to a reassessment of the magnitude of welfare states. After accounting for the impact of taxation and private benefits, social expenditure (1) amounts to over 30% of GDP at factor cost in Belgium, Germany, and France and (2) ranges within a few percentage points of each other in Austria, Canada, Denmark, Finland, Italy, the Netherlands, Portugal and the United States.<BR>Ce document présente les tendances et la composition des dépenses sociales des pays de l’OCDE. Les dépenses sociales publiques brutes on augmenté de 16 % du PIB en 1980 à 21 % du PIB en 2005, dont les retraites publiques (7 % du PIB) et les dépenses de santé publique (6 % du PIB) représentent les plus grandes catégories de dépenses en moyenne en 2005. Ce document examine ensuite les effets de l'intervention du gouvernement sur les dépenses sociales par le système fiscal et la prise en compte des prestations sociales privées, qui ont pour effet d’égaliser les ratios entre les niveaux des dépenses sociales et le PIB. Après la prise en compte des prestations sociales privées et de l’impact de la fiscalité, les dépenses sociales atteignent plus de 30 % du PIB aux coûts des facteurs en Belgique, Allemagne et France ; enfin les écarts entre les dépenses sociales en Autriche, Canada, Danemark, Finlande, Italie, Pays-Bas, Portugal et aux États-Unis ne sont que de quelques points de pourcentage.
    Keywords: private social spending, public welfare system, social policy, tax breaks with a social purpose, taxation of benefit income
    JEL: H2 H53
    Date: 2009–11–13
  7. By: Favero, Carlo A; Giavazzi, Francesco
    Abstract: We use the time series of shifts in U.S. Federal tax liabilities constructed by Romer and Romer to estimate tax multipliers. Differently from the single-equation approach adopted by Romer and Romer, our estimation strategy (a Var that includes output, government spending and revenues, inflation and the nominal interest rate) does not rely upon the assumption that tax shocks are orthogonal to each other as well as to lagged values of other macro variables. Our estimated multiplier is much smaller: one, rather than three at a three-year horizon. When we split the sample in two sub-samples (before and after 1980) we find, before 1980, a multiplier whose size is never greater than one, after 1980 a multiplier not significantly different from zero. Following the findings in Bohn (1998), we also experiment with a model that includes debt and the non-linear government budget constraint. We find that, while in general not very important, the non-linearity that arises from the budget constraint makes a difference after 1980, when the response of fiscal variables to the level of the debt becomes stronger.
    Keywords: fiscal policy; government budget constraint; public debt; VAR models
    JEL: E62 H60
    Date: 2009–08
  8. By: Desmet, Klaus; Ortuño-Ortín, Ignacio; Wacziarg, Romain
    Abstract: This paper proposes a new method to measure ethnolinguistic diversity and offers new results linking such diversity with a range of political economy outcomes -- civil conflict, redistribution, economic growth and the provision of public goods. We use linguistic trees, describing the genealogical relationship between the entire set of 6,912 world languages, to compute measures of fractionalization and polarization at different levels of linguistic aggregation. By doing so, we let the data inform us on which linguistic cleavages are most relevant, rather than making ad hoc choices of linguistic classifications. We find drastically different effects of linguistic diversity at different levels of aggregation: deep cleavages, originating thousands of years ago, lead to measures of diversity that are better predictors of civil conflict and redistribution than those that account for more recent and superficial divisions. The opposite pattern holds when it comes to the impact of linguistic diversity on growth and public goods provision, where finer distinctions between languages matter.
    Keywords: civil conflict; economic growth; ethnolinguistic cleavages; ethnolinguistic diversity; language trees; public goods; redistribution
    JEL: H1 N4 O4 O5
    Date: 2009–09
  9. By: Salcedo, Alejandrina; Schoellman, Todd; Tertilt, Michèle
    Abstract: Living arrangements have changed enormously over the last two centuries. While the average American today lives in a household of only three people, in 1850 household size was twice that figure. Further, both the number of children and the number of adults in a household have fallen dramatically. We develop a simple theory of household size where living with others is beneficial solely because the costs of household public goods can be shared. In other words, we abstract from intra-family relations and focus on households as collections of roommates. The model’s mechanism is that rising income leads to a falling expenditure share on household public goods, which endogenously makes household formation less beneficial and privacy more attractive. To assess the magnitude of this mechanism, we first calibrate the model to match the relationship between household size, consumption patterns, and income in the cross-section at the end of the 20th century. We then project the model back to 1850 by changing income. We find that our proposed mechanism can account for 37% of the decline in the number of adults in a household between 1850 and 2000, and for 16% of the decline in the number of children.
    Keywords: economies of scale; fertility decline; household public goods; household size; living arrangements; roommates
    JEL: D10 E10 J11 N30 O10
    Date: 2009–11

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