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on Public Economics |
| By: | Andras Simonovits (Institute of Economics of the Hungarian Academy of Sciences also Institute of Mathematics, Budapest University of Technology and Economics also Department of Economics, CEU) |
| Abstract: | We analyze the impact of (exogenous) tax morale on the optimal design of progressive income taxation. In our model, only universal basic income (transfer) is financed from a linear income tax and the financing of public goods is neglected. Each individual supplies labor and (un)declares earning, depending on his labor disutility and tax morale, respectively. Limiting the utilitarianism to the poorer parts of the population (defined by the welfare share), the optimal tax rate is an increasing function of the tax morale and a decreasing function of the welfare share. |
| Keywords: | tax morale, progressive income tax, undeclared earning, labor supply, income redistribution |
| JEL: | H21 H26 H41 D58 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1137&r=pbe |
| By: | Stéphane Gauthier (Centre d'Economie de la Sorbonne - Paris School of Economics) |
| Abstract: | This note characterizes the optimal base for commodity taxation in the presence of administrative fixed costs varying across goods. For low tax rates, the optimal base comprises all commodities whose discouragement index is greater than the ratio of their administrative costs to the tax they yield. |
| Keywords: | Indirect taxation, VAT, tax base, administrative costs. |
| JEL: | H21 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:11060&r=pbe |
| By: | Stéphane Gauthier (Centre d'Economie de la Sorbonne - Paris School of Economics); Guy Laroque (CREST-INSEE, University College London and Institute for Fiscal Studies) |
| Abstract: | Random taxation may be optimal when the taxpayers differ in their attitudes towards risk, so that tax randomization enables the government to relax the incentive constraints. The paper provides a necessary and sufficient condition for local random deviations to be welfare improving in a neighborhood of a nonrandom optimum. It also derives conditions satisfied by a global random optimum. A full analytical derivation is given for a two goods two agents economy with isoelastic utilities. |
| Keywords: | Random taxation, stochastic contract, second best, tax evasion. |
| JEL: | H21 H23 H26 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:11062&r=pbe |
| By: | Karin Fischer; Rauf Gönenç; Robert Price |
| Abstract: | Performance of fiscal policy, while good in international comparison, is not sufficient to prepare for future ageing-related spending increases. Subject to macroeconomic developments, the pace of consolidation could be more ambitious than currently planned, with a view to reducing the debt burden below 60% of GDP by 2020. Austrian fiscal policies have tended to be pro-cyclical in upturns, mainly because spending was not adequately kept in check. Stronger fiscal rules and a reform of inter-governmental fiscal relations could help contain expenditure dynamics. Efficiency-raising reforms in key spending areas such as pensions and other social expenditures, health, and education are also highly needed to reduce spending and ensure the provision of high-quality public services at lower cost. In this regard, Austria should make full use of the performance budgeting framework it plans to introduce from 2013. Higher potential growth could also take off some of the pressure on public finances. There remains significant room to rebalance the tax structure towards less distortive sources of revenue, thus supporting employment and growth.<P>Autriche : Les carences du secteur public sont de moins en moins supportables<BR>Les résultats de la politique budgétaire menée par les autorités autrichiennes sont bons par rapport à d’autres pays, mais insuffisants pour faire face aux augmentations des dépenses qui seront induites par le vieillissement de la population dans les années à venir. En tenant compte des développements macroéconomiques, le rythme d’assainissement pourrait être plus rapide que ce n’est actuellement le cas, de façon à ramener la dette au-dessous de 60 % du PIB d’ici 2020. Traditionnellement, la politique budgétaire en Autriche a toujours été procyclique au cours des phases ascendantes en raison d’une maîtrise insuffisante des dépenses. Le renforcement des règles budgétaires et la réforme des relations budgétaires entre administrations pourraient contribuer à endiguer la hausse des dépenses. De même, des réformes visant à accroître l’efficience des principales catégories de dépenses, comme les retraites et autres dépenses sociales, la santé et l’éducation sont indispensables pour freiner les dépenses et garantir des services publics de qualité à moindre coût. À cet égard, l’Autriche devrait recourir systématiquement au cadre de budgétisation dans l’optique des résultats qu’elle envisage de déployer en 2013. L’accélération de la croissance potentielle pourrait également soulager les tensions qui s’exercent sur les finances publiques. Il reste encore beaucoup à faire pour rééquilibrer la structure de la fiscalité au profit des sources de recettes provoquant le moins de distorsions, afin de soutenir l’emploi et la croissance. |
| Keywords: | budgets, Austria, deficit, debt, regional, consolidation, federal, fiscal, budget, Autriche, déficit, dette, consolidation, fédéral, fiscal, régional |
| JEL: | E62 H68 H77 |
| Date: | 2011–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:897-en&r=pbe |
| By: | Toon Vandyck; Stef Proost |
| Abstract: | This paper discusses incentives for investments in transport infrastructure and commuting subsidies in a multi-region framework. Responsibilities of fiscal treatment of commuting expenses, public provision of road infrastructure and road pricing are distributed among different levels of government. The incentives of governments are discussed in a setting with commuting from a peripheral, less productive area to an urban agglomeration or city center. The interactions between investment in transport infrastructure, road pricing and commuting subsidies are analyzed. First, the optimal number of commuters from the point of view of the federation is derived in a first best situation. When a tax on labor is levied to finance the investment in transportation, a commuting subsidy can correct the labor tax distortion and the first best outcome can be obtained. However, when the peripheral region is in control of the transport policy and perceives its position as a dominant supplier of labor, the regional government will have an incentive to strategically restrict the number of commuters. This will lead to a commuting tax. In addition, there will be underinvestment in infrastructure investment. The city government faces different incentives. On the one hand, profits made in the city increase with the commuting flow. Assuming profits are captured locally, the city thus benefits from a higher number of commuters. On the other hand, the city can raise tax revenues by taxing commuters. Therefore, tax exporting behavior can be one of the drivers of the city’s transport policy. The result is a situation where the city invests in transport infrastructure to attract commuters and sets a tax on commuters to raise government revenues. We show that the intensity of the regional strategic behavior is affected by firm ownership structure, the number of labor-supplying regions and the revenue-sharing mechanism in the federation. The paper also looks into vertical tax competition and identifies possibilities for the federal government to correct the incentive structure through mechanism design. A numerical example illustrates the insights for commuting in Belgium. |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa11p892&r=pbe |
| By: | Barreira, Ana (University of Algarve) |
| Abstract: | The existence of spatial strategic interaction between neighbouring local governments is often referred in literature and identified in empirical applications for several countries. The spatial interaction in local government expenditure finds support on three theoretical explanations: spillover effects, Tiebout competition or mimicking behaviour. Identify the adequate explanation for the local government interaction is not an easy task since the reduced form of the estimated model can generate indistinguishable pattern in spatial interactions. This paper seeks to identify between those theoretical explanations what is the underlying reason for spatial interaction in public expenditures among local governments for the case of a particular sub-area of Portugal. Using differentiated model configurations and the local government expenditures of the municipalities composing the Northern Portuguese mainland, between 1998 and 2008, the paper identifies the structural model that generates the observed spatial auto-correlation in local public expenditures. Among the various theoretical reasons, only the existence of spillovers effects finds support. |
| Keywords: | local public expenditures; horizontal spatial interaction; spatial econometrics |
| JEL: | C33 H72 H73 |
| Date: | 2011–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:ris:cieodp:2011_002&r=pbe |
| By: | Zuzana Smidova |
| Abstract: | The Estonian fiscal position is much better than in many OECD countries, the country stands out for having a rather lean government sector and the authorities are striving for efficient use of existing resources. Both healthcare and local government were particularly hit the by the decrease of resources as a result of the unprecedented GDP fall during the downturn. As a return to high revenue buoyancy will not be immediate, there are challenges for delivering the same with less money but it is also an opportunity to reconsider provision of public services. The healthcare sector is state dominated and offers some scope for efficiency improvements. On the supply side, further streamlining of the existing hospital network, emphasising primary care, and keeping an eye on the standard of quality of care, would be helpful. A number of market signals are already in place on the demand side, such as fees and drug co-payments. Yet these raise issues of accessibility of healthcare, in particular for financially distressed households. A cap on out-of-pocket spending together with active promotion of least expensive drugs use would help to address this issue. Local government seems rather extensive and fragmented for such a small country. Exploiting economies of scale, either by merging or requiring deeper co-operation, should bring gains in terms of public service efficiency. Offering greater scope for tax raising at the local level can incentivise the municipalities to adopt more growth-oriented economic policies. This working Paper relates to the 2010 Economic Survey of Estonia (www.oecd.org/eco/surveys/estonia).<P>Efficience des dépenses du secteur public en Estonie : soins de santé et collectivités locales<BR>La situation budgétaire de l’Estonie est bien meilleure que celle de nombreux pays de l'OCDE ; ce pays se distingue en effet par un secteur public relativement resserré et les autorités s’y efforcent de faire un usage efficient des ressources existantes. Les soins de santé et les collectivités locales ont été particulièrement frappés par la diminution des ressources, qui s’explique par la chute sans précédent du PIB enregistrée pendant la récession. Alors que le retour à des recettes abondantes ne devrait pas être immédiat, la difficulté va consister à offrir les mêmes prestations avec moins d’argent, mais ce sera peut-être aussi l’occasion de reconsidérer la fourniture des services publics. Le secteur des soins de santé est dominé par l’État et comporte une marge d’amélioration de l’efficience. Du côté de l’offre, il serait utile de poursuivre la rationalisation du réseau hospitalier existant et de mettre l’accent sur les soins primaires, tout en veillant à préserver la norme de qualité des soins. Du côté de la demande, un certain nombre de signaux de marchés sont déjà en place, par exemple les honoraires ou les franchises sur les médicaments. Ceci soulève toutefois des questions en termes d’accessibilité des soins de santé, en particulier pour les ménages en proie à des difficultés financières. Plafonner les dépenses restant à la charge des patients et promouvoir activement les médicaments les moins chers permettrait de s’attaquer à ce problème. Les collectivités locales paraissent relativement nombreuses et dispersées pour un si petit pays. Exploiter des économies d’échelle, soit en procédant à des regroupements, soit en imposant une plus grande coopération entre les différentes collectivités, permettrait de réaliser des gains sur le plan de l’efficience du service public. Donner aux municipalités plus de latitude pour lever des impôts au niveau local les inciterait sans doute à adopter des stratégies économiques plus délibérément axées sur la croissance. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de l’Estonie 2011 (www.oecd.org/eco/etudes/estonie). |
| Keywords: | local government, public sector, healthcare, Estonia, soins de santé, secteur public, collectivités locales, Estonie |
| JEL: | H41 H72 I12 I18 |
| Date: | 2011–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:881-en&r=pbe |
| By: | Marco Battaglini; Stephen Coate |
| Abstract: | This paper explores the interaction between fiscal policy and unemployment. It develops a dynamic economic model in which unemployment can arise but can be mitigated by tax cuts and public spending increases. Such policies are fiscally costly, but can be financed by issuing government debt. In the context of this model, the paper analyzes the simultaneous determination of fiscal policy and unemployment in long run equilibrium. Outcomes with both a benevolent government and political decision-making are studied. With political decision-making, the model yields a simple positive theory of fiscal policy and unemployment. |
| JEL: | E6 E62 H3 H63 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17562&r=pbe |
| By: | Nora Lustig (Commitment to Equity Initiative (CEQ), Inter-American Dialogue and Tulane University) |
| Abstract: | Conventional wisdom states that fiscal policy redistributes little in Latin America. Lower tax revenues and – above all – lower and less progressive transfers have been identified as the main cause. Existing studies show that, while in Europe the distribution of all transfers combined (cash and in-kind) is egalitarian, the bulk of transfers in Latin America accrue to the upper quintile. Through an in-depth fiscal incidence analysis applied to Argentina, Bolivia, Brazil, Mexico and Peru we argue that conventional wisdom may be wrong. First, the extent and effectiveness of income redistribution and poverty reduction, revenue-collection, and spending patterns vary so significantly across countries that speaking of ?Latin America? as a unity is misleading. The (after direct taxes and transfers) Gini, for example, declines by over 10 percent in Argentina but by only 2.4 percent in Bolivia. In Argentina, Brazil and Bolivia government revenues are close to 40 percent of GDP, whereas in Mexico and Peru they are around 20 percent. Social spending (excluding contributory pensions) as a share of GDP ranges from 17 percent in Brazil to 5.2 percent in Peru. Second, social spending does not accrue to the richest quintile. On the contrary, concentration coefficients for social spending are highly negative (progressive in absolute terms) for Argentina and slightly so for Bolivia and Mexico. In Brazil and Peru social spending is progressive in relative terms only. Third, there is no obvious correlation between the size of government and the size of social spending, on the one hand, and the extent and effectiveness of redistribution, on the other: government size is similar for Argentina and Bolivia but they are on opposite sides in terms of the extent of redistribution. Fourth, due to indirect taxes households are net payers to the ?fisc? beginning in the third decile in Bolivia and Brazil; for Argentina, Mexico and Peru this happens in the fifth decile. Fifth, corrective measures differ too: in Argentina, Bolivia and Brazil they may involve the reduction in revenues and total spending, while revenues and social spending (especially direct transfers to the poor) should be increased in Mexico and Peru. Bolivia and Brazil need to introduce changes to their tax and transfer system so that net payers to the ?fisc? start at higher incomes. All five countries need to improve the progressivity of their spending, including non-social spending components. |
| Keywords: | fiscal incidence, fiscal policy, inequality, poverty, redistribution, social policy, taxes, transfers; Latin America, Argentina, Bolivia, Brazil, Mexico and Peru |
| JEL: | D63 H11 H22 H5 I3 O15 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2011-227&r=pbe |
| By: | Monacelli, Tommaso; Perotti, Roberto |
| Abstract: | Does it matter, for the size of the government spending multiplier, which category of agents bears the brunt of the necessary adjustment in taxes? In an economy with heterogeneous agents and imperfect financial markets, the answer depends on whether or not New Keynesian features, such are price rigidity, are present. If prices are flexible, the tax-financing rule is either neutral or leads to a larger multiplier when taxes are levied on the borrowing constrained agents. If prices are sticky, the multiplier is larger when taxes are levied on the unconstrained agents. We discuss the conditions under which these results hold. Furthermore, we study the real effects of fiscal expansions via pure, revenue-neutral, tax redistributions. |
| JEL: | E62 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8641&r=pbe |
| By: | Eduardo Engel; Ronald Fischer; Alexander Galetovic |
| Abstract: | Spending on necessary infrastructure is likely to be cut back in coming decades, as the federal and state governments struggle with large debt burdens. This will hamper future growth, particularly given the dismal state of current infrastructure. The American Society of Civil Engineers estimates that, as a result of decades of insufficient investment, the infrastructure deficit in the United States amounts to $2.2 trillion. In particular, spending on roads is little more than a third of the estimated requirement of $186 billion per year. The lack of resources for infrastructure maintenance and improvement extends across all sectors, from levees to wastewater treatment, and from transportation to schools. In this context, public-private partnerships (PPPs) seem a godsend to replace the lack of government investment, by promising the availability of large amounts of resources for infrastructure projects. Despite these promises, the wave of PPPs that changed infrastructure provision in many countries during the last two decades only has had minor impact in the United States. While the UK financed $50 billion in transportation infrastructure via PPPs between 1990 and 2006, the US, an economy more than six times as large as the UK, only financed approximately $10 billion during this period. While some countries succeeded in harnessing PPPs to develop their infrastructure, most found that PPPs can lead to surprisingly bad outcomes. The object of this paper is to offer proposals that make it more likely that PPPs fulfill a useful role in the recovery of American infrastructure. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:edj:ceauch:277&r=pbe |