nep-pbe New Economics Papers
on Public Economics
Issue of 2011‒07‒21
six papers chosen by
Keunjae Lee
Pusan National University

  1. Tax Competition Among Local Governments: Evidence from a Property Tax Reform in Finland By Teemu Lyytikäinen
  2. Land Taxation in China: Assessment of Prospects for Politically and Economically Sustainable Reform By Denis Nitikin; Chunli Shen; Qian Wang; Heng-fu Zou
  4. A Wealth Tax on the Rich to Bring down Public Debt?: Revenue and Distributional Effects of a Capital Levy By Stefan Bach; Martin Beznoska; Viktor Steiner
  5. Fiscal rules and fiscal sustainability at sub-national government level: experiences of Slovakia, Slovenia and Croatia By DREZGIC, Sasa; KLIMOVSKY, Daniel; PINTERIC, Uros
  6. Absorptive Capacity and the Growth Effects of Regional Transfers: A Regression Discontinuity Design with Heterogeneous Treatment Effects By Becker, Sascha O.; Egger, Peter; von Ehrlich, Maximilian

  1. By: Teemu Lyytikäinen
    Abstract: This paper uses a Finnish policy intervention to study tax competition among local governments. Changes in the statutory lower limits to the property tax rates are used as a source of exogenous variation to estimate the responses of municipalities to tax rates in their neighbouring municipalities. I do not find evidence of interdependence in property tax rates among Finnish municipalities. The results are in contrast to the earlier empirical literature, using data from other countries, that has mainly found positive interdependence in tax rates. I compare the causal estimates based on the policy change to the commonly used Spatial Lag estimates and Spatial Instrumental Variables estimates, which are based on highly restrictive assumptions. The comparisons suggest that the standard spatial econometrics methods may have a tendency to overestimate the degree of interdependence in tax rates.
    Keywords: Property tax, tax competition, fiscal interaction, instrumental variables, spatialeconometrics
    JEL: H20 H71 H77
    Date: 2011–06
  2. By: Denis Nitikin (The World Bank); Chunli Shen (University of Maryland); Qian Wang (San Francisco State University); Heng-fu Zou (Central University of Finance and Economics CEMA; Wuhan University IAS; Peking University; China Development Bank)
    Abstract: The emerging land-related unrest in China poses a pressing challenge on the legitimacy of the government. Through the perspective of good governance, the paper examines the role of land in government financing and its economic and political cost, as well as the erosion of government¡¯s credibility and its negative impact on private and collective property rights. The paper emphasizes the recent upward trend in land-related unrest as a consequence of abuses by local governments on land-source revenues. Our special concern rests on the institution of collective property which is slowly emerging from the shadow of the former state property in the course of economic transition. Collective property right could be a useful legal and economic institution but must receive political support to exist alongside with private property.
    Keywords: land tax, property tax, land-related revenue, land administration
    JEL: H20 H27
    Date: 2011
  3. By: Jean-Paul Faguet
    Abstract: The most important theoretical argument concerning decentralization is that it can improve governance by making government more accountable and responsive to the governed. Improving governance is also central to the motivations of real-world reformers, who bear risks and costs in the interest of devolution. But the literature has mostly focused instead on policy-relevant outcomes, such as education and health services, public investment, and fiscal deficits. This paper examines how decentralization affects governance, in particular how it might increase political competition, improve public accountability, reduce political instability, and impose incentive-compatible limits on government power, but also threaten fiscal sustainability.
    Keywords: decentralization, governance, local government, political competition,accountability, instability
    Date: 2011–06
  4. By: Stefan Bach; Martin Beznoska; Viktor Steiner
    Abstract: The idea of higher wealth taxes to finance the mounting public debt in the wake of the financial crises is gaining ground in several OECD countries. We evaluate the revenue and distributional effects of a one-time capital levy on personal net wealth that is currently on the German political agenda. We use survey data from the German Socio-Economic Panel (SOEP) and estimate the net wealth distribution at the very top, based on publicly available information about very rich Germans. Since net wealth is strongly concentrated, the capital levy could raise substantial revenue, even if relatively high personal allowances are granted. We also analyze the compliance and administrative costs of the capital levy.
    Keywords: Capital levy, wealth distribution, microsimulation
    JEL: H24 D31 H22
    Date: 2011
  5. By: DREZGIC, Sasa; KLIMOVSKY, Daniel; PINTERIC, Uros
    Abstract: Relationship of fiscal rules and fiscal sustainability is subject to ongoing debate which was intensified by adoption of EU fiscal rules. Task of the fiscal rules is simple - to prevent the unsustainable growth of debt and spending. However, the problem of fiscal rules that have been applied in past is in ignoring the economic fundamentals that determine fiscal sustainability. So far, fiscal rules were focused on the control of spending without taking care about possible output fluctuations or effects of debt financing on growth. That led to paradox that even with the sound fiscal policy guided by the fiscal rules there is no guarantee of fiscal sustainability. This flaw became obvious when countries hit by economic crises start abandoning the criteria set up by fiscal rules in order to confront impact of worsening economic conditions to fiscal variables. Therefore, there is a need for development of new fiscal rules, particularly on the sub-national government levels. These new fiscal rules should encompass both short-term and long-term sustainability and particularly stimulus to economic efficiency. In order to determine necessary content of fiscal rules to achieve such goals it is important to conduct comparative research on the issue. This paper presents experiences of Slovakia, Slovenia and Croatia and tries to draw useful lessons.
    Keywords: economic crises; fiscal policy; sub-national governments; fiscal sustainability; fiscal rules
    Date: 2011
  6. By: Becker, Sascha O.; Egger, Peter; von Ehrlich, Maximilian
    Abstract: Transfers to individuals, firms, and regions are often regulated by threshold rules, giving rise to a regression discontinuity design. An example are transfers provided by the European Commission to regions of EU member states below a certain income level. Researchers have focused on estimation of the average treatment effect of this program, assuming that it does not vary in a systematic way across units. We suggest a regression discontinuity design which allows for parametric or nonparametric identification of heterogeneous average treatment effects that systematically vary with observable characteristics in order to shed light on the role of absorptive capacity in determining the impact of regional transfers on economic growth across regions in the European Union. The results suggest that only about 47% of the regions, namely those with a sufficiently high endowment with human capital and a high quality of government, are able to turn transfers under the Union's Objective 1 Structural Funds programme into faster growth. Those regions are the ones which are responsible for a positive average effect of the programme.
    Keywords: Absorptive capacity; Heterogeneous local average treatment effects; Regional transfers; Regression discontinuity design
    JEL: C21 H54 O40 R11
    Date: 2011–07

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