nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒12‒11
eighteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Income Redistribution and Public Good Provision: an Experiment By Jonathan Maurice; Marc Willinger; Agathe Rouaix
  2. Institutional Quality and Fiscal Transparency By Nicolo Andreula; Alberto Chong; Jorge Guillen
  3. The role of mobility in tax and subsidy competition By Alexander Haupt; Tim Krieger
  4. Heterogeneous Firms, "Profit Shifting" FDI and International Tax Competition. By Sebastian Krautheim; Tim Schmidt-Eisenlohr
  5. Corporate tax competition between firms By Simon Loretz; Padraig J. Moore
  6. Impact of Decentralization on the Corruption Phenomenon By Matei, Ani; Popa, Florin
  7. Tax competition in a simple model with heterogeneous firms: How larger markets reduce profit taxes By Haufler, Andreas; Stähler, Frank
  9. A Note on Estimating Tax Elasticities By Pronab Sen
  10. The Impact of Losses on Income Tax Revenue and Implicit Tax Rates of Different Income Sources: Evidence from Microsimulation Using Tax Statistics for Germany By Stefan Bach; Hermann Buslei
  11. The Impact of Local Decentralization on Economic Growth: Evidence from U.S. Counties By Hammond, George W.; Tosun, Mehmet S.
  12. Public Private Partnership in Uttar Pradesh Health Care Delivery System- UPHSDP as an Initiative By Bibi ishrat Jahan
  13. Do Local Public Expenditures on Functionally Impaired Crowd Out Other Local Public Expenditures? By Birkelöf, Lena
  14. Town versus Gown: The Effect of a College on Housing Prices and the Tax Base By Vandegrift, Donald; Lockshiss, Amanda; Lahr, Michael/L
  15. The Impact of Reducing the Administrative Costs on the Efficiency in the Public Sector By Matei, Ani; Savulescu, Carmen
  16. How Local are Local Governments? Heterogeneous Effects of Intergovernmental Grants By Nilsson, Heléne L.
  17. Intergovernmental Grants and Local Public Expenditure: Spending Decisions and Information Spillover Effects By Birkelöf, Lena
  18. Delivering (sustainable) services on Scale : Anywhere By Prachi Shukla

  1. By: Jonathan Maurice; Marc Willinger; Agathe Rouaix
    Abstract: We provide a new experimental investigation of the neutrality theorem of Warr (1983), who states ”when a single public good is provided at positive levels by private individuals, its provision is unaffected by a redistribution of income”. Instead of comparing different income distributions across groups as Chan et al. (1996), in our experiment the total group endowment is redistributed after a 10 rounds sequence. We compare an unequalizing redistribution (EI) and an equalizing redistribution (IE), to two benchmark treatments for which the 10 rounds sequence is repeated, either with an equal distribution (EE) or an unequal distribution (II). The constituent game has a unique interior dominant strategy equilibrium. Our data support the neutrality theorem (after controlling for the restart effect): redistribution has no effect on the total amount of public good in none of the tested treatments. However, the analysis of individual behavior shows that ”poor” subjects over-contribute with respect to their Nash-contribution, while ”rich” subjects tend to play their Nash-contribution or under-contribute slightly. Furthermore, after a redistribution, subjects react asymetrically: subjects who get poorer reduce their contribution of a larger amount than the amount of contribution added by subjects who become richer. And it is shown that the latter do not react enough to the redistribution.
    Date: 2009–11
  2. By: Nicolo Andreula; Alberto Chong; Jorge Guillen
    Abstract: This paper uses new data on fiscal transparency for a cross-section of countries; these data possess several advantages. First, the data are based on in-depth reports using a standardized methodology and protocol. Second, this study covers 82 countries, more than previous comparable studies. Third, the fiscal measures used have been obtained with the collaboration of government authorities, which makes them particularly reliable. Finally, the data collection has been undertaken at a high level. These new data permit examination of a relevant but little-studied issue, the role of institutional quality in a country’s fiscal transparency. It is shown that there is in fact a causal relationship between institutions and transparency. The findings are robust to changes in specification and a host of transparency sub-measures.
    Keywords: Fiscal management, Institutions, Public administration, Transparency
    JEL: H50 H83
    Date: 2009–12
  3. By: Alexander Haupt (University of Plymouth); Tim Krieger (University of Paderborn)
    Abstract: In this paper, we analyse the role of mobility in tax and subsidy competition. Our primary result is that increasing ‘relocation’ mobility of firms leads to increasing ‘net’ tax revenues under fairly weak conditions. While enhanced relocation mobility intensifies tax competition, it weakens subsidy competition. The resulting fall in the governments’ subsidy payments overcompensates the decline in tax revenues, leading to a rise in net tax revenues. We derive this conclusion in a model in which two governments are first engaged in subsidy competition and thereafter in tax competition, and firms locate and potentially relocate in response to the two political choices.
    Keywords: Tax competition, subsidy competition, capital and firm mobility, foreign direct investment
    JEL: H71 H87 F H
    Date: 2009
  4. By: Sebastian Krautheim (Centre d'Economie de la Sorbonne - Paris School of Economics); Tim Schmidt-Eisenlohr (European University Institute)
    Abstract: Larger firms are more likely to use tax haven operations to exploit international tax differences. We study a tax game between a large country and a tax haven modeling heterogenous monopolistic firms, which can shift profits abroad. We shows that a higher degree of firm heterogeneity (a mean-preserving spread of the cost distribution) increases the degree of tax competition, i.e. it decreases the equilibrium tax rate of the large country, leads to higher outflows of its tax base and thus decreases its equilibrium tax revenue. Similar effects hold for a higher substitutability across varieties. We find that models with homogeneous firms understate the strenght of tax competition.
    Keywords: Heterogenous firms, tax competition, profit shifting, tax havens.
    JEL: F23 H25 H87
    Date: 2009–10
  5. By: Simon Loretz (Oxford University); Padraig J. Moore (Deutsche Bank)
    Abstract: Firms' tax planning decisions, similar to their other operational decisions, are made in a competitive environment. Various stakeholders observe the tax payments and evaluate these against the relevant peer group, which creates interdependencies in the tax planning activities of firms. Introducing the concept of reputational loss we show the positive interdependence in a theoretical model and test it in a spatial econometric model. Empirical evidence suggests that benchmarking takes place both within countries and within industries, however for the latter it is important to include firms in large non-EU OECD countries. Further, the analysis shows that spatial interdependence is stronger for the largest firms and if they have an average effective tax rate above the statutory tax rate.
    Keywords: Corporate taxation, benchmarking, tax competition, spatial econometrics
    JEL: H25 M40
    Date: 2009
  6. By: Matei, Ani; Popa, Florin
    Abstract: Decentralization can take many forms, depending on the nature of the functions which are decentralized, at the level of the control exerted by the local authorities on these functions and the type of institution to which the responsibilities are transferred. In the developing countries, the objectives of the decentralization process are, in general, focused on improving efficiency, equity, accessibility and the quality of the services supplied, as well as of the extent to which they cover the local needs. In fact, decentralization is very clearly linked to the economic development, as well as to the democratic government systems. Through decentralization one seeks the improvement of the performances of a certain service, by changing the authority and responsibility between key-actors, the improvement of the informational flux for fundamenting decisions and assessing performance, the establishing of the accountability mechanisms and the modalities of motivating all actors to be responsible in the fulfillment of their duties (Paul L. Hutchinson, Monitoring and Evaluation of Decentralization Reforms, 2004). A mechanism for assessing changes with respect to accountability is represented by the "accountability frame” (Brinkerhoff 2003, Aucoin and Heintzman 2000). These changes, applied in a consistent and coherent manner, will lead, implicitly, to the reduction of the level of corruption in the public system. Political decentralization (devolution) - the only actual one, as considered by analysts - presupposes the transfer of attributions and afferent decisional power to the local levels of government and the implicit limitation of the central intervention capacity. This being the case, decentralization constitutes an important change in the plan of the formal institutions in a state. Fiscal decentralization presupposed the creation of mechanisms for the transfer of the financial resources to the local level. It often, but not always, goes in parallel with political decentralization. To attempt to measure the degree of political decentralization solely through the percentage of public resources spent at the local level is deceiving, because many times the local administrations simply receive mandates to execute, from the center, namely precise duties, sometimes accompanied by resources with this well indicated destination, but this does not mean in any case that their decisional power has increased. Decentralization (promoted in parallel with a certain dosage of administrative deconcentration of the central government) proved it can sometimes solve local decision problems, has eased access to the information of local nature, has certain services more efficient and made the citizens feel better represented politically. However, sometimes it has proven to be a source of new problems in its turn: The increase of the discrepancies between rich and poor communities, heavy coordination, fiscal indiscipline (Manor, 1999; Tanzi, 2001). But, especially, since through decentralization the centers of political decision are multiplied, it raised concerns related to the possibility of aggravating corruption by the local elites capturing the public institutions. In fact, the impact on the level of corruption is one of the most interesting aspects of the decentralization process, still insufficiently researched. The promoters of decentralization usually place the limitation of corruption among the benefits to be expected, this being for them an argument in favour of expediting the process. Many times, it is believed that the simple transfer of attributions and resources from the center to the other government levels will solve the problem. However, reality has proven a lot more complicated - many times, decentralization seems to be accompanied by a multiplication of the cases of corruption, at least as it is shown by anecdotic testimonies, as well as by an increase of the public concern towards this phenomenon. Some comparative studies in the latest period even reached the conclusion that, in total, more decentralization actually means more corruption (Treisman, 1999). In short, a long list of factors which can act on the relationship between corruption and decentralization, in both directions (Treisman, 2002). On the one hand, decentralization may lead to the reduction of corruption, because: • The local electives know better than the central ones the real needs of the community; therefore, it is less likely for them to act only as assignees for duties directed from the center, whose utility they doubt (fertile terrain for cynicism and corruption). • Inversely, in certain conditions, the citizens know more about the decision making process and they involve themselves more. • Competition occurs between the local administrations: Through the quality of the package of taxes and services supplied (in principle, the citizens thus being able to move, in order to opt for the package they agree most with); through the image of local government, more or less clean, moral pressure is created in order for the most corrupt administrations to act for the remedying of the situation. • Promotes, in judicious combination with deconcentration (but most often, to the detriment of the ladder), decentralization may lead to the limitation of the power of action of the bureaucratic extensions of the central government in the territory - usually, the most opaque and non-responsive part of the central administration. On the other hand, decentralization may lead to the proliferation of corruption, because: • Where the costs of civic information and participation are high, and the tradition in this sense is weak, the citizens may know more about what is happening at the center than at the local level; the few civic competences which exist concentrate in this direction. • The multiplication of the decision centers, correlated with the non-existence or weakness of the horizontal control mechanisms between the public institutions (horizontal accountability), may encourage discretionary behaviour and the breach of the law by the local political elites. • Where there are several levels of intermediary governance between the center and the local communities (regions, district, etc), it is difficult to achieve an adequate balance of power between the state’s administrative levels, such as the intermediary to not abusively exercise the newly-gained powers to the detriment of the local basic administration (the actual local authority). • Where a chamber of the national parliament is elected on explicitly territorial principles (in order to represent regions, districts, etc), and these constituencies coincide with strong intermediary governance levels, there are great chances for the emergence of obscure interests coalitions between the regional leaders and the central representatives. Taking into consideration all these aspects, the paper aim to make a analysis of the impact of the impact of decentralization on the corruption phenomenon.
    Keywords: decentralization; corruption; impact
    JEL: D73 C42 A14
    Date: 2009–05–15
  7. By: Haufler, Andreas; Stähler, Frank
    Abstract: An important puzzle in corporate taxation is that effective tax rates have fallen significantly while tax revenue has simultaneously risen in most countries. Moreover, the gross profitability of firms seems to be lower in high-tax countries, even though standard models of international investment would yield the opposite conclusion. We offer an explanation for these stylized facts by setting up a simple two-country model of tax competition with heterogenous firms. In this model a unique, asymmetric Nash equilibrium can be shown to exist, provided that countries are sufficiently different with respect to their exogenous market conditions. In equilibrium the larger country levies the higher tax rate and attracts the high-cost firms. A simultaneous expansion of both markets intensifies tax competition and causes both countries to reduce their tax rates, despite higher corporate tax bases.
    Keywords: tax competition; heterogeneous firms; imperfect competition
    JEL: H25 H73 F15 F21
    Date: 2009–11–23
  8. By: Cintra, Marcos
    Date: 2009–11–18
  9. By: Pronab Sen
    Abstract: The most popular technique for estimating tax elasticities is the “Proportional Adjustment” method. This paper shows that the standard methodology used will almost invariably lead to biased elasticity estimates, and proposes an alternative methodology which avoids this problem. [WP]
    Keywords: tax, elsticities, adjustment, propotional, elasticity, tax base, tax revenue, constant rate structure, methodology, developing countries, data, budget estmates,
    Date: 2009
  10. By: Stefan Bach; Hermann Buslei
    Abstract: In order to calculate the burden of a comprehensive and progressive income tax falling on a certain income source, an apportionment scheme for the entire tax burden has to be chosen. This raises the question of how to deal with losses, which is relevant for Germany in view of the heavy losses from renting. Using micro data from tax statistics we analyze the income tax shares of functional income sources for three apportionment schemes. The choice of the apportionment scheme markedly affects the tax shares of income sources and the implicit tax rates, in particular those of capital income.
    Keywords: Income and business income taxation, implicit tax rates by income sources
    JEL: H24 H25 D33
    Date: 2009
  11. By: Hammond, George W. (West Virginia University); Tosun, Mehmet S. (University of Nevada, Reno)
    Abstract: We analyze the impact of fiscal decentralization on U.S. county population, employment, and real income growth. Our findings suggest that government organization matters for local economic growth, but that the impacts vary by government unit and by economic indicator. We find that single-purpose governments per square mile have a positive impact on metropolitan population and employment growth, but no significant impact on nonmetropolitan counties. In contrast, the fragmentation of general-purpose governments per capita has a negative impact on employment and population growth in nonmetropolitan counties. Our results suggest that local government decentralization matters differently for metropolitan and nonmetropolitan counties.
    Keywords: fiscal decentralization, metropolitan, nonmetropolitan, population, employment, income, spatial econometrics
    JEL: E62 H7 R11
    Date: 2009–11
  12. By: Bibi ishrat Jahan
    Abstract: The objective of the study is to find out the primary reason to encourage public private participation in health care delivery system in Uttar Pradesh and the study also aim to analyse UPHSDP -a World Bank project.
    Keywords: public, private, participation, health care delivery system, uttar pradesh, world bank, PPP, mortality rates, birth rates, india, health indicators, HDI, infant mortality rates, Expenditure, income, Infrastructure, male female, PHCs, hospitals, dispensaries, states,
    Date: 2009
  13. By: Birkelöf, Lena (Department of Economics, Umeå University)
    Abstract: This paper examines whether local public expenditures on services to functionally impaired individuals crowd out other local public expenditures in Sweden. Over the last ten years, these expenditures have increased by more than 90 percent while other municipal expenditures have experienced increases of up to 30 percent. The impact of expenditures on functionally impaired individuals is tested on five different spending areas using a two-stage least squares (2SLS) fixed-effects model. While the results give no support for crowding out in the areas of social assistance, culture & leisure, and childcare & preschool, a negative relationship on spending for elderly & disabled care and education is found, suggesting that crowding out indeed occurs within the municipal sector. The negative relationships are significant both in a statistical and an economic sense.
    Keywords: Local public expenditures; Functionally impaired; Expenditure crowding out
    JEL: H72 J14 R50
    Date: 2009–12–04
  14. By: Vandegrift, Donald; Lockshiss, Amanda; Lahr, Michael/L
    Abstract: This paper investigates whether the presence of college increases house prices and the tax base. Colleges provide cultural and recreational amenities to the surrounding area but lifestyle choices of students may create negative externalities that depress property prices. In addition, colleges are exempt from property taxes. While the property tax exemption reduces the tax base, the amenity value of the college may cause more development on the remaining land. Previous literature considers the impact of a wide range of amenities including open space, however, none try to capture the effect from a college in a given area. We find that the presence of a college is associated with house prices that are about 11 percent higher. However, the interaction of the college dummy and enrollment is also significant and negative. Taken together, the results suggest that small colleges have the largest effect on house prices and the positive effect on house prices disappears once the college enrollment reaches about 12,500 students. We also find that the effect on house prices is stronger for four-year colleges (14 percent higher) and that the source of the differential is the degree to which the college is residential. For the tax base, the story is simpler. The presence of a college is associated with a tax base that is about 24 percent higher. As is the case with house prices, the effect of a four-year college on the tax base is stronger (about 32 percent) than the effect of a community college. However, neither the size of the college nor the degree to which the college is residential has an impact on the tax base.
    Keywords: Keywords: tax base; college; local amenities.
    JEL: H71 Q51 H23
    Date: 2009–07–07
  15. By: Matei, Ani; Savulescu, Carmen
    Abstract: The goal of the paper is to evaluate the impact of reducing the administrative costs on the efficiency in the public sector. Within the general framework provided by the specialised literature, the proposed methodology uses the classical model of a function of production, thus describing the factors of influence of the administrative costs on production and productivity in the public sector. The theoretical results are empirical exemplified for a local service of public utility. Adapting the theoretical model to the empirical situation is grounded on statistic methods of analysis and regression. The interpretation of results inscribes in the economic framework specific for public economics. The results aim both the novel model of analysis and the concrete evaluation of the economic impact of reducing the administrative expenditure in the public sector. At the same time, the general topic of reducing the administrative costs is extended towards the public sector. The most relevant conclusion refers to the capacity of the classical economic models in developing the public sector
    Keywords: administrative costs;efficiency; productivity; public sector
    JEL: D73 H72 H59
    Date: 2009–02–15
  16. By: Nilsson, Heléne L. (Department of Economics)
    Abstract: While the literature on how intergovernmental grants affect the budget of receiving jurisdictions is numerous, the very few studies that explicitly deal with likely endogeneity problems focus on grants targeted towards specific sectors or to specific type of recipients. The results from these studies are mixed and make clear that knowledge about grants effects is to this date still insufficient. This paper contributes by estimating causal effects on local expenditures and income tax rates of general, non-targeted grants to Finnish municipalities. This is done in a difference-in-difference model utilizing policy-induced increases in grants to three groups of remotely populated municipalities. The results show no statistically significant response in expenditures to the policy overall. However, when investigating the extent of heterogeneity I find a large, significant effect for two out of the three groups of treated municipalities but a likely null or even negative effect for the third group. The tax rate response is small and seems to be more homogeneous.
    Keywords: Intergovernmental grants; difference-in-difference; heterogeneous treatment effects; flypaper effect;
    JEL: C23 H71 H72 H77 R51
    Date: 2009–12–02
  17. By: Birkelöf, Lena (Department of Economics, Umeå University)
    Abstract: This empirical study takes advantage of a new intergovernmental grant in order to investigate the expenditure behavior of the municipalities in Sweden in two ways. First, the grant is used to study the effect on municipal spending related to the grant. Second, the grant is used to test a hypothesis of spatial interaction among municipalities due to mimicking behavior. The grant and expenditures studied here pertain to one specific service area of the Swedish municipalities; services to functionally impaired individuals. The grant was introduced in 2004. The data used pertains to the period before (2001-2003) and after (2004-2007) the introduction of the grant. A fixed-effects spatial lag model is used to study the (possible) spatial interactions among municipalities. Interestingly, the results show that during the first time period, the municipalities interact with their neighbors when setting the expenditure level, possibly due to mimicking. In the second time period, after the introduction of the grant, there is no evidence of interaction. This would support the hypothesis that the governmental grants provide information to the municipalities and the need for mimicking diminishes with the grant.
    Keywords: Local public expenditures; Intergovernmental grants; Spatial Interaction
    JEL: H72 H77 R12
    Date: 2009–12–04
  18. By: Prachi Shukla
    Abstract: This paper addresses issues related to public private partnerships that can enable delivery of comprehensive health care to rural communities.
    Keywords: public, private, government, sector, PPP, primary, health care, rural communities, Himachal Pradesh, Goa, vaccines, MDG, India, expenditure, Tamil Nadu, women, children, hospital, population, family planning
    Date: 2009

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