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on Public Economics |
| By: | Duncan, Denvil (Indiana University); Peter, Klara Sabirianova (University of North Carolina, Chapel Hill) |
| Abstract: | This paper analyzes the effect of changes in structural progressivity of national income tax systems on observed and actual income inequality. Using several unique measures of progressivity over the 1981-2005 period for a large panel of countries, we find that progressivity reduces inequality in observed income, but has a significantly smaller impact on actual inequality, approximated by consumption-based GINIs. We show empirically that the differential effect on observed vs. actual inequality is much larger in countries with weaker legal institutions. Substantial differences in inequality response to changes in top vs. bottom rates are also uncovered. The paper discusses implications of these results for flat tax policies. |
| Keywords: | income inequality, Gini, personal income tax, structural progressivity, tax evasion |
| JEL: | H2 I3 J3 O1 O2 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6910&r=pbe |
| By: | Doerrenberg, Philipp (University of Cologne); Duncan, Denvil (Indiana University) |
| Abstract: | Motivated by the observation that access to evasion opportunities is distributed heterogeneously across the labor market, this paper examines the extent to which labor supply elasticities with respect to tax rates depend on such evasion opportunities. We first discuss the channels through which access to evasion affects labor supply responses and then set up a laboratory experiment in which all participants undertake a real-effort task over several rounds. Subjects face a tax rate, which varies across rounds and are required to pay taxes on earned income. The treatment group is given the opportunity to underreport income while the control group is not. We find that participants in the treatment group have significantly larger effort responses to changes in the net-of-tax rate than participants in the control group; suggesting that both groups indeed react differently to taxes. |
| Keywords: | lab experiment, taxable income, labor supply, tax evasion, taxes |
| JEL: | H21 H24 H26 J22 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6914&r=pbe |
| By: | Stefanie Stantcheva (MIT); Emmanuel Saez (University of California Berkeley); Thomas Piketty (Paris School of Economics) |
| Abstract: | We then analyze top income and top tax rate data in 18 OECD countries. There is a strong correlation between cuts in top tax rates and increases in top 1% income shares since 1975, implyingthat the overall elasticity is large. But top income share increases have not translated into higher economic growth, consistent with the zero-sum bargaining model. This suggests that the first elasticity is modest in size and that the overall effect comes mostly from the third elasticity. Consequently, socially optimal top tax rates might possibly be much higher than what is commonly assumed. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:78&r=pbe |
| By: | Nir Jaimovich; Sergio Rebelo |
| Abstract: | We study a model in which the effects of taxation on growth are highly non-linear. Marginal increases in tax rates have a small growth impact when tax rates are low or moderate. When tax rates are high, further tax hikes have a large, negative impact on growth performance. We argue that this non-linearity is consistent with the empirical evidence on the effect of taxation and other disincentives to investment and innovation on economic growth. |
| JEL: | H2 O4 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18473&r=pbe |
| By: | Aronsson, Thomas (Department of Economics, Umeå School of Business and Economics); Micheletto, Luca (Department of Policy Analysis and Public Management); Sjögren, Tomas (Department of Economics, Umeå School of Business and Economics) |
| Abstract: | This paper re-examines the question of whether federal ex-post redistribution in terms of public funds leads to under-provision of public goods by adding the assumption that the member states are free to leave the economic federation. We show that federal ex-post redistribution no longer necessarily means under-provision of local and federal public goods. |
| Keywords: | Public goods; fiscal federalism; ex-post redistribution |
| JEL: | D61 H41 H77 |
| Date: | 2012–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0850&r=pbe |
| By: | Jan Lorenz; Fabian Paetzel; Frank Schweitzer |
| Abstract: | We demonstrate by mathematical analysis and systematic computer simulations that redistribution can lead to sustainable growth in a society. The human capital dynamics of each agent is described by a stochastic multiplicative process which, in the long run, leads to the destruction of individual human capital and the extinction of the individualistic society. When agents are linked by fully-redistributive taxation the situation might turn to individual growth in the long run. We consider that a government collects a proportion of income and reduces it by a fraction as costs for administration (efficiency losses). The remaining public good is equally redistributed to all agents. We derive conditions under which the destruction of human capital can be turned into sustainable growth, despite the losses from the random growth process and despite the administrative costs. Sustainable growth is induced by redistribution. This effect could be explained by a simple portfolio-effect which re-balances individual stochastic processes. The findings are verified for three different tax schemes: proportional tax, taking proportional more from the rich, and proportionally more from the poor. We discuss which of these tax schemes is optimal with respect to maximize growth under a fixed rate of administrative costs, or with respect to maximize the governmental income. This leads us to some general conclusions about governmental decisions, the relation to public good games, and the use of taxation in a risk taking society. |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1210.3716&r=pbe |
| By: | Raouf Boucekkine (Aix-Marseille Université, Greqam and UCL, Ires-Core); Aude Pommeret (University of Lausanne and Université de Savoie, Irege); Fabien Prieur (University Montpellier I and Inra, Lameta) |
| Abstract: | This paper solves a second-best problem where a government has in particular to choose whether to tax financial inflows (capital controls) or not, and when. A multi-stage optimal control technique is used to this end. First, it is shown that it is optimal to switch in finite time from capital controls to full financial liberalization (zero tax on capital inflows) whenever a measure of total wealth is above a certain threshold. In particular, a too large initial debt makes financial liberalization sub-optimal. Second, our analysis suggests that capital controls should be used countercyclically: booms should be responded by more financial liberalization while recessions should rather lead to more stringent capital controls. Third, when public expenditure is chosen in order to maximize social welfare, financial liberalization is not unaffordable only for poor countries, even wealthy countries might find it optimal to implement capital controls if they aim to keep a large amount of public expenditure. In short, the preservation of the welfare states might require a more frequent use of capital controls. |
| Keywords: | Capital controls, second-best, debt, public expenditures, multi-stage optimal control |
| JEL: | F34 F43 C61 |
| Date: | 2012–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1212&r=pbe |
| By: | Berliant, Marcus; Fujishima, Shota |
| Abstract: | We consider the optimal nonlinear income taxation problem in a dynamic, stochastic environment when the government is sluggish in the sense that it cannot change the tax rule as uncertainty resolves. We argue that the zero top marginal tax rate result in static models is of little practical importance because it actually holds only when the top earner in the initial period receives the highest shock in every period. |
| Keywords: | Optimal income taxation; New dynamic public finance |
| JEL: | H21 |
| Date: | 2012–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41947&r=pbe |
| By: | Jesse Edgerton |
| Abstract: | This paper develops and tests the hypothesis that accounting rules mitigate the effect of tax policy on firm investment decisions by obscuring the timing of tax payments. I model a firm that maximizes a discounted weighted average of after-tax cash flows and accounting profits. I estimate the weight placed on accounting profits by comparing the effectiveness of tax incentives that do and do not affect them. Investment tax credits, which do affect accounting profits, have larger effects on investment than accelerated depreciation, which does not. This difference in estimated effects is not obviously driven by discounting, cash flow effects, or measurement error. Results thus suggest that accelerated depreciation provisions are less effective than they otherwise would be and that the corporate income tax could create smaller distortions to investment decisions than we would otherwise estimate. |
| JEL: | G31 H25 H32 M41 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18472&r=pbe |
| By: | Cubel, Maria (University of Barcelona) |
| Abstract: | In this paper we analyze the political viability of equalization rules in the context of a decentralized country. We explore the idea that when equalization rules are perceived as unfair, regions may initiate a political conflict. Regions are formed by identical individuals who, through lobbying, try to obtain a higher share from the (equalization) pool of resources. Political conflict is measured as the total contribution to lobbying. We conclude that the onset of conflict depends on the degree of publicness of the regional budget and the relative size of the regions. When regional budgets are used to provide pure public goods, full fiscal equalization is politically feasible. However, fiscal equalization is not immune to conflict when budgets are used to provide private goods or a linear combination of private and public goods. The likelihood of political conflict decreases as the regions become similar in size. |
| Keywords: | political conflict; lobbying; fiscal equalization; social decision rules |
| JEL: | D31 D74 H77 R51 |
| Date: | 2012–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:ris:nepswp:2012_009&r=pbe |
| By: | Haan, Jakob de; Sturm, Jan-Egbert; Jong-A-Pin, Richard (Groningen University) |
| Abstract: | We use real-time annual data on the fiscal balance, government current spending, current revenues and net capital outlays as published at a half yearly frequency in the OECD Economic Outlook for 25 OECD countries. For each fiscal year t we have a number of forecasts, a first release, and subsequent revisions. It turns out that revisions in the fiscal balance data are not affected by elections. However, we do find that governments spend more than reported before an election which provides support for moralhazard type of political budget cycle (PBC) models: through hidden efforts the incumbent tries to enhance his perceived competence. We also find that governments had higher current receipts than reported before an election, which is in line with adverse-selection type of PBC models in which incumbents signal competence through expansionary fiscal policy before the elections. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugsom:12010-eef&r=pbe |
| By: | Pop-Silaghi, Monica (Babeș-Bolyai University); Jude, Cristina (Babeș-Bolyai University); Alexa, Diana (Babeș-Bolyai University); Litan, Cristian (Babeș-Bolyai University) |
| Abstract: | This paper examines the impact of R&D expenditures in business and private sector on economic growth in Central and Eastern European Countries over the period 1998-2008. Using a Generalised Method of Moments estimator, we find that business R&D has a high and stable contribution to economic growth. Public R&D has no effect on growth but does not crowd out private activity. The paper also finds that part of the business R&D effect is accounted for by human capital. The results remain robust after considering macroeconomic control variables. |
| Keywords: | R&D; human capital; economic growth; CEE; dynamic panel-GMM. |
| JEL: | O32 O33 O52 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:ris:kngedp:2012_004&r=pbe |
| By: | Torosyan, Karine (ISET, Tbilisi State University); Filer, Randall K. (Hunter College/CUNY) |
| Abstract: | This paper applies three different methods widely used in the literature to track changes in shadow economic activity in Georgia following a drastic tax reform in 2005. The first method is a currency demand approach based on macro level data. The second and third methods rely on micro data from household surveys. Overall, we find evidence that the amount of income underreporting decreased in the years following the reform. The biggest change is observed for households headed by a farmer, followed by "other" types of households where the head does not report any working status. Employed and self-employed households appear very similar before the tax reform and show minimal adjustment in income reporting in the post-reform period. Results, however, suggest that much of any difference may have come from increased enforcement efforts rather than rate changes. |
| Keywords: | consumer behavior, tax reform, hidden/shadow economy, transition economy |
| JEL: | E01 H26 J39 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6912&r=pbe |
| By: | Balázs Égert |
| Abstract: | The economics profession seems to increasingly endorse the existence of a strongly negative nonlinear effect of public debt on economic growth. Reinhart and Rogoff (2010) were the first to point out that a public debt-to-GDP ratio higher than 90% of GDP is associated with considerably lower economic performance in advanced and emerging economies alike. A string of recent empirical papers broadly validates this threshold value. This paper seeks to contribute to this literature by putting a variant of the Reinhart-Rogoff dataset to a formal econometric testing. Using nonlinear threshold models, there is some evidence in favour of a negative nonlinear relationship between debt and growth. But these results are very sensitive to the time dimension and country coverage considered, data frequency (annual data vs. multi-year averages) and assumptions on the minimum number of observations required in each nonlinear regime. We show that when non-linearity is detected, the negative nonlinear effect kicks in at much lower levels of public debt (between 20% and 60% of GDP). These results, based on bivariate regressions on secular time series, are largely confirmed on a shorter dataset (1960-2010) when using a multivariate growth framework that accounts for traditional drivers of long-term economic growth and model uncertainty. Nonlinear effects might be more complex and difficult to model than previously thought. Instability might be a result of nonlinear effects changing over time, across countries and economic conditions. Further research is certainly needed to fully understand the link between public debt and growth.<P>Dette publique, croissance économique et effets non-linéaires : mythe ou réalité ?<BR>Les économistes semblent de plus en plus approuver l'existence d'un effet fortement négatif non linéaire de la dette publique sur la croissance économique. Reinhart et Rogoff (2010) furent les premiers à souligner que la dette publique par rapport au PIB supérieur à 90% du PIB est associée à une performance économique nettement plus faible dans les économies avancées et émergentes. Une série de récentes études empiriques confirme largement cette valeur seuil. Ce papier vise à contribuer à cette littérature en mettant une variante du jeu de données de Reinhart et Rogoff à un test économétrique formelle. En utilisant des modèles non linéaires à seuils, nous confirmons l’existence d'une relation non linéaire négative entre la dette et la croissance. Mais ces résultats sont très sensibles à la dimension temporelle et la couverture des pays considérés, la fréquence des données (données annuelles par rapport aux données pluriannuels) et des hypothèses sur le nombre minimum d'observations requises dans chaque régime non linéaire. Nous montrons que lorsque la non-linéarité est détectée, les effets négatifs non linéaires entrent en action à des niveaux beaucoup plus faibles de la dette publique (entre 20% et 60% du PIB). Ces résultats, basés sur des régressions bivariées sur des séries très longues sont largement confirmés sur une période plus courte (1960 2010) lors de l'utilisation d'un cadre de croissance multivarié qui considère des facteurs traditionnels de la croissance économique à long terme et l'incertitude du modèle. Les effets non linéaires peuvent être plus complexes et plus difficiles à modéliser qu'on ne le pensait. L'instabilité peut être le résultat de l'évolution des effets non linéaires dans le temps, entre les pays et les conditions économiques. Des recherches complémentaires sont certainement nécessaires pour mieux comprendre le lien entre la dette publique et de la croissance. |
| Keywords: | public debt, economic growth, nonlinearity, threshold effects, dette publique, croissance économique, effet de seuil, effet non linéaire |
| JEL: | E6 F3 F4 N4 |
| Date: | 2012–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:993-en&r=pbe |
| By: | Tripathi, Sabyasachi |
| Abstract: | This paper calculates select urban inequality and poverty indices and finds their policy linkages. In addition, the determinants of urban poverty and inequality are estimated by using data of 52 large cities in India. The main results show that higher city economic growth and large city population agglomeration are associated with reduction in city poverty and increase in inequality between cities. |
| Keywords: | Urban Economic Growth; Inequality; Poverty; Urban India |
| JEL: | A10 I32 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42022&r=pbe |
| By: | Takako Nakajima (Ph.D. Candidate, Osaka School of International Public Policy (OSIPP)); Kiheiji Nishida (Specially Appointed Researcher, Department of Medical Economics and Management, Graduate School of Medicine, Osaka University); Masashi Manabe (Associate Professor, Graduate School of simulation Studies, University of Hyogo) |
| Abstract: | Japanese public hospitals are recently facing at difficult situation in their management, and some are in bankruptcies. In order to dismiss this situation, drastic management reforms are required. In this paper, we extracted 8 indexes for its management evaluation of financial managements, medical services and its cost efficiency by factor analysis. Applied these indexes for local public hospitals, we found that they could not keep enough number of doctors to maintain enough income opportunity they need, which greatly damaged their financial statuses. We have also discussed the stability of the indexes by comparing with the outcomes of DEA (Date Envelopment Analysis), mainly applied for evaluation of public hospitals efficiency. In results, we found that the information scores for management evaluation by our index and DEA have a possibility of independent. Itfs also indicates that it can be made misunderstandings if we discuss the management evaluation of public hospitalsf only by using each of the indexes extracted by factor analysis or DEAfs efficiency score. |
| Keywords: | Public Hospitals, Management evaluation, Factor analysis, Medical economics |
| JEL: | C1 H41 I1 L3 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:osp:wpaper:12j009&r=pbe |
| By: | T. Renee Bowen (Stanford University); Ying Chen (Arizona State University); Hulya Eraslan (Johns Hopkins University) |
| Abstract: | Do mandatory spending programs such as Medicare improve efficiency? We analyze a model with two parties allocating a fixed budget to a public good and private transfers each period over an infinite horizon. We compare two institutions that differ in whether public good spending is discretionary or mandatory. We model mandatory spending as an endogenous status quo since it is enacted by law and remains in effect until changed. Mandatory programs result in higher public good spending; furthermore, they ex ante Pareto dominate discretionary programs when parties are patient, persistence of power is low, and polarization is low. |
| Keywords: | budget negotiations, mandatory programs, dynamic bargaining, endogenous status quo, public goods |
| JEL: | C73 D61 D78 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1229&r=pbe |
| By: | Deborah Ann Blackman; Fiona Buick; Michael O'Donnell; Janine L. O'Flynn; Damian West |
| Abstract: | This paper provides a new conceptualisation of high performance government for the public sector. Despite the concerted focus on performance management in both the public and private sectors, the performance puzzle remains. In part, we argue, this is because of a failure to recognise the complex interactions across the micro, meso, and macro levels of performance management that characterise such systems in the public sector. We consider the current attention on system-wide 'high performance government', review the existing literature on high performance organisations, and high performance individuals and groups, and then posit a further, and to date missing, level of analysis - high performance governance. The report is part of a multi-year collaborative research project between the Australian National University, the University of Canberra, the University of New South Wales and the Australian Public Service Commission as part of the Ahead of the Game blueprint for reform in the Australian public service. |
| Keywords: | Public Sector, performance management, high performance organization, high performance government, reform |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:een:crwfrp:1209&r=pbe |
| By: | Ghani, Ejaz; Kerr, William R.; O'Connell, Stephen D. |
| Abstract: | Despite rapid economic growth, gender disparities in women's economic participation have remained deep and persistent in India. What explains these huge gender disparities? Is it poor infrastructure, limited education, and gender composition of the labor force and industries? Or is it deficiencies in social and business networks and a low share of incumbent female entrepreneurs?This paper analyzes the spatial determinants of female entrepreneurship in India in the manufacturing and services sectors. Good infrastructure and education predict higher female entry shares. There are strong agglomeration economies in both manufacturing and services, where higher female ownership among incumbent businesses within a district-industry predicts a greater share of subsequent entrepreneurs will be female. Moreover, higher female ownership of local businesses in related industries (similar labor needs, input-output markets) predicts greater relative female entry rates. Gender networks thus clearly matter for women's economic participation. However, there is a need to develop a better understanding of how gender networks influence aggregate efficiency. There is no doubt that gender empowerment can be the escalator to realizing human potential and for creating a robust platform for growth and job creation. |
| Keywords: | Banks&Banking Reform,Housing&Human Habitats,Water and Industry,E-Business,Gender and Law |
| Date: | 2012–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6228&r=pbe |
| By: | Sinha, Pankaj; Thomas, Ashley Rose; Ranjan, Varun |
| Abstract: | Contemporary discussions on 2012 U.S Presidential election mention that economic variables such as unemployment rate, inflation, budget deficit/surplus, public debt, tax policy and healthcare spending will be deciding elements in the forthcoming November election. Certain researchers like Bartells and Zaller (2001), Lewis-Beck and Rice (1982), and Lichtman and Keilis-Borok (1996) have investigated the significance of non-economic variables in forecasting the U.S election. This paper investigates the influence of combination of various economic and non-economic variables as factors influencing the outcome of 2012 U.S Presidential election, using statistical factor analysis. The obtained factor scores are used to predict the vote share of the incumbent using regression model. The paper also employs logit and probit models to predict the probability of win for the incumbent candidate in 2012 U.S Presidential election. It is found that the factors combining above economic variables are insignificant in deciding the outcome of the 2012 election. The factor combining the non-economic variables such as Gallup Ratings, GIndex, wars and scandals has been found significantly influencing the public perception of the performance of the Government and its policies, which in turn affects the voting decision. The proposed factor regression model forecasts that the Democrat candidate Mr. Barack Obama is likely to get a vote share between 51.84% - 54.26% with 95% confidence interval in the forthcoming November 2012 U.S Presidential election. While, the proposed logit and probit models forecast the probability of win for the Democrat candidate Mr. Barack Obama to be 67.37% and 67.00%, respectively. |
| Keywords: | Factor Analysis; Logit and Probit model; 2012 U.S Presidential Election; Economic and non-economic variables |
| JEL: | C53 C5 D72 C2 C01 C1 |
| Date: | 2012–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42062&r=pbe |
| By: | Ethan Ilzetzki; Jonathan Pinder |
| Abstract: | The US economy is still suffering from its most severe recession in seven decades. In the first of a series of US Election Analyses, Ethan Ilzetzki covers the key issue of taxes, spending and public debt, a major point of disagreement between the two candidates, President Obama and Governor Romney. |
| Keywords: | recession, unemployment, public debt |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepusa:001&r=pbe |
| By: | Cecilia García-Peñalosa (Aix-Marseille Université); Stephen J. Turnovsky (University of Washington, Seattle) |
| Abstract: | We examine the determinants of income inequality and mobility in a Ramsey model with elastic labor supply. Individuals differ both in their initial capital endowment and productive ability (labor endowment). With two sources of heterogeneity, initially poorer agents may catch up with the income and wealth of initial richer ones, implying that the Ramsey model is compatible with rich distributional dynamics. We show that the elasticity of the labor supply plays a key role in the extent of mobility in the economy. Capital-rich individuals supply less labor while ability-rich agents tend to work more. The more elastic the labor supply is, the stronger these effects tend to be and hence the greater the degree of income mobility is. |
| Keywords: | Inequality, Income mobility, Endogenous labour supply, Transitional dynamics. |
| JEL: | D31 O41 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1216&r=pbe |