nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒03‒30
eighteen papers chosen by
Keunjae Lee
Pusan National University

  1. A Convenient Truth: Property Taxes and Revenue Stability By James Alm
  2. Social Spending, Taxes and Income Redistribution in Paraguay By Sean Higgins; Nora Lustig; Julio Ramirez; Billy Swanson
  3. Empathy, Sympathy, and Tax Compliance By Roberta Calvet; James Alm
  4. Does the Fiscal Decentralization Promote Public Safety? Evidence from United States By Ligthart, J.E.; Rider, M.; Wang, R.
  5. China's Tax-for-Fee Reform and Village Inequality By James Alm; Yongzheng Liu
  6. On the Size and Determinants of Inter-regional Redistribution in European Countries over the Period 1995-2009 By Lago-Peñas, Santiago; Prada, Albino; Vaquero, Alberto
  7. Small Homes, Public Schools, and Property Tax Capitalization By Ryan M. Gallagher; Haydar Kurban; Joseph J. Persky
  8. Did China's Tax-for-Fee Reform Improve Farmers' Welfare in Rural Areas? By James Alm; Yongzheng Liu
  9. Austerity and the Income Distribution: The Case of Cyprus By Koutsampelas, Christos; Polycarpou, Alexandros
  10. Asymmetric and Non-atmospheric Consumption Externalities, and Efficient Consumption Taxation By Eckerstorfer, Paul; Wendner, Ronald
  11. Immigration, growth and unemployment: Panel VAR evidence from OECD countries By Ekrame BOUBTANE; Dramane COULIBALY; C. RAULT
  12. Using Dynamic Panel Methods to Estimate Shadow Economies Around the World, 1984-2006 By James Alm; Abel Embaye
  13. Taxing Pollution: Agglomeration and Welfare Consequences By Berliant, Marcus; Peng, Shin-Kun; Wang, Ping
  14. What Places Grow Faster? An Empirical Analysis of Employment Growth Factors at a Local Level for the Spanish Economy By Diana Gutiérrez Posada; Fernando Rubiera Morollón; Ana Viñuela Jimémez
  15. Seigniorage Revenue and Inflation Tax in Turkish economy By doğru, bülent
  16. On the Earliest Economic Growth and Income Inequality; or Modified Old Philosophical, Forgotten or Ignored, Study Reconsidered and Developed By Atayev, Atabek
  17. Public provision vs outsourcing of cultural services: evidence from italian cities By Bertacchini Enrico; Dalle Nogare Chiara
  18. Survival of the Unfittest: Why the Worst Infrastructure Gets Built, And What We Can Do about It By Bent Flyvbjerg

  1. By: James Alm (Department of Economics, Tulane University)
    Keywords: property tax, state and local finance, assessment, tax base elasticity
    JEL: H2 H7 R3 R5
    Date: 2013–02
  2. By: Sean Higgins (Department of Economics, Tulane University); Nora Lustig (Department of Economics, Tulane University); Julio Ramirez (CADEP (Centro de Analisis y Difusion de la Economia Paraguaya)); Billy Swanson (Department of Economics, University of California Davis)
    Abstract: How much redistribution does Paraguay accomplish through social spending and taxes? How progressive are revenue collection and social spending? Using a standard fiscal incidence analysis, we quantify the reduction in inequality and poverty in Paraguay across income concepts, and contextualize these results by placing Paraguay in comparative perspective with other Latin American countries. Paraguay achieves a relatively small reduction in inequality, even when in-kind education and health benefits are taken into account. Direct taxes are progressive, indirect taxes are regressive, and total taxes are regressive. Social spending is progressive in relative terms, but less so than in any of the other countries analyzed.
    Keywords: inequality, poverty, Paraguay, social spending, taxes
    JEL: H22 D31 I32 I38
    Date: 2013–02
  3. By: Roberta Calvet (Department of Business Management and Communication, Lesley University); James Alm (Department of Economics, Tulane University)
    Abstract: This paper examines the effect of "empathy" and "sympathy" on tax compliance. We run a series of laboratory experiments in which we observe the subjects' decisions in a series of one-shot tax compliance games presented at once and with no immediate feedback. Importantly, we employ methods to identify subjects' sympathy, such as the Davis Empathic Concern Scale and questions about frequency of prosocial behaviors; we also use priming in order to promote subjects' empathy. Our results suggest that the presence of sympathy in most cases encourages more tax compliance. Our results also suggest that priming to elicit empathy also has a positive impact on tax compliance. These results support the inclusion of noneconomic factors in the analysis of tax compliance behavior.
    Keywords: Tax evasion; Emotions; Morality; Identity; Behavioral economics; Experimental economics
    JEL: H26 C91
    Date: 2013–02
  4. By: Ligthart, J.E.; Rider, M.; Wang, R. (Tilburg University, Center for Economic Research)
    Abstract: Abstract Abstract This paper empirically investigates the effect of fiscal decentralization on public safety, which is widely taken as an important issue in evaluating the performance of public service. In addition, we provide evidence to the transmission channels of the decentralization effect. In a decentralized setting, the fiscal competition between jurisdictions motivates local governments to provide better crime control service, but as illustrated in this paper, the externality in the prevention of mobile crime can offset the beneficial effect of jurisdictional competition. Using panel data for the United States from 1990 to 2009, we find the fiscal decentralization generally lowers the crime rate, but the effect is smaller for mobile crime than immobile crime. The findings provide strong empirical support to our hypothesis and the underlying mechanism, and the results are robust to various fiscal decentralization measures and model specifications.
    Keywords: Fiscal Decentralization;Crime rate;Mobility of Crime
    JEL: H54 H77 K42
    Date: 2013
  5. By: James Alm (Department of Economics, Tulane University); Yongzheng Liu (Department of Economics, Andrew Young School of Policy Studies, Georgia State University)
    Abstract: In the late 1990s, China enacted a rural tax reform known as the "Tax-for-Fee Reform" (TFR), largely driven by a desire to address farmers' complaints about their perception of a heavy and regressive tax burden. This paper examines the impact of the TFR on inequality in rural villages in China. Our results suggest an effective role of the TFR in reducing inequality within villages. Its impact on a consumption-based measure of inequality took effect immediately; its impact on per capita household income inequality took somewhat longer. Our results also suggest that it is "rich" and/or "coastal" villages that exhibited a significant reduction of inequality from the TFR, while "poor" and/or "inland" villages experienced no significant changes in inequality from the reform.
    Keywords: tax-for-fee reform, inequality, rural China
    JEL: H7 I2 I3 O1 O5 P3
    Date: 2013–02
  6. By: Lago-Peñas, Santiago; Prada, Albino; Vaquero, Alberto
    Abstract: The aim of this paper is to analyse cross-country differences in the degree of inter-regional redistribution achieved by means of taxes and expenditures in 21 European countries over the period 1995-2009. We rely on a standard approach based on the observation and comparison of both primary and disposable household income at regional scale. Once the redistributive effect in each country is quantified, we try to explain the drivers of cross-country time-series differences. According to our estimates, cross-national standard deviation is significant and much higher than time variation. Secondly, inter-regional redistribution is strongly and positively related to personal redistribution by means of taxes and social benefits in cash; and is negatively related to both the extent of regional disparities in primary income and to the degree of political and fiscal decentralization.
    Keywords: Inter-regional redistribution, regional fiscal imbalance, European Union
    JEL: H11 H23 H77
    Date: 2013–03–10
  7. By: Ryan M. Gallagher; Haydar Kurban; Joseph J. Persky
    Abstract: Efforts to estimate the degree to which local property taxes are capitalized into house values are complicated by any spurious correlation between property taxes and unobserved public services. One public service of particular interest is the provision of local public schools. Not only do public schools bulk large in the local property tax bill, but the inherent difficulty in measuring school quality has potentially undermined earlier attempts at achieving unbiased estimates of property tax capitalization. This particular problem has been of special concern since Oates’ (1969) seminal paper. We sidestep the problem of omitted or misspecified measures of school quality by focusing on a segment of the housing market that likely places little-to-no value on school quality: small homes. Because few households residing in small homes have public school children, we anticipate that variations in their value does not account for differentials in public school quality. Using restricted-access microdata provided by the U.S. Census, and a quasi- experimental identification strategy, we estimate that local property taxes are nearly fully capitalized into the prices of small homes.
    Date: 2013–03
  8. By: James Alm (Department of Economics, Tulane University); Yongzheng Liu (Department of Economics, Andrew Young School of Policy Studies, Georgia State University)
    Abstract: China enacted a rural tax reform – the "Tax-for-Fee Reform" (TFR) – in the late 1990s. A crucial but unanswered question is whether this reform improved farmers' welfare in rural areas. This paper uses village-level survey data from the Chinese Household Income Project in order to examine the effect of the TFR on farmers' direct and indirect welfare. We find no evidence that the direct welfare effects improved farmer's net income. In contrast, the reform appears to have reduced the villages' financing capacity, and hence to have lowered their overall expenditures. These indirect effects have had significant negative impacts on farmers' welfare.
    Keywords: tax-for-fee reform, inequality, rural China
    JEL: H7 I2 I3 O1 O5 P3
    Date: 2013–02
  9. By: Koutsampelas, Christos; Polycarpou, Alexandros
    Abstract: The economic crisis affecting Cyprus is likely to have considerable impact on the income distribution. Our analysis provides an early assessment of the short-run distributional effects of austerity measures. We distinguish between fiscal measures that affect wages, taxes and contribution rates and measures that directly affect the function of the welfare system. Using the tax-benefit EUROMOD model we attempt to quantify the distributional implications of both. The analysis focuses on the policy changes introduced over the period between 2011 and 2012, i.e. before the expected bailout deal between the government of Cyprus and the consortium of international lenders which is expected in spring 2013. Specifically, we simulate the ceteris paribus impact of the reforms on inequality and poverty as well as estimate how the burden of austerity has been shared across income groups.
    Date: 2013–03–28
  10. By: Eckerstorfer, Paul; Wendner, Ronald
    Abstract: We analyze the effects of a generalized class of negative consumption externalities (asymmetric and non-atmospheric) on the structure of efficient commodity tax programs. Households are not only concerned about consumption reference levels — that is, they gain utility from “keeping up with the Joneses” — they also exhibit altruism. Two sets of efficient tax regimes are compared, based, on a welfarist- and a non-welfarist optimality criterion, respectively. Altruism turns out not to be at odds with the consumption externalities. Rather, altruism implicates a bound on efficient utility allocations. A non-welfarist government tolerates less inequality than a welfarist one. In the welfarist (non-welfarist) case, first-best personalized commodity tax rates respond highly sensitively (barely) to whether or not a consumption externality is asymmetric or non-atmospheric. If personalized commodity tax rates are not available (second-best case), the tax rate on a non- positional good is typically different from zero for corrective reasons. For plausible functional forms and parameter values, numerical simulations suggest that second-best tax rates are rather insensitive with respect to both the optimality criterion and the “nature” of the consumption externality.
    Keywords: Consumption externality, keeping up with the Joneses, optimal (commodity) taxation, genuine altruism, non-welfarist government
    JEL: D62 H21 H23
    Date: 2013–01–17
  11. By: Ekrame BOUBTANE; Dramane COULIBALY; C. RAULT
    Abstract: This paper examines empirically the interaction between immigration and host country economic conditions. We employ a panel VAR techniques to use a large annual dataset on 22 OECD countries over the period 1987-2009. The VAR approach allows to addresses the endogeneity problem by allowing the endogenous interaction between the variables in the system. Our results provide evidence of migration contribution to host economic prosperity (positive impact on GDP per capita and negative impact on aggregate unemployment, native- and foreign-born unemployment rates). We also find that migration is influenced by host economic conditions (migration responds positively to host GDP per capita and negatively to host total unemployment rate).
    Keywords: immigration, growth, Unemployment, panel VAR
    JEL: J61 F22 E20
    Date: 2013
  12. By: James Alm (Department of Economics, Tulane University); Abel Embaye (Department of Economics, University of Arkansas)
    Abstract: The paper estimates the size of shadow economy for 111 countries for the years 1984 to 2006 based on the currency demand approach. An important innovation is our use of dynamic panel data methods, which allows us to make several important contributions. First, we estimate the shadow economy for a range of heterogeneous countries that previously could not be included in the same regression. Second, we include variables that measure institutional quality in countries, including a variable that measures enforcement efforts. Third, we account for the persistence of currency demand as it evolves over time. Our results indicate a substantial shadow economy across countries, ranging from 10 to 86 percent of GDP, with some tendency to grow over time. We also find that the shadow economy varies significantly by country income group. The mean shadow economy is 17 percent of GDP for OECD countries, 24 percent for non-OECD high income countries, 33 percent for upper middle income countries, 37 percent for lower middle income countries, and 38 percent for low income countries.
    Keywords: tax evasion, shadow economy, currency demand method, panel data
    JEL: H21 H26 C33 E41 O17
    Date: 2013–02
  13. By: Berliant, Marcus; Peng, Shin-Kun; Wang, Ping
    Abstract: This paper demonstrates that a pollution tax with a fixed cost component may lead, by itself, to stratification between clean and dirty firms without heterogeneous preferences or increasing returns. We construct a simple model with two locations and two industries (clean and dirty) where pollution is a by-product of dirty good manufacturing. Under proper assumptions, a completely stratified configuration with all dirty firms clustering in one city emerges as the only equilibrium outcome when there is a fixed cost component of the pollution tax. Moreover, a stratified Pareto optimum can never be supported by a competitive spatial equilibrium with a linear pollution tax that encompasses Pigouvian taxation as a special case. To support such a stratified Pareto optimum, however, an effective but unconventional policy prescription is to redistribute the pollution tax revenue from the dirty to the clean city residents.
    Keywords: Pollution Tax; Agglomeration of Polluting Producers; Endogenous Stratification
    JEL: D62 H23 R13
    Date: 2013–03–25
  14. By: Diana Gutiérrez Posada; Fernando Rubiera Morollón; Ana Viñuela Jimémez (Regional Economics Laboratory (REGIOlab), University of Oviedo)
    Abstract: The objective of this work is to study employment growth and its determinants in Spain at a high degree of spatial disaggregation. The impossibility of accessing data on GDP at local scale makes this a particularly interesting issue, as employment growth can be used as a proxy of local economic growth and can therefore be expected to provide some insights into the factors determining local economic development. Using the 2001 Census database, we have information on several economic variables at local level (municipalities) which we then aggregate into Local Labour Market Areas (LLMs), as we believe these functional regions may be the ideal level of disaggregation to study employment or economic growth. Based on the ideas of New Economic Geography (NEG), we first analyze the influence of size and geographical position of the LLM on employment growth. As well as considering the Euclidean distance from the LLM to the main metropolitan areas we also use a novel approach based on the notion of incremental distances. Once the importance of the NEG approach is confirmed, we also examine the traditional determinants of economic growth used in macroeconomic studies, but in this occasion applied at local level, such as education, diversification and sectoral structure. Finally, to confirm the relevance of location, spatial auto-regressive models are estimated. Our results show that employment growth is mainly driven by geo-economic variables such as size and distance instead of the economic policy variables in the hands of the central or regional governments.
    Keywords: local employment growth, local labour markets, NEG, incremental distances, local and regional policies, Spain
    JEL: R1 R12
    Date: 2013–03
  15. By: doğru, bülent
    Abstract: The goal of this study is to test the implication of optimal seigniorage theory that in the long run higher tax rates are associated with higher inflation rates and higher nominal interest rates. For this purpose, we examine the long run relationship between nominal interest rates, inflation and tax revenue using time series dataset for Turkish Economy for the period 1980-2011. We estimate the Mankiw’s (1987) optimal seigniorage model for Turkish Economy with the cointegration and vector error correction methods (VECM). According to econometric result, in long run there is a causality relationship from inflation and tax revenue to nominal interest rates. However, in short run we could not find any evidence that support a causality from inflation and tax revenue to nominal interest rates.
    Keywords: Seigniorage, Inflation Tax, Turkish Economy, Error Correction Model, Cointegration Analysis.
    JEL: E40 E60 E62
    Date: 2013–03–03
  16. By: Atayev, Atabek
    Abstract: Existing economic literature provides contradictory or insufficient explanations of relation between income inequality and economic growth. I propose that the reason is that the authors fail to consider fundamental forces which have given occasion to the variables and historical background of the issue. My analysis is focused on studying causes of the earliest income inequality and economic growth accompanied by inequality. I find that external power exercised by slave owners is force which has given occasion to inequality and growth. This finding provides fundamentally different understanding of the issue.
    Keywords: Division of Labor, Economic Growth, Freedom, Income Inequality
    JEL: D03
    Date: 2013–03–28
  17. By: Bertacchini Enrico; Dalle Nogare Chiara (University of Turin)
    Abstract: Cultural policy often implies the transfer of public resources to private cultura l institutions. In this contribution we focus on the determinants of a government’s choice between cultural transfers and in-house cultural production. We argue that in the cultural field transfers may be seen as a proxy for the value of outsourced services, and we make reference to the empirical literature on outsourcing of local public services. We consider Italian cities’ cultural policies in the1998-2008 period, a time when overall cultural expenditure shrank while cultural transfers increased. Using dynamic panel data analysis and controlling for specific characteristics of each city, we find that outsourcing of cultural services is negatively affected by cultural assets specificity and is more likely tooccur in cities subject to fiscal stress. The results also highlight that the timing of elections affects the transfer of public resources to private cultural institutions
    Date: 2013–03
  18. By: Bent Flyvbjerg
    Abstract: The article first describes characteristics of major infrastructure projects. Second, it documents a much neglected topic in economics: that ex ante estimates of costs and benefits are often very different from actual ex post costs and benefits. For large infrastructure projects the consequence is cost overruns, benefit shortfalls, and the systematic underestimation of risks. Third, implications for cost-benefit analysis are described, including that such analysis is not to be trusted for major infrastructure projects. Fourth, the article uncovers the causes of this state of affairs in terms of perverse incentives that encourage promoters to underestimate costs and overestimate benefits in the business cases for their projects. But the projects that are made to look best on paper are the projects that amass the highest cost overruns and benefit shortfalls in reality. The article depicts this situation as "survival of the un-fittest." Fifth, the article sets out to explain how the problem may be solved, with a view to arriving at more efficient and more democratic projects, and avoiding the scandals that often accompany major infrastructure investments. Finally, the article identifies current trends in major infrastructure development. It is argued that a rapid increase in stimulus spending combined with more investments in emerging economies combined with more spending on information technology is catapulting infrastructure investment from the frying pan into the fire.
    Date: 2013–03

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