nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒02‒02
35 papers chosen by
Keunjae Lee
Pusan National University

  1. Progression and Dual Income Tax in Germany By Jenderny, Katharina
  2. Dynamic analysis of reductions in public debt in an endogenous growth model with public capital By Noritaka Maebayashi; Takeo Hori; Koichi Futagami
  3. Measuring the Impact of Marginal Tax Rate Reform on the Revenue Base of South Africa Using a Microsimulation Tax Model By Yolandé van Heerden and N.J. Schoeman
  4. Complementarity in Models of Public Finance and Endogenous Growth By Misch, Florian; Gemmell, Norman; Kneller, Richard
  5. Dynamic Tax Reforms By Nicolas Werquin; Aleh Tsyvinski; Mikhail Golosov
  6. Using Surveys of Business Perceptions as a Guide to Growth-Enhancing Fiscal Reforms By Misch, Florian; Gemmell, Norman; Kneller, Richard
  7. Evidence for profit shifting with tax sensitive capital stocks By Loretz, Simon; Mokkas, Socrates
  8. Cash-on-Hand & College Enrollment: Evidence from Population Tax Data and Policy Nonlinearities By Dayanand S. Manoli; Nicholas Turner
  9. Analysis of Cigarette Tax Structure as a Requirement for an Effective Tax Policy: Evaluation and Simulation for Argentina By Frank Chaloupka; Martin Gonzalez-Rozada; German Rodriguez Iglesias; Veronica Schoj
  10. Measuring Revenue-Maximising Elasticities of Taxable Income: Evidence for the US Income Tax By Creedy, John; Gemmell, Norman
  11. Wage Incidence of Local Corporate Taxation - Micro Evidence from Germany By Peichl, Andreas; Fuest, Clemens; Siegloch, Sebastian
  12. Race to the debt trap? Spatial econometric evidence on debt in German municipalities By Fossen, Frank M.; Freier, Ronny; Martin, Thorsten
  13. Imperfect Financial Markets, External Debt, and the Cyclicality of Social Transfers By Frömel, Maren
  14. Environmental Taxation and Redistribution Concerns By Aigner, Rafael
  15. The Effects of Countercyclical Fiscal Policy: Firm Level Evidence from Temporary Consumption Tax Cuts in Turkey By Seymen, Atilim; Misch, Florian
  16. The Hidden Costs of Tax Evasion - Collaborative Tax Evasion in Markets for Expert Services By Loukas Balafoutas; Adrian Beck; Rudolf Kerschbamer; Matthias Sutter
  17. INTER-JURISDICTIONAL TAX COMPETITION IN CHINA By Yongzheng Liu; Jorge Martinez-Vazquez
  18. Fiscal Integration in the Eurozone: Economic Effects of Two Key Scenarios By Dolls, Mathias; Fuest, Clemens; Neumann, Dirk; Peichl, Andreas
  19. City Competition for the Creative Class By Buettner, T; Janeba, Eckhard
  20. Fiscal Adjustments and the Probability of Sovereign Default By Schaltegger, Christoph; Weder, Martin
  21. Crossing Mountains: The Effect of Competition on the Laffer Curve By Hugo Miguel de Oliveira Cruz Pinto de Abreu; Elísio Fernando Moreira Brandão; Samuel Cruz Alves Pereira
  22. Public Investment, Time to Build, and the Zero Lower Bound By Hafedh Bouakez; Michel Guillard; Jordan Roulleau-Pasdeloup
  23. Sharing the burden? Empirical evidence on corporate tax incidence By Dwenger, Nadja; Rattenhuber, Pia; Steiner, Viktor
  24. The effects on energy saving from taxes on motor fuels: The Swedish case By Brännlund, Runar
  25. Coordination of Infrastructure Investment Across Levels of Government By Catherine Gamper; Claire Charbit
  26. FAT or VAT? The Financial Activities Tax as a Substitute to Imposing Value Added Tax on Financial Services By Erbe, Katharina; Büttner, Thiess
  27. Efficiency Cost of Fiscal Equalization: The Case of Belarus By Sebastian Eckardt; Jorge Martinez-Vazquez; Andrey Timofeev
  29. Trends and Quality of Decentralized Public Investment By Lorena Viñuela
  30. Income Inequality, Competitiveness of Political Systems and the Distance to the Efficient Frontier of Economic Growth By Hakobyan, Lilit
  31. The Infrastructure Gap and Decentralization By Luis Andres; Dan Biller; Jordan Schwartz
  32. Taxation, Innovation and Entrepreneurship By Schetter, Ulrich; Gersbach, Hans; Schneider, Maik
  33. Decentralization and Infrastructure: Principles and Practice By Roy Bahl; Richard M. Bird
  34. The Impact of the Regulatory Reform Process on R&D Investment of European Electricity Utilities By Schmitt, Stephan; Kucsera, Denes
  35. A cross-country analysis of the relationship between income inequality and social capital By Heijke J.A.M.; Ioakimidis M.

  1. By: Jenderny, Katharina
    Abstract: This paper analyzes the effect of the introduction of a final withholding tax on capital income on the progression of the German income tax. As previous literature shows, even with synthetic income taxation, tax progression was strongest in the middle of the income distribution, and decreased for high incomes. At the top, notably for the richest top 0.001 % of potential taxpayers, tax progression was not further observable. In 2009, the tax schedule changed and capital income was excluded from the synthetic income tax tariff. Instead, it is taxed at a lower final withholding tax rate. This paper explores the effect of this change on the overall progression on total income. The analysis is based on a microlevel panel dataset of income tax returns between 2001 and 2006, which provides information on the distribution of total taxable income and is particularly representative for the top of the income distribution. --
    JEL: H24 D31 D63
    Date: 2013
  2. By: Noritaka Maebayashi (Graduate School of Economics, Osaka University); Takeo Hori (College of Economics, Aoyama Gakuin University); Koichi Futagami (Graduate School of Economics, Osaka University)
    Abstract: We construct an endogenous growth model with productive public capital and government debt, in which government debt is gradually adjusted to the target level. We examine how the governmentfs debt reductions affect the transitional dynamics and welfare of the economy. We show that fiscal consolidation has contractionary ef- fects on the economy in the short run, but has positive long-run effects on the growth of key macroeconomic variables. Fiscal consolidation based only on expenditure cuts improves social welfare and attains larger welfare gains than consolidation that com- bines a tax increase with expenditure cuts. Importantly, under fiscal consolidation based only on expenditure cuts, as the size and speed of the debt reduction increase, welfare improves even further.
    Keywords: Fiscal consolidation; Debt policy rule; Public capital; Welfare; Endogenous growth
    JEL: E62 H54 H63
    Date: 2012–04
  3. By: Yolandé van Heerden and N.J. Schoeman
    Abstract: This paper is primarily concerned with the revenue and tax efficiency effects of adjustments to marginal tax rates on individual income as an instrument of possible tax reform. The hypothesis is that changes to marginal rates affect not only the revenue base but also tax efficiency and the optimum level of taxes that supports economic growth. Using an optimal revenue maximising rate (based on Laffer analysis) the elasticity of taxable income is derived with respect to marginal tax rates for each taxable income category. These elasticities are then used to quantify the impact of changes in marginal rates on the revenue base and tax efficiency using a microsimulation (MS) tax model. In this first paper on the research results much attention is paid to the structure of the model and the way in which the data base has been compiled. The model allows for the dissemination of individual taxpayers by income groups, gender, educational level, age group, etc. Simulations include a scenario with higher marginal rates which is also more progressive (as in the 1998/1999 fiscal year) in which case tax revenue increases but the increase is overshadowed by a more than proportional decrease in tax efficiency as measured by its deadweight loss. On the other hand, a lowering of marginal rates (to bring South Africa’s marginal rates more in line with those of its peers) improves tax efficiency but also results in a substantial revenue loss. The estimated optimal individual tax to GDP ratio to maximise economic growth (6.7 per cent) shows a strong response to changes in marginal rates and the results from this research indicate that a lowering of marginal rates would also move the actual ratio closer to its optimum level. Thus, the trade-off between revenue collected and tax efficiency should be carefully monitored when personal income tax reform is being considered.
    Keywords: microsimulation, tax efficiency, optimal tax, tax reform, personal income tax
    JEL: H21 H24 H31
    Date: 2013
  4. By: Misch, Florian; Gemmell, Norman; Kneller, Richard
    Abstract: This paper considers the effects of complementarity in private production between private and public inputs on optimal fiscal policy under the objective of growth maximization. Using an endogenous growth model with public finance and CES technology, it derives two central results. First, it shows that with complementarity, growth-maximizing fiscal policy is also affected by preference parameters, the degree of complementarity and the stock-flow properties of public inputs to private production. Second, it shows that optimal public spending composition and taxation are interrelated and also depend on the efficiency of public spending under growth maximization. Both results contrast with standard findings in the literature that are typically based on the assumption of Cobb-Douglas technology, and have important lessons for policy settings.
    Keywords: Complementarity, Economic growth, Productive public spending, Optimal fiscal policy,
    Date: 2014
  5. By: Nicolas Werquin (Yale University); Aleh Tsyvinski (Yale University); Mikhail Golosov (Princeton University)
    Abstract: This paper derives novel formulas for the welfare gains of any tax reform around initial (optimal or suboptimal) dynamic tax systems. We use a perturbation-based method to express these formulas in terms of easily interpretable and empirically estimable parameters: elasticities of income and savings with respect to the tax rates, and the shape of the income and savings distributions. This generates new theoretical insights about dynamic optimal taxes, as well as policy implications regarding directions of tax reforms of the current US tax code.
    Date: 2013
  6. By: Misch, Florian; Gemmell, Norman; Kneller, Richard
    Abstract: This paper assesses the merits of using business perceptions of growth constraints as a guide to growth-enhancing fiscal policy reforms. Using endogenous growth models in which the government levies an income tax to provide public inputs to the production of private firms, the paper demonstrates that such perceptions of growth constraints may be misleading from a policy perspective. In particular firms can be expected to systematically overestimate the growth-enhancing effects of lower tax rates relative to public services and public capital, and underestimate the growth-enhancing effects of greater provision of public capital relative to taxation and public services. In addition, we show that firms rank different public services and different types of public capital according to the actual costs they impose on firms. It is then shown that these theoretical predictions regarding how firms rank constraints correspond closely to the observed ranking of constraints by firms in the World Bank’s Enterprise Surveys.
    Keywords: Economic growth, Fiscal policy, Business perceptions, Diagnostics,
    Date: 2014
  7. By: Loretz, Simon; Mokkas, Socrates
    Abstract: This paper contributes to the literature providing indirect evidence for profit shifting within multinational companies. In contrast to the previous studies we account for the tax responsiveness of the capital stock and analyse the impact of corporate taxes on both pre- and post-tax profitability. Evidence from our large panel dataset of European subsidiaries supports the profit shifting hypothesis. We find that a 10 percentage point decrease in the tax rate increases post-tax profitability by up to 1.1 percentage points. Further, our results suggest that financial profits and losses are particularly responsive to taxes, which indicates that a large part of profit shifting takes places via debt shifting. --
    JEL: H25 H87 C23
    Date: 2013
  8. By: Dayanand S. Manoli; Nicholas Turner
    Abstract: In this paper, we estimate the causal effects of tax refunds (cash-on-hand) on college enrollment using population-level administrative data from United States income tax returns. We exploit plausibly exogenous variation in tax refunds around two kink points in the federal income tax code, including the first kink point in the Earned Income Tax Credit benefit schedule and the 15%-25% tax bracket kink point. Non-parametric graphical evidence suggests that differences in tax refunds across these tax kink points have meaningful effects on enrollment. Using a Regression Kink Design, our results indicate that a $1,000 increase in tax refunds received in the spring of the high school senior year increases college enrollment the next fall by roughly 2 to 3 percentage points. The magnitude of these effects, combined with less-than complete take-up of student aid, may be evidence that tax refunds relax credit constraints.
    JEL: H24 I23 I28
    Date: 2014–01
  9. By: Frank Chaloupka; Martin Gonzalez-Rozada; German Rodriguez Iglesias; Veronica Schoj
    Abstract: This study describes the cigarette demand and the tobacco tax structure in Argentina in order to identify which type of consumption tax can be increased by the government to reduce tobacco use in the short run. Based on the elasticity estimates and the cigarette tax structure, we analyze the possibility of implementing a tax increase government policy to reduce cigarette consumption. An analysis of each tobacco consumption tax is provided, with the twofold purpose of describe the variety of taxes affecting the consumption of cigarettes and to determine the impact of tobacco tax hikes. The cigarette tax structure in Argentina is very complex. Three excise duties plus VAT levied cigarettes consumption. Tobacco taxes have a dissimilar, vague origin, their bases differ significantly and are not applied similarly for cigarette and the other tobacco products. Additional Emergency Tax (a permanent emergency tax) and Special Tobacco Fund (that works as a subsidy to the tobacco production) are applied only to cigarettes; meanwhile internal tax rate is 60% for cigarettes but 16% or 20% to other tobacco products. Ad valorem taxes account for most of the tobacco tax structure in Argentina. The exception is a little component of the FET tax, which is a specific tax. The long-run cigarette consumption elasticity with respect to retail prices is -0.299, while the long-run income elasticity is 0.411. With these figures, a 10% increase in real prices will reduce long-run total cigarette consumption by 2.99%, and a 10% increase in real income will raise long-run consumption by 4.11%. Simulation exercises shows that increasing the price of cigarettes will increase government revenues, as well as a large decrease in cigarette consumption.
    Keywords: tobacco control policies, cigarette demand, tobacco tax structure, public health policies
    JEL: H2 I1 I18
    Date: 2014–01
  10. By: Creedy, John; Gemmell, Norman
    Abstract: A recent review of empirical estimates of the elasticity of taxable income (ETI) concluded that ‘the US marginal top rate is far from the top of the Laffer curve’ (Saez et al, 2012, p.42). This paper provides a detailed examination of the analysis underlying this conclusion, and considers whether other tax rates in the US income tax system are on the ‘right’ side of the Laffer curve. Conceptual expressions for ‘Laffer-maximum’ or revenue-maximizing ETIs, based on readily observable parameters, are presented for individuals and groups of taxpayers in a multi-rate income tax system. Applying these to the US income tax in 2005, with its complex effective marginal rate structure, demonstrates that a wide range of revenue-maximizing ETI values can be expected for individual taxpayers within and across tax brackets, and in aggregate. For many taxpayers these revenue-maximizing ETIs are well within the range of empirically estimated elasticities.
    Keywords: Income tax revenue, Revenue elasticity, Laffer Curve,
    Date: 2014
  11. By: Peichl, Andreas; Fuest, Clemens; Siegloch, Sebastian
    Abstract: In this paper we provide empirical evidence on the wage incidence of the German business tax, which is set at the municipal level. For our analysis, we use very rich administrative linked employer-employee panel data, covering 11 years, and link it to data on the business tax rates of about 11,100 German municipalities. On average 8\% of the municipalities adjust their business tax rate per year. We are thus able to exploit multiple quasi-natural experiments to identify the tax incidence on wages. While the unique German setting allows us to gauge general equilibrium wage effects, the detailed administrative data enables us to estimate heterogeneous incidence effects and to explore different channels of how the business tax burden is passed on. Consistent with our theoretical model, we find a negative direct effect of corporate taxation on wage, arising in a collective wage bargaining context. A one euro increase in the annual tax liabilities yields a 50 cent decrease of the annual wage bill. This burden is borne high- and medium-skilled labor. Furthermore, we show that the general equilibrium effect on wages is negligible in the context of our study due to the high regional labor mobility. --
    JEL: H22 H25 J30
    Date: 2013
  12. By: Fossen, Frank M.; Freier, Ronny; Martin, Thorsten
    Abstract: Through an intertemporal budget constraint, jurisdictions may gain advantages in tax and spending competition by 'competing' on debt. While the existing spatial econometric literature focuses on tax and spending competition, very little is known about spatial interaction via public debt. This paper estimates the spatial interdependence of public debt among German municipalities using a panel on municipalities in the two largest German states from 1999 to 2006. We find significant and robust interaction effects between debt of neighboring municipalities, which we compare to spatial tax and spending interactions. The results indicate that a municipality increases its per capita debt by 16-33 Euro as a reaction to an increase of 100 Euro in neighboring municipalities. --
    Keywords: public debt,tax and spending competition,municipality data,spatial interactions,spatial panel estimation
    JEL: C23 H63 H74 R12
    Date: 2014
  13. By: Frömel, Maren
    Abstract: This paper deals with fiscal policy over the business cycle when international financial markets are imperfect. I document evidence that government expenditure tends to be more procyclical the higher is the borrowing cost for a sovereign. Decomposing government expenditure components shows that the cyclical correlations of government social transfers are the most important components driving cross-country differences in the behavior of government spending over the business cycle. I build a simple model of optimal fiscal policy in the presence of income inequality where government spending is financed by costly taxation and by external debt in form of a risk free bond. Government spending consists of a public good which provides direct utility, and of social transfers that can be targeted towards low income agents. When additional frictions are in the form of exogenous borrowing constraints, the government runs a procyclical tax and transfer policy in the neighbourhood of the constraint and a counteryclical policy when asset or debt holdings are not close to the constraint. The need to smooth both aggregate consumption and tax cost over the business cycle deliver the qualitative difference in transfer policy when the government cannot borrow enough. The procyclicality of transfers is stronger the tighter is the borrowing constraint in this model. In contrast, government spending on public goods is always procyclical. The results implied by the theoretical model are qualitatively consistent with the data and emphasize the need to decompose government expenditure to understand fiscal procyclicality. --
    JEL: E62 F34 F41
    Date: 2013
  14. By: Aigner, Rafael
    Abstract: How is the optimal level of Pigouvian taxation influenced by distributive concerns? With second-best instruments, a higher level of income redistribution calls for a lower level of Pigouvian taxation. More redistribution implies higher distortions from income taxation. Pigouvian tax revenues become more valuable and the optimal level of environmental taxation decreases. With first-best in- struments, however, the relation between levels of redistribution and Pigouvian taxation is reversed. So second-best Pigouvian taxes are very different from their first-best counterpart - despite apparently identical first order conditions. --
    JEL: H21 H23 D62
    Date: 2013
  15. By: Seymen, Atilim; Misch, Florian
    Abstract: The paper investigates the effects of temporary consumption tax cuts using firm-level data. As part of its countercyclical measures implemented during the recent global economic crisis, Tur-key temporarily lowered consumption taxes on selected durables. Our empirical strategy ex-ploits variation in firm exposure to the tax cut which allows us to control for unobserved indus-try- and region-specific shocks to address potential endogeneity. Using data on the change of sales of firms that benefited from this measure and of those that did not over different periods, we find positive and robust effects of consumption tax cuts on the change of firm sales which is consistent with theoretical predictions. --
    JEL: E32 E62 H20
    Date: 2013
  16. By: Loukas Balafoutas; Adrian Beck; Rudolf Kerschbamer; Matthias Sutter
    Abstract: In markets where transactions are governed by contractual incompleteness, revealed intentions to evade taxes may affect market performance. We experimentally examine the impact of tax evasion attempts on the performance of credence goods markets, where contractual incompleteness results from asymmetric information on the welfare maximizing quality of the good. We find that tax evasion attempts – independently of whether they are successful or not – lead to efficiency losses in the form of too low quality and less frequent trade. Thus, shadow economies induce an excess burden not only by hampering the collection of tax revenues, but also by reducing market efficiency.
    Keywords: Credence Goods, Expert Services, Tax Evasion, Fraud, Experiment
    JEL: C72 C91 D82 H26
    Date: 2014–01
  17. By: Yongzheng Liu (School of Finance, China Financial Policy Research Center Renmin University of China); Jorge Martinez-Vazquez (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University)
    Abstract: This paper aims to provide empirical evidence on the extent and possible channels of tax competition among provincial governments in China. Using a panel of provincial- level data for 1993-2007, we nd strong evidence of strategic tax interaction among provincial governments. Tax policy is approximated by average eective tax rates on foreign investment, taking into account the tax incentives available to foreign in- vestors. In line with the predictions of the theoretical tax competition literature, we also highlight the impact of each province's characteristics (including its size and level of industrialization) on the strategic interaction with its neighbors. Finally, the paper explicitly identies the establishment of development zones as an important conduit for tax competition among provinces. Tax competition; development zone; China
    Date: 2014–01–06
  18. By: Dolls, Mathias; Fuest, Clemens; Neumann, Dirk; Peichl, Andreas
    Abstract: The 2008-09 crisis has shown that some euro area member countries were unable to sufficiently stabilize their economies which has given rise to a debate about deeper fiscal integration in Europe. In this paper, we analyze the redistributive and stabilizing effects of two scenarios of fiscal integration in the Eurozone, namely the introduction of i) a joint tax and transfer system that replaces 10 per cent of national systems and ii) a system of fiscal equalization that equalizes 10 per cent of differences in taxing capacity. Based on the European tax-benefit calculator EUROMOD and representative household micro data for the current 17 euro area member states, our conceptual experiment shows that a joint tax and transfer system would only lead to moderate gains in terms of stabilization while redistribution would flow especially towards the Eastern European member states. In contrast, a fiscal equalization mechanism that redistributes revenues across countries could even lead to destabilizing effects.
    Date: 2014–01–24
  19. By: Buettner, T; Janeba, Eckhard
    Abstract: Considering data for individual earnings we show that the local subsidization of cultural activities in Germany exerts effects on the wage distribution in the sense that these subsidies tend to reduce the wage gap between those with higher and less education. These findings motivate a theoretical analysis which explains the effects of subsidies in terms of a cross-sectional capitalization into the earnings of the immobile factor. In the theoretical model, the local government is focusing on improving the economic conditions faced by immobile residents. In this context, subsidization of cultural activities is discussed as a form of local public goods provision which makes a city more attractive to highly educated individuals who capture the rents from the production process. The theoretical analysis shows that inter-jurisdictional competition for the highly educated introduces a distortion of public goods provision, in the sense that uncoordinated policies lead to an inefficiently large supply of the public good. Our results suggest that since German local governments are prevented from adjusting their tax structure in a way that meets the efficiency requirements under fiscal competition, they resort to extending the supply of cultural activities through public subsidization. --
    JEL: H20 H41 R13
    Date: 2013
  20. By: Schaltegger, Christoph; Weder, Martin
    Abstract: Based on probit estimates, this paper analyzes the effects of fiscal consolidation on the proba-bility of sovereign defaults in the short run. Using a panel of 104 developing countries from 1980 to 2009 and controlling for various economic, fiscal and political factors, we find that fiscal adjustments in general do not significantly reduce the probably of default even if they are large. Instead, the composition of budget consolidation is decisive in reducing default risk. In contrast to industrialized countries, expenditure based adjustments are not successful while revenue based adjustments lower the probability of default in the following year by 33 to 56 percent. This finding also holds when economic growth is low or government debt is high as well as when IMF lending is taken into account. --
    JEL: H62 H63 H50
    Date: 2013
  21. By: Hugo Miguel de Oliveira Cruz Pinto de Abreu (University of Porto - Faculty of Economics); Elísio Fernando Moreira Brandão (University of Porto - Faculty of Economics); Samuel Cruz Alves Pereira (University of Porto - Faculty of Economics)
    Abstract: Regarding states and state-like entities as producers and taxation as a price, this paper connects the thoroughly studied impacts of the market structures in microeconomics to the controversial Laffer curve, suggesting that the outcome of the “taxation market” depends also on competition. By studying the determinants for Property Tax revenue for the 308 Portuguese municipalities, a general model that successfully explains tax revenue is developed. Evidence is found for the existence of a two-peaked Laffer curve in the sample, and various tests indicate that competition impacts – shifting but also changing – the Laffer curve, causing more competitive municipalities to maximize revenue at lower tax rates – i.e. lower prices - than those in a more monopolistic setting.
    Keywords: Laffer curve, Taxation, Market Structure, Competition, Municipalities, Portugal
    JEL: D40 H21 H30 H73
    Date: 2014–01
  22. By: Hafedh Bouakez; Michel Guillard; Jordan Roulleau-Pasdeloup
    Abstract: Public investment represents a non-negligible fraction of total public expenditures. Yet, theoretical studies of the effects of public spending when the economy is stuck in a liquidity trap invariably assume that government expenditures are entirely wasteful. In this paper, we consider a new-Keynesian economy in which a fraction of government spending increases the stock of public capital-which is an external input in the production technology-subject to a time-to-build constraint. In this environment, an increase in public spending has two conflicting effects on current and expected inflation: a positive effect due to higher aggregate demand and a negative effect reflecting future declines in real marginal cost. We solve the model analytically both in normal times and when the zero lower bound (ZLB) on nominal interest rates binds. We show that under relatively short time-to-build delays, the spending multiplier at the ZLB decreases with the fraction of public investment in a stimulus plan. Conversely, when several quarters are required to build new public capital, this relationship is reversed. In the limiting case where a fiscal stimulus is entirely allocated to investment in public infrastructure, the spending multiplier at the ZLB is 4 to 5 times larger than in normal times when the time to build is 12 quarters.
    Keywords: Public spending, Public investment, Time to build, Multiplier, Zero lower bound
    JEL: E4 E52 E62 H54
    Date: 2014
  23. By: Dwenger, Nadja; Rattenhuber, Pia; Steiner, Viktor
    Abstract: This study empirically investigates the direct incidence of the corporate income tax through wage bargaining, using an industry-region level panel data set on all corporations in Germany over the period 1998 to 2006. Our measure of direct incidence for the first time accounts for employment effects which result from tax induced wage changes. Workers share in reductions of the CIT burden; yet, direct incidence is small and confined to 0.19 0.29. Thus, the net effect of wage bargaining on the corporate wage bill, after an exogenous 1 decrease in the CIT burden, is as little as 19 to 29 cents. This is about half of the effect obtained in prior literature under the assumption that employment remained constant. A focus on wages alone leads to an overestimation of direct tax incidence. --
    JEL: H22 H25 J21
    Date: 2013
  24. By: Brännlund, Runar (CERE, Umeå University)
    Abstract: The objective with this study is to analyze the role of energy taxes for energy efficiency in the Swedish transport sector. In particular we analyze how large share the Swedish energy tax will contribute to the overall Swedish target for energy efficiency set by the EU directive for energy efficiency. To obtain the objective a dynamic demand model for gasoline and diesel is estimated, based on Swedish time series data from 1976 to 2012. The results from the demand model shows that a higher tax on gasoline results in lower gasoline demand, but leads to an increase in diesel consumption, and vice versa. A removal of the energy and CO2 tax, lowering both the gasoline and diesel consumer price, leads to an overall increase in energy use, but also to an increase in the share for diesel in fuel use. Concerning energy savings the simulation results show that the current Swedish energy and CO2 taxes are sufficient for achieving the EU stipulated target, and hence no additional measures has to be taken.
    Keywords: energy efficiency; gasoline; diesel; cointegration
    JEL: Q41
    Date: 2013–10–30
  25. By: Catherine Gamper (Public Governance and Territorial Development Directorate, OECD); Claire Charbit (Public Governance and Territorial Development Directorate, OECD)
    Abstract: The share of public investment spending at sub-national level has been slowly but steadily increasing over the past two decades across OECD countries. Degrees and forms of decentralization in infrastructure vary widely across countries, but all governments share a common objective, that is to mobilize authorities along shared infrastructure policy objectives. This involves managing a complex web of vertical (across levels of government) and horizontal (across sectors and across the same levels of government) interdependencies, which require substantial coordination among actors to ensure policy alignment and quality investments. Asymmetric information, multiple principal-agent relationships and significant differences in capacities across levels of government in financing and implementing infrastructure investments have posed important political economic obstacles to improving the efficiency and effectiveness of public investment outcomes. This paper will look at persisting coordination challenges more closely by using the results of a recent OECD questionnaire and case studies. It will identify remedies OECD and some selected non-OECD countries have found that work to address coordination issues. This paper will demonstrate that ultimately systematic collection and sharing of information is the key to making coordination work.
    Date: 2014–01–14
  26. By: Erbe, Katharina; Büttner, Thiess
    Abstract: This paper analyzes revenue and welfare effects of implementing a FAT both from a theoretical and a quantitative perspective. The theoretical analysis allows us to derive expressions for the revenue effects and the deadweight loss in a general equilibrium setting, which can be quantified with a minimum of information about the economy and key elasticities. Using data for Germany, the empirical quantification suggests that introducing a modest FAT with a rate of 3% results in a revenue gain of about 1.312 bn. If this revenue gain is used to reduce distorting labor taxes, the results point at a welfare gain of 1.092 bn. Comparing these results with Buettner and Erbe (2012), we find that the introduction of a FAT of 3% would generate similar revenue and welfare effects as a repeal of the financial sector VAT exemption (with a 19% VAT rate). However, taxing financial services through FAT may exert adverse location effects on financial service production. --
    JEL: H24 H25 D57
    Date: 2013
  27. By: Sebastian Eckardt (World Bank); Jorge Martinez-Vazquez (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University); Andrey Timofeev (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University)
    Abstract: Belarus is the last command economy left standing in Europe. Because it still has an option of a gradual transition ("Chinese style'"), the study of Belarus’ case can present insights on the counterfactual to the "shock therapy" approach undertaken by the rest of the Central and Eastern European countries. However, the viability of the existing system hinges on its ability to weather short-term external economic shocks and to adjust to a significant list of medium term structural challenges. Now that more than half of Belarus’ consolidated public expenditures, excluding social security, takes place at the subnational levels of government, its ability to adjust largely hinges on the incentives that the system of intergovernmental relations presents to subnational officials. Belarus' experience with the recent recurrent macro-economic turmoil suggests that the incentives embedded in the system of intergovernmental fiscal transfers might hinder its ability to undergo fiscal adjustment and consolidation. Thus, since 2008, Belarus underwent one of the largest contractions in the size of government in the region, with public expenditures contracting by 12.9 percentage points of GDP and finally dropping to 37 percent of GDP at the end of 2011 (Figure 1).
    Date: 2014–01–02
  28. By: Jonas Frank (World Bank); Jorge Martinez-Vazquez (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University)
    Abstract: The subnational dimension of infrastructure emerges as one of the greatest challenges in contemporary public finance policy and management. Given the localized nature of most infrastructures, ensuring its efficient provision represents a challenge for all countries irrespective of their level of centralization or decentralization. This paper introduces the fundamental questions surrounding the provision of infrastructure in decentralized settings and summarizes the findings from a collection of original essays prepared for this volume by a set of worldwide experts on this subject with the objective of advancing our understanding of the interplay between decentralization and infrastructure. More specifically, the paper discusses the extent of infrastructure gaps and the quality of subnational spending; inquires how functional responsibilities, financing and equalization can be designed; discusses sector-specific arrangements; drills down to the key steps of the public investment cycle and management aspects; and analyzes the political economy and corruption challenges that typically accompany decentralized infrastructure projects. The paper also presents avenues for the strengthening of decentralized public investment and infrastructure provision processes, concluding that they need to be country-, sector- and place-specific. While it is clear that institutional arrangements for infrastructure management will vary across countries, in all cases several decision-making steps need to be coordinated across levels of government in order to ensure efficiency in delivery, equity in spending, and accountability over final results.
    Date: 2014–01–14
  29. By: Lorena Viñuela (World Bank)
    Abstract: Around the world state and local governments have an important and growing role in the provision of public infrastructure services. Subnational governments presently account for an average of 63 percent of public fixed capital formation in OECD countries and approximately for 40 percent in developing countries. However, to date, the subnational dimension of public investment has been largely overlooked and it is not as well documented as other local responsibilities in service delivery.
    Date: 2014–01–14
  30. By: Hakobyan, Lilit (Department of Economics, Umeå School of Business and Economics)
    Abstract: This paper investigates whether and under which conditions democracy renders economic performance more efficient. Efficiency, measured by the ratio of (mean)/ (standard deviation) of output growth, becomes an important indicator of the relative goodness of economic performance when countries face a trade-off between development scenarios with high-mean and low-volatility of output growth. This seems to be a case when economies approach the efficient frontier. However, when countries are far away from the frontier economic efficiency may be improved by simultaneously increasing the mean and decreasing the volatility of growth. This study differs from others on the topic in three basic ways: (i) asymmetric (G)ARCH models are employed to simultaneously estimate the mean and volatility of output growth conditional on the factors of interest; (ii) variations in within-country effects of democratisation on the mean, variance and efficiency of economic growth conditional on cross-country variations of income inequality are analysed; (iii) the asymmetry of deviations from the mean is investigated. The results suggest (do not suggest) that in countries with no (with) military dictatorship history democratisation moves economies towards the efficient frontier. The positive effect of democratisation on the efficiency of economic performance seems to be systematically stronger in countries with lower (higher) income inequality in the countries with (without) consolidated civil governments.
    Keywords: Mean and volatility of output growth; efficient frontier; political system competitiveness; income inequality; weak institutions; asymmetric GARCH model
    JEL: E02 E32 O43 P16
    Date: 2014–01–23
  31. By: Luis Andres (World Bank); Dan Biller (World Bank); Jordan Schwartz (World Bank)
    Abstract: This paper proposes an economic logic for underpinning decentralization in the infrastructure sectors. It starts by detailing the definition of the infrastructure gap and the methodologies to calculate it. It provides some global trends for developing countries in terms of the gap and briefly discusses financing possibilities for developing countries to address the gap. Then it turns to the discussion of the link between the infrastructure gap and decentralization, providing a typology infrastructure subsectors and possible jurisdiction of service provision. It briefly discusses the potential for raising local finances for provision and the relationship between poverty and provision. While it is very difficult to provide blanket recommendations on decentralizing the various sectors and respective subcomponents of infrastructure services, the paper offers a set of guidelines to direct policymakers in their decision to decentralize or not. First, decentralization is intrinsically neither good nor bad for infrastructure; its impact depends entirely on the incentives facing the various decision-makers in the decentralization process; second, decentralization is most fruitful when the decision-makers bear the financial and political cost with respect to design, finance, operation and maintenance; and, finally, political leaders are accountable to their constituents for the manner in which they spend tax revenues and how they use and allocate transfers from the central government.
    Date: 2014–01–14
  32. By: Schetter, Ulrich; Gersbach, Hans; Schneider, Maik
    Abstract: We examine how basic research should be financed. While basic research is a public good benefiting innovating entrepreneurs it also affects the entire economy: occupational choices of potential entrepreneurs, wages of workers, dividends to shareholders, and aggregate output. We show that the general economy impact of basic research rationalizes a pecking order of taxation to finance basic research. In particular, in a society with desirable dense entrepreneurial activity, a large share of funds for basic research should be financed by labor taxation and a minor share is left to profit taxation. Such tax schemes induce a significant share of agents to become entrepreneurs, thereby rationalizing substantial investments in basic research. These entrepreneurial economies, however, may make a majority of citizens worse off if those individuals do not possess shares of final good producers in the economy. In such circumstances, stagnation may prevail. --
    JEL: H20 H40 O38
    Date: 2013
  33. By: Roy Bahl (Andrew Young School of Policy Studies, Georgia State University); Richard M. Bird (University of Toronto)
    Abstract: This paper reviews the theoretical and practical issues surrounding the decentralization of responsibility for the provision of infrastructure to local governments in low income countries. The focus is on structural rather than management issues. There is plenty of evidence that following the theory can lead to efficient outcomes under decentralization, but also plenty of evidence that the theory and the practice often diverge widely. Seven policy rules that could support a successful decentralization of appropriate infrastructure services are drawn out of this review.
    Date: 2013–01–14
  34. By: Schmitt, Stephan; Kucsera, Denes
    Abstract: The aim of this paper is to give deeper insights into the impact of regulatory reforms and privatization on R&D spending of electricity utilities. Building on a panel data set including the biggest European utilities from eight EU-countries over a period from 1985 until 2010, we find a strong negative influence of privatization and also a negative overall impact of regulation on R&D investment. Nearing competition has a dampening effect on R&D spending, but once the market and regulatory framework conditions have been established, higher levels of competition positively influence R&D. Our results further indicate that the relation between competition and innovative investment can be described as inverted U-shaped. Finally, we could not find any evidence that (ownership) unbundling and incentive regulation affect R&D expenditures of the utilities. --
    JEL: L43 L51 L94
    Date: 2013
  35. By: Heijke J.A.M.; Ioakimidis M. (ROA)
    Abstract: This study investigated whether earnings inequality is associated with social capital as measured by active membership in organizations and interpersonal trust. Pearson product-moment correlation analysis showed that greater earnings inequality was associated with lower values on both measures of social capital in 14 European countries. While causality in either direction cannot be inferred from this result, it does suggest the possibility that earnings inequality negatively affects social capital. To test this idea further, we also tentatively examined whether other societal indicators related to earnings inequality are associated with social capital. These alternative indicatorsthe countrys percentage of urban residents, percentage of residents with tertiary education, and government spending as a percentage of GDPdid not show stronger relationships with social capital than did earnings inequality. Further analysis of the data by excluding specific groups of countries indicated little association between earnings inequality and measures of social capital. These results suggested that country-specific economic or cultural values play a large role in how earnings inequality and social capital are related.
    Keywords: Wage Level and Structure; Wage Differentials; Economic Sociology; Economic Anthropology; Social and Economic Stratification;
    JEL: J31 Z13
    Date: 2013

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