nep-pbe New Economics Papers
on Public Economics
Issue of 2011‒02‒19
sixteen papers chosen by
Keunjae Lee
Pusan National University

  1. Vertical Fiscal Transfers and the Location of Economic Activity across a Country Regions.Theory and Evidence for Argentina. By Pedro Moncarz; Sebastián Freille; Alberto Figueras; Marcelo Capello
  2. Partial decentralization as a safeguard against favoritism By Darwin Cortés
  3. Federalism and fiscal reform in India. By M. Govinda Rao; Sen, Tapas K.
  4. Democracy, Elections and Allocation of Public Expenditure in Developing Countries By Clémence Vergne
  5. Fiscal Performance and Sustainability of Local Government in South Africa – An Empirical Analysis By Niek Schoeman
  6. The quality of public services in Italy By Amanda Carmignani; Francesco Bripi; Raffaela Giordano
  7. The impacts of air-pollution motivated automobile consumption tax adjustments of China By Xiao, Junji; Ju, Heng
  8. Higher Taxes on Multinationals Would Hurt US Workers and Exports By Gary Clyde Hufbauer; Theodore H. Moran
  9. Economic ideas and redistributive policy in the Spanish parliament: the 1900 debate on fiscal progressivity By Javier San-Julián-Arrupe
  10. Taxation on Rural Sector: Tax Burden, Land Value and Property Right. By Horacio L. P. Piffano
  11. Public sector efficiency and political culture By Raffaela Giordano; Pietro Tommasino
  12. The Effectiveness of Government Expenditures during Crisis: Evidence from Regional Government Spending in Japan 1990-2000 By Markus Bruckner; Anita Tuladhar
  13. Behavioral Economics Perspectives on Public Sector Pension Plans By Beshears, John; Choi, James J.; Laibson, David; Madrian, Brigitte C.
  14. Are Public Investment Efficient in Creating Capital Stock in Developing Countries?. By Arestoff-Izzo, Florence; Hurlin, Christophe
  15. Inequality and Growth: The Role of Beliefs and Culture By Strieborny Martin
  16. Accounting for Cross-Country Income Differences with Public Capital By German Cubas

  1. By: Pedro Moncarz (Universidad Nacional de Córdoba); Sebastián Freille (Universidad Nacional de Córdoba; CONICET); Alberto Figueras (Universidad Nacional de Córdoba); Marcelo Capello (Universidad Nacional de Córdoba; IERAL de Fundación Mediterránea)
    Abstract: Argentina has an important system of vertical transfers with a compensatory aim including the convergence across sub-national regions. However, there still exist high levels of asymmetries among the country provinces. Extending Martin and Rogers’ FCM including non- tradable goods and public employment we analyse the effect on economic activity location that follows to changes on the regional distribution of transfers. An increase in the share of transfers a region receives positively effect the production of manufactures the higher are: transaction costs of goods produced under increasing returns to scale; the share of transfers that goes directly to consumers instead of local governments; the elasticity of substitution between differentiated goods; the share of consumers’ expenditure on manufactures via-as-vis on non- traded goods.
    Keywords: federalism, vertical fiscal transfers, economic location
    JEL: R12 H71 H72
    Date: 2010–11
  2. By: Darwin Cortés
    Abstract: In this paper I investigate the optimal level of decentralization of tasks for the provision of a local public good. I enrich the well-known trade-off between internalization of spillovers (that favors centralization) and accountability (that favors decentralization) by considering that public goods are produced through multiple tasks. This adds an additional institutional setting, partial decentralization, to the classical choice between full decentralization and full centralization. The main results are that partial decentralization is optimal when both the variance of exogenous shocks to electorate’s utility is large and the electorate expects high performance from politicians. I also show that the optimal institutional setting depends on the degree of substitutability/complementarity between tasks. In particular, I show that a large degree of substitutability between tasks makes favoritism more likely, which increases the desirability of partial decentralization as a safeguard against favoritism.
    Date: 2010–09–27
  3. By: M. Govinda Rao (National Institute of Public Finance and Policy); Sen, Tapas K. (National Institute of Public Finance and Policy)
    Abstract: This paper attempts to analyse the experience of incentivising economic reforms at the state level through central transfers to states. It reviews the experiences of the central government introducing incentives for reform directly through various specific purpose transfers as well as the incentive schemes recommended by various Finance Commissions. The incentive schemes directly introduced by the central government include, accelerated irrigation benefit programme, accelerated power development and reform programme, Jawaharlal Nehru Urban Renewal Mission, education and health sector reforms. The reforms recommended by the Finance Commissions include incentivising tax reforms and fiscal restructuring and consolidation. The review of the experiences of Indian fiscal federalism shows that the incentivising reforms have neither been an unqualified success nor have they been a total failure. There are interesting lessons to be learnt from the experiences for both designing the incentive schemes and implementing them. The paper summarises the lessons of experience. While incorporating these in designing and implementing incentive schemes can be useful in the short and medium term, what matters in the long run is the political incentive for reforms.
    JEL: H30 H71 H74 H77
    Date: 2011–02
  4. By: Clémence Vergne (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: This paper overcomes traditional political budget cycles models, focusing solely on the dynamics of the overall budget, in order to shed light on electoral composition changes in public spending. Using data on 42 developing countries from 1975 to 2001, we find evidence of electoral impacts on the allocation of public expenditure. Our results show that election-year public spending shifts towards more visible current expenditure, in particular wages and subsidies, and away from capital expenditure. Futhermore, our findings suggest that electoral impacts on the allocation of public spending are likely to endure, even though countries gain experience in electoral politics.
    Keywords: Political budget cycles;public expenditure composition;developing countries
    Date: 2011–02–09
  5. By: Niek Schoeman
    Abstract: This paper analyses fiscal performance in terms of own-revenue collection and sustainability of local municipalities in South Africa. Criteria such as gross value added, revenue collected from own sources, debtors outstanding, the ageing of debt and dependency on grants are considered. The conclusion is that a large number of municipalities do not comply with the requirement that a ‘reasonable’ amount of current expenditures be financed by means of own resources. Furthermore, local government finances are featured by substantial variance as far as collection of own income is concerned. While close to half of them finance more than 50 percent of their current expenditures from own resources, about one third are largely dependent on grants from upper spheres of government and generate less than 20 percent of current expenditures from own resources. As a whole, the fiscal sustainability of the local government sector, given the current scenario of flows, is a reason for concern. In order to comply with international criteria for solid fiscal performance, a number of municipalities will have to improve their performance with regard to own-revenue collection. The reason for this phenomenon seems to be the problem of ‘soft budgets’ and an historic dependence on grants to finance not only capital expenditures but also most, if not all of, current expenditures. Due to historical and political factors, local governments in South Africa differ substantially in terms of potential revenue base, but it may be that in many cases potential revenue is not exploited and that the high level of dependency on grants is the result of inefficiency and lack of political will to be more self-reliant. In view of the wide-spread protest actions against poor quality of service delivery at the local government level, fiscal authorities should take a fresh look at the extent to which these governments are accountable for being more financially independent. This would help prevent the accumulation of debt as a result of growing backlogs in service payments.
    Keywords: Local government; fiscal sustainability; South Africa.
    JEL: H71 H72
    Date: 2011
  6. By: Amanda Carmignani (Banca d'Italia); Francesco Bripi (Banca d'Italia); Raffaela Giordano (Banca d'Italia)
    Abstract: This paper provides a survey of a number of studies conducted in recent years, above all at the Bank of Italy, aiming at assessing the quality and the efficiency of public services in Italy. We consider services provided by the central government (education and civil justice), regional governments (health) and municipalities (local public transportation, waste disposal, water and gas supply, and childcare). The analysis shows in general that Italy lags behind noticeably compared with other countries and there are large regional differences in terms of both quality and efficiency, regardless of the level of government providing the service. The lags seem to be attributable, depending on the case, to agents’ incentives, citizens’ behaviour and the regulation. Furthermore, the analysis emphasizes the need for more information to enhance our understanding of the problems and improve the effectiveness of action taken to counter them.
    Keywords: public services, efficiency, decentralization
    JEL: H50 H75 H76
    Date: 2011–01
  7. By: Xiao, Junji; Ju, Heng
    Abstract: A concomitant of the rapid development of the automobile industry in China is the serious air pollution and carbon dioxide emission. There are various regulation instruments to reduce the air pollution from automobile sources. China government chooses a small-displacement oriented consumption tax as well as fuel tax to alleviate the worse air pollution. This paper evaluates the effects of both policy instruments on fuel consumption and social welfare. Our empirical results show that fuel tax decreases the total sale of new cars, which leads to a decline of total consumption of fuel from the new cars, but does not change the sale distribution over various fuel efficiency models; while consumption tax adjustment results in a skewed sale distribution toward more efficient new cars but increases the total consumption of fuel due to an enlarged sale. The effects of these two taxes on pollution depend on our assumption about the average fuel efficiency of outside goods. On the other hand, consumption tax leads to less social welfare loss; in particular, consumer surplus decreases in an order of magnitude less than that caused by fuel tax. Fuel tax actually transfers more welfare from private sector to the government.
    Keywords: China auto industry; welfare analysis; tax incidence; BLP model; tax progressivity
    JEL: A13 C35 H23
    Date: 2011–02–07
  8. By: Gary Clyde Hufbauer (Peterson Institute for International Economics); Theodore H. Moran (Peterson Institute for International Economics)
    Abstract: President Barack Obama declared in his State of the Union address--echoing the rhetoric during his days as presidential candidate--that "it is time to finally slash the tax breaks for companies that ship our jobs overseas, and give those tax breaks to companies that create jobs right here in the United States of America." Do US multinationals deserve tax punishment because they "ship jobs overseas"? Hufbauer and Moran cite studies that compare US firms engaged in outward investment with similar firms that stay at home. They conclude that outward bound firms consistently export more from the United States than the home firms. If US tax policy were changed so as to hinder outward investment by US firms, evidence indicates US export performance would be weaker, not stronger. These tax changes would not lead to more investment at home either. The best bottom line for American workers--and the American economy as a whole--is to keep the United States a favorable location for American multinationals to do business. The plants of US multinationals are the most productive in the United States, most technology-intensive, and pay the highest wages. In contrast to most countries that maintain simple territorial tax systems, either de jure or de facto, the United States subjects its multinationals to worldwide taxation. The United States should align its taxation of multinationals to the territorial norms of foreign competitors--from France and Germany to Brazil, India, and China. It should adopt its own version of territorial taxation and allow US-based multinationals to repatriate dividends from their foreign subsidiaries at a flat rate of 5 percent, with no foreign tax credit. This was successfully tried for 2005 in the American Jobs Creation Act of 2004 (the AJCA). The result was a gush of repatriated income, around $300 billion, and revenue that the US Treasury would never have seen. In 2010, the Congress should lay aside the administration's proposals for punishing US multinationals with higher taxes and instead make the AJCA tax of 5 percent on repatriated dividends a permanent part of the tax code.
    Date: 2010–05
  9. By: Javier San-Julián-Arrupe (Universitat de Barcelona)
    Abstract: This paper analyses the debate on the introduction of progressive rates in the inheritance tax, which took place in the Spanish Parliament in 1900. The article highlights the interest of this debate concerning two aspects: First, the parliamentary discussion itself, very controversial, showed an atypical alliance between conservatives and republicans supporting a very limited progressivity. In their view, this was just a tool to achieve real tax proportionality, and by no means should be a redistributive measure. Liberals' opposition feared the ultimate consequences of progressive taxes and refused its introduction in Spain, as it entailed serious hazard for property. Second, the wide use of economic ideas to support arguments in the debate make evident that the Members of Parliament taking part in the debate had a noteworthy degree of economic expertise. Therefore, parliamentary discussions were effectively contributing to the progress, expansion and institutionalization of political economy in contemporary Spain.
    Keywords: economy, parliament, public finance, progressivity.
    JEL: A11 B12 K34 N43
    Date: 2011–02
  10. By: Horacio L. P. Piffano
    Abstract: The paper analyzes tax burden on rural sector and its implication on property right of land. First, tax burden on land property and rural activities, and its incidence on land values are analyzed; next, the author tries to advance an economic foundation theory for evaluating a legal quantitative limit for the determination that judicial intervention had established, or may establish in the future, to define or differentiate tax burden as confiscatory and, therefore, violating property right.
    Keywords: Taxation on rural sector, tax burden, land value, property right, confiscation.
    JEL: H2
    Date: 2010–04
  11. By: Raffaela Giordano (Bank of Italy); Pietro Tommasino (Bank of Italy)
    Abstract: The capability of a country's public sector to provide high-quality goods and services in a cost-effective way is crucial to fostering long-term growth. In this paper we study the determinants of public service efficiency (PSE) and in particular the role of citizens' political values. Indeed, we argue that citizens' willingness to invest time and effort monitoring public affairs is necessary if policy-makers are to be held accountable for what they do and deterred from wasting public resources. Contrary to other papers, our empirical analysis exploits within-country variation, therefore reducing the risk of omitted variable bias and implicitly controlling for differences in formal institutions. First, we compute PSE measures for several public services (namely education, civil justice, healthcare, childcare and waste disposal) for the 103 Italian provinces; then we show that a higher degree of political engagement increases PSE. This remains true even after controlling for the possible endogeneity of political culture. In our analysis, values specifically related to the political sphere are kept distinct from generically pro-social values. Our results suggest that the latter have no independent impact on PSE.
    Keywords: public spending, efficiency, culture
    JEL: C14 H50 H77 Z13
    Date: 2011–01
  12. By: Markus Bruckner (School of Economics, University of Adelaide); Anita Tuladhar (International Monetary Fund)
    Abstract: We use a rich dataset of regional government expenditures for Japan during the 1990-2000 period to estimate from within-prefecture variation the multiplier of government investment and government consumption expenditures. Our main finding is that government spending did not have multipliers effects that are on average larger than one. Government investment had a positive and significant effect on output that was quantitatively larger than the effect of government consumption expenditures. Government personnel expenditures and transfers to households had significant negative output effects while transfers to firms produced positive multiplier effects that were significantly larger than one. Our findings are consistent with macro model that emphasize the supplyside effects of fiscal policy during times of financial crisis.
    Keywords: fiscal policy, fiscal multipliers
    JEL: E62 H30
    Date: 2011–02
  13. By: Beshears, John (Stanford University); Choi, James J. (Yale School of Management); Laibson, David (Harvard University); Madrian, Brigitte C. (Harvard Kennedy School)
    Abstract: We describe the pension plan features of the states and the largest cities and counties in the U.S. Unlike in the private sector, defined benefit (DB) pensions are still the norm in the public sector. However, a few jurisdictions have shifted towards defined contribution (DC) plans as their primary savings plan, and fiscal pressures are likely to generate more movement in this direction. Holding fixed a public employee's work and salary history, we show that DB retirement income replacement ratios vary greatly across jurisdictions. This creates large variation in workers' need to save for retirement in other accounts. There is also substantial heterogeneity across jurisdictions in the savings generated in primary DC plans because of differences in the level of mandatory employer and employee contributions. One notable difference between public and private sector DC plans is that public sector primary DC plans are characterized by required employee or employer contributions (or both), whereas private sector plans largely feature voluntary employee contributions that are supplemented by an employer match. We conclude by applying lessons from savings behavior in private sector savings plans to the design of public sector plans.
    JEL: G23 G28 H76
    Date: 2011–02
  14. By: Arestoff-Izzo, Florence; Hurlin, Christophe
    Abstract: In many poor countries, the problem is not that governments do not invest, but that these investments do not create productive capital. So, the cost of public investments does not correspond to the value of the capital stocks. In this paper, we propose an original non parametric approach to evaluate the efficiency function that links variations (net of depreciation) of stocks to public investments. We consider four sectors (electricity, telecommunications, roads and railways) of two Latin American countries (Mexico and Colombia). We show that there is a large discrepancy between the amount of investments and the value of increases in stocks.
    Keywords: Developing Countries; Capital Stocks; Public Capital;
    JEL: E62 E22 C82
    Date: 2010–12
  15. By: Strieborny Martin
    Abstract: In egalitarian countries people believe that luck rather than hard work determines success in life and expect their government to provide both economic growth and social equity. This leads to a stronger dynamic interplay between government interventions, inequality and growth within such countries. The presented results thus confirm the importance of cultural factors and economic beliefs in shaping the inequality-growth link. More fundamentally, the paper demonstrates that cultural background does not only influence the long-run economic outcomes, but can also affect the joint dynamics of real economic variables within countries over time.
    Keywords: culture; inequality; growth
    JEL: O15 O40 P16 Z1
    Date: 2010–11
  16. By: German Cubas (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República. Banco Central del Uruguay.)
    Abstract: This paper offers new evidence on the sources of cross-country income differences by investigating the role public capital in development accounting. I explicitly measure private and public capital stocks, and I find large differences in both types of capital across countries. Moreover, differences in private capital are larger than the ones I find for total capital for the richest and poorest countries. The methodology I use implies a share of publica capital in output of at most 10%. My findings indicate that differences in capital stocks can not account for a substantial part of the observed dispersion in income across countries.
    Keywords: Income differences, Public capital, Development Accounting.
    JEL: O11 O41 H41
    Date: 2010–12

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