nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒04‒13
27 papers chosen by
Keunjae Lee
Pusan National University

  1. Russian Fiscal Federalism: Impact of Political and Fiscal (De)centralization By Alexeev, Michael; Weber, Shlomo
  2. Using surveys of business perceptions as a guide to growth-enhancing fiscal reforms By Misch, Florian; Gemmell, Norman; Kneller, Richard
  3. Tax Morale, Tax Compliance and the Optimal Tax Policy By Gaetano Lisi
  4. Tax Compliance and Psychic Costs: Behavioral Experimental Evidence Using a Physiological Marker By Uwe Dulleck; Jonas Fooken; Cameron Newton; Andrea Ristl; Markus Schaffner; Benno Torgler
  5. The Efficiency and Equity of the Tax and Transfer System in France By Balázs Égert
  6. Panel Export Taxes (PET) Dataset: New Data on Export Tax Rates By Olga Solleder
  7. Local taxation of global corporations: a simple solution By Hindriks, Jean J.G.; Peralta, Susana; Weber, Shlomo
  8. Taxation and the Long Run Allocation of Labor: Theory and Danish Evidence By Kreiner, Claus Thustrup; Munch, Jakob Roland; Whitta-Jacobson, Hans-Jørgen
  9. The Incidence of Non-Linear Consumption Taxes By Clément Carbonnier
  10. From the EU Savings Directive to the US FATCA, Taxing Cross Border Savings Income By Marcel GERARD; Lucia GRANELLI
  11. Income Inequality and Poverty in Colombia - Part 2. The Redistributive Impact of Taxes and Transfers By Isabelle Joumard; Juliana Londoño Vélez
  12. Taxation and Development By Besley, Timothy J.; Persson, Torsten
  13. Social Fragmentation, Public Goods and Elections: Evidence from China By Padro, Gerard; Qian, Nancy; Yao, Yang
  14. Efficiency and Equity Effects of Taxing the Financial Sector: Lessons from a CGE Model for Belgium By Chisari, Omar; Estache, Antonio; Nicodème, Gaëtan
  15. Migration and Wage Effects of Taxing Top Earners: Evidence from the Foreigners' Tax Scheme in Denmark By Kleven, Henrik; Landais, Camille; Saez, Emmanuel; Schultz, Esben
  16. Estimating US Fiscal and Monetary Interactions in a Time Varying VAR By Eddie Gerba; Klemens Hauzenberger
  17. Business taxation and economic performance in hierarchical government structures By Revelli Federico
  18. How does FDI affect corporate tax revenue of the host country? By Huu Thanh Tam Nguyen; Manh Hung Nguyen; Aditya Goenka
  19. Fiscal Policy and MPC Heterogeneity By Jappelli, Tullio; Pistaferri, Luigi
  20. Political rivalry effects on human capital accumulation and inequality: a New Political Economy approach By Elena Sochirca; Oscar Afonso; Sandra Silva
  21. It’s the Debt-Growth Nexus Again – Evidence from a Long Panel of Regional-Government Liabilities By Timo Mitze; Florian Matz
  22. Does giving to charity lead to better health? Evidence from tax subsidies for charitable giving By Baris Yoruk
  23. The effects of public spending composition on firm productivity By Kneller, Richard; Misch, Florian
  24. Obesity and smoking: can we catch two birds with one tax? By D. Dragone; F. Manaresi; L. Savorelli
  25. Trade Effects of Export Taxes By Olga Solleder
  26. Theoretical Perspective of Local Government - Literature Review By Haqu, Adnan ul
  27. Governor’s term and information disclosure: Evidence from Japan By Yamamura, Eiji

  1. By: Alexeev, Michael; Weber, Shlomo
    Abstract: The extent of political and fiscal centralization in Russia has experienced dramatic changes since the end of the Soviet era. The heavily centralized, both politically and economically, federal structures became dysfunctional and unstable until the introduction of the Budget and Tax Codes over the last decade induced a relative clarity to revenue assignments and expenditure and management responsibilities of different levels of government. While the creation of federal districts and the elimination of elections of regional governors in 2005 have brought a substantial rise of political centralization, the reforms had an ambiguous effect on fiscal centralization and fiscal independence of the regions, the estimation of which is addressed in this paper. We use an updated and extensive dataset and apply a novel estimation technique by evaluating the response of regional government’s expenditures to changes in the size of the GRP (gross regional product) and to changes in the region’s tax collections. While the results related to regional shares of tax revenues and expenditures are somewhat ambiguous, the examination of marginal fiscal incentives suggests an increase in fiscal centralization in Russia over the last decade. Our investigation also indicates that, contrary to Treisman’s (2000) conjecture, no decline in the variability of tax revenues had taken place in the last decade. We also show that the recent variability of GRP has been smaller than for tax revenues but greater than for budget expenditures, which stresses the effectiveness of budget equalization policies of the central government. Finally, we briefly addressed the issue of intra-regional fiscal relations, which is of crucial importance for political and economic progress of the country.
    Keywords: expenditures; intergovernmental fiscal relations; political centralization; Russian regions; tax revenues; transfers
    JEL: H71 H73 H77
    Date: 2013–02
  2. By: Misch, Florian; Gemmell, Norman; Kneller, Richard
    Abstract: This paper assesses the merits of using surveys of business perceptions of growth constraints as a guide to growth-enhancing fiscal policy reforms. Using endogenous growth models in which the government levies an income tax to provide public inputs to the production of private firms, the paper demonstrates that business perceptions of growth constraints are subject to systematic biases except when firms compare different types of public services or different types of public capital. In particular firms can be expected to systematically over-estimate the growth-enhancing effects of lower tax rates, and under-estimate the growth-enhancing effects of greater provision of public capital. It is then shown that these theoretical predictions regarding how firms rank constraints correspond closely to the observed ranking of constraints by firms in the World Bank's Enterprise Surveys. --
    Keywords: Economic Growth,Fiscal Policy,Imperfectly Informed Governments,Business Perceptions,Diagnostics,Subjective Data
    JEL: D20 E62 O12
    Date: 2013
  3. By: Gaetano Lisi (Creativity and Motivations (CreaM) Economic Research Centre)
    Abstract: Following the behavioural branch of tax compliance literature, this paper tries to incorporate tax morale into the optimal taxation theory. We show that tax morale affects the optimal mix of policy tools of deterrence to clamp down tax evasion. The optimal tax policy in fact differs according to the type of tax payer taken into account. Precisely, in the case of honest taxpayers the optimal strategy from a social welfare standpoint is to substitute a higher taxation/penalty with tighter monitoring; whereas, in the case of tax evaders, the policy maker should enforce both a higher penalty and an increased monitoring
    Keywords: tax evasion, tax compliance, tax morale, taxation, monitoring JEL
    JEL: H26 J64 K42
    Date: 2013–04
  4. By: Uwe Dulleck (QUT); Jonas Fooken (QUT); Cameron Newton (QUT); Andrea Ristl; Markus Schaffner (QUT); Benno Torgler (QUT)
    Abstract: Although paying taxes is a key element in a well-functioning civilized society, the understanding of why people pay taxes is still limited. What current evidence shows is that, given relatively low audit probabilities and penalties in case of tax evasion, compliance levels are higher than would be predicted by traditional economics-of-crime models. Models emphasizing that taxpayers make strategic, financially motivated compliance decisions, seemingly assume an overly restrictive view of human nature. Law abidance may be more accurately explained by social norms, a concept that has gained growing importance as a facet in better understanding the tax compliance puzzle. This study analyzes the relation between psychic cost arising from breaking social norms and tax compliance using a heart rate variability (HRV) measure that captures the psychobiological or neural equivalents of psychic costs (e.g., feelings of guilt or shame) that may arise from the contemplation of real or imagined actions and produce immediate consequential physiologic discomfort. Specifically, this nonintrusive HRV measurement method obtains information on activity in two branches of the autonomous nervous system (ANS), the excitatory sympathetic nervous system and the inhibitory parasympathetic system. Using time-frequency analysis of the (interpolated) heart rate signal, it identifies the level of activity (power) at different velocities of change (frequencies), whose LF (low frequency) to HF (high frequency band) ratio can be used as an index of sympathovagal balance or psychic stress. Our results, based on a large set of observations in a laboratory setting, provide empirical evidence of a positive correlation between psychic stress and tax compliance and thus underscore the importance of moral sentiment in the tax compliance context.
    Keywords: tax compliance, psychic costs, stress, tax morale, cooperation, heart rate variability, biomarkers, experiment
    JEL: H26 H41 K42 D31 D63 C91
    Date: 2012–11–07
  5. By: Balázs Égert
    Abstract: Taxes and cash transfers reduce income inequality more in France than elsewhere in the OECD, because of the large size of the flows involved. But the system is complex overall. Its effectiveness could be enhanced in many ways, for example so as to achieve the same amount of redistribution at lower cost. The French tax code should be simplified and changed less frequently. High statutory rates are coupled with a wide range of effective tax rates resulting from a multitude of tax expenditures. There is a need for base broadening combined with lower rates throughout the system, including VAT. The tax wedge on labour is high, except at the bottom of the wage distribution, which can reduce worker participation and job offers. Greater neutrality both across different capital asset classes but also within specific taxes, and shifting taxes from labour and capital inputs to environmental and property taxes would improve economic outcomes. Likewise, the system of social and family benefits should be simplified to enhance transparency and consistency. Eliminating schemes that let people leave the labour market early, abolishing the pension privileges of specific occupational groups and internalising the costs of survivors’ pension benefits would increase fairness while at the same time generating savings. Better labour-market performance would result from increasing job-search incentives and shortening the parental leave allowance. This Working Paper relates to the 2013 OECD Economic Survey of France (
    Keywords: taxation, redistribution, income inequality, cash transfers
    JEL: D30 H20 H30 H50 H55 H70 J20 J30
    Date: 2013–03–27
  6. By: Olga Solleder (IHEID, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: This paper describes a newly collected dataset on export tax rates, which provides comprehensive coverage for 20 countries, 2 time periods and all products at HS6 level. Export tax rates are based on national government documentation, including preferential provisions for partner countries. The data are organized in a harmonized and comparable format, including ad-valorem equivalents of specific taxes. The dataset can contribute to the empirical analysis of export taxes – an increasingly applied trade policy instrument, which merits further attention from academia and policy makers alike. Furthermore, the paper contains literature review and stylized facts highlighting various aspects of export taxes.
    Keywords: Export taxes, trade taxes, taxation of exports, export levies, export duties, export tax rates, export tax data, export tax agreements, export restrictions
    JEL: C81 F13 F42 H21 Y10
    Date: 2013–04–04
  7. By: Hindriks, Jean J.G.; Peralta, Susana; Weber, Shlomo
    Abstract: The explosion of globalization has increased firms incentives to exploit international tax differentials to their benefit. In this paper we consider a simple world with two countries with different market sizes and two multinationals with a division in each country. Both countries use a source-based profit tax on multinationals, who compete a la Cournot in each local market and use profit shifting based on the tax differential. We assess policies aimed to mitigate inefficient tax choices and show that tax harmonization cannot benefit the small country which adopts a lower tax rate to channel a tax revenue from the large country. We propose a simple revenue sharing mechanism in which countries share equal proportion of their own revenue with each other. It is shown that revenue sharing increases equilibrium tax rates in each country, reduces the tax differential, and benefits both countries despite of reallocation of resources from the high tax to the low tax country.
    Keywords: heterogeneous countries; profit shifting; revenue sharing; tax competition
    JEL: F23 H25 H70
    Date: 2013–02
  8. By: Kreiner, Claus Thustrup; Munch, Jakob Roland; Whitta-Jacobson, Hans-Jørgen
    Abstract: Inspired by Hayek (1945), we study the distortionary effects of taxation on labor mobility and the long run allocation of labor across different profitable opportunities. These effects are not well detected by the methods applied in the large public finance literature estimating the elasticity of taxable income and quantifying the welfare loss from taxation. Our analysis builds on a standard search theoretic framework where workers are continually seeking better paid jobs, but are also fired from time to time because of economic development and productivity shocks. We incorporate non-linear taxation into this setting and estimate the structural parameters of the model using employer-employee register based data for the full Danish population of workers and workplaces for the years 2004-2006. Our results indicate that along the intensive margin the Danish taxation generates an overall efficiency loss corresponding to a 12 percent reduction in GDP. It is possible to reap 4/5 of this potential efficiency gain by going from a high-tax Scandinavian system to a level of taxation in line with low-tax OECD countries such as the United States. The tax-responsiveness of labor mobility and allocation corresponds to an elasticity of taxable income with respect to the net-of-tax rate in the range 0.15-0.3.
    Keywords: elasticity of taxable income; labor mobility; tax distortions
    JEL: H21
    Date: 2013–01
  9. By: Clément Carbonnier (THEMA, Universite de Cergy-Pontoise)
    Abstract: The present article generalyses economic litterature on consumption tax incidence to general forms of consumption taxes. Previous studies were limited to the cases of per unit and ad valorem taxes. Three main contributions are provided. From a methodological point of view, the elasticity of the tax function is introduced as a new parameter to take the shape of general consumption tax schedules into account in different models of imperfect competition in a tractable manner. From a theoretical point of view, existing results on the difference of incidence of ad valorem and per unit consumption taxes are generalized to non-linear consumption taxes: the larger the elasticity of the tax function the weaker the share of the consumption tax beared by consumers. From anapplied public economic point of view, it is shown how the regulator may put downwards prices on very uncompetitive markets by increasing the elasticity of the consumption tax on a targeted window of producer prices.
    Keywords: Consumption taxes; Imperfect Competition; Tax Incidence; Efficiency.
    JEL: H21 H22 H24 H32
    Date: 2013
  10. By: Marcel GERARD (UNIVERSITE CATHOLIQUE DE LOUVAIN and CESifo); Lucia GRANELLI (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper is motivated by the recent innovations regarding the taxation of cross-border savings that took place in the European Union and the United States. We develop a model to assess the functioning of the different systems of international taxation used on both sides of the Atlantic Ocean. We consider agents as investors able to diversify their portfolio between countries and kinds of financial assets. Furthermore, we show the effects of the various settings investigated not only on the taxation of foreign savings income, but also on the tax rates applied to domestic savings. Finally, comparing the respective merits of diverse regimes of information exchange and coordinated withholding taxation, we explore the consequences of the loopholes in both the EU Savings Directive and the US Qualified Intermediary mechanism, and cope with the cost of information sharing. We find that only three tax designs ensure efficiency: a framework of taxation based on the principle of residence, perfect information exchange for all substitutable assets and strategies, and a system of withholding taxation where the residence country can choose the withholding tax rate and also receives all the withholding tax revenues collected abroad.
    Keywords: International Taxation, Taxation of Personal Income, Savings Taxation, European Integration
    JEL: H24 H26 H31 F36 F55
    Date: 2013–03–25
  11. By: Isabelle Joumard; Juliana Londoño Vélez
    Abstract: Income inequality in Colombia has declined since the early 2000s but remains very high by international standards. While most of the inequality originates from the labour market, wealth – and thus capital income – is also highly concentrated and the tax and transfer system has little redistributive impact. The tax-to-GDP ratio remains low. Consumption taxes, which tend to be regressive, account for the bulk. The progressivity of income taxes had been undermined by generous tax reliefs, which benefit the well-off most and increase tax avoidance opportunities. The tax system should be reformed to enhance progressivity and raise more revenue which could be used to expand social policies. Cash transfers to households are small and dominated by non-redistributive schemes such as contributory pensions. Education coverage has increased steadily but quality and equity in access at the tertiary level remain important issues. Though significant progress has been made towards universal health coverage, the financing and organisation of the health care system could be improved to raise the quality of care and reduce adverse incentives to remain in the informal sector.<P>Inégalités de revenu et pauvreté en Colombie - Partie 2. L'impact redistributif des impôts et prestations sociales<BR>Les inégalités de revenu se sont atténuées depuis le début des années 2000 mais elles restent beaucoup plus fortes que dans la plupart des autres pays. Si le fonctionnement du marché du travail est le principal facteur à l'origine de ces inégalités, il convient de noter que la richesse – et donc les revenus du capital – est aussi très inégalement répartie alors que les impôts et prestations sociales n'ont qu'un faible impact redistributif. Le montant des prélèvements obligatoires en pourcentage du PIB reste faible. Les taxes sur la consommation, qui tendent à être régressives, ont un poids prépondérant. La progressivité des impôts sur le revenu est amoindrie par les dispositifs d'allègements qui bénéficient aux plus fortunés et favorisent l'évasion fiscale. Le système fiscal devrait être réformé afin de renforcer sa progressivité et d'augmenter les recettes qui pourraient être utilisées pour mettre en place des politiques sociales plus ambitieuses. Les prestations sociales sont peu élevées et dominées par des programmes non-redistributifs, en particulier les pensions contributives. Les taux de scolarisation ont augmenté mais la qualité de l'éducation et l'équité d'accès, en particulier pour l'université, restent des défis importants. De même pour la santé, si des progrès remarquables ont été faits concernant la couverture, rendue presque universelle, le financement et l'organisation du système de santé pourraient être réformés afin d'augmenter la qualité des soins et de réduire les incitations au travail informel.
    Keywords: health, education, pensions, property tax, Colombia, value added tax, personal income tax, inequality, conditional cash transfers, water and electricity subsidies, santé, éducation, pensions, impôt sur le revenu, Colombie, impôt sur la propriété, inégalités, prestations sociales conditionnelles, subventions pour l'eau et l'électricité, impôt sur la valeur ajoutée
    JEL: H23 H24 H31 H4 H51 H53 H55 I14 I24 I38
    Date: 2013–03–27
  12. By: Besley, Timothy J.; Persson, Torsten
    Abstract: The central question in taxation and development is: "how does a government go from raising around 10% of GDP in taxes to raising around 40%"? This paper looks at the economic and political forces that shape the way that fiscal capacity is created and sustained. As well as reviewing the literature and evidence, it builds an overarching framework to help structure thinking on the topic.
    Keywords: State Capacity; Taxation
    JEL: H11 H20 O17 O43
    Date: 2013–01
  13. By: Padro, Gerard; Qian, Nancy; Yao, Yang
    Abstract: This study examines how the economic effects of elections in rural China depend on voter heterogeneity, for which we proxy with religious fractionalization. We first document religious composition and the introduction of village-level elections for a nearly nationally representative sample of over two hundred villages. Then, we examine the interaction effect of heterogeneity and the introduction of elections on village-government provision of public goods. The interaction effect is negative. We interpret this as evidence that voter heterogeneity constrains the potential benefits of elections for public goods provision.
    Keywords: Democracy; Fractionalization; Pre-Conditions; Religion; Voter Heterogeneity
    JEL: O1 P1
    Date: 2013–01
  14. By: Chisari, Omar; Estache, Antonio; Nicodème, Gaëtan
    Abstract: This paper assesses the effects of applying VAT or a sales tax on (intermediate or final) sales of the financial sector. It uses a CGE Model calibrated for a small open economy. It highlights the differentiated sectoral and redistributional effects of these taxes and shows the importance of the financial openness of the economy on these results.
    Keywords: Belgium; financial sector; modeling; sales tax; taxation; VAT
    JEL: H20 H25 H30 H87
    Date: 2013–01
  15. By: Kleven, Henrik; Landais, Camille; Saez, Emmanuel; Schultz, Esben
    Abstract: This paper analyzes the effects of income taxation on the international migration and earnings of top earners using a Danish preferential foreigner tax scheme and population-wide Danish administrative data. This scheme, introduced in 1991, allows new immigrants with high earnings to be taxed at a preferential flat rate for a duration of three years. We obtain three main results. First, the scheme has doubled the number of highly paid foreigners in Denmark relative to slightly less paid ineligible foreigners, which translates into a very large elasticity of migration with respect to the net-of-tax rate on foreigners, between 1.5 and 2. Hence, preferential tax schemes for highly paid foreign workers could create severe tax competition between countries. Second, we find compelling evidence of a negative effect of scheme-induced increases in the net-of-tax rate on pre-tax earnings at the individual level. This finding cannot be explained by the standard labor supply model where pay equals marginal productivity, but it can be rationalized by a matching frictions model with wage bargaining where there is a gap between pay and marginal productivity. Third, we find no evidence of positive or negative spillovers of the scheme-induced influx of high-skilled foreigners on the earnings of highly paid natives.
    Keywords: International Migration; Taxation; Wage Bargaining
    JEL: H22 H31 J61
    Date: 2013–03
  16. By: Eddie Gerba; Klemens Hauzenberger
    Abstract: We contribute to the growing empirical literature on monetary and fiscal interactions by applying a sign restriction identification scheme to a structural TVP-VAR in order to disentangle and evaluate the policy shocks and policy transmissions. This in turn allows us to study the Great Recession in a consistent fashion. Four facts stand out from our findings. We observe significant differences in the endogenous responses to shocks in particular between the Volcker period and the Great Recession, and find that monetary policy reacts more aggressively during Volcker chairmanship and fiscal policy during the Great Recession to stabilize the economy. Second, impulse responses confirm that there is a high degree of interactions between monetary and fiscal policies over time. Third, in the forecast error variance decomposition we find that while government revenues largely influence decisions on government spending, government spending does not influence tax decisions. Fourth and final, our analysis of the fiscal transmission channel reveals that tax cuts, because of their crowding-in effects, are more effective in expanding output than government spending rises, since the tax multiplier is higher and more persistent. In light of the current recession and the zero lower bound of the interest rate, tax cuts can, by providing the right incentives to the private sector, result in high and very persistent growth in output if private agent expectations regarding the length and the financing structure of the fiscal expansion are delicately managed jointly by the two authorities.
    Keywords: time varying parameter VAR; sign restrictions; Markov-Chain Monte Carlo; US economic structure; fiscal transmission channel
    JEL: C11 C32 E52 E61 E62 E63
    Date: 2013–03
  17. By: Revelli Federico (University of Turin)
    Abstract: This paper models theoretically and investigates empirically the consequences on local economic performance of state mandates on financially distressed authorities. In particular, I analyze the switch from systematic state bailout of regional health care deficits to selectively mandated hikes in regions’ own business income tax rates that took place in Italy around the mid 2000s, and exploit such dramatic switch to identify the impact of tax policy on the economy. I model factor input use within a multi-jurisdiction neoclassical framework, where production takes place in plants, and physical capital requires energy in fixed proportions depending on the size of energy-saving capital that is installed along with physical capital. Energy-saving capital can be interpreted either as tangible information technology (IT) equipment (e.g., computer-aided line speed control devices) or as intangible assets (e.g., process design skills) lowering a plant energy requirement. The estimation results based on panel data for the Italian provinces and regions over a decade (2000-2010) reveal that, by raising the user cost of capital, mandated business income tax hikes stimulate province-level business energy use, lending support to the hypothesis of short run substitution between energy and energy-saving capital, and hamper the employment of human resources in science and technology (S&T) occupations, the latter being interpretable as a proxy for energy-saving capital
    Date: 2012–04
  18. By: Huu Thanh Tam Nguyen (Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne); Manh Hung Nguyen (Toulouse School of Economics (LERNA-INRA), Hanoi WRU); Aditya Goenka (Department of Economics, National University of Singapore)
    Abstract: This paper investigates the effect of foreign direct investment (FDI) on the welfare of the host country through the process of corporate tax rate determination. Based on a theoretical model that allows for the entry of heterogenous multinational firms, we show that the impact of FDI on government revenue will depend on the competition effect and the technological spillovers. We argue that the competition effect reduces production of domestic firms and thereby lowers the level of corporate tax revenue while the technological spillovers can have positive or negative welfare effects depending on the absorptive capacity of local firms. The degree to which FDI contribute to government revenue in the host country depends also on the demand creation effect and technological transfer cost.
    Keywords: FDI, corporate tax revenue
    JEL: F15 F23
    Date: 2013
  19. By: Jappelli, Tullio; Pistaferri, Luigi
    Abstract: We use responses to survey questions in the 2010 Italian Survey of Household Income and Wealth that ask consumers how much of an unexpected transitory income change they would consume. We find that the marginal propensity to consume (MPC) is 48 percent on average, and that there is substantial heterogeneity in the distribution. We find that households with low cash-on-hand exhibit a much lower MPC than affluent households, which is in agreement with models with precautionary savings where income risk plays an important role. The results have important implications for the evaluation of fiscal policy, and for predicting household responses to tax reforms and redistributive policies. In particular, we find that a debt-financed increase in transfers of 1 percent of national disposable income targeted to the bottom decile of the cash-on-hand distribution would increase aggregate consumption by 0.82 percent. Furthermore, we find that redistributing 1% of national disposable from the top to the bottom decile of the income distribution would boost aggregate consumption by 0.1%.
    Keywords: consumption heterogeneity; fiscal policy; marginal propensity to consume
    JEL: D91 E21
    Date: 2013–02
  20. By: Elena Sochirca (FEP); Oscar Afonso (FEP); Sandra Silva (FEP)
    Abstract: Abstract We propose an endogenous growth model with elements of new political economy in order to study the effects of political institutions and political rivalry on human capital accumulation and income inequality. Relating to the increasing literature on the relationship between income redistribution, inequality and growth, and on the political economy of growth, our model shows that (i) non-distortionary redistribution via public education equalizes income levels and increases human capital accumulation; (ii) political rivalry produces negative outcomes in all dimensions of the considered economic interactions. In particular, we find that occurring episodes of political rivalry reduce human capital accumulation through their negative impact on public investments in education, workers' wages and individual learning choice, and increase income inequality. As regards the role of political institutions, our analysis suggests that the elasticities of human capital accumulation with respect to public and private investments have crucial implications for public policies and require particular attention to the political rivalry effects.
    Keywords: political rivalry, institutions, human capital accumulation, public education, inequality, efficient redistribution, economic growth.
    JEL: H21 H40 H52 E24
    Date: 2012–09
  21. By: Timo Mitze; Florian Matz
    Abstract: In this paper, we study the long- and short-run relationship between regional public debt and economic performance for a sample of German federal states over the period of four decades (1970-2010). By choosing a sample of regional entities with comparable institutional settings, we complement the large literature on the debt-growth nexus based on heterogeneous cross-country samples. We estimate a dynamic error correction model that accounts for slope heterogeneity among cross-sections and the presence of unobserved common factors. While – in line with the Keynesian view – our findings hint at a non-linear inverted U-shape relationship between changes in the public debt intensity and economic growth in the short-run, we get strong statistical evidence for linear negative relationship between regional public depth and per capita GDP in the long-run. By means of a simple though experiment, we show that these negative long-run effects are not negligible for the size of interregional differences in per capita GDP levels and are in line with most international evidence on the detrimental growth effects of high public debt levels. Finally, these results also underline the need for effective fiscal rules at the federal state level in Germany.
    Keywords: Government debt; economic growth; German states; panel data; unobserved common factors
    JEL: C23 R11 R50 E62
    Date: 2013–03
  22. By: Baris Yoruk
    Abstract: In the United States, charitable contributions can be deducted from taxable income making the price of giving inversely related to the marginal tax rate. The existing literature documents that charitable giving is very responsive to tax subsidies, but often ignores the spillover effects of such policies. On the other hand, a growing body of literature documents that giving to others reduces the stress and strengthens the immune system, which results in better health and longer life expectancy. These findings imply that tax subsidies for charitable giving may have positive spillover effects on health. This paper investigates this hypothesis using data from Center on Philanthropy Panel Study (COPPS), the philanthropy module of the Panel Study Income Dynamics (PSID). Understanding the spillover effects of charitable subsidies on health is quite important given the existing literature that links health status to several important economic outcomes. The results show that charitable subsidies have positive spillover effects on health. In particular, the implied cross-price elasticity of health index with respect to giving is -0.13. These results are robust to potential endogeneity of income and highlight the positive externalities created by tax subsidies for charitable giving.
    Date: 2013
  23. By: Kneller, Richard; Misch, Florian
    Abstract: This paper exploits the unique institutional features of South Africa to estimate the impact of provincial public spending on health, education and transport on firm productivity. Our identification strategy is based on within industry-province differences between firms of the effects of public spending. We show that public spending composition affects firm productivity depending on the capital intensity of firms relative to the province-industry mean. Our data and empirical specification allow us to rule out that these results are affected by econometric problems that are commonly encountered when estimating the effects of fiscal policy and by unobserved industry- or province-specific productivity shocks. In contrast to related existing microeconomic evidence, we take into account the government budget constraint so that our results have clear policy implications. --
    Keywords: Public Spending Composition,Productive Public Spending,Firm Productivity
    JEL: D24 H32 H72 O12
    Date: 2013
  24. By: D. Dragone; F. Manaresi; L. Savorelli
    Abstract: The debate on tobacco taxes and fat taxes often treats smoking and eating as independent behaviors. However, since there exists medical and sociological evidence about the interdependence between eating and smoking choices, antismoking policies may also affect the obesity prevalence and fat taxes could influence smoking behavior. We address this issue from a theoretical standpoint and propose a dynamic rational model where eating and smoking are simultaneous choices that jointly affect body weight and addiction to smoking. Focusing on direct and cross price effects, we compare tobacco taxes and fat taxes and we show that a single policy tool can reduce both smoking and body weight. In particular, fat taxes can be more effective than tobacco taxes at simultaneously fighting obesity and smoking.
    JEL: D91 H31 I18
    Date: 2013–03
  25. By: Olga Solleder (IHEID, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: Export taxes usage has recently risen. They are widely presumed to affect trade, but the lack of data has prevented a systematic evaluation of their trade effects. Based on a new dataset of tax rates at the product level, this paper estimates the distortionary trade effects of export taxes. The results, which are based on theory-consistent estimation of a structural gravity model, indicate that the elasticity of trade quantities to tax is -1.8 on average, rising to -5.5 for extractive sectors. The effects are driven by homogeneous goods. The results suggest that the burden of export taxes is shared by exporters and importers and that export taxes play a role in the rise of world prices.
    Keywords: Export taxes, export duties, export restrictions, export policy, trade policy, panel gravity models, GATT/WTO
    JEL: F13 F42 O24 H23
    Date: 2013–04–08
  26. By: Haqu, Adnan ul
    Abstract: “This research paper discusses the basic fundamentals of local government in theoretical perspective. The aim of this paper is to critically evaluate the conceptual framework of local government with its significance in the modern era. Various approaches of local government are discussed in the light of previous empirical researches. The paper also attempts to explore the role of good governance in the development of society’s infrastructure. In developing countries the role of LG (local government) is unlike in the developed countries but to great extent its essentiality is widely accepted by large number of researches and legal experts in order to build strong foundation therefore the role, approaches and its significance are undertaken in this paper to evaluate local government in depth. On the basis of identified notions, the framework to build strong governance is developed”.
    Keywords: Local Government, Theoretical perspective, Good governance, decentralization, concerntration
    JEL: H7 H70 H79
    Date: 2012–05–12
  27. By: Yamamura, Eiji
    Abstract: Local governors that hold office for longer periods are thought to be more likely to collude with various groups to increase their own benefit through long-term interaction. There is no term limit for local governors in Japan, seemingly causing such collusive behavior. However, since 1987, local government at the prefecture level has begun to promulgate public information disclosure ordinances, which is anticipated to prevent collusive behavior. As of 2001, all 47 local governments have promulgated their local ordinances. This paper uses a prefecture level dataset from 1987 and 2001 to explore whether the number of years that local governors hold office is associated with the timing of the promulgation of public information disclosure ordinances. The major finding using survival regression analysis is that the longer local governors hold office, the less likely the ordinance is promulgated. This highlights the policy implication that the term of local governors should be limited.
    Keywords: Multiple terms, information-disclosure ordinance, collusion, survival regression analysis.
    JEL: C41 G38 P48
    Date: 2013–03–27

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