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on Public Economics |
| By: | Lukasz Rawdanowicz; Eckhard Wurzel; Ane Kathrine Christensen |
| Abstract: | In several OECD countries, ongoing fiscal consolidation might have a negative impact on the static income distribution. However, this conclusion should be treated only as an approximate first step in the analysis. A full assessment of distributional effects of consolidation packages would need to consider dynamic measures, such as life-time income distribution and the equality of opportunity, along with behavioural responses and interactions with other policies. In any case, there is scope to balance current consolidation efforts in favour of more equity with only limited adverse impact on potential growth. In particular, relatively little weight has been given to reducing tax expenditures and raising taxes on immovable property. A number of consolidation instruments are consistent with equity goals while doing little or no harm to potential growth: increases in the effective retirement age, raising efficiency in the education and health care systems, cutting certain tax expenditures, hiking taxes on immovable property and broadly-based consumption taxes. Increases in capital income taxes would also be equitable but need to be well designed to avoid being distortive. Calculations based on simplifying assumptions indicate that increasing household direct taxes would reduce income inequality, while cutting transfers by the same amount would have a larger and opposite effect on inequality. However, raising progressive labour income taxes could have adverse effects on long-run growth. Cuts in government wages and employment can yield fast consolidation gains but need to be accompanied by increases in efficiency of service delivery to avoid that reductions in public services mainly hit the poor. Cuts in unemployment-related and disability benefits will likely hit poorer people in the first place but may have less adverse effects on inequality in the long run once employment increases in response to a better incentive structure.<P>Assainissement budgétaire et l'équité<BR>Dans plusieurs pays de l’OCDE, l’assainissement actuel des finances publiques aurait un impact negatif sur la distribution statique des revenus. Cette conclusion doite être pourtant considérée uniquement comme une première étape approximative de l'analyse. Une évaluation complète des effets de distribution de consolidation fiscale nécessiterait de prendre en compte des mesures dynamiques, comme la distribution du revenu tout au long de la vie et l'égalité des chances ainsi que les réactions comportementales et les interactions avec d'autres politiques. En tout cas, il existe une marge pour équilibrer les efforts d'assainissement dans le sens d'une plus grande équité avec une incidence négative limitée sur la croissance potentielle. En particulier, les plans actuels font une place relativement peu importante à la réduction des dépenses fiscales et à l’alourdissement de la fiscalité sur la propriété immobilière. Un certain nombre d'instruments de redressement sont conformes aux objectifs d'équité, tout en étant peu ou pas du tout préjudiciables à la croissance potentielle: relèvement de l'âge effectif de la retraite, amélioration de l'efficience des systèmes d'éducation et de santé, baisse de certaines dépenses fiscales, alourdissement de la fiscalité sur le patrimoine immobilier et impôts à large assise sur la consommation. L'augmentation des impôts sur les revenus du capital serait également équitable, mais elle doit être bien conçue pour ne pas entraîner de distorsions. Les calculs, basés sur des suppositions simplifiées, montrent qu'un relèvement des impôts directs sur les ménages atténuerait les inégalités de revenus alors qu'une réduction des transferts de même montant aurait un effet plus important et de sens opposé sur les inégalités. Toutefois, une hausse des impôts progressifs sur les revenus du travail pourrait nuire à la croissance à long terme.Des coupes dans les rémunérations des fonctionnaires et dans leurs effectifs peuvent entraîner rapidement des gains budgétaires, mais elles doivent être accompagnées de gains d’efficience dans la prestation de services afin éviter qu'une contraction des services publics ne pénalise surtout les pauvres. Une baisse des allocations de chômage et d'invalidité touchera probablement en premier lieu les personnes les plus défavorisées mais elle pourrait avoir moins d’effets défavorables en termes d’inégalité sur le long terme, une fois que l’emploi augmentera du fait de l’amélioration de la structure incitative. |
| Keywords: | taxes, transfers, redistribution, fiscal consolidation, income inequality, welfare system, transferts, redistribution, impôt, système de protection sociale, inégalité des revenus, Assainissement des finances publiques |
| JEL: | H2 H23 H3 H53 I3 I38 |
| Date: | 2013–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1013-en&r=pbe |
| By: | Caroline Klein; Robert Price; Andreas Wörgötter |
| Abstract: | The challenge for fiscal policy in Slovakia is to achieve fiscal consolidation in a way which supports the fragile recovery and protects spending on areas which are important for re-embarking on a trajectory of high trend growth and underpinning a catch-up in living standards. While the recently established fiscal rules have significantly improved the fiscal framework, a further strengthening in medium-term fiscal discipline will be necessary to avoid pro-cyclical fiscal policy. Raising the effectiveness of tax collection, reforming the tax structure towards less distortive taxes and making more out of available EU funds would also play a helpful role in a growth-friendly fiscal consolidation. Finally, more needs to be done to ensure an adequate prioritisation of spending and an efficient use of public revenues. In particular, stepping up the analytical monitoring, evaluation and assessment capacity in spending ministries should help to rein in wasteful spending. This Working Paper relates to the 2012 OECD Economic Survey of the Slovak Republic (www.oecd.org/eco/surveys/slovakia2012).<P>Améliorer le cadre budgétaire pour favoriser la croissance en période d'assainissement budgétaire en Slovaquie<BR>Le défi pour la politique budgétaire en Slovaquie est d'assainir les finances publiques d'une manière qui soutienne la reprise fragile et protège les dépenses dans des domaines permettant de reprendre une trajectoire de forte croissance tendancielle et de poursuivre le rattrapage en termes de niveau de vie. Bien que les règles fiscales récemment établies aient considérablement amélioré le cadre budgétaire, un renforcement de la discipline budgétaire de moyen terme sera nécessaire pour éviter une politique budgétaire pro-cyclique. Accroître l'efficacité du recouvrement des impôts, reformer la fiscalité en faveur d’impôts moins distorsifs et mieux utiliser les fonds de l'UE disponibles pourrait également aider à une consolidation budgétaire favorable à la croissance. Enfin, il reste encore beaucoup à faire pour assurer une hiérarchisation adéquate des dépenses et une utilisation efficace des revenus publics. En particulier, le développement des capacités analytiques de suivi et d'évaluation dans les ministères devraient contribuer à freiner les dépenses inutiles. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de la République slovaque 2012 (www.oecd.org/eco/etudes/slovaquie2012 ). |
| Keywords: | fiscal policy, Slovakia, tax administration, public debt sustainability, budgetary framework, politique budgétaire, Slovaquie, administration fiscale, cadre budgétaire, viabilité de la dette publique |
| JEL: | E62 H20 H21 H50 H54 H57 H61 H63 H83 |
| Date: | 2013–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1018-en&r=pbe |
| By: | Peter Haug |
| Abstract: | Recent empirical studies have found – seemingly − efficiency-enhancing effects of vertical grants on local public service provision. The main purpose of this paper is to prepare an elaborate theoretical and empirical analysis of these contradictory results. Therefore, it investigates if certain fiscal and institutional conditions (fiscal stress, fiscal rank-preserving vertical grant systems, input- and output regulation), that might help to explain these empirical findings, are characteristic of at least some parts of the local government sector or certain regions. The German state of Saxony-Anhalt is chosen for case study purposes. The main results are: First, the local governments suffer from severe fiscal problems such as high grant dependency, low tax revenues and the prevalent inability to finance investments by own resources. Second, the output- and input-regulation density of certain mandatory municipal services (schools, childcare facilities, fire protection) is high. Finally, the most important vertical grant category for local governments, the formula-based grants (“Schlüsselzuweisungen”), can be described as mainly exogenous, unconditional block grants that in most cases preserve the relative fiscal position of the grant recipients. |
| Keywords: | vertical grants, local public finance, fiscal equalization, regulation of the public sector, Saxony-Anhalt |
| JEL: | H71 H72 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:2-13&r=pbe |
| By: | Ari Kuncoro (Institute of Economic and Social Research, Faculty of Economics, University of Indonesia); Vid Adrison (Institute of Economic and Social Research, Faculty of Economics, University of Indonesia); Ifa Isfandiarni (Institute of Economic and Social Research, Faculty of Economics, University of Indonesia) |
| Abstract: | For Indonesia the fall of Suharto in 1998 brought dramatic changes in the political landscape. It signified the beginning of transformation from an authoritarian regime towards a more democratic society where the distribution power is more devolved. In this respect Indonesia follow what is called a big-bang approach in the transition. First in the agenda of socio-economic reform is decentralization which changes the relationship between the center and local governments. Next in the country’s reform was democratization at the local government level. In this paper we examine how decentralization and democratization affect governance at the local government level. Our particular interest is to assess the impact of decentralization and local democratization on the quality of road. We find that although the temptation to produce lower quality roads is high the combination of democratization, free media, an ad-hoc anti-corruption agency and well educated bureaucrats keep the quality of roads reasonably good while the corruption is held in check. |
| Keywords: | Governance, Decentralization, Democratization, Infrastructure Provision |
| JEL: | D73 H73 O17 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:lpe:wpecbs:201301&r=pbe |
| By: | Richard M. Bird (University of Toronto) |
| Abstract: | Although VATs applied simultaneously within the same country by different levels of government were long considered to be either undesirable or infeasible, two quite different types of sub-central VATs – regional consumption taxes and local business taxes -- now exist in a number of countries. Brazil, Canada, and India have introduced regional (state and provincial) VATs which, like national VATs, are general taxes on consumption administered through a transaction-based credit-invoice approach. Although these three countries are very different, and each has established such a tax for its own reasons in different ways and with varying degrees of success, as this paper discusses, on the whole such regional VATs appear to work fairly well, especially in Canada. The issues that arise with independent regional VATs are closely related to those arising with national VATs in a common market such as the EU. A number of problems such as ‘carousel’ (or ‘missing trader’) fraud have recently received considerable attention in the EU and a variety of alternative solutions to such problems have been suggested, some involving major structural changes in the VAT. Experience with regional VATs, however, suggests that what is needed to resolve most such problems is primarily a firmer ‘EU-wide’ framework for improving VAT administration. The second type of sub-central VAT that has recently emerged in Italy, Japan, and France (as well as in several U.S. states) takes the form of a revised form of local business tax which is generally imposed on an ‘income’ (origin) basis in contrast to the destination-based consumption VATs discussed earlier. These taxes seem superior in some important respects to other forms of local business taxation and appear to be compatible with both regional and national VATs. Although important economic and administrative aspects require careful consideration in designing and implementing ‘two-level’ (dual) VATs, such dual VATs (or even triple VATs, including an ‘income-type’ VAT at the local level) are evidently both feasible technically and acceptable politically. This conclusion does not mean that regional VATs are either inherently desirable or necessarily the best alternative for any country (or set of countries). But it does suggest that such taxes may work more satisfactorily in at least some countries than other forms of regional sales taxes or local business taxes. Indeed, both varieties of ‘decentralized VATs’ discussed here may become more important over time. |
| Date: | 2013–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1302&r=pbe |
| By: | Bargain, Olivier (University of Aix-Marseille II); Dolls, Mathias (IZA); Immervoll, Herwig (World Bank); Neumann, Dirk (IZA); Peichl, Andreas (IZA); Pestel, Nico (IZA); Siegloch, Sebastian (IZA) |
| Abstract: | We assess the effects of U.S. tax policy reforms on inequality by applying a new decomposition method that allows us to disentangle the direct policy effect from the effect of changing market incomes. Over the whole period 1979-2007 the cumulative tax policy effect aggravated income inequality by increasing the income share of the top 20% in contrast to the middle class' share. The tax policy effect accounts for up to 29% of the total change in inequality; its contribution increases up to 41% if we take into account behavioral responses. Using our unique policy effect measure and variation in tax policies across U.S. states and time, we also identify the redistributive intention of policymakers. The estimated effect of partisan politics on the U.S. income distribution is statistically significant and economically important. Republican policymakers increased inequality especially at the top whereas Democrats increased the income share of the bottom 80% of the distribution. |
| Keywords: | tax policy, inequality, redistribution, partisan politics, political economy |
| JEL: | H23 H31 H53 P16 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7190&r=pbe |
| By: | Ivo Bischoff; Peter Bönisch; Peter Haug; A. Illy |
| Abstract: | This paper analyses the impact of vertical grants on local public sector efficiency. First, we develop a theoretical model in which the bureaucrat sets the tax price while voters choose the quantity of public services. In this model, grants reduce efficiency if voters do not misinterpret the amount of vertical grants the local bureaucrats receive. If voters suffer from fiscal illusion, i.e. overestimate the amount of grants, our model yields an ambiguous effect of grants on efficiency. Second, we use the model to launch a note of caution concerning the inference that can be drawn from the existing cross-sectional studies in this field: Taking into account vertical financial equalization systems that reduce differences in fiscal capacity, empirical studies based on cross-sectional data may yield a positive relationship between grants and efficiency even when the underlying causal effect is negative. Third, we perform an empirical analysis for the German state of Saxony-Anhalt, which has implemented such a fiscal equalization system. We find a positive relationship between grants and efficiency. Our analysis shows that a careful reassessment of existing empirical evidence with regard to this issue seems necessary. |
| Keywords: | vertical grants, local public finance, efficiency, DEA, bureaucracy |
| JEL: | H11 H72 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:1-13&r=pbe |
| By: | Jorge Onrubia (Universidad Complutense de Madrid); Fidel Picos (Universidade de Vigo); María del Carmen Rodado (Universidad Rey Juan Carlos) |
| Abstract: | The aim of this paper is to provide a generalization of the Pfähler (1990) and Lambert (1989, 2001) decomposition, which allows us to overcome some limitations of the original methodology. In particular, our proposal avoids the problem of sequentiality when the tax has several types of deductions or allowances, schedules or tax credits. In addition, our alternative decomposition is adapted to the dual income class of tax structures. Moreover, in order to adapt this methodology to real-world taxes, our approach includes the re-ranking effects of real taxes, caused by the existence of differentiated treatments based on non-income attributes. This theoretical proposal is illustrated with an empirical analysis for the Spanish Personal Income Tax reform enforced in 2007. |
| Date: | 2013–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1301&r=pbe |
| By: | Olivier J. Blanchard; Daniel Leigh |
| Abstract: | This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis. |
| JEL: | E32 E62 H20 H5 H68 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18779&r=pbe |
| By: | Sumner La Croix (University of Hawaii Economic Research Organization Department of Economics); Lauren Gabriel (William S. Richardson School of Law, University of Hawai`i–Mānoa) |
| Abstract: | This report provides quantitative and qualitative measures of the impact of same-sex marriage on Hawai`i’s economy and government. We find that marriage equality is likely to lead to substantial increases in visitor arrivals, visitor spending, and state and county general excise tax revenues. We estimate that fewer than 100 spouses will be added as beneficiaries to public and private employer-provided health insurance plans. The size of the gains from marriage equality depends critically on upcoming rulings by the U.S. Supreme Court on the constitutionality of California’s Proposition 8 and the Defense of Marriage Act. |
| Keywords: | same-sex, marriage, health insurance, tourism, Hawaii |
| JEL: | J12 K36 I18 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201302&r=pbe |
| By: | Yosuke Furukawa (Kyoto University) |
| Abstract: | In this paper, we develop a three-period model that incorporates parents' heterogeneous skills and a welfare constraint for newborn children. Our numerical analysis shows how the optimal tax system is affected by the weight attached to the newborn child by a social planner. The main finding is that an increase in the guaranteed welfare level for newborn children makes the optimal capital income tax rate more regressive. This result is closely related to the trade-off between incentives for parents and insurance for the newborn child. |
| Keywords: | Optimal taxation, intergenerational inequality, private information |
| JEL: | E22 E62 H21 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:846&r=pbe |
| By: | Su, Biwei (Korea University); Heshmati, Almas (Korea University) |
| Abstract: | This paper studies on the determinants of income and urban-rural income gap to shed light on the problem of urban-rural income inequality in China. OLS, conditional quantile regression and Blinder-Oaxaca decomposition methods are used to analyze four waves of the China Health and Nutrition Survey (CHNS) household data. Results show that education and occupation are essential determinants of households' income level. These two factors exert heterogeneous effects at different percentiles of the income distribution. In urban areas, education is more valued for high income earners, while for rural areas, specialized or tertiary education are more beneficial for the poorer households. Among all occupational types, farm activities show much lower returns than other types; and this is more evident for individuals at the left tail of the income distribution. We also find that for the sampled provinces, urban-rural income gap increases from the year of 2000 to 2004 but the gap decreases from 2004 to 2009. The income gap can be largely explained by the individuals' attributes, especially by level of education and type of occupation. |
| Keywords: | urban-rural income gap, Oaxaca-Blinder decomposition, quantile regression, CHNS household data, China |
| JEL: | O15 O18 D31 D63 C31 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7162&r=pbe |
| By: | Periklis Gogas (Department of International Economic Relations and Development, Democritus University of Thrace, Greece); Ioannis Pragidis (Department of International Economic Relations and Development, Democritus University of Thrace, Greece) |
| Abstract: | We empirically test the effects of unanticipated fiscal policy shocks on the level and growth rate of real output and reveal different types of asymmetries in fiscal policy implementation. The data used are quarterly U.S. observations over the period 1967:1 to 2011:4. In doing so, we use six alternative vector autoregressive systems in order to construct the fiscal policy shocks. These systems differ in the method of identification, the use or not of exogenous variables and in the type of exogenous monetary variables used. From each one of these six systems we extracted four types of shocks: a negative and a positive government spending shock and a negative and a positive government revenue shock. These six sets of unanticipated fiscal shocks were used next to empirically examine their effects on the level and growth rate of real GDP in two sets of regressions: one that assumes only contemporaneous effects of the shocks on output and one that is augmented with four lags of each fiscal shock. |
| Keywords: | Fiscal Policy, Asymmetric Effects, VAR |
| JEL: | E62 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:07_13&r=pbe |
| By: | Erauskin, Iñaki |
| Abstract: | This paper studies the impact of financial openness on the size of government, and other key economic variables, such as the consumption-wealth ratio, the growth rate of wealth, and welfare, in a two-country world, based on a portfolio approach, assuming that public spending is utility-enhancing. The model suggests that the size of government, the consumption-wealth ratio, and welfare should be higher in an open economy due to a higher productivity and/or less volatility through risk sharing. The theoretical results for the growth rate depend on differences on productivities and consumption-wealth ratios. The empirical evidence based on a sample of 50 countries for the period 1970-2009 broadly supports the main theoretical results of the model, even though the inclusion of Singapore distorts sometimes the broad picture. -- |
| Keywords: | Financial openness,productivity,volatility,consumption-wealth ratio,growth,welfare,size of government |
| JEL: | F41 F43 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:20137&r=pbe |
| By: | Michael T. Owyang; Valerie A. Ramey; Sarah Zubairy |
| Abstract: | A key question that has arisen during recent debates is whether government spending multipliers are larger during times when resources are idle. This paper seeks to shed light on this question by analyzing new quarterly historical data covering multiple large wars and depressions in the U.S. and Canada. Using an extension of Ramey’s (2011) military news series and Jordà’s (2005) method for estimating impulse responses, we find no evidence that multipliers are greater during periods of high unemployment in the U.S. In every case, the estimated multipliers are below unity. We do find some evidence of higher multipliers during periods of slack in Canada, with some multipliers above unity. |
| Keywords: | Fiscal policy ; Business cycles ; Multiplier (Economics) |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2013-004&r=pbe |
| By: | Deniz Baglan; Emre Yoldas |
| Abstract: | This paper explores the empirical relationship between government debt and future macroeconomic activity using data on twenty advanced economies throughout the post-war era. We use robust inference techniques to deal with the bias arising from the persistent nature of debt to GDP ratio as an endogenous predictor of GDP growth. Our results show that statistical significance of the coefficient on the debt ratio in predictive regressions changes considerably with the use of robust inference techniques. For countries with relatively low average debt ratios we find a negative threshold effect as their debt ratios increase toward moderate levels. For countries with chronically high debt ratios, GDP growth slows as relative government debt increases, but we find no significant threshold effect. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2013-05&r=pbe |
| By: | Andersen, Torben M; Bhattacharya, Joydeep |
| Abstract: | In this paper, we assume away standard distributional and static-efficiency arguments for public health, and instead, seek a dynamic efficiency rationale. We study a lifecycle model wherein young agents make health investments to reduce mortality risk. We identify a welfare rationale for public health under dynamic efficiency and exogenous mortalityeven when private and public investments are perfect substitutes. If health investment reduces mortality risk but individuals do not internalize its effect on the life-annuity interest rate, the “Philipson-Becker effect†emerges; when the young are net borrowers, it works together with dynamic efficiency to support a role for public health. |
| Keywords: | public health; dynamic efficiency; overlapping generations |
| JEL: | E2 I18 |
| Date: | 2013–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:35872&r=pbe |