nep-pbe New Economics Papers
on Public Economics
Issue of 2012‒07‒14
27 papers chosen by
Keunjae Lee
Pusan National University

  1. Subnational Taxation in Large Emerging Countries: BRIC Plus One By Richard M. Bird
  2. You Get What You Pay For: How Nordic Cities Are Financed By Jorgen Lotz
  3. Trust in government and its effect on preferences for income redistribution and perceived tax burden By Yamamura, Eiji
  4. Voluntary pension savings and tax incentives: Evidence from Finland By Jarkko Harju
  5. Explaining European Patterns of Taxation: From the Introduction of the Euro to the Euro-Crisis By Mark Hallerberg
  6. Institutions and growth : A simplied theory of decentralization and corruption By Anton Granik; Francesco Saraceno
  7. Ontario's Tax on the Rich: Grasping at Straw Men By Alexandre Laurin
  8. Bureaucratic Delay, Local-Level Monitoring, and Delivery of Small Infrastructure Projects: Evidence from a Field Experiment in Bolivia By Yanez-Pagans, Monica; Machicado, Carlos Gustavo
  9. The effects of fiscal shocks on the exchange rate in the EMU and differences with the us By Francisco de Castro; Daniel Garrote
  10. Optimal Libertarian Sin Taxes By Matteo Bassi
  11. Dynamic Bargain Over Redistribution in Legislatures By Facundo Piguillem; Alessandro Riboni
  12. Choosing Size of Government Under Ambiguity: Infrastructure Spending and Income Taxation By Charles F. Manski
  13. The impact of corporate taxes on investment: An explanatory empirical analysis for interested practitioners By Dreßler, Daniel
  14. Tax Bunching, Income Shifting and Self-employment By Daniel le Maire; Bertel Schjerningo
  15. Decentralization and growth:has the cross-country approach met a dead end? By Pierre Salmon
  16. Pollution and Reforms of Domestic and Trade Taxes towards Uniformity By Michael S. Michael and Panos Hatzipanayotou
  17. The indirect effects of auditing taxpayers. By Ratto, Marisa; Thomas, Richard; Ulph, David
  18. Growth, Deficits and Uncertainty in a Panel of 28 Countries By Eleftherios Goulas; Athina Zervoyianni
  19. Cross-border hybrid instruments By Niels Johannesen
  20. Fiscal sustainability and fiscal policy targets By Torbe M. Andersen
  21. Openness, Efficiency and Technology: An Industry Assessment By Dimitris Christopoulos; Peter McAdam
  22. Competition for Migrants in a Federation: Tax or Transfer Competition? By Marko Koethenbuerger
  23. Property Tax Reform in Vietnam: A Work in Progress By Hong-Loan Trinh; William J. McCluskey
  24. Heterogeneity and Voting: A Framed Public Good Experiment By Kerri Brick; Martine Visser
  25. "Fiscal Policy, Unemployment Insurance, and Financial Crises in a Model of Growth and Distribution" By Greg Hannsgen
  26. Inequality aversion, income redistribution and economic geography By Schaeffer, Y.; Charlot, S.
  27. Trust as a Proxy for the Ability to Produce Local Public Goods : Testing Different Measures. By Omar Sene

  1. By: Richard M. Bird (Institute on Municipal Finance and Governance, University of Toronto)
    Abstract: This paper reviews the evolution and current state of subnational taxation in five large emerging countries: Brazil, Russia, India, China, and Nigeria—BRIC plus one. As these case studies show, intergovernmental fiscal relations in any country are inevitably both path-dependent and context-sensitive. In India and Brazil, for example, subnational governments already have a significant degree of fiscal autonomy in being able to set some key tax rates. In both countries, however, substantial attention still must be paid to improving the general consumption taxes that are the main source of regional government revenues as well as the property taxes on which local governments mainly depend. Although Nigeria, like India and Brazil, is a federation, its fiscal system depends so heavily on oil revenues that almost all political attention has been focused on securing a bigger share of these revenues. Both China and Russia have made important changes in the direction of centralizing rather than decentralizing effective control over subnational taxes. In both countries, the key issue is the extent to which fiscal decentralization is to be accompanied by significant political decentralization. At present, in neither China nor Russia is it clear that the central authorities are willing to permit subnational governments much autonomy in this respect.
    Keywords: state and local taxation, intergovernmental fiscal relations, Brazil, Russia, India, China, Nigeria
    JEL: H71 H77 P35 P43
    Date: 2012–03
  2. By: Jorgen Lotz (Ministry of Finance, Denmark)
    Abstract: The Nordic countries are small, unitary, and have largely homogeneous populations. Municipalities are the most important agents in the decentralized public sector and the middle tier (the county level) is losing importance. The expenditure of Nordic local authorities exceeds that in Canada by 10 percent of GDP. The difference represents the effect of local income taxes. Large local expenditures are for kindergartens, primary schools, social welfare, care for the elderly, and culture. These welfare functions are not, however, local public goods; local governments serve mostly as agents for the delivery of national public services. This situation creates complicated problems of control. Amalgamations in several Nordic countries have been carried out to improve the capacity of local authorities to deliver services. Other approaches include joint production and contracting out. The local income tax is a big revenue-raiser, but has some undesirable side effects. Some Nordic countries have a company tax, but this tax raises questions of accountability and fairness, and has been phased out in several places. Nordic countries use methods of tax base equalization which transfer contributions from wealthy jurisdictions to poorer ones. Equalization also involves complicated efforts to deal with the special expenditure needs of cities.
    Keywords: Denmark, Finland, Iceland, Norway, Sweden, decentralization, social welfare, municipal amalgamation, local income tax, tax base equalization
    JEL: H2 H7 R1 R5
    Date: 2012–03
  3. By: Yamamura, Eiji
    Abstract: This paper explores how a trust in government shared by neighbors is associated with individual preferences for income redistribution and individual perceptions regarding income tax burden. Three measures for trust in government are used: “trust in ministries and government agencies”, “trust in diet members”, and “trust in members of municipal councils”. After controlling for individual characteristics, the key findings are: (1) people are more likely to express preferences for income redistribution when trust in government in their residential area is high; (2) people are more likely to perceive their tax burden as low when trust in government in their residential area is high; and (3) when the sample is divided into high- and low-income earners, these results are only clearly observed for high-income earners and not low-income earners.
    Keywords: Trust in government; Redistribution; Perception of tax; Inequality
    JEL: D63 H20 D30 Z13
    Date: 2012–07–03
  4. By: Jarkko Harju
    Abstract: This paper studies empirically savers? behavioral responses to the Finnish tax reform of 2005 by using comprehensive panel data. The tax schedule of voluntary pension savings changed from progressive to proportional, changing the saving incentives in different subgroups. The results indicate that the reform altered saving behavior by reducing voluntary pension saving coverage among high income-earners by 4 percentage points and increasing it among low incomeearners by 2 percentage points. The reform also reduced annual saving contributions among high income-earners by over 20 percent. The estimated effects result entirely from the changed saving behavior of men.
    Keywords: Voluntary pension savings, tax reform, tax incentives
    JEL: H24 H31
    Date: 2012–06–25
  5. By: Mark Hallerberg
    Abstract: This paper reviews developments in Europe from the eve of the introduction of the euro through the euro crisis. The paper begins with a discussion of the tax reform agenda. Although there are differences in the literature on specific taxes, and while European countries vary in their preferred levels of taxation, there is general consensus on the shape reforms should take. The paper then discusses the evolution of tax systems with the overall agenda in mind. It is found that overall revenue levels were broadly stable until just before the crisis, but marginal rates in corporate and top personal income declined almost continuously. During the crisis, however, this trend ended, with countries in the greatest fiscal difficulties raising tax rates and tax burdens. The last section provides a short analysis of why there were reforms in some countries but not others. Key variables include tax competition among member states, partisanship, underlying preferences in the population for redistribution, and the number of partisan veto players.
    JEL: H21 H22 H24
    Date: 2012–05
  6. By: Anton Granik (Reims Management School); Francesco Saraceno (Observatoire Francais des Conjonctures Economiques Author-Workplace-Postal :69, quai d'Orsay, Paris 75007, France)
    Abstract: This paper aims at giving a theoretical background to the, some- times observed, puzzling inverse correlation between the degree of de- centralization and economic growth. We provide evidence that there is some interaction between decentralization and corruption in ex- plaining growth. Within an endogenous growth model, we analyze the problem of a benevolent central government trying to determine the optimal degree of fiscal decentralization. Specifically, it can pro- duce a public good directly, but inefficiently, or it can delegate some (or all) of the production to more efficient local bureaucrats. In the latter case, however, some resources will be wasted because of corrup- tion and the costs linked to monitoring expenditures. With respect to the benchmark case, then, the possibility of corruption yields both a distorted allocation of resources (insufficient decentralization) and an overall under provision of the public good.
    Keywords: Fiscal federalism, corruption, Endogenous growth, Public Capital, Fiscal policy
    JEL: H1 H2 H4 H7 D73
    Date: 2012–06
  7. By: Alexandre Laurin (C.D. Howe Institute)
    Abstract: Ontario’s new “tax on the rich,” which was introduced in the 2012 Budget, affects 25,000 high-income earners and their families. These families matter a lot for the province’s fortunes: about one of every five income tax dollars in Ontario already comes out of their pockets. Ontario’s personal income tax system already redistributes more income than most other provinces. The province’s top 1 percent of earners shoulder more than one-quarter of all income taxes, while the bottom 75 percent shoulder about 12 percent. The new tax on high-income earners will likely create more economic costs than benefits: taxpayers’ behavioural responses will reduce revenue over the long run by more than the province can expect to collect from the tax hike.
    Keywords: Fiscal and Tax Competitiveness, Ontario (Canada), tax increase, personal tax rate
    JEL: H24
    Date: 2012–06
  8. By: Yanez-Pagans, Monica (World Bank); Machicado, Carlos Gustavo (INSEAD)
    Abstract: This paper examines bureaucratic delay within the allocation of small infrastructure projects by sub-municipal governments in Bolivia, and it presents a randomized field experiment designed to improve public service delivery by promoting voice, transparency, and accountability among grassroots organizations. The experiment consists of randomly providing sub-municipal governments with a mailing tracking system, which provides public officials 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 inefficient administrative practices within district councils and, therefore, to implicitly increase the expected cost of engaging in such practices among public officials. The findings of this paper suggest that monitoring 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
  9. By: Francisco de Castro (Banco de España and European Commission); Daniel Garrote (Banco de España)
    Abstract: We analyse the impact of government spending shocks on the real effective exchange rate and net exports in the Euro Area within a standard structural VAR framework. We employ a new database that contains quarterly fiscal variables for the Euro Area as a whole. We show that higher government spending leads to real exchange rate appreciation and to a fall in net exports, jointly with lower primary budgetary surpluses, which turns out to be fully consistent with the “twin deficits” hypothesis. The different components of public spending, namely wage and non-wage consumption expenditure, overall public consumption expenditure and public investment, bring about real appreciations. Our results are therefore also consistent both with the home-bias hypothesis of public expenditure and with public investment contributing to generating relative productivity gains in the traded goods sector. Contrary to what is observed in the Euro Area, the real effective exchange rate depreciates in the US in response to higher government spending. This discrepancy can ultimately be explained by the reaction of nominal interest rate spreads and the uncovered interest parity condition. The dissimilar reaction of short-term nominal interest rate spreads is attributed to two factors, namely the role of the US dollar as a "safe haven" currency and the countercyclical behaviour of discretionary government spending in the US.
    Keywords: Euro Area; SVAR; fiscal shocks; effective exchange rates; relative prices; twin deficits; fiscal multipliers
    JEL: E62 H30
    Date: 2012–07
  10. By: Matteo Bassi (Università di Napoli Federico II and CSEF)
    Abstract: This paper studies the optimal fiscal treatment of addictive goods (cigarettes, drugs, fatty foods, alcohol, gambling etc.). It shows that, when agents have private information about their productivity levels and their degree of rationality, the Atkinson and Stiglitz result of optimal uniform commodity taxation does not hold: addictive and non-addictive goods should be taxed at different rates. Depending on the direction of redistribution, the addictive good should be taxed more or less than the non-addictive good. Differential commodity taxation is not driven by the planner’s paternalism, but only by incentive considerations. A tax authority which fully respects consumers’ sovereignty taxes the consumption of addictive and non-addictive goods at different rates to improve screening of types and increase income redistribution.
    Keywords: Bounded Rationality, Optimal Taxation, Minimal Paternalism, Multidimensional Screening
    JEL: A12 D91 E21 H55
    Date: 2012–07–05
  11. By: Facundo Piguillem (EIEF); Alessandro Riboni (University of Montreal)
    Abstract: This paper studies legislative bargaining over redistribution in the context of a Neoclassical growth model where agents are heterogeneous in their initial capital. In each period, members of a legislature negotiate over the current capital tax. Tax revenues finance lump-sum redistribution. A key feature of the bargaining process is that the status quo is endogenous: the capital tax chosen in the current period becomes the default option in the next legislative session. We argue that the endogenous status quo serves a disciplinary role: policymakers may not propose (or accept) high taxes because doing so may improve, via a change of the status quo, the bargaining power of low wealth legislators in future sessions. We nd equilibrium capital taxes below 35% under dierent calibrations of the model. Finally, we analyze how redistribution and taxation vary as we change the distribution of agenda setting power, the distribution of wealth within the legislature, and institutional features of the bargaining protocol.
    JEL: E6 H0
    Date: 2012
  12. By: Charles F. Manski
    Abstract: Attempting to shed light on the optimal size of government, economists have analyzed planning problems that specify a set of feasible taxation-spending policies and a social welfare function. The analysis characterizes the optimal policy choice of a planner who knows the welfare achieved by each policy. This paper examines choice of size of government by a planner who has partial knowledge of population preferences and the productivity of spending. This is a problem of decision making under ambiguity. Focusing on income-tax financed public spending for infrastructure that aims to enhance productivity, I examine scenarios where the planner observes the outcome of a status quo policy and uses various decision criteria (expected welfare, maximin, Hurwicz, minimax-regret) to choose policy. The analysis shows that the planner can reasonably choose a wide range of spending levels—thus, a society can rationalize having a small or large government. I conclude that to achieve credible conclusions about the desirable size of government, we need to vastly improve current knowledge of population preferences and the productivity of public spending.
    JEL: H11 H21 H54 J22
    Date: 2012–07
  13. By: Dreßler, Daniel
    Abstract: The scientific literature provides evidence for an impact of company taxes on investments. Practitioners, however, have a skeptical view on the meaning of this effect. This paper builds the bridge between research and the interested practice by providing detailed descriptives and clearly showing how the effects are derived. It analyzes the development of German multinationals' direct investments abroad and of foreign multinationals' investments in Germany from 1996 till 2008. A split along federal states is applied. Starting from the analysis of the basic tax effect, the paper also covers current research topics when analyzing the impact of existing loss carryforwards and when tracing holding structures. The descriptive statistics already show that cross-border investments have increased strongly. The development of Baden-Württemberg mainly corresponds to that of Germany. The impact of taxation on investments is negative. A ten percentage points higher corporate tax rate leads to about five percent lower investments, measured by fixed assets. This effect is smaller for those companies which show loss carryforwards. A lower tax rate at a specific location especially seems to attract holding companies, which are applied for tax efficient group structuring. --
    Keywords: Corporate Taxation,Foreign Direct Investment,Empirical Analysis,Multinational Firms
    JEL: F23 H25 H32
    Date: 2012
  14. By: Daniel le Maire (Department of Economics, University og Copenhagen); Bertel Schjerningo (Department of Economics, University og Copenhagen)
    Abstract: This paper proposes a dynamic extension to Saez (2010) bunching formula that allows us to distinguish bunching based on real responses and income shifting. We provide direct evidence of income shifting and pronounced bunching in taxable income for the case of Danish self-employed. If income shifting was neglected in this case, we would conclude that taxable incomes were highly sensitive to changes in marginal tax rates. We show, however, that more than half of the observed bunching in taxable income for the self-employed is driven by intertemporal income shifting, implying a structural elasticity in the range of 0.14-0.20
    Keywords: Self-employment, tax bunching, retained pro?ts, tax avoidance, income shifting
    JEL: H20 J20
    Date: 2012–05
  15. By: Pierre Salmon (Université de Bourgogne)
    Abstract: The relationship between decentralization and economic growth is generally studied from a perspective stressing universal or quasi-universal regularities across countries. That approach has generated many insights but seems to reach its limits. The paper explains why it allows contrasting positions with regard to the benefits of decentralization even among proponents of free and competitive markets. And it seems from the empirical literature that no robust and economically significant cross-country relation between decentralization and economic performance or growth, except perhaps their independence, has been found. The absence of a relation valid across countries, however, does not entail the absence of relations specific to each country. That possibility justifies exploring a second approach. When country specificity is very strong, and in spite of some recent empirical work on single-country data, it is normally difficult to say, for any given country, if there is a relation between its observable decentralization arrangements and its observable economic performance. However, this may be different under particular circumstances reflecting disequilibrium. Some episodes, related to the way the people and governments respond to persistent economic underperformance, and the way decentralization arrangements then change, may allow a presumption that, in these cases, the relation exists. That presumption is to be verified by case studies.
    Keywords: decentralization;economic growth;public choice;economic systems;reforms.
    JEL: D72 H70 O40
    Date: 2012–06
  16. By: Michael S. Michael and Panos Hatzipanayotou
    Abstract: This paper builds a small open economy trade model where there is pollution from the production and consumption of goods. In the presence of production and consumption pollution, we examine a piecemeal consumer-price-neutral reform of the tariff and consumption tax and a piecemeal producer-price-neutral reform of the export and production taxes on a specific good. The paper identifies sufficient conditions under which the above tax reforms improve welfare and increase government tax revenues.
    Keywords: Domestic and trade tax reforms, Production and consumption generated pollution, Government tax revenues, Welfare
    Date: 2012–06
  17. By: Ratto, Marisa; Thomas, Richard; Ulph, David
    Abstract: In this paper we focus on the effects of investigations on tax compliance. Results from empirical studies suggest that the effects of audits are not only in terms of recovered unpaid tax (direct effects), but there are also indirect effects in terms of future better compliance in the rest of the community. The evidence suggests that such indirect effects tend to outweigh the direct effect. However, current policy decisions of how to allocate investigation resources across different groups of taxpayers generally neglect the indirect effects, generating a potential resource misallocation issue. With the aim to clarify a possible mechanism through which the indirect effects work and hence to inform any policy recommendations, we model tax compliance as a social norm and decompose the total effect of an increase in the audit probability into a direct effect (increased expected fine) and a multiplier effect due to taxpayers’ interdependencies.
    Keywords: optimal audit rule; tax evasion; social norm; opportunities to evade;
    JEL: D81 H26 H30 K42
    Date: 2012
  18. By: Eleftherios Goulas (Department of Economics, University of Patras, Greece); Athina Zervoyianni (Department of Economics, University of Patras, Greece)
    Abstract: We examine the relationship between fiscal deficits and per-capita income growth in a panel of 28 European countries, allowing for perceived risks, in terms of fiscal sustainability, associated with additional government spending. Such risks are proxied by the conditional variability of manufacturing production and stock market returns and by the unconditional variability of two survey-based economic-sentiment indicators. We find evidence of an asymmetric relationship, in that fiscal deficits give rise to adverse growth effects if they coincide with high uncertainty regarding the future prospects of the economy and no significant negative growth effects in the low-uncertainty case.
    Keywords: growth, fiscal policy, government budget constraint, uncertainty
    JEL: O40 E60 H60 D80
    Date: 2012–07
  19. By: Niels Johannesen (Department of Economics, University of Copenhagen)
    Abstract: The rules demarcating debt and equity for tax purposes differ across countries, hence the possibility that a hybrid instrument is treated as equity in one country and debt in another and that a ?rm with foreign investment can combine tax favored dividend income in the home country and tax deductible interest expenses in the foreign country. This paper characterizes the scope for cross-border hybrid instruments as a function of the properties of demarcation rules. For any given pair of countries, ?rms in at least one country and sometimes in both can ?nance investment in the other country with a cross-border hybrid instrument. When hybrid instruments can be embedded in multi-layered ?nance structures, fi?rms in both countries can always achieve equity treatment in the home country and debt treatment in the host country.
    Keywords: Migration, Redistribution, Income Taxation, Government Strategy, Endogenous Type of Competition
    JEL: H7 J2 F2
    Date: 2012–04
  20. By: Torbe M. Andersen (Department of Economics and Business, Aarhus University, Denmark)
    Abstract: Fiscal sustainability and fiscal policy targets
    Keywords: Fiscal sustainability, Intergeneration distribution, risk sharing, intermediate fiscal targets
    JEL: E6 H6
    Date: 2012–07–07
  21. By: Dimitris Christopoulos (Panteion University); Peter McAdam (University of Surrey and European Central Bank)
    Abstract: Most growth models imply positive impacts on economic growth from greater openness. And a key factor linking openness and growth is the efficiency with which resources are used. Empirically, however, the efficiency impacts of trade have been ambiguous. Using a stochastic frontier analysis, we examine the impact of openness on technical (in)efficiency for a sample of OECD economies. Unlike the bulk of related studies, we work at the industry level. Given recent debates on technology-inspired growth and TFP effects, we additionally examine whether ICT expenditures impacts openness and efficiency. We establish the elasticity of openness with respect to (in)efficiency; TFP and Scale Economies; and Technical Inefficiency across countries and sectors. Both openness and ICT usage have robustly positive impacts on efficiency. Our results shed light on the impact of, spillovers be- tween, and heterogeneity across countries and industries from, increasing openness interacted with the use of advanced technologies.
    Date: 2012–07
  22. By: Marko Koethenbuerger (University of Copenhagen and CESifo)
    Abstract: Corporate tax systems generally maintain a sharp distinction between debt and equity, however, the advent of hybrid instruments has transformed the universe offinancial instruments into a debt-equity continuum and tax systems therefore need to draw lines that distinguish the set of debt instruments from the set of equity instruments. When countries draw these lines differently, there is a scope for international tax planning: A multinational firm financing a foreign investment with a hybrid instrument categorized as debt in the host country and equity in the home country combines the benfits of tax deductible interest payments in the host country and tax favored dividend payments in the home country. This paper develops a theoretical model of strategic line drawing between debt and equity in the presence of hybrid instruments. In the absence of international cooperation, lines are generally drawn in a globally suboptimal manner. The inefficiency ciency typically derives from the endeavors of policymakers to draw lines in ways that facilitate hybrid financing by domestic multinational firms and impede hybrid financing by foreign multinational firms with a view to eroding foreign taxation of domestic firms and enforcing domestic taxation of foreign firms.
    Keywords: Migration, Redistribution, Income Taxation, Government Strategy, Endogenous Type of Competition
    JEL: H7 J2 F2
    Date: 2012–01
  23. By: Hong-Loan Trinh (HEC Montreal); William J. McCluskey (University of Ulster)
    Abstract: In 2012, Vietnam will celebrate 25 years of economic reform and structural readjustment from a largely centralized, subsidized economy to one based on market principles. A major component of these reforms has involved establishing land and property rights, thereby giving individuals and organizations secure title to the property they occupy and use. The passing of various Land Laws has given legislative support to the concept of private property rights. This represents a significant ideological change, given that land in Vietnam has always been considered to belong to the State. In conjunction with these changes, focus has shifted to reforming the real property tax from a tax largely based on rice productivity to one based on ad valorem principles. This paper reviews existing property-based taxes, highlighting their weaknesses and outlining the potential for a land tax to effectively replace the current property tax.
    Keywords: Vietnam, land ownership, land tax, property taxes, property tax reform, area-based taxation
    JEL: H24 Q15
    Date: 2012–03
  24. By: Kerri Brick; Martine Visser
    Abstract: The lack of cooperation and prevalence of free riding in efforts to reduce emissions reflects the public good dilemma synonymous with climate change: whereby individual incentives lead to sub-optimal outcomes. This study examines how cooperative norms can be fostered through democratic processes. Specifically, we assess whether a given policy affects cooperation more significantly when it is democratically chosen by heterogeneous subjects as opposed to exogenously imposed by the experimenter. Subjects with differing marginal costs of abatement must democratically select an institution to reduce a national greenhouse gas inventory. By majority vote, subjects can choose between communication and two carbon tax variants. The experimental literature from studies with homogenous subjects suggests that cooperation improves when policy is endogenously selected as opposed to exogenously enforced. Overall we find that endogenous choice does not improve cooperation when subjects are heterogeneous. Furthermore, we find that, in the absence of a binding commitment, cooperation declines with endogenous choice as the prevalence of free-riding increases.
    Keywords: heterogeneity; voting; communication; public good
    Date: 2012
  25. By: Greg Hannsgen
    Abstract: Recently, some have wondered whether a fiscal stimulus plan could reduce the government's budget deficit. Many also worry that fiscal austerity plans will only bring higher deficits. Issues of this kind involve endogenous changes in tax revenues that occur when output, real wages, and other variables are affected by changes in policy. Few would disagree that various paradoxes of austerity or stimulus might be relevant, but such issues can be clarified a great deal with the help of a complete heterodox model. In light of recent world events, this paper seeks to improve our understanding of the dynamics of fiscal policy and financial crises within the context of two-dimensional (2D) and five-dimensional heterodox models. The nonlinear version of the 2D model incorporates curvilinear functions for investment and consumption out of unearned income. To bring in fiscal policy, I make use of a rule with either (1) dual targets of capacity utilization and public production, or (2) a balanced-budget target. Next, I add discrete jumps and policy-regime switches to the model in order to tell a story of a financial crisis followed by a move to fiscal austerity. Then, I return to the earlier model and add three more variables and equations: (1) I model the size of the private- and public-sector labor forces using a constant growth rate and account for their social reproduction by introducing an unemployment-insurance scheme; and (2) I make the markup endogenous, allowing its rate of change to depend, in a possibly nonlinear way, on capacity utilization, the real wage relative to a fixed norm, the employment rate, profitability, and the business sector’s desired capital-stock growth rate. In the conclusion, I comment on the implications of my results for various policy issues.
    Keywords: Financial Crisis; Post-Keynesian Economics; Fiscal-policy Rule; Dynamical System; Markup Dynamics; Kalecki-Steindl Model of Effective Demand; Hyman Minsky; Automatic Stabilizers; Growth Cycles; Budget Deficit; Capacity-utilization Targeting Rule; Historical Time; Policy Regime Switches; Keynesian Kaleidics; Chartalism; Distributive Curve
    JEL: E12 E32 E62 J65
    Date: 2012–05
  26. By: Schaeffer, Y.; Charlot, S.
    Abstract: Standard 'New Economic Geography' (NEG) models assume mobile individuals settle in the region where they can earn the highest real income. But recent economic studies on 'Happiness' have accumulated empirical evidence suggesting most individuals - not just the poor - dislike living in regions where income inequality is high. Using a Krugman-type model,augmented with housing costs, we introduce the notion of 'Local Inequality Aversion' and show how it matters to economic geography. On the one hand, mobile individuals suffer an endogenous regional disamenity - income inequality - which produces an agglomerative (dispersive) force when transport costs are high (low). On the other hand, local inequality aversion is likely to lead to some redistributive transfers which benefit both rich and poor : if so, an increase in aversion intensity favors increased agglomeration.
    JEL: R12 R28 H71
    Date: 2012
  27. By: Omar Sene (Centre d'Economie de la Sorbonne)
    Abstract: The ability to produce local public goods and services such as sharing savings, risk, insurance, sanitation and educational services, is a key fator for development. This ability, however, varies greatly across communities (Ostrom 1990 ; Khwaja 2009). Considering that this ability depends critically on members' willingness to act collectively, this paper investigate whether the level of trust among people measured in different ways can predict the amount of public good produced. I find that (i) trust, as measured by survey questions, has poor predictive power, while (ii) the results from our version of Trust Game are much better predictors of local public-good production.
    Keywords: Trust, collective action, provision of local public goods, trust game.
    JEL: C93 H41 D71
    Date: 2012–06

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