nep-pbe New Economics Papers
on Public Economics
Issue of 2010‒03‒20
eight papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Fiscal Centralization and the Political Process By Fernando Albornoz; Antonio Cabrales
  2. ‘Expressive’ Obligations in Public Good Games: Crowding-in and Crowding-out Effects. By Michele Bernasconi; Luca Corazzini; Anna Marenzi
  3. The Size and Composition of Government Spending in Europe and Its Impact on Well-Being By Hessami, Zohal
  4. Off-the-peak preferences over government size By Francisco Martínez Mora; M. Socorro Puy
  5. "Determining Gender Equity in Fiscal Federalism-- Analytical Issues and Empirical Evidence from India" By Lekha S. Chakraborty
  6. Labor-dependent capital income taxation that encourages work and saving By Sagiri Kitao
  7. Ethnic diversity, economic performance and civil wars By Valsecchi, Michele
  8. On the legitimacy of citizen participation in pollution permits markets: economic efficiency and ethical concerns (In French) By Sylvie FERRARI (GREThA UMR CNRS 5113); Mohammed Mehdi MEKNI (GREThA UMR CNRS 5113); Emmanuel PETIT (GREThA UMR CNRS 5113); Sébastien ROUILLON (GREThA UMR CNRS 5113)

  1. By: Fernando 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.
    Date: 2010–01
  2. By: Michele Bernasconi (Department of Economics, University Of Venice Cà Foscari); Luca Corazzini (Dipartimento di Scienze Economiche, Università di Padova.); Anna Marenzi (Dipartimento di Economia, Università dell'Insubria.)
    Abstract: We study individual behaviour in a repeated linear public good experiment in which, in each period, subjects are required to contribute a minimum level and face a certain probability to be audited. Audited subjects who contribute less than the minimum level are convicted to pay the difference between the obligation required and the voluntary contribution. We study the ‘expressive’ power of the obligations. While at early stages subjects contribute the minimum level, with repetition contributions decline below the required amount indicating that expressive obligations are not capable to sustain cooperation. We observe that expressive obligations exert a rather robust crowding-out effect on voluntary contributions as compared to a standard public good game. The crowding-out is stronger when payments collected by the monitoring activity are distributed to subjects rather than when they are pure dead-weight-loss.
    Keywords: Expressive law, motivation crowding theory, laboratory experiments
    JEL: C91 H26 H41 K40
    Date: 2010
  3. By: Hessami, Zohal
    Abstract: This paper analyses whether large governments in Europe reflect efficient responses to a changing social and economic environment (‘welfare economic view’) as opposed to wasteful spending (‘public choice view’). To this end, the effect of government size on subjective well-being is estimated in a micro dataset covering twelve EU countries from 1990 to 2000. The estimations provide evidence for (i) an inversely U-shaped relationship between public sector size and well-being. (ii) The effect of government size on well-being depends on levels of corruption and decentralization as well as people’s ideological preferences and their position in the income distribution. Finally, (iii) higher levels of well-being could have been achieved by spending more on education and less on social protection.
    Keywords: Life satisfaction; well-being; public spending; government size
    JEL: H50 H40 H11 I31
    Date: 2010–03–07
  4. By: Francisco Martínez Mora; M. Socorro Puy
    Abstract: We show that preferences-bias towards overprovision or underprovision can explain the asymmetric location of electoral candidates with respect to the median voter. We analyze the determinants of preferences off-the-peak and find that: (i) The sign of the third derivative of the policy-induced utility function indicates whether preferences are bias towards overprovision (positive) or underprovision (negative). (ii) The analog of Kimball's coefficient of prudence can be used to measure the asymmetry of preferences. (iii) Consumers’risk aversion and government corruption (in the form of decreasing e¤ectiveness producing public good) induce voters’ preferences to be more intense towards underprovision.
    Date: 2010–02
  5. By: Lekha S. Chakraborty
    Abstract: Despite the policy realm’s growing recognition of fiscal devolution in gender development, there have been relatively few attempts to translate gender commitments into fiscal commitments. This paper aims to engage in this significant debate, focusing on the plausibility of incorporating gender into financial devolution, with the Thirteenth Finance Commission of India as backdrop. Given the disturbing demographics--the monotonous decline in the juvenile sex ratio, especially in some of the prosperous states of India--there can be no valid objection to using Finance Commission transfers for this purpose. A simple method for accomplishing this could be to introduce some weight in favor of the female population of the states in the Commission’s fiscal devolution formula. The message would be even stronger and more appropriate if the population of girl children only--that is, the number of girls in the 0–6 age cohort--is adopted as the basis for determining the states’ relative shares of the amount to be disbursed by applying the allotted weight. A special dispensation for girls would also be justifiable in a scheme of need-based equalization transfers. While social mores cannot be changed by fiscal fiats, particularly when prejudices run deep, a proactive approach by a high constitutional body like the Finance Commission is called for, especially when the prejudices are blatantly oppressive. Indeed, such action is imperative. The intergovernmental transfer system can and should play a role in upholding the right to life for India’s girl children. That being said, it needs to be mentioned that it is not plausible to incorporate more gender variables in the Finance Commission’s already complex transfer formula. In other words, inclusion of a "gender inequality index" in the formula may not result in the intended results, as the variables included in the index may cancel one another out. Accepting the fact that incorporating gender criteria in fiscal devolution could only be the second-best principle for engendering fiscal policy, the paper argues that newfound policy space for the feminization of local governance, coupled with an engendered fiscal devolution to the third tier, can lead to public expenditure decisions that correspond more closely to the revealed preferences ("voice") of women. With the 73rd and 74th constitutional amendments, this policy space is favorable at the local level for conducting gender responsive budgeting.
    Keywords: Fiscal Decentralization; Federalism; Fiscal Transfers; Gender
    JEL: H77 J16
    Date: 2010–03
  6. By: Sagiri Kitao
    Abstract: This paper proposes a simple mechanism of capital taxation that is negatively correlated with labor supply. Using a life-cycle model of heterogeneous agents, I show that this tax scheme provides a strong work incentive when households possess large assets and high productivity later in the life cycle, when they would otherwise work less. This reformed system also adds to the saving motive and raises aggregate capital. Moreover, the increased economic activities expand the tax base, and the revenue-neutral reform results in a lower average tax rate. My findings show that this tax scheme improves long-run welfare and that the majority of current generations would experience a welfare gain from a transition to the reformed system.
    Keywords: Labor supply ; Taxation ; Labor productivity ; Saving and investment ; Income tax
    Date: 2010
  7. By: Valsecchi, Michele (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We develop a conflict model linking dissipation to the distribution of the population over an arbitrary number of groups. We extend the pure contest version of the model by Esteban and Ray (1999) to include a mixed public-private good. We analyze how the level of dissipation changes as the population distribution and the share of publicness of the prize change. First, we find that, in case of pure private goods, the dissipation-distribution relationship resembles the fractionalization index. This may explain the sensitiveness of empirical evidence on the impact of ethnic diversity with respect to outcome (growth, incidence of civil wars) and index (fractionalization, discrete polarization). Second, we find that, in case of pure private goods, smaller groups always contribute more and so the fractionalization index under-estimates their weight. Indeed, we find that the fractionalization index under-estimates the true level of dissipation.<p>
    Keywords: ethnic diversity; public-private goods; polarization; fractionalization
    JEL: D72 D73 D74 H42
    Date: 2010–03–03
  8. By: Sylvie FERRARI (GREThA UMR CNRS 5113); Mohammed Mehdi MEKNI (GREThA UMR CNRS 5113); Emmanuel PETIT (GREThA UMR CNRS 5113); Sébastien ROUILLON (GREThA UMR CNRS 5113)
    Abstract: The idea of regulating pollutions by means of tradable emission permits on a competitive market was developed for the first time by Dales in 1968. The question of the citizens’ participation on these markets received little attention in the economic literature. However, people are allowed to buy emission permits and can therefore reduce the level of pollution by removing them from the market. From a practical viewpoint, the citizen’s preferences are not taken into account neither in the elaboration nor in the functioning of pollution permits markets. However, such a situation does not comply with both the democratic values and the prevailing economic principles. This article aims to discuss the legitimacy of a participation of the citizens to a pollution permits market by introducing both the economic efficiency and the ethical dimension. As the problem of free riding is fundamental when the citizen participation takes place, we show that it can be partly solved by funding the citizen demand. In addition, it seems that the free riding behaviour is overestimated by theoretical economics as experimental economics applied to the game of the public good shows. In addition, the ethical stakes associated to the opening of the pollution markets permits to the citizens are analyzed. An ethics based on the freedom and the sovereignty of the citizens commands us to authorize the participation of the citizens to these markets. This point is finally discussed towards the cumulative pollutions and towards the intergenerational dimension of the equity.
    Keywords: equity, altruism, public good, economic efficiency, ethics, tradable emission permits, citizen participation, intergenerational justice, free rider, cumulative pollutions
    JEL: D63 H21 H41 Q58
    Date: 2010

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