nep-pbe New Economics Papers
on Public Economics
Issue of 2010‒05‒29
seventeen papers chosen by
Oliver Budzinski
University of Southern Denmark

  1. We Are Not Alone: The Impact of Externalities on Public Good Provision By Christoph Engel; Bettina Rockenbach
  2. Does disclosure crowd out cooperation? By Martinsson, Peter; Villegas-Palacio, Clara
  3. Equity and Fiscal Policy: The Income Distribution Effects of Taxation and Social Spending in Central America By Ivanna Vladkova Hollar; Rodrigo Cubero
  4. Public Investment as a Fiscal Stimulus: Evidence from Japan's Regional Spending During the 1990s By Anita Tuladhar; Markus Bruckner
  5. Corporate tax regime and international allocation of ownership By Johannes Becker; Marco Runkel
  6. Does Fiscal Decentralization Dampen All Ethnic Conflicts? The heterogeneous Impact of Fiscal Decentralization on Local Minorities and Local Majorities By Tranchant, Jean-Pierre
  7. Corruption in Public Finances, and the Effects on Inflation, Taxation, and Growth By Sugata Ghosh; Kyriakos C. Neanidis
  8. Punishment Cannot Sustain Cooperation in a Public Good Game with Free-Rider Anonymity By Patel, Amrish; Cartwright, Edward; Mark, Van Vugt
  9. Can Positional Concerns Enhance the Private provision of Public Goods? By Douadia Bougherara; Sandrine Costa; Gilles Grolleau; Lisette Ibanez
  10. Urban Governance and Finance in India By M. Govinda Rao; Richard.M. Bird
  11. Study on quality of public finances in support of growth in the Mediterranean partner countries of the EU By CASE
  12. The Effect of Tax Treaties on Multinational Firms: New Evidence from Microdata By Davies, Ronald B.; Norbäck, Pehr-Johan; Tekin-Koru, Ayça
  13. An Empirical Model of Tax Convexity and Self-Employment By Jean-Francois Wen; Daniel V. Gordon
  14. The media and public agendas: testing for media effects in Argentina during the Kirchner administration By Juan Carlos Cuestas; Sebastián Freille; Patricio O'Gorman
  15. Fiscal sustainability and the accuracy of macroeconomic forecasts: do supranational forecasts rather than government forecasts make a difference? By Carlos Fonseca Marinheiro
  16. The Economics of Smoking Bans By Charles A.M. de Bartolome; Ian J. Irvine
  17. The elusiveness of neutrality – why is it so difficult to apply VAT to financial services? By Kerrigan, Arthur

  1. By: Christoph Engel (Max Planck Institute for Research on Collective Goods); Bettina Rockenbach (University of Erfurt and Center for empirical research in economics and behavioral science (CEREB))
    Abstract: Public good provision is often local and also affects bystanders. Is provision harder if contributions harm bystanders, and is provision easier if outsiders gain a windfall profit? In an experiment we observe that both positive and negative externalities reduce provision levels whenever actors risk falling back behind bystanders. The mere presence of unaffected bystanders already dampens contributions. The explanation of observed behavior seems to be the interaction of conditional cooperation and concerns for comparative performance. Individual payoff comparisons to the other actors as well as to individual bystanders drive contributions down, as do unfavorable comparisons at the group level.
    Keywords: Public Good, Externality, Conditional Cooperation, Inequity Aversion
    JEL: C91 C92 D43 D62 H23 H41 L13
    Date: 2010–05
  2. By: Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Villegas-Palacio, Clara (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper investigates whether disclosure crowds out pro-social behavior using a public goods experiment. In a between-subject design, we investigate different degrees of disclosure. We find a small positive but insignificant effect of disclosure treatments on contributions to the public good. Thus, our empirical findings are consistent with crowding theory.<p>
    Keywords: Disclosure; image motivation; public goods experiment
    JEL: C91 H41
    Date: 2010–05–18
  3. By: Ivanna Vladkova Hollar; Rodrigo Cubero
    Abstract: How does fiscal policy fare in improving the underlying income distribution in Central America? We integrate the data from a number of existing tax and public expenditure studies for the countries in the region and find that the distributional effect of taxation is regressive but small. In contrast, the redistributive impact of social spending is large and progressive, leading to a progressive net redistributive effect in all countries of the region. We also show that raising tax revenues and devoting the proceeds to social spending would unambiguously improve the income of the poorest households.
    Keywords: Central America , Cross country analysis , Fiscal policy , Government expenditures , Income distribution , Tax policy , Tax revenues , Tax systems , Taxation ,
    Date: 2010–05–05
  4. By: Anita Tuladhar; Markus Bruckner
    Abstract: How effective was public investment in stimulating the Japanese economy during the economic stagnation of the 1990s? Using a dataset of regional public investment spending, we find that investment multipliers were higher than for public consumption, although they were relatively low and declining over time. The paper also finds that the effectiveness of economic infrastructure investment, implemented mainly by the central government, is lower than that of social investment mostly undertaken by local governments. These results suggest that while public investment may yield higher output effects than other spending, its effectiveness depends upon its composition, the level of government implementation, and supply side factors.
    Keywords: Economic models , Financial crisis , Fiscal policy , Governance , Government expenditures , Japan , Public investment ,
    Date: 2010–04–30
  5. By: Johannes Becker (Max Planck Institute for Intellectual Property, Competition and Tax Law); Marco Runkel (University of Magdeburg)
    Abstract: Would the introduction of a corporate tax system with consolidated tax base and formula apportionment lead to socially wasteful mergers and acquisitions across borders? This paper analyzes a two-country model with an international investor considering acquisitions of already existing target firms in a high-tax country and a low-tax country. The investor is able to shift profits from one location to another for tax saving purposes. Two systems of corporate taxation are compared, a system with separate accounting and a system with tax base consolidation and formula apportionment. It is shown that, under separate accounting, the number of acquisitions is inefficiently high in both the high tax and the low tax country. Under formula apportionment, the number of acquisitions is inefficiently high in the low tax country and inefficiently low in the high tax country. Under tax competition, a novel externality arises that worsens the efficiency properties of equilibrium tax rates under separate accounting, but may play an efficiency enhancing role under formula apportionment.
    Keywords: Corporate Taxation, Separate Accounting, Formula Apportionment
    JEL: H25 F23
    Date: 2010
  6. By: Tranchant, Jean-Pierre
    Abstract: Fiscal decentralization is widely proposed as an efficient means to accommodate ethnic violence. Yet while most of the econometric cross-country studies supports this view, case studies offer mixed results. In this paper, it is argued that this is partly due to the fact that fiscal decentralization exerts a heterogeneous impact across ethnic local majorities and minorities, both types of groups being regionally concentrated. The main argument in favour of fiscal decentralization is that by politically and fiscally empowering the local communities, these are enabled to allocate public spending in a way that is closer to their preferences. This paper hypothesises that such an empowerment mechanism, while relevant for local majorities, is likely to perform poorly for local minorities as they are not in a dominant position locally. This might feed ethnic violence as local minorities mobilize to obtain administrative regions in which they would control the decentralized policy. Similarly, fiscal decentralization could fuel communal violence as politically marginalized ethnic minorities clash against powerful local majorities. The article also hypothesises that the concern expressed by sceptics that fiscal decentralization undermines national cohesion and encourages secessionism is more acute for local majorities than for local minorities as the latter are usually too small to credibly envisage independence. Such hypotheses are discussed in the paper and then empirically tested on a panel dataset of ethnic local majorities and minorities across the world on the period 1985-2001. The main results are that i) fiscal decentralization does not encourage secessionism but on the contrary dampen rebellion of local majorities but, ii) fiscal decentralization fuels rebellion of local minorities, iii) fiscal decentralization reduces communal violence for both local majorities and minorities. As a result of its heterogeneous impact, the article calls into question the relevance of relying on fiscal decentralization to manage ethnic violence.
    Keywords: Ethnic conflict; fiscal decentralization; panel data
    JEL: H70 D74
    Date: 2010
  7. By: Sugata Ghosh; Kyriakos C. Neanidis
    Abstract: In this paper, we study the effects of bureaucratic corruption on inflation, taxation, and growth. Here corruption takes three forms: (i) it reduces the tax revenues that are raised from households, (ii) it inflates the volume of government spending, and (iii) it reduces the productivity of ‘effective’ government expenditure. Our policy experiments reveal that the effect of (i) is to increase both seigniorage and the income tax rate, and to decrease the steady-state growth rate. The effect of (ii) is to increase seigniorage, which leads to lower growth, although the effect on the income tax rate is ambiguous. The effect of (iii) is to increase seigniorage and decrease the income tax rate. The former yields a lower growth rate, while the latter has an ambiguous effect on growth. These findings, from our unified framework involving corruption in public finances, could rationalise the apparently conflicting evidence on the impact of corruption on economic growth provided in the literature, highlighting the presence of conditional corruption effects.
    Date: 2010
  8. By: Patel, Amrish (Department of Economics, School of Business, Economics and Law, Göteborg University); Cartwright, Edward (Department of Economics, Keynes College, University of Kent); Mark, Van Vugt (Department of Work and Organizational Psychology, VU University Amsterdam)
    Abstract: Individuals often have legitimate but publicly unobservable reasons for not partaking in cooperative social endeavours. This means others who lack legitimate reasons may then have the opportunity to behave uncooperatively, i.e. free-ride, and be indistinguishable from those with legitimate reasons. Free-riders have a degree of anonymity. In the context of a public good game we consider the e¤ect of free-rider anonymity on the ability of voluntary punishment to sustain cooperative social norms. Despite only inducing a weak form of free-rider anonymity, punishment falls and cannot sustain cooperation.<p>
    Keywords: Anonymity; free-riding; public goods experiment; punishment
    JEL: C92 D82 H41
    Date: 2010–05–19
  9. By: Douadia Bougherara; Sandrine Costa; Gilles Grolleau; Lisette Ibanez
    Abstract: The social welfare effect of positional concerns over public goods is composed of two parts, a positional outcome and an outcome in terms of public goods provision. When agents have homogenous positional preferences over the public good, they overinvest in the positional public good, resulting in a zero-sum positional race with a higher provision of the public good. When agents differ in their positional preferences, the overall impact on social welfare is positive when endowments are homogenous and uncertain when endowments are heterogeneous. Given that the social loss from position-seeking is lower than the social gain from rank seeking, there is an increase of social welfare. If agents have different initial endowments, positional preferences might still be welfare enhancing as long as the positional loss does not exceed the gain in terms of public good provision.
    Date: 2010–04
  10. By: M. Govinda Rao; Richard.M. Bird
    Abstract: Over 330 million people live in India’s cities; 35 cities have a population of over a million and three (Mumbai, Delhi, and Kolkata) of the 10 largest metropolises in the world are in India. India’s cities are large, economically important, and growing. However, neither urban infrastructure nor the level of urban public services is adequate for current needs, let alone to meet growing demands. This paper attempts to point the way towards some possible solutions by analysing urban governance and finance in India in the context of lessons drawn from fiscal federalism theory and experiences of governance institutions and financing systems both in India and around the world. [NIPFP WP No. 68].
    Keywords: cities, India, urban public finance, urban governance, intergovernmental fiscal, relations, property tax, Economic Dynamism, finance, public services, housing, city, metropolitan areas, infrastructure finance, demands, economically,
    Date: 2010
  11. By: CASE
    Abstract: Based on the conceptual framework developed by the European Commission for linking the quality of public finances and economic growth, this study examines empirically the key channels through which fiscal policy impacts economic growth in the Mediterranean partner countries of the EU. The results confirm that the function of specific disaggregated fiscal parameters like debt financing, governance, efficiency of spending, mixture of taxes can have a significant impact on growth.
    Keywords: Quality of public finances,fiscal policy,growth,public sector governance,Mediterranean partner countries. Study on Qualit
    JEL: H1 H2 H3 H5 H6 H7 E6 O1 O2 O4
    Date: 2009–12
  12. By: Davies, Ronald B. (University of Oregon); Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Tekin-Koru, Ayça (Oregon State University)
    Abstract: This paper uses affiliate level data from Swedish multinationals to examine the impact of tax treaties on both overall affiliate sales and the composition of those sales. In line with previous results, we find little evidence for an effect of treaties on the level of total sales. We do, however, find that a tax treaty increases the probability of investment by a firm in a given country. In addition, we find that a treaty reduces exports to the parent but increases imports of intermediate inputs from the parent. This is consistent with treaties increasing the effective host tax. This suggests that tax treaties impact the behavior of multinationals along some dimensions but not along others.
    Keywords: Tax Treaties; Multinational Firms; Foreign Direct Investment
    JEL: F21 F23 H25
    Date: 2010–05–19
  13. By: Jean-Francois Wen; Daniel V. Gordon
    Abstract: We extend the theoretical model of Rees and Shah (1986) to incorporate the effects of marginal tax rate progression and income transfers, as arguments in the individual's utility choice model between self-employment and paid- employment. Measures of the degree of progressivity in the tax and transfer system are constructed from the concept of tax convexity (Gentry and Hubbard, 2000, 2004). The earnings equations are corrected for self-selection bias and are combined with the Canadian Tax and Credit Simulator (Milligan, 2007) to calculate tax both the predicted net-of-tax earnings and the tax convexity variables in the self-employment/employed labor choice decision. The model is estimated using data spanning 1999-2005 from Statistics Canada's Survey of Labour and Income Dynamics. The principal Â…findings are that the tax convexity variables and the net income difference between self- and paid-employment have the predicted signs and high levels of statistical signfiÂ…cance in the structural probit model. We use the model to estimate the effects of federal tax rate reductions in 2001 on the rate of self-employment in Canada.
    Date: 2010–01–17
  14. By: Juan Carlos Cuestas; Sebastián Freille; Patricio O'Gorman
    Abstract: In this paper we examine the presence of agenda-setting effects by the print media in Argentina during 2003 and 2008. Using previously unavailable monthly data on newspapers mentions we test two hypotheses about the relationship between the different agendas. We find support for the hypothesis that there were media effects during our period of analyisis. More specifically, we find that the total number of newspaper mentions of the President positively influenced public confidence in the government. Finally, there is also evidence of a strong and stable relationship between the total number of economic news and leading economic indicators.
    Keywords: Agenda-setting, Public opinion, Cointegration, Media effects
    Date: 2010–05
  15. By: Carlos Fonseca Marinheiro (GEMF/Faculdade de Economia, Universidade de Coimbra, Portugal)
    Abstract: Credible fiscal plans that aim at restoring fiscal sustainability will be essential to counter the present increase in debt levels all across Europe. The macroeconomic scenario of such plans will be crucial. This paper assesses whether there is any advantage in delegating (part of) such power to supra-national forecasts. The evidence on the relative performance of the European Commission’s (EC) growth forecast is rather mixed, with considerable variation at the country level. Some national government forecasts (France, Italy, and Portugal) perform worse in terms of descriptive statistics than the EC forecast for all forecast horizons. For the year ahead the EC growth forecast is better than the official forecasts for almost ¾ of the EU-15 countries. All in all, since the EC forecast appears to be a good benchmark, in order to reduce the (optimistic) forecast bias, national governments could be forced to justify any large (optimistic) deviation from this benchmark when presenting their respective national stability and growth programmes.
    Keywords: Sustainability of public debt; Fiscal policy; Stability and Growth Pact; Fiscal forecasting; forecast evaluation; real-time data.
    JEL: H68 E17 E61 E62 H6
    Date: 2010–05
  16. By: Charles A.M. de Bartolome (University of Colorado); Ian J. Irvine (Concordia University, Montreal)
    Abstract: While the empirical literature on smoking bans is extensive, little theory has been developed. This paper examines the welfare impact of smoking bans in an economy where smokers’ utility is reduced by a workplace/public place ban. The government has two instruments - increasing the price through taxation, or limiting when the product can be consumed through a ban. Its ability to reduce smoking through taxation is limited by a black market where cigarettes are not taxed. We show that the quantity instrument (ban) is always welfareenhancing. The model has application to other addictive activities.
    Keywords: smoking, workplace ban, public place ban, government control, taxation
    Date: 2010–05–01
  17. By: Kerrigan, Arthur
    Abstract: Under the VAT system of the European Union, domestic supplies of financial services are exempt. That exemption has significant drawbacks, not least of which is that it compromises the neutrality of the tax. In this article, the author indicates how, depending on government policy views, margin-based financial services could be taxed. He also indicates how financial institutions could give new impetus to the discussion on the VAT treatment of the services in that sector.
    Keywords: VAT; Financial Services; neutrality; EU
    JEL: K3
    Date: 2010–03–18

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