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on Public Economics |
| By: | Guglielmo Barone (Bank of Italy); Sauro Mocetti (Bank of Italy) |
| Abstract: | Tax evasion is a widespread phenomenon and encouraging tax compliance is an important and much debated policy issue. Many studies have shown that tax cheating has to be attributed to a considerable extent to the tax morale of taxpayers. The aim of the present paper is to shed light on the relationship between the taxpayer and the public sector. Specifically, we investigate whether public spending inefficiency shapes individual tax morale. Combining data from Italian municipalities’ balance sheets with individual data from a properly designed survey on tax morale, we find that the attitude towards paying taxes is better when resources are spent more efficiently. This does not appear to be due to some confounding factors at the municipality level or to spatial sorting of citizens. It is also robust to alternative measures of both inefficiency and tax morale. |
| Keywords: | tax morale, public spending inefficiency |
| JEL: | D24 H11 H26 H72 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_732_09&r=pbe |
| By: | Sanghamitra Bandyopadhyay; Joan Esteban |
| Abstract: | We introduce a model of redistributive income taxation and public expenditure. This joint treatment permits analyzing the interdependencies between the two policies: one cannot be chosen independently of the other. Empirical evidence reveals that partisan confrontation essentially falls on expenditure policies rather than on income taxation. We examine the case in which the expenditure policy (or the size of government) is chosen by majority voting and income taxation is consistently adjusted. This adjustment consists of designing the income tax schedule that, given the expenditure policy, achieves consensus among the population. The model determines the consensus in- come tax schedule, the composition of public expenditure and the size of government. The main results are that inequality is negatively related to the size of government and to the pro-rich bias in public expenditure, and positively or negatively related to the marginal income tax, depending on substitutability between government supplied and market goods. These implications are validated using OECD data. |
| Keywords: | Government policy, Income Taxation, Public Expenditure. |
| JEL: | H23 H50 |
| Date: | 2009–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:799.09&r=pbe |
| By: | Ryo Arawatari (Faculty of Economics, Shinshu University); Tetsuo Ono (Graduate School of Economics, Osaka University) |
| Abstract: | This paper introduces an overlapping generations model with earnings heterogeneity and borrowing constraints. The labor income tax and the allocation of tax revenue across social security and public goods provision are determined in a bidimensional majoritarian voting game played by successive generations. The political equilibrium is characterized by an ends-against-the-middle equilibrium where lowand high-income individuals form a coalition in favor of a low tax rate and less social security while middle-income individuals favor a high tax rate and greater social security. Government spending then shifts from social security to public goods provision if either: (i) higher wage inequality is associated with the borrowing constraint and a low intertemporal elasticity of substitution, or (ii) the population growth rate becomes lower. |
| Keywords: | Borrowing constraint; Social security; Public goods provision; Structureinduced equilibrium; Ends-against-the-middle equilibrium; Wage inequality; Population aging |
| JEL: | H41 H55 D72 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:0938&r=pbe |
| By: | West, Sarah E.; Parry, Ian W.H. (Resources for the Future) |
| Abstract: | This paper provides a first attempt to estimate the cross-price elasticity between alcoholic beverages and leisure, which is critical for assessing how much alcohol taxation might be warranted on fiscal grounds. We estimate an Almost Ideal Demand System defined over alcohol, leisure, and other goods, using data from the Consumer Expenditure Survey and other sources. Our results suggest that alcohol is a relative complement for leisure over a range of specifications. This implies that the optimal alcohol tax may substantially exceed the Pigouvian tax, reinforcing the efficiency case for higher taxation. These findings should be viewed as preliminary however, given a number of data and other limitations of the analysis. |
| Keywords: | alcohol tax, demand system, alcohol, labor supply, labor tax |
| JEL: | I18 H21 H23 |
| Date: | 2009–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-09-09&r=pbe |
| By: | Ken Tabata (Kwansei Gakuin University) |
| Abstract: | This paper studies the implications of different fiscal regimes (i.e. centralized vs decentralized) for economic growth and welfare by incorporating Wilson (2005)-type fiscal competition model into a Barro (1990)-type endogenous growth model. We show that fiscal decentralization is more desirable than fiscal centralization for economic growth, when the degree of selfishness of central government bureaucrats is high, and the relative political power of the young to the old is low. We also show that the growth-maximizing fiscal regime is also welfare-maximizing. |
| Keywords: | Fiscal competition, Decentralization, Leviathan, Overlapping generations |
| JEL: | H71 H72 E62 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:49&r=pbe |
| By: | Mohamed Ali Bchir; Marc Willinger |
| Abstract: | We report the results of an experiment on the provision of a step-level collective good. We compare subjects’ behavior in a public good game and in a club good game. In the club good game, players who contribute less than the amount required to become a member, do not benefit from the collective good. Compared to the benchmark step-level public good, we find that the introduction of a small membership fee has surprisingly strong effects. It increases significantly the provision success of the collective good. |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:lam:wpaper:09-19&r=pbe |
| By: | Pierre Beynet; Willi Leibfritz |
| Abstract: | This paper examines various aspects of fiscal policy in Slovenia, in particular fiscal consolidation, pension reform, efficiency of government spending and the tax system. It finds that Slovenia belongs to the group of new EU member countries, which have given in the past a high priority to fiscal prudence. This both stabilised the economy and paved the way for entry to the EU in 2004 and adoption of the euro in 2007. It also created room to counteract the current weakening of the economy. But fiscal policy has to cope with four main challenges: i) ensuring a return to fiscal consolidation after the current economic downturn; ii) achieving longer-term fiscal sustainability by continuing pension reform; iii) limiting growth of public spending and improving its quality; and iv) making the tax system less distorting for job creation and growth. This Working Paper relates to the 2009 OECD Economic Survey of the Slovenia (www.oecd.org/eco/surveys/slovenia).<P>Assurer la viabilité des finances publiques slovènes<BR>Cet article examine différents aspects de la politique budgétaire de la Slovénie, en particulier l’assainissement budgétaire, la réforme des retraites, l’efficience des dépenses publiques et la fiscalité. La Slovénie peut ainsi disposer d’une marge pour contrecarrer l’affaiblissement actuel de son économie. Mais la politique budgétaire se trouve confrontée à quatre problèmes majeurs : i) faciliter le retour à l’assainissement budgétaire après le ralentissement économique actuel ; ii) assurer la viabilité budgétaire à plus long terme en poursuivant la réforme des retraites ; iii) freiner la croissance des dépenses publiques et améliorer la qualité de ces dépenses ; et iv) faire en sorte que le système fiscal fausse moins la création d’emplois et la croissance. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Slovénie 2009 (www.oecd.org/eco/études/slovénie). |
| Keywords: | fiscal policy, fiscal sustainability, generational accounting, pension reform, public spending, Slovenia, taxation, comptabilité générationnelle, copaiement, dépenses publiques, fiscalité, politique budgétaire, réforme du système de retraite, Slovénie |
| JEL: | H21 H50 H55 H6 H62 H63 |
| Date: | 2009–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:734-en&r=pbe |
| By: | Abdul Jalil , Ahmad Zafarullah |
| Abstract: | In the last two decades there has been a worldwide interest in decentralization of government in all parts of the world. There are two main objectives that we tried to achieve through this study. Firstly, we tried to examine empirically the effects of decentralization on macroeconomic stability. Even though there is a huge literature both theoretically and empirically on the impact of decentralization, not many of them seems to be interested on the question of the link between decentralization and macroeconomic stability. Nevertheless, it should be noted that the outcome of a decentralization policy which in short can be defined as the delegation of more powers and responsibilities to lower level governments, depends largely on the behavior of these subnational governments. As such, in the second part of this thesis, we tried to analyze the determinants of subnational governments’ behaviors. More specifically, we tried to look at the relation between the behavior of subnational governments and the institutions in which they evolve and more particularly the incentives that result from these institutions. In order to achieve that, we used Malaysia as our case study. |
| Keywords: | Decentralization; Fiscal Federalism; Macroeconomic Stability; Subnational governments’ behavior; Malaysia. |
| JEL: | H77 H7 |
| Date: | 2009–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19071&r=pbe |
| By: | Benos, Nikos |
| Abstract: | This paper studies whether a reallocation of the components of public spending and revenues can enhance economic growth using data on 14 EU countries during 1990-2006. The results provide support for endogenous growth models. Specifically, the findings are: a) public expenditures on infrastructure (economic affairs, general public services) and property rights protection (defense, public order-safety) exert a positive impact on growth; b) distortionary taxation depresses growth; c) government expenditures on human capital enhancing activities (education, health, housing-community amenities, environment protection, recreation-culture-religion) and social protection do not have a significant growth effect. However, when coefficient heterogeneity across countries along with non-linearities are taken into account and public expenditures are further disaggregated, we have in addition that government outlays on education, defense and social protection are growth-enhancing. These findings are robust to changes in specification and estimation methodology. |
| Keywords: | Panel Data; Fiscal Policy; Taxation; Government Expenditures. |
| JEL: | E62 C23 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19174&r=pbe |
| By: | Hasson, Reviva (Department of Economics, Faculty of Commerce, University of Cape Town); Löfgren, Åsa (Department of Economics, School of Business, Economics and Law, Göteborg University); Visser, Martine (Department of Economics, Faculty of Commerce, University of Cape Town) |
| Abstract: | We use behavioral and experimental economics to study a particular aspect of the economics of climate change: the potential tradeoff between countries’ investments in mitigation versus adaptation. While mitigation of greenhouse gases can be viewed as a public good, adaptation to climate change is a private good, benefiting only the country or the individual that invests in adaptation. We use a one-shot public-goods game that deviates from the standard public-goods game by introducing a stochastic term to account for probabilistic destruction in a climate-change setting. Probability density function is mapped to within-group levels of mitigation. We compare low-vulnerability and high-vulnerability treatments by varying the magnitude of disaster across treatments. Our results show that there is no significant difference in the level of mitigation across these treatments. Further, our results emphasize the important role of trust in enhancing cooperation.<p> |
| Keywords: | Public good; climate change; mitigation; adaptation; experiment; risk |
| JEL: | H41 Q54 |
| Date: | 2009–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0416&r=pbe |
| By: | Juraj Stancik; Timo Valila |
| Abstract: | The share of public investment relative to consumption expenditure has declined in past decades. Earlier literature has attributed this stylised fact variably to the relative political ease of cutting investment; different cyclical patterns of public investment and consumption; or to EMU’s fiscal rules. We consider the impact of both cyclical and structural changes in the fiscal stance on public spending composition for a panel of EU countries, including individual components of public investment. We find that both cyclically-induced and structural changes in the fiscal stance affect the composition of public spending, with fiscal tightening of both types increasing, not decreasing, the relative share of investment and loosening favouring consumption expenditure. There is, however, some asymmetry in that the gain in investment following a tightening tends to be smaller than the gain in consumption expenditure following a loosening. Of the components of public investment, infrastructure and redistribution respond to cyclical changes in the fiscal stance, while investment in hospitals and schools responds most clearly to structural changes. |
| Keywords: | Fiscal policy, public expenditure, fiscal stance. |
| JEL: | E62 H50 H62 C33 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp394&r=pbe |
| By: | Cavalcanti, Carlos |
| Abstract: | Public sector pay policy is one of the main decisions facing a government, as it determines the ability to attract, retain, and motivate staff needed to fulfill its service delivery objectives. One option usually considered is relying on a single pay spine for all services into which jobs would be slotted, thus ensuring greater comparability of similar jobs across the public sector. This paper examines the single spine pay reform currently being considered in Ghana, highlighting the differences between the Ghanaian proposal and similarly named proposals elsewhere, and underscoring the potential cost of implementing the proposal -- which is expected to be significant. There are three main findings: (i) the implementation of the single spine pay reform would raise the base pay wage bill (salaries plus category one allowances) in Ghana to GHC2.8 billion by January 1, 2010 -- an almost 50 percent increase compared with an equivalent figures of GHC1.9 billion at end-2008; (ii) because these estimates focus narrowly on the base pay wage bill, they should be regarded as a lower bound estimate of the overall increase in the wage bill; and (iii) because these estimates are derived from assumptions regarding (1) the distribution of public sector employees across public sector services and institutions; (2) the minimum public sector wage; and the (3) the relativity of all other public sector wages with respect to this minimum wage, they are subject to changes any time these assumptions also change. |
| Keywords: | Public Sector Economics,Public Sector Management and Reform,Labor Markets,Economic Stabilization,Intergovernmental Fiscal Relations and Local Finance Management |
| Date: | 2009–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5150&r=pbe |
| By: | Aureo de Paula (Department of Economics, University of Pennsylvania); Jose A. Scheinkman (Department of Economics, Princeton University) |
| Abstract: | We test implications of a simple equilibrium model of informality using a survey of 48,000+ small firms in Brazil. In the model, agent's ability to manage production differ and informal firms face a higher cost of capital and limitation on size, although these informal firms avoid tax payments. As a result, informal firms are managed by less able entrepreneurs, are smaller and employ a lower capital-labor ratio. When education is an imperfect proxy for ability, the model predicts that the interaction of the manager's education and formality is positively correlated with firm size. Using the model, we estimate that informal firms in our dataset faced at least 1.3 times the cost of capital of formal firms. |
| Keywords: | Informal Sector, Tax Avoidance, Brazil |
| JEL: | H2 H3 K4 |
| Date: | 2009–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:09-044&r=pbe |
| By: | Christopher Heady; Åsa Johansson; Jens Arnold; Bert Brys; Laura Vartia |
| Abstract: | This paper identifies tax policy that both speeds recovery from the current economic crisis and contributes to long-run growth. This is a challenge because short-term recovery requires increases in demand while long-term growth requires increases in supply. As short-term tax concessions can be hard to reverse, this implies that policies to alleviate the crisis could compromise long-run growth. The analysis makes use of recent evidence on the impact of tax structure on economic growth to identify which growth-enhancing tax changes can also aid recovery, taking account of the need to protect those on low incomes. |
| Keywords: | Taxation; Tax Design; Tax Policy; Economic growth; Economic recovery |
| JEL: | H20 H30 O40 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:0925&r=pbe |
| By: | José Antonio Alonso (Universidad Complutense de Madrid, Departamento de Economía Aplicada); Carlos Garcimartín (Universidad Rey Juan Carlos de Madrid, Departamento de Economía Aplicada) |
| Abstract: | This paper provides new evidences about the determinants of institutional quality. Prior to implementing our empirical research, we discuss the criteria that should be used to judge the quality of institutions. Then, we identify the factors that, according to these criteria, determine institutional quality. The results obtained in the estimated model enable to draw some interesting conclusions. First of all, development level determines institutional quality: the highest the former, the highest the latter. Secondly, income distribution seems to condition institutional quality. A certain degree of social cohesion is needed to provide institutional predictability and legitimacy. Thirdly, a sound tax system is positively asso-ciated with institutional quality improvement. Taxes provide the necessary revenue to ge-nerate quality institutions, while creating a narrower and more demanding relation between State and citizens. Finally, education improves institutional quality. On the contrary, some of the variables identified in the literature either they do not seem to determine institutional quality or their effects are indirect, through the aforementioned variables. |
| Keywords: | Institutional quality, income distribution, taxes, education. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:wpaper:03-09&r=pbe |
| By: | Francesco Scervini (University of Torino) |
| Abstract: | The amount of taxes and public expenditures seems to be uncorrelated to the level of market inequality in OECD countries. This empirical evidence is diffcult to be rationalized in a standard median voter theorem setting, where individuals rationally choose their preferred redistribution scheme. This paper reconciles theory and evidence by introducing a source of political asymmetry, that is income inequality: assuming that political activity is costly, income distribution can be a determinant of political asymmetry, provided that some classes of individuals are not able to satisfy their political budget constraint. The political framework consists of a bi-dimensional policy space where preferences over cash redistribution are monotonically decreasing with income, while those over in-kind redistribution depend on the middle class position, according to Director's law. The result is that the elected policy maker is increasingly biased toward rich classes of population as far as market income inequality increases. |
| Keywords: | Income distribution, Redistribution, Political process, Publicly provided goods |
| JEL: | D31 D72 H42 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:tur:wpaper:8&r=pbe |
| By: | Shanaka Herath |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwsre:sre-disc-2009_08&r=pbe |