nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒03‒09
eighteen papers chosen by
Keunjae Lee
Pusan National University

  1. Corporate taxation and the quality of research and development By Ernst, Christof; Richter, Katharina; Riedel, Nadine
  2. The Origins of Social Contracts: Attitudes toward Taxation in Urban Nigeria By Cristina Bodea; Adrienne LeBas
  3. Value Added Tax Revisited: Toward a Reasonable Consumption Tax Reform in Japan By Yukinobu Kitamura
  4. Social spending, taxes and income redistribution in Uruguay By Bucheli, Marisa; Lustig, Nora; Rossi, Maximo; Amabile, Florencia
  5. Commodity price volatility and tax revenue: Evidence from developing countries. By Ehrhart, H.; Guerineau, S.
  6. The long term negative relation between public deficit and structural unemployment: An empirical study of OECD countries (1980-2009) By Silvia Fedeli; Francesco Forte; Ottavio Ricchi
  7. Fiscal Institutions at the Cantonal Level in Switzerland By Kirchgässner, Gebhard
  8. Destabilizing Balanced-Budget Consumption Taxes in Multi-Sector Economies By Kazuo Nishimura; Carine Nourry; Thomas Seegmuller; Alain Venditti
  9. Composition effects of the German Federal Government on the average top income tax burden By Scharfenkamp, Katrin
  10. Government Spending and Air Pollution in the US By Islam, Asif M.; Lopez, Ramon E.
  11. Estimating the effects of nuclear power facilities on local income levels: A quasi-experimental approach By Ando, Michihito
  12. Political Leaders Socioeconomic Background and Public Budget Deficits: Evidence from OECD Countries By Bernd Hayo; Florian Neumeier
  13. A note on environmental R&D under time-consistent emission tax By Yasunori Ouchida; Daisaku Goto
  14. Inequality and Risk Aversion in Health and Income: An Empirical Analysis Using Hypothetical Scenarios with Losses By Ignacio Abásolo; Aki Tsuchiya
  15. Do State Campaign Finance Reforms Reduce Public Corruption? By Jeffrey Milyo; Adriana Cordis
  16. The impact of the French Tobin tax By Leonardo Becchetti; Massimo Ferrari; Ugo Trenta
  17. Does Political Competition Influence Human Development? Evidence from the Indian States. By Dash, Bharatee Bhushan; Mukherjee, Sacchidananda
  18. Age Dependency and Labor Productivity Divergence By Misbah Tanveer Choudhry

  1. By: Ernst, Christof; Richter, Katharina; Riedel, Nadine
    Abstract: This paper examines the impact of tax incentives on corporate research and development (R&D) activity. Traditionally, R&D tax incentives have been provided in the form of special tax allowances and tax credits. In recent years, several countries moreover reduced their income tax rates on R&D output. Previous papers have shown that all three tax instruments are effective in raising the quantity of R&D related activity. We provide evidence that, beyond this quantity effect, corporate taxation also distorts the quality of R&D projects, i.e. their innovativeness and revenue potential. Using rich data on corporate patent applications to the European patent office, we find that a low tax rate on patent income is instrumental in attracting innovative projects with a high earnings potential and innovation level. The effect is statistically significant and economically relevant and prevails in a number of sensitivity checks. R&D tax credits and tax allowances are in turn not found to exert a statistically significant impact on project quality. --
    Keywords: corporate taxation,research and development,micro data
    JEL: H3 H7 J5
    Date: 2013
  2. By: Cristina Bodea; Adrienne LeBas
    Abstract: How do social contracts come into being?  This paper argues that norm adoption plays an important and neglected role in this process.  Using novel data from urban Nigeria, we examine why individuals adopt norms favoring a citizen obligation to pay tax where state enforcement is weak.  We find that public goods delivery by the state produces the willingness to pay tax, but community characteristics also have a strong and independent effect on both social contract norms and actual tax payment.  Individuals are less likely to adopt pro-tax norms if they have access to community provision of security and other services.  In conflict-prone communities, where "self-help" provision of club goods is less effective, individuals are more likely to adopt social contract norms.  Finally, we show that social contract norms substantially boost tax payment.  This paper has broad implications for literatures on state formation, taxation, clientelism, and public goods provision.
    Date: 2013–01–24
  3. By: Yukinobu Kitamura
    Abstract: This paper explores a reasonable consumption tax (VAT) reform in Japan, after passing the tax reform bill in the Diet in August 2012. First, the macro (SNA) data indicates that tax revenue increases by about 12 trillion yen if the VAT rate is raised from 5% to 10%. Secondly, the VAT revenue function reveals the revenue elasticity with respect to 1% consumption increase is 0.96. This is very efficient. Thirdly, remaining tax administration issues are discussed. Fourthly the empirical consumer demand system (QUAIDS) is derived from the optimal consumption behavior. Fifthly, using Family Income and Expenditure Survey from January 1985 to April 2012 for the two or more member worker’s household, food and health & medical expenditure indicate significantly negative price elasticity of demand and those for other expenditures are insignificant, i.e. zero. It is justifiable to set a uniform tax rate for those items except food and health & medical expenditure. As to health & medical expenditure, many items within health & medical expenditure are already tax exempt and thus effective tax rate for health & medical expenditure is around 2%. There is no need to consider a further tax rate reduction for this. As to food expenditure, effective tax rate is around 7% due to alcohol and other sales tax. This item is worth considering a reduction of tax rate. However, a share of food expenditure is quite high (i.e. around 20%) so that tax revenue loss would be high if a reduced tax rate is applied for many food items. In addition, it will be quite arbitrary and politically biased to decide as to which food items are to be tax reduced. For a moment, it may be reasonable not to implement any tax reduction for food items.
    Date: 2013–01
  4. By: Bucheli, Marisa; Lustig, Nora; Rossi, Maximo; Amabile, Florencia
    Abstract: How much redistribution does Uruguay accomplish through social spending and taxes? How progressive are revenue collection and social spending? A standard fiscal incidence analysis shows that Uruguay achieves a nontrivial reduction in inequality and poverty when all taxes and transfers are combined. In comparison with five other countries in Latin America, it ranks first (poverty reduction) and second (inequality reduction), and first in terms of poverty reduction effectiveness and third in terms of overall (including transfers in-kind) inequality reduction effectiveness. Direct taxes are progressive and indirect taxes are regressive. Social spending on direct transfers, contributory pensions, education and health is quite progressive in absolute terms except for tertiary education, which is almost neutral in relative terms.
    Keywords: Rural Poverty Reduction,Emerging Markets,Debt Markets,Services&Transfers to Poor,Economic Theory&Research
    Date: 2013–03–01
  5. By: Ehrhart, H.; Guerineau, S.
    Abstract: In this paper we assess the impact of commodity price volatility on tax revenues, while existing works were concentrated on its effect on economic growth. Our empirical analysis is carried out on 80 developing countries over 1980-2008. We compute country-specific indices which measure the volatility of the international price of 41 commodities in the sectors of agriculture, minerals and energy. We find robust evidence that tax revenues in developing countries are hurt by the volatility of commodity prices. More specifically, the volatility of import prices decreases revenues from international trade tax while the volatility of export prices reduces revenues from income tax. We also show that this negative effect on tax revenues is not homogenous between countries. First, the export price volatility impact is negative except for oil exporters for whom it is null. Second, the magnitude of the negative impact of import price volatility on tax revenues depends on the tariff structure, i.e. is greater in countries where tariff dispersion is high.
    Keywords: Price Volatility, Tax revenues, Commodities, Developing economies.
    JEL: E62 O13 F10
    Date: 2013
  6. By: Silvia Fedeli; Francesco Forte; Ottavio Ricchi
    Abstract: With the new European fiscal compact, fiscal rules of budget balance over the cycle have been introduced to limit the growth of the debt ratio to GDP. The objection may arise that they would have an adverse effect, especially in the long run on employment and growth. We test the proposition about unemployment by investigating, with a panel of 22 OECD countries (1980-2009), the relationship between Non-Accelerating Inflation Rate of Unemployment, NAIRU, as dependent variable, the underlying net lending government as a percentage of potential GDP (UNLG/pot.GDP), and the general government total receipts as a percentage of GDP, controlling the results with additional variables which may be credited to impact on NAIRU also in the short term. We find that UNLG/pot.GDP and the increase in fiscal burden may be both relevant in increasing the NAIRU in the long run. Thus one can say that, in the long run, high deficits not only do not reduce unemployment but aggravate it, and high tax burdens needed to finance the service of the debt and other public expenditure, under an invariant UNLG/pot.GDP, further increase the NAIRU, even if the inverse relation may also be true. In the short term there is no significant effect of these variables. Results are robust to the presence of cross section correlation. These results suggest that the assert that the constitutional rule of balancing the budget may create unemployment does not find an empirical evidence. They also suggest that further analysis should be carried out to test whether exogenous cause of a high NAIRU may impact on the budgetary deficit, thus making harder to adopt this rule.
    Keywords: NAIRU, fiscal policies indicators, cointegration analysis
    JEL: C23 E24 E62 H62
    Date: 2013–02
  7. By: Kirchgässner, Gebhard
    Abstract: In this paper, institutions are described which are designed to reach sustainability of public finances in the Swiss cantons. These are on the one hand direct popular rights, the fiscal referendum in particular, which allow citizens to express their fiscal preferences. These are on the other hand debt breaks, i.e. institutions, which prevent expenditure and revenue from drifting apart too much in order to limit possible deficits. Both together, fiscal referenda and debt breaks, allow cantons to perform a sustainable fiscal policy. This also holds – and is particularly important – for those cantons that are financially weak. That these institutions are successful is not only demonstrated by descriptive analysis but also supported by econometric analyses. Moreover, they also reduce interest payments cantons have to bear for investment expenditure. Thus, with well-designed institutions federal states might even better be able to follow a sustainable fiscal policy than unitary ones.
    Keywords: Sustainability, Public Debt, Fiscal Policy, Fiscal Referendum, Debt Brakes
    JEL: H63 H74
    Date: 2013–02
  8. By: Kazuo Nishimura (Institute of Economic Research, Kyoto University); Carine Nourry (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & Institut Universitaire de France); Thomas Seegmuller (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM & EHESS); Alain Venditti (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & EDHEC)
    Abstract: We examine the impact of balanced-budget consumption taxes on the existence of expectations-driven business cycles in two-sector economies with infinitely-lived households. We prove that, whatever the relative capital intensity difference across sectors, aggregate instability can occur if the consumption tax rate is not too low. Moreover, we show through a numerical exercise based on empirically plausible tax rates that endogenous business-cycle fluctuations may be a source of instability for all OECD countries, including the US.
    Keywords: Aggregate instability, indeterminacy, expectations-driven fluctuations, consumption taxes, balanced-budget rule, infinite-horizon two-sector model.
    JEL: C62 E32 H20 O41
    Date: 2013–03
  9. By: Scharfenkamp, Katrin
    Abstract: This paper investigates whether the setting of the German top income tax burden is affected by the composition of the Federal Government in terms of connectedness with the national (academic) elite and company network from 1958 to 2011. The results reveal that the percentages of university graduates, former executive board members, as well as the governments average age at the time of decision are related to a lower average top income tax burden. Conversely and surprisingly, an increasing percentage of former members of a supervisory board is associated with a higher average top income tax burden. Interestingly, varying percentages of governmental members with an elitist social background are not aligned with the tax setting. Finally, the higher the difference of mandates between CDU & CSU and those of the SPD in the German Parliament, the lower is the average top income tax burden. -- Dieses Papier untersucht, ob die Festlegung der durchschnittlichen Steuerbelastung deutscher Spitzenverdiener zwischen 1958 und 2011 von der Zusammensetzung der Bundesregierung in Form von Verbindungen zur nationalen (akademischen) Elite und dem Unternehmensnetzwerk beeinflusst wird. Die Ergebnisse zeigen, dass der Anteil an Universitätsabsolventen, früheren Vorstandsmitgliedern und das durchschnittliche Alter der Regierung zum Zeitpunkt der Entscheidung mit einer durchschnittlich niedrigeren Steuerbelastung deutscher Spitzenverdiener verbunden sind. Im Gegensatz hierzu und überraschenderweise ist ein steigender Anteil früherer Aufsichtsratsmitglieder mit einer durchschnittlich höheren Steuerbelastung deutscher Spitzenverdiener verknüpft. Interessanterweise findet sich keine Verbindung eines variierenden Anteils von Regierungsmitgliedern mit elitärem Hintergrund auf Spitzensteuerlast. Schließlich ist die durchschnittliche Steuerbelastung deutscher Spitzenverdiener umso geringer, je höher die Differenz an Bundestagsmandaten zwischen CDU/CSU und SPD ist.
    JEL: D83 D85 H24 P16
    Date: 2013
  10. By: Islam, Asif M.; Lopez, Ramon E.
    Abstract: This study examines the effect of the composition of federal and state government spending on various important air pollutants in the US using a newly assembled data set of government spending. The results indicate that a reallocation of spending from private goods (RME) to social and public goods (PME) by state and local governments reduces sulfur dioxide concentrations while the composition of federal spending has no effect. A 10% percent increase in the share of state and local social and public goods government spending reduces air pollution concentrations by 3 to 5% for Sulfur Dioxide, 2 to 3% for particulate matter 2.5 and 1 to 2 % for ozone. The results are robust to various sensitivity checks.
    Keywords: air pollution, government spending, public goods, market imperfections, Environmental Economics and Policy, Public Economics, H50, H40, O13, O44, Q53,
    Date: 2013–02
  11. By: Ando, Michihito (Department of Economics)
    Abstract: This paper studies how the establishment of Nuclear Power Facilities (NPF) in the 1970s and 1980s has affected local per capita income levels in NPF-located municipalities in Japan by using the synthetic control method (SCM). Eight quantitative case studies using the SCM clarify that the effects of NPF establishment on per capita taxable income levels are highly heterogeneous, but often economically meaningful and in some cases huge: an 11 % increase on average, a 62 % increase in Rokkasho village in 2002 and a 30 % increase in Tomioka town in 2002. On the other hand, a few NPF-located municipalities receive weak or negligible effects from NPF establishment. I also examine the statistical significance of individual treatment effects with several placebo tests and find that the treatment effects of 4 out of the 8 NPF locations are larger than 95% of placebo effects.
    Keywords: local economic growth; nuclear power facilities; synthetic control method
    JEL: H71 O18 R53
    Date: 2013–01–27
  12. By: Bernd Hayo (University of Marburg); Florian Neumeier (University of Marburg)
    Abstract: This paper empirically analyses the relationship between political leaders socioeconomic backgrounds and public budget deficits utilising panel data on 21 OECD countries from 1980 to 2008. Building on sociological, as well as economic, research, we argue that the socioeconomic status of political decision-makers, i.e., presidents or prime ministers, is an important determinant of fiscal budget decisions. Our theory-consistent findings show that the tenures of lower-class leaders i.e., leaders of low socioeconomic status are associated with a deficit-to-GDP ratio which is 1.6 percentage points higher than that during tenures of upperclass leaders.
    Keywords: Budget deficit, political leaders, socioeconomic status, time preference.
    JEL: E62 H11 H62 Z13
    Date: 2013
  13. By: Yasunori Ouchida (Faculty of Economics, Hiroshima University); Daisaku Goto (Graduate School for International Development and Cooperation, Hiroshima University)
    Abstract: In a recent publication in Journal of Economic Behavior and Organization, Poyago-Theotoky (2007) developed a three-stage game model, and also derived theoretical findings and important policy implications for environmental R&D under a time-consistent emission tax. Among the conclusions presented in that paper, it was stated that with inefficient environmental R&D technology and small environmental damage, cooperative environmental R&D engenders larger environmental R&D efforts and greater social welfare than noncooperative environmental R&D does. This note describes that the results of Professor Poyago-Theotoky's (2007, 2010) works are still robust in a relaxed wider parameter range of the environmental damage coefficient. Furthermore, we provide the generalized sufficient condition of damage coefficient to guarantee an interior solution for R&D in an extended framework.
    Keywords: Time-consistent emission tax, Environmental R&D, environmental damage, Cournot duopoly
    JEL: O32 L13 Q55 Q58
    Date: 2011–12
  14. By: Ignacio Abásolo (Departamento de Economía de las Instituciones, Estadística Económica y Econometría, Facultad de Ciencias Económicas y Empresariales. Universidad de La Laguna, Spain); Aki Tsuchiya (Department of Economics, The University of Sheffield)
    Abstract: Four kinds of distributional preferences are explored: inequality aversion in health, inequality aversion in income, risk aversion in health, and risk aversion in income. Face to face interviews of a representative sample of the general public are undertaken using hypothetical scenarios involving losses in either health or income. Whilst in health risk aversion is stronger than inequality aversion, in the income context we cannot reject that attitudes to inequality aversion and risk aversion are the same. When we compare across contexts we find that inequality aversion and risk aversion are both stronger in income than they each are in health.
    Keywords: inequality; risk aversion; health; income
    JEL: I14 D63 D71
    Date: 2013
  15. By: Jeffrey Milyo (Department of Economics, University of Missouri-Columbia); Adriana Cordis
    Abstract: The Supreme Court has long held that campaign finance regulations are permissible for the purpose of preventing corruption or the appearance of corruption. Yet the implied hypothesis that campaign finance reforms are effective tools for combating public corruption has gone essentially untested. We conduct the first systematic evaluation of the effects of campaign finance laws on actual corruption rates in the states. We examine the effects of state reforms on both convictions and filings in public corruption cases over the last 25 years; overall, we find no strong or convincing evidence that state campaign finance reforms reduce public corruption. Earlier research that employs similar methods also finds little support for the contention that state campaign finance regulations increase public trust and confidence in government. Together, these results call into question the legal rationale for campaign finance regulations.
    Keywords: public corruption, campaign finance, regulation
    JEL: D72 D78 H70 K40
    Date: 2013–01–17
  16. By: Leonardo Becchetti (University of Rome "Tor Vergata"); Massimo Ferrari (University of Rome "Tor Vergata"); Ugo Trenta (Poste Italiane)
    Abstract: We analyse the impact of the introduction of the French Tobin tax on volumes, liquidity and volatility of affected stocks with parametric and non parametric tests on individual stocks, difference in difference tests and other robustness checks controlling for simultaneous month-of-the-year and size effects. Our findings document that the tax has a significant impact in terms of reduction in transaction volumes and intraday volatility. The reduction in volumes traded occurs in similar proportion in non taxed small cap stocks.
    Keywords: Financial Transaction Tax; intraday volatility; liquidity, transaction volumes
    JEL: G18 G12 G14
    Date: 2013–03–01
  17. By: Dash, Bharatee Bhushan (National Institute of Public Finance and Policy); Mukherjee, Sacchidananda (National Institute of Public Finance and Policy)
    Abstract: Recently, it has been argued that political competition may have similar effects on economic performance as market competition. This study empirically examines this proposition by linking political competition with the Human Development Index (HDI) of the Indian states. The findings suggest that politically competitive governments perform well along the HDI. A more detailed analysis also shows that the rural India benefits the most from the intense political competition as compared to urban India. We also found that if the same government rules a state for a relatively longer period, it helps the state in achieving higher HDI score. Increasing voter participation found to be positively associated with HDI score, but this finding is confined to the sample of major Indian states only. Increasing public spending on developmental activities is also found to have a positive and significant effect on HDI performance. These findings are robust to various forms of sensitivity analyses.
    Keywords: Political competition ; Human development ; Indian states
    Date: 2013–02
  18. By: Misbah Tanveer Choudhry
    Abstract: This study finds strong empirical evidence in favor of the hypothesis that age composition of population matters for labor productivity growth. We applied the fixed effects panel model using data of large number of countries over the period 1980-2005. Our results suggest that higher age dependency impacts the labor productivity negatively not only directly but also modifies the impact of other determinants of labor productivity. Child dependency has more adverse effect on labor productivity as compared to old age dependency. We specifically find that marginal effect of gross capital formation, labor market reforms and information and communication technology investment on labor productivity is high and significant at lower level of age dependency. However, the marginal effect of financial development on labor productivity increases at high level of age dependency in developing economies. Diversity in size and nature of age dependency across regions and different income groups helps to explain labor productivity differential across them.
    Keywords: labour productivity growth, Age dependency, panel fixed effects
    JEL: C22 C23 O47
    Date: 2013–01–02

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