nep-pbe New Economics Papers
on Public Economics
Issue of 2010‒04‒24
twelve papers chosen by
Oliver Budzinski
University of Southern Denmark

  1. Scotland: A New Fiscal Settlement By Andrew Hughes Hallett; Drew Scott
  2. Efficient inter-group competition and the provision of public goods By Pablo Guillen; Danielle Merrett
  3. Fiscal Federalism and Electoral Accountability By Aidt, T.; Dutta, J.
  4. Devouring the Leviathan: fiscal policy and public expenditure in Colombia By Estrada, Fernando
  5. Tax Morality and Progressive Wage Tax By Andr s Simonovts
  6. Competitive Nonlinear Taxation and Constitutional Choice By Massimo Morelli; Huanxing Yang; Lixin Ye
  7. Voluntary Contributions by Consent or Dissent By Tan, Jonathan H.W.; Breitmoser, Yves; Bolle, Friedel
  8. The effects of punishment in dynamic public-good games By Guererk, Oezguer; Rockenbach, Bettina; Wolff, Irenaeus
  9. Protesting or Justifying? A Latent Class Model for Contingent Valuation with Attitudinal Data By Cunha-e-Sa, Maria Antonieta; Madureira, Livia; Nunes, Luis Catela; Otrachshenko, Vladimir
  10. Average tax rate cyclicality in OECD countries: A test of three fiscal policy theories By Furceri, Davide; Karras, Georgios
  11. Corporate Tax Systems and the Location of Industry By Wiberg, Magnus
  12. Is Government Ownership of Banks Really Harmful to Growth? By Svetlana Andrianova; Panicos Demetriades; Anja Shortland

  1. By: Andrew Hughes Hallett; Drew Scott
    Keywords: Tax and Expenditure Devolution, Inter-Government Relations, Fiscal Federalism, State Budget, Fiscal Coordination.
    JEL: H71 H74 P43 E61
    Date: 2010–03
  2. By: Pablo Guillen (The University of Sydney); Danielle Merrett (The University of Sydney)
    Abstract: We propose an intergroup competition scheme (ICS) to solve the free-riding problem in the public goods game. Our solution only requires knowledge of the group contributions, is budget balanced and with the right parameters a dominant strategy. The main innovations of our design are that the prize to the winning group is paid by the losing group and that the size of the transfer depends on the difference in contribution by the two groups. With the right parameters, this scheme changes the dominant strategy from none to full contribution. We tested different parameterizations for the ICS. The experiments show dramatic gains in efficiency in all the ICS treatments. Moreover, versions of the ICS in which intergroup competition should not change the zero contribution Nash equilibrium also produce remarkable gains in efficiency and no decline in contributions over time.
    Keywords: public goods, intergroup competition, team production, voluntary contributions mechanism, economic experiments
    Date: 2010–04–01
  3. By: Aidt, T.; Dutta, J.
    Abstract: We study the e¢ cient allocation of spending and taxation authority in a federation in which federal politicians are exposed to electoral uncertainty. We show that centralization may, but need not, result in a loss of electoral accountability. We identify an important asymmetry between positive and negative externalities and show that centralization may not be e¢ cient in economies with positive externalities even when regions are identical and centralization does not entail a loss of accountability. We also show that decentralization can only Pareto dominate centralization in economies with negative externalities.
    Keywords: Fiscal federalism, local public goods, externalities, performance voting, turnout uncertainty, electoral accountabilit
    JEL: D72 D78 H41
    Date: 2010–04–30
  4. By: Estrada, Fernando
    Abstract: Overall, this paper presents a white swan that seems to confirm the hypothesis of Alesina / Tabellini / Campante (2008). Fiscal policy in many developing countries is procyclical. Specifically, the former may explain monetary policy failures associated with problems of political agency. And in this case, the trend of the cycles is caused by voters who seek to devour the Leviathan by reducing their incomes. In these cases, voters observe the conditions of the economy, but not willing to cover the costs of corrupt governments. When they observe a boom, voters optimally demand more public goods or lower taxes, and this induces a procyclical bias in fiscal policy. The empirical evidence is consistent with this explanation: Procyclicality of fiscal policy is more pronounced in more corrupt democracies.
    Keywords: Colombia; procyclical economy; tax power; redistributive justice; state controls
    JEL: E62 A1 H5 B22 E6 H2 H71 H23 A10 E60 H70 H7 E65 N46
    Date: 2010–04–08
  5. By: Andr s Simonovts (Institute of Economics - Hungarian Academy of Sciences)
    Abstract: We analyze the impact of tax morality on progressive income (wage) taxation. We assume that transfers (cash-back) and public expenditures are financed from linear wage taxes. We derive the reported wages from individual utility maximization, when individuals obtain partial satisfaction from reporting wages (depending on their tax morality), and cannot be excluded from the use of public services. The government maximizes a utilitarian social welfare function, also taking into account the utility of public services. The major conjecture is illustrated by numerical examples: the optimal degree of redistribution and the size of the public services are increasing functions of the individuals' tax morality.
    Keywords: tax moral, reporting earnings, progressive income tax, welfare economics
    JEL: H55 D91
    Date: 2010–03
  6. By: Massimo Morelli; Huanxing Yang; Lixin Ye
    Abstract: In an economy where agents are characterized by different productivities (vertical types) and different abilities to move (horizontal types), we compare a unified nonlinear optimal taxation schedule with the equilibrium taxation schedule that would be chosen by two competing tax authorities if the same economy were divided into two States. The overall level of progressivity and redistribution is unambiguously lower under competitive taxation than under unified taxation; the “rich” are always in favor of competing authorities and local governments, whereas the “poor” are always in favor of unified taxation. The constitutional choice between fiscal regimes depends on the preferences of the middle class, which in turn depend on the initial conditions in terms of the distribution of abilities (incomes), the relative power of the various classes, and mobility costs. In particular, as mobility increases, it becomes increasingly likely that a reform in the direction of unification of fiscal policies in a federation will receive majority support, while a decreased average wealth can have the opposite effect.
    Keywords: Competitive nonlinear taxation, Mobility, Integration, Inequality, Type preferencesover institutions.
    Date: 2010
  7. By: Tan, Jonathan H.W.; Breitmoser, Yves; Bolle, Friedel
    Abstract: We study games where voluntary contributions can be adjusted until a steady state is found. In consent games contributions start at zero and can be increased by consent, and in dissent games contributions start high and can be decreased by dissent. Equilibrium analysis predicts free riding in consent games but, in contrast, as much as socially efficient outcomes in dissent games. In our experiment, inexperienced subjects contribute high in consent games and low in dissent games, but behavior converges toward equilibrium predictions over time and eventually experienced subjects contribute as predicted: low in consent games and high in dissent games. Observed deviations from equilibrium in consent games are best explained by level-k reasoning, and those in dissent games are best explained by hierarchical reasoning formalized as nested logit equilibrium.
    Keywords: public good; contribution game; bounded rationality; mechanism
    JEL: C71 C44 H41
    Date: 2010–04–09
  8. By: Guererk, Oezguer; Rockenbach, Bettina; Wolff, Irenaeus
    Abstract: Considerable experimental evidence shows that although costly peer-punishment enhances cooperation in repeated public-good games, heavy punishment in early rounds leads to average period payoffs below the non-cooperative equilibrium benchmark. In an environment where past payoffs determine present contribution capabilities, this could be devastating. Groups could fall prey to a poverty trap or, to avoid this, abstain from punishment altogether. We show that neither is the case generally. By continuously contributing larger fractions of their wealth, groups with punishment possibilities exhibit increasing wealth increments, while increments fall when punishment possibilities are absent. Nonetheless, single groups do succumb to the above-mentioned hazards.
    Keywords: Public good; Dynamic game; Punishment; Endowment endogeneity; Poverty-trap; Experiment
    JEL: H41 C91 C73
    Date: 2010–03–15
  9. By: Cunha-e-Sa, Maria Antonieta; Madureira, Livia; Nunes, Luis Catela; Otrachshenko, Vladimir
    Abstract: This article develops a latent class model for estimating willingness-to-pay for public goods using simultaneously contingent valuation (CV) and attitudinal data capturing protest attitudes related to the lack of trust in public institutions providing those goods. A measure of the social cost associated with protest responses and the consequent loss in potential contributions for providing the public good is proposed. The presence of potential justification biases is further considered, that is, the possibility that for psychological reasons the response to the CV question affects the answers to the attitudinal questions. The results from our empirical application suggest that psychological factors should not be ignored in CV estimation for policy purposes, allowing for a correct identification of protest responses. JEL codes: C35, C85, Q51
    Date: 2010
  10. By: Furceri, Davide; Karras, Georgios
    Abstract: This paper investigates the cyclical properties of the average effective tax rate in 26 OECD countries over 1965-2003 in order to test the validity of three theories of fiscal policy: (i) the standard Keynesian theory which recommends that tax policy should be counter-cyclical, (ii) the Tax Smoothing hypothesis, which implies that changes in GDP should be uncorrelated with tax rates, and (iii) the positive theory of Battaglini and Coate (2008) which predicts that the average tax rate should be negatively correlated with GDP. Our main finding is that the correlations of tax rates with cyclical GDP are generally quite small and statistically indistinguishable from zero. This finding is quite robust and is more consistent with the implications of the Tax Smoothing hypothesis than either the recommendations of the standard Keynesian model or the predictions of Battaglini and Coate’s theory.
    Keywords: Fiscal Policy; Tax Rates; Business Cycle
    JEL: E62 E32
    Date: 2010–04–07
  11. By: Wiberg, Magnus (Ministry of finance)
    Abstract: This paper analyzes the effects of different corporate tax systems on the location of industry within an economic geography model with regional size asymmetries. Both the North and the South gain industry by adopting a tax regime that produces the lowest tax level. As the share of expenditures in the North increases, the Nash equilibrium has this region setting regressive taxes, while the South introduces progressive taxation. The unilateral welfare-maximizing tax structure in the North (South) is the regressive (progressive) system when expenditures in the North increase. Welfare in the North (South) is however maximized if both regions set regressive (progressive) taxes, while regressive (progressive) taxation in both regions represents a joint welfare maximizing outcome if the economic size of the North is higher (lower) than a certain threshold value. As trade is liberalized, the equilibrium tax regime adopted depends on how pro ts respond to lower trade costs. Proportional taxation is never an equilibrium, neither as regional spending changes, nor as trade is liberalized.
    Keywords: Economic Geography; Tax Systems; Corporate Taxation
    JEL: F12 H25 R12
    Date: 2010–04–14
  12. By: Svetlana Andrianova; Panicos Demetriades; Anja Shortland
    Abstract: We show that previous results suggesting that government ownership of banks is associated with lower long run growth rates are not robust to adding more 'fundamental' determinants of economic growth. We also present new cross-country evidence for 1995-2007 which suggests that, if anything, government ownership of banks has been robustly associated with higher long run growth rates. While acknowledging that cross-country results need not imply causality, we nevertheless provide a conceptual framework, drawing on the global financial crisis of 2008-09, which explains why under certain circumstances government owned banks could be more conducive to economic growth than privately-owned banks.
    Keywords: Public banks, economic growth, quality of governance, regulation, political institutions
    JEL: O16 G18 G28 K42
    Date: 2010

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