nep-pbe New Economics Papers
on Public Economics
Issue of 2012‒05‒08
nineteen papers chosen by
Keunjae Lee
Pusan National University

  1. The government-taxpayer game By Carfì, David; Fici, Caterina
  2. The Impact of Redistributive Policies on Inequality in OECD Countries By Doerrenberg, Philipp; Peichl, Andreas
  3. Empirical Determinants of Government Efficiency: A study Based on Objective Indicators By Francisca Guedes de Oliveira
  4. Working Paper 01-12 - L’élasticité de l’impôt des personnes physiques - Approche macroéconomique prospective de l’élasticité nationale et de l’élasticité de l’impôt régionalisé By Vincent Frogneux; Michel Saintrain
  5. Taxing Home Ownership: Distributional Effects of Including Net Imputed Rent in Taxable Income By Figari, Francesco; Paulus, Alari; Sutherland, Holly; Tsakloglou, Panos; Verbist, Gerlinde; Zantomio, Francesca
  6. Does Corporate Governance Reform Necessarily Boost Firm Performance? Recent Evidence from Russia By Kuznecovs, Mihails; Pal, Sarmistha
  7. Assessment of the Impact of Fiscal Policy on Economic Growth: An Empirical Analysis By Vijay Varadi; C. Vanlalramsanga
  8. Maximum Carbon Taxes in the Short Run By Richard Tol
  9. Sales Taxes and Internet Commerce By Liran Einav; Dan Knoepfle; Jonathan D. Levin; Neel Sundaresan
  10. Dynamic analysis of reductions in public debt in an endogenous growth model with public capital By Noritaka Maebayashi; Takeo Hori; Koichi Futagami
  11. Pricing and Provision of Transport Infrastructure with Nonlinear Income Taxation By Russo, Antonio
  12. Structural Reforms and Regional Convergence By Che, Natasha Xingyuan; Spilimbergo, Antonio
  13. Fiscal Multipliers in Recessions By Matthew Canzoneri; Fabrice Collard; Harris Dellas; Behzad Diba
  14. A Tariff-Tax Reform under Oligopoly and Free Entry By Kenji Fujiwara; Ryoma Kitamura
  15. Different tourists to different destinations. Evidence from spatial interaction models By Emanuela Marrocu; Raffaele Paci
  16. The Laffer Curve in an Incomplete-Markets Economy By Fève, Patrick; Matheron, Julien; Sahuc, Jean-Guillaume
  17. Mind the Gap: Net Incomes of Minimum Wage Workers in the EU and the US By Marx, Ive; Marchal, Sarah; Nolan, Brian
  18. "Tracking the Middle-income Trap: What Is It, Who Is in It, and Why?" By Jesus Felipe; Arnelyn Abdon; Utsav Kumar
  19. The roles of incentives and voluntary cooperation for contractual compliance By Simon Gaechter; Esther Kessler; Manfred Koenigstein

  1. By: Carfì, David; Fici, Caterina
    Abstract: In this paper, we model - quantitatively – a possible realistic interaction between a tax-payer and his Government. We formalize, in a general setting, this strategic interaction. Moreover, we analyze "completely" a particular realistic sample of the general model. We determine the entire payoff space of the sample game; we find the unique Nash equilibrium of the interaction; we determine the payoff Pareto maximal boundary, conservative payoff zone and the conservative core of the game (part of Pareto boundary greater than the conservative payoff vector). Finally, we suggest possible compromise solutions between the two players. From an economic point of view, the sample chosen gives an example of normative settings, for which there is no reason (convenience), for the tax-payer, to evade the taxes or to declare less than his real income. Moreover, the two proposed compromise solutions (which realize the maximum collective gain) could be significantly applied to distinguished tax-payer (big companies and so on).
    Keywords: Government; taxpayer; tax; fiscal policy; tax evasion
    JEL: E62 H21 E42 G38 G18 G28 H26
    Date: 2012
  2. By: Doerrenberg, Philipp (University of Cologne); Peichl, Andreas (IZA)
    Abstract: Recent discussions about rising inequality in industrialized countries have triggered calls for more government intervention and redistribution. Due to obvious behavioral effects caused by redistribution, it is however not clear whether redistributional policies are indeed able to combat inequality. This paper contributes to this relevant research question by using different contextual country-level data sources to study inequality trends in OECD countries since the 1980s. We first investigate the development of inequality over time before analyzing the question of whether governments can effectively reduce inequality. Different identification strategies, using fixed effects and instrumental variables models, provide some evidence that governments are capable of reducing income inequality despite countervailing behavioral adjustments. The effect is stronger for social expenditure policies than for progressive taxation, which seems to trigger more inequality increasing indirect behavioral effects. Our results also suggest that the use of secondary inequality data should be handled with caution.
    Keywords: inequality, redistribution, social expenditure, progressive taxation
    JEL: D31 D60 H20
    Date: 2012–04
  3. By: Francisca Guedes de Oliveira (Faculdade de Economia e Gestão - Universidade Católica Portuguesa, Porto)
    Abstract: This paper is concerned with two things: finding an objective and easily quantifiable measure of government efficiency and testing possible determinants of such quality. As measures of government efficiency we use the ratios of infant mortality rate to health expenditures as a percentage of GDP and the ratios of drop out and illiteracy rates to education expenditures as a percentage of GDP. We assume that government efficiency in providing health and education services depends on economic, political and cultural factors.
    Keywords: Government quality; Public good provision; Efficiency; political determinants, cultural determinants, economic determinants.
    JEL: H11 I0
    Date: 2012–04
  4. By: Vincent Frogneux; Michel Saintrain
    Abstract: This Working Paper discusses the elasticity and the progressivity of personal income tax. Both concepts deal with the same object but from a different perspective: elasticity has a temporal angle, whereas progressivity has a cross-sectional angle. Progressivity is here estimated based on the distribution statistics of taxable income and taxes. In addition, a method is introduced to assess the negative relationship between progressivity and income growth. In retrospect, that relationship contributes to explain the evolution of progressivity during the past decades. Looking ahead, it can be used to project – under an unchanged policies assumption – an evolution of elasticity different from the constant elasticity hypothesis, typical of short- and medium-term models, and from the unitary elasticity hypothesis, typical of long-term models. In this context, the impact of the larger share of pensions in the tax base on progressivity is taken into account. This Working Paper also discusses the regionalization of personal income tax approved within the framework of the Institutional Agreement for the sixth Reform of the State of 2011. More specifically, it demonstrates how the treatment of elements from the tax system with a fixed dimension (zero tax bracket, tax relief) and elements with a progressive dimension (income scale) influences the specific elasticity of the regional and the federal tax shares in personal income tax.
    Keywords: Fiscal federalism, Personal income tax, Progressivity
    JEL: C82 H24 H77
    Date: 2012–03–15
  5. By: Figari, Francesco (ISER, University of Essex); Paulus, Alari (ISER, University of Essex); Sutherland, Holly (ISER, University of Essex); Tsakloglou, Panos (Athens University of Economics and Business); Verbist, Gerlinde (University of Antwerp); Zantomio, Francesca (University of Essex)
    Abstract: Imputed rental income of homeowners is tax exempt in most countries, despite the long-standing arguments recommending its inclusion in the tax base, on both equity and efficiency grounds. The current fiscal crisis revived interest towards this form of taxation. The paper investigates the fiscal and distributional consequences of including homeowners' imputed rent, net of mortgage interest and maintenance costs, in taxable income as any cash income source that extends consumption opportunities. Three scenarios are analysed in six European countries: in the first imputed rent is included in the taxable income of homeowners, while at the same time existing mortgage interest tax relief schemes and taxation of cadastral incomes are abolished. In two further revenue-neutral scenarios, the additional tax revenue raised through the taxation of imputed rent is redistributed to taxpayers, either through a proportional rebate or a lump-sum tax credit. Results show how including net imputed rent in the tax base might affect inequality in each of the countries considered. Housing taxation appears to be a promising avenue for raising additional revenues, or lightening taxation of labour, with no inequality-increasing side-effects.
    Keywords: housing taxation, imputed rent, income distribution, inequality, microsimulation
    JEL: D31 H23 I31 I32
    Date: 2012–04
  6. By: Kuznecovs, Mihails (University of Surrey); Pal, Sarmistha (University of Surrey)
    Abstract: This paper examines whether the introduction of corporate governance (CG) reforms in general and that of transparency and disclosure (T&D) rules in particular can necessarily boost firm performance. Existing literature suggests that CG reforms can boost performance because it can resolve the conflict of interest between the controlling and the minority owners, especially in societies with highly skewed distribution of ownership. We however argue that the success of CG reform would, in addition, depend on whether the reforms may initiate further conflict, e.g., that between the state and the controlling owners. Using recent data from Russia for 2000-2008, we find that the introduction of corporate governance codes in Russia had limited success to improve indices of firm performance in our sample. We argue that this arises from the predatory behavior of the central and local governments: greater transparency make businesses easy targets for aggressive tax enforcement policy by the central government while the decentralized local governments may increase the bribe price to protect businesses from high central taxes, which may also induce some businesses to go underground, thus harming firm performance.
    Keywords: corporate governance reform, transparency and disclosure rules, conflict between state and the controlling owner, taxation and fiscal decentralisation, firm performance, predatory state, Tobin's Q, Russia
    JEL: G3 K2 P2
    Date: 2012–04
  7. By: Vijay Varadi; C. Vanlalramsanga
    Abstract: The paper attempted to analyzes linkages between fiscal policies (public expenditure and public debt) and economic growth by investigating the impact of public expenditure and public debt on economic growth (GSDP). To find out empirically the relationship between GSDP and Public Debt, the study analyzes annual time series data from 1987-88 to 2009-10 (BE) having 23 observations. The study results indicated that public expenditure correlates positively to GSDP while public debt correlates negatively to GSDP during the study period. The empirical evidence suggests that debt funded public expenditure does not contribute positively to growth in the State and the state government should preferably avoid accumulation of debt. Further, the debt dynamics indicated that persistent generation of public debt in the state is resulting in mounting debt service burden as debt funded investment does not result in generating assets for economic growth.
    Keywords: Debt Dynamics, Economic Growth, Government Expenditure
    JEL: A11 E21 E27 E61 H5 H30
    Date: 2012–06–06
  8. By: Richard Tol (Department of Economics, University of Sussex, Institute for Environmental Studies and Department of Spatial Economics, Vrije Universiteit, Amsterdam)
    Abstract: A cap is imposed on the carbon tax rate if the total tax revenue is not allowed to increase. Using recent data on the carbon-intensity of the economy and the overall tax take, I show that this cap constrains almost any climate policy in at least some countries. A larger number of countries, emitting a substantial share of global carbon dioxide, cannot fully participate if the carbon tax (or equivalent alternative regulation) is high enough to meet the 2ºC target. For that target, the carbon tax revenue in 2020 is greater than 10% of total tax revenue in every country.
    Keywords: climate policy, carbon tax, target setting
    JEL: H21 Q54
    Date: 2012–04
  9. By: Liran Einav; Dan Knoepfle; Jonathan D. Levin; Neel Sundaresan
    Abstract: We estimate the sensitivity of Internet retail purchasing to sales taxes using data from the eBay marketplace. Our first approach exploits the fact that seller locations are revealed only after buyers have expressed interest in an item by clicking on its listing. We use millions of location "surprises" to estimate price elasticities with respect to the effective sales tax. We then use aggregated data to estimate cross-state substitution parameters, and substitution between offline and online purchases, relying on the variation in state and local sales taxes, and on changes in these rates over time. We find substantial sensitivity to sales taxes. Using our item-level approach, we find a price elasticity of around -2 for interested buyers. Using our aggregate approach, we find that a one percentage point increase in a state's sales tax increases online purchases by state residents by just under two percent, but decreases their online purchases from home-state retailers by 3-4 percent.
    JEL: D12 H20 H71 L81
    Date: 2012–04
  10. By: Noritaka Maebayashi (Graduate School of Economics, Osaka University); Takeo Hori (College of Economics, Aoyama Gakuin University); Koichi Futagami (Graduate School of Economics, Osaka University)
    Abstract: We construct an endogenous growth model with productive public capital and government debt when government debt is adjusted to the target level. We examine how reducing public debt in an economy with a large public debt affects the transition of the economy and welfare. We find that the government faces the following trade off when reducing its debt. In the short run, public investment is reduced to decrease the debt and this has a negative effect on welfare. However, as the interest payments on the debt decrease, public investment begins to increase. Eventually, the government can increase the amount of public investment by more than before. This has a positive effect on welfare, implying that reducing the debt is welfare improving. Furthermore, we find that the adjustment speed of reductions in debt affects welfare crucially. The relationships between the welfare gains and the adjustment speed are U-shaped in many cases. However, they are decreasing monotonically when the tax rate is low and the initial debt?GDP ratio is sufficiently large.
    Keywords: Reductions in public debt, Debt policy rule, Public capital, Endogenous Growth
    JEL: E62 H54 H63
    Date: 2012–04
  11. By: Russo, Antonio
    Abstract: We study optimal pricing and provision of transportation infrastructure (roads and public transport) in presence of nonlinear income taxes. Individuals are heterogeneous in unobservable earning ability. Each working day requires a commuting trip and daily work hours have diminishing returns. We study both linear and nonlinear transport tariffs. In spite of individuals having separable preferences for goods and leisure, pricing and provision of infrastructure can improve screening of types. Optimal per-trip tarifs depend on the time cost of travel and the effct on labor supply of changes in the amount of working days. Reducing the time cost of journeys facilitates screening. Therefore, redistribution provides an additional motive to raise per-trip car tariffs (thus curbing road congestion) and upgrade infrastructure. We also provide some insights on the usefulness of means-testing for transport tariffs.
    Keywords: road pricing, public transport pricing, infrastructure provision, income taxation
    JEL: H21 H23 H54 R41
    Date: 2012
  12. By: Che, Natasha Xingyuan; Spilimbergo, Antonio
    Abstract: Which structural reforms affect the speed the regional convergence within a country? We found that domestic financial development, trade/current account openness, better institutional infrastructure, and selected labor market reforms facilitate regional convergence. However, these reforms have mixed effects on the growth of regions closer to the country’s development frontier. We also document that regional income disparity and average income are inversely correlated across countries so that speeding up regional convergence increases national income. We also present a theoretical model to discuss these results.
    Keywords: economic growth; income inequality; regional convergence; structural reforms
    JEL: J68 O11 O18 O25 O33
    Date: 2012–04
  13. By: Matthew Canzoneri; Fabrice Collard; Harris Dellas; Behzad Diba
    Abstract: The Great Recession, and the fiscal response to it, has revived interest in the size of fiscal multipliers. Standard business cycle models have difficulties generating multipliers greater than one. And they also fail to produce any significant asymmetry in the size of the multipliers over the business cycle. In this paper we employ a variant of the Curdia-Woodford model of costly financial intermediation to show that fiscal multipliers are strongly countercyclical. In particular, they can take values exceeding two during recessions, declining to values below one during expansions.
    Keywords: Government Spending Multipliers; Cyclicality; Financial Frictions
    JEL: E32 E62 H3
    Date: 2012–05
  14. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University); Ryoma Kitamura (Graduate School of Economics, Kwansei Gakuin University)
    Abstract: Constructing a model of oligopoly with free entry, this paper examines the effects of a tariff reduction accompanied with a unit of consumption tax increase on welfare, government revenue, and market access. We show that the suggested policy reform reduces welfare while enhancing government revenue and market access by inducing further excess entry. Some implications of this finding are discussed in comparison with the case with a fixed number of firms, which involves a welfare loss and an ambiguous effect on government revenue and market access.
    Keywords: tariff-tax reform, oligopoly, free entry, welfare, government revenue, market access.
    JEL: F12 F13
    Date: 2012–04
  15. By: Emanuela Marrocu; Raffaele Paci
    Abstract: As tourism is becoming one of the most important sources of economic growth at the local level, it is imperative to identify and assess the relevant determinants of tourism flows. This paper investigates this issue by carrying out an econometric analysis based on the origin-destination (OD) spatial interaction models, which fully account for the spatial dependence generally featured by tourism flows. We contribute to the current debate by analyzing the tourism flows for the complete set of 107 Italian provinces (11449 OD flows) in terms of 2009 arrivals. Besides geographical distance, the explanatory variables include both pull and push locations’ characteristics to assess their relative role in determining the distinctive traits of emissiveness and attractiveness for all the provinces. We thus consider income, density, accessibility (low-cost flights, transport infrastructure), a set of cultural (museums) and natural (park areas, coasts, well-preserved beaches) factors and other amenities (renowned restaurants). The main results point out that there is a great deal of spatial correlation induced by neighboring provinces at both origin and destination, which is systematically overlooked if one relies only on the gravity specification. Once one controls for such a complex kind of dependence, most of the explanatory variables exhibit the expected effect, with distance and population density showing a negative impact on tourists’ decisions when choosing a specific destination, while amenities, accessibility and income turn out to be effective determinants of tourism flows.
    Keywords: tourism flows; spatial origin-destination interaction models; product differentiation; amenities; Italy
    JEL: Q26 C21 L83 D12 R11
    Date: 2012
  16. By: Fève, Patrick; Matheron, Julien; Sahuc, Jean-Guillaume
    Abstract: This paper is a quantitative investigation into the characteristics of the Laffer curve in a neoclassical growth model with incomplete markets and heterogeneous, liquidity-constrained agents. We show that the shape of the Laffer curves related to taxes on labor, capital and consumption dramatically changes depending on which of transfers or government debt are adjusted to make the government budget constraint hold. When transfers are adjusted, the Laffer curve has the traditional shape. However, when debt is adjusted, the Laffer curve looks like a horizontal S, in which case fiscal revenues can be associated with up to three diferent levels of taxation. This finding occurs because the tax rates change non monotonically with public debt when markets are incomplete.
    Keywords: , , , , , , , Laffer Curve, Incomplete Markets, Labor Supply, Precautionary Savings, Public Debt
    JEL: E6 H6
    Date: 2012–04
  17. By: Marx, Ive (University of Antwerp); Marchal, Sarah (University of Antwerp); Nolan, Brian (University College Dublin)
    Abstract: This paper focuses on the role of minimum wages, tax and benefit policies in protecting workers against financial poverty, covering 21 European countries with a national minimum wage and three US States (New Jersey, Nebraska and Texas). It is shown that only for single persons and only in a number of countries, net income packages at minimum wage level reach or exceed the EU's at-risk-of poverty threshold, set at 60 per cent of median equivalent household income in each country. For lone parents and sole breadwinners with a partner and children to support, net income packages at minimum wage are below this threshold almost everywhere, usually by a wide margin. This is the case despite shifts over the past decade towards tax relief and additional income support provisions for low-paid workers. We argue that there appear to be limits to what minimum wage policies alone can achieve in the fight against in-work poverty. The route of raising minimum wages to eliminate poverty among workers solely reliant on it seems to be inherently constrained, especially in countries where the distance between minimum and average wage levels is already comparatively small and where relative poverty thresholds are mostly a function of the dual-earner living standards. In order to fight in-work poverty new policy routes need to be explored. The paper offers a brief discussion of possible alternatives and cautions against 'one size fits all' policy solutions.
    Keywords: minimum wage, poverty, taxes, social transfers, subsidies
    JEL: I3 H2 J8
    Date: 2012–04
  18. By: Jesus Felipe; Arnelyn Abdon; Utsav Kumar
    Abstract: This paper provides a working definition of what the middle-income trap is. We start by defining four income groups of GDP per capita in 1990 PPP dollars: low-income below $2,000; lower-middle-income between $2,000 and $7,250; upper-middle-income between $7,250 and $11,750; and high-income above $11,750. We then classify 124 countries for which we have consistent data for 1950–2010. In 2010, there were 40 low-income countries in the world, 38 lower-middle-income, 14 upper-middle-income, and 32 high-income countries. Then we calculate the threshold number of years for a country to be in the middle-income trap: a country that becomes lower-middle-income (i.e., that reaches $2,000 per capita income) has to attain an average growth rate of per capita income of at least 4.7 percent per annum to avoid falling into the lower-middle-income trap (i.e., to reach $7,250, the upper-middle-income threshold); and a country that becomes upper-middle-income (i.e., that reaches $7,250 per capita income) has to attain an average growth rate of per capita income of at least 3.5 percent per annum to avoid falling into the upper-middle-income trap (i.e., to reach $11,750, the high-income level threshold). Avoiding the middle-income trap is, therefore, a question of how to grow fast enough so as to cross the lower-middle-income segment in at most 28 years, and the upper-middle-income segment in at most 14 years. Finally, the paper proposes and analyzes one possible reason why some countries get stuck in the middle-income trap: the role played by the changing structure of the economy (from low-productivity activities into high-productivity activities), the types of products exported (not all products have the same consequences for growth and development), and the diversification of the economy. We compare the exports of countries in the middle-income trap with those of countries that graduated from it, across eight dimensions that capture different aspects of a country’s capabilities to undergo structural transformation, and test whether they are different. Results indicate that, in general, they are different. We also compare Korea, Malaysia, and the Philippines according to the number of products that each exports with revealed comparative advantage. We find that while Korea was able to gain comparative advantage in a significant number of sophisticated products and was well connected, Malaysia and the Philippines were able to gain comparative advantage in electronics only.
    Keywords: Middle-income Trap
    JEL: C33 O40 O54
    Date: 2012–04
  19. By: Simon Gaechter (University of Nottingham); Esther Kessler (University College London); Manfred Koenigstein (Universitaet Erfurt)
    Abstract: Efficiency under contractual incompleteness often requires voluntary cooperation in situations where self-regarding incentives for contractual compliance are present as well. Here we provide a comprehensive experimental analysis based on the gift-exchange game of how explicit and implicit incentives affect cooperation. We first show that there is substantial cooperation under non-incentive compatible contracts. Incentive-compatible contracts induce best-reply effort and crowd out any voluntary cooperation. Further experiments show that this result is robust to two important variables: experiencing Trust contracts without any incentives and implicit incentives coming from repeated interaction. Implicit incentives have a strong positive effect on effort only under non-incentive compatible contracts.
    Keywords: principal-agent games; gift-exchange experiments; incomplete contracts, explicit incentives; implicit incentives; repeated games; separability; experiments
    JEL: C70 C90
    Date: 2011–06

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