nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒04‒06
twenty papers chosen by
Keunjae Lee
Pusan National University

  1. What Determines the Duration of a Fiscal Consolidation Program? By Luca Agnello; Vitor Castro; Ricardo M. Sousa
  2. Fighting Multiple Tax Havens By Elsayyad, May; Konrad, Kai A.
  3. A Survey of Fiscal Sustainability and Economic Growth (Japanese) By KOBAYASHI Keiichiro
  4. Einkommensteuertarife in der Bundesrepublik Deutschland und ihre Folgen für die Belastung ausgewählter Haushaltstypen By Alfred Boss; Hans Christian Müller; Axel Schrinner
  5. Comparing Inequality Aversion across Countries When Labor Supply Responses Differ By Olivier Bargain; Mathias Dolls; Dirk Neumann; Andreas Peichl; Sebastian Siegloch
  6. Thinking Outside the Bus By Iseki, Hiroyuki; Smart, Michael; Taylor, Brian D.; Yoh, Allison
  7. Taxation and Public Goods Provision in China and Japan before 1850 By Tuan-Hwee Sng; Chiaki Moriguchi
  8. Cooperation, Trust, and Economic Development: An Experimental Study in China By Junyi Shen; Xiangdong Qin
  9. Income polarization and economic growth By Michal Brzezinski
  10. Tackling the instability of growth: A Kaleckian model with autonomous demand expenditures. By Olivier Allain
  11. Looking for Free-riding: Energy Efficiency Incentives and Italian Homeowners By Anna Alberini; Andrea Bigano; Marco Boeri
  12. Is government spending a free lunch? -- evidence from China By Xin Wang; Yi Wen
  13. Can Public Transportation Increase Economic Efficiency? By Drennan, Matthew; Brecher, Charles
  14. Delusion and Deception in Large Infrastructure Projects: Two Models for Explaining and Preventing Executive Disaster By Bent Flyvbjerg; Massimo Garbuio; Dan Lovallo
  15. Inequality and growth By CEESAY, EBRIMA K.
  16. Factor decomposition of income inequality change : Japan's regional income disparity from 1955 to 1998 By Higashikata, Takayuki
  17. Steady-State Labor Supply Elasticities: An International Comparison By Olivier Bargain; Andreas Peichl
  18. Challenges for the future of Chinese economic growth By Jane Haltmaier
  19. Incentives and Influence Activities in the Public Sector: the Trade-off in Performance Budgeting and Conditional Grants By Ivo Bischoff; Frédéric Blaeschke
  20. Impact of natural disasters on income inequality: Analysis using panel data during the period 1965 to 2004 By Yamamura, Eiji

  1. By: Luca Agnello (Banque de France and University of Palermo); Vitor Castro (University of Coimbra, GEMF and NIPE); Ricardo M. Sousa (University of Minho, NIPE, London School of Economics and FMG)
    Abstract: This paper assesses the determinants of the length of fiscal consolidation using annual data for 17 industrial countries over the period 1978-2009. Relying on a narrative approach to identify fiscal consolidation episodes, we show that fiscal variables (such as the budget deficit and the level of public debt) and economic factors (such as the degree of openness, the inflation rate, the interest rate and per capita GDP) are crucial for the fiscal consolidation process. Additionally, we employ continuous and discrete-time duration analyses over a set of consolidation spells and find that evidence of positive duration dependence, i.e., as time goes by, the likelihood of a fiscal consolidation ending is higher. However, more flexible polynomial-in-time, time-dummies and cubic-splines specifications suggest that the hazard function is not monotonic: indeed, it increases until the eighth or ninth year and starts decreasing afterwards. We also find that: (i) spending-driven consolidations are shorter than tax-driven consolidations; (ii) both types of consolidation are longer in Non-European countries than for European countries; and (iii) the size of the consolidation program (in percentage of GDP) does not significantly affect duration. All in all, our results support the importance of cuts in government spending as a way of bringing economies into a sustainable path for public debt. Moreover, they highlight the role played by a fiscal framework that imposes discipline in governments as a device to credibly shorten the length of fiscal consolidation episodes.
    Keywords: fiscal consolidations, duration analysis, Weibull model, cubic splines.
    JEL: C41 E62
    Date: 2013–01
  2. By: Elsayyad, May; Konrad, Kai A.
    Abstract: This paper develops a competition theory framework that evaluates an important aspect of the OECD’s Harmful Tax Practices Initiative against tax havens. We show that the sequential nature of the process is harmful and more costly than a “big bang” multilateral agreement. The sequentiality may even prevent the process from being completed successfully. Closing down a subset of tax havens reduces competition among the havens that remain active. This makes their “tax haven business” more profitable and shifts a larger share of rents to these remaining tax havens, making them more reluctant to give up their “tax haven business”. Moreover, the outcome of this process, reducing the number of tax havens, but not eliminating them altogether, may reduce welfare in the OECD.
    Keywords: tax haven; harmful tax practices; bidding for haven inactivation
    Date: 2012
  3. By: KOBAYASHI Keiichiro
    Abstract: Japan's public debt is increasing exponentially, and it is a primary policy objective to restore its sustainability. In this paper, I survey the existing research on the sustainability of the public debt in Japan and find that it might be necessary either to increase the consumption tax rate by 30% or implement a systematic fiscal consolidation plan lasting more than 100 years. Furthermore, I survey the research on the "public debt overhang," which shows that the economic growth rate decreases by about 1% if the public debt exceeds 90% of the gross domestic product (GDP). I also examine theoretical explanations of the public debt overhang. These findings indicate that restoring the sustainability of the public debt can enhance long-term economic growth.
    Date: 2013–03
  4. By: Alfred Boss; Hans Christian Müller; Axel Schrinner
    Abstract: Facing the general election in 2013, the level of the income tax is a major issue of the economic policy debate in Germany. The paper presents data on the income tax burden in the period 1958–2012. The data refer to specific levels of real income as well as to specific levels of income in relation to the income on average. It turns out that the discretionary changes of the income tax rates since 1958 did not suffice to avoid an increase of the marginal tax rates for typical taxpayers. As to the average tax rates, the picture is a bit different; low income earners realized a small decrease of their tax rates if their real income did not rise
    Keywords: Marginal income tax rates in Germany, bracket creep, incentives to work
    JEL: H30
    Date: 2013–03
  5. By: Olivier Bargain (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), IZA - Institute for the Study of Labor); Mathias Dolls (IZA - Institute for the Study of Labor, University of Cologne - University of Cologne); Dirk Neumann (IZA - Institute for the Study of Labor, University of Cologne - University of Cologne); Andreas Peichl (IZA - Institute for the Study of Labor, University of Cologne - University of Cologne, CESifo - CESifo, ISER - University of Essex); Sebastian Siegloch (IZA - Institute for the Study of Labor, University of Cologne - University of Cologne)
    Abstract: We analyze to which extent social inequality aversion differs across nations when control ling for actual country differences in labor supply responses. Towards this aim, we estimate labor supply elasticities at both extensive and intensive margins for 17 EU countries and the US. Using the same data, inequality aversion is measured as the degree of redistribution implicit in current tax-benefit systems, when these systems are deemed optimal. We find relatively small differences in labor supply elasticities across countries. However, this changes the cross-country ranking in inequality aversion compared to scenarios following the standard approach of using uniform elasticities. Differences in redistributive views are significant between three groups of nations. Labor supply responses are systematically larger at the extensive margin and often larger for the lowest earnings groups, exacerbating the implicit Rawlsian views for countries with traditional social assistance programs. Given the possibility that labor supply responsiveness was underestimated at the time these programs were implemented, we show that such wrong perceptions would lead to less pronounced and much more similar levels of inequality aversion.
    Keywords: Social preferences; redistribution; optimal income taxation; labor supply
    Date: 2013–03
  6. By: Iseki, Hiroyuki; Smart, Michael; Taylor, Brian D.; Yoh, Allison
    Keywords: Engineering, Natural Resources and Conservation, Social Sciences, tax revenues, public sector budgets, metropolitan areas
    Date: 2012–04–01
  7. By: Tuan-Hwee Sng; Chiaki Moriguchi
    Abstract: We develop a principal-agent model to study fiscal capacity in pre-modern China and Japan. Before 1850, both nations were ruled by stable dictators who relied on bureaucrats to govern their domains. We hypothesize that agency problems increase with the geographic size of a domain. In a large domain, the ruler's inability to closely monitor bureaucrats creates opportunities for the bureaucrats to exploit taxpayers. To prevent overexploitation, the ruler has to keep taxes low and government small. Our dynamic model shows that while economic expansion improves the ruler's finances in a small domain, it could lead to lower tax revenues in a large domain as it exacerbates bureaucratic expropriation. To test these implications, we assemble comparable quantitative data from primary and secondary sources. We find that the state taxed less and provided fewer local public goods per capita in China than in Japan. Furthermore, while the Tokugawa shogunate's tax revenue grew in tandem with demographic trends, Qing China underwent fiscal contraction after 1750 despite demographic expansion. We conjecture that a greater state capacity might have prepared Japan better for the arrival of the West after 1850.
    Keywords: Comparative Institutional Analysis, Principal-Agent Problem, Dictatorships
    JEL: D73 N15 N40 O43 P52
    Date: 2013–03
  8. By: Junyi Shen (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Xiangdong Qin (School of Economics, Shanghai Jiao Tong University, China)
    Abstract: Many previous empirical studies have suggested that cooperation and trust affect economic growth. However, the precise relationship between trust and cooperation (i.e., whether trust leads to cooperation or cooperation leads to trust) remains unclear and it is not known how the level of economic development affects the level of cooperation and trust. Using a combination of public goods experiment, gambling game experiment, and trust game experiment, we investigate the links among cooperation, trust, and economic development in four regions of China. Our results suggest that first, there is a U-shaped or V-shaped relationship between cooperation and economic development; second, on the one hand, cooperation leads to trust, and on the other hand, more cooperative behavior may be created by rewarding trusting behavior; and third, men are more cooperative and trusting than women. Furthermore, we find that the widely used 'GSS trust' question from the General Social Survey (GSS) does not predict either cooperation or trust, whereas the questions 'GSS fair' and 'GSS help' have weak predictive power for trusting behavior but not for cooperative behavior.
    Keywords: Cooperation, Trust, Economic development, Experiment, China
    JEL: C91 H41 I32
    Date: 2013–04
  9. By: Michal Brzezinski (University of Warsaw, Faculty of Economic Sciences)
    Abstract: This study examines empirically the impact of income polarization on economic growth in an unbalanced panel of more than 70 countries during the 1960–2005 period. We calculate various polarization indices using existing micro-level datasets, as well as datasets reconstructed from grouped data on income distribution taken from the World Income Inequality Database. The results garnered for our preferred sample of countries suggest that income polarization has a negative impact on growth in the short term, while the impact of income inequality on growth is statistically insignificant. Our results are fairly robust to various model specifications and estimation techniques.
    Keywords: economic growth, polarization, inequality, income distribution
    JEL: O11 O15 O4 D31
    Date: 2013
  10. By: Olivier Allain (Centre d'Economie de la Sorbonne et Université Paris Descartes Sorbonne Paris Cité)
    Abstract: This article presents a Kaleckian model enriched by introducing autonomous public expenditure which grows at an exogenous rate. It shows that the usual properties are not affected in the short run: growth is wage-led. But long run properties are strongly affected: public expenditure plays a role as an automatic stabilizer so that the accumulation rate converges on the growth rate of public expenditure. The effect of a change in income distribution on the growth rate is then only transient. However, the impacts on the level of variables (output, capital stock, labor, etc.) remain permanent. The research here also shows that this theoretical framework can provide a solution (depending on the parameters) to the ‘second’ Harrod knife-edge problem. In this case, Kaleckian outcomes are consistent with the convergence of the current utilization rate on the ‘normal’ rate, a result which has not been found in the existing literature.
    Keywords: Kaleckian models, utilization rate, Harrod instability, income distribution, automatic stabilizers.
    JEL: E12 E2 E25 E62
    Date: 2013–03
  11. By: Anna Alberini (Department of Agricultural and Resource Economics, University of Maryland, USA, Fondazione Eni Enrico Mattei, Italy and faculty affiliate at CEPE, ETH Zurich); Andrea Bigano (Fondazione Eni Enrico Mattei and Euro-Mediterranean Centre for Climate Change, Italy); Marco Boeri (Queen’s University, Northern Ireland)
    Abstract: We examine the effect of energy efficiency incentives on household energy-efficiency home improvements. Starting in February 2007, Italian homeowners have been able to avail themselves of tax credits on the purchase and installation costs of certain types of energy efficiency renovations. We examine two such renovations—door/windows replacements and heating system replacements—using multi-year cross-section data from the Italian Consumer Expenditure Survey and focusing on a narrow period around the introduction of the tax credits. Our regressions control for dwelling and household characteristics and economy-wide factors likely to influence the replacement rates. The effects of the policy are different for the two types of renovations. With window replacements, the policy is generally associated with a 30% or stronger increase in the renovation rates and number of renovations. In the simplest econometric models, the effect is not statistically significant, but the results get stronger when we allow for heterogeneous effects across the country. With heating system replacements, simpler models suggest that the tax credits policy had no effect whatsoever or that free riding was rampant, i.e., people are now accepting subsidies for replacements that they would have done anyway. Further examination suggests a strong degree of heterogeneity in the effects across warmer and colder parts of the country, and effects in the colder areas that are even more pronounced than those for windows replacements. These results should, however, be interpreted with caution due to the low rate of renovations and the imprecisely estimated effects.
    Keywords: Energy Efficiency Policy, Household Behavior, Italy, Energy Consumption Survey
    JEL: Q41 D12 H3
    Date: 2013–03
  12. By: Xin Wang; Yi Wen
    Abstract: Most empirical studies based on U.S. data suggest that the fiscal multiplier is less than 1 (e.g., Barro and Redlick, 2011). However, Keynes argued that the multiplier would be the largest when markets have failed to the greatest extent in coordinating economic activities (such as during the Great Depression with rampant unemployment and low capacity utilization). As a large developing country with high household saving rates, a large pool of rural labor force, and a wide range of market failures, China offers a unique opportunity to test the Keynesian notion that government expenditures (even as a pure waste of aggregate resources) can have a fiscal multiplier larger than 1 on aggregate income. Perhaps even more exceptional is China’s extensive use of government spending as a major policy tool to stimulate the economy over the past three decades. Based on both aggregate time-series data and panel data from 29 Chinese provinces, we find that the fiscal multiplier in China is larger than 2. We provide a theoretical model with market failures and Monte Carlo analysis to rationalize our empirical findings. Specifically, we build a model that can generate the same multiplier and business cycles observed in China and use the model as a data-generating process to gauge whether structural vector autoregressions can yield consistent estimates of the theoretical multiplier in short samples. Our analysis supports the large multiplier found in China but also suggests that government spending may not necessarily be a free lunch despite the large multiplier.
    Keywords: Government spending policy ; Multiplier (Economics) ; Economic conditions - China ; China
    Date: 2013
  13. By: Drennan, Matthew; Brecher, Charles
    Keywords: Engineering, Natural Resources and Conservation, Social Sciences, public investments, public transportation, economic efficiency
    Date: 2012–04–01
  14. By: Bent Flyvbjerg; Massimo Garbuio; Dan Lovallo
    Abstract: The Economist recently reported that infrastructure spending is the largest it is ever been as a share of world GDP. With $22 trillion in projected investments over the next ten years in emerging economies alone, the magazine calls it the "biggest investment boom in history." The efficiency of infrastructure planning and execution is therefore particularly important at present. Unfortunately, the private sector, the public sector and private/public sector partnerships have a dismal record of delivering on large infrastructure cost and performance promises. This paper explains why and how to solve the problem.
    Date: 2013–03
    Abstract: Abstract The paper study cross country analysis for 18 countries to see the effects of gender inequality in education (human capita proxy), Labor force participation (employment proxy) and its impacts on constant growth of Gdp. The regressions are run individual country at a time. The approach is necessary and sufficient conditions to identify the determinants of inequality of each country and the effects on country’s growth from 1980 to 2010.The results Shaw that in most countries if we control the direct impacts of gender inequality like openness, pop-growth, and investment, the labor force participation female-male ratios have highest impacts on growth than others employment variables. The results also found out that education with secondary female-male ratios have greater impacts on growth compared to education with tertiary female-male ratios. Another important point to note is that in most of these 18 countries of the world their appeared a problems of collinearity in employment data. This is due to the facts that employment data’s are insufficient. Overall, the finding needs further research, but the final results after checking in sampling and outer sampling approaches is that educational impacts on growth is high except for only one employment variable(i.e. LFPFM) have the highest impacts on growth in most of the 18 countries in our analysis.
    Keywords: Determinants of inequality, Education, Labor force participations, sampling approaches, Discriminations, Necessary and sufficient conditions for economic growth.
    JEL: G0
    Date: 2013–03–25
  16. By: Higashikata, Takayuki
    Abstract: We propose a method for the decomposition of inequality changes based on panel data regression. The method is an efficient way to quantify the contributions of variables to changes of the Theil T index while satisfying the property of uniform addition. We illustrate the method using prefectural data from Japan for the period 1955 to 1998. Japan experienced a diminishing of regional income disparity during the years of high economic growth from 1955 to 1973. After estimating production functions using panel data for prefectures in Japan, we apply the new decomposition approach to identify each production factor’s contributions to the changes of per capita income inequality among prefectures. The decomposition results show that total factor productivity (residual) growth, population change (migration), and public capital stock growth contributed to the diminishing of per capita income disparity.
    Keywords: Japan, Income distribution, Income inequality, Factor decomposition, Regional disparity
    JEL: C63 O15 R12
    Date: 2013–03
  17. By: Olivier Bargain (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), IZA - Institute for the Study of Labor); Andreas Peichl (IZA - Institute for the Study of Labor, University of Cologne - University of Cologne, CESifo - CESifo, ISER - University of Essex)
    Abstract: This note provides an extensive survey of studies estimating steady-state labor supply elasticities for Western Europe and the US. Differences are driven by the heterogeneity in work preferences across countries and by methodological difference across studies (data, selection or model estimation and specification). While the former exists but is shown to be relatively small (Bargain et al., 2013), we focus here on modeling choices: Large elasticities are mainly found in studies estimated in the 1980s and relying on the Hausman approach. More recent estimates based on discrete-choice models with tax-benefit simulations show smaller and more similar estimates across countries. While we confirm that elasticities decline over time in the US, there is some evidence that both time effect and modeling choices affect estimates for Europe.
    Keywords: household labor supply; elasticity; taxation; Europe; US
    Date: 2013–03
  18. By: Jane Haltmaier
    Abstract: The Chinese economy has been growing at a rapid pace for over thirty years. Most of this growth has come from higher labor productivity, while growth of employment has diminished along with a slower rate of increase in the working-age population. This paper looks at the challenges that China will face over the next two decades in maintaining its rapid pace of economic growth, especially as working-age population growth slows further and then begins to decline. Key questions include whether China will be able to continue to devote nearly half of its GDP to investment, whether such investment will become less productive as the capital-labor ratio continues to rise, whether labor participation and employment rates will fall as the population becomes less rural, and whether future shifts out of rural employment will go more toward the services rather than the manufacturing sector, where productivity is higher. In the baseline scenario economic growth falls gradually from its current pace of about 10 percent to near 6½ percent by 2030. However, a combination of less optimistic, but still reasonable assumptions, results in a reduction in the growth rate to about 1½ percent by 2030.
    Date: 2013
  19. By: Ivo Bischoff (University of Kassel); Frédéric Blaeschke (University of Kassel)
    Abstract: Performance budgeting schemes in the public sector have to operate with imperfect performance measures. We argue that these imperfections generate incentives for the potential recipients of performance-based funds to use up resources in socially wasteful influence activities. We develop a game-theoretical model to analyse the trade-off between the efficiency-enhancing effect of performance budgeting and the social waste it induces. Comparing a performance signal based on recipients’ effort to a signal based on their output shows that a) the former evokes more social waste while the latter amplifies inequality in the amount of public services across districts. Performance budgeting schemes using the outputbased signal yield welfare gains in a wide range of parameter constellations while the applicability of PB-schemes using the effort-based signal is limited. We also show that welfare losses arise when the government is opportunistic. Our model can be applied to the very similar trade-off emerging with the use of conditional grants in federalist countries.
    Keywords: Performance budgeting, rent-seeking, bureaucracy, public-sector production, conditional grants, opportunistic government
    JEL: D7 H77 H5 H11
    Date: 2013
  20. By: Yamamura, Eiji
    Abstract: Although natural disasters have been found to influence economic growth, their impact on income inequality has not yet been explored. This paper uses cross-country panel data during the period 1965 to 2004 to examine how the occurrence of natural disasters has affected income inequality. The major findings of this study are that although natural disasters have increased income inequality in the short term, this effect disappears in the medium term. These findings are observed even after the fixed effects of year and country are controlled for.
    Keywords: natural disasters, income inequality
    JEL: D63 Q54
    Date: 2013–03–20

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