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on Public Economics |
| By: | Allouch, N. |
| Abstract: | This paper shows a core-equilibrium convergence in a public goods economy where consumers' preferences display warm glow effects. We demonstrate that if each consumer becomes satiated to other consumers' provision, then as the economy grows large the core shrinks to the set of Edgeworth allocations. Moreover, we show that an Edgeworth allocation can be decentralized as a warm glow equilibrium. |
| Keywords: | competitive equilibrium, warm glow, public goods, Edgeworth, core, decentralization |
| JEL: | H41 C71 D64 |
| Date: | 2010–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1022&r=pbe |
| By: | Stephen Calabrese (Carnegie Mellon University); Dennis Epple (Carnegie Mellon University) |
| Abstract: | We study the political economy of state limitations on the taxing powers of local governments, investigating the effects of such restriction on housing markets, community composition, and types of taxes and expenditures undertaken by local governments. We characterize equilibrium when voters choose values of multiple policy (tax and expenditure) instruments, finding that tax limitations have very substantial effects on housing prices and the composition of communities. Political support for tax limits comes from suburban voters and from a subset of central-city voters. Support for tax limits come even from residents of communities that are not constrained by the limits. |
| Keywords: | Tax limits, redistribution, public goods, property tax, income tax, head tax |
| JEL: | D72 D78 H30 H42 H72 H73 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2010/4/doc2010-14&r=pbe |
| By: | Martin Halla |
| Abstract: | Recent literature on tax evasion emphasizes the importance of moral considerations to explain compliance behavior. As a consequence scholars aim to identify factors that shape this so-called tax morale. However, the causal link between tax morale and actual compliance behavior is not established yet. Exploiting exogenous variation in tax morale - given by the inherited part of tax morale of American-born from their ancestors country of origin - our instrumental variable analysis provides first evidence on a causal effect of tax morale on the size of the underground production. |
| Keywords: | Tax morale, tax evasion, tax compliance, underground production |
| JEL: | A13 O17 H26 Z13 C81 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2010_06&r=pbe |
| By: | Toke S. Aidt (University of Cambridge); Jayasri Dutta (University of Birmingham) |
| Abstract: | We study the efficient 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 efficient 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 accountability |
| JEL: | D72 D78 H41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2010/4/doc2010-11&r=pbe |
| By: | Heinemann, Friedrich; Kocher, Martin G. |
| Abstract: | In this paper we focus on the compliance effects of tax regime changes. According to the economic model of tax evasion, a tax reform should affect compliance through its impact on tax rates and incentives. Our findings demonstrate the importance of at least two further effects not covered by the traditional model: First, reform losers tend to evade more taxes after the reform. Second, a reform from a proportionate to a progressive system decreases compliance compared to a switch in the reverse direction. However, the level of compliance is generally higher under a progressive than under a proportionate regime. -- |
| Keywords: | tax reforms,tax compliance,experiment |
| JEL: | C72 C91 H26 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:10020&r=pbe |
| By: | Jordi Jofre-Monseny (University of Barcelona & IEB) |
| Abstract: | Several theoretical papers that examine tax competition with agglomeration effects have stressed the possibility that the governments of jurisdictions in which economic activity is concentrated may tax firms more heavily (taxable agglomeration rents). In this paper, we examine the tax rate setting decisions taken with regard to the Spanish municipal business tax (Impuesto sobre Actividades Económicas). The analysis, carried out with a sample of 2,772 municipalities, focuses on the effect that urbanization economies, localization economies and the market potential of municipalities have on their business tax rates. High urbanization economies and high localization economies are found to increase the business tax rate. Although the evidence is weaker, the results also indicate that municipalities with better access to demand (of consumers) set higher tax rates |
| Keywords: | Local taxes, agglomeration economies, tax competition |
| JEL: | H3 H7 R |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2010/4/doc2010-15&r=pbe |
| By: | Alejandro Esteller-Moré (Universitat de Barcelona & IEB); Leonzio Rizzo (Università di Ferrara & IEB) |
| Abstract: | We test for the state interdependence of gasoline and cigarette taxation in the US (1975-2006). We estimate a tax reaction function, and find that state interdependence is due solely to yardstick competition, since any interaction disappears completely in the case of states with lame duck governors. This result holds for both taxes: the short-run reaction of those states whose governor is eligible to stand for reelection is 0.13 and 0.21 for gasoline and cigarette taxation, respectively. In the long run, the cigarette tax rates levied in a jurisdiction match those of its neighbors perfectly, while the long-run reaction in the case of gasoline is much lower at 0.72. |
| Keywords: | Tax competition, political accountability, excise taxes |
| JEL: | H71 H77 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2010/4/doc2010-3&r=pbe |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2010/4/doc2010-7&r=pbe |
| By: | Robert S. Chirinko (University of Illinois at Chicago); Daniel J. Wilson (Federal Reserve Bank of San Francisco) |
| Abstract: | The standard model of strategic tax competition assumes that government policymakers are perfectly benevolent. We depart from this assumption by allowing policymakers to be influenced by the rent-seeking behavior of businesses. Campaign contributions may affect tax competition and enhance or retard the mobility of capital across jurisdictions. Based on a panel of 48 U.S. states and unique data on business campaign contributions, we find that contributions have a significant direct effect on tax policy, the economic value of a $1 business campaign contribution is nearly $4, the slope of the tax reaction function is negative, and the empirical results are sensitive to state effects. |
| Keywords: | Campaign contributions, business taxation, state tax competition |
| JEL: | H71 H73 H25 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2010/4/doc2010-2&r=pbe |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2010/4/doc2010-4&r=pbe |
| By: | Catherine Bros (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, CSH - Centre de Sciences Humaines) |
| Abstract: | A vast recent literature has stressed social fragmentation's negative impact on the provision of public goods. It has been established theoretically that social fragmentation engenders discord and thereby undermines public goods provision. Empirical research has produced mixed results about this relationship. On the one hand it rarely holds for all the goods and on another hand it appears attenuated at the micro-level. Three points ought to be considered. First, the negative role attributed to social fragmentation rests upon the actuality of a relationship between social antagonisms and ethnic diversity. Yet, such an actuality is to be proved. Second, should such a relationship exist, polarization indices would be more appropriate than the traditional fractionalization index used so far in the literature. Third, theoretical works have set aside the possibility of ethnic patronage in accessing public goods. Nevertheless, it is a central issue as patronage is common in developing countries. In this event, a positive relationship could be found between social fragmentation and the presence of public goods. This article aims at showing that such a positive relationship does exist, at least in parts of India, as a consequence of caste patronage. It also shown that polarization is irrelevant as social antagonisms do not seem to be an obstacle to the provision of public goods. |
| Keywords: | Political economy, patronage, public goods, collective action, inequality, caste, India. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00476016_v1&r=pbe |
| By: | Juan González Alegre (Universidad Pablo de Olavide) |
| Abstract: | Most of the Structural Actions are designed as an incentive to increase public investment in less-developed areas. However, we suspect that the efficiency of the policy is related to the level of fiscal autonomy of the subsidized government. In this paper we construct a paned data model in order to estimate the role of fiscal federalism on the effectiveness of the EU Structural Actions in enhancing public investment. We use data from the seventeen Spanish regions for the period 1993-2007. The estimation is run upon three alternative strategies: firstly we break the sample according to the level of fiscal autonomy of the units; secondly, we insert an interaction term capturing the join effect of both variables, fiscal decentralization and EU Structural Actions; finally, we estimate a simultaneous equation model in which public investment and the EU transfers are decided simultaneously. Results unambiguously support the hypothesis that the effectiveness of the Structural Funds decreases with larger decentralization. Our results suggest also that this could be due to the fact that regions find it more difficult to be eligible for additional EUSF as they gain fiscal autonomy. The general conclusions include the recommendation that the future design of the European Cohesion policy should take into account the heterogeneity of Fiscal Federalism across the Member States in order to the get the most out of it. |
| Keywords: | fiscal federalism, intergovernmental grants, European Union, regional policy, panel data, simultaneous equations for panels |
| JEL: | H72 H77 C33 C23 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2010/4/doc2010-6&r=pbe |
| By: | Alejandro Esteller-Moré (Universitat de Barcelona & IEB); Umberto Galmarini (Università dell'Insubria); Leonzio Rizzo (Università di Ferrara & IEB) |
| Abstract: | We examine the tax assignment problem in a federation with two layers of government sharing an elastic tax base, in which Leviathan policy makers levy an excise tax in an imperfectly competitive market and producers lobby for tax rate cuts. If the lobby of producers is very influential on policy makers, we find that taxation by both layers of government might be optimal, provided that the market of the taxed good is highly concentrated; otherwise, it is optimal to assign the power to tax only to one level of government. Taxation by both layers of government is not optimal either when the influence of the lobby is weak, whatever the degree of market power. We also examine a richer set of tax setting outcomes, by considering the possibility that state policy makers have heterogeneous tax policy objectives. |
| Keywords: | vertical tax externalities, tax assignment, lobbying, specific taxation |
| JEL: | H71 H77 D70 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2010/4/doc2010-8&r=pbe |
| By: | Maria Cubel (University of Barcelona & IEB) |
| Abstract: | In this paper we analyze the political viability of equalization rules in the context of a decentralized country. In concrete terms, we suggest that when equalization devices are perceived as unfair by one or more regions, political conflict may emerge as a result. Political conflict is analysed through a non cooperative game. Regions are formed by identical individuals who, through lobbying, try to impose their regional preferences on the rest of the country, and political conflict is measured as the total contribution to lobbying. We conclude that the onset of conflict depends on the degree of publicness of the regional budget. When regional budgets are used to provide pure public goods, proportional equalization is politically feasible. However, no equalization rule is immune to conflict when budgets are used to provide private goods or a linear combination of private and public goods. |
| Keywords: | political conflict, lobbying, equalization grants, social decision rules |
| JEL: | D74 D31 H77 R51 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2010/4/doc2010-9&r=pbe |
| By: | ZEW |
| Abstract: | The project 'Effective tax rates in an enlarged European Union' is based on the methodology used for the calculation of effective tax rates (ETRs) as set out by Devereux and Griffith (1999, 2003). It extends the scope of the calculation of ETRs conducted under the study on effective levels of company taxation within an enlarged EU (2008). The project includes a focus on the effects of tax reforms in the EU27 for the period 1998-2009 and their impact on the level of taxation for both domestic and cross-border investment. |
| Keywords: | European Union, taxation, corporate taxation, effective tax rates |
| JEL: | H25 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxstu:0030&r=pbe |
| By: | Linda Gonçalves Veiga (Universidade do Minho - NIPE) |
| Abstract: | The paper examines the determinants of the assignment of EU funds to Portuguese municipalities using a large and unexplored dataset covering all (278) mainland municipalities over fifteen years. Empirical results reveal that besides normative objectives, the national government also takes into account political motivations in the distribution of funds to municipalities. Grants increase during local election years, more funds are transferred to municipalities where the government party had higher percentages of votes, and where there are more swing voters. |
| Keywords: | Fiscal federalism, political economy, local governments, EU funds, Portugal. |
| JEL: | D72 H72 R58 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:11/2010&r=pbe |
| By: | Kenji Moriyama; S. M. Ali Abbas; Abdul Naseer |
| Abstract: | The paper aims to identify the optimal size, speed and composition of the medium-term fiscal adjustment in the context of Sudan's limited oil reserves. The permanently sustainable non-oil primary balance approach suggests the need for significant fiscal adjustment over the medium term, requiring a widening of the tax base. Cross-country comparisons highlight VAT and personal income tax (as well as tax administration) as key areas for reform. The paper also suggests the need for complementary expenditure-side measures in the areas of petroleum pricing and anchoring fiscal policy in non-oil indicators. |
| Keywords: | Cross country analysis , Economic models , Fiscal policy , Fiscal reforms , Government expenditures , Income taxes , Oil producing countries , Oil revenues , Oil sector , Pricing policy , Sudan , Tax administration , Tax systems , Value added tax , |
| Date: | 2010–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/79&r=pbe |
| By: | Reckon |
| Abstract: | This report is concerned with quantifying and analysing the VAT gap in each EU Member State over the period 2000?2006. This report has been produced by Reckon LLP following a study commissioned by the European Commission, Directorate-General for Taxation and Customs Union. It is the result of independent work carried out by Reckon LLP, and does not necessarily reflect the opinions or position of the European Commission or of the national bodies consulted. Any errors are our own. |
| Keywords: | European Union, taxation, value added taxation, tax fraud |
| JEL: | H25 H26 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxstu:0029&r=pbe |
| By: | David Reinstein; David Hugh-Jones |
| Abstract: | Previous work has found that in social dilemmas, the selfish always free-ride, while others will cooperate if they expect their peers to do so as well. Outcomes may thus depend on conditional cooperators’ beliefs about the number of selfish types. An early round of the game may be played anonymously, so that contributions cannot be traced back to particular individuals. By protecting low contributors from potential sanctions, this encourages selfish types to reveal their true preferences in their play. We offer a simple model illustrating when revelation of types can increase contributions, and when only an anonymous game can separate types. As a proof of concept, we run a laboratory experiment involving a two-stage public goods game with an exclusion decision between stages. An anonymous first stage led to significantly higher stage-two cooperation than a revealed first stage, a slower decline across the 15 repetitions, unusually high final-stage contributions relative to previous work, and greater profits. Statistical analysis shows that the anonymous first stage reduced uncertainty about types, and this preserved cooperation and led to greater efficiency. Our results suggest that customs such as anonymous church donations may play an important role in building social trust. |
| Date: | 2010–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:689&r=pbe |
| By: | Ruud de Mooij (CPB Netherlands); Michael P. Devereux (Oxford University Centre for Business Taxation) |
| Abstract: | This paper explores the economic implications of an allowance for corporate equity (ACE), a comprehensive business income tax (CBIT) and a combination of the two in the EU. We illustrate the key trade-offs in designing ACE and CBIT in the presence of tax distortions at various decision margins of firms, such as its financial structure, investment, profit allocation and discrete location. Using an applied general equilibrium model for Europe, we quantitatively assess the effects of ACE, CBIT and combined reforms in EU countries. The results suggest that ACE is welfare improving as long as corporate tax rates are not used to cover the cost of base narrowing. CBIT typically reduces welfare by exacerbating marginal investment distortions. When governments adjust statutory corporate tax rates to balance their budget, however, CBIT reforms become more attractive while ACE reforms are welfare reducing in a number of countries. European coordination of reforms mitigates fiscal spillovers within the EU and renders ACE reforms more, and CBIT reforms less, attractive for welfare. A combination of ACE and CBIT reforms can be designed to be revenue neutral and welfare improving through smaller financial distortions. |
| Keywords: | European Union, corporate taxation |
| JEL: | H25 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxstu:0028&r=pbe |
| By: | Estrada, Fernando |
| Abstract: | In this brief comment, the public choice theory aims to distinguish the dilemmas and conflicts in formal and empirical. The hypothesis argues that the reality more complex than the principles of choice of Pareto and Liberalism*. Both the ethics and politics are taking decisions that are not always in line with the requirements of rationality and complete information |
| Keywords: | Public choice theory; public election; rational choice; social welfare; economic psychology. |
| JEL: | D70 D7 B21 D71 C7 C72 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:22289&r=pbe |
| By: | Jiri Jonas |
| Abstract: | The paper discusses the challenges facing Albania's fiscal policy following the graduation from the IMF programs. It argues that Albania's public debt remains too high and needs to be reduced. Strengthening the fiscal framework, including by introducing a numerical fiscal rule, could help achieve this objective. The paper discusses two alternative rules, with the objective of achieving a gradual decline in the public debt ratio. One rule would limit nominal expenditure growth, with a correction mechanism to guard against revenue slippages and other shocks. An alternative rule would limit the growth in nominal public debt. |
| Keywords: | Albania , Debt reduction , Debt sustainability , Fiscal policy , Government expenditures , Post-program monitoring , Public debt , Tax administration , |
| Date: | 2010–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/77&r=pbe |
| By: | Serra Garcia, M.; Damme, E.E.C. van; Potters, J.J.M. (Tilburg University, Center for Economic Research) |
| Abstract: | We compare signaling by words and actions in a one-shot 2-person public good game with private information. The informed player, who knows the exact return from contributing, can signal by contributing first (actions) or by sending a costless message (words). Words can be about the return or about her contribution decision. Theoretically, actions lead to fully e¢ cient contributions. Words can be as influential as actions, and thus elicit the uninformed player's contribution, but allow the informed player to free-ride. The exact language used is not expected to matter. Experimentally, we find that words can be as influential as actions. Free-riding, however, does depend on the language: the informed player free-rides less when she talks about her contribution than when she talks about the returns. |
| Keywords: | Information transmission;costly signaling;communication;experiment. |
| JEL: | C72 D82 D83 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:201033&r=pbe |
| By: | Thomas Markussen (Department of Economics, University of Copenhagen); Jean-Robert Tyran (Department of Economics, University of Copenhagen) |
| Abstract: | We present a model of political selection in which voters elect a president from a set of candidates. We assume that some of the candidates are benevolent and that all voters prefer a benevolent president, i.e. a president who serves the public interest. Yet, political selection may fail in our model because voters cannot easily tell benevolent from egoistic candidates by observing their pre-election behavior. Egoistic types may strategically imitate benevolent types in the pre-election stage to extract rents once in office. We show that strategic imitation is less likely if the political system is likely to produce good governance. That is, if benevolent candidates are common, if the president has little discretionary power, and if the public sector is effective. We analyze the role of institutions like investigative media and re-election and show that they can improve or further hamper political selection, depending on the parameters of the political game. |
| Keywords: | political selection; elections; social preferences; political leadership |
| JEL: | D64 D72 D82 H0 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1011&r=pbe |
| By: | Heinemann, Friedrich; Hennighausen, Tanja |
| Abstract: | This contribution empirically analyses the individual determinants of tax rate preferences. For that purpose we make use of the representative German General Social Survey (ALLBUS) that offers data on the individual attitudes toward progressive, proportional, and regressive taxation. Our theoretical considerations suggest that beyond self-interest, information, fairness considerations, economic beliefs and several other individual factors drive individual preferences for tax rate structures. Our empirical results indicate that the self-interest view does not offer the sole explanation for the heterogeneity in attitudes toward progressive taxation. Rather, we show that the choice of the favoured tax rate is also driven by fairness considerations. -- |
| Keywords: | tax progression,policy preferences,fairness,ALLBUS |
| JEL: | H89 D63 C42 A13 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:10017&r=pbe |
| By: | Mathias Trabandt (Fiscal Policies Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Harald Uhlig (Department of Economics, University of Chicago, 1126 East 59th Street, Chicago, IL 60637, USA.) |
| Abstract: | We characterize the Laffer curves for labor taxation and capital income taxation quantitatively for the US, the EU-14 and individual European countries by comparing the balanced growth paths of a neoclassical growth model featuring ”constant Frisch elasticity” (CFE) preferences. We derive properties of CFE preferences. We provide new tax rate data. For benchmark parameters, we find that the US can increase tax revenues by 30% by raising labor taxes and 6% by raising capital income taxes. For the EU-14 we obtain 8% and 1%. Denmark and Sweden are on the wrong side of the Laffer curve for capital income taxation. JEL Classification: E0, E60, H0. |
| Keywords: | Laffer curve, incentives, dynamic scoring, US and EU-14 economy. |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101174&r=pbe |