nep-pbe New Economics Papers
on Public Economics
Issue of 2010‒06‒18
thirteen papers chosen by
Oliver Budzinski
University of Southern Denmark

  1. Social identity, group composition and public good provision: an experimental study By Chakravarty, Surajeet; Fonseca, Miguel A.
  2. Tax Morale and Compliance Behavior: First Evidence on a Causal Link By Martin Halla
  3. Priming Cooperation in Social Dilemma Games By Drouvelis, Michalis; Metcalfe, Robert; Powdthavee, Nattavudh
  4. Optimal Taxes on Wealth and Consumption in the Presence of Tax Evasion By Johann K. Brunner; Susanne Pech; Paul Eckerstorfer
  5. Further Consideration of the Existence of Nash Equilibria in an Asymmetric Tax Competition Game. By Emmanuelle Taugourdeau; Abderrahmane Ziad
  6. Cooperative provision of indivisible public goods. By Pierre Dehez
  7. Decentralization of the Size and Scope of Local Governments and Corruption By Rajeev K. Goel; Michael A. Nelson
  8. Tax Evasion and Tax Avoidance in Developing Countries: The Role of International Profit Shifting By Clemens Fuest; Nadine Riedel
  9. Tax Buyouts By Marco Del Negro; Fabrizio Perri; Fabiano Schivardi
  10. An applied analysis of ACE and CBIT reforms in the EU.. By Mooij, Ruud A., de; Devereux, Michael P.
  11. Culture and Cooperation By Simon Gaechter; Benedikt Herrmann; Christian Thoeni
  12. The Timing of Elections in Federations : A Disciplining Device against Soft Budget Constraints ?. By Karolina Kaiser; Emmanuelle Taugourdeau
  13. Economic downturn and stress testing European welfare systems By Figari F; Salvatori A; Sutherland H

  1. By: Chakravarty, Surajeet; Fonseca, Miguel A.
    Abstract: Social fragmentation has been identified as a potential cause for the under-provision of public goods in developing nations, as well as in urban communities in developed countries such as the U.S. We study the effect of social fragmentation on public good provision using laboratory experiments. We create two artificial social groups in the lab and we assign subjects belonging to both groups to a public good game. The treatment variable is the relative size of each social group, which is a proxy for social fragmentation. We find that while higher social fragmentation leads to lower public good provision, this effect is short-lived. Furthermore, social homogeneity does not lead to higher levels of contributions.
    Keywords: Social Identity; Public Goods; Social Fragmentation; Experiments.
    JEL: C92 D02 H41
    Date: 2010–06–07
  2. 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
  3. By: Drouvelis, Michalis (University of York); Metcalfe, Robert (University of Oxford); Powdthavee, Nattavudh (University of York)
    Abstract: Research on public goods mainly focuses its attention on the ability of incentives, beliefs and group structure to affect behaviour in social dilemma interactions. This paper investigates the pure effects of a rather subtle mechanism on social preferences in a one-shot linear public good game. Using priming techniques from social psychology, we activate the concept of cooperation and explore the extent to which this intervention brings about changes in people’s voluntary contributions to the public good and self-reported emotional responses. Our findings suggest that priming cooperation increases contribution levels, controlling for subjects' gender. Our priming effect is much stronger for females than for males. This difference can be explained by a shift in subjects' beliefs about contributions. We also find a significant impact of priming on mean positive emotional responses.
    Keywords: priming, contributions, beliefs, emotional responses, public goods experiments
    JEL: C92 D01 H41
    Date: 2010–05
  4. By: Johann K. Brunner; Susanne Pech; Paul Eckerstorfer
    Abstract: This article incorporates tax evasion into an optimum taxation framework with individuals differing in earning abilities and initial wealth. We find that despite the possibility of its evasion a tax on initial wealth should supplement the optimal nonlinear income tax, given a positive correlation between initial wealth and earning abilities. Further, even if income and initial wealth are taxed optimally, it is still desirable to levy a tax on commodities, though it can be evaded as well. Thus, our result provides a rationale for a comprehensive tax system. Optimal tax rates on commodities differ in general, however for the special case of a uniform evasion technology it turns out that equal rates are optimal if preferences are homothetic and weakly separable.
    Keywords: Optimal Taxation, Tax Evasion
    JEL: D82 H21 H24 H26
    Date: 2010–03
  5. By: Emmanuelle Taugourdeau (Centre d'Economie de la Sorbonne - Paris School of Economics); Abderrahmane Ziad (CREM - Université de Caen)
    Abstract: In this methodological paper, we prove that the key tax competition game introduced by Zodrow and Mieszkowski (1986) and Wildasin (1988), extended to asymmetric regions, possesses a Nash equilibrium under several assumptions commonly adopted in the literature : goods are supposed to be normal ; the public good is assumed to be a desired good ; the demand for capital is concave ; and the elasticity of the marginal product is bounded. The general framework we develop enrables us to obtain very tractable results. By applying our method to several examples with standard production functions, we show that it is easy to use.
    Keywords: Nash equilibrium, tax competition.
    JEL: C72 H21 H42 R50
    Date: 2010–01
  6. By: Pierre Dehez
    Abstract: A community faces the obligation of providing an indivisible public good. Each member is capable of providing it at a certain cost and the solution is to rely on the player who can do it at the lowest cost. It is then natural that he or she be compensated by the other players. The question is to know how much they should each contribute. We model this compensation problem as a cost sharing game to which standard allocation rules are applied and related to the solution resulting from the auction procedures proposed by Kleindorfer and Sertel (1994).
    Keywords: public goods, cost sharing, core, nucleolus, Shapley value.
    JEL: C71 H41 M41
    Date: 2010
  7. By: Rajeev K. Goel; Michael A. Nelson
    Abstract: This research adds to the literature on the nexus between government and corruption by examining further the influence of government decentralization on corruption. Previous research has focused primarily on fiscal decentralization. We bring additional evidence to bear for the United States by addressing whether the structure of local governments – measured both in terms of the scope of services offered and the size of the population served – has a bearing on corruption within the state. Results show that government decentralization does not necessarily reduce corruption – the type of decentralization matters. Specifically, we find that more general-purpose governments consistently contribute to corruption. In contrast, the effect of special-purpose governments on corruption is mixed. The findings uniquely flush out the tension between fiscal decentralization and fragmental local government structures in terms of impacts on corruption. Beyond this, we find that the influences of various government enforcement agencies on corruption, including police, judiciary and corrections, vary. Other corruption determinants generally support the literature. Policy implications are discussed.
    Keywords: Corruption; Fiscal decentralization; Local government fragmentation; Special-purpose government; General-purpose government
    Date: 2010–05
  8. By: Clemens Fuest (Oxford University Centre for Business Taxation); Nadine Riedel (Oxford University Centre for Business Taxation)
    Abstract: In the debate on the impact of illicit capital flows on developing countries, the view is widespread that profit shifting to low tax jurisdictions undermines the ability of developing countries to raise tax revenue. While the shifting of income out of developed countries is a widely debated issue, empirical evidence on the magnitude of the problem and on the factors driving income shifting is scarce. This paper reviews the literature on tax avoidance and evasion through border crossing income shifting out of developing countries. Moreover, we discuss methods and available datasets which can be used to gain new insights into the problem of corporate income shifting. We argue that results of many existing studies on tax avoidance and evasion in developing countries are difficult to interpret, mainly because the measurement concepts used have a number of drawbacks. We discuss some alternative methods and datasets and present some empirical evidence which supports the view that profit shifting out of many developing countries and into tax havens takes place.
    Date: 2010
  9. By: Marco Del Negro (Federal Reserve Bank of New York); Fabrizio Perri (University of Minnesota, Federal Reserve Bank of Minneapolis, CEPR and NBER); Fabiano Schivardi (Universit`a di Cagliari, EIEF and CEPR)
    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.
    JEL: E62 H21
    Date: 2010
  10. By: Mooij, Ruud A., de; Devereux, Michael P.
    Abstract: We assess the quantitative impact of two reforms to corporation tax, which would eliminate the differential treatment of debt and equity: the allowance for corporate equity (ACE) and the comprehensive business income tax (CBIT).We explore the impact of these reforms on various decision margins, using an applied general equilibrium model for the EU calibrated with recent empirical estimates of elasticities. The results suggest that, if governments adjust statutory corporate tax rates to balance their budget, profit shifting and discrete location render CBIT more attractive for most individual European countries. European coordination makes a joint ACE more, and a joint CBIT less efficient. A combination of ACE and CBIT is always welfare improving.
    JEL: D58 H52
    Date: 2010
  11. By: Simon Gaechter (Centre of Decision Research and Experimental Economics, School of Economics, University of Nottingham); Benedikt Herrmann (Centre of Decision Research and Experimental Economics, School of Economics, University of Nottingham); Christian Thoeni (University of St. Gallen)
    Abstract: Does the cultural background influence the success with which genetically unrelated individuals cooperate in social dilemma situations? In this paper we provide an answer by analyzing the data of Herrmann et al. (Science 2008, pp. 1362-1367), who study cooperation and punishment in sixteen subject pools from six different world cultures (as classified by Inglehart & Baker (American Sociological Review 2000, pp. 19-51)). We use analysis of variance to disentangle the importance of cultural background relative to individual heterogeneity and group-level differences in cooperation. We find that culture has a substantial influence on the extent of cooperation, in addition to individual heterogeneity and group-level differences identified by previous research. The significance of this result is that cultural background has a substantial influence on cooperation in otherwise identical environments. This is particularly true in the presence of punishment opportunities.
    Keywords: human cooperation; punishment; culture; experimental public good games
    Date: 2010–05
  12. By: Karolina Kaiser (Université de Munich); Emmanuelle Taugourdeau (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: We introduce political economics into the soft budget constraint problem by asking if the timing of elections has the potential to harden budget constraints. Specifically, we ask under which circumstances the soft budget constraint problem is worse - with synchronized elections, i.e. simultaneous central and regional office terms, or with staggered elections, i.e. terms of office that do not coincide. We find that staggered elections clearly improve fiscal discipline at the local level as well as welfare.
    Keywords: Soft budget constraints, fiscal federalism, elections.
    JEL: D72 H77
    Date: 2010–02
  13. By: Figari F; Salvatori A; Sutherland H
    Abstract: As unemployment rises across the European Union (EU) it is important to understand the extent to which the incomes of the new unemployed are protected by tax-benefit systems and to assess the cost pressures on the social protection systems of this increase in unemployment. This paper uses the EU tax-benefit model EUROMOD to explore these issues, comparing effects in five EU countries. It provides evidence on the differing degrees of resilience of the household incomes of the newly unemployed due to the variations in the protection offered by the tax-benefit systems, according to whether unemployment benefit is payable, the household situation of the unemployed person, and across countries.
    JEL: C81 H55 I3
    Date: 2010–06–08

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