nep-pbe New Economics Papers
on Public Economics
Issue of 2010‒02‒13
ten papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Public sector decentralization and school performance: International evidence By Falch, Torberg; Fischer, Justina AV
  2. Fiscal centralization and the political process By Facundo Albornoz; Antonio Cabrales
  3. Pro-Poor Tax Reforms, with an Application to Mexico By Jean-Yves Duclos; Paul Makdissi; Abdelkrim Araar
  4. Transfer Pricing as a Tax Compliance Risk By Jost, Sven P.; Pfaffermayr, Michael; Winner, Hannes
  5. Collective Action forWatershed Management: Field Experiments in Colombia and Kenya By Juan Camilo Cárdenas; Luz Ángela Rodríguez; Nancy Johnson
  6. Taxation and the Earnings of Husbands and Wives By Gelber, Alexander
  7. Transport consumption inequalities and redistributive effects of taxes: A comparison of France, Denmark and Cyprus By Akli Berri; Stéphanie Vincent Lyk-Jensen; Ismir Mulalic; Theodoros Zachariadis
  8. The Political Resource Curse By Brollo, Fernanda; Nannicini, Tommaso; Perotti, Roberto; Tabellini, Guido
  9. Local authorities and the downturn: a review of issues, experience and options. By Gordon, Ian; Travers, Tony; Whitehead, Christine M. E.
  10. Accounting for family background when designing optimal income taxes: A microeconometric simulation analysis By Rolf Aaberge; Ugo Colombino

  1. By: Falch, Torberg; Fischer, Justina AV
    Abstract: Using a panel of international student test scores 1980 – 2000 (PISA and TIMSS), panel fixed effects estimates suggest that government spending decentralization is conducive to student performance. The effect does not appear to be mediated through levels of educational spending.
    Keywords: Fiscal decentralization; Student achievement; federalism; PISA; TIMSS; education; school quality
    JEL: H40 I20 H20 C33
    Date: 2010–01–29
  2. By: Facundo Albornoz; Antonio Cabrales
    Abstract: We study the dynamic support for fiscal decentralization in a political agency model from the perspective of a region. We show that corruption opportunities are lower under centralization at each period of time. However, centralization makes more difficult for citizens to detect corrupt incumbents. Thus, corruption is easier under centralization for low levels of political competition. We show that the relative advantage of centralization depends negatively on the quality of the local political class, but it is greater if the center and the region are subject to similar government productivity shocks. When we endogenize the quality of local politicians, we establish a positive link between the development of the private sector and the support for decentralization. Since political support to centralization evolves over time, driven either by economic/political development or by exogenous changes in preferences over public good consumption, it is possible that voters are (rationally) discontent about it. Also, preferences of voters and the politicians about centralization can diverge when political competition is weak.
    Keywords: Decentralization, Centralization, Political agency, Quality of politicians, Corruption
    JEL: H11 D72 D73 P16
    Date: 2010–01
  3. By: Jean-Yves Duclos; Paul Makdissi; Abdelkrim Araar
    Abstract: This paper proposes a methodology for testing for whether tax reforms are pro-poor. This is done by extending stochastic dominance techniques to help identify tax reforms that will necessarily be deemed absolutely or relatively pro-poor by a wide spectrum of poverty analysts. The statistical properties of the various estimators are also derived in order to make the method implementable using survey data. The methodology is used to assess the pro-poorness of possible reforms to Mexico’s indirect tax system. This leads to the identification of several possible pro-poor tax reforms in that country. It also shows how the pro-poorness of a tax reform depends on one’s conception of poverty as well as on the revenue and efficiency impact of the reform.
    Keywords: Stochastic dominance, pro-poor changes, tax reforms, Mexico
    JEL: D12 D63 H21 I32
    Date: 2010
  4. By: Jost, Sven P. (Department of Economics and Statistics, University of Innsbruck); Pfaffermayr, Michael (Department of Economics and Statistics, University of Innsbruck); Winner, Hannes (University of Salzburg)
    Abstract: This paper contributes to the empirical literature on the transfer pricing behavior of multinational firms. Previous research mainly focuses on transfer pricing as a means of tax optimization. Our approach concentrates on transfer pricing as a critical compliance issue. Specifically, we investigate whether and to what extent the awareness of transfer pricing as a tax compliance issue responds to country and industry characteristics as well as firm-specifics. Empirically, the transfer pricing risk awareness is measured as a professional assessment reported by the person with ultimate responsibility for transfer pricing in their company. Based on a unique global survey conducted by a Big 4 accounting firm in 2007 and 2008, we estimate the number of firms reporting transfer pricing being the largest risk issue with regard to subsequent tax payments. We find that transfer pricing risk awareness depends on variables accounting for general tax and transfer pricing specific strategies, the types and characteristics of intercompany transactions the multinational firms are involved in, their individual transfer pricing compliance efforts and resources dedicated to transfer pricing matters.
    Keywords: Transfer pricing; international taxation; multinational firms; tax risk management
    JEL: F23 H25
    Date: 2010–02–03
  5. By: Juan Camilo Cárdenas; Luz Ángela Rodríguez; Nancy Johnson
    Abstract: The dilemma of collective action around water use and management involves solving both the problems of provision and appropriation. Cooperation in the provision can be affected by the rival nature of the appropriation and the asymmetries in the access. We report two field experiments conducted in Colombia and Kenya. The Irrigation Game was used to explore the provision and appropriation decisions under asymmetric or sequential appropriation, complemented with a Voluntary Contribution Mechanism experiment which looks at provision decisions under symmetric appropriation. The overall results were consistent with the patterns of previous studies: the zero contribution hypotheses is rejected whereas the most effective institution to increase cooperation was face-to-face communication, and above external regulations, although we find that communication works much more effectively in Colombia. We also find that the asymmetric appropriation did reduce cooperation, though the magnitude of the social loss and the effectiveness of alternative institutional options varied across sites.
    Date: 2009–11–15
  6. By: Gelber, Alexander
    Abstract: This paper examines the response of husbands' and wives' earnings to a tax reform in which husbands' and wives' tax rates changed independently, allowing me to examine the effect of both spouses' incentives on each spouse's behavior. I compare the results to those of more simplified econometric models that are used in the typical setting in which such independent variation is not available. Using administrative panel data on approximately 11% of the married Swedish population, I analyze the impact of the large Swedish tax reform of 1990-1. I find that in response to a compensated rise in one spouse's tax rate, that spouse's earned income rises, and the other spouse's earned income also rises. I test and reject a set of models in which the family maximizes a single utility function. A standard econometric specification, in which one spouse reacts to the other spouse's income as if it were unearned income, yields biased coefficient estimates. Uncompensated elasticities of earned income with respect to the fraction of income kept after taxes are over-estimated by a factor of more than three, and income effects are of the wrong sign. A second common specification, in which overall family income is related to the family's tax rate and income, also yields substantially over-estimated own compensated and uncompensated elasticities. Standard econometric approaches may substantially mis-estimate earnings responses to taxation.
    Keywords: taxation; earnings; labor supply; families; spouses; unitary model
    JEL: H21 H31 J21 H24 J22 J12 J16
    Date: 2010–01
  7. By: Akli Berri (INRETS, Department of Transport Economics and Sociology (DEST)); Stéphanie Vincent Lyk-Jensen (SFI - The Danish National Centre for Social Research); Ismir Mulalic (University of Copenhagen and Technical University of Denmark); Theodoros Zachariadis (University of Cyprus)
    Abstract: We evaluate household transport consumption inequalities in France, Denmark and Cyprus, investigate their temporal dynamics and estimate the redistributive effects of taxes on different commodity categories. A comparative analysis is carried out in light of the differences between these countries, most notably in terms of car taxation systems and car ownership levels. A decomposition by expenditure component of the Gini index is applied, using household-level data from repeated cross-sections of expenditure surveys spanning long time periods. The results highlight the effect of car social diffusion. The relative contribution of vehicle use items to total expenditure inequality decreases over time, thus reflecting the more and more widespread use of the car. Moreover, fuel taxes become regressive (i.e. they affect the poor more than the rich), while the progressive character of taxes on the remaining car use commodities weakens with time. Taxes on transport goods and services as a whole are progressive (i.e. they affect the rich more than the poor). However, this is principally due to the progressivity of taxes on automobile purchases. The progressivity of taxes on car purchases is by far much stronger in Denmark. In this country, these taxes are so high that car purchase costs can be afforded only by high incomes. These findings underline the fact that equity issues should not be overlooked when designing policies to attenuate the environmental impact of cars. Increasing car use costs, notably fuel prices, through an increase of uniform taxes would be particularly inequitable.
    Keywords: Inequality; transport consumption; household expenditure surveys; Gini index; decomposition by component; redistributive effects of taxes
    JEL: D12 H23 H24 R41
    Date: 2010
  8. By: Brollo, Fernanda (Bocconi University); Nannicini, Tommaso (Bocconi University); Perotti, Roberto (Bocconi University); Tabellini, Guido (Bocconi University)
    Abstract: The paper studies the effect of additional government revenues on political corruption and on the quality of politicians, both with theory and data. The theory is based on a version of the career concerns model of political agency with endogenous entry of political candidates. The evidence refers to municipalities in Brazil, where federal transfers to municipal governments change exogenously according to given population thresholds. We exploit a regression discontinuity design to test the implications of the theory and identify the causal effect of larger federal transfers on political corruption and the observed features of political candidates at the municipal level. In accordance with the predictions of the theory, we find that larger transfers increase political corruption and reduce the quality of candidates for mayor.
    Keywords: government spending, corruption, political selection
    JEL: D72 D73 H40 H77
    Date: 2010–01
  9. By: Gordon, Ian; Travers, Tony; Whitehead, Christine M. E.
    Abstract: This report considers the potential/appropriate role for local authorities (LAs) in relation to the downturn phase of the current recession. It focuses on the most valuable functions which they can fulfil in this context, and takes a cautious view about the potential for extending any boost to local authority activity beyond this phase. It offers a rapid survey of roles, opportunities and constraints, drawing both on general principles (grounded in economic analysis) and an appreciation of practical experience. It proceeds from a brief review/comparison of the experience of the last two recessions, via a typology of potentially relevant LA roles in the present one, to a set of general issues that need to be addressed in considering what they should/could appropriately do in this situation. It then focuses on two more specific issues. The first is the significance of financial and other constraints for what LAs are likely/able to do. The second addresses LAs’ role in the field of housing market/financial issues, which is identified as the one where their contribution can be most crucial. Key conclusions are that: local government can do very little without active central government support and cannot substitute for it in raising general demand; local expenditure will need rebalancing to meet shifting needs within constrained levels of overall activity; LAs’ most positive/appropriate role is to mitigate effects (on assets and vulnerable people) and relieve specific market/government failures; the emphasis should be on short term gains, rather than pursuing unrealistic development initiatives, though nothing should be done in the name of that is not long term viable/desirable; incentivising the private sector is crucial, since they will have to take the strain in the end; LAs should avoid area discrimination, by ‘shielding’ people and assets, rather than protecting places.
    Date: 2009–06
  10. By: Rolf Aaberge (Research Department, Statistics Norway); Ugo Colombino (University of Turin)
    Abstract: The purpose of this paper is to introduce and adopt a generalised version of Roemer's (1998) Equality of Opportunity (EOp) framework, which we call extended EOp, for analysing second-best optimal income taxation. Unlike the pure EOp criterion of Roemer (1998) the extended EOp criterion allows for alternative weighting profiles in the treatment of income differentials between as well as within types when types are defined by circumstances that are beyond people's control. This study uses parental education as a measure of exogenous circumstances. An empirical microeconometric model of labour supply in Italy is employed to simulate and identify income tax-transfer rules that are optimal according to the extended EOp criterion. We look for second-best optimality, i.e. the tax-transfer rules are not allowed to depend on family background, they only depend on income: family background is taken indirectly into account. The rules are defined by a universal (not individualized) lump-sum transfer (positive or negative) and by one or two marginal tax rates. A rather striking result of the analysis is that the optimal tax-transfer rule turns out to be a universal lump-sum tax (with marginal tax rates equal to zero), under Roemer's pure EOp criterion as well as under the generalised EOp criterion with moderate degrees of aversion to within-type inequality. A higher degree of within-type inequality aversion instead produces EOp-optimal rules with positive marginal tax rates. When the EOp-version of the Gini welfare function is adopted, the optimal tax rule turns out to be close to the actual 1993 Italian tax system, if not for the important difference of prescribing a universal lump-sum positive transfer of 3,500,000 ITL (= 1807 Euros), which has no comparable counterpart in the actual system. On the other hand, when using the conventional equality of outcome (EO) criterion, the pure lump-sum tax always turns out to be optimal, at least with respect to the classes of two- and three-parameter rules. We also compute optimal rules under the additional constraint that universal lump-sum taxes are not feasible. Overall, the results do not conform to the perhaps common expectation that the EO criterion is more supportive of “interventionist” (redistributive) policies than an extended EOp approach.
    Keywords: Equality of opportunity, equality of outcome, labour supply, optimal income taxation.
    JEL: D19 D63 H21 H24 H31
    Date: 2010

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