nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒05‒22
eleven papers chosen by
Keunjae Lee
Pusan National University

  1. The Assignment of Functions and Intergovernmental Fiscal Relations in the Philippines Twenty Years after Decentralization By Gilberto M. Llanto
  2. Fiscal Sustainability, Macroeconomic Stability, and Welfare under Fiscal Discipline in a Small Open Economy By Keiichi Morimoto; Takeo Hori; Noritaka Maebayashi; Koichi Futagami
  3. Fair tax evasion. By Barth, Erling; Cappelen, Alexander W.; Ognedal, Tone
  4. Designing the "New Public" Legal Framework for Local Governments and Promoting Regional Economic Development (Japanese) By KITAMI Tomitaro
  5. Optimal Progressive Taxation and Education Subsidies in a Model of Endogenous Human Capital Formation By Dirk Krueger; Alexander Ludwig
  6. Perks and public provisions : Effects of yardstick competition on local government fiscal behavior in the Philippines By Joseph J. Capuno; Stella A. Quimbo; Aleli D. Kraft; Carlos Antonio R. Tan, Jr.; Vigile Marie B. Fabella
  7. Fiscal Consolidation and Recovery in Armenia By Souleymane Coulibaly
  8. Structural and cyclical effects of tax progression By Kremer, Jana; Stähler, Nikolai
  9. Essays on fiscal policy. By Oudheusden, P. van
  10. Cameroon - The Path to Fiscal Decentralization : Opportunities and Challenges By World Bank
  11. The output effect of fiscal consolidations By Alberto Alesina; Carlo Favero; Francesco Giavazzi

  1. By: Gilberto M. Llanto (Philippine Institute for Development Studies)
    Abstract: The 1991 Local Government Code devolved substantial spending, taxing, and borrowing powers to local government units. Moving governance closer to the people can generate a welfare gain but local governments must have adequate revenues to finance local development. The paper examines the current status of the tax-expenditure assignment and the intergovernmental fiscal relations, and identifies areas for reform. There is a need for a clearer and more accountable assignment of expenditure by eliminating particular sections of the Code, which serve as a route for national government agencies to be engaged in devolved activities, and for politicians to insert funding for pet projects, which distort local decision making and preferences. There is as well a need to review the tax assignment to improve local revenue generation. The allocation of intergovernmental fiscal transfers may be improved by introducing matching grants to improve equalization transfers to local governments, and performance-based grants to motivate greater local revenue mobilization. Without a clear funding source, unfunded mandates imposed on local governments defeats the purpose of the policy objectives set in those mandates. Local government alliances and cooperative undertaking may be a way to provide public goods with inter-jurisdictional spillover benefits. Consolidation, better coordination of local government activities, and resource pooling for better local service delivery are pathways indicated by successful experiences of LGU collaboration.
    Keywords: fiscal decentralization, tax-expenditure assignment, intergovernmental fiscal relations, performance-based grants, decentralization theorem
    Date: 2012–05
  2. By: Keiichi Morimoto (Department of Economics, Meisei University); Takeo Hori (College of Economics, Aoyama Gakuin University); Noritaka Maebayashi (Graduate School of Economics, Osaka University); Koichi Futagami (Graduate School of Economics, Osaka University)
    Abstract: We construct a small open economy model of endogenous growth with public capital accumulation and examine how a debt policy rule under which the government gradually reduces its debt-GDP ratio to a target level affects macroeconomic stability, fiscal sustainability, and welfare. We obtain the following implications for fiscal policy design in small countries. First, to ensure fiscal sustainability, the government should adjust public spending rather than the income tax rate to finance public debt. In addition, it has to set the target level of the debt-GDP ratio sufficiently low to avoid expectations-driven economic instabilities. Under sustainability and stability, a tighter (looser) debt rule brings welfare gains when the world interest rate is relatively high (low).
    Keywords: Fiscal policy, Public debt, Welfare, Fiscal sustainability, Equiribrium indeterminacy
    JEL: E32 E62 H63
    Date: 2013–05
  3. By: Barth, Erling (Institute for Social Research); Cappelen, Alexander W. (Dept. of Economics, Norwegian School of Economics and Business Administration); Ognedal, Tone (Universitetet i Oslo, Økonomisk institutt)
    Abstract: In this paper we analyse how fairness considerations, in particular considerations of just income distribution, affect whether or not people find tax evasion justifiable and their willingness to evade taxes. Using data from the Norwegian “Hidden Labour Market Survey” we show that individuals with low hourly wages and long working hours have a higher probability of justifying tax evasion. These are individuals that arguably are treated unfairly in a tax system that taxes an individual’s total income without taking into account how many hours the individual has worked. The same individuals are also more willing and likely to take home income without reporting it to the tax authorities. The results are consistent with a model in which individuals make a trade-off between economic gains and fairness considerations when they make decisions about tax evasion. Taken together our results suggest that considerations of fair income distribution are important for the analysis of tax evasion.
    Keywords: Tax evasion; redistributive taxation; fair income distribution.
    JEL: D63 H26
    Date: 2013–04–30
  4. By: KITAMI Tomitaro
    Abstract: As the role of local governments in developing regional economies is very important, the effectiveness of public works as a fiscal economic stimulus conducted by local governments such as cities and villages, coupled with their recent fiscal difficulties, is being put under more careful scrutiny. The local administrative outsourcing under the "New Public" framework, which brings complex regional economic effects, is a prospective alternative for local economic stimulus policy.<br />First, this paper overviews the historical development of the legal framework for local administrative outsourcing in the post-World War II local administrative reforms in Japan and traces how the legal framework for local administrative outsourcing changed from that for procurement to "New Public." Second, it offers structural and functional models of the present legal framework for local administrative outsourcing, and also shows institutional diversification of administrative outsourcing policies in individual local governments. Third, the paper fulfills regression analysis to estimate the relationships among administrative implementation forms (direct implementation by public officers, outsourcing, subsidizing, public works, and social income reallocation) and short-term and long-term regional economic improvements.<br />The results show that the indexes of regional economic improvement have strong correlation with the outsourcing ratio to local governmental expenditure but only limited correlation with the public works ratio to local governmental expenditure. This implicates possible regional economic policy compatible with administrative and fiscal reforms at the fundamental governmental level.
    Date: 2013–05
  5. By: Dirk Krueger; Alexander Ludwig
    Abstract: In this paper we characterize quantitatively the optimal mix of progressive income taxes and education subsidies in a model with endogenous human capital formation, borrowing constraints, income risk and incomplete financial markets. Progressive labor income taxes provide social insurance against idiosyncratic income risk and redistributes after tax income among ex-ante heterogeneous households. In addition to the standard distortions of labor supply progressive taxes also impede the incentives to acquire higher education, generating a non-trivial trade-off for the benevolent utilitarian government. The latter distortion can potentially be mitigated by an education subsidy. We find that the welfare-maximizing fiscal policy is indeed characterized by a substantially progressive labor income tax code and a positive subsidy for college education. Both the degree of tax progressivity and the education subsidy are larger than in the current U.S. status quo.
    Keywords: Progressive Taxation, Capital Taxation, Optimal Taxation
    JEL: E62 H21 H24
    Date: 2013–03–27
  6. By: Joseph J. Capuno (School of Economics, University of the Philippines Diliman); Stella A. Quimbo (School of Economics, University of the Philippines Diliman); Aleli D. Kraft (School of Economics, University of the Philippines Diliman); Carlos Antonio R. Tan, Jr. (School of Economics, University of the Philippines Diliman); Vigile Marie B. Fabella (School of Economics, University of the Philippines Diliman)
    Abstract: Using a panel dataset from cities and municipalities in the Philippines in 2001, 2004 and 2007, we investigate whether yardstick competition -- measured here as the average spending and revenues of surrounding jurisdictions in the same province -- influence local government fiscal decisions. For local governments with incumbents facing effective term limits, the effects of the yardstick variables are generally nil. For those with incumbents who are eligible for another term, the average total expenditures of surrounding jurisdictions seem to influence the LGU to re-allocate its budget for social and economic services that directly benefit the constituents towards overhead outlays that benefit more the office holders. Local revenue mobilization is stimulated by greater revenue mobilization and dampened by higher average spending in other localities. Central fiscal transfers increase outlays for overheads and for social and economic services These suggests that while the particular yardstick variables used here may have induced reactions from local governments, the resulting changes in fiscal decisions may not have necessarily improved the constituents' welfare. What seems necessary is comparison on those public provisions that promote welfare rather than just total expenditures or revenues per se.
    Keywords: Local government spending, yardstick competition, Philippines
    JEL: H72 I18 H4
    Date: 2012–05
  7. By: Souleymane Coulibaly
    Keywords: Public Sector Economics Taxation and Subsidies Finance and Financial Sector Development - Debt Markets Public Sector Expenditure Policy Transport Economics Policy and Planning Macroeconomics and Economic Growth Public Sector Development Transport
    Date: 2012–02
  8. By: Kremer, Jana; Stähler, Nikolai
    Abstract: In a real business cycle model with labor market frictions, we find that a more progressive tax schedule reduces structural unemployment as it fosters long-run incentives for job creation. Because there exists an optimal level of unemployment in a matching environment ('Hosios condition'), tax progression improves steadystate welfare up to a certain threshold and harms it beyond that. However, tax progression increases the costs of business cycles for those consumers who can save and borrow, while it reduces the business cycle costs for households with limited asset market participation ('rule-of-thumb' consumers). Our analysis suggests that business cycle effects dominate steady-state effects. On the aggregate level, tax progression is welfare-enhancing up to a certain threshold and always shifts relative utility from optimizing to rule-of-thumb consumers. These findings are quite robust to alternative calibrations of our model. --
    Keywords: Tax Progression,Business Cycles,Automatic Stabilizers,Welfare
    JEL: H2 J6 E32 E62
    Date: 2013
  9. By: Oudheusden, P. van (Tilburg University)
    Abstract: This thesis deals with selected topics in fiscal policy. The first part examines the relationship between fiscal decentralization and certain outcomes, one being the amount of trust citizens have in their government, the other being economic efficiency. The second part looks into the challenge of governments to develop fiscal systems, or policy reforms, that generate sufficient revenues to deal with long-run government budget challenges and promote economic growth at the same time.
    Date: 2013
  10. By: World Bank
    Keywords: Public Sector Economics Urban Development - Municipal Financial Management Macroeconomics and Economic Growth - Subnational Economic Development Finance and Financial Sector Development - Debt Markets Intergovernmental Fiscal Relations and Local Finance Management Public Sector Development
    Date: 2012–09
  11. By: Alberto Alesina; Carlo Favero; Francesco Giavazzi
    Abstract: Fiscal consolidations achieved by means of spending cuts are much less costly in terms of output losses than tax-based ones. The difference cannot be explained by accompanying policies, including monetary policy, and it is mainly due to the different response of business confidence and private investment. We obtain these results by studying the effects of the adoption of fiscal consolidation plans (rather than isolated shocks), that is combinations of tax increases and spending cuts, some unanticipated, other anticipated, in a sample of 16 OECD economies..Keywords: fiscal adjustment, output, confidence, investment JEL Classification: H60, E62
    Date: 2013

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