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on Public Economics |
| By: | Agnese Sacchi; Simone Salotti |
| Abstract: | Many countries have recently implemented fiscal decentralization reforms, assigning more functions and spending responsibilities to sub-national governments. In this paper we investigate the reasons behind the decentralization process of different categories of government expenditure (such as health, education, social security and welfare, housing, transports, public order) using IMF and OECD data for 21 developed countries over the period 1972-2006. We pay particular attention to the roles played by the taxing power of sub-national governments and by grants received from upper tiers of government. Then, we also study the determinants of the composition of local expenditure. Using a general-to-specific empirical approach, we adopt different models for each of the spending functions under analysis. This leads to a number of results, not yet reached in the existing literature, on the importance of tax decentralization, demographics, politics, and a number of other socio-economic variables. |
| Keywords: | fiscal decentralization, COFOG, task assignment, local tax revenue, budget composition |
| JEL: | H50 H75 H76 H77 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0155&r=pbe |
| By: | Aristovnik, Aleksander |
| Abstract: | The paper attempts to provide an overview of the fiscal decentralization process in emerging market economies in Eastern Europe in the last 20 years. Using methodology developed by Vo (2009), the paper assesses the degree of fiscal decentralization in the region. Conceptually, the measurement of fiscal decentralization focuses on fiscal autonomy and the fiscal importance of subnational governments. The empirical analysis reveals that according to our definition of fiscal decentralization the highest level of (average) fiscal decentralization (centralization) is found in Russia (Armenia) among non-EU members and in Estonia (Slovak Republic) among EU members of the Eastern European. In addition, the empirical results show that, in general, the degree of fiscal decentralization is higher in developed OECD countries than in most Eastern European countries (EECs). However, in contrast to our expectations, there has been an alarming downward trend of FDI in most of the region over the last two decades. Moreover, the paper also examines the effects of fiscal decentralization on growth and public sector size in EECs. The analysis provides some evidence that increases in public sector decentralization are associated with higher income levels. However, the growth-enhancing effects of fiscal decentralization are expected to be much greater when supported by a sound institutional environment. Therefore, EECs, in particular non-EU member states, should improve their administrative and technical capability in order to establish sound and effective fiscal decentralization. Finally, our results suggest that fiscal decentralization in EECs generally leads to an increase in the size of government, albeit there are some significant differences between EU and non-EU member states. |
| Keywords: | fiscal decentralization; fiscal autonomy; fiscal importance; Eastern European countries; economic growth; public sector size |
| JEL: | H4 H0 H5 H2 O4 |
| Date: | 2012–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:39316&r=pbe |
| By: | Sergio Beraldo (Chercheur Indépendant - Aucune); Massimiliano Piacenza (Institute for Economic Research on Firms and Growth (Ceris-CNR) - Italian National Research Council, Center for Research on Regulated Services - HERMES); Gilberto Turati (Chercheur Indépendant - Aucune) |
| Abstract: | The quality of the institutional environment is a crucial issue in understanding the effective outcome of fiscal decentralization initiatives. However, there has been so far very little work on the subject. In this paper we contribute to fill this gap by considering the municipalities belonging to three provinces in Southern Italy and proxying the presence of a weak institutional environment with the capture of the local government by Mafia-type organizations. The analysis exploits an unforeseen change in fiscal policy by central government increasing Vertical Fiscal Imbalances and tests whether the effects of the lower tax decentralization on municipal spending are conditioned by the quality of the institutional environment. We find no sensible effects when the institutional environment is weak; on the contrary, a 4-6% increase in average spending per capita is estimated as a consequence of the lower tax autonomy in municipalities not captured by Mafia clans. The evidence is robust both to controls for potential confounding factors and sensitivity analyses. Overall, our findings suggest that some caution is needed before deciding to devolve more fiscal power to lower tiers of government. |
| Keywords: | Tax decentralization, Local government accountability, Institutional quality, Mafia-type organizations |
| Date: | 2012–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00706970&r=pbe |
| By: | Julia Cagé (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA); Lucie Gadenne (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA) |
| Abstract: | Trade taxes are an important source of revenue for developing countries. These revenues have fallen over the past decades as these countries liberalized trade. Many developing countries simultaneously experienced a decrease in their total tax revenues, suggesting trade liberalization may have come at a fiscal cost. Using a novel panel dataset of tax revenues and government expenditures in developing countries for the period 1945-2006 we identify 110 episodes of decreases in tariff revenues and consider whether countries are able to recover those lost revenues through other tax resources. We show that trade taxes fall by close to 4 GDP percentage points on average during those episodes. Less than half of the countries recover the lost tax revenues 5 years after the start of the episode. The picture is similar when we consider government expenditures. We use the intuition that pre-existing tax capacity is needed to levy domestic taxes to explain theoretically why some countries are unable to recover all tax revenues lost from lowering tariffs. We find that the fiscal cost of trade liberalization is a non-linear function of countries' incentives to invest in tax capacity, and that some will be stuck in a low tax capacity trap. Finally we provide some empirical evidence in line with the model's predictions. |
| Keywords: | Taxation and development ; Trade liberalization ; State capacity ; Tax and tariff reform |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-00705354&r=pbe |
| By: | Bengtsson, Niklas (Uppsala University); Holmlund, Bertil (Uppsala University); Waldenström, Daniel (Uppsala University) |
| Abstract: | This paper analyzes the evolution of tax progressivity in Sweden from both annual and lifetime perspectives. Using a rich micro panel with administrative records of incomes, taxes and benefits over the period 1968–2009, we calculate tax rates across the income distribution accounting for different tax bases as well as the role of transfers. The uniquely long time span also allows us to compute tax progressivity as realized over a cohort's entire life cycle. Our main finding is that taxes are considerably less progressive over the lifetime than in any single year. In fact, life cycle taxes are close to proportional, bearing a redistributive effect of only a few percent. Intragenerational income mobility seems to be driving this result, although the Swedish economic crisis of the 1990s and the tax reforms of 1971 and 1991 are also important. Labor income taxes contribute less to progressivity in recent years, whereas transfers to unemployed and old-age pensioners have become increasingly important. These findings are robust to the use of different tax rates, tax bases, sample populations, rates of discounting and controls for reranking. |
| Keywords: | tax progressivity, income distribution, lifetime income, redistributive effect, Kakwani index, transfers |
| JEL: | D31 H20 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6641&r=pbe |
| By: | Fabio Padovano (CREM-CNRS and Centre Condorcet for Political Economy, University of Rennes 1, France and DIPES, Università Roma Tre, Italy); Gilberto Turati (Department of Economics and Statistics University of Torino, Italy) |
| Abstract: | This paper empirically examines to what extent political factors explain different performances in income redistribution in countries that vary in terms of size of the public sector, tax systems, political institutions and governance. In line with the theory, we use the difference in the ex ante and ex post Gini indices of income inequality as the measure of the degree of redistribution achieved. The estimates show that, holding the share of public spending on GDP constant, parliamentary systems and democracies achieve greater redistribution, while electoral district size, government cohesion, union influence and perceived corruption reduce redistribution. The disaggregation of spending items reveals that while transfers and interest payments do not influence redistribution, provision of public services, mainly health and education do, but the number of bureaucrats involved in such provisions has a negative impact. Within revenues, taxes on income redistribute more than other forms of levies. |
| Keywords: | redistribution, political determinants, empirical analysis, ex ante and ex post Gini coefficients |
| JEL: | D78 I38 H53 H11 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cccrwp:2012-03-ccr&r=pbe |
| By: | Micael Castanheira (ECARES, Université Libre de Bruxelles, Belgium); Gaëtan Nicodème (European Commission, CESifo, CEPR and Université Libre de Bruxelles, Belgium); Paola Profeta (Università Bocconi, Econpubblica and Dondena, Italy, CESifo) |
| Abstract: | Political constraints and incentives are the true driver of tax reforms. This paper reviews the political economics literature on personal income tax systems and reforms to see how political mechanisms help explain tax reforms. We take some of the implications of these theories to the data using LABREF, a database that identifies labor tax reforms in the European Union for the period 2000-2007, and control for economic and labor market factors. We find that political variables carry more weight than economic variables, and we show empirical regularities that support political economy theories. We also find that governments tended to reform more in better economic times, engaging in pro-cyclical behavior. |
| Keywords: | political economy, taxation, personal income tax, LABREF |
| JEL: | H11 H21 H24 P16 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cccrwp:2012-08-ccr&r=pbe |
| By: | Psycharis, Yannis; Rodríguez-Pose, Andrés; Tselios, Vassilis |
| Abstract: | This paper estimates the impact of public investment on regional economic growth and convergence at the NUTS III level in Greece. Using a new database of public expenditure per region for the period 1978-2007, it proposes a model which captures not just the impact of public investment in Greek prefectures, but also the spillover effects related to the existence of externalities from neighbouring regions. The results point to a positive long-run impact of public investment per capita on regional economic growth – but not on convergence – which also generates considerable spillover effects. However, the returns vary according to different types of public investment, with education and infrastructure spillovers having the highest impact. In general, public investment externalities seem to be more relevant for regional growth than direct public investment in each region. Finally, the impact of different types of public investment in Greece is mediated by politics and political factors, but the effect of politics disappears once we control for political-period-specific spatial-invariant variables. |
| Keywords: | convergence; economic growth; Greece; public investment; regional economics; regional policy; spatial econometrics; spillover effects |
| JEL: | R11 R12 R53 R58 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9011&r=pbe |
| By: | Robert Pollin; Jeffrey Thompson |
| Abstract: | The 2008-09 Great Recession has created an ongoing severe fiscal crisis for state and local governments throughout the United States. Republican leaders are now advancing an agenda to radically downsize state and local governments by cutting taxes, slashing wages and benefits for public workers, and selling off state-owned facilities. But Democratic Party lawmakers are also proposing sharp cuts in state and local government spending programs in the face of the budget crisis. We argue that these austerity policies are not the only possible responses to the crisis, and propose some alternative approaches that can accomplish three things: 1) Close the budget gaps in the short term; 2) Promote a sustainable recovery over the next few years; and 3) Over the long term, help insulate state and local government budgets from the effects of recessions. Our proposals include maintaining revenue-sharing support at the federal level. At the state and local level itself, we propose: 1) Raising taxes for the rich; 2) Pressuring banks to move their current huge supply of excess cash reserves into productive investments; 3) Putting state-level rainy-day funds to more effective use; 4) Pushing infrastructure projects forward more rapidly and 5) Eliminating tax giveaways to businesses. |
| JEL: | H7 H12 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp259&r=pbe |
| By: | Estian Calitz (Department of Economics, University of Stellenbosch); Hassan Essop (Department of Economics, University of Stellenbosch) |
| Abstract: | The paper seeks to determine whether the observation from a constitutional law and public administration perspective, namely that a distinct centralist tendency has become evident in South Africa in recent years, is borne out by fiscal analysis as well. An overview of key legislative, policy and operational changes is combined with an investigation of fiscal trends in terms of indicators of intergovernmental fiscal relations. It is established that the South African fiscal scene has over many decades been characterised by a steady and gradual reduction of the fiscal autonomy of sub-national governments. Fiscally South Africa has become more centralised, thus strengthening the de facto erosion of the federal state. |
| Keywords: | Structure of government, intergovernmental fiscal relations, fiscal decentralisation, fiscal centralisation, public economics, sub-national government, local government, local fiscal autonomy, intergovernmental fiscal relations in South Africa |
| JEL: | H11 H77 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:sza:wpaper:wpapers162&r=pbe |
| By: | Zsombor Z. Méder (Maastricht University, Department of Economics, The Netherlands); András Simonovits; János Vincze |
| 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: | 2012–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:mkg:wpaper:1202&r=pbe |
| By: | William R. Cline (Peterson Institute for International Economics) |
| Abstract: | The United States faces a “fiscal cliff” at the end of calendar year 2012, when the two major tax cuts from the Bush era and some other tax provisions will expire and in the absence of action scheduled reductions in spending will begin. The subsequent increase in taxes and reduction in spending would dramatically tighten the federal budget deficit at a time when unemployment remains high. On an annual basis the total impact of the fiscal cliff amounts to a reduction in the federal budget deficit of about $800 billion on a direct basis (about 5 percent of GDP). After taking account of revenue losses and extra social spending resulting from induced slowdown in the economy, the Congressional Budget Office places the net fiscal impact at $560 billion for the first nine months of 2013, implying $745 billion or 4.5 percent of GDP for calendar year 2013. An aging population and rising health care costs continue to boost federal spending under current policies, and it is critical that the United States put the budget on a sustainable path, which will require significant changes in spending and tax policies. It is therefore difficult to escape the conclusion that it is a good thing that the United States faces a fiscal cliff. The expiration of the Bush era tax cuts at the end of 2012 provides a unique opportunity to raise tax rates and/or eliminate tax deductions so that the United States can restore federal revenue to at least 18 percent of GDP and probably more in order to meet growing fiscal needs associated with an aging population. The political pain of higher tax rates should concentrate political minds on the associated task of finding more ways of cutting spending and limiting increases in entitlement spending. It will nonetheless be important to phase in the fiscal adjustment gradually, for example, over the four years of the next presidential term, in order to moderate the output loss that would otherwise occur under current conditions of high unemployment combined with interest rates near zero. Moreover, Cline says the needed structural fiscal adjustment amounts to 3 percent of GDP and the component of overkill included in the fiscal cliff’s 5 percent of GDP adjustment should be avoided. |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:iie:pbrief:pb12-15&r=pbe |
| By: | Yamamura, Eiji |
| Abstract: | This paper explores how a perceived tax burden is influenced by the degree that neighbors prefer income redistribution. Further, this paper investigates how the influence of neighbors is affected by the degree of interaction between neighbors. For these purposes, individual-level data and place of residence data were combined. After controlling for individual characteristics, I obtained the following key findings: people are more likely to perceive the amount of tax as low when neighbors are more likely to support redistribution policies. Further, this neighbor effect increases when community participation rates are high. This tendency is clearly observed in high-income groups but not in low-income groups. This implies that the norm for redistribution leads rich people to consider the tax burden as low. Further, the effect of the norm increases when there is a greater accumulation of social capital within a residential area. That is, one’s perceived tax burden is influenced by psychological externalities. |
| Keywords: | Perceived tax; Norm; Redistribution; Social capital; Externality |
| JEL: | D63 D30 H29 Z13 |
| Date: | 2012–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:39434&r=pbe |
| By: | Raouf Boucekkine; Aude Pommeret; Fabien Prieur |
| Abstract: | This paper solves a second-best problem where a government has in particular to choose whether to tax financial inflows (capital controls) or not, and when. A multi-stage optimal control technique is used to this end. First, it is shown that it is optimal to switch in finite time from capital controls to full financial liberalization (zero tax on capital inflows) whenever a measure of total wealth is above a certain threshold. In particular, a too large initial debt makes financial liberalization sub-optimal. Second, our analysis suggests that capital controls should be used countercyclically: booms should be responded by more financial liberalization while recessions should rather lead to more stringent capital controls. Third, when public expenditure is chosen in order to maximize social welfare, financial liberalization is not unaffordable only for poor countries, even wealthy countries might find it optimal to implement capital controls if they aim to keep a large amount of public expenditure. In short, the preservation of the welfare states might require a more frequent use of capital controls. |
| Keywords: | capital controls; second-best; debt; public expenditures; multi-stage optimal control |
| JEL: | F34 F43 C61 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:12.01&r=pbe |
| By: | Benno Torgler (QUT) |
| 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: | 2012–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:qut:dpaper:285&r=pbe |
| By: | Apps, Patricia (University of Sydney); Rees, Ray (University of Munich) |
| Abstract: | The Mirrlees Review of the UK tax system, together with its companion volume of research papers, can be expected to influence future discussions of tax reform. Indeed, this can already be recognised in the Henry Review. As far as income taxation is concerned, the most substantive recommendation of the Mirrlees Review is a move toward a system of consumption or expenditure taxation, by exempting the "normal return" to saving and taxing only "excess returns" on the same tax schedule as labour earnings. This paper argues against this direction of reform on the grounds that it is based on a model of household behaviour over the life cycle that ignores important aspects of reality. We present an alternative model, together with supporting empirical evidence. We go on to argue that, against the background of rising inequality and an aging population, the appropriate direction for reform is towards more progressive taxation of both labour earnings and capital income, although not necessarily under the same rate scale. |
| Keywords: | optimal taxation, labour supply, capital income taxation, family life cycle, time allocation, saving, inequality |
| JEL: | H21 H24 H31 D13 D91 J22 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6615&r=pbe |
| By: | Bargain, Olivier (University of Aix-Marseille II); Dolls, Mathias (IZA); Fuest, Clemens (University of Oxford); Neumann, Dirk (IZA); Peichl, Andreas (IZA); Pestel, Nico (IZA); Siegloch, Sebastian (IZA) |
| Abstract: | The current debt crisis has given rise to a debate about deeper fiscal integration in Europe. The view is widespread that moving towards a 'fiscal union' would have a stabilising effect in the event of macroeconomic shocks. In this paper we study the economic effects of introducing two elements of a fiscal union: Firstly, an EU-wide tax and transfer system and secondly, an EU-wide system of fiscal equalisation. Using the European tax-benefit calculator EUROMOD, we exploit representative household microdata from 11 Eurozone countries to simulate these policy reforms and to study their effects on the distribution of income as well as their impact on automatic fiscal stabilisers. We find that replacing one third of the national tax and transfer systems by a European system would lead to significant redistributive effects both within and across countries. These effects depend on income levels and the structures of the existing national tax and transfer systems. The EU system would improve fiscal stabilisation especially in credit constrained countries. It would absorb between 10 and 15 per cent of a macroeconomic income shock. Introducing a fiscal equalisation system based on taxing capacity would redistribute revenues from high to low income countries. The stabilisation properties of this system, however, are ambiguous. This suggests that not all forms of fiscal integration will improve macroeconomic stability in the Eurozone. |
| Keywords: | European income tax, automatic stabilisation, fiscal union |
| JEL: | H2 H3 J22 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6585&r=pbe |
| By: | Ryo Ishida (Policy Research Institute, the Ministry of Finance, Japan) |
| Abstract: | Many countries have adopted policies to give preferential treatment for voluntary contributions to certain public goods. Taxable deductions, matching subsidies and rebate subsidies, which decrease gthe price of givingh for donors, are prototypical examples. However, the more aggressive policy of tax credit for voluntary contributions to certain public goods which decreases gthe price of givingh to zero, has not been studied so far in detail, although such a policy can be seen in several countries: the Percentage Law in Hungary, Lithuania, Poland, Romania and Slovakia, and the Hometown Tax-payment policy in Japan. In these countries, and especially in Eastern European countries, such a policy is justified because, by decentralizing the power of government, it allows individuals to reveal their gtrueh preferences and thus allows necessary adjustment for distorted government allocations. In this paper, I find that, such a policy has this adjustment effect if, and only if, the size of the tax credit exceeds certain threshold. In other words, such a policy can be totally cancelled out by a lobby-government coalition if its size falls beneath a threshold. |
| Keywords: | Public Good, Tax Credit, Lobbying, Decentralization |
| JEL: | D72 H23 H41 L30 P16 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:mof:wpaper:ron234&r=pbe |
| By: | Mohammad Reza Farzanegan (University of Marburg); Tim Mennel (Center for European Economic Research (ZEW)) |
| Abstract: | We estimate the impact of fiscal decentralization on different indicators of pollution for more than 80 countries from 1970 to 2000. Our cross country estimates show that fiscal decentralization increases pollution. However, higher quality of institutions can limit the destructive environmental effects of decentralization. The empirical results confirm a strand of the literature on decentralization that predicts a “race to the bottom” under federalism. The mitigating effect of good governance can be explained by relative preferences of local and central governments for environmental quality. |
| Keywords: | decentralization, pollution, environmental quality, institutions |
| JEL: | C21 H11 H72 Q53 Q56 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201222&r=pbe |
| By: | Markussen, Thomas (University of Copenhagen); Reuben, Ernesto (Columbia University); Tyran, Jean-Robert (University of Copenhagen) |
| Abstract: | The ability of groups to implement efficiency-enhancing institutions is emerging as a central theme of research in economics. This paper explores voting on a scheme of intergroup competition, which facilitates cooperation in a social dilemma situation. Experimental results show that the competitive scheme fosters cooperation. Competition is popular, but the electoral outcome depends strongly on specific voting rules of institutional choice. If the majority decides, competition is almost always adopted. If likely losers from competition have veto power, it is often not, and substantial gains in efficiency are foregone. |
| Keywords: | tournament, competition, public goods, cooperation, voting |
| JEL: | D72 J33 H41 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6620&r=pbe |
| By: | Dorothée Boccanfuso (Département d’économique and GRÉDI, Université de Sherbrooke); Marcelin Joanis (Département d’économique and GRÉDI, Université de Sherbrooke); Patrick Richard (Département d’économique and GRÉDI, Université de Sherbrooke); Luc Savard (Département d’économique and GRÉDI, Université de Sherbrooke) |
| Abstract: | The economic literature has been investigating the positive relation between public infrastructure spending and the productivity of the private sector since Munnell (1992). We have introduced this relationship into a recursive dynamic computable general equilibrium model of the Quebec economy to investigate various funding schemes to scale up infrastructure spending in the province. We draw our assumptions from Estache et al. (2010) combined with sectoral elasticity parameters. We conduct a comparative analysis where the funding comes from debt alone, and debt with sales tax, income tax and business tax. Our main finding is that the income tax seems to produce the most positive effects and the businesses tax the most negative effects, though differences are small. |
| Keywords: | CGE model, infrastructure, productivity |
| JEL: | D58 H54 H63 O47 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:12-10&r=pbe |
| By: | Alcalde, José (Universidad de Alicante, Departamento de Métodos Cuantitativos y Teoría Económica); Marco-Gil, María del Carmen (Dep. of Economics, Polytechnic University of Cartagena); Silva-Reus, José A. (Universitat d'Alacant. Departament de Mètodes Quantitatius i Teoría Econòmica and Instituto Universitario Desarrollo Social y Paz (IUDESP)) |
| Abstract: | This paper explores an integrated taxation system. Taking as a premise the proposals by the Carter Commission Report, we find out that proportional tax is the unique system that allows to neutrally integrate the taxable income. This analysis leads to explore new tax rules combining the extreme cases of `Flat Tax' and `Equalizing Net Income' rules. As a conclusion we suggest the Equitably Compensatory tax rule which accurately combines both extreme principles. Surprisingly enough, this rule coincides with the Proportional rule for societies whose income is not too unequally distributed. |
| Keywords: | Tax burden degree; Taxation system; Prop ortional taxation |
| JEL: | D63 H20 H30 |
| Date: | 2012–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:ris:qmetal:2012_011&r=pbe |
| By: | Jean-Michel Josselin (Chercheur Indépendant - Aucune); Fabio Padovano (Chercheur Indépendant - Aucune); Yvon Rocaboy (Chercheur Indépendant - Aucune) |
| Abstract: | This paper analyses intergovernmental transfers in France and Italy to assess how soft budget spending behaviors may result from slacks in institutional constraints or from phenomena related to political culture, like administrative practices or implementation of rules. It innovates on the previous literature, which concentrated on single countries, by adopting a comparative perspective. We estimate two separate but identical autoregressive forecasting model on French and Italian data to evaluate the extent to which regional administrators of each country can expect to be bailed out given the fiscal rules and institutions they face. This allows to proxy the bailout expectations in both countries and their role in determining soft budget spending behaviors. A larger impact of expectations is taken as evidence of greater discretion in fiscal decisions over and beyond the formal fiscal rules in place, evincing a more lax political culture. The estimates indicate that soft budget constraints and bailing out expectations are a quantitatively important component of local government spending in both countries, regardless the different degrees of stringency of fiscal rules and the type of grants and expenditures (total, current and capital) examined. |
| Keywords: | Comparative analysis; Institutions; Expectations; Intergovernmental relations; Transfers; Local public spending; Bailing out |
| Date: | 2012–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00706980&r=pbe |
| By: | Grossmann, Volker (University of Fribourg); Stadelmann, David (University of Fribourg) |
| Abstract: | This paper analyzes the interaction between migration of high-skilled labor and publicly financed investment. We develop a theoretical model with multiple, ex ante identical jurisdictions where individuals decide on education and subsequent emigration. Migration decisions are based on differences in net income across jurisdictions which may occur endogenously. The interaction between income differences and migration flows gives rise to the potential of multiple equilibria: a symmetric equilibrium without migration and an asymmetric equilibrium in which net income levels differ among jurisdictions and trigger migration flows. In the former equilibrium, all jurisdictions have the same public investment level. In the latter one, public investment is high in host economies of skilled expatriates and low in source economies. We empirically test the hypothesis that emigration rates are negatively associated with publicly financed investment levels for OECD countries. |
| Keywords: | high-skilled migration, human capital externalities, publicly financed investment |
| JEL: | F22 H40 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6610&r=pbe |
| By: | Valerio Ercolani; João Valle e Azevedo |
| Abstract: | We take to the data an RBC model with two salient features. First, we allow government consumption to directly affect the marginal utility of consumption. Second, we allow public capital to affect the productivity of private factors. On the one hand, private and government consumption are estimated to be substitute goods. As a consequence, the estimated response of private consumption to a government consumption shock is negative, as in models with separable government consumption, but such response is much stronger. Further, substitutability makes labor supply to react less, so the estimated output multiplier is lower than in models with separabilities, peaking - on impact - at 0.39. On the other hand, non-defense public investment enhances mildly or negligibly, depending on the specification, the productivity of private factors. In those specifications where non-defense public investment is found to be productive, a non-defense investment shock generates the following estimated responses (after several quarters): a positive reaction for private consumption, Tobin’s q, private investment and real wages. Unlike models with unproductive government investment, the estimated output multiplier builds up over time, starting well below one on impact, then reaching 0.93 after three years and 1.44 after six. |
| JEL: | E32 E62 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201210&r=pbe |
| By: | Corsetti, Giancarlo; Meier, André; Müller, Gernot |
| Abstract: | This paper studies how the effects of government spending vary with the economic environment. Using a panel of OECD countries, we identify fiscal shocks as residuals from an estimated spending rule and trace their macroeconomic impact under different conditions regarding the exchange rate regime, public indebtedness, and health of the financial system. The unconditional responses to a positive spending shock broadly confirm earlier findings. However, conditional responses differ systematically across exchange rate regimes, as real appreciation and external deficits occur mainly under currency pegs. We also find output and consumption multipliers to be unusually high during times of financial crisis. |
| Keywords: | exchange rate regime; financial crisis; fiscal policy; fiscal rules; government spending; Multiplier; public finances |
| JEL: | E62 E63 F41 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9010&r=pbe |
| By: | Miles S. Kimball |
| Abstract: | In ranking fiscal stimulus programs, it is useful to focus on the ratio of extra aggregate demand to extra national debt that results. This note argues that (because of repayment after the end of a recession) “national lines of credit”–that is, government-issued credit cards with countercyclical credit limits and favorable interest rates—would generate a higher ratio of extra aggregate demand to extra national debt than tax rebates. Because it involves government loans that are anticipated in advance to involve some losses and therefore involve a fiscal cost even after efforts to minimize losses, such a policy lies between traditional monetary policy and traditional fiscal policy. |
| JEL: | E6 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18142&r=pbe |
| By: | Bi, Huixin; Leeper, Eric M.; Leith, Campbell |
| Abstract: | The paper explores the macroeconomic consequences of fiscal consolidations whose timing and composition are uncertain. Drawing on the evidence in Alesina and Ardagna (2010), we emphasize whether or not the fiscal consolidation is driven by tax rises or expenditure cuts. We find that the composition of the fiscal consolidation, its duration, the monetary policy stance, the level of government debt and expectations over the likelihood and composition of fiscal consolidations all matter in determining the extent to which a given consolidation is expansionary and/or successful in stabilizing government debt. |
| Keywords: | government debt, budget reform, monetary-fiscal policy interactions, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:312&r=pbe |
| By: | Mikhail Golosov (Department of Economics, Princeton University and NBER); Pricila Maziero (Department of Finance, Wharton School, University of Pennsylvania); Guido Menzio (Department of Economics, University of Pennsylvania) |
| Abstract: | This paper studies the optimal redistribution of income inequality caused by the presence of search and matching frictions in the labor market. We study this problem in the context of a directed search model of the labor market populated by homogenous workers and heterogeneous firms. The optimal redistribution can be attained using a positive unemployment benefit and an increasing and regressive labor income tax. The positive unemployment benefit serves the purpose of lowering the search risk faced by workers. The increasing and regressive labor tax serves the purpose of aligning the cost to the firm of attracting an additional applicant with the value of an application to society. |
| Keywords: | Unemployment benefit, Income tax, Search frictions, Mechanism design |
| JEL: | H21 J64 J65 |
| Date: | 2012–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:12-022&r=pbe |
| By: | Pede, Valerien O.; Sparks, Adam H.; McKinley, Justin D. |
| Abstract: | This paper revisits the inequality-growth relationship using data at the sub-national (provincial) level in the Philippines over the period 1991- 2000. A conditional convergence growth model is considered where the growth of per capita income depends on inequality and other growth factors. The contribution of each province to the overall inequality obtained from the Theil index is considered. Results indicate that inequality has a positive and significant effect on per capita income growth. However, the magnitude of the inequality effect is not stable across regions. Geographically Weighted Regression estimates show that the magnitude of the inequality growth relationship varies over a range of 0.72 to 3.36. Other results are also noteworthy in this study. Per capita income grows faster in provinces that contribute more to the overall inequality. Provinces with higher poverty incidence tend to grow less and human capital appears to be a significant booster to per capita income growth. Additionally, urban provinces tend to grow faster than the rural ones. |
| Keywords: | clusters, growth, inequality, spatial econometrics, Community/Rural/Urban Development, Research Methods/ Statistical Methods, R11, R12, O15, C21, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare12:124402&r=pbe |
| By: | Frederick van der Ploeg |
| Abstract: | A windfall in a developing economy with capital scarcity and investment adjustment costs facing a temporary windfall should be used to give more consumption to poorer present generations and to speed up development by ramping up public investment and paying off debt taking due account of the increasing inefficiency as investment gets ramped up. The optimal strategy requires negative genuine saving; the permanent income requires zero genuine saving. The optimal real consumption increments are smaller once one allows for absorption constraints resulting from Dutch disease and sluggish adjustment of -grown’ public capital. |
| Keywords: | optimal management of windfalls, economic development, capital scarcity, public capital, PIMI, investment adjustment costs, absorption constraints, genuine saving, Dutch disease |
| JEL: | E60 F34 F35 F43 H21 H63 O11 Q33 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:oxcrwp:066&r=pbe |
| By: | Ryo Ishida (Policy Research Institute, the Ministry of Finance, Japan); Kazumasa Oguro (Institute of Economic Research, Hitotsubashi University); Junichiro Takahata (JICA Research Institute) |
| Abstract: | This paper analyzes the possibility of improving the efficiency of child benefit programs in an overlapping generations economy that has endogenous fertility and large government debt levels. We derive the conditions for this improvement using Representative-Consumer and Children-for-Representative-Consumers efficiency criteria in the endogenous fertility setting, as proposed by Michel and Wigniolle (2007). We find that the result crucially depends on the relative amount of accumulated government debt in the economy. When the elasticity of interest rates to child benefit is close to zero and there exists a huge amount of accumulated debt in the economy, financing child benefit programs by issuing debt and using lump-sum tax leads to RC-improvements. This finding is likely to hold in the economies of developed countries that have low fertility rates. We finally provide the implications of these findings on the real economy. |
| Keywords: | Endogenous fertility, Pareto-efficiency, child benefit, fiscal burden |
| JEL: | D9 J13 D61 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:mof:wpaper:ron230&r=pbe |
| By: | Claudio Ferraz; Frederico Finan; Diana B. Moreira |
| Abstract: | This paper examines if money matters in education by looking at whether missing resources due to corruption affect student outcomes. We use data from the auditing of Brazil’s local governments to construct objective measures of corruption involving educational block grants transferred from the central government to municipalities. Using variation in the incidence of corruption across municipalities and controlling for student, school, and municipal characteristics, we find a significant negative association between corruption and the school performance of primary school students. Students residing in municipalities where corruption in education was detected score 0.35 standard deviations less on standardized tests, and have significantly higher dropout and failure rates. Using a rich dataset of school infrastructure and teacher and principal questionnaires, we also find that school inputs such as computer labs, teaching supplies, and teacher training are reduced in the presence of corruption. Overall, our findings suggest that in environments where basic schooling resources are lacking, money does matter for student achievement. |
| JEL: | D73 H72 I21 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18150&r=pbe |
| By: | Langot, François (University of Le Mans); Patureau, Lise (University of Lille 1); Sopraseuth, Thepthida (GAINS, Université du Maine) |
| Abstract: | We study fiscal devaluation in a small-open economy with labor market search frictions. Our analysis shows the key role of both dimensions in shaping the optimal tax scheme. By reducing labor market distortions, the tax reform is welfare-improving. Yet, as it makes imports more expensive, fiscal devaluation lowers the agents' purchasing power, which is welfare-reducing. These contrasting effects give rise to an optimal tax scheme. Besides, transition matters. If the economy is better off in the long run, the required transitional saving effort increases the cost of the reform, thereby calling for a moderate magnitude of fiscal devaluation. |
| Keywords: | fiscal devaluation, consumption tax, payroll tax, labor market search, small open economy, Dynamic General Equilibrium model |
| JEL: | E27 E62 H21 J38 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6624&r=pbe |
| By: | Simona Fabrizi (School of Economics and Finance, Massey University, New Zealand); Steffen Lippert (Department of Economics, University of Otago, New Zealand) |
| Abstract: | We build a principal-agent-client model of corruption, allowing for heterogeneity in the value of public projects relative to the cost of monitoring their execution and for uncertainty of corruptors regarding the value of a project conducted. We derive the conditions under which officials with low-value projects have an incentive to signal their projects' type, and thereby facilitate their corruption, by means of public displays of wealth. While such public displays reduce the probability with which bribes are offered to officials conducting high-value projects, they increase the probability with which these officials accept bribes sufficiently to offset any positive effect. |
| Keywords: | Corruption, Incentives, Signaling, Public Displays of Wealth |
| JEL: | D73 D82 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:otg:wpaper:1202&r=pbe |
| By: | Tadashi Morita (Faculty of Economics, Osaka Gakuin University); Hajime Takatsuka (Graduate School of Management, Kagawa University); Kazuhiro Yamamoto (Graduate School of Economics, Osaka University) |
| Abstract: | This article focuses on two distinct faces of globalization: the decrease in trade costs of goods and the decline of affiliation costs of joint ventures by foreign firms with local firms. The decrease of affiliation costs drives relocation of firms from the North to the South. When the market size of the North is relatively small (resp. large), the growth rate monotonously decreases (resp. first decreases and rises after this) with a decline of affiliation costs. In the case of lowering trade costs, the firm share in the North evolves as a U-shaped curve (resp. monotonously increases) when the market size of the North is relatively small (resp. large). Growth rates are raised with agglomeration in the North. Finally, we present some welfare implications. |
| Keywords: | trade costs, affiliation costs, growth rates, innovation sector |
| JEL: | F0 O31 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1211&r=pbe |