nep-pbe New Economics Papers
on Public Economics
Issue of 2010‒08‒21
thirteen papers chosen by
Oliver Budzinski
University of Southern Denmark

  1. Near Is My Shirt but Nearer Is My Skin. Ideology or Self-Interest as Determinants of Public Opinion on Fiscal Policy Issues By Hans Pitlik; Gerhard Schwarz; Barbara Bechter; Bernd Brandl
  2. Itemised Deductions: A Device to Reduce Tax Evasion By Piolatto, A.
  3. Social Image in Public Goods Provision with Real Effort By Emel Filiz-Ozbay; Erkut Y. Ozbay
  4. Ignorance is not always Bliss: Feedback and Dynamics in Public Good Experiments By Bigoni, M.; Suetens, S.
  5. Hiding an Inconvenient Truth: Lies and Vagueness (Revision of DP 2008-107) By Serra Garcia, M.; Damme, E.E.C. van; Potters, J.J.M.
  6. The Economic and Social Impact of Public Administration Europeanization By Matei, Lucica; Matei, Ani
  7. A Theory of Taxation and Incorporation By Christian Keuschnigg; Peter Egger; Hannes Winner
  8. A diagnostic framework for assessing public investment management By Rajaram, Anand; Le, Tuan Minh; Biletska, Nataliya; Brumby, Jim
  9. Are the effects of fiscal changes different in times of crisis and non-crisis? The French Case By Bouthevillain, C.; Dufrénot, G.
  10. Some Observations on Net Fiscal Transfers to Recent Immigrants Resulting From Income Taxes and Government Transfer Programs By Grady, Patrick
  11. Juridical and financial considerations on the public re capitalisation and rescue of financial institutions during periods of financial crises (Part I) By Ojo, Marianne; Rodríguez-Miguez, Jose
  12. The French Regions’ Borrowing Behaviours. How heterogeneous are they? By Dufrénot, G.; Frouté, P.; Schalck, C.
  13. Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution By Ligthart, J.E.; Meijden, G.C. van der

  1. By: Hans Pitlik (WIFO); Gerhard Schwarz (Austrian Institute of Economic Research); Barbara Bechter; Bernd Brandl (University of Vienna, Department of Industrial Sociology)
    Abstract: Several empirical studies derive that personal positions with respect to policy measures are dominated by ideology instead of narrow self-interest. In the present field study we carried out a telephone survey with 1,003 respondents all over Austria. Instead of measuring selfishness indirectly by using more or less "objective indicators" for self-interest, we requested respondents to assess directly whether they expect to be affected by policy measures. Our results indicate that such a subjectively measured narrow self-interest explains attitudes towards economic policies at least as good as ideological conviction. In some cases ideology appears to determine whether people feel affected by a proposed policy measure.
    Date: 2010–06–30
  2. By: Piolatto, A. (Tilburg University, Center for Economic Research)
    Abstract: Direct incentives and punishments are the most common instruments to fight tax evasion. The theoretical literature disregarded indirect schemes, such as itemised deductions, in which an agent has an interest in that other agents declare their revenue. Itemised deductions provide an incentive for consumers to declare their purchases, and this forces sellers to do the same. I show that, for any level of taxation, it is possible to increase tax proceeds by choosing the proper level of itemised deduction; the cost for the government on the consumers’ side is more than compensated by the extra proceeds on the sellers’ side.
    Keywords: Tax evasion;itemised deductions;substitutes goods;quantity competition
    JEL: H00 H20 H26 H30
    Date: 2010
  3. By: Emel Filiz-Ozbay (University of Maryland); Erkut Y. Ozbay (University of Maryland)
    Abstract: We study public goods game where the contribution efforts are observable. When the players are observed, they contribute more and free-riding diminishes significantly. On the other hand, presence of an audience does not affect the performance of players if there is no strategic aspect of the game, i.e. when they play private goods game. The findings are in line with the predictions of the social image theory where a player’s contribution is also a signal to an audience regarding how much she cares about contributing to the public goods.
    Keywords: Conditional CAPM
    Date: 2010–08
  4. By: Bigoni, M.; Suetens, S. (Tilburg University, Center for Economic Research)
    Abstract: In this paper we study the effects of providing additional feedback about individual contributions and earnings on the dynamics of contributions in a repeated public good game. We include treatments where subjects can freely choose whether to obtain additional information about individual contributions or individual earnings. We find that, in the aggregate, contributions decline less fast when additional information about contributions and earnings is provided on top of aggregate information. We also find that there exist substantial but intuitively appealing differences in the way individuals react to feedback. Particularly, individuals with a high propensity to contribute tend to imitate the highest contributor more often and are more inclined to obtain feedback about individual contributions than about individual earnings than individuals with a lower propensity to contribute.
    Keywords: voluntary contributions;experiment;repeated interaction;feedback;imitation
    JEL: C91 D74
    Date: 2010
  5. By: Serra Garcia, M.; Damme, E.E.C. van; Potters, J.J.M. (Tilburg University, Center for Economic Research)
    Abstract: When truth conflicts with efficiency, can verbal communication destroy efficiency? Or are lies or vagueness used to hide inconvenient truths? We consider a sequential 2-player public good game in which the leader has private information about the value of the public good. This value can be low, high, or intermediate, with the latter case giving rise to a prisoners’ dilemma. Without verbal communication, efficiency is achieved, with contributions for high or intermediate values. When verbal com- munication is added, the leader has an incentive to hide the precise truth when the value is intermediate. We show experimentally that, when communication about the value must be precise, the leader frequently lies, preserving efficiency by exaggerating. When communication can be vague, the leader turns to vague messages when the value is intermediate, but not when it is high. Thus, she implicitly reveals all values. Inter- estingly, efficiency is still preserved, since the follower ignores messages altogether and does not seem to realize that vague messages hide inconvenient truths.
    Keywords: Communication;Efficiency;Lying;Public Goods.
    JEL: C72 C92 D83 H41
    Date: 2010
  6. By: Matei, Lucica; Matei, Ani
    Abstract: In the current paper, we aim to formulate the objectives, contents and syllabus of a discipline that will approach the complex issue of evaluating the economic and social impact of public administration Europeanization in a methodological and educational way. The research topic is new on one hand, determined by the behaviour novelty of EU against the Member States, which have a founding status, or new EU adhering countries (2007) and vice versa the behaviour of Member States towards the EU in different development stages, and on the other hand, the topic has outgrown the full age and started the biological maturity process with every EU enlargement stage. The general directions and mechanisms supporting the above activity will be as follows: - Multidisciplinary approach of the Europeanization processes, describing the systemic mechanisms of development, adjustment and self-adjustment, specific for the convergence and dynamics of national public administrations. - Evaluating the economic and social impact of national public administrations Europeanization by substantiating statistic models and relevant socio-economic indicators. - Making operational a theoretical and empirical framework by means of significant analyses, methodologies and case studies for the topic approached. We aim to evaluate the economic and social impact through: - Quantitative and qualitative indicators in view to determine the degree of administrative and economic convergence. - Framework models of organisational analysis for Europeanization of representative institutions in national, central or local governments. - Socio-economic indicators and models aimed at determining the costs of bureaucracy and correlating their trends with the economic performance. - Statistic indicators concerning the influence of the meritocratic criteria in the civil service development on the economic growth and public sector performance.
    Keywords: Europeanization;Public Administration;Economic and Social Impact
    JEL: D73 C50 I28 A14
    Date: 2010–08–05
  7. By: Christian Keuschnigg; Peter Egger; Hannes Winner
    Abstract: This paper provides a theory of incorporation and taxation that emphasizes the role of the corporate legal form in facilitating access to external capital and the potential advantages of limited liability. Incorporation relaxes financing constraints and makes corporations larger than comparable non-corporate firms. For the same reason, a tax on corporations imposes a smaller first order welfare loss than a tax on non-corporate firms. Shifting the tax burden from non-corporate to corporate firms raises welfare, justifying some double taxation of corporate profits under a classical system. We compare the role of taxes with other institutional reforms and discuss how the theoretical results of the paper can be tested empirically.
    Keywords: Incorporation, corporate tax, external capital, limited liability
    JEL: H25 H73 F23 C21
    Date: 2010–08
  8. By: Rajaram, Anand; Le, Tuan Minh; Biletska, Nataliya; Brumby, Jim
    Abstract: This paper provides a pragmatic and objective diagnostic approach to the assessment of public investment management systems for governments. Since weaknesses in public investment management can negate the core argument that additional fiscal space allocated to public investments could enhance future economic prospects, attention to the processes that govern public investment selection and management is critical. The paper begins with a description of eight key"must-have"features of a well-functioning public investment system: (1) investment guidance, project development, and preliminary screening; (2) formal project appraisal; (3) independent review of appraisal; (4) project selection and budgeting; (5) project implementation; (6) project adjustment; (7) facility operation; and (8) project evaluation. The emphasis is placed on the basic processes and controls (linked at appropriate stages to broader budget processes) that are likely to yield the greatest assurance of efficiency in public investment decisions. The approach does not seek to identify best practice, but rather to identify the"must have"institutional features that would address major risks and provide an effective systemic process for managing public investments. The authors also develop a diagnostic framework to assess the main stages of the public investment management cycle. In principle, the identification of core weaknesses will allow reforms to focus scarce managerial and technical resources where they will yield the greatest impact. In addition, the framework is intended to motivate governments to undertake periodic self-assessments of their public investment systems and design reforms to enhance the productivity of public investment.
    Keywords: Investment and Investment Climate,Debt Markets,Public Sector Expenditure Policy,Housing&Human Habitats,Bankruptcy and Resolution of Financial Distress
    Date: 2010–08–01
  9. By: Bouthevillain, C.; Dufrénot, G.
    Abstract: This paper shows that the impact of changes in budgetary variables on major macroeconomic variables varies in sign and magnitude in times of crisis and non-crisis in France. We find that these nonlinearities are both frequent (as they exist on all behaviors analyzed: real GDP, private consumption, business investment and private employment) and significant. For this, we estimate time-varying probability Markov-switching models (TVPMS) in order to take into account two budgetary regimes, on the one side periods of severe recessions or depressions (crises), and, on the other side "normal" periods (expansions or moderate recessions). These two regimes are identified endogenously, so that we do not need to preliminary separate episodes of huge contractions and expansions of the business cycle. Further, we are able to identify the variables influencing the probability of a switch between regimes. Searching for nonlinear fiscal impacts in the form of regime-switching effects, we assume temporary variations in the budgetary variables, both on the revenue side (taxes on consumption, on firm's profit, lump sum transfers) and on the expenditure side (traditional public boosts of aggregate demand, transfers, and subsidies). Our results show that if one considers the aggregate GDP, public expenditure has a stronger impact during crisis and the expenditure multiplier is greater than the tax multiplier. Also, when households are sensitive to the unemployment situation, tax cuts do not increase consumption spending, while transfers are playing a significant role. On the firms side, our results show that direct taxes changes induce a (stimulus) effect in the investment rate only during non-crisis periods. A rise in subsidies has a negative influence during crises. Finally, the estimates suggest that employment policies should be asymmetric: fiscal measures aiming at reducing unit labor costs could be efficient in good times, while an increase in public employment is preferable during crisis.
    Keywords: Markov-Switching Models, Fiscal Policy, Crisis.
    JEL: C51 E62 H50
    Date: 2010
  10. By: Grady, Patrick
    Abstract: This paper utilizes the comprehensive data on income taxes paid by immigrants and others and the government transfer payments received by immigrants and others provided by the 2006 Census from income tax statistics. The Census data was recently made available to researchers in the 2006 Census PublicUse Microdata File (PUMF), which contains 844,476 records, presenting census data on individuals representing 2.7 per cent of the Canadian population. The analysis revealed that recent immigrants on average only paid about half as much income tax as native Canadians ($4,172.69 per capita compared to $8,130.82). It also showed that the most recent cohort of immigrants from 2000 to 2004 paid only 40 per cent as much income tax as native Canadians. In the Other Government Transfer Income category, which is a catch-all for “all transfer payments, excluding those covered as a separate income source (child benefits, old age security pensions and guaranteed income supplements, Canada or Quebec Pension Plan benefits and employment insurance benefits) received from federal, provincial, territorial or municipal programs,immigrants received per capita amounts in 2005 that are $13.05 less than nonimmigrants so there is no prima facie evidence of disproportionate reliance on social assistance from the Census. The one area where recent immigrants got a disproportionate share of government transfers is child benefits. This reflects their larger number of dependent children, which could be a result of their lower average age or greater proclivity to have children. On the other hand, recent immigrants received a lower per capita amount of employment insurance benefits. This could reflect their tendency to locate in areas with stricter eligibility requirements for EI such as the TorontoMetropolitan Region in 2005. Taking into account Other Government Transfer Income,Child Benefits and Employment Insurance, recent immigrants received $346.15 more per capita from Government Transfers than non-immigrants. In total, this would amount to $534 million, an amount that is small in relation to the fiscal transfer resulting from lower per capita income taxes paid.
    Keywords: tax paid by immigrants; transfer payments paid to immigrants
    JEL: H22 J61
    Date: 2010–04–26
  11. By: Ojo, Marianne; Rodríguez-Miguez, Jose
    Abstract: As well as a consideration of why the lender of last resort facility should be used for emergency situations and systemically relevant institutions in particular, an interesting point which will be considered in this paper is the comparison between the European Central Bank (ECB) Recommendation and its application by the Commission in the Re capitalisation Communication, specifically with its Annex, where the Commission explains how it determines the price of equity or own funds1 (ordinary or common shares) - balancing the “real value” with the “market value” within a crisis context. This paper will also consider how to transform the Crisis into an opportunity in order to minimise tax burdens to taxpayers – as well as making financial markets more efficient. Furthermore, whether the Commission and Member States have applied the methodology (the determination of the price of equity – as stated in the Annex to the Re capitalisation Communication) in determining the price of equity with respect to the capital of banks acquired by Member States, will be addressed. Such consideration could provide a vital key to determining the real value of State Aid and the best possible price for which capital could be sold. Given the scale of government intervention and State rescues which occurred during the recent crisis – as well as the prominence accorded to measures aimed at preventing and limiting distortions of competition, calls have been made for competition authorities to take on more formidable roles in designing and implementing exit strategies. In order to foster competition as much as possible, it is proposed that ”governments should provide financial institutions with incentives to prevent them from depending on government support once the economy begins to recover.”
    Keywords: Financial Crisis; State aid; re capitalisation; MEIP; guarantees; Troubled Asset Relief Program (TARP); fundamentally sound institutions; rescues; restructuring; recovery
    JEL: D53 K2 E5 E44
    Date: 2010–07–26
  12. By: Dufrénot, G.; Frouté, P.; Schalck, C.
    Abstract: This paper provides empirical evidence of the heterogeneous borrowing behaviours of French regions, despite a common accountability constraint that forces them to balance their budget and to borrow only to finance investment expenditure (golden rule). To this end, we use a quantile regression analysis covering the period from 1999 to 2007. The heterogeneity is very pronounced when the regions face a negative shock on debt, for instance a tightening of financial conditions. We explain our findings as a consequence of the fact that the Golden rule can be thought of as a “soft” rule if some local administrations believe that a financial rescue from the central government is automatic (as the regions receive transfers from the later). In this case, some regions find it advantageous to consider borrowing as an adjustment variable when taking their budgetary decisions.
    Keywords: Regional Borrowing, Quantile Regressions, Golden Rule.
    JEL: H74 E62 K34 R5
    Date: 2010
  13. By: Ligthart, J.E.; Meijden, G.C. van der (Tilburg University, Center for Economic Research)
    Abstract: The paper studies the revenue, efficiency, and distributional implications of a simple strategy of offsetting tariff reductions with increases in destination-based consumption taxes so as to leave consumer prices unchanged. We employ a dynamic micro-founded macroeconomic model of a small open developing economy, which features an informal sector that cannot be taxed, a formal agricultural sector, and an import-substitution sector. The reform strategy increases government revenue, imports, exports, and the informal sector. In contrast to Emran and Stiglitz (2005), who ignore the dynamic effects of taxes and tariffs on factor markets, we find an efficiency gain, which is unevenly distributed. Existing generations benefit more than future generations, who (depending on pre-existing tax and tariff rates and the informal sector size) even may become worse off.
    Keywords: Tariff reform;consumption tax reform;informal sector;home production;transitional dynamics;overlapping generations;second-best outcome
    JEL: E26 F11 F13 H20 H26
    Date: 2010

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