nep-pbe New Economics Papers
on Public Economics
Issue of 2012‒09‒09
eighteen papers chosen by
Keunjae Lee
Pusan National University

  1. Would Less Fiscal Decentralization Reduce Public Sector Size across Sectors in Europe ? By Michele Cincera; Antonio Estache; Wolf Alexander
  2. Simulating the Effects of Michigan's MEGA Tax Credit Program on Job Creation and Fiscal Benefits By Timothy J. Bartik; George A. Erickcek
  3. Corporate taxation and exports By Federici, Daniela; Parisi, Valentino
  4. Uneven treatment of family life? Horizontal equity in the U.S. tax and transfer system By Bönke, Timm; Eichfelder, Sebastian; Utz, Stephen
  5. Strategic interactions in public R&D across EU-15 countries: A spatial econometric analysis By Hakim Hammadou; Sonia Paty; Maria Savona
  6. The topsy-turvy sharing of the gaming tax field in Canada, 1970-2010: provincial payments, federal withdrawal By Étienne Desjardins; Mélina Longpré; François Vaillancourt
  7. Henry George Theorem in a Dynamic Framework without Accumulation of Public Goods By Masamichi Kawano
  8. Public housing units vs. housing vouchers: accessibility, local public goods, and welfare By Leung, Charles Ka Yui; Sarpca, Sinan; Yilmaz, Kuzey
  9. Negative Income Taxes, Inequality, and Poverty By Constantine Angyridis; Brennan S. Thompson
  10. Heterogeneity and Cooperation in Privileged Groups: The Role of Capability and Valuation on Public Goods Provision By Felix Kolle
  11. Determinants of household demand for services - Formal Versus Informal Sector By Izabela Styczynska
  12. Fairness Spillovers – The Case of Taxation By Thomas Cornelißen; Oliver Himmler; Tobias Koenig
  13. Financial Globalization, Inequality, and the Raising of Public Debt By Azzimonti, Marina; de Francisco, Eva; Quadrini, Vincenzo
  14. MTEFs and fiscal performance: panel data evidence By Grigoli, Francesco; Mills, Zachary; Verhoeven, Marijn; Vlaicu, Razvan
  15. Fiscal and Financial Determinants of Eurozone Sovereign Spreads By Giovanni Caggiano; Luciano Greco
  16. Decentralization of Health and Education in Developing Countries: A Quality-Adjusted Review of the Empirical Literature By Anila Channa; Jean-Paul Faguet
  17. Removing poverty and inequality in India: the role of infrastructure By Majumder, Rajarshi
  18. FDI and Income Inequality - Evidence from Latin American Economies By Dierk Herzer; Philipp Hühne; Peter Nunnenkamp

  1. By: Michele Cincera; Antonio Estache; Wolf Alexander
    Abstract: This paper presents an empirical analysis of the recent impact of fiscal decentralization in Europe on total expenditure for specific government functions as well as on total government size. A panel dataset for the years 2000 to 2009 for European countries has been constructed from EUROSTAT data. The effects of decentralization interact with the degree of vertical imbalances and tend to be negative as predicted by the Leviathan view of government. Effects vary strongly across government functions and are strongest in relative terms for infrastructure and social spending. Moderate restraining effects are found for education, while health spending is not significantly affected
    Date: 2012–08
  2. By: Timothy J. Bartik (W.E. Upjohn Institute for Employment Research); George A. Erickcek (W.E. Upjohn Institute for Employment Research)
    Abstract: This paper simulates job and fiscal impacts of Michigan’s MEGA tax credit program for job creation. Under plausible assumptions about how such credits affect business location decisions, the net costs per job created of the MEGA program are simulated to be of modest size. The job creation impacts of MEGA are simulated to be considerably larger than devoting similar dollar resources to general business tax cuts. The simulation methodology developed here is applicable to incentives in other states.
    Keywords: State and local economic development policy, tax incentives, fiscal impact analysis, labor market benefits, regional multipliers
    JEL: R11 R23 R28 R30 R58 H70
    Date: 2012–06
  3. By: Federici, Daniela; Parisi, Valentino
    Abstract: The paper analyses the relationship between corporate taxes and exports at firm level. We use an integrated dataset that combines, for the period 2004-2006, survey data(Indagine sulle Imprese Manifatturiere) and company accounts for the manufacturing sector to estimate a Probit and a Tobit model. Our results suggest that export participation as well as export intensity increase with corporate taxation. Consistently with recent developments of the corporate tax incidence theory, this finding can be traced out to the greater ability of exporting firms to shift the tax burden on international markets, compared to domestic firms. Calculation of the average and marginal corporate tax rates uses the methodology recently developed by Egger et al. (2009) which allows deriving firm-specific effective corporate tax rates.
    Keywords: Corporate taxation; exports; effective tax rates
    JEL: H25 F14 H32
    Date: 2012–09–03
  4. By: Bönke, Timm; Eichfelder, Sebastian; Utz, Stephen
    Abstract: We analyze the distributive justice of the combined burden of income taxes, social security taxes and public transfers on employee households in the United States on the federal level and in six member states. To investigate whether the treatment of families by the aggregate tax and transfer system can be regarded as fair, we compare the equivalent incomes of eight different household types. Using the concepts of horizontal equity and system-inherent equivalence scales, we find evidence for a privileged treatment of families with children and a low market income due to the earned income tax credit (EIC), the child tax credit and the supplemental nutrition assistance program (SNAP). If employment taxes are interpreted as taxes in the proper sense, we obtain a favorable treatment of family households and especially married couples for middle-sized market incomes. For high market incomes, we observe a decreasing privilege for all family types. Regarding state tax and transfer systems, temporary aid for needy families (TANF) substantially increases the observed privilege for low-income families compared to singles, while the analyzed state income taxes are generally in line with the federal tax scheme. Overall, our results imply a significant contradiction in value judgments within the U.S. tax and transfer system. --
    Keywords: horizontal equity,family taxation,distributive justice,tax and transfer system,equivalent income,equivalent income taxation
    JEL: D31 D63 H24
    Date: 2012
  5. By: Hakim Hammadou; Sonia Paty; Maria Savona
    Abstract: The aim of this paper is to test the presence of strategic interactions in government spending on Research and Development (R&D) among EU-15 countries. We add to the literature on public choice strategic interactions in general, and to work on R&D spending in particular. We take account of traditional and some overlooked factors related to countries' public R&D spending, including (i) the international context -- i.e. Lisbon strategy; (ii) country characteristics - the National System of Innovation, and more specifically national similarities in relation to (a) trade and economic size and (b) sectoral specialization. Sectoral specialization is likely to affect government spending, depending on the mechanisms of complementarity or substitution between public and private R&D. Using a spatial dynamic panel model in which spatial matrices are specified both in terms of traditional Euclidean distance, and sectoral specialization proximity, we confirm the existence of strategic interactions on R&D spending among European countries with similar economic size, international trade and sectoral structure. Unlike the results emerging from the literature on strategic interactions in public choice, geographic proximity seems not to affect interactions related to public spending on R&D.
    Keywords: Public spending strategic interactions, Public R&D expenditures, National Systems of Innovation, Complementarity public and private R&D, Spatial interactions, EU countries, spatial dynamic panel data
    Date: 2012–08–27
  6. By: Étienne Desjardins; Mélina Longpré; François Vaillancourt
    Abstract: This paper presents an unusual inter-governmental financial arrangement: a payment by constituent units of a federation to the federal government to keep it out of a fiscal field and thus gain sole occupancy for themselves. This paper thus presents the history of the federal/provincial relationship in the gaming field in Canada focusing on the key period of 1976-1980 when both levels of governments operated lotteries. It chronicles the attempts of both levels of governments to reach an agreement on their sharing of this revenue field. Revenue sharing was rejected, market slicing was agreed to but since 1980, the provinces have purchased a sole occupancy right through an annual payment to the federal government. It shows, using multivariate analysis, that the presence of Loto-Canada reduced provincial gaming revenues in 1978 and 1979 and thus that the provinces were right to seek sole occupancy of the lottery field. It also shows, using numerical simulations of alternative formulas, that the agreement negotiated is very advantageous for the provinces as it did not take into account either the future growth of the lottery market or the diversification of the gaming market in Canada from 1980 to 2010, let alone both. <P>Ce texte présente une entente financière inter-gouvernementale inusuelle soit un paiement par les entités constituantes d’une fédération au gouvernement central pour obtenir l’occupation exclusive par elle-même d’un champ fiscal. Nous présentons donc l’historique des relations fédérales-provinciales au Canada dans le domaine du jeu de hasard, mettant l’emphase sur la période 1976-1980 lorsque les deux niveaux de gouvernements opéraient des loteries. Nous retraçons les diverses tentatives de parvenir à une entente sur le partage de cette source de revenus. Le partage des revenus fut rejeté, le partage des marchés fut convenu, mais depuis 1980, les provinces versent un paiement annuel au gouvernement fédéral pour un droit d’occupation exclusive du domaine du jeu de hasard. Des résultats d’une analyse multivariée indiquent qu’en 1978 et 1979, la présence de Loto-Canada réduisait les revenus du jeu des provinces; elles avaient donc raison d’en chercher l’occupation exclusive. Ce texte indique, à l’aide de simulations numériques, que l’entente en vigueur est très avantageuse pour les provinces, car elle ne tient pas compte de la croissance du marché des loteries et de la diversification du marché du jeu de hasard.
    Keywords: Lottery, Gaming revenues, fiscal federalism, Canada, Loterie jeu de hasard, fédéralisme financier, Canada
    Date: 2012–08–01
  7. By: Masamichi Kawano (School of Economics, Kwansei Gakuin University)
    Abstract: The Henry George Theorem, which is originally established in a static model, asserts that the cost of public good provision should be equal to the total revenue of the land rent to achieve the optimal size of population of each region. This paper examines this theorem in a dynamic framework of overlapping generations model, assuming that the government maximizes the sum of the utilities of the generations of finite periods. We show that the optimal path converges to the stationary state, however, it does not stay on it. We derive that the theorem is valid only in the stationary state, and no longer valid along the optimal path.
    Keywords: Henry George theorem, local public good, overlapping generations model
    JEL: R51 F11
    Date: 2012–08
  8. By: Leung, Charles Ka Yui; Sarpca, Sinan; Yilmaz, Kuzey
    Abstract: We develop a general equilibrium model of residential choice and study the effects of two housing aid policies, public housing units and housing vouchers. Land is differentiated by both residential accessibility and local public goods, and the provision levels of local public goods are determined by property tax revenues and neighborhood compositions. Households differ in their incomes and preferences for local public goods. Housing aid policies are financed by general income taxes. We discuss how the location of public housing units is a fundamental policy variable, in addition to the numbers and sizes of units, and argue that vouchers not only cause less distortion for social welfare compared to public housing, but may also improve overall welfare.
    Keywords: Public housing; housing vouchers; housing policy; welfare; residential location choice; local public goods; endogenous sorting
    JEL: R10 H40 D60
    Date: 2012
  9. By: Constantine Angyridis (Department of Economics, Ryerson University); Brennan S. Thompson (Department of Economics, Ryerson University)
    Keywords: negative income taxes, inequality, poverty, heterogeneous agents, Lorenz dominance
    Date: 2012–08
  10. By: Felix Kolle (Cologne Graduate School in Management, Economics and Social Sciences)
    Abstract: We experimentally investigate cooperation in privileged groups which according to Olson (1965) are groups in which at least one member has an incentive to supply a positive amount of the public good. More specifically, we analyze group member heterogeneity with respect to two dimensions: capability and valuation. Our results reveal that with and without punishment opportunities, heterogeneity crucially aects cooperation and coordination within groups. Compared to non-privileged groups, asymmetric valuations for the public good have negative eects, and asymmetric capabilities in providing the public good have positive eects on voluntary contributions. The main reason for these results are the dierent externalities contributions have on the other group members’ payos affecting individuals’ willingness to cooperate. Hence, whether heterogeneity facilitates or impedes collective action, and whether privileged groups are as privileged as they initially seem is subject to the nature of their asymmetry.
    Keywords: public goods, heterogeneity, privileged groups, inequality, cooperation, punishment
    Date: 2012–07
  11. By: Izabela Styczynska
    Abstract: This paper addresses the issue of household demand for services in Poland when informal sector is taken into consideration. The aim of the study is threefold: (i) to investigate the factors influencing households expenses for services, (ii) to find the determinants of households’ tax strategy (choice between acquiring services on regular labour market or not), (iii) to investigate the differences between the factors that influence the expenses for formal versus informal services. Two-step Heckman selection model is used to account for the selection into buying household services. Lee’s (1983) procedure is adopted to control for the selection into the particular choice of tax strategy when purchasing household services. The decision whether to buy household services and whether formally or informally is modelled as a sequential choice and estimated by bivariate probit with selection. An important novel feature of the model used is the inclusion of variables that capture social norms and personal attitudes toward tax evasion. The study concludes that factors influencing expenses for services are positively related to financial situation of households, education and age of household head. The probability of avoiding taxes is higher for lower income households, households with more than one member and for those where a positive attitude toward informal employment is expressed. The impact of determinants of expenses for formal and informal services separately is comparable. Only household structure has the opposite effect on expenses for formal services versus informal ones.
    Keywords: Informal employment, Households expenditure, Services in the home
    JEL: D13 H26 J23
    Date: 2012–08
  12. By: Thomas Cornelißen (University College, London); Oliver Himmler (Max Planck Institute for Research on Collective Goods, Bonn); Tobias Koenig (Hannover University, Department of Economics)
    Abstract: It is standardly assumed that individuals react to perceived unfairness or norm violations in precisely the same area or relationship where the original offense has occurred. However, grievances over being exposed to injustice may have even broader consequences and also spill over to other contexts, causing non-compliant behavior there. We present evidence that such 'fairness spillovers' can incur large economic costs: A belief that there is unfairness in taxation in the sense that the rich don't pay enough taxes is associated with a twenty percent higher level of paid absenteeism from work.
    Keywords: fairness, Beliefs, Taxation, Work Morale
    JEL: D63 H26 H31
    Date: 2012–08
  13. By: Azzimonti, Marina; de Francisco, Eva; Quadrini, Vincenzo
    Abstract: During the last three decades, the stock of government debt has increased in most developed countries. During the same period, we also observe a significant liberalization of international financial markets and an increase in income inequality in several industrialized countries. In this paper we propose a multicountry political economy model with incomplete markets and endogenous government borrowing and show that governments choose higher levels of public debt when financial markets become internationally integrated and inequality increases. We also conduct an empirical analysis using OECD data and find that the predictions of the theoretical model are supported by the empirical results.
    Keywords: Financial integration; Government debt; Income inequality
    JEL: E60 F59
    Date: 2012–09
  14. By: Grigoli, Francesco; Mills, Zachary; Verhoeven, Marijn; Vlaicu, Razvan
    Abstract: In the last two decades more than 120 countries have adopted a version of a Medium-Term Expenditure Framework (MTEF). These are budget institutions whose rationale it is to enable the central government to make credible multi-year fiscal commitments. This paper analyzes a newly-collected dataset of worldwide MTEF adoptions during 1990-2008. It exploits within-country variation in MTEF adoption in a dynamic panel framework to estimate their impacts. The analysis finds that MTEFs strongly improve fiscal discipline, with more advanced MTEF phases having a larger impact. Higher-phase MTEFs also improve allocative efficiency. Only top-phase MTEFs have a significantly positive effect on technical efficiency.
    Keywords: Public Sector Expenditure Policy,Debt Markets,Health Monitoring&Evaluation,Banks&Banking Reform,E-Business
    Date: 2012–09–01
  15. By: Giovanni Caggiano (University of Padova); Luciano Greco (University of Padova)
    Abstract: The relationship between fiscal and financial euro area indicators and sovereign yield spreads has changed after the start of the financial crisis. Increased financial volatility has magnified the impact of fiscal conditions as drivers of sovereign risk, has widened the set of macroeconomic determinants, and has caused substantial interactions between fiscal and financial variables.
    Keywords: Fiscal policy, Financial Crisis, Refinancing risk, Regime switch, Cross-country Panel.
    JEL: E43 E62 F32 H60
    Date: 2012–07
  16. By: Anila Channa; Jean-Paul Faguet
    Abstract: We review empirical evidence on the ability of decentralization to enhance preference matching and technical efficiency in the provision of health and education in developing countries. Many influential surveys have found that the empirical evidence of decentralization's effects on service delivery is weak, incomplete and often contradictory. Our own unweighted reading of the literature concurs. But when we organize the evidence first by substantive theme, and then - crucially - by empirical quality and the credibility of its identification strategy, clear patterns emerge. Higher quality evidence indicates that decentralization increases technical efficiency across a variety of public services, from student test scores to infant mortality rates. Decentralization also improves preference matching in education, and can do so in health under certain conditions, although there is less evidence for both. We discuss individual studies in some detail. Weighting by quality is especially important when evidence informs policy-making. Firmer conclusions will require an increased focus on research design, and a deeper examination into the prerequisites and mechanisms of successful reforms.
    Keywords: Decentralization, School-Based Management, Education, Health, Service Delivery, Developing Countries, Preference Matching, Technical Efficiency
    Date: 2012–07
  17. By: Majumder, Rajarshi
    Abstract: Developing countries attach enormous importance to physical infrastructure for poverty reduction. We contend that this association is different across types of infrastructure and regions. The present paper explores the multidimensional association between infrastructure and poverty in India in a regional framework. Infrastructural availability improves average living standards and lowers the incidence of poverty but the relation between infrastructural situation and inequality indicates higher inequality in regions with better infrastructure, especially for rural areas. Various sub-components of infrastructure have different impacts on poverty reduction and policy formulations should focus on such differentiated roles while drawing up programmes.
    Keywords: Poverty; Infrastructure; Inequality; India; Regional Study; Asia;
    JEL: H54 D63 I32
    Date: 2012–04
  18. By: Dierk Herzer; Philipp Hühne; Peter Nunnenkamp
    Abstract: We analyze whether foreign direct investment (FDI) has contributed to the typically wide income gaps in five Latin American host countries. We perform country-specific and panel cointegration techniques to assess the long-run impact of inward FDI stocks on income inequality among households in Bolivia, Chile, Colombia, Mexico and Uruguay. The panel cointegration analysis reveals a significant and positive effect on income inequality. Furthermore, FDI contributed to widening income gaps in all individual sample countries, except for Uruguay. Our findings are robust to the choice of different estimation methods. There is no evidence for reverse causality
    Keywords: FDI, income inequality, cointegration techniques, Latin America
    JEL: F21 D31
    Date: 2012–08

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