nep-pbe New Economics Papers
on Public Economics
Issue of 2012‒06‒13
nineteen papers chosen by
Keunjae Lee
Pusan National University

  1. Does fiscal coopération increase local tax rates in urban areas? By Sylvie Charlot; Sonia Paty; Virginie Piguet
  2. Taxation and Labor Force Participation: The Case of Italy By Colonna, Fabrizio; Marcassa, Stefania
  3. How do Laffer curves differ across countries? By Mathias Trabandt; Harald Uhlig
  4. General purpose central-provincial-local transfers (DAU) in Indonesia : from gap filling to ensuring fair access to essential public services for all By Shah, Anwar; Qibthiyyah, Riatu; Dita, Astrid
  5. Determinants of Employment in the Ministerial Bureaucracy By Thomas Braendle
  6. Intertemporal Income Shifting in Expectation of Lower Corporate Tax Rates: The Tax Reforms in Central and Eastern Europe By Boryana Madzharova
  7. Property Tax in Ireland: Key Choices By Keane, Claire; Walsh, John R.; Callan, Tim; Savage, Michael
  8. Imperfect Detection of Tax Evasion in a Corrupt Tax Administration By Escobari, Diego
  9. The Effects of Voting Costs on the Democratic Process and Public Finances By Roland Hodler; Simon Luechinger; Alois Stutzer
  10. Isolated Capital Cities, Accountability and Corruption: Evidence from US States By Campante, Filipe R.; Do, Quoc-Anh
  11. A Field Experiment on Moral Suasion and Tax Compliance Focusing on Under-Declaration and Over-Deduction By Benno Torgler
  12. Tax Morale and Tax Evasion: Social Preferences and Bounded Rationality By Zsombor Z. M‚der; Andr s Simonovits; J nos Vincze
  13. The effects of income inequality on BMI and obesity: Evidence from the BRFSS By Benjamin Volland
  14. Does Decentralization Facilitate Access to Poverty-Related Services? Evidence from Benin By Emilie Caldeira; Martial Foucault; Grégoire Rota-Graziosi
  15. When is debt sustainable? By Jasper Lukkezen; Hugo Rojas-Romagosa
  16. Financing small-scale infrastructure investments in developing countries By Daniel L. Bond; Daniel Platz; Magnus Magnusson
  17. "Congestion, Technical Returns, and the Minimum Efficient Scales of Local Public Expenditures: An Empirical Analysis for Japanese Cities" By Masayoshi Hayashi
  18. Education and the Quality of Government By Juan Botero; Alejandro Ponce; Andrei Shleifer
  19. Intangible Capital and Productivity Growth in Canada By Baldwin, John R.<br/> Gu, Wulong<br/> Macdonald, Ryan

  1. By: Sylvie Charlot (INRA-GAEL (UMR 1215), 1221 rue des résidences 38400 Saint Martin d'Hères (France)); Sonia Paty (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Virginie Piguet (INRA UMR1041 CESAER, 26 boulevard Dr Petitjean, BP 87999, 21079 Dijon Cedex, France)
    Abstract: The main purpose of this paper is to assess the effects of fiscal cooperation on local taxation in a decentralized country, using the French experience in urban municipalities. We estimate a model of tax setting for local business tax using spatial and dynamic econometric techniques, for the period 1993-2003 and an unbalanced data set. As predicted by the theory, we find that reducing the number of municipalities is likely to limit tax competition and, as a consequence, increase local business tax rates.
    Keywords: fiscal cooperation, tax competition, vertical externalities, local business tax
    JEL: H2 H3 H7
    Date: 2012
  2. By: Colonna, Fabrizio; Marcassa, Stefania
    Abstract: Italy has the lowest labor force participation of women among European countries. Moreover, the participation rate of married women is positively correlated to their husbands’ income. We show that a high tax schedule together with tax credits and transfers raise the burden of two-earner households, generating disincentives to work. We estimate a structural labor supply model for women, and use the estimated parameters to simulate the effects of alternative revenue-neutral tax systems. We find that joint taxation implies a drop in the participation rate. Conversely, working tax credit and gender-based taxation boost it, with the effects of the former concentrated on low educated women.
    Keywords: female labor force participation; Italian tax system; second earner tax rate; joint taxation; gender-based taxation; working tax credit
    JEL: J21 J22 H31
    Date: 2012–06
  3. By: Mathias Trabandt; Harald Uhlig
    Abstract: We seek to understand how Laffer curves differ across countries in the US and the EU-14, thereby providing insights into fiscal limits for government spending and the service of sovereign debt. As an application, we analyze the consequences for the permanent sustainability of current debt levels, when interest rates are permanently increased e.g. due to default fears. We build on the analysis in Trabandt and Uhlig (2011) and extend it in several ways. To obtain a better fit to the data, we allow for monopolistic competition as well as partial taxation of pure profit income. We update the sample to 2010, thereby including recent increases in government spending and their fiscal consequences. We provide new tax rate data. We conduct an analysis for the pessimistic case that the recent fiscal shifts are permanent. We include a cross-country analysis on consumption taxes as well as a more detailed investigation of the inclusion of human capital considerations for labor taxation.
    Date: 2012
  4. By: Shah, Anwar; Qibthiyyah, Riatu; Dita, Astrid
    Abstract: Indonesia has come a long way from centralized governance to decentralized local governance, and today Indonesia ranks among the most decentralized developing countries. The Government of Indonesia is revisiting all aspects of local governance to make appropriate legal and institutional adjustments based on lessons leaarned during the past decade. An important area of this re-examination and possible reform is the central financing of subnational expenditures. The system of intergovernmental finance represents one of the most complex systems ever implemented by any government in the world. The system is primarily focused on a gap-filling approach to provincial-local finance in an objective manner to ensure revenue adequacy and local autonomy but without accountability to local residents for service delivery performance. This paper takes a closer look at Dana Alokasi Umum -- the most dominant program of unconditional central transfers to finance provincial-local government expenditures in Indonesia. The paper also presents illustrative simulations of alternative programs and compares these with the existing Dana Alokasi Umum allocations. The paper concludes that super complexity leads to lack of transparency, inequity, and uncertainty in allocation. Simpler alternatives are available that have the potential to address autonomy and equity objectives while also enhancing efficiency and citizen-based accountability. Such alternatives would represent a move away from the complex gap-filling approach to simple output-based transfers to finance operating expenditures. Capital grants would deal with infrastructure deficiencies. And the alternatives would institute fiscal capacity equalization as a residual program with an explicit standard to ensure that all local jurisdictions have adequate means to deliver reasonably comparable levels of public services at reasonably comparable levels of tax burdens across the country.
    Keywords: Subnational Economic Development,Public Sector Economics,Banks&Banking Reform,National Governance,Debt Markets
    Date: 2012–06–01
  5. By: Thomas Braendle (University of Basel)
    Keywords: political selection, public servants, public-sector growth, bureaucracy, patronage
    JEL: D72 D73 H11 H72
    Date: 2012
  6. By: Boryana Madzharova
    Abstract: This paper examines if firms shift income out of years with high corporate tax rates into years when tax cuts are anticipated. Such intertemporal shifting can be one explanation for the stability of corporate tax revenues in Central and Eastern Europe, despite the major decline in the corporate tax rates and overall narrowing of the tax base starting in the late 90s. Using firm-level panel data for Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia from 1999 to 2005, the estimates indicate that the lower corporate tax rates induced a considerable increase in taxable income. Most of this increase, however, was due to short-term shifting of income to years with lower tax rates leading to non-transitory responses ranging from zero to .151, depending on the specification employed. Splitting the sample by firm size shows that income shifting is an appealing tax saving strategy for small and to a lesser extent medium-sized enterprises, but not for big firms. A further disaggregation by country reveals that the driving country behind the results is Romania.
    Keywords: corporate tax; income shifting; tax reforms; Central and Eastern Europe;
    JEL: H25 H32
    Date: 2012–05
  7. By: Keane, Claire; Walsh, John R.; Callan, Tim; Savage, Michael
    Abstract: The introduction of a property tax is now firmly on the policy agenda. Designing such a tax involves a series of choices which affect how the burden of the tax is distributed across households. In this paper we use SWITCH, the ESRI tax-benefit model, to explore the implications of alternative approaches designed to link a property tax with ability to pay. We also draw on international experience with property taxes to provide insights into choices regarding the structure and operation of a new tax. A key finding is that an income exemption limit below which property tax is not payable (with marginal relief for those with incomes just above the limit) could provide a powerful tool for shaping the income distribution consequences of the tax. Without such an approach, the highest burden would be on those with lowest incomes. However, an income exemption limit for a single person of ?12,000 per year, just above the State Contributory Pension rate, would greatly reduce the impact on low income groups. A higher income exemption limit of ?15,000, with a tax rate of ?2.50 per ?1,000 of house value would mean that the property tax would have little impact on those on the lowest incomes, and have its greatest impact ? a reduction in disposable income of just under 1 per cent ? on those with the highest incomes.
    Keywords: Ireland/property tax/taxes/Policy/income distribution
    Date: 2012–04
  8. By: Escobari, Diego
    Abstract: This article models the imperfect detection of tax evasion motivated by the existence of a corrupt tax administration. Consistent with previous literature, fines and audit probabilities both have a positive effect on compliance. Moreover, the model shows that they have a negative effect on the bribes paid to corrupt tax officials. More corruption decreases compliance levels, giving honest auditors incentives to work harder to detect evasion. Giving inspectors a share of the detected evasion (tax farming) makes auditors work harder; however, increasing their wages reduces their exerted effort to discover evasion. Higher compliance can as well be achieved by hiring more efficient inspectors.
    Keywords: Taxation; Evasion; Corruption
    JEL: D73 J31 H83 H26
    Date: 2011–07–27
  9. By: Roland Hodler; Simon Luechinger; Alois Stutzer (University of Basel)
    Keywords: Fiscal policies, political knowledge, postal voting, special-interest politics, voter turnout, voting costs
    JEL: D72 D78 H00
    Date: 2012
  10. By: Campante, Filipe R. (Harvard University); Do, Quoc-Anh (Singapore Management University)
    Abstract: We show that isolated capital cities are robustly associated with greater levels of corruption across US states. In particular, this is the case when we use the variation induced by the exogenous location of a state's centroid to instrument for the concentration of population around the capital city. We then show that different mechanisms for holding state politicians accountable are also affected by the spatial distribution of population: newspapers provide greater coverage of state politics when their audiences are more concentrated around the capital, and voter turnout in state elections is greater in places that are closer to the capital. Consistent with lower accountability, there is also evidence that there is more money in state-level political campaigns in those states with isolated capitals. We find that the role of media accountability helps explain the connection between isolated capitals and corruption. In addition, we provide some evidence that this pattern is also associated with lower levels of public good spending and outcomes.
    JEL: D72 D73 L82 R12 R50
    Date: 2012–05
  11. By: Benno Torgler
    Abstract: Field experiments in the area of tax compliance are rare. This field experiment generates a unique data set with respect to individuals’ under-declaration of income and wealth and over-deductions of tax credits by obtaining exclusive full access to the audits. Using this commune level data from Switzerland, the paper explores the influence of moral suasion on tax compliance. Moral suasion was introduced through a treatment in which taxpayers received a letter signed by the commune’s fiscal commissioner containing normative appeals. Interestingly, I observe differences between under-declaration and over-deductions. Moreover, the overall finding is in line with former results that moral suasion has hardly any effect on taxpayers’ compliance.
    Keywords: tax compliance; moral suasion; field experiment
    JEL: H26 H71
    Date: 2012–06
  12. By: Zsombor Z. M‚der (Maastricht University Department of Economics); Andr s Simonovits (Institute of Economics Research Centre for Economic and Regional Studies Hungarian Academy of Sciences and Budapest University of Technology and Economics Institute of Mathematics and Central European University, Department of Economics); J nos Vincze (Institute of Economics Research Centre for Economic and Regional Studies Hungarian Academy of Sciences and Corvinus University of Budapest)
    Abstract: We study a family of models of tax evasion, where a flat-rate tax finances only the provision of public goods, neglecting audits and wage differences. We focus on the comparison of two modeling approaches. The first is based on optimizing agents, who are endowed with social preferences, their utility being the sum of private consumption and moral utility. The second approach involves agents acting according to simple heuristics. We find that while we encounter the traditionally shaped Laffer-curve in the optimizing model, the heuristics models exhibit (linearly) increasing Laffer-curves. This difference is related to a peculiar type of behavior emerging within the heuristics based approach: a number of agents lurk in a moral state of limbo, alternating between altruism and selfishness.
    Keywords: tax evasion, tax morale, agent-based simulation
    JEL: H26
    Date: 2012–01
  13. By: Benjamin Volland
    Abstract: Despite increasing knowledge on its adverse consequences, obesity prevalence across the U.S. has been rising markedly over the past three decades. The private and economic costs of this development are substantial, and it has been estimated that its direct and indirect costs now sum to over 1% of annual GDP. While much progress has been achieved in recent years in understanding the economic changes that contribute to this development, a little researched factor that has also been argued to exacerbate the prevalence of obesity is the distribution of income. Augmenting data from 12 consecutive waves of the Behavioral Risk Factor Surveillance System (BRFSS), with a recently published data set on state-level income inequality based on tax payments, the present paper analyzes whether changes in income inequality can be considered a determinant of variations in body mass and obesity across the U.S. It finds that they have a significant positive effect on BMI and obesity. While the effect is small, it is in the range of other state-level determinants, suggesting that some form of redistributive policy may help containing the spread of unfavorable weight outcomes.
    Keywords: BMI, obesity, income inequality, BRFSS
    JEL: I14 I18
    Date: 2012–05–31
  14. By: Emilie Caldeira; Martial Foucault; Grégoire Rota-Graziosi
    Abstract: We study the effect of decentralization on the access to some poverty-related public services in Benin. Compiling panel data from local governments' accounts and from surveys on 18,000 Beninese households performed in 2006 and 2007, our study suggests that decentralization has a positive overall effect on access to basic services. However, this effect appears to be nonmonotone following an inverted U-shaped curve. It varies according to local jurisdictions' wealth and to the nature of basic services. Decentralization in Benin contributes positively to the reduction of poverty by improving the average access to poverty-related services. However, the devil is in the details, as decentralization seems to increase inequality among local governments in terms of access. Another result relying on the success of decentralization in Benin is the prioritization of basic services, which differs among local governments according to their wealth. While the poorest jurisdictions neglect primary education, focusing more on access to drinking water, the richest ones get less attention to sewage services, since these are already provided at a sufficiently high level.
    JEL: D73 H41 H42 H52 H77 I38 O17
    Date: 2012–06
  15. By: Jasper Lukkezen; Hugo Rojas-Romagosa
    Abstract: <p>This CPB Discussion Paper proposes indicators to assess government debt sustainability. Sustainable government finances can be achieved via three main channels: fiscal responses, economic growth and financial repression.</p><p>The fiscal response provides information on the long-term country specific attitude towards fiscal sustainability and is estimated using Bohn (2008)’s approach. We combine the estimated fiscal response with a stochastic debt simulation and calculate the probability of debt-to-GDP ratios rising above some threshold. This is applied on historical data for seven OECD countries. In particular, the probability of debt-to-GDP ratios rising by more than 20% in the next decade clearly identifies countries that have sustainability concerns: Spain, Portugal and Iceland, from those that do not: US, UK, Netherlands and Belgium.</p>
    JEL: E4 E6 H0 H6
    Date: 2012–06
  16. By: Daniel L. Bond; Daniel Platz; Magnus Magnusson
    Abstract: In most developing countries a shortage of long-term, local-currency financing for small-scale infrastructure projects impedes local economic development. Inadequate fiscal transfers, little own source revenue and low creditworthiness make it difficult for local governments to fully fund projects on their own. This paper proposes the use of project finance as a means to attract financing from domestic banks and institutional investors. Donors can play a catalytic role by providing technical assistance to develop projects and credit enhancement to attract commercial financing.
    Keywords: infrastructure finance, issuers, investors, financial sector, structured finance
    JEL: H54 H41 H81
    Date: 2012–05
  17. By: Masayoshi Hayashi (Faculty of Economics, University of Tokyo)
    Abstract: On the basis of the standard model of local public production, we delineate the factors that account for the "U-shaped" per capita local public expenditures and relate them to construct an efficiency indicator for local populations. We articulate that population-induced changes in the per capita cost are related to the relative magnitude between the (i) technical elasticity of scale, which characterizes technology for the direct outputs produced by a government, and (ii) congestion elasticity, which characterizes consumption technology for the public services consumed by citizens. Those two elasticities allow us to construct an indicator that quantifies the distance of a local population from its minimum efficient scale (MES) for local public expenditures. We then estimate the urban public production structure in Japan and apply the analysis to the Japanese case. With the estimates obtained, we rank the Japanese cities according to the calculated values of the indicator.
    Date: 2012–05
  18. By: Juan Botero; Alejandro Ponce; Andrei Shleifer
    Abstract: Generally speaking, better educated countries have better governments, an empirical regularity that holds in both dictatorships and democracies. We suggest that a possible reason for this fact is that educated people are more likely to complain about misconduct by government officials, so that, even when each complaint is unlikely to succeed, more frequent complaints encourage better behavior from officials. Newly assembled individual-level survey data from the World Justice Project show that, within countries, better educated people are more likely to report official misconduct. The results are confirmed using other survey data on reporting crime and corruption. Citizen complaints might thus be an operative mechanism that explains the link between education and the quality of government.
    JEL: D73 D78 O43
    Date: 2012–06
  19. By: Baldwin, John R.<br/> Gu, Wulong<br/> Macdonald, Ryan
    Abstract: Intangible capital consists of investments that do not take on the solid, physical characteristics of machinery and equipment or buildings. Nevertheless, such investments have some of the properties of other types of investments in that they yield long-lasting benefits as a result of expenditures that are made today. In the National Accounts, these expenditures need to be capitalized rather than expensed as intermediate materials for purposes of estimating gross domestic product (GDP). Recent papers have considered issues surrounding the measurement of intangibles. Baldwin et al. (2005) discussed issues surrounding research and development (R&D). They noted that R&D is only one of the components of innovation expenditures. Baldwin et al. (2009) extended the measurement of intangible investments beyond that of just R&D. At the heart of intangible investments, of course, are software and R&D. However, intangible investments also consist of purchased science services, own-account scientific services, exploration expenses in the resource sector, and advertising expenditures, because these create an intangible asset and yield long-term benefits. This paper extends the authors' previous work in three ways. First, it expands it into several new areas--what are referred to as economic competencies. These involve primarily investments in human capital--via management and training investments as well as management consulting services. This not only provides broader coverage; it also allows cross-country comparisons of Canada to the United States. Second, this paper moves from just measuring investment to also developing capital stock estimates. This requires assumptions about depreciation rates. In both instances, the paper adopts assumptions similar to those used elsewhere in developing estimates for the United States, in order to ensure comparability. Third, the paper incorporates the estimates of intangible capital into th
    Keywords: Economic accounts, Gross domestic product, Productivity accounts
    Date: 2012–06–01

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