nep-pbe New Economics Papers
on Public Economics
Issue of 2010‒04‒17
33 papers chosen by
Oliver Budzinski
University of Southern Denmark

  1. Contributing or Free-Riding? Voluntary Participation in a Public Good Economy By Taiji Furusawa; Hideo Konishi
  2. Dual and common agency issues in international joint ventures: Evidence from China By Hein Roelfsema; Yi Zhang
  3. Public Sector Decentralization and School Performance: International Evidence By Torberg Falch; Justina A.V. Fischer
  4. Determinants of fiscal decentralization: political economy aspects By Mario Jametti; Marcelin Joanis
  5. The Political Economy of Fiscal Reform in Brazil: The Rationale for the Suboptimal Equilibrum By Marcus Melo; Carlos Pereira; Saulo Souza
  6. Self-Insurance and Self-Protection as Public Goods By Ulrich Schmidt
  7. Mobility and local income redistribution By Sigrid Roehrs; David Stadelmann
  8. Macro-fiscal volatility and the composition of public spending By Riscado, Sara Maria; Stančík, Juraj; Välilä, Timo
  9. Punishment despite Reasonable Doubt – A Public Goods Experiment with Uncertainty over Contributions By Kristoffel Grechenig; Andreas Nicklisch; Christian Thöni
  10. The fiscal impact of potential local option taxes in Massachusetts By Bo Zhao
  11. Evaluating Neutrality Properties of Corporate Tax Reforms By Michael P. Devereux; Simon Loretz
  12. Majority Voting and the Welfare Implications of Tax Avoidance By Christian Traxler
  13. The Futile Quest for a Grand Explanation of Long-Run Government Expenditure By Durevall, Dick; Henrekson, Magnus
  14. Fiscal Adjustment and the Costs of Public Debt Service: Evidence from OECD Countries By Christoph A. Schaltegger; Martin Weder
  15. Asymmetric Enforcement of Cooperation in a Social Dilemma By Nikos Nikiforakis; Hans-Theo Normann; Brian Wallace
  16. changes in the fiscal stance and the composition of public spending By Stančík, Juraj; Välilä, Timo
  17. Comparing the Effectiveness of Regulation and Pro-Social Emotions to Enhance Cooperation: Experimental Evidence from Fishing Communities in Colombia By Maria Claudia Lopez; James J. Murphy; John M. Spraggon; John K. Stranlund
  18. The 2008 Financial Crisis and Taxation Policy By Thomas Hemmelgarn; Gaetan Nicodeme
  19. The Responses of Taxable Income Induced by Tax Cuts – Empirical Evidence from the German Taxpayer Panel By Peter Gottfried; Daniela Witczak
  20. Corporate tax harmonization in the EU By Leon Bettendorf; Michael P. Devereux; Albert van der Horst; Ruud de Mooij
  21. Unraveling Public Good Games: The Role of Priors. By Pablo Brañas-Garza; Maria Paz Espinosa
  22. Rebuttal of Hashimzade, Myles and Tran-Nam (2009) “New Approaches to the Economics of Tax Evasion” By Ali al-Nowaihi; Sanjit Dhami
  23. Commuting, Residence and Workplace Location Attractiveness and Local Public Goods By Klaus Nowotny
  24. Reducing inefficiency in public good provision through linking By Stefano Galavotti
  25. Fiscal Decentralization, Fiscal Incentives, and Pro-Poor Outcomes: Evidence from Viet Nam By Bjornestad, Liv
  26. Turning the Lab into Jeremy Bentham’s Panopticon. The Effect of Punishment on Offenders and Non-Offenders By Christoph Engel; Bernd Irlenbusch
  27. Tax buyouts By Marco Del Negro; Fabrizio Perri; Fabiano Schivardi
  28. Impact of Tax Rate Cut Cum Base Broadening Reforms on Heterogeneous Firms – Learning from the German Tax Reform 2008 By Katharina Finke; Jost H. Heckemeyer; Timo Reister; Christoph Spengel
  29. Regulating Government (´s Share): The Fifty-Percent Rule of the Federal Constitutional Court in Germany By Andreas, von Arnauld; Zimmermann, Klaus W.
  30. Is Private Production of Public Services Cheaper than Public Production? A meta-regression analysis of solid waste and water services By Germà Bel; Xavier Fageda; Mildred E. Warner
  31. Public Goods Access and Juvenile Sex Ratios in Rural India: Evidence from the 1991 and 2001 Village Census Data By B. Deolalikar, Anil; Hasan, Rana; Somanathan, Rohini
  32. Tax Responses in Platform Industries By Hans Jarle Kind; Marko Koethenbuerger; Guttorm Schjelderup
  33. Beware of Broken Windows!First Impressions in Public-good Experiment By Martin Beckenkamp; Christoph Engel; Andreas Glöckner; Bernd Irlenbusch; Heike Hennig-Schmidt; Sebastian Kube; Michael Kurschilgen; Alexander Morell; Andreas Nicklisch; Hans-Theo Normann; Emanuel Towfigh

  1. By: Taiji Furusawa; Hideo Konishi
    Abstract: We consider a (pure) public goods provision problem with voluntary participation in a quasi-linear economy. We propose a new hybrid solution concept, the free-riding-proof core (FRP-Core), which endogenously determines a contribution group, public good provision level, and its cost-sharing. The FRP-Core is always nonempty in public good economies but does not usually achieve global efficiency. The FRP-Core has support from both cooperative and noncooperative games. In particular, it is equivalent to the set of perfectly coalition-proof Nash equilibrium (Bernheim, Peleg, and Whinston, 1987) of a dynamic game with players' participation decisions followed by a common agency game of public goods provision. We illustrate various properties of the FRPCore with an example. We also show that the equilibrium level of public good shrinks to zero as the economy is replicated.
    Keywords: endogenous coalition formation, externalities, public good, perfectly coalition-proof Nash equilibrium, free-riders, free-riding-proof core, lobbying, common agency game
    Date: 2010–03
  2. By: Hein Roelfsema; Yi Zhang
    Abstract: With the help of a theoretical model we analyze the relation between equity sharing in an international joint venture (EJV) and local public goods provision in a setting where the local government faces a commitment problem to provide public services ex post to the set-up of the firm. We show that to overcome such a dual agency problem, the multinational leaves more local rents to the local partner than in the first-best, so as to provide stronger incentives for the government to supply public goods. Applying dynamic panel data estimation, we test the trade-off between local public goods and ownership shares across 31 Chinese provinces to find support for our mechanism
    Keywords: Equity sharing, foreign investment, local public goods, China
    JEL: F23 L14 L22 L23 O14
    Date: 2010–03
  3. By: Torberg Falch (Institutt for Samfunnsøkonomi (Department of Economics), Norges Teknisk- Naturvitenskaplige Universitet (NTNU) (Norwegian University of Science and Technology)); Justina A.V. Fischer (University of Hamburg, Institute for Public Finance)
    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: C33 H2 I2 H40
    Date: 2010
  4. By: Mario Jametti (University of Lugano); Marcelin Joanis (Université de Sherbrooke)
    Abstract: This paper empirically investigates the underlying causes of expenditure decentralization, based on the predictions of a new political economy model of partial fiscal decentralization. Under shared expenditure responsibility, the degree of decentralization is endogenous and depends on the relative political conditions prevailing at each level of government. Our empirical results from a panel of democracies support the relevance of political factors as determinants of fiscal decentralization. The relationship between central government electoral strength and both expenditure and revenue centralization emerges as nontrivial and non-linear. Political forces at the central government level driving centralization up and down appear to coexist.
    Keywords: fiscal decentralization, fiscal federalism, vertical interactions, partial decentralization, elections
    JEL: H77 D72 H11
    Date: 2010
  5. By: Marcus Melo; Carlos Pereira; Saulo Souza
    Abstract: This project examines fiscal reforms in Brazil since the 1990s, particularly in taxation, budgeting, and fiscal federalism. While recentralizing fiscal authority and massively expanding the extractive capacity of the state, policymakers chose not to revamp an inefficient tax system that has nonetheless proven capable of generating high levels of revenue. In budgeting, the economic crises of the mid-1990s prompted the government to rein in subnational fiscal imbalances but discouraged policymakers from introducing major changes in the tax system. As the executive derives utility from fiscal stability and inflation control because of electoral incentives and credibility gains in international markets, reform initiatives can generate political benefits for incumbent politicians. The paper finally argues that the Achilles’ heel of the sustainability of the Fiscal Responsibility Law is its enforcement technology: the Tribunais de Contas.
    Keywords: Fiscal responsibility laws, Fiscal federalism, Brazil, Political institutions
    JEL: H3 H77 H83 H71
    Date: 2010–02
  6. By: Ulrich Schmidt
    Abstract: Most pure public goods like lighthouses, dams, or national defense provide utility mainly by insuring against hazardous events. Our paper focuses on this insurance character of public goods. As for private actions against hazardous events, one can distinguish between self-insurance (SI) and self-protection (SP) also in the context of public goods. For both cases of SI and SP we analyze efficient public provision levels as well as provision levels resulting from Nash behavior in a private provision game. An interesting aspect of considering public goods as insurance devices is the interaction with market insurance. It turns out that the availability of market insurance reduces the provision level of the public good for both, the public and the private provision, regardless of whether we consider SI or SP. Moreover, we show that Nash behavior has always a larger impact than the availability of market insurance
    Keywords: Self-insurance, self-protection, private provision of public goods, market insurance
    JEL: G22 H41
    Date: 2010–03
  7. By: Sigrid Roehrs (University of Zurich); David Stadelmann (University of Fribourg)
    Abstract: Mobility may undermine local income redistribution in federal systems,because rich taxpayers can evade high taxes by moving to low tax jurisdictions. By analyzing a model of local income redistribution with endogenous voting, income heterogeneity and an exogenously given degree of mobility we focus explicitly on the link between redistribution and mobility. Our findings suggest a nonlinear relationship between redistribution and mobility: high and low degrees of mobility permit major income redistribution as income sorting is absent, while a medium degree of mobility leads to high differences in tax rates between jurisdictions and thus to income sorting and less redistribution.
    Keywords: Redistribution, political economy, locational equilibrium, taxes, tax havens
    JEL: H23 H71 H73
    Date: 2010
  8. By: Riscado, Sara Maria (European University Institute, Department of Economics); Stančík, Juraj (CERGE-EI, Charles University Prague and Academy of Sciences of the Czech Republic); Välilä, Timo (European Investment Bank, Economic and Financial Studies)
    Abstract: Earlier empirical literature has examined some long- and medium-term aspects of macro-fiscal volatility while leaving its short-term fiscal impact unexplored. To help fill that gap, we examine the impact of macro-fiscal volatility on the composition of public spending. To that end, we analyse a panel of 10 EU countries during 1991—2007. Our results suggest that contemporaneous increases in the volatility of regularly collected revenues such as the VAT and income taxes tend to tilt the expenditure composition in favour of public investment. In contrast, increases in the volatility of ad hoc –type of taxes such as capital taxes tend to favour public consumption spending. A possible explanation to these differences concerns news about the underlying economic conditions embedded in short-term volatility changes: the policy maker may be more inclined to increase public investment in response to persistent changes in the economic conditions, while temporary changes may prompt a reaction on consumption spending.
    Keywords: tax volatility; public investment; public consumption
    JEL: C33 E32 E62 H29 H50
    Date: 2010–02–28
  9. By: Kristoffel Grechenig (Max Planck Institute for Research on Collective Goods, Bonn); Andreas Nicklisch (Max Planck Institute for Research on Collective Goods, Bonn); Christian Thöni (University of St. Gallen, Department of Economics)
    Abstract: Under a great variety of legally relevant circumstances, people have to decide whether or not to cooperate, when they face an incentive to defect. The law sometimes provides people with sanctioning mechanisms to enforce pro-social behavior. Experimental evidence on voluntary public good provision shows that the option to punish others substantially improves cooperation, even if punishment is costly. However, these studies focus on situations where there is no uncertainty about others' behavior. We investigate punishment in a world with “reasonable doubt” about others' contributions. Interestingly, people reveal a high willingness to punish even if their information about cooperation rates is inaccurate, or noisy. If there is some non-trivial degree of noise, unishment (1) cannot maintain high contributions and (2) reduces welfare even below the level of a setting without punishment. Our findings suggest that sufficient information accuracy about others' behavior is crucial for he efficiency of sanction mechanisms. If a situation is characterized by low information accuracy, precluding sanctions can be optimal.
    Keywords: Public Goods, Experimental Law & Economics, Enforcement under Uncertainty
    JEL: H41 K42 C91 K14
    Date: 2010–04
  10. By: Bo Zhao
    Abstract: This paper examines the potential impact of local-option taxes on meals, general sales, income, and payroll on revenue-raising capacity in Massachusetts municipalities. It finds that, while new local-option taxes would generate considerable additional revenues from untapped sources, revenue capacity is not evenly distributed across municipalities. Indeed, local-option taxes are likely to exacerbate fiscal disparities, because municipalities with low existing revenue-raising capacity often lack the tax bases for new local-option taxes. Policymakers could consider increasing equalizing state aid to offset these fiscal disparities. If more aid is not forthcoming, this paper proposes that the state change aid formulas to reflect differences across municipalities in local-option tax capacity, and to better target fiscally distressed communities. These strategies - explored in the Massachusetts context - could also be useful in other states.
    Keywords: Taxation - Massachusetts ; Local finance - Massachusetts
    Date: 2010
  11. By: Michael P. Devereux (Oxford University Centre for Business Taxation); Simon Loretz (Oxford University Centre for Business Taxation)
    Abstract: We propose a methodology for assessing the neutrality of corporate tax reform proposals in an open economy. The methodology identifies variation in effective tax rates to assess the proximity of a tax system to capital export neutrality (CEN) and to market neutrality (MN, which holds if all potential competitors in a single market face the same effective tax rate). We apply the methodology to two reform options in the EU. Optional international loss consolidation would move the EU tax system away from both CEN and MN. The proposed common consolidated corporate tax base (CCCTB) has mixed effects which depend on the precise comparisons made.
    Keywords: Corporate Taxation; International Loss Consolidation; Ap- portionment Rules; Common Consolidated Tax Base; Neutrality;
    JEL: H25 H87
    Date: 2010
  12. By: Christian Traxler (Max Planck Institute for Research on Collective Goods)
    Abstract: A benchmark result in the political economy of taxation is that majority voting over a linear income tax schedule will result in an ine±ciently high tax rate whenever the median voter has a below average income. The present paper examines the role of tax avoidance for this welfare assessment. We find that the inefficiency in the voting equilibrium is the lower, the higher the average level of tax avoidance in the economy, or equivalently, the lower the median voter's amount of avoidance. The result holds for endogenous avoidance and labor choice and, under certain conditions, for an endogenous enforcement policy.
    Keywords: Tax avoidance, welfare analysis, majority voting, median voter equilibrium
    JEL: H26 D72 D6
    Date: 2009–07
  13. By: Durevall, Dick (Department of Economics, School of Business, Economics and Law, Göteborg University); Henrekson, Magnus (Research Institute of Industrial Economics (IFN))
    Abstract: This paper carries out a critical reappraisal of the two contending theories purporting to explain long-run government spending: Wagner’s Law and different variants of the ratchet effect. We analyze data spanning from the early 19th century until the present day in Sweden and the United Kingdom. Hence, in contrast to previous studies, we evaluate the validity of Wagner’s Law and the ratchet effect hypothesis over a very long time period, starting at the beginning of industrialization. Cointegration analysis is used to investigate the long-run relationships between government expenditure and GDP, focusing on sub-periods and parameter stability. Moreover, we test the ratchet effect hypothesis by estimating models which allow for asymmetric adjustment. According to our main results, Wagner’s Law does not hold in the long run, although the data are consistent with Wagner’s Law between roughly 1860 and the late 1960s in Sweden, and the 1970s in the UK. This can be traced to the formation of the modern public sector, including the introduction of public education, health care, and so forth. Yet Wagner’s Law did not hold during the initial industrialization phase (before 1860), or during recent periods. Finally, we find some evidence of asymmetric adjustment, particularly in the post WWII period in the UK: Public expenditure grows more during bad times than it decreases during good times. However, the ratchet effect is only a short to mediumterm phenomenon.<p>
    Keywords: Displacement effect; Government expenditure; Growth of government; Public sector; Ratchet effect; Wagner’s Law
    JEL: H10 H55 I38
    Date: 2010–01–22
  14. By: Christoph A. Schaltegger; Martin Weder
    Abstract: We use a panel of 21 OECD countries from 1970 to 2009 to investigate the effects of different fiscal adjustment strategies on long-term interest rates – a key fiscal indicator reflecting the costs of government debt service. A government confronted with high deficits and rising debt will sooner or later need to enact fiscal adjustments in order to avoid solvency problems. Over the last four decades, such measures taken by governments in OECD countries have varied in duration, size, composition and in their success to re-establish fiscal sustainability. Control-ling for various economic, fiscal and political factors, we find that the size and the composi-tion of a fiscal adjustment significantly affect interest rates as well as yield spreads. Adjust-ments that are relatively large and those that primarily depend on expenditure cuts lead to substantially lower long-term interest rates. However, periods of fiscal adjustments do not generally have an influence on interest rates, even if they were successful and led to lower deficits and debt levels. Instead, financial markets only seem to value strict and decisive measures – a clear sign that the government’s pledge to cut the deficit is credible.
    Keywords: Fiscal Adjustment; Consolidation Policy; government deficit; long-term interest rates
    JEL: E61 E63 H61
    Date: 2010–04
  15. By: Nikos Nikiforakis (Department of Economics, The University of Melbourne); Hans-Theo Normann (Department of Economics, Goethe University Frankfurt); Brian Wallace (Department of Economics & ELSE, University College London)
    Abstract: We use a public-good experiment to analyze behavior in a decentralized asymmetric punishment institution. The institution is asymmetric in the sense that players differ in the effectiveness of their punishment. At the aggregate level, we observe remarkable similarities between outcomes in asymmetric and symmetric punishment institutions. Controlling for the average punishment effectiveness of the institutions, we find that asymmetric punishment institutions are as effective in fostering cooperation and as efficient as symmetric institutions. At the individual level, we find that players with higher punishment effectiveness contribute similar amounts to the public account, but have higher earnings and punish more than their weak counterparts.
    JEL: C92 D70 H41
    Date: 2009–06
  16. By: Stančík, Juraj (CERGE-EI Charles University Prague and Economics Institute of the Academy of Sciences of the Czech Republic); Välilä, Timo (European Investment Bank, Economic and Financial Studies)
    Abstract: 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 the relative share of investment and loosening favouring consumption expenditure. 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: C33 E62 H50 H62
    Date: 2010–03–12
  17. By: Maria Claudia Lopez (School of Environmental and Rural Studies, Bogota Colombia); James J. Murphy (Department of Economics, University of Alaska, Anchorage); John M. Spraggon; John K. Stranlund (Department of Resource Economics, University of Massachusetts, Amherst)
    Abstract: This paper presents the results from a series of framed field experiments conducted in fishing communities off the Caribbean coast of Colombia. The goal is to investigate the relative effectiveness of exogenous regulatory pressure and pro-social emotions in promoting cooperative behavior in a public goods context. The random public revelation of an individual’s contribution and its consequences for the rest of the group leads to significantly higher public good contributions and social welfare than regulatory pressure, even under regulations that are designed to motivate fully efficient contributions.
    Keywords: public goods, field experiments, pro-social emotions, social dilemma, regulation, enforcement.
    JEL: C93 H41 Q20 Q28
    Date: 2009–08
  18. By: Thomas Hemmelgarn (European Commission); Gaetan Nicodeme (European Commission)
    Abstract: The 2008 financial crisis is the worst economic crisis since the Great Depression of 1929. It has been characterised by a housing bubble in a context of rapid credit expansion, high risk-taking and exacerbated financial leverage, ending into deleveraging and credit crunch when the bubble burst. This paper discusses the interactions between tax policy and the financial crisis. In particular, it reviews the existing evidence on the links between taxes and many characteristics of the crisis. Finally, it examines some possible future tax options to prevent such crises.
    Keywords: Taxation, financial crisis, banking crisis, fiscal incentives
    JEL: E62 F21 F30 G10 H20 H30 H50 H60
    Date: 2010–01
  19. By: Peter Gottfried; Daniela Witczak
    Abstract: The elasticity of taxable income has gained increasing attention as a fiscal policy parameter. This paper provides empirical evidence for Germany and adds to the relatively small body of literature for European countries. We use a large new panel data set to analyze the taxable income response to tax rate changes in 2004 which were part of an extensive reform programme in Germany at the beginning of this century. We find an average elasticity of approximately 0.6. Separately estimated income effects however are mostly small or insignificant. The results vary when dividing taxpayers by income type and group.
    Keywords: elasticity of taxable income; tax reform; net-of-tax rate
    JEL: H24 H31
    Date: 2009–11
  20. By: Leon Bettendorf; Michael P. Devereux; Albert van der Horst; Ruud de Mooij
    Abstract: This paper explores the economic consequences of proposed EU reforms for a common consolidated corporate tax base. The reforms replace separate accounting with formula apportionment as a way to allocate corporate tax bases across countries. To assess the economic implications, we use a numerical CGE model for Europe. It encompasses several decision margins of firms such as marginal investment, FDI decisions, and multinational profit shifting. The simulations suggest that consolidation does not yield substantial welfare gains for Europe. The variation of effects across countries is large and depends on the choice of the apportionment formula. Consolidation with formula apportionment does not weaken incentives for tax competition. Tax competition instead offers a rationale for rate harmonisation, in addition to base harmonisation.
    Keywords: Corporate Tax Harmonisation; Common Consolidated Corporate Tax Base; Applied General Equilibrium; European Union
    JEL: C68 F23 H25
    Date: 2009–11
  21. By: Pablo Brañas-Garza (Universidad de Granada); Maria Paz Espinosa (Universidad del Pais Vasco)
    Abstract: This paper provides experimental evidence on how players predict end game effects in a linear public good game. Our regression analysis yields a measure of the relative importance of priors and signals on subjects\' beliefs on contributions and allow us to conclude that, firstly, the weight of the signal is relatively unimportant, while priors have a large weight and, secondly, priors are the same for all periods. Hence, subjects do not expect end game effects and there is very little updating of beliefs.
    Keywords: public good game, end game effect, beliefs
    JEL: C91 D64 C72 H41
    Date: 2010–02–19
  22. By: Ali al-Nowaihi; Sanjit Dhami
    Abstract: In a recent, 58 page, paper, Hashimzade, Myles and Tran-Nam (2009) .New Approaches to the Economics of Tax Evasion.survey alternative approaches to tax evasion. Their central conclusion is, in their own words (p. 56): .What they [the non-expected utility models] do not do is change the relationship between the tax rate and the level of evasion..We show that their central conclusion is incorrect. We also show that their representation of our work [(2007) "Why Do People Pay Taxes? Prospect Theory Versus Expected Utility Theory", Journal of Economic Behavior and Organization, 64: 171.192 ] is highly misleading, and incorrect.
    Date: 2010–01
  23. By: Klaus Nowotny (WIFO)
    Abstract: Being at the heart of today's working life, commuting is of central interest to geographers, policy makers, transport planners and economists alike. This article analyses aggregate commuting using various groups of variables. A special focus is on the questions whether and how the provision of local public goods, such as educational institutions or health care facilities, and local amenities affect commuting decisions on the aggregate level and to what extent commuting can be explained by labour market characteristics at the source and target units. The empirical investigation analyses aggregate commuting flows between municipalities of an Austrian province using censored regression and count data models.
    Keywords: commuting, gravity model, censored regression
    Date: 2010–02–22
  24. By: Stefano Galavotti (Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze)
    Abstract: We derive the optimal mechanism for the provision of n identical public goods in an economy with two agents, binary valuations. The mechanism "links" the n problems together because decisions and transfers are based on the whole vector of valuations of the agents. In particular, if agents have mixed valuations for a public good (one agent has a high valuation, the other a low valuation), the good is provided if the low valuation agent has a sufficiently high average valuation for the whole bundle of goods. We show that the mechanism is asymptotically efficient and we provide an example which compares the gains in terms of efficiency with optimal separate provision and with another asymptotically efficient mechanism in the literature.
    Keywords: public goods, linking, bundling.
    JEL: D61 H21 H41
    Date: 2010–02
  25. By: Bjornestad, Liv (Asian Development Bank)
    Abstract: This paper provides an in-depth analysis of the relationship between fiscal decentralization and pro-poor outcomes based on the role of fiscal incentives. The literature on the relationship between fiscal decentralization and pro-poor outcomes is not well established in this area. A conceptual model is developed to explore in more detail this relationship, while endeavoring to illuminate the complexity of the issues involved for policy makers in developing countries. Four types of fiscal incentives are explored: namely, resources, responsibility, autonomy, and accountability. The paper then assesses the effectiveness of the Vietnamese system of fiscal decentralization for achieving pro-poor outcomes through a devolved system of fiscal incentives. The paper suggests that evidence from the Vietnamese case indicates that fiscal decentralization may contribute to poverty reduction outcomes, but does not provide evidence that fiscal decentralization is in and of itself inherently pro-poor. Rather, the lesson from Viet Nam is that if poverty reduction is an explicit objective for government, the system of fiscal decentralization should target pro-poor outcomes through an appropriate system of fiscal incentives. Since 2002, budgetary reallocation and income redistribution linked to poverty outcomes has been more strongly associated with equalizing fiscal transfers than with devolved finances in general. This represents a broadly correct approach to target poverty outcomes in a territorially unbalanced country like Viet Nam. Targeted transfers contribute to pro-poor outcomes by increasing the level of resources available to finance poverty spending. However, increasing the level of fiscal transfers for poverty spending will not ensure that fiscal transfers are then spent efficiently. In order to better realize these efficiency objectives, the government can promote greater fiscal and administrative decentralization of resources and responsibility to district- and commune-level governments. Further gains in this area must also be supported by greater levels of fiscal autonomy and fiscal accountability at the local government level.
    Date: 2009–07
  26. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Bernd Irlenbusch (London School of Economics and Max Planck Institute for Research on Collective Goods)
    Abstract: The most famous element in Bentham’s theory of punishment, the Panopticon Prison, expresses his view of the two purposes of punishment, deterrence and special prevention. We investigate Bentham’s intuition in a public goods lab experiment by manipulating how much information on punishment experienced by others is available to would-be offenders. Compared with the tone that Jeremy Bentham set, our results are non-expected: If would-be offenders learn about contributions and punishment of others at the individual level, they contribute much less to the public project. Our results confirm the special prevention effect but show that the deterrence effect is smaller the more information on individual punishment is available.
    Keywords: Punishment, Deterrence, Special Prevention, Jeremy Bentham, Experiment, Public Good
    JEL: C91 H41 K14 K42
    Date: 2010–02
  27. By: Marco Del Negro; Fabrizio Perri; Fabiano Schivardi
    Abstract: The paper studies a fiscal policy instrument that can reduce fiscal distortions without affecting revenues, in a politically viable way. The instrument is a private contract (tax buyout), offered by the government to each citizen, whereby the citizen can choose to pay a fixed price in exchange for a given reduction in her tax rate for a period of time. We introduce the tax buyout in a dynamic overlapping generations economy, calibrated to match several features of the US income, taxes and wealth distribution. Under simple pricing, the introduction of the buyout is revenue neutral but, by reducing distortions, it benefits a significant fraction of the population and leads to sizable increases in aggregate labor supply, income and consumption.
    Date: 2010
  28. By: Katharina Finke (Centre for European Economic Research (ZEW)); Jost H. Heckemeyer (Centre for European Economic Research (ZEW)); Timo Reister (Centre for European Economic Research (ZEW),); Christoph Spengel (University of Mannheim)
    Abstract: The German corporate tax reform of 2008 has brought about important cuts in corporate tax rates, which were at the same time accompanied by significant changes in the determination of the tax base for both major German corporate taxes - corporate income tax and trade tax. The reform followed the distinct and internationally prevalent pattern of tax rate cut cum base broadening. Its implications are thus not unique to Germany. Especially in view of the current economic crisis, questions on the distribution of the tax burden among firms of different characteristics have arisen and still remain at the heart of the academic and political debate in Germany and other countries. In this paper we present a new corporate microsimulation model, ZEW TaxCoMM, which allows for the coherent micro-based analysis of revenue implications of tax reforms and the distribution of tax consequences among heterogeneous firms. The model processes firm-level financial accounting input data and derives the firm specific tax base and tax due endogenously in accordance with the tax code. To smooth out distortions between the sample and the population of German corporations, the sample is extrapolated on the basis of the corporate income tax statistic. The simulation results show inter alia that less than 5% of all corporations did not benefit from the reform. The average annual relief as measured by the average decline in the effective tax burden on cash flows amounts to 2.8 percentage points for large corporations and to 6 percentage points for small corporations. Furthermore, the results illustrate that firms with low profitability, high debt ratio and high capital intensity benefit least from the reform. As to tax revenues, the reform induced decrease amounts to € 9.8 billion and the trade tax gains fiscally in importance.
    Keywords: tax reform, microsimulation, tax policy evaluation
    JEL: H25 H32 K34 C8
    Date: 2010
  29. By: Andreas, von Arnauld (Helmut Schmidt University, Hamburg); Zimmermann, Klaus W. (Helmut Schmidt University, Hamburg)
    Abstract: Some numbers in the political sphere seem to be chosen rather arbitrarily. One example might be the rule set out by the Second Senate of the German Federal Constitutional Court in 1995 that the overall tax load on assets must be limited to 50% of the yield on those assets. This rule was understood by many as a general principle for taxation. The article first sketches the socio-political climate under which the rule originated: a rise of neo-liberal thought met with the inability of the political institutions to reform the German welfare state with its ever-growing expenses. The Constitutional Court’s intervention is interpreted as a reaction to this stagnation in politics. An analysis from the perspective of Constitutional Law, however, reveals that the fifty-percent rule cannot be convincingly based on the German Basic Law, and instead must be seen as a political move of the Court. But this move did not follow an economic rationality, either; for an optimal government’s share can only be determined in relation to the economic performance of a country and not by fixing it generally at a maximum of 50% of GDP. The demise of the fifty-percent rule already began four years later. In 2006, finally, the Senate moved away from the individual rights-based approach of 1995 to a more general assessment, taking also into account an increasingly globalized tax competition. The reason for this clear-cut change in the Court’s juris-prudence can be found in a change of the socio-political and institutional parameters, thus witnessing to the effect of the political climate on court decisions. The analysis also shows that the rule was created and abandoned only on the basis of an "introverted" legal discussion, economic arguments hardly playing any role in the process. The new line of the Senate, however, might guarantee for a better integration of economic science into tax policy by exchanging fixed limits for a “discursive” model, demanding from the tax legislator better reasons for higher taxes.
    Keywords: fifty-percent rule; constitutional decisions; optimal government’s share
    JEL: H11 H24 K34 P16
    Date: 2010–03–22
  30. By: Germà Bel (Faculty of Economics, University of Barcelona); Xavier Fageda (Faculty of Economics, University of Barcelona); Mildred E. Warner (Department of City and Regional Planning,Cornell University)
    Abstract: Privatization of local government services is assumed to deliver cost savings but empirical evidence for this from around the world is mixed. We conduct a meta-regression analysis of all econometric studies examining privatization for water distribution and solid waste collection services and find no systematic support for lower costs with private production. Differences in study results are explained by differences in time-period of the analyses, service characteristics, and policy environment. We do not find a genuine empirical effect of cost savings resulting from private production. The results suggest that to ensure cost savings, more attention be given to the cost characteristics of the service, the transaction costs involved, and the policy environment stimulating competition, rather than to the debate over public versus private delivery of these services.
    Keywords: Privatization, contracting-out, costs, local governments, meta-regression analysis.
    Date: 2009–10
  31. By: B. Deolalikar, Anil (University of California, Riverside); Hasan, Rana (Asian Development Bank); Somanathan, Rohini (Delhi School of Economics)
    Abstract: We use village level data from the 1991 and 2001 Indian Censuses to examine how the availability of health facilities and safe drinking water at the village level affect juvenile sex ratios. In addition to controlling for village fixed effects in our estimating equation of the juvenile sex ratio, we also allow villages to be heterogeneous in terms of how their juvenile sex ratios respond to the availability of health facilities and safe drinking water. A key result we obtain is that although the presence of public health facilities does not exert a positive, significant effect on juvenile sex ratios on average, they do so in villages where the problem of discrimination against girls is most acute, i.e., in villages at the 0.10 and 0.25 quantiles of the conditional juvenile sex ratio distribution. Thus public policy can be an effective tool in improving gender balance in cases where it is most needed.
    Date: 2009–07
  32. By: Hans Jarle Kind (Norges Handelshøyskole, Bergen); Marko Koethenbuerger (Department of Economics, University of Copenhagen); Guttorm Schjelderup (Norges Handelshøyskole, Bergen)
    Abstract: Two-sided platform firms serve distinct customer groups that are connected through interdependent demand, and include major businesses such as the media industry, banking, and the software industry. A well known result of tax incidence is that consumers of a more heavily taxed good pay a higher price and thus buy less of the good. The present paper shows that this result need not hold in a two-sided market. On the contrary, a higher ad valorem tax may lower end-user prices and spur sales. Thus, two-sided platform firms may not at all engage in tax shifting via price increases. We further show that a higher ad valorem tax may undermine a firm's incentive to differentiate its product from that of its competitors. Finally, we demonstrate that the effects of increasing specific taxes may be the opposite of those of increasing value added taxes.
    JEL: D4 D43 H21 H22 L13
    Date: 2010–03
  33. By: Martin Beckenkamp; Christoph Engel (Max Planck Institute for Research on Collective Goods); Andreas Glöckner; Bernd Irlenbusch; Heike Hennig-Schmidt; Sebastian Kube; Michael Kurschilgen; Alexander Morell; Andreas Nicklisch; Hans-Theo Normann; Emanuel Towfigh
    Abstract: Broken Windows: the metaphor has changed New York and Los Angeles. Yet it is far from undisputed whether the broken windows policy was causal for reducing crime. In a series of lab experiments we show that first impressions are indeed causal for cooperativeness in three different institutional environments: absent targeted sanctions; with decentralised punishment; with decentralised punishment qualified by the risk of counterpunishment. In all environments, the effect of first impressions cannot be explained with, but adds to, participants’ initial level of benevolence. Mere impression management is not strong enough to stabilise cooperation though. It must be combined with some risk of sanctions.
    Keywords: Broken Windows, Impression Management, Criminal Policy, Public Good Experiment
    JEL: C91 D63 H41 K14 K42
    Date: 2009–07

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