nep-pbe New Economics Papers
on Public Economics
Issue of 2010‒12‒04
thirteen papers chosen by
Oliver Budzinski
University of Southern Denmark

  1. Rekindling Governments from Within: Getting Public Sector Elite Officials to Support Government Reform in Brazil By Monica Pinhanez
  2. Granting public or private consumption? Effects of grants on local public spending and income taxes By Heléne Lundqvist
  3. Sharing Competences: The Impact of Local Institutional Settings on Voter Turnout By Claus Michelsen; P. Bönisch; Martin T.W. Rosenfeld
  4. Study on Quality of Public Finances in Support of Growth in the Mediterranean Partner Countries of the EU By Leonor Coutinho; Luc De Wulf; Santiago Florez; Cyrus Sassanpour
  5. Free Riding in the Lab and in the Field By Florian Englmaier; Georg Gebhardt
  6. Should Advanced Countries Adopt a Fiscal Responsibility Law? By Ian Lienert
  7. On the path-dependence of tax compliance By Lisa Bruttel; Tim Friehe
  8. What was actually cut in the barber' VAT cut? By Tuomas Kosonen
  9. Legislative Malapportionment and institutional persistence By Miriam Bruhn; Francisco Gallego
  10. Government Involvement in Corporate Debt Restructuring: Case Studies from the Great Recession By David A. Grigorian; Faezeh Raei
  11. An Economic Approach to Voluntary Association By Ekaterina Melnik; Jean-Benoît Zimmermann
  12. Tax reform in Europe over the next decades By Dr. Christin Lutz; Dr. Ulrike Lehr
  13. Political competition and Mirrleesian income taxation: A first pass By Felix Bierbrauer; Pierre C. Boyer

  1. By: Monica Pinhanez
    Abstract: This paper shows how an elite cadre of public sector officials played a key role in the success of administrative reforms in Brazil’s state tax administration bureaus in the 1990s. The success of the reforms strengthened public sector bureaucracies and institutions at all government levels, predominantly in the tax departments. At the state level, the tax administrative reforms comprised complex changes in organizational structure, technology, and institutional arrangements. These reforms resulted in increased tax revenues, tax compliance, and successful restructuring. For the public officials who took part in the process, the reforms meant finding a new identity, and a new mission. As such, this paper explores an alternative mode of getting public sectors officials to commit and own public sector changes.
    Keywords: tax administrative reform, elites, public sector bureaucrats
    Date: 2010
  2. By: Heléne Lundqvist
    Abstract: While the literature on how intergovernmental grants affect the budget of receiving jurisdictions is numerous, the very few studies that explicitly deal with likely endogeneity problems focus on grants targeted towards specific sectors or to specific type of recipients. The results from these studies are mixed and make clear that knowledge about grants effects is to this date still insufficient. This paper contributes by estimating causal effects on local expenditures and income tax rates of general, nontargeted grants to Finnish municipalities. This is done in a difference-in-difference model utilizing policy-induced increases in grants to a group of remotely populated municipalities. The robust finding is that increased grants have a negligible effect on local income tax rates, but that there is an immediate one-to-one correspondence between grants and local expenditures. Furthermore, expenditures continue to increase also some time after the grant increase, although this response is estimated less precisely. The flypaper behavior displayed by the treatment group can potentially be explained by ?sepa-rate mental accounting'? ? i.e., voters treating the government budget constraint separately from their own.
    Keywords: Intergovernmental grants, difference-in-difference model, fly-paper effect
    JEL: H72 C23 H71 R51 H77
    Date: 2010–09–27
  3. By: Claus Michelsen; P. Bönisch; Martin T.W. Rosenfeld
    Abstract: Institutions are common predictors of voter turnout. Most research in this field focuses on cross-country comparisons of voting systems, like the impact of compulsory voting or registration systems. Fewer efforts have been devoted to understand the role of local institutions and their impact on political participation. Especially the impact of divided competences in relation to public good provision and its impact on voter turnout has been widely ignored. In the present paper, we analyze the effects of different institutional settings for inter-municipal cooperation on voter turnout. We use data from local elections in Germany, held in 2003 and 2004. Overall, we analyze aggregate voter turnout of 1661 municipalities and find strong evidence for our hypothesis that local institutional settings are influential in this context. Further, our results indicate that the better competences correspond to the spatial dimension of local public goods, the higher should be the voter turnout.
    Keywords: voter turnout, local institutions, inter-municipal cooperation
    JEL: D70 D72 H11 H40
    Date: 2010–10
  4. By: Leonor Coutinho; Luc De Wulf; Santiago Florez; Cyrus Sassanpour
    Abstract: Until the early 1990s, the discussions on fiscal policy primarily centered on the functions of economic stabilization, income redistribution and resource allocation. Long-term growth was not usually viewed as an end itself, and fiscal policy was often not sufficiently tailored to the different circumstances and priorities of countries at different stages of development. It is only relatively recently that the discussion has gradually focused on the links between different dimensions of quality of public finances and economic growth. Based on the conceptual framework for linking the quality of public finances and economic growth that has been developed by the European Commission and applied to the EU Member States, this study examines the conditions under which the budgetary policy, and more specifically expenditure, revenue and financing design would be supportive of growth in the Mediterranean partner countries of the European Union. The study also highlights some of the interlinkages between fiscal policy and growth and summarises empirical findings found in the literature with particular focus on Mediterranean partner countries of the European Union. The main findings of the study are similar to those that apply to the EU Member States and can be summarised as follows: • The way government expenditures are financed matters. Deficit and debt financing clearly undermines growth performance. • The composition of expenditure does matter however the efficiency of the expenditure undertaken is even more important for growth. For countries with good governance indicators the positive impact of the productive expenditures on growth was enhanced. The analysis was applied to the efficiency of education and health expenditures with basically similar results. • Notwithstanding the importance of 'fair' income distribution, when tax policy relies heavily on income taxation to do so, the analysis suggests a likely negative effect on growth. Specifically, consumption taxes were found to depress growth by up to four times less than income taxes. The study concludes by highlighting possible areas in the planning and execution of fiscal policy and governance where growth enhancing interventions can be applied.
    Keywords: public finance, economic growth, Mediterranean region
    JEL: H1 H2 H3 H5 H6 H7 E6 O1 O2 O4
    Date: 2010
  5. By: Florian Englmaier (University of Munich); Georg Gebhardt (Ulm University)
    Abstract: We run a public good experiment in the field and in the lab with (partly) the same subjects. The field experiment is a true natural field experiment as subjects do not know that they are exposed to an experimental variation. We can show that subjects' behavior in the classic lab public good experiment correlates with their behavior in the structurally comparable public good treatment in the field but not with behavior in any of two control treatments we ran in the field. This effect is also economically significant. We conclude that a) the classic lab public good experiment captures important aspects of structurally equivalent real life situations and b) that behavior in lab and field at least in our setting is driven by the same underlying forces.
    Keywords: Field and Lab Experiments, External Validity, Public Goods, Team Production
    JEL: C91 C93 D01 D64
    Date: 2010–09
  6. By: Ian Lienert
    Abstract: Fiscal Responsibility Laws (FRLs) appear to be more popular in middle-income countries than advanced countries, even though their success is limited. The reasons why few advanced countries have a FRL include: the existing legal framework for the budget system is adequate; supranational rules and political agreements in EU countries; failed attempts to include quantitative fiscal rules in laws; lack of consensus or interest in attaining the goals of FRL-type legislation; and lack of need for a law to regulate fiscal transparency, accountability and macro-fiscal stabilization. Without commitment to fiscal discipline, adoption of a FRL may not contribute to attaining fiscal consolidation goals.
    Keywords: Budgetary policy , Cross country analysis , Debt sustainability , Developed countries , Financial management , Fiscal policy , Fiscal stability , Fiscal transparency , Governance , Legislation , Public finance , Transparency ,
    Date: 2010–11–11
  7. By: Lisa Bruttel; Tim Friehe
    Abstract: This paper presents experimental evidence that tax compliance is path dependent. We show that individuals faced with the same current tax enforcement parameters, will nevertheless choose different compliance if they have faced different tax enforcement parameters in the past. This finding has important policy implications. For instance, legal harmonization in the EU cannot be expected to reliably yield similar behavior in countries with different legal histories.
    Keywords: Tax compliance, Path dependence, Experiment
    Date: 2010
  8. By: Tuomas Kosonen
    Abstract: The tax incidence of consumption taxes across various sectors of the economy is a key aspect when designing a tax structure. However, there are very few empirical findings on this subject. This paper studies the tax incidence of consumption taxes utilising a VAT reform targeted at labour-intensive services in Finland. The reform creates a natural experiment set-up, because the reduced VAT was targeted at hairdressers, whereas the normal tax treatment still applied to beauty salons. This experiment is exogenous to the economic conditions of hairdressers in Finland, since this group was selected in a European Commission Directive. I study the effects of the reform on prices and demand. The results suggest that barbers cut their prices only by half of what complete pass-through would have implied. Using the experiment as an instrument, I find little effect on demand. Thus, there does not seem to be any indication of a significant effect on labour demand.
    Keywords: Consumption tax incidence, VAT, labour intensive services
    Date: 2010–11–23
  9. By: Miriam Bruhn; Francisco Gallego
    Abstract: This paper argues that legislative malapportionment, denoting a discrepancy between the share of legislative seats and the share of population held by electoral districts, serves as a tool for predemocratic elites to preserve their political power and economic interests after a transition to democracy. We claim that legislative malapportionment enhances the pre-democratic elite’s political influence by overrepresenting areas that are more likely to vote for parties aligned with the elite. This biased political representation survives in equilibrium as long as it helps democratic consolidation. We use data from Latin America to document empirically that malapportionment increases the probability of transitioning to a democracy. Moreover, our data show that overrepresented electoral districts are more likely to vote for parties close to pre-democracy ruling groups. We also find that overrepresented areas have lower levels of political competition and they receive more transfers per capita from the central government, both of which favor the persistence of power of pre-democracy elites.
    Keywords: Democracy, dictatorship, institutions, Latin America, persistence, political economy.
    JEL: H1 N46 N10 P16 P48
    Date: 2010
  10. By: David A. Grigorian; Faezeh Raei
    Abstract: The paper examines recent episodes of government involvement in corporate debt restructurings. It argues that corporate debt restructuring is an important step toward recovery from a financial crisis. We then discuss the rationale for, and modalities of, the state intervention in corporate debt workouts through reviewing six countries with large scale corporate debt workouts. Case studies reveal that the costs of corporate sector rescue are significant and in several cases on par with the costs of financial sector bailouts. The paper sheds light on the importance of contingent liabilities and associated risks to government balance sheet from the corporate debt side and emphasizes the need for improved contingency planning for corporations with potential systemic impact.
    Keywords: Asset management , Banking sector , Corporate sector , Cross country analysis , Debt restructuring , Economic recession , Economic recovery , Fiscal policy , Governance , Legislation , Public enterprises ,
    Date: 2010–11–16
  11. By: Ekaterina Melnik (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579); Jean-Benoît Zimmermann (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)
    Abstract: We develop an economic model of association based on voluntary contributions. Different equilibria corresponding to the different modes of formation of associations are analyzed and the results are compared with the existing empirical literature. The main contribution consists in analyzing voluntary associations as a means of providing collective consumption goods or services while allowing for some heterogeneity of preferences concerning the quality of these goods or services. Thus we introduce the concept of subjective quality as a possible incentive for volunteering. The model stresses the importance of non-pecuniary rewards and of accepted differentiation for the well-functioning of voluntary organizations.
    Keywords: Voluntary Association; Public Good; Volunteering
    Date: 2010–11–19
  12. By: Dr. Christin Lutz (GWS - Institute of Economic Structures Research); Dr. Ulrike Lehr (GWS - Institute of Economic Structures Research)
    Abstract: Study for the European Environmental Agency, Copenhagen “Tax reform in Europe over the next decades: implication for the environment, for eco-innovation and for household distribution” Task A: Eco-innovation Literature review on eco-innovation and ETR Modelling of ETR impacts with GINFORS
    Keywords: Tax, Europe
    JEL: H
    Date: 2010
  13. By: Felix Bierbrauer (Max Planck Institute for Research on Collective Goods, Bonn); Pierre C. Boyer (University of Mannheim, Department of Economics)
    Abstract: We study Downsian competition in a Mirrleesian model of income taxation. The competing politicians may differ in competence. If politicians engage in vote-share maximization, the less competent politician's policy proposals are attractive to the minority of rich agents, whereas those of the competent politician are attractive to the majority of poor agents. The less competent politician wins with positive probability, which gives rise to a political failure in the sense of Besley and Coate (1998). Political failures are avoided if politicians maximize winning probabilities. Nevertheless, the two equilibria cannot be Pareto-ranked, the minority may be better off under vote-share maximization.
    Keywords: Electoral Competition, Non-linear Income Taxation, Candidate Quality
    JEL: H21 C72 D72
    Date: 2010–11

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