nep-pbe New Economics Papers
on Public Economics
Issue of 2012‒12‒10
eighteen papers chosen by
Keunjae Lee
Pusan National University

  1. Indirect Taxation and Privatization in a Model of Government's Preference By Choi, Kangsik
  2. How does Economic Integration Change Personal Income Taxation? Evidence from a new Index of Potential Labor Mobility By Protte, Benjamin
  3. Cross-Border Shopping and the Atkinson-Stiglitz Theorem By Sebastian G. Kessing; Bernhard Koldert
  4. Reciprocal Relationships in Tax Compliance Decisions By Cécile Bazart; Aurélie Bonein
  5. Developing Composite Indicators for Fiscal Decentralization: Which Is The Best Measure For Whom? By Gu, Gyun Cheol
  6. Local government expenditure and council size: Quasi-experimental evidence from Japan By Hirota, Haruaki; Yunoue, Hideo
  7. Public Debt and Functional Finance in an OLG Model with Imperfect Competition By Peter Skott; Soon Ryoo
  8. What Drives Tax Morale? By Christian Daude; Hamlet Gutiérrez; Ángel Melguizo
  9. Effectiveness of Tax and Price Policies for Tobacco Control By WHO
  10. Securities transaction tax and the stock market– an Indian experience By Sinha, Pankaj; Mathur, Kritika
  11. Partisan targeting of inter-governmental transfers & state interference in local elections: evidence from Spain By Marta Curto-Grau (Universitat de Barcelona); Albert Sole-Olle (Universitat de Barcelona); Pilar Sorribas-Navarro(Universitat de Barcelona)
  12. Public debt, economic growth and nonlinear effects: Myth or reality? By Balázs Égert
  13. GINI DP 56: Mind the Gap: Net Incomes of Minimum Wage Workers in the EU and the US By Ive Marx; Sarah Marchal; Brian Nolan
  14. Charitable Bequests and Wealth at Death By Atkinson, Anthony B.; Backus, Peter G.; Micklewright, John
  15. An ex-post view of inequality of opportunity in France and its regions By Jean-François Carpantier; Christelle Sapata
  16. Local social capital and geographical mobility By Quentin Max David; Alexandre Janiak; Etienne Wasmer
  17. Human Capital and Income Inequality: Some Facts and Some Puzzles By Rafael Domenech; Amparo Castello Climent
  18. Fiscal consolidation during a depression . By Bagaria, Nitika; Holland, Dawn; Van Reenen, John

  1. By: Choi, Kangsik
    Abstract: By introducing the government's preference for tax revenues into unionized mixed duopolies, this paper investigates how the preference can change the government's choice of tax regimes between ad valorem and specific taxes. Main results are as follows. Given that one of the tax regimes is predetermined, privatization never improves welfare and privatization is preferable for the government when it emphasizes its tax revenue. However, when the tax regime is {\it endogenously} determined by the government, privatization is preferable from the viewpoint of social welfare if the government heavily emphasizes its tax revenue. Thus, there are conflicts of interest between the public firm and the government: If it heavily emphasizes its tax revenue, then the government always has the incentive to levy specific tax, while the public firm has the incentive to be levied by ad valorem. However, there are no conflicts of interest between the public firm and the government when the government levies the specific tax if the government less emphasizes its tax revenue. Interestingly, the government never has the incentive for privatization if the government considers either tax as an option.
    Keywords: Ad Valorem; Specific Tax; Government's Payoff; Social Welfare; Privatization
    JEL: C79 J51 L13 L33 D43 H44
    Date: 2012–11–30
  2. By: Protte, Benjamin
    Abstract: In this paper, I estimate the effect of increasing labor mobility on personal income tax schedules. I combine rich data on effective personal income tax levels in a panel of OECD countries for the period 1986-2005 with a new Index of Potential Labor Mobility. This index allows to tackle issues of reverse causality and potentially confounding effects from strategic competition. Estimates show that increasing labor mobility accounts for a considerable part of lower tax burdens. Furthermore, the reduction is found to be constant across brackets of taxable income.
    Keywords: Personal Income , Taxation , Economic Integration , Labor Mobility
    JEL: H24 F22 J61
    Date: 2012
  3. By: Sebastian G. Kessing; Bernhard Koldert
    Abstract: We introduce cross-border shopping and indirect tax competition into a model of optimal taxation. The Atkinson-Stiglitz result that indirect taxation cannot improve the effciency of information-constrained tax-transfer policies, and that indirect taxes should not be differentiated across goods, is shown to hold in this case. This result is derived for symmetric as well as for asymmetric countries. However, if the tax system must contain elements of indirect taxation, differentiated indirect tax rates arise in the equilibrium and restricting differentiated indirect taxation can be welfare-increasing.
    Keywords: Cross-border shopping, Atkinson-Stiglitz theorem, tax competition, direct and indirect taxes
    JEL: H21 F15
    Date: 2012
  4. By: Cécile Bazart (LAMETA, University of Montpellier I, France); Aurélie Bonein (University of Rennes 1 - CREM UMR CNRS 6211, France)
    Abstract: Reciprocity considerations are important to the tax compliance problem as they may explain the global dynamics of tax evasion, beyond individual tax evasion decisions, toward a downward or upward spiral. To provide evidence on reciprocity in tax compliance decisions, we have conducted a laboratory experiment in which we introduced two types of inequities. The first type of inequity is called vertical, because it refers to inequities introduced by the government when it sets different fiscal parameters for identical taxpayers, while the second type of inequity is called horizontal because it refers to the fact that taxpayers may differ in tax compliance decisions. In this setting, taxpayers may react to a disadvantageous or advantageous inequity through negative or positive reciprocal behaviors, respectively. Our results support the existence of negative and positive reciprocity in both vertical and horizontal cases. When both inequities come into play and may induce reciprocal behaviors in opposite directions, the horizontal always dominates the vertical.
    Keywords: Behavioral economics; Experimental economics; Fairness; Tax evasion; Tax compliance
    JEL: H26 C91
    Date: 2012–11
  5. By: Gu, Gyun Cheol
    Abstract: The right way to measure the degree and extent of the different aspects of fiscal decentralization has been a long-debated, yet underdeveloped issue. There has been little consensus on the right approach to developing a single indicator which is sometimes needed to show a general trend in fiscal decentralization and reveal relationship to other variables in empirical studies. In particular, several composite indicators of fiscal decentralization have been proposed, but there are very few attempts to evaluate and compare these measures in terms of implicit biases and different weights between revenue and expenditure decentralization. Critically reviewing and comparing various types of fiscal-relation indicators in a systematic way, this paper proposes two criteria to classify similar-looking composite indicators for fiscal decentralization while it also presents two new composite measures. The new fiscal decentralization indicators are symmetric in terms of the relative effects of revenue and expenditure decentralization on the value of the composite indicators at the same time that they are weighted for/against fiscal gaps and imbalances. It is argued that different composite indicators reflect different perspectives on which aspect of fiscal decentralization is more important and whether a growing fiscal gap means less fiscal decentralization or not.
    Keywords: fiscal federalism; fiscal decentralization; decentralization measurement
    JEL: H77 H11 H72 H71
    Date: 2012–11–28
  6. By: Hirota, Haruaki; Yunoue, Hideo
    Abstract: In order to evaluate a fiscal common-pool problem, this paper focuses on the relationship between local government council size and its expenditure. Generally, local councilors internalize the benefit of public projects targeted at their political jurisdictions, but underestimate and prefer to externalize the cost of public projects due to the national subsidy system. When council sizes become larger, their expenditure might be larger because of the selfish behavior of local council members. This paper estimates the positive effect of local council size on local government expenditure using a dataset of 13,989 municipalities in Japan over a period of 6 years. In Japan, local council size is a deterministic and discontinuous function of municipal population size under legal rules. We pay attention to this exogenous discontinuity and apply a regression discontinuity design to consider an endogeneity bias. The results show that the larger the size of the local council the larger the size of expenditure they undertake. In particular, we find that growing small municipalities tend to increase their expenditures, so that for example, 1% increases in local council size lead to about 1.2% increases of expenditures by small municipalities. Our results show that the fiscal common-pool problem is produced in small municipalities.
    Keywords: fiscal common-pool problem; local council size; government expenditure; regression discontinuity design
    JEL: H11 H72 D72
    Date: 2012
  7. By: Peter Skott (University of Massachusetts, Amherst); Soon Ryoo (Adelphi University)
    Abstract: This paper examines the role of fiscal policy in the long run. We show that (i) dynamic inefficiency may be empirically relevant in a modified Diamond OLG model with imperfect competition, (ii) fiscal policy may be needed to avoid inefficiency (if investment adjusts passively to saving) and maintain full employment (if investment and saving decisions are taken separately), (iii) a simple and distributionally neutral tax scheme can maintain full employment in the face of variations in 'household confidence', and (iv) the debt ratio is inversely related to both the growth rate and government consumption. JEL Categories: E62, E22
    Keywords: Public debt, Keynesian OLG model, dynamic efficiency, confidence, sustainability
  8. By: Christian Daude; Hamlet Gutiérrez; Ángel Melguizo
    Abstract: This paper reviews the literature and contributes with some evidence based on the World Values Survey on the drivers of tax morale around the world, with an emphasis on developing countries. It shows that socio-economic factors such as age, religion, gender, employment status and educational attainment have a significant impact on people’s levels of tax morale. In terms of institutional determinants, it finds that the satisfaction with democracy, trust in government and the satisfaction with the quality of public services plays an important role in increasing tax morale. The paper also discusses future directions for research and policy action in this area.<BR>Cet article propose une revue de la littérature existante et apporte de nouveaux éléments empiriques sur la base de données provenant de la World Values Survey, sur les déterminants de la morale fiscale dans le monde, et dans les pays en développement en particulier. Il montre que les facteurs socio-économiques tels que l’âge, la religion, le genre, la situation professionnelle et la réussite scolaire ont un effet significatif sur le degré de morale fiscale des individus. Concernant les déterminants institutionnels, l’article montre que le degré de morale fiscale des individus dépend également du niveau de satisfaction avec le système démocratique, de confiance dans le gouvernement et de satisfaction quant à la qualité des services publics. L’article conclut en proposant des pistes/orientations futures de recherche et des recommandations politiques dans ce domaine.
    Keywords: tax policy, developing countries, tax morale, politique fiscale, pays en développement, morale fiscale
    JEL: E62 I38 P16
    Date: 2012–11–23
  9. By: WHO
    Abstract: This new volume of the IARC Handbooks of Cancer Prevention in Tobacco Control presents a critical review and evaluation of the evidence by 25 international experts from twelve countries on the economics, epidemiology, public policy and tobacco control aspects of tax and price policies. The working group draws conclusions about the effectiveness of tax and price measures to control tobacco use in the population. The Handbook covers an overview of tobacco taxation; industry pricing strategies and other industry initiatives diluting the effects of taxes on consumption; tax, price and aggregated demand for tobacco, as well as demand at the individual level in adults, young people and the economically disadvantaged; tax avoidance and tax evasion and the economic and health impacts of tobacco taxation. This body of evidence and the consensus evaluation of 18 concluding statements on the impact of interventions to increase the price of tobacco products, can assist policy makers, government officials, evaluators and researchers working in tobacco control and disease prevention, to base their decisions on the latest scientific evidence.
    Keywords: Public Health
    Date: 2012–01–31
  10. By: Sinha, Pankaj; Mathur, Kritika
    Abstract: This paper studies the effect of Securities Transaction Tax (STT) on the behavior of the returns on the Indian stock market using a switching first order autocorrelation model. It is found that an increase in STT doesn’t influence the return on American Depository Receipts (ADRs) which are dually listed in United States of America and India. The increase in STT doesn’t have a major impact on the returns of the stocks listed on the National Stock Exchange in India whereas it influences the volume of traded shares. Volatility of stocks listed on the National Stock Exchange in India is affected by the change in tax level and thus investors switch from large and medium sized stocks to small sized stocks to mitigate the risk.
    Keywords: Securities Transaction Taxes; Stock Markets; Returns; Risk
    JEL: G14 G18 G28
    Date: 2012–11–20
  11. By: Marta Curto-Grau (Universitat de Barcelona); Albert Sole-Olle (Universitat de Barcelona); Pilar Sorribas-Navarro(Universitat de Barcelona) (Universitat de Barcelona)
    Abstract: We examine whether state-level incumbents discriminate in the allocation of transfers in favour of local governments controlled by co-partisans, and whether the electoral prospects of local incumbents improve when they are aligned with the state incumbent. Using a new database covering around 3,000 Spanish municipalities during the period 2000-07 and a Regression Discontinuity design, we document a very strong and robust effect: in close races, municipalities aligned with the regional government obtain on average 83% more per capita transfers and their incumbents gain 10% more votes at the local elections. We also show that the effect of alignment is stronger: (i) when regional and local elections are held on the same day, (ii) in regions with less competitive regional elections, and (ii) in regions with more budget resources.
    Keywords: political parties, inter-governmental transfers, pork barrel politics
    JEL: D72 C2
    Date: 2012
  12. 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. In addition, we also show that nonlinear effects can kick 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.
    Keywords: Public debt, economic growth, nonlinearity, threshold effects
    JEL: E6 F3 F4 N4
    Date: 2012
  13. By: Ive Marx (Centre for Social Policy, University of Antwerp); Sarah Marchal (CSB , University of Antwerp); Brian Nolan (School of Applied Social Science, University College Dublin)
    Abstract: This paper focuses on the role of minimum wages, in conjunction with tax and benefit policies, in protecting workers against financial poverty. It covers 20 European countries with a national minimum wage and three US States (New Jersey, Nebraska and Texas). It is shown that only for single persons and only in certain countries do net income packages at minimum wage level reach or exceed the EU’s at-risk-of poverty threshold, which is set at 60 per cent of median equivalent household income in each country. For lone parents and sole breadwinners with a partner and children to support, net income packages at minimum wage are below this threshold almost everywhere, usually by a wide margin. This remains the case despite shifts over the past decade towards tax relief and additional income support provisions for low-paid workers. We argue that there appear to be limits to what minimum wage policies alone can achieve in the fight against in-work poverty. The route of raising minimum wages to eliminate poverty among workers solely reliant on it seems to be inherently constrained, especially in countries where the distance between minimum and average wage levels is already comparatively small and where relative poverty thresholds are mostly a function of the dual-earner living standards. In order to fight in-work poverty new policy routes need to be explored. The paper offers a brief discussion of possible alternatives and cautions against ‘one size fits all’ policy solutions.
    Date: 2012–07
  14. By: Atkinson, Anthony B. (Nuffield College, Oxford); Backus, Peter G. (University of Barcelona); Micklewright, John (Institute of Education, University of London)
    Abstract: Charitable bequests are a major source of income for charities but surprisingly little is known about them. The aim of this paper is to propose a multi-stage framework for analysing the bequest decision and to examine the evidence for Great Britain provided by new data on estates. The novelty of the framework is that it distinguishes between the different steps that lead to a charitable bequest. Our new data for Britain have the advantage of covering the whole population, in contrast to much of the US literature based on the small fraction of the population covered by estate tax returns. We focus on the relationship with wealth at death, on the form of the bequest, and on the different causes to which people bequeath.
    Keywords: charitable donations, bequests, wealth, death, estate tax, NGOs
    JEL: D12 D31 D64 L31
    Date: 2012–11
  15. By: Jean-François Carpantier (Universite Catholique de Louvain); Christelle Sapata (Facultés Universitaires de Saint Louis)
    Abstract: This paper proposes an ex-post measure of inequality of opportunity in France and its regions by assessing the inequality between individuals exerting the same effort. To this end, we define a fair income that fulfils ex-post equality of opportunity requirements. Unfairness is measured by an unfair Gini based on the distance between the actual income and the fair income. Our findings reveal that the measures of ex-post inequality of opportunity largely vary across regions, and that this is due to di_erences in reward schemes and in the impact of the non responsibility factors of income. We find that most regions have actual incomes closer to fair incomes than to average income, excepted Ile de France where the actual income looks poorly related to effort variables. Finally, we find that income inequality and inequality of opportunity are positively correlated among regions.
    Keywords: Inequality of Opportunity, Fairness, Regional Inequalities
    JEL: D31 D63 J62
    Date: 2012–12
  16. By: Quentin Max David; Alexandre Janiak; Etienne Wasmer
    Date: 2012–05–13
  17. By: Rafael Domenech; Amparo Castello Climent
    Abstract: Using a broad number of indicators from an updated data set on human capital inequality for 146 countries from 1950 to 2010, this paper documents several facts regarding the evolution of income and human capital inequality. The main findings reveal that, in spite of a large reduction in human capital inequality around the world driven by a decline in the number of illiterates of several hundreds of millions of people, the inequality in the distribution of income has hardly changed. In many regions, the income Gini coefficient in 1960 was very similar to that in 2005. Therefore, improvements in literacy are not a sufficient condition to reduce income inequality, even though they improve life standards of people at the bottom of the income distribution. Increasing returns to education, external effects on wages of higher literacy rates or the simultaneous concurrence of other exogenous forces (e.g., globalization or skill-biased technological progress) may explain the lack of correlation between the evolution of income andeducation inequality.
    Keywords: Distribution of education, income inequality, human development, panel data
    JEL: I24 I25 O15 O50
    Date: 2012–11
  18. By: Bagaria, Nitika; Holland, Dawn; Van Reenen, John
    Abstract: In 2009-10, the UK's budget deficit was about 11 per cent of GDP. A credible plan for fiscal consolidation was introduced in the UK over the fiscal years 2011-12 to 2016-17. In this paper, we assess the impact of the scale and timing of this fiscal consolidation programme on output and unemployment in the UK. During a prolonged period of depression when unemployment is well above most estimates of the NAIRU, the impact of fiscal tightening may be different from that in normal times. We contrast three scenarios: the consolidation plan implemented during a depression; the same plan, but with implementation delayed for three years when the economy has recovered; and no consolidation at all. The modelling confirms that doing nothing was not an option and would have led to unsustainable debt ratios. Under both our "immediate consolidation" scenario and the "delayed consolidation", the necessary increases in taxes and reductions in spending reduce growth and increase unemployment, as expected. But our estimates indicate that the impact would have been substantially less, and less long-lasting, if consolidation had been delayed until more normal times. The impact is partly driven by the heightened magnitude of fiscal multipliers, and exacerbated by the prolongation of their impact due to hysteresis effects. The cumulative loss of output over the period 2011-21 amounts to about £239 billion in 2010 prices, or about 16 per cent of 2010 GDP. And unemployment is considerably higher for longer - still 1 percentage point higher even in 2019.
    Date: 2012–08

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