nep-pbe New Economics Papers
on Public Economics
Issue of 2010‒08‒06
thirteen papers chosen by
Oliver Budzinski
University of Southern Denmark

  1. Fiscal Governance and Government Investment in Europe since the 1990s By Hans Pitlik
  2. I Want to Free-ride. An Opportunistic View on Decentralization Versus Centralization Problem By Fabio FIORILLO; Agnese SACCHI
  3. Reforming Taxation in the Scotland Act (1998): Hard Budget Constraints and the Inadequacy of the Calman Commission Proposals By Paul Hallwood
  4. Conditional Cooperation: Evidence for the Role of Self-Control By Peter Martinsson; Kristian Ove R. Myrseth; Conny Wollbrant
  5. Sub-central Governments and the Economic Crisis: Impact and Policy Responses By Hansjörg Blöchliger; Claire Charbit; José Maria Pinero Campos; Camila Vammalle
  6. After the Crisis - Bringing German Public Finances Back to a Sustainable Path By Isabell Koske
  7. Taxing Sweets: Sweetener Input Tax or Final Consumption Tax? By Zhen Miao; John C. Beghin; Helen H. Jensen
  8. Survey Of State-Society Relations Social Indicators Research Project Executive Summary Report By Ooi Giok Ling; Gillian Koh; Tan Ern Ser
  9. The Political Economy of Fiscal Consolidation By Robert Price
  10. Why Hasn’t the US Economic Stimulus Been More Effective? The Debate on Tax and Expenditure Multipliers By F. Gerard Adams; Byron Gangnes
  11. Fiscal Policy Reaction to the Cycle in the OECD: Pro- or Counter-cyclical? By Balázs Égert
  12. The Impact of Tax Reform on New Car Purchases in Ireland By Hennessy, Hugh; Tol, Richard S. J.

  1. By: Hans Pitlik (WIFO)
    Abstract: Stringent fiscal rules and budgetary procedures might generate incentives for political decision-makers to cut predominantly productive public investment during periods of fiscal consolidation. While the influence of the European Stability and Growth Pact on public investment received a lot of attention in the empirical literature, only a few studies consider the impact of different budgetary decision-making rules and procedures at the national level on government investment spending. We test empirically for the effect of political factors and the institutional framework of budgeting on public investment in EU 15 over the period 1990-2005. Our results show that stringent quantitative constraints limit government investment, but a centralisation of budgeting procedures by providing more agenda setting powers to the finance minister (delegation approach) or by the use of medium-term fiscal contracts are not related to public investment spending cuts.
    Keywords: fiscal consolidation fiscal policy
    Date: 2010–04–22
  2. By: Fabio FIORILLO ([n.a.]); Agnese SACCHI (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: The aim of the paper is to analyze a simple model of local public good provision with positive interjurisdictional spillover effects - as the case of environment protection spending - comparing decentralized and centralized system, when spending and taxation decisions are made by nonbenevolent politicians. As in the recent so-called Second Generation Theory (SGT) of fiscal federalism (Seabright, 1996; Besley and Coate, 2002; Lockwood, 2002; Oates, 2005, Weingast, 2009), we adopt a political economy approach to look at the trade-off between centralized and decentralized provision of local public goods. The main differences between our paper and theirs are that we model the public good taking into account two important aspects: the size - in terms of population - of local jurisdictions providing it, which is relevant for the scale effect in the financing mechanism of non-rival public goods; the detail of political opportunistic behaviour introducing a "rent equation" directly into the model to represent the additional gain of "non-benevolent" politicians, who levy higher taxes than the costs of the public goods. Considering these two elements, our results appear to be partially different from the SGT. In particular, the convenience of having decentralization versus centralization changes with the degree of spillovers and the size of regions. Three elements have to be considered: i) the implicit transfers ("cross subsidiation") from high scale economy regions to low scale ones; ii) the free-riding gains in receiving positive externalities; iii) the gain of internalization of externalities. When spillovers linked to public goods provision are low, only the first item is relevant. Thus, smaller regions prefer the centralized solution, since through it they can charge bigger regions for some costs of production. On the contrary, bigger local jurisdictions would like decentralization.When beneficial spillover effects increase (and many regions producing them), the other two factors start to play a crucial role, and the opposite situation takes place. The basic trade-off is between the internalization process and the free-riding tendency, whose efficiency gains are different for large and small local jurisdictions. Hence, from a positive viewpoint, decentralization should not be necessarily pursued only in the absence of externalities, but it depends on the relative size of the local jurisdictions.
    Keywords: Decentralization, Free-riding, Local public goods, Rent-seeking behaviour, Spillovers
    JEL: D62 D72 H23 H41 H70
    Date: 2010–07
  3. By: Paul Hallwood (University of Connecticut)
    Abstract: We demonstrate that both the Barnett formula used to calculate changes in public spending by the Scottish Parliament and Government under the Scotland Act (1998), as well as the recent Calman Commission proposals for fiscal reform, are soft budget constraints that do not and will not encourage the Scottish Government and Parliament to promote economic growth in Scotland and do not offer true accountability. However, fiscal autonomy would offer a hard budget constraint, and would encourage the adoption of policies aimed at growing the Scottish tax base and make the Scottish polity truly accountable. Secondly, fiscal autonomy is argued to be a viable fiscal reform within the existing and continuing UK constitutional settlement. Thirdly, existing empirical studies in-so-far as they relate to the Scottish case are shown to largely support the case for tax devolution.
    Keywords: Barnett formula, Calman Commission, fiscal autonomy, fiscal federalism, non-cooperative game, regional finance, Scottish Executive, Scottish Parliament, secession.
    JEL: H77
    Date: 2010–07
  4. By: Peter Martinsson (University of Gothenburg); Kristian Ove R. Myrseth (ESMT European School of Management and Technology); Conny Wollbrant (University of Gothenburg)
    Abstract: When facing the opportunity to allocate resources between oneself and others, individuals may experience a self-control conflict between urges to act selfishly and preferences to act pro-socially. We explore the domain of conditional cooperation, and we test the hypothesis that increased expectations about others’ average contribution increases own contributions to public goods more when self-control is high than when it is low. We pair a subtle framing technique with a public goods experiment. Consistent with our hypothesis, we find that conditionally cooperative behavior is stronger (i.e., less imperfect) when expectations of high contributions are accompanied by high levels of self-control.
    Keywords: self-control, pro-social behavior, public good experiment, conditional cooperation
    JEL: D01 D64 D70
    Date: 2010–07–26
  5. By: Hansjörg Blöchliger; Claire Charbit; José Maria Pinero Campos; Camila Vammalle
    Abstract: The world is recovering from the worst crisis since the Great Depression, leaving a strong and lasting impact on Member countries’ public finances. This paper analyses how sub-central governments (SCG) are affected and how fiscal policy has reacted in the first months after the outbreak of the crisis. In general and in line with earlier downturns, SCG’s public finance appear to be less affected than central governments. However, SCGs suffer from a scissors effect of higher spending and lower tax revenue, specially those with a volatile tax base and large social welfare responsibilities. While some SCGs were conducting their own stimulus plans, others cut expenditures and raised taxes, potentially undermining national government’s recovery programmes. Most national governments are helping SCGs to cope with the crisis, by disbursing additional grants and supporting investment programmes, by easing centrally-imposed fiscal rules, lifting borrowing constraints or by temporarily raising the sub-central tax share. The crisis also showed the need for better coordination in intergovernmental fiscal relations, both for more macroeconomic coherence and for efficiency in public service delivery. Several countries are creating or reinvigorating their institutions for managing relations across levels of government.<P>Gouvernements infra-nationaux et la crise : Effets et politiques<BR>Le monde se relève lentement de la crise la plus profonde depuis la Grande Dépression, mais les séquelles de celle-ci sur les finances publiques des pays Membres seront durables. Cet article analyse l’impact de la crise sur les collectivités territoriales (CT) et comment les politiques budgétaires ont été adaptées pour répondre à la crise pendant les tout premiers mois. En règle générale, comme dans les récessions antérieures, les finances publiques infranationales semblent moins touchées que celles des gouvernements centraux. Cependant, les CT sont confrontées à un effet « ciseaux », où leurs dépenses augmentent alors que leurs recettes fiscales diminuent. Cet effet est d’autant plus important que l’assiette fiscale des CT est volatile, et que leurs responsabilités en termes de protection sociale sont importantes. Certaines CT ont mis en oeuvre leurs propres plans de relance, alors que d’autres au contraire ont réduit leurs dépenses et augmenté les impôts, compromettant ainsi l’efficacité des plans de relance nationaux. La plupart des gouvernements nationaux ont soutenu les CT, en leur attribuant des transferts exceptionnels, en participant à leurs programmes d’investissement, en relâchant les règles budgétaires ainsi que les plafonds d’endettement fixés auparavant, ou en augmentant temporairement la part des CT dans le partage des recettes fiscales. Cette crise a révélé le besoin d’améliorer la coordination budgétaire entre niveaux de gouvernement, tant dans un souci de cohérence macroéconomique que d’efficacité dans la provision de services publics. Dans ce but, plusieurs pays ont créé ou renforcé leurs institutions chargées de gérer les relations entre niveaux de gouvernement.
    Keywords: fiscal federalism, sub-central governments, economic crisis, recession, recovery, sub-national fiscal policy, fédéralisme fiscal, collectivités territoriales, crise économique, récession, relance, politique budgétaire au niveau infranational
    JEL: E63 H50 H77
    Date: 2010–02–18
  6. By: Isabell Koske
    Abstract: Past consolidation has allowed the automatic stabilisers to operate fully during the crisis. Further fiscal easing in late 2008 and early 2009 contributed to a markedly widening fiscal deficit in 2010. A newly enacted fiscal rule, which limits the structural budget deficit of the federal government to a maximum of 0.35% of GDP and requires balanced structural budgets for the Länder, will help bring public finances back to a sustainable path. However, some elements of the new rule may need to be fine tuned in order for it to be more effective. To comply with the transition requirements of the new rule, consolidation beyond a mere phasing-out of the stimulus packages will be needed between 2011 and 2016. Priority should be given to reducing public expenditure, notably by improving public sector efficiency and by cutting back on grants and government consumption, and to phasing out distorting tax concessions. To improve the structure of the tax system, the government should consider raising the share of taxes on property and consumption in total tax revenues. This paper relates to the 2010 OECD Economic Survey of Germany. (<P>Après la crise : retrouver la viabilité des finances publiques allemandes<BR>Les efforts budgetaires recents ont permis aux stabilisateurs automatiques de fonctionner pleinement au cours de la crise. Des mesures de relance entre fin 2008 et debut 2009 ont contribue a un elargissement marque du deficit public en 2010. La regle budgetaire adoptee recemment, qui limite le deficit structurel de l'administration federale a un maximum de 0.35% du PIB et exige l'equilibre des budgets structurels des Lander, aidera a retrouver la viabilite des finances publiques. Toutefois, des ajustements de certains aspects de cette nouvelle regle pourraient contribuer a la rendre plus efficace. Ses dispositions transitoires exigeront une consolidation budgetaire entre 2011 et 2016 allant au-dela de la simple elimination des mesures de relance. La priorite devrait etre accordee a la reduction des depenses publiques, notamment en ameliorant l'efficience du secteur public, en reduisant les subventions et la consommation publique, et a l'elimination des avantages fiscaux engendrant de larges distorsions. Pour ameliorer la structure du systeme fiscal, le gouvernement devrait envisager d'augmenter la part des impots sur la propriete et la consommation dans le total des recettes fiscales. Ce document se rapporte a l'Etude economique de l'OCDE de l'Allemagne, 2010 (
    Keywords: public debt, Germany, fiscal consolidation, dette publique, Allemagne, consolidation budgétaire
    JEL: H2 H6 H7
    Date: 2010–05–12
  7. By: Zhen Miao; John C. Beghin; Helen H. Jensen (Center for Agricultural and Rural Development (CARD); Midwest Agribusiness Trade Research and Information Center (MATRIC))
    Abstract: In order to reduce obesity and associated costs, policymakers are considering various policies, including taxes, to change consumers' high-calorie consumption habits. We investigate two tax policies aimed at reducing added sweetener consumption. Both a consumption tax on sweet goods and a sweetener input tax can reach the same policy target of reducing added sweetener consumption. Both tax instruments are regressive, but the associated surplus losses are limited. The tax on sweetener inputs targets sweeteners directly and causes about five times less surplus loss than the final consumption tax. Previous analyses have overlooked this important point.
    Keywords: added sweeteners, consumption tax, demand, health policy, soda tax, sugar.
    Date: 2010–07
  8. By: Ooi Giok Ling; Gillian Koh; Tan Ern Ser
    Abstract: The executive summary reports on major findings from a survey conducted among a random sample of 1,054 Singaporeans and Permanent Residents aged 18 to 65. Focus is on views of public policies in three areas, namely, political participation, social capital and trust and provision of public goods and services. [Working Paper No.5]
    Keywords: survey,Singaporeans, Permanent Residents, social capital, public goods, services
    Date: 2010
  9. By: Robert Price
    Abstract: This paper explores the political economy of fiscal adjustment. It begins with an examination of the evidence for, and sources of, ‘deficit bias’, including political and governance factors, public attitudes, the role of financial markets and imprecision about which debt targets should be pursued. It then examines the evidence regarding the exogenous and policy-related factors which affect the success of fiscal consolidation efforts. This is followed by a discussion of the role of fiscal institutions, including fiscal rules and autonomous agencies. The final section considers how the political economy of fiscal policy has changed with the financial crisis, giving some indications as to what may be needed to re-establish a consolidation path and make it less prone to setbacks.<P>L'économie politique de l'ajustement budgétaire<BR>Ce document explore l’économie politique de l’ajustement budgétaire. Il commence par examiner l’existence et les sources d’un biais en faveur des déficits. Parmi ces sources on peut citer les facteurs de politique économique et de gouvernance, les attitudes de la population, le rôle des marchés financiers et le manque de précision concernant les cibles de dette à atteindre. Il s’intéresse ensuite aux facteurs exogènes ou liés à l’action des pouvoirs publics qui affectent le succès des efforts d’assainissement des finances publiques. Enfin le rôle des institutions budgétaires est abordé, y compris celui des règles budgétaires et des agences autonomes. La dernière section s’interroge sur la façon dont la crise financière a modifié l’économie politique de la politique budgétaire en donnant quelques pistes sur ce qui pourrait s’avérer nécessaire pour rétablir une trajectoire de consolidation et la rendre moins vulnérable aux rechutes.
    Keywords: taxation, budgets, institutions, fiscal policy, public expenditure, fiscal consolidation, fiscal sustainability, political economy, deficit, debt, institutions, politique budgétaire, finances publiques, imposition, dépenses publiques, économie politique, soutenabilité des finances publiques, consolidation budgétaire, déficit, dette
    JEL: E62 E65 H30 H60 H61 H62 H63
    Date: 2010–05–31
  10. By: F. Gerard Adams (University of Pennsylvania, Department of Economics (Emeritus)); Byron Gangnes (University of Hawaii, Department of Economics)
    Abstract: Recent dissatisfaction with the impact of expenditure stimulus on economic activity in the United States, along with the results of academic research, have once again raised questions about the effectiveness of fiscal stimulus policies and about whether stimulus to a recessionary economy should be in the form of tax cuts or expenditure increases. This paper considers alternative methods for evaluating the impacts of stimulus policy strategies. We discuss conceptual challenges involved in effectiveness measurement, and we review alternative empirical approaches applied in recent studies. We then present our own estimates of policy multipliers based on simulations of the IHS Global Insight model of the US economy. Based on this review and analysis, we address the question of why recent US stimulus programs have not been more effective.
    Keywords: United States (US) recession and recovery; fiscal and monetary policy; tax and expenditure multipliers; econometric model forecast simulation.
    JEL: E37 E62 E65
    Date: 2010–07–22
  11. By: Balázs Égert
    Abstract: This paper analyses the reaction of fiscal policy to the cycle in OECD countries. The results suggest that while overall government balances were counter-cyclical in the past and more so in economic downturns than in upswings, discretionary fiscal policy was neutral on average. However, discretionary fiscal policy appears to react to the cycle in a non-linear fashion: fiscal policy in countries with high public debt and high government deficits tends to be pro-cyclical, while countries that have low public debt and that have surpluses are more likely to conduct a counter-cyclical fiscal policy. The paper also finds that asset prices have a significant impact on government balances.<P>La réaction de la politique budgétaire au cycle dans les pays de l’OCDE : A-t-elle été procyclique ou contracyclique ?<BR>Ce document analyse la réaction de la politique budgétaire au cycle dans les pays de l’OCDE. Les résultats montrent que le solde budgétaire global a été contracyclique dans le passé et encore plus en période de ralentissement économique qu’en période d’expansion, mais que les mesures budgétaires discrétionnaires ont eu en moyenne un caractère acyclique. Ce constat s’explique par les réactions non linéaires au cycle : dans les pays où la dette publique et le déficit budgétaire sont élevés, la politique budgétaire à tendance à réagir de façon procyclique au cycle, alors que dans les pays à faible dette publique et à excédent budgétaire, la politique budgétaire sera plus probablement contracyclique. Comme le montre également ce document, les plans budgétaires ne sont pas extrêmement différents des résultats budgétaires, et les prix des actifs n’ont pas un impact sensible sur le solde budgétaire.
    Keywords: fiscal policy, OECD countries, pro-cyclicality, counter-cyclicality, politique budgétaire, pays membres de l'OCDE, procyclique, contracyclique
    JEL: C33 E32 E62 H30 H60
    Date: 2010–05–06
  12. By: Hennessy, Hugh; Tol, Richard S. J.
    Abstract: We examine the impact of recent tax reforms in Ireland on private car transport and its greenhouse gas emissions. A carbon tax was introduced on fuels, and purchase (vehicle registration) and ownership (motor) taxes were switched from engine size to potential emissions. We use a demographic model of the car stock (by age, size, and fuel) and a car purchase model that reflects the heterogeneous distribution of mileage and usage costs across various engine sizes. The model shows a dramatic shift from petrol to diesel cars, particularly for large engines. The same pattern is observed in the latest data on car sales. This has a substantial impact on tax revenue as car owners shift to the lower tax rates. The tax burden has shifted from car ownership to car use, and that the overall tax burden on private car transport falls. As diesel engines are more fuel efficient than petrol engines, carbon dioxide emissions fall modestly or, if we consider the rebound effect of travel costs on mileage, minimally. From the perspective of the revenue, the costs per tonne of carbon dioxide avoided are (very) high.
    Keywords: Private car transport/Republic of Ireland/carbon dioxide emissions/fiscal policy/taxes/ireland/taxes/Ireland/Private car transport/transport/Car ownership/Carbon dioxide emissions
    Date: 2010–07
  13. By: Javier Suarez (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: This paper reviews the background and key policy challenges of the current situation of the Spanish economy. It describes the strengths and weaknesses of Spain's recent long growth cycle, the real and financial imbalances accumulated towards its end, and the troubles faced at the current stage. Particular attention is paid to the developments in private and public sector finances and, specifically, to their implications for the banking sector. Attention is also paid to the political-economy background, especially in regards to the undertaking of structural reforms. It is argued that recent external pressure, partly initiated by unjustified catastrophic expectations about Spain, provides an opportunity for accelerating the reforms needed to resumen strong growth.
    Date: 2010–07

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