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on Public Economics |
| By: | Francesca Gastaldi (University of Roma Sapienza); Paolo Liberati (University of Roma Tre); Antonio Sciala' (University of Roma Tre) |
| Abstract: | This paper addresses the issues of whether and how the degree of economic integration may affect central government tax revenues and the intensity of decentralisation. To this purpose, we empirically test the direct impact of economic integration on central tax revenues using the concept of implicit tax rates (ITRs) updated to take into account mobile and immobile capital taxation. On this basis we derive a country-specific measure of tax erosion that is used as a determinant of the decentralisation of the public sector in an Arellano-Bond environment. We find that: i) an increase of economic integration generates a downward pressure on ITRs on mobile capital, which is growing at increasing rates as far as economic integration increases; ii) the process of tax erosion gives rise to a corresponding process of increasing public sector decentralisation. |
| Keywords: | Economic integration, Fiscal federalism, Tax competition. |
| JEL: | H77 H87 F20 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0127&r=pbe |
| By: | Kurtis Swope (United States Naval Academy); Pamela Schmitt (United States Naval Academy); John Cadigan (Gettysburg College); Patrick Wayland (United States Navy) |
| Abstract: | We examine voluntary contributions in a two-stage public good experiment with ‘carryover.’ In two treatments, each subject’s second stage endowment is determined by the return from the public good in the first stage. We manipulate payoffs across these treatments so that, relative to our no-carryover baseline, earnings from either Nash play or Pareto Optimal play are held constant. The remaining two treatments maintain a constant endowment in each stage, but vary the marginal per capita return (MPCR) to contributions in the second stage. Our results indicate that carryover increases first stage contributions. Our implementation of carryover enables us to examine the effects of changing endowments and MPCR’s with a wider variety of parameter values than in the existing literature. Consistent with these studies, we find that MPCR and endowment effects are important determinants of subject contributions to the group account. While stage 1 contributions tend to increase in the presence of carryover, efficiency levels across both stages fall relative to the baseline due to the high potential payoffs from complete contribution in the second stage (due to higher endowments or MPCR levels). |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:usn:usnawp:32&r=pbe |
| By: | Aaron Lowen (Grand Valley State University); Pamela Schmitt (United States Naval Academy) |
| Abstract: | We examine the role one-time threats of expulsion and punishment have on voluntary contributions in a public goods game. This paper extends the work of Cinyabuguma, Page, and Putterman (2005), who find that the threat of expulsion in every period raises contributions to near Pareto Optimal levels. In our experiments, participants played in 15-round sessions where they were allowed to vote to remove other subjects only after round 5 and in one design also voted whether to punish the remaining subjects after round 10. We find that the additional threat of punishment not only increased the contributions of participants before the punishment vote, but also resulted in the expulsion of participants who had contributed more than in the no punishment treatment. Efficiency with expulsion is 58.07% without punishment, and 57.13% with punishment, including the cost for voting and punishment. Our findings indicate that the threat of expulsion as a sanctioning mechanism may not be helpful for public good provision unless expulsion can occur in every period, the threat of costly punishment increases contributions with little impact on efficiency, and that standards for inclusion rise when later punishment is available. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:usn:usnawp:33&r=pbe |
| By: | Kai A. Konrad; Florian Morath |
| Abstract: | We investigate redistributive taxation in a political economy experiment and determine how different patterns of social mobility affect the choices of redistributional taxes. In the absence of social mobility, voters choose tax rates that are very well in line with the prediction derived in the standard framework by Meitzer and Richard (1981). However, past or future changes in the income hierarchy affect the choice of the tax rate in the current period. The same is true for social mobility within the period to which the tax rate choice applies and for the case where the choice of the tax rate takes place behind, the veil of ignorance. Due to our design of the experiment, these strong effects of own social mobility cannot be attributed to social or other-regarding preferences. |
| Keywords: | redistribution, median voter, social mobility |
| JEL: | D72 D78 H20 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:mpi:wpaper:social_mobility_and_redistributive_taxation&r=pbe |
| By: | Alexei Alexandrov (Simon Graduate School of Business, University of Rochester); Özlem Bedre-Defolie (ESMT European School of Management and Technology) |
| Abstract: | We examine a multinational firm which has a decreasing marginal cost, and the optimal sales tax policies of the regions where that firm operates. We show that the regions set higher sales taxes than those given by a cooperative equilibrium. Each region fails to fully internalize the effects of its tax level on another region's welfare and the incentives for that region's authority. Exponential cost functions which exhibit economies of scale (for example Cobb-Douglas) and linear demand functions satisfy our assumptions. Our results suggest the need to coordinate sales tax levels between countries and between smaller entities, like states in the United States. Smaller regions benefit more from such coordination. Lowering sales taxes in each region increases welfare for all regions, profits for firms, and consumer welfare. |
| Keywords: | tax competition, sales taxes, multinationals, decreasing marginal cost, economies of scale |
| JEL: | F12 F23 H25 H71 |
| Date: | 2011–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:esm:wpaper:esmt-11-01&r=pbe |
| By: | Thornton Matheson |
| Abstract: | In reaction to the recent financial crisis, increased attention has recently been given to financial transaction taxes (FTTs) as a means of (1) raising revenue for a variety of possible purposes and/or (2) helping to curb financial market excesses. This paper reviews existing theory and evidence on the efficacy of an FTT in fulfilling those tasks, on its potential impact, and on key issues to be faced in designing taxes of this kind. |
| Keywords: | Cross country analysis , Economic models , Financial assets , Financial sector , Group of Twenty , Revenue measures , Securities markets , Stock markets , Tax rates , Taxation , Taxes , |
| Date: | 2011–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/54&r=pbe |
| By: | Bartels, Koen; Cozzi, Guido; Mantovan, Noemi |
| Abstract: | The current British Government's "Big Society" plan is based on the idea that granting more freedom to local communities and volunteers will compensate for a withdrawal of public agencies and spending. This idea is grounded on a widely held belief about the relationship between government and volunteering: a high degree of government intervention will cause a crowding out of voluntary activity. Up to now, however, the crowding out hypothesis has hardly been supported by any empirical evidence or solid theoretical foundations. We develop a simple theoretical model to predict how fiscal policy affects the individual decision to volunteer or not. The predictions of the model are tested through the econometric analysis of two survey data sets, and interpretative analysis of narratives of local volunteers and public officials. Contrary to conventional wisdom, our results suggest that volunteering, by the individuals in the actively working population, declines when government intervention is decreased. |
| Keywords: | Volunteering; Labor Supply; Public Goods; Altruism. |
| JEL: | H31 H41 I38 J22 D64 |
| Date: | 2011–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:29730&r=pbe |
| By: | Vladimir Klyuev; Stephen Snudden |
| Abstract: | This paper uses the IMF’s Global Integrated Monetary and Fiscal Model (GIMF) to assess the impact of fiscal consolidation on the Czech economy. Its contribution is threefold. First, it provides estimates of dynamic fiscal multipliers for a variety of fiscal instruments (tax and expenditure), consolidation durations, assumptions about credibility, and monetary policy responses. Second, the paper evaluates the impact on the economy of tightening measures envisaged in the 2011 budget. Third, the paper considers alternative packages for consolidation beyond 2011 to achieve the government’s balanced budget target by 2016 and identifies which forms of adjustment are more "growth-friendly". |
| Date: | 2011–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/65&r=pbe |
| By: | Vanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; José Ramos Maria |
| Abstract: | This article focuses on the costs and benefits of a fiscal consolidation in a small euro area economy. The macroeconomic impacts and the welfare analysis are conducted in a New-Keynesian general equilibrium model with non-Ricardian agents. We define a benchmark fiscal consolidation strategy based on a permanent reduction in Government expenditure. We find that, over the long run, fiscal consolidation leads to a considerable increase in the level of output and consumption, and is welfare improving. In addition, the gains are boosted if the fiscal strategy also involves a tax reform that shifts the tax burden away from labour income towards the final goods consumption. However, important short-run costs arise, notably output, consumption and welfare losses. Finally, we assess the effect of alternative fiscal consolidation paths in terms of the degree of front loading, the speed of its completion and the interaction with risk premium. |
| JEL: | E62 F41 H62 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201105&r=pbe |
| By: | Raphael A. Espinoza; Abdelhak S Senhadji |
| Abstract: | The effectiveness of fiscal policy in smoothing the impact of shocks depends critically on the size of fiscal multipliers. This is particularly relevant for the GCC countries given the need for fiscal policy to cushion the economy from large terms of trade shocks in the absence of an independent monetary policy and where fiscal multipliers could be weak dues to substantial leakages through remittances and imports. The paper provides estimates of the size of fiscal multipliers using a variety of models. The focus is on government spending since tax revenues are small. The long-run multiplier estimates vary in the 0.3-0.7 range for current expenditure and 0.6-1.1 for capital spending, depending on the particular specification and estimation method chosen. These estimates fall within the range of fiscal multiplier estimates in the literature for non-oil emerging markets. |
| Keywords: | Cooperation Council for the Arab States of the Gulf , External shocks , Fiscal policy , Government expenditures , Nonoil sector , Saudi Arabia , |
| Date: | 2011–03–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/61&r=pbe |
| By: | Pablo Hernández de Cos (Banco de España); Enrique Moral-Benito (Banco de España) |
| Abstract: | There is evidence in the literature of fiscal consolidation episodes producing (non-Keynesian) expansionary effects (e.g. Alesina and Ardagna, 1998). We replicate this result for a panel of OECD countries under exogeneity of the fiscal tightening decision, and provide evidence that this decision is endogenous to GDP so that the exogeneity assumption might be inappropriate. Once this endogeneity is taken into consideration, we find that fiscal consolidations have a negative impact on GDP as expected in a Keynesian framework. We also investigate the determinants of successful consolidations. In particular, we use model averaging to overcome the problem of model uncertainty, and conclude that economic recovery and cuts in public wages are the most important ingredients of a consolidation program for successfully reducing budget deficits. |
| Keywords: | Fiscal consolidation, panel data, endogeneity, model averaging |
| JEL: | H30 H62 C23 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1102&r=pbe |
| By: | Ferhan Salman; Gabriela Dobrescu |
| Abstract: | Domestic absorption cycles are relevant in assessment and design of fiscal policies. Our cross-country analysis covers 59 advanced and emerging countries for the 1990-2009 period. We show that ignoring domestic absorption cycles leads to biased fiscal stance indicators, for both advanced and emerging economies, by up to 1.5 percent of GDP. The estimates of fiscal policy reaction functions indicate that absorption booms are associated with pro-cyclical fiscal policy. We tackle the endogeneity problem in reactions functions through stripping the cyclical component of the fiscal aggregates. We also find that simple filtering methods in the computation of absorption gaps perform as better as indirect methods of estimating trade balance gaps and stripping of output gaps. |
| Keywords: | Business cycles , Cross country analysis , Developed countries , Economic growth , Economic models , Emerging markets , Fiscal policy , Indirect taxation , Revenue sources , Revenues , |
| Date: | 2011–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/41&r=pbe |
| By: | Miguel Ramirez (Department of Economics, Trinity College) |
| Abstract: | This paper addresses the important question of whether public investment spending on economic infrastructure enhances economic growth and labor productivity in Argentina. Following the lead of the endogenous growth literature, it presents a simple modified production function that explicitly includes the positive or negative externality effects generated by public investment. The paper estimates a dynamic labor productivity function for the 1960-2007 period that incorporates the impact of public and private investment spending and the labor force (rather than the rate of population growth). Single break (Zivot-Andrews) unit root and cointegration analysis suggest that (lagged) increases in public investment spending on economic infrastructureBas opposed to overall public investment spendingB have a positive and significant effect on the rate of labor productivity growth. In addition, the model is estimated for a shorter period (1970-2007) to capture the impact of foreign direct investment. The estimates suggest that foreign direct investment spending has a lagged positive and significant impact on labor productivity growth, while increases in the labor force have a negative effect . Thus, the findings call into question the politically expedient policy in many Latin American countries, including Argentina during the 1990s and early 2000s, of disproportionately reducing public capital expenditures to meet reductions in the fiscal deficit as a proportion of GDP. |
| Keywords: | Public investment, labor productivity, Argentina, single-break unit root, cointegration |
| JEL: | C22 O10 O40 O50 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:tri:wpaper:1101&r=pbe |