nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒08‒16
ten papers chosen by
Keunjae Lee
Pusan National University

  1. The Laffer Curve in an Incomplete-Market Economy. By Fève, P.; Matheron, J.; Sahuc,J-G.
  2. How close is your government to its people? Worldwide indicators on localization and decentralization By Ivanyna, Maksym; Shah, Anwar
  3. The perception of distributive fairness and optimal taxation under uncertainty By Weinreich, Daniel
  4. Output Growth and Unexpected Government Expenditures By Escobari, Diego; Mollick, André Varella
  5. The Social Impact of a Fiscal Crisis: Investigating the Effects of Furloughing Public School Teachers on Juvenile Crime in Hawaii By Randall Q. Akee; Timothy J. Halliday; Sally Kwak
  6. Strict Fiscal Rules and Macroeconomic Stability: The Case of Social VAT. By Fève, P.; Matheron, J.; Sahuc,J-G.
  7. What Does Politics Have to Do with Innovation? Economic Distribution and Innovation Policy in OECD Countries By Dan Breznitz; Amos Zehavi
  8. Socioeconomic Progress across the Major Indian states: Converging or Diverging By Goli, Srinivas; Perianayagam , Arokiasamy; Bhemeshawar, Reddy
  9. The Effect of Sexual Activity on Wages By Drydakis, Nick
  10. The heavily indebted poor countries and the multilateral debt relief initiative: A test case for the validity of the debt overhang hypothesis By Knoll, Martin

  1. By: Fève, P.; Matheron, J.; Sahuc,J-G.
    Abstract: This paper investigates the characteristics of the Laffer curve in a neoclassical growth model of the US economy with incomplete markets and heterogeneous agents. The shape of the Laffer curve changes depending on which of transfers or government debt are varied to balance the government budget constraint. While the Laffer curve has the traditional shape when transfers vary, it looks like a horizontal S when debt varies. In this case, fiscal revenues can be associated with up to three different levels of taxation. This finding occurs because the tax rates change non-monotonically with public debt when markets are incomplete.
    Keywords: Laffer Curve, Incomplete Markets, Labor Supply, Precautionary Savings, Public Debt.
    JEL: E0 E60
    Date: 2013
  2. By: Ivanyna, Maksym; Shah, Anwar
    Abstract: This paper is intended to provide an assessment of the impact of the silent revolution (decentralization reforms) of the last three decades on moving governments closer to people to establish fair, accountable, incorruptible and responsive governance. To accomplish this, a unique data set is constructed for 182 countries by compiling data from a wide variety of sources to examine success toward decentralized decision making across the globe. An important feature of this data set is that, for comparative purposes, it measures government decision making at the local level rather than at the sub-national levels used in the existing literature. The data are used to rank countries on political, fiscal and administrative dimensions of decentralization and localization. These sub-indexes are aggregated and adjusted for heterogeneity to develop an overall ranking of countries on the closeness of their government to the people. The resulting index is associated with higher level of human development and lower level of corruption, and thus provides a useful explanation of the Arab Spring and other recent political movements and waves of dissatisfaction with governance around the world. --
    Keywords: localization,decentralization,home rule,fiscal autonomy,political autonomy,administrative autonomy,local governance,government accountability,trust in government,good governance,responsive,accountable and fair governance
    JEL: H10 H11 H83 I31 O10
    Date: 2013
  3. By: Weinreich, Daniel
    Abstract: This paper incorporates a preference for distributive fairness (inequity aversion) into the analysis on optimal redistributive taxation under uncertainty. We can show that introducing or strengthening the taste for distributive fairness does not affect the socially optimal tax rate (social insurance) directly. This merely works through a reduction in individual risk taking (increase in self-insurance) induced by inequity aversion. If the efficacy of self-insurance is sufficiently small, this renders taxation more desirable and therefore enhances the socially optimal tax rate. In other words, self-insurance should be complemented by social insurance in order to impair the psychic disutility stemming from income inequality. Turning to the case of moral hazard it can be shown that optimal self-insurance efforts are again increasing with the strength of inequity aversion while the effect on the optimal tax rate remains unclear.
    Keywords: distributive fairness; inequity aversion; optimal taxation; redistribution; uncertainty
    JEL: D63 H21 H53
    Date: 2013–08
  4. By: Escobari, Diego; Mollick, André Varella
    Abstract: This paper takes into account the dynamic feedback between government expenditures and output in a model that separates the effects of expected and unexpected government expenditures on output. We allow for standard determinants based on Solow’s growth model, as well as financial globalization and trade openness measures for a sample of 56 industrial and emerging market economies over the 1970-2004 period. We find that unanticipated government expenditures have negative and significant effects on output growth, with higher effects in developed economies. Along with savings responses, we interpret these results based on how fiscal policy reacts to business cycles. Anticipated government expenditures have negative - but smaller effects - on output growth. These results are very robust to a recursive treatment of expectations, which reinforces the role of new information in an increasingly integrated world economy.
    Keywords: Dynamic Panels, Economic Growth, Expected and Unexpected Government Expenditures, Globalization.
    JEL: E32 E62 F43
    Date: 2013–08
  5. By: Randall Q. Akee (UCLA, Luskin School of Public Affairs); Timothy J. Halliday (UHERO, University of Hawaii at Manoa); Sally Kwak (U.S. Congress, Joint Committee on Taxation)
    Abstract: Due to the large social costs of juvenile crime, policymakers have long been concerned about its causes. In the 2009-10 school year, the State of Hawaii responded to fiscal strains by furloughing all school teachers employed by the Department of Education and cancelling class for seventeen instructional days. We examine the effects of this unusually short school year to draw conclusions about the relationship of time in school with juvenile crime rates. We calculate marginal effects from a negative binomial model and find that time off from school is associated with significantly fewer juvenile assault and drug-related arrests, although there are no changes in other types of crimes, such as burglaries. These results differ by region of the island and by average household incomes.
    Keywords: Education, Crime, Inequality
    JEL: J08 I24
    Date: 2013–08
  6. By: Fève, P.; Matheron, J.; Sahuc,J-G.
    Abstract: This paper studies the local dynamic properties of a simple general equilibrium model with Social VAT. Strict balanced budget rules often lead to real indeterminacy of aggregate equilibrium, leaving room for «sunspots» fluctuations. In a closed-economy setup, social VAT escapes this property and only reduces the aggregate labor supply elasticity. However, the quantitative effects are weak.
    Keywords: Macroeconomic stability, Social VAT, Labor supply elasticity, Aggregate fluctuations.
    JEL: E32 E62
    Date: 2013
  7. By: Dan Breznitz; Amos Zehavi
    Abstract: Despite the fact that the distributional impact of innovation has been recognized in the social science literature, hardly any work has been done on the distributional politics of innovation policy. This study offers a first step in this direction as well as asking whether a government’s ideology affects innovation policy from a distributional viewpoint. The paper uses both qualitative case study method and a statistical analysis of government R&D outlays for social purposes in twenty-six countries. In terms of innovation policy, neo-corporatist interest group representation is linked to relatively equitable public R&D investment and left-oriented governments are more likely to invest in social innovation than their rightist counterparts. Nevertheless, governments rarely consider innovation policy in distributive terms. Despite the significant distributional implications of innovation, it remains depoliticized in policy making.
    JEL: O38 D63 P50
    Date: 2013
  8. By: Goli, Srinivas; Perianayagam , Arokiasamy; Bhemeshawar, Reddy
    Abstract: The purpose of this paper is to examine the progress in socioeconomic conditions across the major states of India by using convergence hypothesis. Earlier studies that examined regional disparities of development used per capita State Net Domestic Product (SNDP) as an important proxy for assessing human well-being. This study attempts a more comprehensive assessment of socioeconomic convergence in terms of critical indicators of economic inequality, poverty ratios, literacy rate and Human Development Index (HDI) along with per capita SNDP. The results reveal that in the period between 1981 and 2011, statistically significant absolute and conditional Beta (β)-convergence in literacy rates and HDI have been observed but only conditional β-convergence has been evident in case of per capita SNDP and poverty ratios. β-convergence estimates for the recent period (post-2001) show, a divergence in per capita SNDP and poverty ratios but convergence in literacy rates and HDI. Kernel density plots for socioeconomic indicators show the existence of convergence clubs but not absolute convergence among all the major states. Thus, this study suggests that use of the non-parametric convergence measures is crucial to gain more clear insights on socioeconomic progress and to identify the short-term divergent paths.
    Keywords: Convergence, Divergence, Socioeconomic progress, India
    JEL: N95 R1 R11
    Date: 2013–06–01
  9. By: Drydakis, Nick (Anglia Ruskin University)
    Abstract: The purpose of this study is to estimate whether sexual activity is associated with wages, and also to estimate potential interactions between individuals' characteristics, wages and sexual activity. The central hypothesis behind this research is that sexual activity, like health indicators and mental well-being, may be thought of as part of an individual's set of productive traits that affect wages. Using two stage estimations we examine the relationship between adult sexual activity and wages. We estimate that there is a monotonic relationship between the frequency of sexual activity and wage returns, whilst the returns to sexual activity are higher for those between 26 and 50 years of age. In addition, heterosexuals' sexual activity does not seem to provide higher or lower wage returns than that of homosexuals, but wages are higher for those health-impaired employees who are sexually active. Over-identification tests, robustness checks, falsification tests, as well as, decomposition analysis and sample selection modelling enhance the study's strength. Contemporary social analysis suggests that health, cognitive and non-cognitive skills and personality are important factors that affect the wage level. Sexual activity may also be of interest to social scientists, since sexual activity is considered to be a barometer for health, quality of life, well-being and happiness. The paper adds to the literature on the importance of unobserved characteristics in determining labour market outcomes.
    Keywords: sexual activity, wages, endogeneity, sample selection, decompositions
    JEL: J10 J30 J24
    Date: 2013–07
  10. By: Knoll, Martin
    Abstract: The Heavily Indebted Poor Countries Initiative (HIPCI) and the Multilateral Debt Relief Initiative (MDRI) were both implemented based on an assumption derived from the debt overhang hypothesis - that is, that the removal of excessive debt burdens would help to boost investment and economic growth. Using a quasi-experimental research design to compare the performance of investment and growth between LICs that have benefited from HIPCI and MDRI and those that have not, this study assesses whether the two programs have yielded the expected effects. The results indicate that while debt relief programmes have led to higher private-sector investment in beneficiary countries, they have not had any effect on public sector investment and growth. While the reasons for this outcome are not entirely clear, assumptions concerning the benefits that accrue to LICs as a result of debt relief appear to be in doubt. --
    Date: 2013

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