nep-pbe New Economics Papers
on Public Economics
Issue of 2011‒04‒09
nine papers chosen by
Keunjae Lee
Pusan National University

  1. Public Goods, Labor Supply and the Source of Economic Distortions By Cristian Sepúlveda
  2. Contributing or Free-Riding? Voluntary Participation in a Public Good Economy By FURUSAWA Taiji; KONISHI Hideo
  3. On the determinants of local tax rates: new evidence from Spain By Francisco J. Delgado; Santiago Lago-Peñas; Matías Mayor
  4. The Allocation of Public Goods and National Elections in Ghana By André, Pierre; Mesplé-Somps, Sandrine
  5. Electoral accountability, fiscal decentralization and service delivery in Indonesia By Skoufias, Emmanuel; Narayan, Ambar; Dasgupta, Basab; Kaiser, Kai
  6. Tax Evasion, Welfare Fraud, and ”The Broken Windows” Effect: An Experiment in Belgium, France and the Netherlands By Mathieu Lefebvre; Pierre Pestieau; Arno Riedl; Marie Claire Villeval
  7. Is There a Principle of Targeting in Environmental Taxation? By Jianquiao Liu; Leslie Shiell
  8. Happiness and Tax Morale: an Empirical Analysis By Diego Lubian; Luca Zarri
  9. Heterogeneous Convergence By Andrew T. Young; Matthew J. Higgins; Daniel Levy

  1. By: Cristian Sepúlveda (International Studies Program. Andrew Young School of Policy Studies, Georgia State University)
    Abstract: The public finance literature claims that any tax instrument other than the lump-sum tax is inherently distortionary because it alters relative prices. This paper suggests otherwise. Conventional time allocation problems typically assume that taxpayers do not consider the individual marginal benefits received in the form of public goods when choosing their labor supply responses to tax policy. Based on the resultant optimality conditions, and assuming that public goods are financed exclusively with (supposedly distortionary) labor income tax, the traditional theory derives the second-best solution to the public goods problem. This paper argues that taxpayers may consider the marginal benefits of taxation in their labor supply responses to taxation, and shows that when they do, the economy can reach an outcome that may be regarded as efficient. Indeed, at that outcome each taxpayer contributes in accordance to the individual benefits received from his/her preferred amount of public goods, and the relative price of leisure remains undistorted.
    Keywords: public goods, distortion, Lindahl price, labor tax, lump-sum tax, labor supply
    Date: 2010–03–24
  2. By: FURUSAWA Taiji; KONISHI Hideo
    Abstract: We consider a (pure) public goods provision problem with voluntary participation in a quasi-linear economy. We propose a new hybrid solution concept, the free-riding-proof core (FRP-Core), which endogenously determines a contribution group, public goods provision level, and how to share the provision costs. The FRP-Core is always nonempty in public goods economies but does not usually achieve global efficiency. The FRP-Core has support from both cooperative and noncooperative games. In particular, it is equivalent to the set of perfectly coalition-proof Nash equilibria (Bernheim, Peleg, and Whinston, 1987) of a dynamic game with players' participation decisions followed by a common agency game of public goods provision.
    Date: 2011–03
  3. By: Francisco J. Delgado (University of Oviedo); Santiago Lago-Peñas (REDE, IEB and University of Vigo); Matías Mayor (University of Oviedo)
    Abstract: This paper studies the determinants of local tax rates. For the two main local taxes in Spain - the property tax and the motor vehicle tax - we test the existence of tax mimicking, yardstick competition and political trends in a sample of 2,713 municipalities. Using different spatial models, the results support the hypothesis of tax mimicking, with coefficients over 0.40. We also show the relevance of political variables such as the ideology of the incumbents and political fragmentation. The fact that incumbents with weaker political support display stronger mimicking behaviour is interpreted as evidence in favour of yardstick competition. Finally, we find incumbents mimic neighbouring municipalities ruled by the same political party, confirming the political trends hypothesis.
    Keywords: Local taxation, tax mimicking, yardstick competition, political trends
    JEL: C31 H71 H77
    Date: 2011
  4. By: André, Pierre; Mesplé-Somps, Sandrine
    Abstract: The body of literature on purely democratic countries can sometimes fail to explain the behavior of government in semi-democratic African countries. Empirical and theoretical political economic papers find that public funds target ruling party supporters and swing districts. Our results, however, suggest that the opposite was true of Ghana. We observe that pro-government districts received less public investment when the NDC was in power. We posit that this finding is partially driven by the government's will to curry favor with opposition politicians. Indeed, in addition to pursuing its electoral objectives, the government of an emerging democracy may fear political instability and keep the lid on potential unrest by bargaining with opposition leaders. Our analysis also shows that, when controlling for votes and other covariates (including wealth, urbanization and density), public goods allocation is not driven by ethnic group targeting either.
    Keywords: Public goods, elections, ethnic, Africa, Ghana
    JEL: O1 D7 R11
    Date: 2011–01
  5. By: Skoufias, Emmanuel; Narayan, Ambar; Dasgupta, Basab; Kaiser, Kai
    Abstract: This paper takes advantage of the exogenous phasing of direct elections in districts and applies the double difference estimator to: (i) measure impacts on the pattern of public spending and revenue generation at the district level; and (ii) investigate the heterogeneity of the impacts on public spending. The authors confirm that the electoral reforms had positive effects on district expenditures and these effects were mainly due to the increases in expenditures in the districts outside Java and Bali and the changes in expenditures brought about by non-incumbents elected in the districts. Electoral reforms also led to higher revenue generation from own sources and to higher budget surplus. Finally, the analysis finds that in anticipation of the forthcoming direct elections, district governments tend to have higher current expenditures on public works.
    Keywords: Subnational Economic Development,Public Sector Expenditure Policy,Parliamentary Government,E-Government,Debt Markets
    Date: 2011–03–01
  6. By: Mathieu Lefebvre; Pierre Pestieau; Arno Riedl; Marie Claire Villeval
    Abstract: In a series of experiments conducted in Belgium (Wallonia and Flanders), France and the Netherlands, we compare behavior regarding tax evasion and welfare dodging, with and without information about others’ behavior. Subjects have to decide between a ‘registered’ income, the realization of which will be known to the tax authority for sure, and an ‘unregistered’ income that will only be known with some probability. This unregistered income comes from self-employment in the Tax treatment and from black labor supplementing some unemployment compensation in the Welfare treatment. Subjects have then to decide on whether reporting their income or not, knowing the risk of detection. The results show that (i) individuals evade more in the Welfare treatment than in the Tax treatment; (ii) many subjects choose an option that allows for tax evasion or welfare fraud but report their income honestly anyway; (iii) examples of low compliance tend to increase tax evasion while examples of high compliance exert no influence; (iv) tax evasion is more frequent in France and the Netherlands; Walloons evade taxes less than the Flemish. There is no cross-country difference in welfare dodging.
    Date: 2011
  7. By: Jianquiao Liu (Department of Economics, University of Ottawa, Ottawa, ON); Leslie Shiell (Department of Economics, University of Ottawa, Ottawa, ON)
    Abstract: We test whether the principle of targeting (alternatively Sandmo’s (1975) additivity property and Kopczuk’s (2003) decomposition involving the Pigovian rule) has relevance for environmental taxation in a second best world consisting of an exogenous revenue requirement and pre-existing distortionary taxes. In the context of differentiated commodity taxes, we find that Sandmo’s additivity property breaks down once one solves explicitly for the marginal cost of public funds (MCPF). Further, in the more realistic setting of a uniform commodity tax and a dedicated emissions tax, we find that the additivity property no longer holds even in the form Sandmo studied it, i.e. without solving explicitly for the MCPF. Finally, we argue that Koczuk’s decomposition is not persuasive, as it requires that a second government agency must apply a corrective tax or subsidy to adjust the choice of the Pigovian rule by the environmental agency. In a same-numbers exercise (i.e. the number of tax instruments is not increased), we show that there is no presumption in favour of a direct emissions tax over a uniform commodity tax; rather, the choice depends upon the size of the environmental damages. We conclude that there does not exist a principle of targeting in environmental taxation.
    Keywords: environmental taxation; second best; principle of targeting
    JEL: H23
    Date: 2011
  8. By: Diego Lubian (Department of Economics (University of Verona)); Luca Zarri (Department of Economics (University of Verona))
    Abstract: This paper presents empirical evidence that \tax morale" - taxpayers' intrinsic motivation to pay taxes - constitutes a new determinant of happiness, even after controlling for several demographic and socioeconomic factors. Using data on Italian households for 2004, we assess the strength of tax morale by relying on single items as well as composite multi-item indices. Our main result that scal honesty generates a higher hedonic payo than cheating is in line with Harbaugh et al. (2007)'s neuroeconomic nding. Further, it sheds light on the well-known \puzzle of compliance", that is the fact that many individuals pay taxes even when expected penalty and audit probability are extremely low: tax compliance is less puzzling once we show that not only it is materially costly, but also provides sizeable non-pecuniary benets that make it rewarding in itself.
    Keywords: Happiness, Tax Morale, Tax Compliance
    Date: 2011–03
  9. By: Andrew T. Young (College of Business and Economics, West Virginia University); Matthew J. Higgins (College of Management, Georgia Institute of Technology); Daniel Levy (Department of Economics, Bar-Ilan University; Department of Economics, Emory University; RCEA)
    Abstract: We use U.S. county-level data containing 3,058 cross-sectional observations and 41 conditioning variables to study economic growth and explore possible heterogeneity in growth determination across 32 individual states. Using a 3SLS-IV estimation method, we find that all statistically significant convergence rates (for 32 individual states) are above 2 percent, with an average of 8.1 percent. For 7 states the convergence rate can be rejected as identical to at least one other state’s convergence rate with 95 percent confidence. Convergence rates are negatively correlated with initial income. The size of government at all levels of decentralization is either unproductive or negatively correlated with growth. Educational attainment has a non-linear relationship with growth. The size of the finance, insurance and real estate, and entertainment industries are positively correlated with growth, while the size of the education industry is negatively correlated with growth. Heterogeneity in the effects of balanced growth path determinants across individual states is harder to detect than in convergence rates.
    Keywords: Economic Growth, Conditional Convergence, County Level Data
    JEL: O40 O11 O18 O51 R11 H50 H70
    Date: 2011–03

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