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on Public Economics |
| By: | LAURENCE SEIDMAN (Department of Economics,University of Delaware) |
| Abstract: | This article recommends a tax reform strategy that can accomplish three objectives: (1) raise sufficient revenue to deal with long run budget challenges; (2) promote long run economic growth; (3) provide progressivity in the face of increasing inequality. The strategy for overcoming this fiscal trilemma is to retain (with modification) the personal income tax, the corporate income tax, and the payroll tax, and add two progressive consumption tax supplements: a value added tax made progressive by a refundable VAT credit on the 1040, and a progressive consumption surtax on the 1040. |
| Keywords: | Tax reform, Progressive consumption tax supplements |
| JEL: | H20 H24 H25 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:dlw:wpaper:14-04.&r=pbe |
| By: | Chu, Hsun; Lai, Ching-Chong; Cheng, Chu-Chuan |
| Abstract: | This paper develops an endogenous growth model featuring tax havens, and uses it to examine how the existence of tax havens affects the economic growth rate and social welfare in high-tax countries. We show that the presence of tax havens generates two conflicting channels in determining the growth effect. First, the public investment effect states that tax havens may erode tax revenues and in turn decrease the government’s infrastructure expenditure, thereby reducing growth. Second, the tax planning effect of tax havens reduces marginal cost of capital and hence encourages capital accumulation so as to spur economic growth. The overall growth effect is ambiguous and is determined by the extent of these two effects. The welfare analysis shows that tax havens are more likely to be welfare-enhancing if the government expenditure share in production is low, or the initial income tax rate is high. Moreover, the welfare-maximizing income tax rate is lower than the growth-maximizing income tax rate if tax havens are present. |
| Keywords: | tax havens, endogenous growth, optimal income tax |
| JEL: | H21 H26 O11 O40 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52878&r=pbe |
| By: | Sean Higgins (Department of Economics, Tulane University); Nora Lustig (Department of Economics, Tulane University); Whitney Ruble (Department of Economics, Tulane University); Timothy Smeeding (Institute for Research on Poverty, Robert M. La Follette School of Public Affairs, University of Wisconsin-Madison) |
| Abstract: | We perform the first comprehensive fiscal incidence analyses in Brazil and the US, including direct cash and food transfers, targeted housing and heating subsidies, public spending on education and health, and personal income, payroll, corporate income, property, and expenditure taxes. In both countries, primary spending is close to 40 percent of GDP. The US achieves higher redistribution through direct taxes and transfers, primarily due to underutilization of the personal income tax in Brazil and the fact that Brazil’s highly progressive cash and food transfer programs are small while larger transfer programs are less progressive. However, when health and non-tertiary education spending are added to income using the government cost approach, the two countries achieve similar levels of redistribution. This result may be a reflection of better-off households in Brazil opting out of public services due to quality concerns rather than a result of government effort to make spending more equitable. |
| Keywords: | inequality, fiscal policy, taxation, social spending |
| JEL: | D31 H22 I38 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1317&r=pbe |
| By: | Alfonso Novales (Departamento de Economía Cuantitativa (Department of Quantitative Economics), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid. Instituto Complutense de Analisis Economico (ICAE) (UCM Institute for Economic Analysis), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid)); Rafaela Pérez (Departamento de Fundamentos del Análisis Económico I (Department of Foundations of Economic Analysis I), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid). Instituto Complutense de Analisis Economico (ICAE) (UCM Institute for Economic Analysis), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid)); Jesús Rúiz (Departamento de Fundamentos del Análisis Económico I (Department of Foundations of Economic Analysis I), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid). Instituto Complutense de Analisis Economico (ICAE) (UCM Institute for Economic Analysis), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid)) |
| Abstract: | In an endogenous growth model with public consumption and public investment, we explore the time-consistent optimal choice for two policy instruments: an income tax rate and the split of government spending between consumption and investment. We show that under the time-consistent, Markov policy, the economy lacks any transitional dynamics and also that there is local and global determinacy of equilibrium. We compare the Markovian optimal policy with the Ramsey policy as well as with the solution to the planner’s problem under lump-sum taxation. For empirically plausible parameter values we find that the Markov-perfect policy implies a higher tax rate and a larger proportion of government spending allocated to consumption than those chosen under a commitment constraint. As a result, economic growth is slightly lower under the Markov-perfect policy than under the Ramsey policy, with growth under lump-sum taxes being highest. |
| Keywords: | Time-consistency, Markov-perfect optimal policy, Ramsey optimal policy, Endogenous growth, Income tax rate, Government spending composition. |
| JEL: | E61 E62 H21 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1323&r=pbe |
| By: | Ricardo Fenochietto; Carola Pessino |
| Abstract: | This paper presents a model to determine the tax effort and tax capacity of 113 countries and the main variables on which they depend. The results and the model allow a clear determination of which countries are near their tax capacity and which are some way from it, and therefore, could increase their tax revenue. This paper also determines central factors on which tax capacity depends: the level of development, trade, education, inflation, income distribution, corruption, and the ease of tax collection. |
| Keywords: | Taxes;Natural resources;Tax systems;Economic models;Cross country analysis;tax effort, tax frontier, tax capacity, tax revenue, stochastic tax frontier, inefficiency |
| Date: | 2013–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/244&r=pbe |
| By: | Joan Esteban; Laura Mayoral |
| Abstract: | We model the political process as consisting of voting on the issue considered salient, public expenditure, with a subsequent consensus over size of government and income taxation. We prove that for each majoritarian choice there is a unique consensus policy on progressivity and government size. We empirically validate the implication that the sign of the relationship between inequality and progressivity chosen by the median voter is conditional on the degree of substitutability between government and market supplied goods. We also obtain that this substitutability has a negative impact on the negative marginal effect of inequality on the size of government. |
| Keywords: | government policy, income taxation, public expenditure |
| JEL: | H23 H50 O50 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:743&r=pbe |
| By: | Alfonso Novales (Departamento de Economía Cuantitativa (Department of Quantitative Economics), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid. Instituto Complutense de Analisis Economico (ICAE) (UCM Institute for Economic Analysis), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid)); Rafaela Pérez (Departamento de Fundamentos del Análisis Económico I (Department of Foundations of Economic Analysis I), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid). Instituto Complutense de Analisis Economico (ICAE) (UCM Institute for Economic Analysis), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid)); Jesús Rúiz (Departamento de Fundamentos del Análisis Económico I (Department of Foundations of Economic Analysis I), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid). Instituto Complutense de Analisis Economico (ICAE) (UCM Institute for Economic Analysis), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid)) |
| Abstract: | In an endogenous growth model with public consumption and investment and an elastic labour supply, we explore the time-consistent optimal choice for two policy instruments: an income tax rate and the split of government spending between consumption and investment. We compare the Markovian optimal policy with the Ramsey policy, extending previous works that characterized optimal fiscal policy either in an exogenous growth framework, assuming an exogenously given split of income between consumption and investment, or an inelastic supply of labour. The Markov-perfect policy implies a higher income tax rate. To compensate for the lower disposable income, a larger proportion of government spending is allocated to consumption than those chosen under a commitment constraint on the part of the government. As a result, economic growth is slightly lower under the Markov-perfect policy than under the Ramsey policy. The welfare loss relative to the benevolent planner’s solution is mainly due to the difference in growth rates. |
| Keywords: | ime-consistency, Markov-perfect optimal policy, Ramsey optimal policy, Endogenous growth, Income tax rate, Government spending composition. |
| JEL: | E61 E62 H21 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1324&r=pbe |
| By: | Stegarescu, Dan |
| Abstract: | Despite strongly equalized per capita revenue and similar budgetary institutions, fiscal performance is increasingly diverging across German federal states. Given that state and local governments are endowed with expenditure autonomy, this paper investigates whether the composition of sub-national government expenditure has an impact on the degree of indebtedness. A panel analysis for the 1974-2010 period indicates that aside from socio-economic and political factors, the budget structure plays an important role. As expected, a higher ratio of government consumption to investment has a debt-augmenting effect, though, considered separately, larger budget shares of both investment and personnel expenditure are associated with lower debt. Particularly states spending more on transport and communication, and law and order are less indebted, while social spending has a detrimental effect on debt levels. -- |
| Keywords: | public debt,expenditure composition,sub-national government,German states |
| JEL: | H72 H74 H77 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:522013&r=pbe |
| By: | Jablanović, Vesna D. |
| Abstract: | This paper studies relation between government spending on agribusiness sector and the political business cycles. Governments try to improve their reelection prospects with the help of expansionary fiscal policies. Rising fiscal deficits before elections are followed by fiscal consolidation afterwards. Namely, this paper examines the relation between elections and government spending on agribusiness sector. It is supposed that government expenditure has been grouped into two categories: social protection and “economic affairs”. Further, it is supposed that the category 'economic affairs' covers support programmes, subsidies and public infrastructure spending in the agribusiness sector. Therefore, the structure of government expenditure is summarized by a downward-sloping curve, yielding a trade-off between government spending on social protection (as a short-run goal before election) and government spending on “agribusiness affairs” (as a long-run goal afterward). An opportunistic incumbent policy-maker has no preferences over government spending on social protection and government spending on “agribusiness affairs” per se and cares only about re-election. Government spending much more on social protection versus “agribusiness affairs” increases before elections. The basic aim of this paper is to set the model which describes the cyclical movement of the government spending on agribusiness sector. This model explains why government intervention causes cyclical movement of the government spending on agribusiness sector. The main source of conflict occurs between the short-run and long-run government goals. |
| Keywords: | Agriculture, Government expenditure, Fiscal policy, Agribusiness, Political Economy, Research Methods/ Statistical Methods, Q10, H50, H30, |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:ags:ubgc50:161816&r=pbe |
| By: | Nora Lustig (Department of Economics, Tulane University); Florencia Amabile (Economics Department, Universidad de la Republica, Uruguay); Marisa Bucheli (Economics Department, Universidad de la Republica, Uruguay); George Gray Molina (Chief Economist for UNDP-Latin America and the Caribbean, New York, New York); Sean Higgins (Department of Economics, Tulane University); Miguel Jaramillo (GRADE (Grupo de Análisis para el Desarrollo), Peru); Wilson Jimenez Pozo; Veronica Paz Arauco; Claudiney Pereira (Department of Economics, Tulane University); Carola Pessino (School of Government and Executive Director, Centro de Investigaciones y Evaluación en EconomÃa Social para el Alivio de la Pobreza, Universidad Torcuato Di Tella, Buenos Aires, Argentina); Maximo Rossi (Economics Department, Universidad de la Republica, Uruguay); John Scott (CIDE (Centro de Investigación y Docencia Económicas), Mexico and,Consejero Académico, CONEVAL (Consejo Nacional de Evaluación de la PolÃtica de Desarrollo Social), Mexico); Ernesto Yanez Aguilar |
| Abstract: | How much redistribution and poverty reduction is being accomplished in Latin America through social spending, subsidies, and taxes? Standard fiscal incidence analyses applied to Argentina, Bolivia, Brazil, Mexico, Peru, and Uruguay using a comparable methodology yields the following results. Direct taxes and cash transfers reduce inequality and poverty by nontrivial amounts in Argentina, Brazil, and Uruguay but less so in Bolivia, Mexico, and Peru. While direct taxes are progressive, the redistributive impact is small because direct taxes as a share of GDP are generally low. Cash transfers are quite progressive in absolute terms, except in Bolivia where programs are not targeted to the poor. In Bolivia and Brazil, indirect taxes more than offset the poverty-reducing impact of cash transfers. When one includes the in-kind transfers in education and health, valued at government costs, they reduce inequality in all countries by considerably more than cash transfers, reflecting their relative size. |
| Keywords: | fiscal incidence, inequality, poverty, taxes, social spending, Latin America |
| JEL: | H22 I3 O1 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1316&r=pbe |
| By: | Raymundo M. Campos-Vazquez (El Colegio de Mexico); Emmanuel Chavez (Secretaría de Hacienda y Crédito Público); Gerardo Esquivel (El Colegio de Mexico) |
| Abstract: | This paper analyzes the relationship between mean income and the income of the rich. Our methodology closely follows that of Dollar and Kraay (2002), but instead of looking at the bottom of the distribution, we analyze the top. We use panel data from the World Top Incomes database, which collects top income data from several countries using tax returns as the raw source. We define the “rich” as earners in the top 10 percent, 1 percent, 0.1 percent, and 0.01 percent of the income distribution. We find that economic growth is good for the rich in the sense that the mean income of the top decile of the distribution grows in the same proportion as that of the whole population. However, we also find that the income of earners in the top percentile of the distribution and above grows in an even larger proportion than average income: that is, economic growth is really good for the really rich. We also find that during economic downturns, the average income of top earners responds proportionally less to changes in mean income than during economic expansions. Our results are robust to different sample specifications. |
| Keywords: | growth, income distribution; inequality; top income; rich; inequality; labor income; jobs; employment; Mexico |
| JEL: | D31 D63 E01 I30 O40 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:emx:ceedoc:2013-09&r=pbe |
| By: | Toke Aidt; Graham Mooney |
| Abstract: | We study the opportunistic political budget cycle in the London Metropolitan Boroughs between 1902 and 1937 under two different suffrage regimes: taxpayer suffrage (1902-1914) and universal suffrage (1921-1937). We argue and find supporting evidence that the political budget cycle operates differently under the two types of suffrage. Taxpayer suffrage, where the right to vote and the obligation to pay local taxes are linked, encourages demands for retrenchment and the political budget cycle manifests itself in election year tax cuts and savings on administration costs. Universal suffrage, where all adult residents can vote irrespective of their taxpayer status, creates demands for productive public services and the political budget cycle manifests itself in election year hikes in capital spending and a reduction in current spending. |
| Keywords: | Local public finance, voting franchise, suffrage, opportunistic political budget cycles, London |
| JEL: | D7 H1 H7 |
| Date: | 2014–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1401&r=pbe |
| By: | Bursian, Dirk; Weichenrieder, Alfons J.; Zimmer, Jochen |
| Abstract: | The paper looks at the determinants of fiscal adjustments as reflected in the primary surplus of countries. Our conjecture is that governments will usually find it more attractive to pursue fiscal adjustments in a situation of relatively high growth, but based on a simple stylized model of government behavior the expectation is that mainly high trust governments will be in a position to defer consolidation to years with higher growth. Overall, our analysis of a panel of European countries provides support for this expectation. The difference in fiscal policies depending on government trust levels may help explaining why better governed countries have been found to have less severe business cycles. It suggests that trust and credibility play an important role not only in monetary policy, but also in fiscal policy. -- |
| Keywords: | trust,debt sustainability,fiscal reaction function,euro area,EU |
| JEL: | H62 E62 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:22&r=pbe |
| By: | Alex Cobham, Andy Sumner |
| Abstract: | The “Palma” is the ratio of national income shares of the top 10 percent of households to the bottom 40 percent, reflecting Gabriel Palma’s observation of the stability of the “middle” 50 percent share of income across countries so that distribution is largely a question of the tails. In this paper we explore the Palma and corroborate the findings that the middle does indeed hold over time and through various stages of tax and transfers. Further, we find that the Gini is almost completely “explained” by only two points of the distribution: the same income shares which determine the Palma. It thus appears that both the Gini and the Palma, in practice, summarize the same information about the income distribution: but only in the case of the Palma is this explicit. This, we argue, makes the Palma a more useful (and intuitive) measure of inequality for policymakers and citizens to track. |
| Keywords: | inequality, Gini coefficient, Palma |
| JEL: | D63 I3 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:343&r=pbe |
| By: | Giovanni Melina; Yi Xiong |
| Abstract: | Mozambique has great potential in natural gas reserves and if liquefied/commercialized the sum of taxes and other fiscal revenue from natural gas will, at its peak, reach roughly one third of total fiscal revenue. Recent developments in the natural resource sector have triggered a fresh round of much needed infrastructure investment. This paper uses the DIGNAR model to simulate alternative public investment scaling-up plans in alternative LNG market scenarios. Results show that while a conservative approach, which simply awaits LNG revenues, would miss significant current growth opportunities, an aggressive approach would likely meet absorptive capacity constraints and imply a much bigger (and, in an adverse scenario, unsustainable) build-up of public debt. A gradual scaling up approach represents indeed a desirable path, as it allows anticipating some, though not all, of the LNG revenue and, even in an adverse scenario, keeping public debt at sustainable levels. Structural reforms affecting selection, governance and execution of public investment projects would significantly enhance the extent to which public capital is accumulated and impact non-resource growth and, ultimately, debt sustainability. |
| Keywords: | Natural gas sector;Mozambique;Public investment;Debt sustainability;Economic models;Natural resources; Debt sustainability, Public investment, Mozambique, DIGNAR |
| Date: | 2013–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/261&r=pbe |
| By: | Glenn P. Jenkins (Department of Economics, Queen's University, Canada, Eastern Mediterranean University, Mersin 10, Turkey); Chun-Yan Kuo (Department of Economics, Queen's University, Canada) |
| Abstract: | Many countries exempt the income of firms operating in their free trade or export processing zones from corporate income taxation. This paper examines both theoretically and empirically the incidence of removing this exemption. The empirical analysis is carried out for the Dominican Republic. The findings indicate that removal of the corporate income tax exemption would inflict a burden on relatively low-waged workers of over nine times the amount of additional tax revenue collected from the companies operating in the country's free trade zones. In turn, this loss would largely be a gain to the more advantaged groups in society. |
| Keywords: | WTO, tax incidence, free trade zones, corporate income taxation, Dominican Republic |
| JEL: | F13 H22 O24 O54 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:qed:dpaper:228&r=pbe |
| By: | Chu, Hsun; Lai, Ching-Chong |
| Abstract: | This paper develops an endogenous growth model featuring environmental externalities, abatement R&D, and market imperfections. We compare the economic performances under three distinct regimes that encompass public abatement, private abatement without tax recycling, and private abatement with tax recycling. It is found that the benefit arising from the private conduct of abatement will be larger if the degree of the firms’ monopoly power is greater. With a reasonably high degree of monopoly power, a mixed abatement policy by which the government recycles environmental tax revenues to subsidize the private abatement R&D is a plausible way of reaching the highest growth rate and welfare. |
| Keywords: | abatement R&D, market imperfections, endogenous growth |
| JEL: | H23 O32 O44 Q56 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52869&r=pbe |
| By: | Perera, Liyanage Devangi H.; Lee, Grace H.Y. |
| Abstract: | While economic growth has been cited as one of the main factors behind the reduction in absolute poverty, the persisting problem of poverty in developing countries has raised doubts about the efficacy of economic growth in its reduction. Recent evidence revealed that growth in Asia has been accompanied by an increase in relative poverty, or income inequality. High income inequality can slow the rate of poverty reduction, and create social unrest and anxiety. The quality of institutions may also influence the extent to which economic growth reduces poverty. This study examines the effects of economic growth and institutional quality on poverty and income inequality in nine developing countries of Asia for the period 1985-2009. The System Generalized Method of Moments (GMM) estimation method is employed to estimate the equations. While economic growth does not appear to have an effect on income inequality, the results confirm that such growth leads to poverty reduction. Although improvements in government stability and law and order are found to reduce poverty, improvements in the level of corruption, democratic accountability, and bureaucratic quality appear to increase poverty levels. Similarly, the results also show that improvements in corruption, democratic accountability, and bureaucratic quality are associated with a worsening of the income distribution. This study recommends that measures taken to improve the level of institutional quality in developing countries of East and South Asia should address the problems of poverty and income distribution, while adopting policies to support informal sector workers who may be affected by institutional reform. |
| Keywords: | income inequality, poverty, growth, institution quality |
| JEL: | D3 I3 O1 |
| Date: | 2013–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52763&r=pbe |
| By: | Amedeo Argentiero; Carlo Andrea BOLLINO |
| Abstract: | This paper presents a theoretical contribution to model and dynamically analyze underground economy. We build a DSGE model with two sectors and one homogeneous good produced either by the sunlight and the underground firm. The sunlight firm is subject to distortionary taxation, whereas the underground firm evades taxation. The economy is subject to stochastic uncorrelated technology shocks on total factor productivity on private sectors and public labor. The demand side of the economy is populated by an infinite number of households with preferences defined over legal good consumption, public expenditure and labor services on a period-by-period basis. The government collects taxation from the sunlight sector and fights tax evasion through audit activity undertaken by public officers. When detected, underground firms are subject to regular taxation and additional fine payments. We simulate the model under the productivity shocks for Italy, over the sample 1974:01-2011:02. We find that in Italy underground economy share of GDP is on average about 23%. The dynamic behavior of the model shows that: (i) an efficient audit activity has a negative impact on public accounts thus generating a tradeoff between the reduction of underground economy and the worsening of public finance; (ii) sunlight production has a greater relative volatility with respect to undeground production; iii) all variables of the underground sector appear to be negatively correlated with the corresponding ones of regular economy. This implies that underground activity is a sort of buffer for the economy, whenever the business cycle is in downturn phases. |
| Date: | 2013–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:pia:wpaper:123/2013&r=pbe |
| By: | John H. Makin (American Enterprise Institute) |
| Abstract: | While improving long-term growth is difficult, the best places to begin are with advances in areas such as tax reform, deregulation, and freer trade. These structural measures, along with efforts to reduce current high levels of policy uncertainty, might help boost sustainable, long-term economic growth. |
| Keywords: | Monetary and fiscal policy,economic stagnation,Economic outlook,Economic growth |
| JEL: | A |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:aei:rpaper:39855&r=pbe |
| By: | Mohammad Reza Farzanegan (University of Marburg); Sajjad Faraji Dizaji (University of Teheran) |
| Abstract: | This study examines how quality of political institutions affects the distribution of government budget and how development of government spending in major sections shapes the political institutions in Iran. This question has become especially important due to recent international sanctions, aiming to change the political behavior of Iran. We use the impulse response functions (IRF) and variance decomposition analysis (VDC) on the basis of Vector Autoregressive (VAR) model with annual data from 1960 to 2006. Our results show the importance of political institutions in patronage and public goods provision spending in Iran. The results imply that a shock in positive changes of democratic quality of institutions leads to negative and statistically significant response of military spending and positive and statistically significant response of education expenditures in short term. If sanctions are successful to change the political behavior of Iran in short run (Dizaji and Bergeijk, 2013), then one can also expect to see a reduction in llocated budget for military in Iran. |
| Keywords: | political institutions, government spending, Iran, VAR modelling, sanctions |
| JEL: | H11 H41 P16 O53 O43 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201403&r=pbe |
| By: | G. CLÉAUD (Insee); M. LEMOINE (Insee); P.-A. PIONNIER (Insee) |
| Abstract: | The importance of the stimulus packages that were injected in most advanced economies from the start of the financial crisis and the speed at which budgets are now being consolidated in Europe has revived the long-lasting debate on the size of fiscal multipliers. In this study, we focus on government expenditures on goods and services. Our conclusion following Blanchard and Perotti (2002) for the identification of government spending shocks is that the multiplier is significant and not far from 1 on impact and becomes statistically insignificant after about 3 years in France. We provide numerous robustness checks concerning the definition of expenditures, assumptions about data stationarity, the role of expectations and the choice of the sample. Moreover, using a time-varying SVAR model, our main findings are (1) that the multiplier did not evolve significantly at any horizon since the beginning of the 1980s and (2) that the variance of shocks hitting the economy evolves a lot more than the model autoregressive parameters. Even in alternative specifications where the Bayesian priors are pushed towards time-variation, the main evolution that we uncover is a (non-significant) decrease of the medium term expenditure multiplier, partly linked to a more aggressive monetary policy since the 1990s. We do not find evidence of an increase of the multiplier during every recession in France, contrary to the finding of Auerbach and Gorodnichenko (2012) for the United States. At least, business cycle conditions do not seem to be the main driver of the evolution of the expenditure multiplier in the last 30 years in France. |
| Keywords: | Government expenditure multiplier, Evolution, TV-SVAR |
| JEL: | E62 C54 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpdeee:g2013-15&r=pbe |
| By: | Real Arai (Graduate School of Social Sciences, Hiroshima University); Takuma Kunieda (Department of Economics and Finance,City University of Hong Kong); Keigo Nishida (Faculty of Economics, Fukuoka University) |
| Abstract: | To understand mixed evidence provided by empirical studies for the relationship between the accumulation of public debt and economic growth, it is necessary to consider not only the crowd-out effect of public debt on economic growth but also the growth-enhancing crowd-in effect that cannot be uncovered by the traditional theoretical achievements. We develop a dynamic general equilibrium model with infinitely lived agents and derive an inverted U-shaped relationship between the accumulation of public debt and economic growth. The analysis focuses on both crowd-out and crowd-in effects that public debt has on private investment in a financially constrained economy and clarifies the mechanism inducing the inverted U-shaped relationship in the growth process. When the public debt-to-GDP ratio is below a certain threshold level, the crowd-in effect dominates the crowd-out effect and the accumulation of public debt promotes economic growth. When the public debt-to-GDP ratio exceeds the threshold level, the accumulation of public debt begins to hinder economic growth with the crowd-out effect dominating the crowd-in effect. |
| Keywords: | Economic growth; Public debt; Crowd-in effect; Financial market imperfections |
| JEL: | O41 E62 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:884&r=pbe |