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on Public Economics |
| By: | Hrvoje Šimović |
| Abstract: | Tax expenditures include all reliefs and other tax procedures used for reducing or deducting the amount of tax that would otherwise have to be paid by taxpayers. There are many personal income tax expenditures in Croatia and they represent an important segment of the tax and social policies. This paper analyses the effect of expenditures in personal income taxation in Croatia on horizontal equity. Accordingly, the analysis has been made according to sources of income. The paper includes the period since 2001, when most reliefs that are still in effect were introduced into the personal income tax system. The analysis includes only those taxpayers who filed annual personal income tax returns, which is a precondition for acquiring most of the tax reliefs. The research findings show that tax reliefs significantly reduce the amount of taxable income, and the differences in the effective tax burden between the analyzed sources of income show that there is horizontal inequity in the personal income tax in Croatia. |
| Keywords: | personal income tax, annual tax return, tax expenditures, reliefs, horizontal equity, Croatia |
| JEL: | H24 |
| Date: | 2012–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:zag:wpaper:1203&r=pbe |
| By: | DING, HONG |
| Abstract: | This study uses a two-way fixed effect model for panel data of all OECD nations, which includes most of the determinants of growth in previous empirical growth studies for either cross section or panel data as control variables and carefully checks possible endogeneity of the key variables of interest: welfare measures by Durbin-Wu-Hausman test. The empirical analysis shows a robust negative correlation between welfare spending rate, tax-to-GDP ratio and GDP growth. In particular, the estimates suggest that a 1% increase in welfare spending as percentage of GDP would increase the per capita GDP growth rate by 0.19%. Among three biggest components of welfare expenditure, pension spending is identified as the most important source of detrimental effect on growth while income support and public health expenditure are found to have no significant impact on growth. I also find that a 1% increase in tax revenue-to-GDP ratio would increase the per capita GDP growth rate by 0.18%. Since this estimate is close to that of welfare spending rate and welfare spending is only part of tax revenue used by government, it implies that decreasing welfare expenditure is more important and more effective for promoting growth than cutting tax. All results are subject to robustness checks including unit root test for panel data, slope poolability test, dependent variable persistence test, informal check of IV exogeneity and serial correlation test. |
| Keywords: | welfare state; economic growth; endogeneity; Durbin-wu-hausman test; |
| JEL: | I38 H53 O4 |
| Date: | 2012–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:39685&r=pbe |
| By: | Christian Lessmann (Technische Universität Dresden & CESifo) |
| Abstract: | This paper analyzes the impact of political and fiscal decentralization on regional inequalities using a unique data set which covers 56 countries at different stages of economic development. Cross-section and panel data estimations show that decentralization decreases regional inequalities in general. However, estimations using an interaction variable approach imply that the effect depends on the level of economic development. While rich countries benefit from decentralization with regard to a more equal regional income distribution, decentralization may lead to higher regional inequalities in developing and emerging economies. The results are pointing in the same direction for measures of fiscal and political decentralization implying that both -autonomy in decision making and fiscal authority- are decisive in this context. Thus, when fostering decentralization in developing countries -as proposed by international development agencies- the potential negative redistributional consequences should be taken into account. |
| Keywords: | Regional inequality, decentralization, panel data |
| JEL: | H11 H77 R11 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2012/6/doc2012-20&r=pbe |
| By: | Thi Kim Cuong Pham |
| Abstract: | This paper reexamines the Barro growth model taking into account status-seeking behavior. Agents care about both consumption and social status, which is determined by their relative consumption in society. Public capital as production input is financed by income tax or lumpsum tax. We discuss different measures to reach the optimal growth and optimal welfare in a decentralized economy and find that under some parameter conditions, there are some government sizes for which the decentralized growth is optimal, and this result does not require corrective taxation policy. We also find the superiority of income tax versus lump-sum tax from the point of view of optimal growth in a decentralized economy and of social welfare. Besides, we propose corrective tax programs with constant capital tax or subsidy and time-varying consumption tax that enable an economy to reach the first-best optimal growth. The extension to a congestion model modifies somewhat the results. We discuss conditions under which the first-best or the secondbest optimal growth is attained in a decentralized economy. |
| Keywords: | Corrective tax, endogenous growth, public expenditure, relative consumption, status-seeking. |
| JEL: | D90 H21 H50 O41 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2012-06&r=pbe |
| By: | Carlos Caceres; Anna Kochanova |
| Abstract: | This paper analyzes the linkages between governance quality and country stress events. It focuses on two types of events: fiscal and political stress events, for which two innovative stress indicators are introduced. The results suggest that weaker governance quality is associated with a higher incidence of both fiscal and political stress events. In particular, internal accountability, which measures the responsiveness of governments to improving the quality of the bureaucracy, public service provision, and respect for the institutional framework in place, is positively associated with fiscal stress events. However, external accountability, which captures government accountability before the public in general, through elections and the democratic process, seems to be more important for political stress events. These results hold when using balanced country samples where region, oil-exporter status, income level, and time are taken into account. |
| Keywords: | Financial crisis , Fiscal policy , Governance , Political economy , |
| Date: | 2012–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/116&r=pbe |
| By: | Bengtsson, Niklas (Department of Economics); Holmlund, Bertil (Department of Economics); Waldenström, Daniel (Department of Economics) |
| 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, but the Swedish economic crisis of the 1990s and the tax reforms of 1971 and 1991 are also important events. Labor income taxes contribute less to progressivity in recent years, whereas transfers to unemployed and old-age pensioners have become increasingly important. Our findings are robust to using different tax rates, tax bases, sample populations, discount rates and reranking controls. |
| Keywords: | Tax progressivity; Income distribution; Lifetime income; Redistributive effect; Kakwani index; Transfers |
| JEL: | D31 H20 |
| Date: | 2012–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2012_011&r=pbe |
| By: | Raphael A. Espinoza; Michal Andrle; Marshall Mills; Luis-Felipe Zanna; Antonio David |
| Abstract: | This paper presents an analysis of the public investment scaling-up strategy for Togo using a dynamic macroeconomic model that explicitly analyzes the links between public investment, economic growth, and debt sustainability. In the model, public capital is productive and complementary to private capital, generating positive medium and long-run effects to increases in public investment. The model application indicates that a very large increase in public investment would have positive macroeconomic effects in the long-run, but would require unrealistic increases in the tax burden to cover recurrent costs and ensure debt sustainability. More modest increases in public investment would require more feasible increases in the tax burden, particularly if the efficiency of tax collection is improved. The model simulations also emphasize the importance of improvements in the efficiency of public investment to reap welfare gains. However, even if the macroeconomic implications of public investment scaling-up can be favorable in the long-run under certain assumptions on rates of return and efficiency of investment, the transition period is challenging and exposes the country to increased risk of unsustainable debt dynamics. The model was also used to assess the growth projections underlying the standard Excel-based debt sustainability analysis for Togo. |
| Keywords: | Debt sustainability , Economic growth , Economic models , Fiscal policy , Infrastructure , Public investment , Tax burdens , |
| Date: | 2012–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/127&r=pbe |
| By: | Stone, Joe |
| Abstract: | This study examines reasons for the decline in state funding for public higher education. Prior studies point to Medicaid costs, limitations on tax revenues, income inequality, and Pell grants, but do not estimate their relative importance. Results in this study indicate that income inequality, Pell grants, and K-12 funding are the dominant factors. Pell grants in particular, create powerful incentives for states to substitute Federal dollars for their own. Estimates are identified using 5-year difference-in-differences for 49 states from 1957 to 2007. Regression, instrumental-variables, and Granger-causality estimates yield consistent results. |
| Keywords: | higher education; pell grants; k=12 education; public funding |
| JEL: | D31 A1 H52 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:39732&r=pbe |
| By: | G. Seibold; M. Pickhardt |
| Abstract: | We investigate an inhomogeneous Ising model in the context of tax evasion dynamics where different types of agents are parametrized via local temperatures and magnetic fields. In particular, we analyse the impact of backauditing and endogenously determined penalty rates on tax compliance. Both features contribute to a microfoundation of agent-based econophysics models of tax evasion. |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1206.7000&r=pbe |
| By: | Laura Jaramillo; Carlo Cottarelli |
| Abstract: | Implementation of fiscal consolidation by advanced economies in coming years needs to take into account the short and long-run interactions between economic growth and fiscal policy. Many countries must reduce high public debt to GDP ratios that penalize longterm growth. However, fiscal adjustment is likely to hurt growth in the short run, delaying improvements in fiscal indicators, including deficits, debt, and financing costs. Revenue and expenditure policies are also critical in affecting productivity and employment growth. This paper discusses the complex relationships between fiscal policy and growth both in the short and in the long run. |
| Keywords: | Developed countries , Economic growth , Fiscal consolidation , Fiscal policy , |
| Date: | 2012–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/137&r=pbe |
| By: | Sebastian Barnes; David Davidsson; Łukasz Rawdanowicz |
| Abstract: | Europe is putting in place a new system of fiscal rules following the euro area sovereign debt crisis and decades of rising government to debt-to-GDP ratios. These include the so-called “six pack” to upgrade the Stability and Growth Pact to a new Treaty incorporating the “fiscal compact”. Much of the discussion about the new rules has been procedural or theoretical. This paper shows what the rules will mean in practice under a realistic mediumterm scenario developed by the OECD. In the short term, fiscal consolidation will largely be driven by the current wave of Excessive Deficit Procedures. Only once these commitments are fulfilled will the new system of rules come into action. Although the rules are complex, the central pillar of the new fiscal rules will be the requirement to balance budgets in structural terms. These imply a tight fiscal stance over the coming years for many European countries by comparison with the performance achieved in past decades: almost all countries will have to be as disciplined as the few countries that managed to make meaningful progress in tackling high debt levels in the past. A further tightening of budgetary Medium-Term Objectives is likely in 2012, which will in many cases make the required fiscal stance even tighter. Over the very long term, the rules imply very low levels of debt. The requirements can thus not be considered to be a permanent approach. The methodology to calculate the structural balance has a number of weaknesses and discretion will be needed in implementing the rules.<P>Les nouvelles règles budgétaires européennes<BR>En réaction à la crise de la dette souveraine de la zone euro et après des décennies de progression du taux d’endettement public par rapport au PIB, l’UE met en place un nouvel ensemble de règles budgétaires. Parmi ces nouvelles règles figure le train de six mesures (« six pack ») destinées à faire évoluer le Pacte de Stabilité et de Croissance vers un nouveau Traité intégrant le « Pacte budgétaire ». Le débat sur ces nouvelles règles a essentiellement porté sur des questions procédurales ou théoriques. Ce document montre ce qu’impliquent concrètement ces nouvelles règles, dans le cadre d’un scénario de moyen terme réaliste élaboré par l’OCDE. Dans un premier temps, l’assainissement budgétaire sera essentiellement motivé par la vague actuelle de procédures pour déficits excessifs. Ce n’est qu’à l’issue de ces procédures que les nouvelles règles entreront en vigueur. Le point d’ancrage de ces règles complexes réside dans l’exigence d’un équilibre budgétaire structurel. Bon nombre de pays européens devront donc, au cours des prochaines années, adopter une politique budgétaire plus rigoureuse que lors des décennies précédentes : la quasi-totalité des pays devront se montrer aussi disciplinés que ceux, peu nombreux, ayant réussi par le passé à réduire significativement leur dette publique. Un nouveau durcissement des objectifs budgétaires à moyen terme est probable en 2012, ce qui dans de nombreux cas donnera lieu à des politiques budgétaires encore plus rigoureuses. À très long terme, les règles impliquent un très faible niveau d’endettement. Les conditions imposées ne pourront donc pas être considérées comme permanentes. La méthodologie mise en oeuvre pour calculer le solde structurel présente certaines faiblesses et il faudra faire preuve de discernement dans la mise en oeuvre des règles budgétaires. |
| JEL: | E61 E62 H6 H8 |
| Date: | 2012–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:972-en&r=pbe |
| By: | Shu-Chun S. Yang; Wenyi Shen |
| Abstract: | This paper studies the effects of government spending under limited international capital mobility, as featured by most developing countries. While external financing of government debt mitigates the crowding-out effect, it generates real appreciation, which contracts traded output and lowers the fiscal multiplier in the short run. The decline of the multiplier is larger when facing debt-elastic country risk premia. Also, government spending is more expansionary with more home bias in government purchases, more sectoral rigidities, and a less flexible exchange rate. Whether the twin-deficit hypothesis holds depends crucially on the extent to which government deficits are financed externally. |
| Keywords: | Budget deficits , Developing countries , Economic models , External borrowing , Fiscal policy , Government expenditures , Monetary policy , Reserve management policy , |
| Date: | 2012–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/129&r=pbe |
| By: | Carlos Gustavo Machicado (Institute for Advanced Development Studies); Monica Yanez (Poverty Reduction and Economic Management Network, The World Bank) |
| Abstract: | This paper examines bureaucratic delay within the allocation of small infrastructure projects by sub-municipal governments in Bolivia, and it presents a randomized eld experiment designed to improve public service delivery by promoting voice, transparency, and accountability among grass- roots organizations. The experiment consists of randomly providing sub-municipal governments with a mailing tracking system, which provides public ocials and grassroots organizations real- time information about the processing of small infrastructure projects requests by sub-municipal governments. The objective of this intervention is twofold. First, is to facilitate the involvement of grassroots organizations in the process of reviewing, tracking, and monitoring small infrastructure project allocations. Second, is to explicitly alter the probability of detecting inecient adminis- trative practices within district councils and, therefore, to implicitly increase the expected cost of engaging in such practices among public ocials. The ndings of this paper suggest that moni- toring tools that promote access to information by citizens might play a critical role in improving public service delivery outcomes. Yet, in settings where mechanisms of local accountability are subject to be captured by local elites or are weak, monitoring tools might have limited capacity to improve outcomes. In such settings, major transparency related reforms might be needed to improve public service delivery outcomes. |
| Keywords: | Bolivia, transparency, accountability, local-level monitoring, bureaucratic delay |
| JEL: | D73 C93 H76 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:adv:wpaper:201206&r=pbe |
| By: | Shu, Youhua; Chowdhury, Shyamal K.; Harris, Michael |
| Abstract: | This paper examines changes in the allocation of public funds between production related public goods (PRPGs) and labour augmenting public goods (LAPGs) once elected village leaders replaced an appointment system. We derive a two-period theoretical model in which the interest of appointed leaders in short economic development leads to allocate all public resources into PRPGs in the first period. In contrast, elected leaders have greater incentives to reflect the interest of electorates by allocating public resources to maximize their two-period revenues. The model predicts that elections lead to an increase in the provision level of LAPGs and a decrease in PRPGs in the first period, if the first-period allocation equilibrium of appointed leaders is away from the allocation mix in maximization of the two-period revenues. A panel dataset of 71 villages for the period of 1993-2000 is used to examine these two predictions. The results show that the elections increased the provision level of public health (LAPGs), but had no effects on irrigation facilities and paved roads (PRPGs). |
| Keywords: | Public economics, Development Economics, Community/Rural/Urban Development, Institutional and Behavioral Economics, Labor and Human Capital, Political Economy, Public Economics, D71, H41, P35, |
| Date: | 2012–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae12:125591&r=pbe |
| By: | Randall S. Jones; Byungseo Yoo |
| Abstract: | Korea, which has had the highest growth rate of greenhouse gas emissions in the OECD area since 1990, adopted an ambitious Green Growth Strategy in 2009. It aims at reducing emissions by 30% by 2020 relative to a “business as usual” scenario, implying a 4% cut from the 2005 level. The Strategy also includes a Five-Year Plan with public spending of 2% of GDP per year to promote green growth. Korea is planning to establish a carbon price through a cap-and-trade emissions trading scheme. Such an approach, combined with a carbon tax in sectors not covered by the scheme, is necessary to reduce emissions in a cost-effective manner and foster innovation in green technology. In addition, each sector should face the same electricity price based on production costs to promote efficient energy use. Given market failures, the government has a role to play in green R&D, particularly for basic research, in fostering green finance and in developing renewable energy resources.<P>Concrétiser le projet d'une « croissance verte et sobre en carbone » en Corée<BR>La Corée, qui affiche le plus fort taux d’accroissement des émissions de gaz à effet de serre de la zone OCDE depuis 1990, a adopté en 2009 une ambitieuse Stratégie de croissance verte. L’objectif est de réduire de 30 % les émissions d’ici à 2020 par rapport au scénario « au fil de l’eau », ce qui équivaut à une baisse de 4 % par rapport à leur niveau de 2005. La Stratégie institue également un Plan quinquennal qui prévoit les dépenses publiques correspondant à 2 % du PIB par an pour promouvoir la croissance verte. La Corée envisage de créer un prix du carbone grâce à la mise en place d’un système de plafonnement et d'échange de permis d'émissions. Une telle approche conjuguée à l’application d’une taxe carbone dans les secteurs non concernés par ce système est nécessaire pour abaisser les émissions de manière efficace et économe et stimuler l’innovation dans les technologies vertes. En outre, chaque secteur devrait se voir appliquer le même prix de l’électricité, fondé sur les coûts de production, afin de promouvoir une utilisation rationnelle de l’énergie. Compte tenu des défaillances du marché, les pouvoirs publics ont un rôle à jouer dans la R-D verte, notamment dans le domaine de la recherche fondamentale, dans la promotion de la finance verte et dans le développement des énergies renouvelables. |
| Keywords: | Korea, renewable energy, R&D, climate change, energy efficiency, energy subsidies, carbon tax, greenhouse gas emissions, environmental taxes, green growth, Korean economy, emissions trading system, green certificates, National Strategy for Green Growth, electricity pricing, Five-Year Plan, Corée, changement climatique, émissions de gaz à effet de serre, énergies renouvelables, efficacité énergétique, croissance verte, économie coréenne, système d'échange de permis d'émission, taxes environmentales, subventions d'énergie, R-D, certificats verts, Stratégie nationale pour la croissance verte, taxe carbone, tarification de l’électricité, Plan quinquennal |
| JEL: | Q28 Q48 Q54 Q56 Q58 |
| Date: | 2012–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:964-en&r=pbe |
| By: | Edward F. Buffie; Rafael Portillo; Luis-Felipe Zanna; Catherine A. Pattillo; Andrew Berg |
| Abstract: | We develop a model to study the macroeconomic effects of public investment surges in low-income countries, making explicit: (i) the investment-growth linkages; (ii) public external and domestic debt accumulation; (iii) the fiscal policy reactions necessary to ensure debt-sustainability; and (iv) the macroeconomic adjustment required to ensure internal and external balance. Well-executed high-yielding public investment programs can substantially raise output and consumption and be self-financing in the long run. However, even if the long run looks good, transition problems can be formidable when concessional financing does not cover the full cost of the investment program. Covering the resulting gap with tax increases or spending cuts requires sharp macroeconomic adjustments, crowding out private investment and consumption and delaying the growth benefits of public investment. Covering the gap with domestic borrowing market is not helpful either: higher domestic rates increase the financing challenge and private investment and consumption are still crowded out. Supplementing with external commercial borrowing, on the other hand, can smooth these difficult adjustments, reconciling the scaling up with feasibility constraints on increases in tax rates. But the strategy may be also risky. With poor execution, sluggish fiscal policy reactions, or persistent negative exogenous shocks, this strategy can easily lead to unsustainable public debt dynamics. Front-loaded investment programs and weak structural conditions (such as low returns to public capital and poor execution of investments) make the fiscal adjustment more challenging and the risks greater. |
| Date: | 2012–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/144&r=pbe |
| By: | Randall S. Jones; Satoshi Urasawa |
| Abstract: | While Korea remains one of the fastest-growing OECD economies, its potential growth rate per capita is projected to decelerate from around 4% during the current decade to around 2¼ per cent during the 2030s. Sustaining growth requires policies to mitigate the impact of rapid population ageing by increasing labour inputs from under-utilised segments of the population. In particular, female labour participation should be encouraged by better work-life balance and increasing the availability of high-quality, affordable childcare, in part by raising tuition fee subsidies and improving the quality of private childcare centres. More flexible employment and wage systems would increase the age at which older workers leave firms. For young people, improved vocational education at the secondary and tertiary levels would help overcome the labour mismatch problem and the overemphasis on tertiary education. Enhancing educational quality at all levels would promote productivity gains, including in services. Strengthened competition is also a key to narrow the large productivity gap between services and manufacturing.<P>Poursuivre la convergence en Corée vers les pays les plus riches<BR>Si la Corée connaît toujours l’une des croissances les plus dynamiques de la zone OCDE, son taux de croissance potentiel par habitant devrait ralentir pour passer de 4 % environ d’ici à 2020 à 2¼ pour cent entre 2030 et 2040. Pour soutenir la croissance, les autorités coréennes doivent prendre des mesures pour compenser les effets du vieillissement rapide de la population, en renforçant l’apport de travail des catégories de population sous-utilisées. Il convient notamment de renforcer le taux d’activité des femmes, en leur assurant des conditions d’emploi permettant de mieux concilier vie professionnelle et vie privée et en améliorant l’offre de services de garde de qualité et à moindre coût. Pour ce faire, les autorités devraient plus particulièrement relever les subventions destinées à couvrir les frais d’inscription de garde et améliorer la qualité des centres de garde privés. Une plus grande flexibilité des systèmes d’emploi et de rémunération permettrait aux travailleurs âgés de poursuivre leur activité professionnelle. Quant aux jeunes, l’amélioration de la formation professionnelle dans le secondaire et le supérieur contribuerait à résoudre les problèmes d’adéquation entre l’offre et la demande de compétences et de surqualification dans l’enseignement supérieur. Un enseignement de meilleure qualité à tous les niveaux augmenterait les gains de productivité, y compris dans le secteur tertiaire. Le renforcement de la concurrence offre également une piste pour combler l’écart de productivité important entre le secteur des services et le secteur manufacturier. |
| Keywords: | tax reform, education, Korea, innovation, potential growth, tertiary education, non-regular workers, labour force participation rates, female employment, R&D, labour market dualism, vocational education, VAT, older workers, SMEs, Korean economy, childcare, services sector, ECEC, réforme fiscale, Corée, innovation, travailleurs âgés, travailleurs non réguliers, taux d'activité, emploi des femmes, enseignement supérieur, système éducatif, dualisme du marché du travail, secteur des services, TVA, PME, économie coréenne, R-D, EAJE, potentiel de croissance, enseignement professionnel |
| JEL: | H2 I2 J2 O4 O53 |
| Date: | 2012–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:965-en&r=pbe |
| By: | Irigoin, A; Grafe, R |
| Abstract: | ‘Constitutions and Commitments” has inspired the economic literature on the importance of “Legal origins” (LaPorta et al., 1998, 2008), which vindicates the notion that post-Glorious Revolution English institutions were particularly conducive to economic growth. More recently economists have acknowledged that growth in fact depends on “state capacity”. This encompasses not only investor protection (legal capacity) but also the ability of the state to finance itself, “fiscal capacity”.(Besley and Persson, 2009, 2010) show that the protection of private property rights and that of public property rights to taxation are linked and most likely co-evolutionary. However, the precise relation between the two is anything but clear. This paper argues that North and Weingast’s model’s one-sided focus on state coercion that threatened subjects’ property rights has obscured the relation between coercion used in revenue collection and total revenue role of fiscal capacity. We suggest a very simple model to show that this relationship between state fiscal capacity and legal capacity is not linear, especially in the phase of nation state building. The case of Spain provides empirical evidence for the existence of states were an increase in coercion would have improved fiscal capacity, but high levels of legal capacity paradoxically prevented the ruler from adopting this path. We use financial market developments to show the serious welfare implications that resulted from such a lack of coordination and integration. |
| Keywords: | 'Constitution & Commitment'; 'legal origins'; 'state capacity'; 'fiscal capacity' |
| JEL: | E02 K0 N0 E44 E6 P48 |
| Date: | 2012–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:39722&r=pbe |
| By: | William R. White |
| Abstract: | Economic downturns which have their roots in preceding credit excesses and debt overhang have tended historically to be long lasting, whether the financial sector remained healthy or not. There are no good reasons to believe the current global crisis will be any different. Moreover, it is argued in this paper that the policy responses to the crisis to date, both macroeconomic and structural, will not succeed in restoring sustainable growth. Monetary and fiscal stimulus might raise aggregate demand in the short run, but they contribute to higher debt levels which are already working increasingly in the opposite direction. Structural policies intended to maintain pre crisis production patterns, both in the financial and industrial sectors, ignore the unsustainability of those structures in the first place. Alternative policies are needed to meet the G 20’s goal of “strong, sustainable and balanced growth”. They include more international cooperation between creditor and debtor countries (on both exchange rates and production structures), more recourse to explicit debt restructuring (for both households and sovereigns), and structural polices to raise potential growth and make debts more sustainable. Unfortunately, there remain formidable practical and political obstacles to pursuing such policies. Future debt crises of the current magnitude could be avoided by using monetary, macro prudential and fiscal policies more symmetrically over the business cycle. Relative to past behaviour, this would imply more vigorous resistance to credit financed upswings, and a greater willingness to accept the cleansing effect of minor downswings. Policies to ensure financial stability are important but secondary.<P>Les crises de crédit et les insuffisances des interventions publiques traditionnelles<BR>D'un point de vue historique, les récessions économiques qui trouvent leur origine dans des excès en matière de crédit et des phénomènes de surendettement tendent à s'inscrire dans la durée, que le secteur financier reste sain ou non. Il n'existe aucune bonne raison de penser que la crise mondiale actuelle diffère en quoi que ce soit de ce schéma. En outre, nous faisons valoir dans ce document que les mesures prises à ce jour par les pouvoirs publics face à la crise, tant sur le plan macroéconomique que structurel, ne permettront pas de revenir à une croissance durable. Les mesures de relance monétaire et budgétaire peuvent certes renforcer la demande globale à court terme, mais elles contribuent à alourdir une dette qui exerce déjà un effet inverse de plus en plus fort. Quant aux mesures structurelles destinées à préserver les structures de production d'avant la crise, tant dans le secteur financier que dans l'industrie, elles ne tiennent pas compte du fait que ces structures n'étaient pas viables à l'origine. D'autres mesures s'imposent pour atteindre l'objectif de « croissance forte, durable et équilibrée » défini par le Groupe des Vingt (G20). Elles peuvent notamment prendre la forme d'une coopération internationale accrue entre pays débiteurs et créanciers (tant en matière de taux de change que de structures de production), d'un recours plus poussé à des formes explicites de restructuration de la dette (tant pour les ménages que pour les emprunteurs souverains), ainsi que de mesures structurelles destinées à rehausser la croissance potentielle et à renforcer la viabilité des dettes. Malheureusement, la mise en oeuvre de telles mesures reste entravée par des obstacles pratiques et politiques considérables. Nous pourrions éviter de futures crises de la dette d'une ampleur similaire à celle que nous connaissons aujourd'hui en utilisant les politiques monétaire, macro prudentielle et budgétaire de manière plus symétrique sur la durée du cycle économique. Par rapport aux comportements antérieurs, cela impliquerait une résistance plus vigoureuse aux phases d'expansion financées par le crédit, et une plus grande disposition à accepter l'effet d'assainissement des phases de contraction légère de l'activité. Les mesures destinées à garantir la stabilité financière sont certes importantes, mais secondaires. |
| Keywords: | fiscal policy, monetary policy, structural reforms, credit, financial crises, international policy coordination, debt forgiveness, réforme structurelle, politique fiscale, politique monétaire, crédit, viabilité de la dette, politique de coopération internationale, récessions économiques |
| JEL: | B50 E58 E62 G01 H12 |
| Date: | 2012–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:971-en&r=pbe |
| By: | FUKAO Mitsuhiro |
| Abstract: | After overviewing the performance of the Japanese economy since the end of the bubble era of the late 1980s, we estimate the potential growth rate of Japan by using a production function for its economy. We conclude that the potential growth rate is only about 0.5 % due to the rapidly declining working-age population. Based on this estimate, we then provide a few scenarios for the future path of the debt-to-GDP ratio. We found that it is necessary to raise the consumption tax rate from the current 5% to at least 25% to stabilize the debt-to-GDP ratio. We also note that the net interest payments are likely to rise very rapidly in the near future because the government has depleted the benefit of declining interest rates since the 1990s. In the appendix, we analyze the effects of various monetary policy measures designed to stimulate the weak economy. |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:12018&r=pbe |
| By: | Christoph Böhringer (Department of Economics, University of Oldenburg); Jared C. Carbone (University of Calgary, Canada); Thomas F. Rutherford (University of Wisconsin, USA) |
| Abstract: | The cost-effectiveness of unilateral emission abatement can be seriously hampered by emission leakage. We assess three widely-discussed proposals for leakage reduction targeted at energy-intensive and trade-exposed industries: border tax adjustments, output-based allocation and industry exemptions. We find that none of these measures amounts to a “magic bullet” when both efficiency and equity criteria matter. Border tax adjustments reduce leakage and provide global cost savings but exacerbate regional inequality. Exemptions produce very little leakage reduction and run the risk of increasing efficiency cost of climate policy. Output-based allocation does no harm but also does relatively little good by our outcome measures. |
| Keywords: | Unilateral Climate Policy, Leakage, Efficiency, Equity |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:old:wpaper:346&r=pbe |
| By: | Ladislava Grochova (Department of Economics, Faculty of Business and Economics, Mendel University in Brno); Tomas Otahal (Department of Economics, Faculty of Business and Economics, Mendel University in Brno) |
| Abstract: | Can corruption improve economic efficiency? Classical political economists argue that corruption undermines the rule of law (Smith 2001, chap 5). The modern Public Choice proponents argue that corruption and lobbying might influence the efficiency of the rule of law. While Chicago Public Choice scholars model how legal lobbying, which is corruption in Virginia Public Choice perspective, improves efficiency of the rule of law and thus the overall economic efficiency, the Virginia Public Choice models explain how corruption reduces efficiency of the rule of law and thus the overall economic efficiency. In this short paper, we present a brief survey distinguishing between arguments of the Chicago Public Choice and Virginia Public Choice schools on how corruption influences economic efficiency. We argue that the Virginia Public Choice explanation is more realistic because it includes the influence of bureaucratic rent-seeking. |
| Keywords: | Bureaucracy, corruption, economic efficiency, Chicago Public Choice, Virginia Public Choice, rent-seeking, rule of law |
| JEL: | D74 K42 P3 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:men:wpaper:24_2012&r=pbe |
| By: | Rama Pal (Tata Institute of Social Sciences); Rupayan Pal (Indira Gandhi Institute of Development Research) |
| Abstract: | This paper analyzes income related inequality in financial inclusion in India using a representative household level survey data, linked to State-level factors. It shows that (a) the extent of financial exclusion is quite severe among households across all income groups, (b) income related inequality in financial inclusion varies widely across sub-national regions in India, but it is quite high in most of the cases, (c) income related inequality in financial inclusion cannot be considered as synonymous to income inequality. A notable result is that greater availability of banking services fosters financial inclusion, particularly among the poor. This paper also provides estimates of the effects of various socio, economic and demographic characteristics of households on propensity of a household to use formal financial services, and compare that for rural and urban sectors. |
| Keywords: | Financial inclusion, inequality, concentration index, banks |
| JEL: | D3 O16 O17 G2 G21 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2012-013&r=pbe |
| By: | Ercolano, Salvatore; Gaeta, Giuseppe Lucio; Romano, Oriana |
| Abstract: | This paper empirically investigates the determinants of willingness to pay (WTP) for the environment, employing micro data from the European Value Survey (EVS) over 2008-2010 in 27 European countries. Using ordered logit, logit and partially constrained generalized ordered logit models, we explore a wide set of individual and country level determinants. Our particular focus is on whether WTP is influenced by the Environmental Fiscal Reforms (EFR), carried out only in some countries of our sample. Our results show that WTP for the environment is lower in countries where an Environmental Fiscal Reform has been introduced. Moreover, analyses conducted on the role of information highlight that being presumably aware of the environmental fiscal reform does not affect positively the marginal willingness to pay for the environment. |
| Keywords: | Willingness to pay; environment; environmental fiscal reform |
| JEL: | Q50 R20 Z13 H23 |
| Date: | 2012–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:39680&r=pbe |
| By: | Pritha Mitra; Cyril Pouvelle |
| Abstract: | Labor productivity levels in Bulgaria lag well behind that in the EU, weighing on the convergence process. Stronger productivity growth would allow Bulgaria to close the income gap with the EU average more quickly and to alleviate the structural problems in its labor market, reflected in its high long–term and youth unemployment. Our analysis of the drivers of labor productivity suggest that for Bulgaria closing the gap with EU standards in the areas of institutional and infrastructure quality, goods market efficiency, higher education, and innovation would permanently boost productivity growth by a total of 1 percentage point a year. This would be enough to close the income gap with the EU average by 2040, compared to the status quo where it would take an additional 10 years. |
| Keywords: | Cross country analysis , European Union , Fiscal reforms , Income , Labor markets , Labor productivity , Production growth , Unemployment , |
| Date: | 2012–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/131&r=pbe |
| By: | Felix Bierbrauer |
| Abstract: | This paper studies the impact of a financial transactions tax on a financial market where financial institutions trade with each other. Assets are marked to the market and financial institutions with negative equity are forced out of business. There are two main results: First, if all banks have enough liquidity so that they can honor their short-term obligations, a financial transactions tax is entirely neutral. Second, in a model with correlated investment risk and short-term financing of banks, a financial transactions tax contributes to financial distress and undoes other policy measures that are used to stabilize financial markets. |
| Keywords: | Financial transactions tax, financial stability, financial markets, cash-in-the-market-pricing, marking-to-market |
| JEL: | H22 G18 G21 G28 |
| Date: | 2012–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:kls:series:0055&r=pbe |
| By: | Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Anastasios Koukoumelis (Max Planck Institute of Economics, Strategic Interaction Group, Jena); M. Vittoria Levati (Max Planck Institute of Economics, Strategic Interaction Group, Jena, and Department of Economics, University of Verona); Matteo Ploner (DECO-CEEL, University of Trento) |
| Abstract: | Based on an axiomatically derived provision rule allowing community members to endogenously determine which, if any, public project should be provided, we perform experiments where (i) not all parties benefit from provision, and (ii) the projects' "costs" can be negative. In the tradition of legal mechanism design, the proposed provision rule is widely applicable. Additionally, it relies on intuitive fairness and profitability requirements. Our results indicate that the provision rule is conducive to efficiency, despite its multiplicity of equilibria and un- derbidding incentives. The only condition is that the cost of the most efficient project is positive. |
| Keywords: | Public project, Bidding behavior, Procedural fairness |
| JEL: | C72 C92 D63 H44 |
| Date: | 2012–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2012-034&r=pbe |
| By: | Letizia Montinari (IMT Lucca Institute for Advanced Studies); Michael Rochlitz (IMT Lucca Institute for Advanced Studies) |
| Abstract: | In this paper, we investigate differences in and determinants of technical efficiency across three groups of OECD, Asian and Latin American countries. As technical efficiency determines the capacity with which countries absorb technology produced abroad, these differences are important to understand differences in growth and productivity across countries, especially for developing countries which depend to a large extend on foreign technology. Using a stochastic frontier framework and data for 22 manufacturing sectors for 1996-2005, we find notable differences in technical efficiency between the three country groups we examine. We then investigate the effect of human capital and domestic R&D, proxied by the stock of patents, on technical efficiency. We find that while human capital has always a strongly positive effect on efficiency, an increase in the stock of patents has positive effects on efficiency in high-tech sectors, but negative effects in low-tech sectors. |
| Keywords: | absorptive capacity, efficiency, stochastic frontier analysis |
| JEL: | C33 O14 O33 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:ial:wpaper:4&r=pbe |
| By: | Luca Gambetti |
| Abstract: | This paper investigates the effects of government spending on the real exchange rate and the trade balance in the US using a new VAR identification procedure based on spending forecast revisions. I find that the real exchange rate appreciates and the trade balance deteriorates after a government spending shock, although the effects are quantitatively small. The findings broadly match the theoretical predictions of the standard Mundell-Fleming model and differ substantially from those existing in literature. Differences are attributable to the fact that, be- cause of fiscal foresight, the government spending is non-fundamental for the variables typically used in open economy VARs. Here, on the contrary, the estimated shock is fundamental. |
| Keywords: | VARs, fiscal policy, twin deficits, trade balance, Mundell-Fleming, forecast revisions, fiscal news, survey of professional forecasters. |
| JEL: | C32 E32 E62 |
| Date: | 2012–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:907.12&r=pbe |