nep-pbe New Economics Papers
on Public Economics
Issue of 2011‒06‒11
seven papers chosen by
Keunjae Lee
Pusan National University

  1. Corporate taxes and the location of intellectual property By Griffith, Rachel; Miller, Helen; O'Connell, Martin
  2. Examining Horizontal Fiscal Equalisation in Australia By Jonathan Pincus
  3. Economic Effects of Financing Public Pension Plans from Tax Revenue (Japanese) By HASHIMOTO Kyoji; KIMURA Shin
  4. Violence, social capital and economic development: Evidence of a microeconomic vicious circle By Leonardo Becchetti; Pierluigi Conzo; Alessandro Romeo
  5. An Analysis of the Relationship Between Wages in the Public and Private Sector in Colombia: A Panel Data Approach By Jesús Otero; Luis Fernando Gamboa; Andrés García-Suaza
  6. Mobility, Taxation and Welfare By Sami Bibi; Jean-Yves Duclos; Abdelkrim Araar
  7. The determinants of the composition of public debt in developing and emerging market countries By Forslund, Kristine; Lima, Lycia; Panizza, Ugo

  1. By: Griffith, Rachel; Miller, Helen; O'Connell, Martin
    Abstract: The literature suggests that tax rates on mobile activities should fall to zero. Intellectual property is very mobile and has grown in importance. Firms can use intellectual property to shift income offshore and reduce their corporate income tax liability. Yet most intellectual property is held in relatively high tax countries. We estimate the impact of corporate taxes on where firms hold patents. We consider domestic and international taxes, and control for the potential non-tax costs and benefits associated with different locations. We allow heterogeneity across industries, firm size and, most importantly, unobservable patent specific heterogeneity in the responsiveness of patent location to tax. Our results suggest that, on average, corporate tax rates have a negative impact on the likelihood of a firm choosing a location, and that there is substantial heterogeneity in responses. We simulate the impact of recent reforms that apply a lower tax rate to patent income, finding that they attract patent income but result in losses in government revenues.
    Keywords: corporate tax; intellectual property; multinational firms; Patent Box
    JEL: F21 F23 H3 O3
    Date: 2011–06
  2. By: Jonathan Pincus (School of Economics, University of Adelaide)
    Abstract: In 2010-11 over $45 billion GST monies, and about $24b of other grants, will be distributed between the States and Territories on the recommendation of the Commonwealth Grants Commission. The Commission is instructed to implement Horizontal Fiscal Equalisation (HFE); and not to be concerned with efficiency. The paper examines how the CGC pursues fiscal equality, and finds some systematic flaws. The adjustments made by the CGC for demography and mining, but not for wages, undoubtedly reduce inequality in fiscal capacities, from a short-run point of view. However, for payroll tax assessments, the CGC can mistakenly transfer moneys from equals to equals; and disturb an efficient pattern of interstate migration and settlement. The reason is that labour mobility tends to make working households indifferent between jobs in different jurisdictions, with the differences in wage rates compensating for locationally-specific differences in costs of living. In addition to equity flaws, I note some negative efficiency effects, as counterweights to the common claims that HFE improves economic efficiency. Interestingly, HFE in Australia strives for full equalisation of state budget capacities; in contrast, governments attempt only partial equalisation of private budget capacities. I present a framework for considering the trade-off between equality and efficiency, adapted from Brennan and Pincus (2004 and 2010). The main result is that little or no allowance should be made for interstate differences in unit costs of public provision of (public or private) goods and services. An alternative distribution of GST monies is estimated for 2010-11.
    Keywords: fiscal equalization, Australian fiscal policy
    Date: 2011–06
  3. By: HASHIMOTO Kyoji; KIMURA Shin
    Abstract: This paper summarizes the literature on financing Japanese public pension plans from tax revenue and simulates the economic effects of financing from tax revenue in the short and long terms. From our analysis for the short term, we have found that financing the basic pension from consumption tax will likely lower the household welfare level compared with financing from social insurance premiums. This is because the excess burdens generated by social insurance premiums, which are imposed on labor, are lighter than excess burdens from consumption tax if the supply of labor is mostly fixed. In the long term, financing public pension plans from consumption tax will help achieve higher economic growth rates than financing from social insurance premiums, which are imposed on income, but will curb consumption by those generations still working and will lower the welfare level. Japan should also avoid depending solely on consumption tax for financing public pension plans from tax revenue because of the regressive nature of the tax.
    Date: 2010–07
  4. By: Leonardo Becchetti (University of Rome Tor Vergata); Pierluigi Conzo (University of Rome Tor Vergata & EIEF); Alessandro Romeo (University of Rome Tor Vergata & World Bank)
    Abstract: We test with a randomized experiment in the slums of Nairobi whether violence suffered during the 2007 political outbreaks affects trustworthiness learning when participants live group experiences and face opportunism and free riding in public good games (PGGs) between two subsequent trust games (TGs). Our findings document that participants move toward balanced reciprocity after the PGG with the exception of those who have experienced directly or indirectly physical violence and/or forced relocation who exhibit significantly less trustworthiness in the second TG round. Results are robust to several robustness checks controlling for selection into victimization. Since in a framework of asymmetric information and incomplete contracts, trust games mimic sequential economic exchanges whose functioning is crucial to economic growth, we argue that our results identify a microeconomic nexus among socio-political instability, violence and growth helping to solve identification problems of the cross-country literature on the subject.
    Keywords: trust games, public good games, randomized experiment, social capital, socioeconomic instability and development.
    JEL: O12 C93 Z13
    Date: 2011
  5. By: Jesús Otero; Luis Fernando Gamboa; Andrés García-Suaza
    Abstract: This document examines the time-series properties of the wage differentials that arise between the public and private sector in Colombia during the sample period 1984 to 2005. We find conflicting results in unit-root and stationarity tests when looking at wage differentials at an aggregate level (such as for men, women or both). However, when we analyse wage differentials at higher levels of disaggregation, treat them jointly as a panel of data, and allow for the presence of potential cross section dependence, there is more supportive evidence for the view that wage differentials are stationary. This implies that although wage differentials do exist, they have not been consistently increasing (or decreasing) over time.
    Date: 2011–03–31
  6. By: Sami Bibi; Jean-Yves Duclos; Abdelkrim Araar
    Abstract: Income mobility is often thought to equalize permanent incomes and thereby to improve social welfare. The welfare analysis of mobility often fails, however, to account for the cost of the variability of periodic incomes around permanent incomes. This paper assesses the net welfare benefit of mobility by assuming both a social aversion to inequality in permanent incomes and an individual aversion to variability in periodic incomes. The paper further investigates the combined (and comparative) impact of mobility and of the tax system (another presumed income equalizer) on the dynamics of income across time and on the inequality of income across individuals. Using panel data, we find that Canada’s tax system limits significantly the redistributive impact of mobility while also lowering considerably the cost of income variability. The permanent income equalizing effect of taxes can reach up to 23 percent of mean income at the higher values of inequality aversion that we use. Globally, the net social welfare effect of both mobility and taxation is (almost always) positive and substantial, often amounting to around 30 percent of mean income. For all choices of parameter values, the tax effect exceeds by far the net effect of mobility on inequality and social welfare.
    Keywords: Mobility, social welfare, risk, income variability, inequality, permanent income
    JEL: D31 D63 H24
    Date: 2011
  7. By: Forslund, Kristine; Lima, Lycia; Panizza, Ugo
    Abstract: This paper uses a new dataset on the composition of public debt in developing and emerging market countries to look at the correlation between country characteristics and domestic debt share. While the paper finds that most variables have the expected sign, it also finds that country characteristics cannot explain regional differences in the composition of public debt. Moreover, the paper finds a weak correlation between inflationary history and the composition of public debt. The paper explores the determinants of this finding and shows that the results are driven by the presence of capital controls.
    Keywords: Public debt, Government bond markets, Debt structure, Sovereign bonds
    JEL: F21 F34 F36 G15
    Date: 2011–06

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