nep-pbe New Economics Papers
on Public Economics
Issue of 2010‒07‒03
ten papers chosen by
Oliver Budzinski
University of Southern Denmark

  1. Political capture of decentralization : vote-buying through grants-financed local jurisdictions By Khemani, Stuti
  2. Tax Evasion as a Global Game (TEGG) in the laboratory By Miguel Sánchez Villalba
  3. Public Goods and Optimal Paternalism under Present-Biased Preferences By Aronsson, Thomas; Granlund, David
  4. Decentralization in India: Outcomes and Opportunities By Kaliappa Kalirajan; Keijiro Otsuka
  5. Time Discounting and Smoking Behavior under Tax Hikes By Myong-Il Kang; Shinsuke Ikeda
  6. The 2007 Personal Income Tax Reform in Italy: Effects on Potential Equity, Horizontal Inequity and Re-ranking By Simone Pellegrino; Achille Vernizzi
  7. Policy options for carbon taxation in the EU By Eloi Lauren; Jacques Le Cacheux
  8. Country size, Government taxes and financial crises By Augusto Hasman; Agel L Lopez
  9. Selective Reductions in Labor Taxation: Labor Market Adjustments and Macroeconomic Performance By Batyra, Anna; Sneessens, Henri R.
  10. Devolution dynamics of Spanish local government By Emili Tortosa Ausina; Diego Prior Jiménez; María Teresa Balaguer-Coll

  1. By: Khemani, Stuti
    Abstract: A recent trend in decentralization in several large and diverse countries is the creation of local jurisdictions below the regional level -- municipalities, towns, and villages -- whose spending is almost exclusively financed by grants from both regional and national governments. This paper argues that such grants-financed decentralization enables politicians to target benefits to pivotal voters and organized interest groups in exchange for political support. Decentralization, in this model, is subject to political capture, facilitating vote-buying, patronage, or pork-barrel projects, at the expense of effective provision of broad public goods. There is anecdotal evidence on local politics in several large countries that is consistent with this theory. The paper explores its implications for international development programs in support of decentralization.
    Keywords: Subnational Economic Development,Public Sector Economics,National Governance,Parliamentary Government,Banks&Banking Reform
    Date: 2010–06–01
  2. By: Miguel Sánchez Villalba (Dpto. Fundamentos del Análisis Económico)
    Abstract: Sánchez Villalba (2009) claims tax evasion can be modelled as a global game when income shocks are common and prescribes that the tax agency should audit each individual taxpayer with a probability that is a non-decreasing function of every other taxpayer's declarations ("contingent policy rule"). This paper uses experimental data to test the predictions of the model and finds supporting evidence for the hypothesis that the contingent policy rule is superior to the alternative "cut-off" one. It also finds that data fits the qualitative predictions of the global game model, regarding both participants' decisions and the experiment's comparative statics.
    Keywords: Tax Evasion, Global Games, Experimental Economics, Rationality, Information, Beliefs.
    JEL: H26 C91 C72 D82
    Date: 2010–03
  3. By: Aronsson, Thomas (Department of Economics, Umeå University); Granlund, David (Department of Economics, Umeå University)
    Abstract: This paper deals with the optimal provision of a state-variable public good in a two-type model, when the consumers have present-biased preferences due to quasi-hyperbolic discounting. The results show that the preference for immediate gratification facing the (mimicking) high-ability type weakens the incentive to adjust the public provision in response to the self-selection constraint.
    Keywords: Public Goods; Quasi-Hyperbolic Discounting; Redistribution; Asymmetric Information
    JEL: D61 H41
    Date: 2010–06–21
  4. By: Kaliappa Kalirajan; Keijiro Otsuka
    Abstract: Though the literature on federalism explains the economic gains from decentralised decision making and related issues in India, there are very few empirical studies examining the causal relationship between decentralisation and development outcomes. Much of the demonstrated gains are in the nature of assertions or qualitative statements. This study, attempts to analyse and quantify the impact of decentralisation in India on its social infrastructure that needs to be supplied by governments as they are not optimally provided by the private sector and on rural development where about 70% of the population live.
    Keywords: Fiscal Decentralization, rural development, social infrastructure, India
    JEL: H30 H51 H52
    Date: 2010
  5. By: Myong-Il Kang; Shinsuke Ikeda
    Abstract: By combining our broad panel survey of Japanese adults from 2005 to 2008 and actual cigarette tax data, we investigate how smoking behavior including responses to tax hikes depends on time discounting and its biases, such as hyperbolic discounting and the sign effect. Cigarette consumption displays significantly positive correlations with discount rates and the procrastinating tendency, and negative correlations with the sign effect. Hyperbolic, procrastinating, andnaïve respondents decrease their after-tax-hike cigarette consumption more than the others, implying that, irrespective of the preannouncement of a future tax hike, they postpone smoking moderation until the tax hike actually takes place. Finally, the government's revenue from cigarette tax peaks at a JPY 29.92 (around USD 0.28 using the conversion rate [107.16] in February 2008) higher tax per cigarette than the present actual level.
    Date: 2010–06
  6. By: Simone Pellegrino (Department of Economics and Public Finance "G. Prato", University of Torino); Achille Vernizzi (Department of Economics, Business and Statistics, University of Milano)
    Abstract: According to Kakwani and Lambert (1998), an equitable income tax should respect three axioms related to each taxpayer’s tax liability, average tax rate and post-tax income: whenever taxation determines unequal tax treatments among equals or modifies pre-tax ordering, it influences the potential vertical effect of the tax through three types of inequity. Following the authors’ measurement system, we investigate changes in axiom violations due to the 2007 Italian personal income tax reform, that introduced significant changes in the tax structure. Our microsimulation model uses as input data those provided by the Bank of Italy in its Survey on Households Income and Wealth in the year 2006; estimates of the distribution of taxpayers are very close to the Ministry of Finance official statistics. The analysis considers both the individual and equivalent household gross income distribution and evaluates the decomposition with and without surtaxes. Main findings suggest that both in the 2006 and 2007 tax system most of the overall violations concern the axiom demanding the average tax rate to be a non decreasing function with respect to the gross income; the axiom requiring richer taxpayers to pay higher tax liabilities than poorer ones and the axiom requiring the tax to do not introduce re-rankings in the pre-tax income order present minor violations. The 2007 reform enhances both the potential redistributive effect, that is the one that could be obtained without axiom violations, and the axiom violations: the net result is a small positive variation of the actual redistributive effect. These phenomena appear more relevant for taxpayers than those for equivalent households. For what concerns taxpayers, the 2007 reform has modified also the composition of the three axiom violations, that remains almost the same whenever equivalent households are considered. Finally, focusing on each decile of the income distribution, regressivities are concentrated in the bottom five deciles of the income distribution both for taxpayers and equivalent households.
    Keywords: Personal Income Tax, Redistributive Effect, Horizontal Inequity, Reranking, Microsimulation Models
    JEL: C81 H23 H24
    Date: 2010–06
  7. By: Eloi Lauren (Observatoire Français des Conjonctures Économiques); Jacques Le Cacheux (Observatoire Français des Conjonctures Économiques)
    Date: 2010–05
  8. By: Augusto Hasman (Observatoire Français des Conjonctures Économiques; SKEMA); Agel L Lopez (Universidad Carlos III)
    Date: 2010–01
  9. By: Batyra, Anna (Université catholique de Louvain); Sneessens, Henri R. (University of Luxembourg)
    Abstract: We use a calibrated general equilibrium model with heterogeneous labor and search to evaluate the quantitative effects of various labor tax cut scenarios. The focus is on skill heterogeneity combined with downward wage rigidities at the low end of the skill ladder. Workers can take jobs for which they are overeducated. We compare targeted and non-targeted tax cuts, both with or without over-education effects. Introducing over-education changes substantially the employment, productivity and welfare effects of a tax cut, although tax cuts targeted on the least skilled workers always have larger effects.
    Keywords: minimum wage, job creation, job destruction, job competition, search unemployment, taxation, computable general equilibrium models
    JEL: C68 E24 J64
    Date: 2010–06
  10. By: Emili Tortosa Ausina (Universitat Jaume I); Diego Prior Jiménez (Universidad Autónoma de Barcelona); María Teresa Balaguer-Coll (Universitat Jaume I)
    Abstract: Over the last few years, there has been a devolutionary tendency in many developed and developingcountries. In this article we propose a methodology to decompose whether the benefits in terms ofefficiency derived from transfers of powers from higher to municipal levels of government (the¿economic dividend¿ of devolution) might increase over time. This methodology is based on linearprogramming approaches for efficiency measurement. We provide an application to Spanishmunicipalities, which have had to adapt to both the European Stability and Growth Pact as well as todomestic regulation seeking local governments¿ balanced budget. Results indicate that efficiencygains from enhanced decentralization have increased over time. However, the way through whichthese gains accrue differs across municipalities¿in some cases technical change is the maincomponent, whereas in others catching up dominates. Durante los últimos años ha habido una corriente hacia la descentralización de poderes desde laadministración central hacia capas más bajas de gobierno, tanto en países desarrollados como envías de desarrollo. En este artículo proponemos una metodología para determinar si los beneficiosen términos de eficiencia derivados de la transferencia de poderes a los municipios (el "dividendo económico" de la descentralización) podrían aumentar en el tiempo. La técnica está basada enenfoques de programación lineal para la medición de la eficiencia. Llevamos a cabo la aplicación alos municipios españoles, que han tenido que adaptarse tanto al Pacto de Estabilidad y Crecimiento europeo, así como a la Ley General de Estabilidad Presupuestaria. Los resultados indican que lasganancias de eficiencia derivadas de una mayor descentralización han aumentado en los últimosaños. Sin embargo, el modo en que estas se originan varía según municipios -en algunos casos es elcambio técnico el factor dominante, en otros han sido las ganancias de eficiencia-.
    Keywords: análisis de la actividad, dinámica de la descentralización, eficiencia, gobierno local. activity analysis, decentralization dynamics, efficiency, local government.
    JEL: D24 D60 H71 H72
    Date: 2010–01

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