nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒05‒11
thirty papers chosen by
Keunjae Lee
Pusan National University

  1. The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States By Morten Ravn; Karel Mertens
  2. Lessons Learned from Tax versus Expenditure Based Fiscal Consolidation in the European Transition Economies By Mirdala, Rajmund
  3. Taxation and development: A review of donor support to strengthen tax systems in developing countries By Fjeldstad, Odd-Helge
  4. Government Solvency, Austerity and Fiscal Consolidation in the OECD: A Keynesian Appraisal of Transversality and No Ponzi Game Conditions. By Karim Azizi; Nicolas Canry; Jean-Bernard Chatelain; Bruno Tinel
  5. Factor Income Taxation in a Horizontal Innovation Model By Xin Long; Alessandra Pelloni
  6. Environmental taxes in the long run By Vetter, Henrik
  7. Female Labour Supply, Human Capital and Welfare Reform By Richard Blundell; Monica Costa Dias; Costas Meghir; Jonathan M. Shaw
  8. Does cutting back the public sector improve efficiency? Some evidence from 15 European countries By Sabrina Auci; Laura Castellucci; Manuela Coromaldi
  9. Heterogeneity in Labor Supply Elasticity and Optimal Taxation By Marios Karabarbounis
  10. The Cost of Segregation in Social Networks By Nizar Allouch
  11. Improving Public Financial Management in India: Opportunities to Move Forward. By Jena, Pratap Ranjan
  12. Making the Tax System Less Distortive in Switzerland By Andrés Fuentes
  13. Asymmetric Fiscal Policy Shocks By Gogas, Periklis; Pragidis, Ioannis
  14. China and India: Reforms and the Response: How Differently have the Economies Behaved By Manmohan Agarwal; John Whalley
  15. Reforms for a Cleaner, Healthier Environment in China By Sam Hill
  16. Mixture distribution hypothesis and the impact of a Tobin tax on exhange rate volatility : a reassessment. By Olivier Damette
  17. Measuring government performance in public opinion surveys in Africa: Towards experiments? By Bratton, Michael
  18. Models of public service reform : a problem-solving approach By McCourt, Willy
  19. A Macroeconomic Analysis of Energy Subsidies in a Small Open Economy By Gerhard Glomm; Juergen Jung
  20. Myths and Facts about Fiscal Discretion: A New Measure of Discretionary Expenditure. By Fabrizio Coricelli; Riccardo Fiorito
  21. Centralization and accountability: Theory and evidence from the Clear Air Act By Federico Boffa; Giacomo A.M. Ponzetto; Amedeo Piolatto
  22. Strengthening Innovation in the United States By David Carey; Christopher Hill; Brian Kahin
  23. Fiscal equalisation schemes and sub-central government borrowing By Diego Martínez López; Salvador Barrios
  24. Risky Investments with Limited Commitment By Vincenzo Quadrini; Ramon Marimon; Thomas Cooley
  25. Does Education Expenditure Promote Economic Growth in Saudi Arabia? An Econometric Analysis By Ageli, Dr Mohammed Moosa
  26. International Education and Economic Growth By Bergerhoff, Jan; Borghans, Lex; Seegers, Philipp K.; van Veen, Tom
  27. Exploring Reallocations Apparent Weak Contribution to Growth By Mitsukuni Nishida; Amil Petrin; Sašo Polanec
  28. Corruption and Infrastructure at the Country and Regional Level By Gillanders, Robert
  29. Smoking, Income and Subjective Well-Being: Evidence from Smoking Bans By Brodeur, Abel
  30. If Technology Has Arrived Everywhere, Why has Income Diverged? By Diego A. Comin; Martí Mestieri Ferrer

  1. By: Morten Ravn (University College London); Karel Mertens (Cornell University)
    Abstract: This paper estimates the dynamic effects of changes in taxes in the United States. We dis- tinguish between the effects of changes in personal and corporate income taxes using a new narrative account of federal tax liability changes in these two tax components. We develop an estimator in which narratively identified tax changes are used as proxies for structural tax shocks and apply it to quarterly post WWII US data. We find that short run output effects of tax shocks are large and that it is important to distinguish between different types of taxes when considering their impact on the labor market and the major expenditure components.
    Date: 2012
  2. By: Mirdala, Rajmund
    Abstract: European Union member countries are currently exposed to negative implications of the economic and debt crisis. Questions associated with disputable implications of fiscal incentives seem to be contrary to the crucial need of the effective fiscal consolidation that is necessary to reduce excessive fiscal deficits and high sovereign debts. While challenges addressed to the fiscal policy and its anti-cyclical potential rose steadily but not desperately since the beginning of the economic crisis, the call for fiscal consolidation became urgent almost immediately and this need significantly strengthen after the debt crisis contagion flooded Europe. In the paper we provide an overview of main trends in public budgets and sovereign debts in ten European transition economies during last two decades. We identify episodes of successful and unsuccessful (cold showers versus gradual) fiscal (expenditure versus revenue based) consolidations by analyzing effects of improvements in cyclically adjusted primary balance on the sovereign debt ratio reduction. We also estimate VAR model to analyze effects of fiscal shocks (based on one standard deviation in total expenditure, direct and indirect taxes) to real output. It is expected that responses of real output to different types of (consolidating) fiscal shocks may vary and thus provide more precise ideas about a feasibility (i.e. side effects on the macroeconomic performance) of expenditure versus revenue based fiscal consolidation episodes. Economic effects of fiscal consolidating adjustments are evaluated for two periods (pre-crisis and extended) to reveal crisis effects on fiscal consolidation efforts.
    Keywords: fiscal policy adjustments, fiscal consolidation, cyclically adjusted primary balance, government expenditures, tax revenues, unrestricted VAR, Cholesky decomposition, SVAR, structural shocks, impulse-response function
    JEL: C32 E62 H20 H50 H60
    Date: 2013–02
  3. By: Fjeldstad, Odd-Helge
    Abstract: Recent years have seen a growing interest among donors on taxation in developing countries. This reflects a concern for domestic revenue mobilization to finance public goods and services, as well as recognition of the centrality of taxation for growth and
    Keywords: tax policy, tax administration, tax effort, technical assistance
    Date: 2013
  4. By: Karim Azizi (Centre d'Economie de la Sorbonne); Nicolas Canry (Centre d'Economie de la Sorbonne); Jean-Bernard Chatelain (Centre d'Economie de la Sorbonne - Paris School of Economics); Bruno Tinel (Centre d'Economie de la Sorbonne)
    Abstract: This paper investigates the relevance of the No-Ponzi game condition for public debt (i.e. the public debt growth rates has to be lower than the real interest rate, a necessary assumption for Ricardian equivalence) and of the transversality condition for the GDP growth rate (i.e. the GDP growth rate has to be lower than the real interest rate). First, on the unbalanced panel of 21 countries from 1961 to 2010 available in OECD database, those two conditions were simultaneously validated only for 29% of the cases under examination. Second, those two conditions were more frequent in the 1980s and the 1990s when monetary policies were more restrictive. Third, in tune with the Keynesian view, when the real interest rate is higher than the GDP growth, it corresponds to 75% of the cases of the increases of the debt/GDP ratio but to only 43% of the cases of the decreases of the debt/GDP ratio (fiscal consolidations).
    Keywords: Government solvency, austerity, fiscal consolidation, No-Ponzi game condition, transversality condition, Keynesian countercyclical budgetary policy, monetary policy, economic growth.
    JEL: E43 E5 E6 H6 O4
    Date: 2013–04
  5. By: Xin Long (African Development Bank Group); Alessandra Pelloni (University of Rome "Tor Vergata")
    Abstract: We consider the optimal factor income taxation in a standard R&D model with technical change represented by an increase in the variety of intermediate goods. Redistributing the tax burden from labor to capital will in most cases increase the employment rate in equilibrium. This has opposite effects on two distortions in the model, one due to monopoly power, the second to the incomplete appropriability of the benefits of inventions. Their relative momentum determines the sign of the welfare effect of the redistribution. We show that, for parameter values consistent with available estimates, the optimal tax rate on capital will be sizable.
    Keywords: Capital Income Taxes, R&D, Growth Effect, Welfare Effect.
    JEL: E62 H21 O41
    Date: 2013–04–19
  6. By: Vetter, Henrik
    Abstract: The efficiency of the Pigouvian tax suggests that price-based regulation is the proper benchmark for efficient regulation. However, results due to Carlton and Loury (1980, 1986) question this; when harm depends on scale effects a pure Pigou tax is inefficient regulation in the long run. In this note we make precise that there is an efficient tax scheme for controlling harm as long as social optimum exists. In particular, the efficient tax scheme is based on a tax rate equal to marginal harm. Hence, price regulation is the right benchmark for regulation even in the presence of scale effects in the harm function. --
    Keywords: externalities,scale effects,Pigou-taxes
    JEL: D61 D62
    Date: 2013
  7. By: Richard Blundell; Monica Costa Dias; Costas Meghir; Jonathan M. Shaw
    Abstract: We consider the impact of Tax credits and income support programs on female education choice, employment, hours and human capital accumulation over the life-cycle. We thus analyze both the short run incentive effects and the longer run implications of such programs. By allowing for risk aversion and savings we are also able to quantify the insurance value of alternative programs. We find important incentive effects on education choice, and labor supply, with single mothers having the most elastic labor supply. Returns to labour market experience are found to be substantial but only for full-time employment, and especially for women with more than basic formal education. For those with lower education the welfare programs are shown to have substantial insurance value. Based on the model marginal increases to tax credits are preferred to equally costly increases in income support and to tax cuts, except by those in the highest education group.
    JEL: H2 H3 I21 J22 J24 J31
    Date: 2013–05
  8. By: Sabrina Auci (University of Palermo); Laura Castellucci (University of Rome "Tor Vergata"); Manuela Coromaldi (University of Rome “Niccolò Cusano)
    Abstract: The successful development of the welfare state that transpired for three decades after WWII in the developed countries, came to a halt around the end of the 1980s. Since then, the number of articles and books dedicated to the crisis of the welfare state has increased. We can now assert that at the turn of the century, almost all industrialized countries had cut at least “some” entitlements in their welfare program along with other expenditure items, and the trend continued in the first decade of this century. To defend the cuts and possibly to justify continuing cuts, several economic reasons, both theoretical and empirical, have been highlighted. From mention of Baumol’s disease to the fiscal crisis, the support for making such decisions by governments gained momentum, with their political inspiration changing during the same period in favor of more conservative, right-wing positions. The low productivity of the public sector and the high level of tax burden were the substantial arguments used to support cuts. The aim of this paper is to provide an empirical investigation into the impact of retrenchment of the public sector on the performance of 15 European countries. In particular, we aim to empirically test the view that “big government” reduces a country's efficiency. We have found that no such empirical support exists. We have also included analysis of the distribution of income through the Gini index and have found the standard trade-off relation between inequality and efficiency.
    Keywords: Stochastic frontier production function, public sector productivity, welfare
    JEL: H11 H53 O4 D6
    Date: 2013–04–30
  9. By: Marios Karabarbounis (University of Rochester)
    Abstract: Standard public finance principles imply that workers with more elastic labor supply should face smaller tax distortions. This paper quantitatively tests the potential of such an idea within a realistically calibrated life cycle model of labor supply with heterogeneous agents and incomplete markets. Heterogeneity in labor supply elasticity arises endogenously from differences in reservation wages. I find that older cohorts are much more responsive to wage changes than younger and especially middle aged cohorts. Both a shorter time horizon and a larger stock of savings account for this difference. Since the government does not have direct information on individual labor supply elasticity it uses these life cycle variables as informative moments. The optimal Ramsey tax policy decreases the average and marginal tax rates for agents older than 50 and more so the larger is the accumulated stock of savings. At the same time, the policy increases significantly the tax rates for middle aged workers. Finally, the optimal policy provides redistribution by decreasing tax rates of wealth-poor young workers. The policy encourages work effort by high elasticity groups while targets inelastic middle aged groups to raise revenues. As a result, total supply of labor increases by 2.98% and total capital by 5.37%. These effects translate into welfare gains of about 0.85% of annual consumption.
    Date: 2012
  10. By: Nizar Allouch (Queen Mary, University of London)
    Abstract: This paper investigates the private provision of public goods in segregated societies. While most research agrees that segregation undermines public provision, the findings are mixed for private provision: social interactions, being strong within groups and limited across groups, may either increase or impede voluntary contributions. Moreover, although efficiency concerns generally provide a rationale for government intervention, surprisingly, little light is shed in the literature on the potential effectiveness of such intervention in a segregated society. This paper first develops an index based on social interactions, which, roughly speaking, measures the welfare impact of income redistribution in an arbitrary society. It then shows that the proposed index vanishes when applied to large segregated societies, which suggests an "asymptotic neutrality" of redistributive policies.
    Keywords: Public goods, Segregated society, Private provision, Networks, Bonacich transfer index
    JEL: C72 D31 H41
    Date: 2013–05
  11. By: Jena, Pratap Ranjan (National Institute of Public Finance and Policy)
    Abstract: In recent years the role of a sound PFM system to achieve the objectives of fiscal discipline, strategic planning, and improved service delivery has been getting increasing public attention in India. Since public financial management reforms undertaken intermittently over the years, have not delivered anticipated results in these areas, studies and recommendations of Government appointed committees and expert bodies have identified gaps that need attention to strengthen the PFM institutional framework and to improve the efficiency of government spending. This paper examines key PFM reform measures undertaken in India over the past few years and provides suggestions to enhance the effectiveness of these PFM systems.
    Keywords: Public financial management ; Budgeting system ; Performance budgeting ; Fiscal rules ; Audit ; Accounting
    JEL: E62 H6 H83
    Date: 2013–04
  12. By: Andrés Fuentes
    Abstract: The tax burden in Switzerland is low in international comparison, largely reflecting the substantial non-tax compulsory contributions towards the health and pension systems which are managed by private institutions. Taxation of personal income and labour earnings is relatively high, whereas the taxation of consumption is low. Empirical research on OECD economies and on Switzerland specifically indicates that shifting taxation away from personal income towards the taxation of consumption would strengthen incentives to engage in economic activity. The structure of the corporate tax burden could be improved to remove disincentives for small firms to grow. Reducing the generous provisions which allow interest payments to be deducted from taxable personal income would reduce incentives for households to excessively leverage their wealth, with benefits both for financial stability and equity in the tax system. While tax competition among sub-national authorities has reinforced fiscal discipline, adverse side effects on equity could be reduced, including through greater reliance on real estate taxation in municipalities. This Working Paper relates to the 2012 OECD Economic Survey of Switzerland (<P>Réduire les distorsions dues au système fiscal en Suisse<BR>En Suisse, la pression fiscale est faible par comparaison avec les autres pays, ce qui s’explique dans une large mesure par l’importance des contributions obligatoires non fiscales aux systèmes de santé et de retraite qui sont gérés par des institutions privées. L’imposition des revenus des personnes physiques et des rémunérations du travail est relativement élevée, tandis que les impôts sur la consommation sont faibles. Une modification de la structure fiscale qui consisterait à réduire la part des impôts sur le revenu des personnes physiques au profit de celle des impôts sur la consommation renforcerait l’incitation à exercer une activité économique. La structure de l’impôt sur les sociétés pourrait être améliorée afin de supprimer les facteurs qui dissuadent les petites entreprises de se développer. Si l’on réduisait les dispositions avantageuses qui permettent de déduire les versements d’intérêts du revenu imposable des personnes physiques, les ménages seraient moins incités à exercer un effet de levier excessif sur leur patrimoine, ce qui serait bénéfique à la fois pour la stabilité financière et l’équité du système fiscal. Si la concurrence fiscale entre les autorités infranationales a renforcé la discipline fiscale, il serait possible de réduire ses effets collatéraux défavorables sur l’équité, notamment en ayant davantage recours à la fiscalité immobilière dans les communes. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Suisse, 2012 (
    Keywords: taxation, Switzerland, fiscalité, Suisse
    JEL: H2
    Date: 2013–04–16
  13. By: Gogas, Periklis (Democritus University of Thrace); Pragidis, Ioannis (Democritus University of Thrace)
    Abstract: We empirically test the effects of unanticipated fiscal policy shocks on the growth rate and the cyclical component of real private output and reveal different types of asymmetries in fiscal policy implementation. The data used are quarterly U.S. observations over the period 1967:1 to 2011:4. In doing so, we use two alternative vector autoregressive systems in order to construct the fiscal policy shocks: one with the simple sum monetary aggregate MZM and one with the alternative CFS Divisia MZM aggregate. From each one of these systems we extracted four types of shocks: a negative and a positive government spending shock and a negative and a positive government revenue shock. These eight different types of unanticipated fiscal shocks were used next to empirically examine their effects on the growth rate and cyclical component of real private GNP in two sets of regressions: one that assumes only contemporaneous effects of the shocks on output and one that is augmented with four lags of each fiscal shock.
    Keywords: Fiscal Policy; Asymmetric Effects; VAR
    JEL: E62
    Date: 2013–05–04
  14. By: Manmohan Agarwal; John Whalley
    Abstract: The relative performance of China and India is compared using two different methods and they provide a very different picture of their relative performance. We compare the average absolute values of indictors for the decade of the 1980s, 1990s and the 2000s. We use indicators such as the current account balance (CAB), exports of goods and services (XGS), foreign direct investment inflow (FDI), gross domestic savings, gross fixed capital formation (GFCF), aid, private capital inflows (PrK) and workers’ remittances, all as a percentage of GDP. We also look at the growth rate of per capita GDP, exports of goods and services and of gross fixed capital formation. Using a two tailed- test we find that China does better than India for most of these indicators. For instance, China has a higher growth rate of per capita income, XGS and GFCF as also a higher share of XGS, GFCF etc in GDP than does India. We also find that China usually has a lower CV, namely a more stable performance. But over the three decades the CV falls in India so it is approaching that in China, namely the two economies are becoming more similar. We also compare the dynamic performance of the two economies since their reforms. We form index numbers for the indicators. So for example, we from an index number for share of exports in GDP with year 1 of reform in China being 100, i.e. the index for the share in 1979 is 100. Year 2 would be the index number for 1980, namely the value of the share in 1980 with the share in 1979 being 100, etc. In the case of India year 1 would be 1992 once the reforms started, year 2 would be 1993 and so on, so the index would have 1992 as the base year. We find that the indices behave very similarly in the two economies for many of the indicators, namely the pattern of change in China after 1979 is the same as in India after 1992.
    JEL: F00 F10 F21
    Date: 2013–05
  15. By: Sam Hill
    Abstract: China’s exceptional economic expansion has led to rising energy demand and pollution as well as other environmental pressures. Strong efforts by the government have moderated emissions of some types of air and water pollution from high levels but others, including greenhouse gas emissions, continue to rise. Poor air and water quality threaten human health, create other costs and reduce well-being. The 12th Five Year Plan aims at further reducing pollution and at other environmental improvements. To achieve these goals in a cost-effective manner wide-ranging reforms are needed. Reliance on command-and-control measures ought to make way gradually for well-implemented market-based approaches. Energy and water pricing need to be reformed to provide stronger incentives for end-users. So does pollution pricing. A carbon tax should be given serious consideration, especially if pilot carbon emissions trading schemes turn out to be difficult to implement. As well, stronger standards are needed, including for motor vehicles and fuels. Efforts to enhance environmental enforcement, particularly at the local level, will also be key to further progress. This Working Paper relates to the 2013 OECD Economic Survey of China (<P>Des réformes pour assainir l'environnement en Chine<BR>L’expansion économique exceptionnelle de la Chine a entraîné une demande croissante d'énergie et une hausse de la pollution ainsi que d'autres pressions environnementales. Les efforts soutenus du gouvernement ont modéré les émissions de certains types de pollution de l’air et de l’eau à des niveaux élevés, mais d'autres, y compris les émissions de gaz à effet de serre continuent d'augmenter. La mauvaise qualité de l'eau et de l’air menace la santé humaine, crée des coûts supplémentaires et réduit le bien-être. Le 12e plan quinquennal vise à réduire la pollution et à améliorer l'environnement. Pour atteindre ces objectifs d'une manière rentable de vastes réformes sont nécessaires. La dépendance à l'égard des mesures de commandement et de contrôle devrait faire place progressivement à une bonne mise en oeuvre des approches fondées sur le marché. Les prix de l'énergie et de l'eau doivent être réformés pour fournir des incitations plus fortes pour les utilisateurs finaux. Il en va de même pour la tarification de la pollution. Une taxe carbone devrait être sérieusement prise en considération, surtout si les régimes pilotes d'échange d'émissions de carbone se révèlent difficiles à mettre en oeuvre. De plus, des normes plus strictes sont nécessaires, notamment pour les véhicules à moteur et les carburants. Les efforts visant à renforcer le respect de l'environnement, en particulier au niveau local, seront également essentiels à de nouveaux progrès. Ce Document de travail se rapporte à l'Étude économique de la Chine de l’OCDE, 2013, (
    Keywords: health, environment, energy, renewable energy, China, air pollution, emissions trading scheme, carbon tax, cities, water pollution, pollution, environmental taxation, santé, environnement, énergie renouvelable, Chine, fiscalité environnementale, pollution de l'eau, pollution, taxe carbone, pollution de l’air, systèmes d'échange d'émissions
    JEL: I18 Q00 Q25 Q28 Q4 Q5 R48
    Date: 2013–04–17
  16. By: Olivier Damette
    Abstract: From Olsen Financial Studies data on the Euro-Dollar currency pair (2008-2010), we conduct a time-series analysis to explain the role of trading volume on exchange rate volatility (Mixture Distribution Hypothesis), taking into account non-linearity. We find evidence that the MDH holds in turbulent periods, during which spreads and volume trading are high. When spreads and the volume are high, the relationship between trading volume and volatility tends to increase. Linking this result with the Tobin tax debate implies that a Tobin tax would be effective for curbing speculation and reducing exchange rate volatility, even in turbulent periods. This paper provides the first empirical corroboration of this proposition and seems to confirm some previous theoretical papers in the vein of Tobin. All in all, two main results emerged. First, the abundant literature on the MDH, but exclusively based on linear econometrics, should take into account non-linearities. Second, the effect of a Tobin tax on volatility would be slightly context-dependent and always negative. A Tobin tax would have been stabilizing and effective in the 2008 crisis when spreads, volume and volatility were very high.
    Keywords: Tobin Tax, exchange rate volatility, STR models, non-linearity, Mixture Distribution Hypothesis.
    JEL: E44 F31 C22
    Date: 2013
  17. By: Bratton, Michael
    Abstract: In examining the study of government performance, this paper asks whether field experiments can improve the explanatory precision of results generated by public opinion surveys. Survey research on basic health and education services sub-Saharan Africa sho
    Keywords: government performance, surveys, experiments, health, education, Africa
    Date: 2013
  18. By: McCourt, Willy
    Abstract: This paper identifies six models of public service reform that have been practiced in developing countries over the past half-century. It critically reviews their implementation, discussing them as attempted solutions to problems that have arisen in the policy process in different countries. The models are: public administration; decentralization; pay and employment reform; New Public Management; integrity and corruption reforms; and"bottom-up"reforms. The paper seeks an explanation for their disappointing performance in the political economy of reform, with an emphasis on how learning from failure can be the paradoxical foundation of future success.
    Keywords: National Governance,Public Sector Economics,Public Sector Management and Reform,Public Sector Corruption&Anticorruption Measures,Public Sector Expenditure Policy
    Date: 2013–04–01
  19. By: Gerhard Glomm (Department of Economics, Indiana University - Bloomington); Juergen Jung (Department of Economics, Towson University)
    Abstract: We construct a dynamic general equilibrium model to analyze the effects of large energy subsidies in a small open economy. The model includes domestic energy production and consumption, trade in energy at world market prices, as well as private and public sector production. The model is calibrated to Egypt and used to study reforms such as reductions in energy subsidies with corresponding reductions in various tax instruments, or increases in infrastructure investment. We calculate the new steady states, transition paths to the new steady state and the size of the associated welfare losses or gains. In response to a 15 percent cut in energy subsidies, GDP may fall as less energy is used in production. Excess energy is exported and capital imports fall. Welfare in consumption equivalent terms can rise by up to 0.6 percent of GDP. Gains in output can be realized only if the government re-invests into infrastructure.
    Keywords: Energy subsidies, fiscal policy reform, public sector reform, growth.
    JEL: E21 E63 H55 J26 J45
    Date: 2013–02
  20. By: Fabrizio Coricelli (Centre d'Economie de la Sorbonne); Riccardo Fiorito (University of Siena)
    Abstract: In this paper we suggest a new measure of discretionary government spending for OECD countries over the period 1980-2011. To identify the components of discretionary expenditure, we use the volatility and persistence properties of the expenditure series. Discretionary policy cannot be inertial and should be free from prior obligations. Commonly used measures of discretionary fiscal policy do not satisfy these two criteria. We find that discretionary expenditure accounts on average for about 30 per cent of total primary expenditure, suggesting that most government spending is driven by inertial and automatic components. These features help explain why government expenditure is generally not counter-cyclical even is advanced economies. Furthermore, the small share of discretionary expenditure over total expenditure significantly reduces the room of manoeuvre for counter-cyclical fiscal policy during recessions.
    Keywords: Discretion, government spending, volatility.
    JEL: E32 E62 H5
    Date: 2013–04
  21. By: Federico Boffa (Institut d'Economia de Barcelona); Giacomo A.M. Ponzetto (Centre de Recerca en Economia Internacional - CREi); Amedeo Piolatto (Universidad de Alicante)
    Abstract: This paper studies fiscal federalism when voter information varies across regions. We develop a model of political agency with heterogeneously informed voters. Rent-seeking politicians provide public goods to win the votes of the informed. As a result, rent extraction is lower in regions with higher information. In equilibrium, electoral discipline has decreasing returns. Thus, political centralization reduces aggregate rent extraction. When the central government provides public goods uniformly across space, the model predicts that a region’s benefits from centralization are decreasing in its residents’ information. We test this prediction using panel data on pollutant emissions and newspaper circulation across the United States. The 1970 Clean Air Act centralized environmental policy at the federal level. In line with our theory, we find that centralization induced a faster decrease in pollution in less informed states.
    Keywords: Political centralization, Government accountability, Imperfect information, Interregional heterogeneity, Elections, Environmental policy, Air pollution.
    JEL: D72 D82 H73 H77 Q58
    Date: 2013–04
  22. By: David Carey; Christopher Hill; Brian Kahin
    Abstract: The US innovation system has many strengths, including world class research universities and firms that thrive in innovation-intensive sectors. However, fissures have begun to appear, notably in the areas of human capital development, the patent system and manufacturing activity, while public investments in R&D and research universities are at risk of being curtailed by budget cuts. Revitalizing the dynamism of innovation has become a priority for US policymakers. To this end, it is important that federal and state governments sustain financial support for knowledge creation. The US workforce’s skills will need to be upgraded, especially in STEM fields, and measures taken to provide more favourable framework conditions for developing advanced manufacturing in the United States. While the recent patent reform is a big step in the right direction, patent reform needs to be taken further by ensuring that the legal standards for granting injunctive relief and damages awards for patent infringement reflect realistic business practices and the relative contributions of patented components of complex technologies.<P>Renforcer l'innovation aux États Unis<BR>Le système d’innovation des États-Unis possède de nombreux atouts, en particulier des universités de recherche de rang mondial et des entreprises dynamiques dans les secteurs à forte intensité d’innovation. Cependant, certaines failles commencent à apparaître, notamment en termes de formation du capital humain, de brevets et d’activité manufacturière, et les investissements publics en faveur de la R-D et des universités de recherche risquent de pâtir des réductions budgétaires. Pour les décideurs américains, réactiver la dynamique de l’innovation est devenu une priorité. À cette fin, il importe que le gouvernement fédéral et les exécutifs des États continuent de soutenir financièrement la création de connaissances. Il faudrait améliorer le niveau de qualification de la main-d’oeuvre, en particulier dans le domaine des sciences, de la technologie, de l’ingénierie et des mathématiques (STIM), et prendre des mesures pour assurer la mise en place de conditions-cadres plus favorables au développement de la fabrication de pointe. La récente réforme des brevets représente un grand pas dans la bonne direction, mais elle doit être poursuivie en garantissant qu’en cas d’atteinte à un brevet, les critères juridiques sur lesquels se fondent les tribunaux pour prendre des décisions conservatoires et accorder des dommages-intérêts reflètent les pratiques effectives des entreprises et les contributions relatives des composantes brevetées des technologies complexes.
    Keywords: innovation, entrepreneurship, patents, R&D, green innovation, knowledge spillovers, MFP growth, complex technologies, cluster, advanced manufacturing, tertiary education attainment, STEM, immigration Visa, R&E tax credit, innovation, entrepreneuriat, brevets, R&D, l'innovation verte, crédits d'impôt pour R&E, externalités de connaissances, croissance de la productivité multifactorielle (PMF), pôles d'entreprises, activités manufacturières de pointe, niveau d'éducation tertiaire, STIM, visa d'immigration
    JEL: I2 O3
    Date: 2012–11–22
  23. By: Diego Martínez López (Dpto. Economía, Mét. Cuantitativos e H.ª Econ.); Salvador Barrios (IPTS - Instituto de Prospectiva Tecnológica)
    Abstract: This paper analyses the role played by the fiscal equalisation scheme in determining sub-national public borrowing in decentralised countries. We show theoretically how the regional income redistribution modifies the intertemporal budget constraint of the regions and discuss the conditions under which the federal equalisation arrangements are likely to lead to diverging borrowing between rich and poor regions. We test empirically the link between regional government primary balances and the level of GDP per capita in Canada, Germany and Spain. Our econometric analysis shows that this relationship can be either positive (as in the German case) or negative (as in the Canadian and Spanish cases), thus suggesting that either poor or rich regions can display higher regional public borrowing on average. We attribute these results to the differences in the design of the fiscal equalisation schemes and illustrate this through numerical simulations of our model. These results suggest that reforms of the federal financing schemes can prove instrumental in reducing regional heterogeneity in public borrowing. Este artículo analiza el papel jugado por el sistema de nivelación fiscal a la hora de determinar el endeudamiento de gobiernos subcentrales, Mostramos teóricamente cómo la redistribución territorial de la renta modifica la restricción presupuestaria intertemporal de las regiones y discutimos las condiciones bajo las que los sistemas de nivelación fiscal pueden conducir a niveles de endeudamiento distintos en las regiones ricas y pobres. Comprobamos empíricamente los vínculos entre el superávit primario regional y la renta per cápita en Canadá, Alemania y España. Nuestro análisis econométrico muestra que esta relación puede ser positiva (Alemania) o negativa (Canadá y España), sugiriendo por tanto que tanto las ricas como las pobres pueden llegar a niveles de endeudamiento superiores. Atribuimos este resultado a las diferencias en el diseño de los modelos de nivelación fiscal y lo ilustramos con simulaciones numéricas. Estos hallazgos sugieren que las reformas en los modelos de financiación territorial tienen efectos sobre la heterogeneidad en los comportamientos de gobiernos regionales a la hora de endeudarse.
    Keywords: nivelación fiscal, deuda pública. fiscal equalisation, public debt.
    JEL: H7 H6
    Date: 2013–04
  24. By: Vincenzo Quadrini (USC); Ramon Marimon (European University Institute & UPF - Barcelona GSE); Thomas Cooley (New York University)
    Abstract: Over the last three decades we have observed a dramatic increase in the concentration of income at the very top of the distribution. This increase in income inequality has been especially steep in the managerial occupations in financial industries, where it has often been associated with greater risk-taking using more complex financial instruments. Parallel to this trend, organizational forms in the financial sector have been transformed; in particular, traditional forms of partnerships have been replaced by public companies with weaker forms of commitment between investors and managers. In this paper we propose one possible explanation linking both trends. We emphasize the increase in competition for human talents that followed domestic and international liberalization of financial markets and its interplay with different degrees of contract enforcement, representing different organizational forms. Because of the limited enforcement of contracts, the increase in competition raises the managerial incentives to undertake risky investment. Although this may have a positive effect on economic growth, the equilibrium outcome is not efficient and generates greater risk-taking and income inequality.
    Date: 2012
  25. By: Ageli, Dr Mohammed Moosa
    Abstract: This paper investigates the Keynesian Relations and Education Expenditure in Saudi Arabia during the period (1970-2012) for real Oil GDP and Non Oil GDP. Keynesian Relations investigated that fundamental economic growth is validity to the education growth. In the previous tudies have been tested the three versions of Keynesian Relations to support the existence of long-run relationship between education expenditure and economic growth. We used a method as a time series econometrics techniques to examine how far Keynesian Relations validity can be applied in Saudi economy. The results obtained from the analyses find that the Keynesian proposition can explain the growth of education in Saudi Arabia, which holds for both the Oil and Non Oil income cases. The findings also note that the existence of strong causality for all of Keynesian Relations versions in the long run.
    Keywords: Keynesian Relations, Ordinary Least Square (OLS), Co integration, Granger Causality, Error Correction Model (ECM), Augmented Dickey Fuller (ADF), Education Expenditure, Economic Growth, Saudi Arabia
    JEL: C22 E62 H52 I21
    Date: 2013–04–06
  26. By: Bergerhoff, Jan (University of Bonn); Borghans, Lex (Maastricht University); Seegers, Philipp K. (Maastricht University); van Veen, Tom (Maastricht University)
    Abstract: In recent years international student mobility increased. While net hosting countries are in a better position to win highly educated students for their labour force, they face the additional cost of providing the education. In much of continental Europe these costs are not levied on students, but are borne by the national tax payers, making them an active topic of debate. Borrowing some fundamental equations from the Lucas growth model, this paper addresses the question whether countries benefit from educating international students. We derive conditions under which international education has a positive effect on economic growth, overall and in each specific country. Based on empirically motivated parameter values to calibrate our two-country model we find that international student mobility increases steady state growth for both countries on average by 0.013 percentage points. A small country that is favoured by the inflows of a larger country could experience an extra growth of 0.049 percentage points. The benefits from international education increase when a country tunes its education and migration policy.
    Keywords: international education, economic growth, economics of education
    JEL: I25
    Date: 2013–04
  27. By: Mitsukuni Nishida; Amil Petrin; Sašo Polanec
    Abstract: Two recent meta-analyses use variants of the Baily, Hulten, and Campbell (1992) (BHC) decompositions to ask whether recent robust growth in Aggregate Labor Productivity (ALP) across twenty-five countries is due to lower barriers to input reallocation. They find weak gains from measured reallocation and strong within-plant productivity gains. We show these findings may be because BHC indices decompose ALP growth using plant-level output-per-labor (OL) as a proxy for the marginal product of labor and changes in OL as a proxy for changes in plant-level productivity. We provide simple examples to show that 1) reallocation growth from labor should track marginal changes in labor weighted by the marginal product of labor, 2) BHC reallocation growth can be positively correlated, negatively correlated, or uncorrelated with actual growth arising from the reallocation of inputs, and that 3) BHC indices can mistake growth from reallocation as growth from productivity, principally because OL is neither a perfect index of marginal products nor plant-level productivity. We then turn to micro-level data from Chile, Colombia, and Slovenia, and we find for the first two that BHC indices report weak or negative growth from labor reallocation. Using the reallocation definition based on marginal products we find a positive and robust role for labor reallocation in all three countries and a reduced role of plant-level technical efficiency in growth. We close by exploring potential corrections to the BHC decompositions but here we have limited success.
    JEL: J24 L60 O47
    Date: 2013–05
  28. By: Gillanders, Robert
    Abstract: This paper examines the relationship between corruption and infrastructure at both the country and regional level using the World Bank’s Enterprise Surveys data. A statistically significant and considerable relationship is established between the measure of corruption in the macro data and the measures of transportation and electricity infrastructure. Countries with more corruption tend to have worse infrastructure in the eyes of their firms. This link is shown to remain when one uses other measures of corruption and after controlling for GDP per capita, institutional quality and land area. At the regional level, the key result is unchanged. The magnitude and significance of this result is shown to vary by global region. Two stage least squares results, using distance from the equator as an instrument at the macro level support the simple OLS results and allow us to have some confidence that the causality runs from corruption to infrastructure. Finally, it is shown that within country variation in corruption has a significant effect on regional infrastructure.
    Keywords: Corruption, infrastructure, cross country, regional variation
    JEL: D73 H54 O18
    Date: 2013–04–12
  29. By: Brodeur, Abel (Paris School of Economics)
    Abstract: This paper investigates the effects of local smoking bans on different out-comes using county and time variation over the last 20 years in the US. First, I find no evidence that local smoking bans in bars, restaurants and workplaces decrease the prevalence of smoking. The estimates are very small and not statistically significant. Well-being is also affected by these policies: public smoking bans make smokers who do not quit more satisfied with their life. I verify the robustness of this result throughout, and validate my findings with two distinct data sources. I discuss and test the mechanisms behind this seemingly paradoxical relationship. The evidence suggests that smokers adapt to this policy since the impact on satisfaction is negative just before the implementation and positive afterward. Last, I find evidence that smokers do not favor the implementation of smoking bans. Yet, once they are exposed to a public smoking ban, they are less-opposed to those policies. Together the evidence suggests that current smokers are time-inconsistent and benefit from smoking policies.
    Keywords: adaptation, addiction, smoking policies, subjective well-being, time-inconsistency
    JEL: D62 H51 I18 I38
    Date: 2013–04
  30. By: Diego A. Comin; Martí Mestieri Ferrer
    Abstract: We study the lags with which new technologies are adopted across countries, and their long-run penetration rates once they are adopted. Using data from the last two centuries, we document two new facts: there has been convergence in adoption lags between rich and poor countries, while there has been divergence in penetration rates. Using a model of adoption and growth, we show that these changes in the pattern of technology diffusion account for 80% of the Great Income Divergence between rich and poor countries since 1820.
    JEL: E23 N1 O11 O12 O4
    Date: 2013–05

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