nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒03‒30
29 papers chosen by
Keunjae Lee
Pusan National University

  1. A fiscal revolution? Progressivity in the Spanish tax system, 1960-1990 By Sara Torregrosa Hetland
  2. Tax professionals' view of the Spanish tax system: efficiency, equity and tax planning By José Mª Durán-Cabré; Alejandro Esteller-Moré
  3. Consolidation on the revenue side and growth-friendly tax structures: an indicator based approach By Florian Wöhlbier; Caterina Astarita; Gilles Mourre
  4. Sports and Regional Growth in Sweden - Is a successful professional sports team good for regional economic growth? By Värja, Emelie
  5. The taxation of nonrenewable natural resources By GAUDET, Gérard; LASSERRE, Pierre
  6. British Tax Credit Simplification, the Intra- household Distribution of Income and Family Consumption By Fisher, Paul
  7. Prospect theory and tax evasion: a reconsideration of the Yitzhaki puzzle By Amedeo Piolatto; Matthew D. Rablen
  8. State-Dependent Effects of Fiscal Policy. By Steven Fazzari; James Morley; Irina Panovska
  9. Oil windfalls and tax inefficiency: evidence from Brazil By Fernando Antonio Slaibe Postali
  10. Itemised deductions: a device to reduce tax evasion By Amedeo Piolatto
  11. Parametric and Nonparametric Analysis of Tax Changes By James Bugden; Iain Fraser; Jeffrey S. Racine; Robert Waschik
  12. Fiscal austerity and income distribution in Italy By Massimo Baldini
  13. Public Attitudes Toward Fiscal Consolidation: Evidence from a Representative German Population Survey By Bernd Hayo; Florian Neumeier
  14. How Would the Design of an Alternative Minimum Tax Impact the Effective Corporate Tax Rate in Belgium By Vincent Daxbek; Antonio Estache
  15. Fiscal Federalism and Legislative Malapportionment: Causal Evidence from Independent but Related Natural Experiments By Sebastian Galiani; Iván Torre; Gustavo Torrens
  16. Trade Structure and Growth Effects of Taxation in a Two-Country World By Daisuke Amano; Jun-ichi Itaya; Kazuo Mino
  17. M&A and the tax benefits of debt-financing By Scheuering, Uwe
  18. Analysing the Short Run Effects of China’s Economic Reform Agenda By Rod Tyers
  19. Multi-Product Firms, Product Scope, and the Policy of Export Tax Rebate By Han, Jianyu; Ma, Yeqing; Tan, Yong
  20. Internal and External Effects of R&D Subsidies and Fiscal Incentives: Empirical Evidence Using Spatial Dynamic Panel Models By Benjamin Montmartin; Marcos Herrera
  21. Immigration and Location Choices of Native-Born Workers in Canada By Aydede, Yigit
  22. Investment to the Rescue By Vasily Astrov; Rumen Dobrinsky; Vladimir Gligorov; Doris Hanzl-Weiss; Peter Havlik; Mario Holzner; Gabor Hunya; Michael Landesmann; Sebastian Leitner; Olga Pindyuk; Leon Podkaminer; Sandor Richter; Hermine Vidovic
  23. Estimating the economic opportunity cost of capital for public investment projects : an empirical analysis of the Mexican case By Coppola, Andrea; Fernholz, Fernando; Glenday, Graham
  24. Labour supply and taxation with restricted choices By Magali Beffy; Richard Blundell; Antoine Bozio; Guy Laroque
  25. The Service Sector and Female Market Work: Europe vs the US By Michelle Rendall
  26. Less Cash, Less Crime: Evidence from the Electronic Benefit Transfer Program By Richard Wright; Erdal Tekin; Volkan Topalli; Chandler McClellan; Timothy Dickinson; Richard Rosenfeld
  27. New Keynesian versus old Keynesian government spending multipliers - A comment By Andrew Hughes Hallett; Ansgar Rannenberg; Sven Schreiber
  28. Democracy Does Cause Growth By Daron Acemoglu; Suresh Naidu; Pascual Restrepo; James A. Robinson
  29. Determinants of Research Production at Top Universities By Quentin Max David

  1. By: Sara Torregrosa Hetland (Universitat de Barcelona)
    Abstract: The main objective of this paper is to calculate the distribution of the tax burden across income levels in Spain between 1960 and 1990. The chosen period covers the final years of Franco’s dictatorship and the first ones of the present parliamentary regime, and is thus meant to explore how political change was reflected on taxation. Does transition entail a fiscal revolution? Here is one case study developed and compared to other national experiences. Effective tax reform seems to have been politically blocked during the dictatorship, with public budgets growing fundamentally on the grounds of social security contributions. Democracy brought about a comprehensive transformation starting in 1977, which aimed at improving fairness (progressivity) and increasing revenue (to fund the development of the Welfare State). In this work I analyse whether the reforms entailed effective changes in the distribution of the tax burden, by imputing tax collection to taxpayers, based on income and consumption micro-data from Household Budget Surveys. The results show a persistent (albeit decreasing) regressivity in the tax system, which caused an increasingly negative redistribution of income. Pre-Tax incomes grew unequal during the period and net incomes even more so as a result: the tax reform did not fulfill its equalizing promises. The joint effect of the fiscal system, however, seems to have been slightly positive due to progressive social spending.
    Keywords: Tax system, progressivity, redistribution, income inequality
    JEL: D31 N34 N44 H23
    Date: 2014
  2. By: José Mª Durán-Cabré (Universitat de Barcelona & IEB); Alejandro Esteller-Moré (Universitat de Barcelona & IEB)
    Abstract: The design of a tax system is a daunting task. Economies have become increasingly complex, which makes the design of taxes has to take into account behavioral taxpayers' responses - including mobility -, but also tax planning issues. Additionally, increasing inequality trends put more pressure on design. This complex framework increases the need of complete and constantly updated information about the functioning of the system to carry out welfare-enhancing reforms and having stable sources of public funding. It seems now the moment the Spanish tax system takes advantage of all sources of information to undertake a necessary reform. For this ambitious purpose, we aim at providing a novel source of information: the (objective) opinion of tax professionals. From a survey all over Spain, tax professionals unanimously conclude the current tax system is unfair, while the main inefficiencies, rather than due to traditional responses, come out as a consequence of tax planning and tax mobility. We hope the complete results of the survey are a useful source of information.
    Keywords: Tax reform, efficiency, equity, tax avoidance
    JEL: H20 H29
    Date: 2014
  3. By: Florian Wöhlbier; Caterina Astarita; Gilles Mourre
    Abstract: The paper examines potential challenges arising at Member State level from the need and scope for either consolidating on the revenue side or shifting taxes away from labour. It uses a systematic indicator-based screening to identify Member States that may face a challenge in each of these two policy areas. The first quantitative screening is applied to identify Member States that have a need and room for shifting taxation away from labour to other tax bases. The analysis of labour taxation looks at overall labour taxation and at taxation of two specific groups considered to be rather responsive to labour supply incentives, namely low-skilled workers and second-earners. A second screening aims at identifying at Member States that might consider using taxation – in addition to expenditure control – to consolidate their public finances and steer them onto a sustainable path. This screening looks into the potential need for substantial fiscal consolidation and the availability of 'tax space'. Robustness checks are carried out to test how far the screening results depend on the screening approach. These checks overall confirm the outcome of the main screening approach. However, both screenings need to be complemented with in-depth country analysis before being able to draw firm policy conclusions.
    JEL: E62 H2 J2
    Date: 2014–02
  4. By: Värja, Emelie (Örebro University School of Business)
    Abstract: This study investigates whether net inbound migration and per capita income growth of a municipality is affected when a local sports team enters or exits the premium national leagues in ice hockey or soccer in Sweden. Local governments frequently support a local professional team through direct subsidies; beneficial funding of arenas, etc., which often is motivated by alleged, positive externalities through effects on the attractiveness of the municipality as a leisure-travel destination, or place for living or doing business, which ultimately is supposed to enhance the tax base and the tax revenues of the local government. Previous literature on such effects is based on simple models estimated on a selected sample of cities and without consideration of spatial interdependencies between local areas. We carry out a simultaneous estimation of spatial paneldata models of income per capita growth and net migration rates using annual data from all Swedish municipalities from 1995-2011 (except for four municipalit that have changed borders). With this richer modeling framework we still find no evidence of a positive relationship from performance of a local team on any of these two variables.
    Keywords: sports; growth; spatial econometrics; regional growth
    JEL: H71 J61 L83
    Date: 2014–03–21
  5. By: GAUDET, Gérard; LASSERRE, Pierre
    Abstract: We provide an analytical overview of the distortionary effects of some common forms of taxes faced by the nonrenewable resources sector of the economy. In the category of taxes meant specifically to capture the resource rent, we look at a specific severance tax, an ad valorem severance tax, a profit tax and a ‘lump-sum’ tax, with emphasis on their effects on the extraction decisions over time and on the initial reserves to be developed. In the category of taxes meant for all sectors of the economy, we look at the corporate income tax and its special provision for the resource sector in the form of a depletion allowance, with emphasis on the effects on the intra-industry resource extraction decisions and on the inter-industry allocation of investment.
    Keywords: Nonrenewable resources; taxation; neutrality; distortion; resource rent; capital allocation
    JEL: Q31 Q38 H21
    Date: 2013
  6. By: Fisher, Paul
    Abstract: The UK Government enacted simplification of its tax credit system in 2003. An inter- esting consequence of the reform is that tax credit payments were split between partners in couples, causing a rare wallet to purse transfer. This paper presents evidence on the effects of the reform on family spending, using quasi-likelihood techniques, for a sample of low income couples with children. In areas of child goods, evidence of important spending increases are found, whereas spending decreases are observed amongst goods that disproportionately ben- efit parents. A further key finding is an apparent trade-off between spending on public goods that are not exclusively consumed by children, but may nonetheless have a child development dimension. Results are contrasted to earlier findings from UK 1970s child benefit reforms. The effects are consistent with a non-cooperative bargaining framework, in which partners differ in their relative preference for different household public goods.
    Date: 2014–03–13
  7. By: Amedeo Piolatto (Universitat de Barcelona & IEB); Matthew D. Rablen (Brunel University)
    Abstract: The standard expected utility model of tax evasion predicts that evasion is decreasing in the marginal tax rate (the Yitzhaki puzzle). The existing literature disagrees on whether prospect theory overturns the puzzle. We disentangle four distinct elements of prospect theory and find loss aversion and probability weighting to be redundant in respect of the puzzle. Prospect theory fails to reverse the puzzle for various classes of endogenous specification of the reference level. These classes include, as special cases, the most common specifications in the literature. New specifications of the reference level are needed, we conclude.
    Keywords: Prospect theory, tax evasion, Yitzhaki puzzle, stigma, diminishing sensitivity, reference dependence, endogenous audit probability, endogenous reference level
    JEL: H26 D81 K42
    Date: 2014
  8. By: Steven Fazzari (Washington University in St. Louis); James Morley (School of Economics, University of New South Wales); Irina Panovska (Rauch Business Center, Lehigh University)
    Abstract: We investigate the effects of government spending on U.S. output with a threshold structural vector autoregressive model. We provide formal comparisons for nonlinearity in the responses of output to government spending and develop a method to compare the difference between impulse response functions across states of the economy. Our empirical findings support state-dependent effects of fiscal policy. The government spending multiplier is larger and more persistent when capacity utilization is low. The estimated multiplier is large (1.6) for more than half of the sample observations, even when the interest rate is not at the zero lower bound.
    Keywords: Government Spending, Threshold Model, Vector Autoregression, Nonlinear Dynamics, Impulse-Response Comparison, Bayesian
    JEL: C32 E32 E62
    Date: 2013–12
  9. By: Fernando Antonio Slaibe Postali
    Abstract: This paper investigates whether Brazilian municipalities are losing efficiency when collecting local taxes in response to oil windfalls. A two-stage procedure was adopted. First, we calculate the efficiency scores for tax collection using the Data Envelopment Analysis (DEA) method. In the second stage, the efficiency scores are used as the dependent variable in a quantile regression model to assess whether oil rents affect this indicator. The results reveal that the municipalities benefitting from oil revenues (royalties) reduce their efficiency in collecting taxes in response to such grants, which signals that they generate some type of X-inefficiency in municipal public management. Using a Cost-Minimization DEA, it is possible to avoid the problem of mixing technical efficiency with unobservable preferences on public goods. It is also possible to decompose efficiency within three components: technical, allocative and economic.
    Keywords: Data envelopment analysis; quantile regression; oil royalties; public sector
    JEL: H21 H71 Q33
    Date: 2014–03–18
  10. By: Amedeo Piolatto (Universitat de Barcelona & IEB)
    Abstract: With direct incentives and sanctions being the most common instruments to fight tax evasion, the theoretical literature has tended to overlook indirect schemes, such as itemised deductions, in which one agent has an interest in other agents declaring their revenue. Itemised deductions provide an incentive for consumers to declare their purchases, and this forces sellers to do the same. I show that it is possible to increase tax proceeds by choosing a suitable level of itemised deduction, and this, for any level of taxation. Indeed, the cost for the government on the consumers' side is more than compensated for by the extra proceeds generated on the sellers' side.
    Keywords: Tax evasion, itemised deductions, substitute goods, duopoly
    JEL: H00 H20 H26 H30
    Date: 2014
  11. By: James Bugden; Iain Fraser; Jeffrey S. Racine; Robert Waschik
    Abstract: In this paper we examine the net effect of several major tax changes in Australia on residential property prices. Specifically, we consider the announcement and introduction effects that resulted from several policy changes including the introduction of the Goods and Services Tax (GST) and the accompanying First Home Owner Grant (FHOG). Using a large data set of residential property sales in Melbourne, Australia, between 1992 and 2002 we estimate various models using parametric and nonparametric methods. While our parametric models suggest that the tax policy changes appear to have a statistically significant impact on house prices, no economically significant impact is detected by our nonparametric models, nor (upon closer inspection) by the parametric models themselves. Given the enormity of the sample size, this provides a telling example of the fundamental difference between statistical and economic significance and its implications for detecting government policy effectiveness.
    Keywords: tax changes, housing, nonparametric methods, hedonic model
    JEL: C14 R21
    Date: 2014–03
  12. By: Massimo Baldini
    Abstract: The aim of this chapter is to evaluate the main effects on the incomes of Italian households of the fiscal consolidation measures that the government has introduced after the start of the great recession in 2008, with the objective of reducing the deficit of the public budget. The questions addressed in this chapter can be summarised as follows: a) What is the overall distributive impact of austerity measures on the income distribution of Italian households? b) Which social and economic groups have been more affected? c) What is the relationship between the changes in income distribution in the last decade in Italy and the changes produced by the policy measures? d) When designing which measures to introduce, did the government take into account the underlying changes in income distribution during the crisis? The second section describes the evolution of income inequality and poverty before and after the onset of the great recession, while the third provides some details of the simulation method and presents the distributive effects of the austerity package on Italian households. Finally, the fourth section discusses these results and puts them in a more general context.
    Keywords: income distribution, fiscal austerity, Italy, tax-benefit system
    JEL: I32 H2
    Date: 2014–03
  13. By: Bernd Hayo; Florian Neumeier
    Abstract: The poor state of public finances in many countries has led to calls for fiscal consolidation. In practice, implementing concrete consolidation measures appears to meet with public resistance, suggesting that the success of consolidation efforts strongly depends on the popularity of the chosen measures. To identify public attitudes toward fiscal consolidation and alternative consolidation measures, we conducted a survey among 2,000 German citizens. Applying ordered and multinominal logit models, we test theory-based hypotheses about the determinants of individual attitudes toward public debt. We find that, inter alia, personal economic situation, time preferences, fiscal illusion, and trust in politicians exert a significant impact on attitudes toward fiscal consolidation and preferences for alternative consolidation measures.
    Keywords: Public debt; sovereign debt crisis; public attitude; Germany; fiscal consolidation
    JEL: D72 H31 H63
    Date: 2014–03–19
  14. By: Vincent Daxbek; Antonio Estache
    Date: 2013–05
  15. By: Sebastian Galiani; Iván Torre; Gustavo Torrens
    Abstract: We exploit three natural experiments in Argentina in order to determine if legislative malapportionment is the cause of the biases existing in the country’s federal tax sharing scheme. We find that legislative malapportionment has had no significant effect on the federal tax sharing scheme during periods when democratic governments were in place; nor did we find any evidence that the tax sharing distribution pattern became less biased under centralized military governments. We argue that these results are attributable to two of Argentina’s institutional characteristics: first, the predominance of the executive branch over the legislature; and, second, the lack of any significant difference in the pattern of geographic representation in the executive branch under democratic and autocratic governments. Thus, the observed biases in the distribution of tax revenues among the Argentine provinces are not caused by legislative malapportionment, but are instead the result of a more structural political equilibrium that transcends the geographic distribution of legislative representation and even the nature of the political regime.
    JEL: D72 D78 H3
    Date: 2014–03
  16. By: Daisuke Amano (Otaru University of Commerce); Jun-ichi Itaya (Hokkaido University); Kazuo Mino (Kyoto University)
    Abstract: This paper explores the long-run impacts of tax policy in a two-country model of endogenous growth with variable labor supply. We focus on international spillover effects of tax reforms under alternative trade structures. It is shown that if the instantaneous utility function of the representative family in each country is additively separable and if international capital mobility is absent, then a change in taxation in one country does not directly affect capital formation in the other country. Such a conclusion is fundamentally modified if international lending and borrowing are allowed. In the presence of financial capital mobility, a change in tax policy in one country directly diffuses to the growth performance of the other country, even though preference structures are assumed to be log-additive forms.
    Keywords: factor-income tax, consumption tax, equilibrium dynamics, two-country model, endogenous growth, variable labor supply
    JEL: F43 O41
    Date: 2014–03
  17. By: Scheuering, Uwe
    Abstract: The deductibility of interest expenses from the corporate tax base creates an incentive for acquiring companies to finance a takeover with debt. In this paper, I investigate the impact of profit taxation on the financing decision in corporate acquisitions for the first time for a sample of different acquirer-countries mainly in Europe. The likelihood to observe a debt-financed acquisition is found to increase in the acquirer's tax rate. In addition, I take into account that the financing decisions of particular acquisitions might not be independent from other investment decisions. Therefore, I analyze the acquirer's capital structure development around the acquisition and find an increase in the statutory tax rate by one %-point to be associated with a stronger increase in the debt ratio by 0.55 %-points during the acquisition period. --
    Keywords: M&A,Business Taxation,Capital Structure,Empirical Analysis
    JEL: G34 H25 H32
    Date: 2014
  18. By: Rod Tyers
    Abstract: China’s size limits its capacity to source further growth from exports and so the inevitable turn inward is in progress, as suggested by declining gross flows on its balance of payments relative to its GDP. Thus far, key home policy drivers have been fiscal expansion and public investment, though provincial indebtedness will constrain these in future and growth will be driven by the government’s reform agenda, which includes further industrial reform and “internationalisation”. The short run effects of these domestic policy and external shocks are examined using a model of the Chinese economy that takes explicit account of oligopoly behaviour. The results confirm that further fiscal expansions, even with large public investment components, will not contribute the major share of new growth, but industrial reform in heavy manufacturing and services would reduce costs and foster growth in output, private consumption and modern sector employment. At the same time, while China’s private investment, and hence its overall performance, will be sensitive to the uncertain effects of internationalisation increased nominal exchange rate flexibility would offer a reliable cushion.
    Keywords: China, fiscal policy, industry policy reform, oligopoly, price caps, privatisation, internationalisation, capital account liberalization
    JEL: C54 C68 D58 E17 E62 L13 L43
    Date: 2014–03
  19. By: Han, Jianyu; Ma, Yeqing; Tan, Yong
    Abstract: Following Nocke(2012), we develop a model to explain how firms allocate their organizational capital to different products. Using the Chinese export and tax rebate data, we find that the reduction of export tax rebate causes contraction of product scope , and the less competitive products are more likely to be dropped.
    Keywords: Following Nocke(2012), we develop a model to explain how firms allocate their organizational capital to different products. Using the Chinese export and tax rebate data, we find that the reduction of export tax rebate causes contraction of product scope , and the less competitive products are more likely to be dropped.
    JEL: F10 F14 L10
    Date: 2014–03–23
  20. By: Benjamin Montmartin (GREDEG CNRS; University of Nice Sophia Antipolis, France); Marcos Herrera (CONICET - IELDE; National University of Salta, Argentina)
    Abstract: Most studies evaluating the macroeconomic effects of financial support policies on business-funded R&D use econometric methods that do not consider the existence of spatial effects, and generate biased estimates. In this paper, we discus and address this problem using spatial dynamic panel data methods. This allow us to provide new insights on the internal (in-country) and external (out-of-country) effects of both Research and Development (R&D) subsidies and fiscal incentives. We use a database of 25 OECD countries for the period 1990-2009. In relation to internal effects, for both instruments, we find a non-linear relationship between their effect on private R&D and their level (suggesting the possibility of leveraging and crowding-out effects). We also find a substitution effect between the R&D subsidies and fiscal incentives implemented within a country. Concerning the spatial component, we find evidence of positive spatial spillovers among private R&D investments. However, our results suggest the existence of competition/substitution effects between national R&D policies.
    Keywords: Direct and Indirect support, Business-funded R&D, Complementarity, Dynamic spatial panel data
    JEL: H25 O31 O38
    Date: 2014–03
  21. By: Aydede, Yigit
    Abstract: There are two competing views on how immigration would affect local labor markets. When immigrants offer skills similar to those of native-born workers, they may compete directly with them, and this competition may lead to lower economic returns for native-born workers. This view can be called the “substitution†hypothesis. The alternative view is that immigrants may provide “complementary†skills, which can raise the productivity of other workers. If the substitution argument is effective, immigration might lead to out-migration of the nonimmigrant population from a community in the short run. Models in location-choice studies usually examine the migration decision in two separate processes: whether-to and where-to decisions about moving. The present study investigates how location choices of native-born workers can be influenced by the conditions in both the potential destinations and the departure regions. To validate either the substitution or complementary view, we apply choice-specific, clustered fixed-effect response models, which use industry- and occupation-specific regional attributes that allow us to control for unobserved regional heterogeneity as well as to identify regional factors that affect location choices. This study uses the 20 percent sample of the 2006 Census that covers the entire country with 282 census divisions. The results show that location-choice models are sensitive to how regional attributes are defined. When industry-specific immigration density differentials across regions are measured only at destinations, they have strong and negative effects on the location choices of the native born. However, when the models control choice-specific attributes relative to the origin, immigration variables become insignificant on the desirability of destinations.
    Keywords: Immigration, Migration, Crowding Out, Displacement, Mobility
    JEL: J61 J15 R23
    Date: 2014–03–26
  22. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The Vienna Institute for International Economic Studies (wiiw) expects GDP in Central, East and Southeast Europe (CESEE) to pick up speed and grow on average by 2-3% over the forecast period 2014-2016 a major driving force rooted in an upward reversal of public and private investment. The question remains, however, whether investment-led growth in the CESEE countries is merely a statistical base effect of a few replacement investments or an indication of a profound paradigmatic shift. Increasing evidence suggests the latter for a number of reasons. During the ongoing economic crisis, public investment was severely reduced. However, in times of extreme uncertainty, the private sector is hesitant to invest. Hence, the public sector has to take the lead. It seems that the time for action has now come. This holds especially true for the New Member States, where towards the end of the previous year additional efforts were made to raise the absorption rate of the funds allocated within the context of the EU multiannual financial framework for 2007-2013 that was about to come to a close. Over the remaining disbursement period of the biennium 2014-2015 substantially higher amounts of EU-funded investment are to be expected. Given that, in practically all cases, national co-financing is also required, CESEE public capital investment will increase, with private investors likely following in its slipstream. Apart from a number of transport infrastructure projects, a host of thermal power plant projects are in the pipeline, as are several major investments in the construction and expansion of nuclear power plants across the region. Apart from public and semi-public infrastructure investment initiatives that have the potential to spur subsequent private investment, improving growth prospects in the euro area, the CESEE economies’ main trading partner, are likely to encourage export industries in the region to modernise and increase their capital stock. This should help avert a lapse into a deflationary spiral and foster a shift towards better equilibrium with lower unemployment rates over the medium term. However, substantial downward risks include possible effects from the current Russia-Ukraine conflict; in particular the interruption of energy supplies, potential trade embargoes or additional interest rate risk premia. All this could adversely affect investment-led growth in CESEE.
    Keywords: Central and East European new EU Member States, Southeast Europe, financial crisis, Balkans, Russia, Ukraine, Kazakhstan, Turkey, economic forecasts, employment, foreign trade, competitiveness, debt, deleveraging, exchange rates, fiscal consolidation
    JEL: C33 C50 E20 E29 F34 G01 G18 O52 O57 P24 P27 P33 P52
    Date: 2014–03
  23. By: Coppola, Andrea; Fernholz, Fernando; Glenday, Graham
    Abstract: This paper offers an assessment of the methodologies employed to estimate the economic opportunity cost of capital for public sector projects, relying on the Mexican case for an applied empirical exercise. The traditional weighted cost of capital (top-down) approach used in the estimation of Mexico's economic opportunity cost of capital is reviewed and compared to the supply price (bottom-up) approach. With respect to previous studies using the top-down approach, this paper explores the contribution of domestic savings and expands the analysis to include a more detailed examination of the available macroeconomic, labor, financial, and tax information. The re-estimated top-down economic opportunity cost of capital for Mexico comes to 10.4 percent. To confirm these results and provide additional insights regarding the alternative bottom-up approach, the economic opportunity cost of capital is estimated using the supply price plus externalities method. For the case of Mexico, this paper recommends using a combination of estimation models (both the top-down and bottom-up approaches) to check the consistency of results and re-estimating the economic opportunity cost of capital every five years to accommodate for macroeconomic and fiscal changes. More broadly, the paper acknowledges the complexities involved in the estimation of the economic opportunity cost of capital for public investment projects and underlines the relevance of additional considerations, such as changes in global economic trends and country risk ratings, tax distortions, financial sector improvements, the impact of reforms, and data availability.
    Keywords: Economic Theory&Research,Debt Markets,Emerging Markets,Investment and Investment Climate,Banks&Banking Reform
    Date: 2014–03–01
  24. By: Magali Beffy (Institute for Fiscal Studies); Richard Blundell (Institute for Fiscal Studies and University College London); Antoine Bozio (Institute for Fiscal Studies and Paris School of Economics); Guy Laroque (Institute for Fiscal Studies and University College London)
    Abstract: A model of labour supply is developed in which individuals face restrictions on hours choices. Observed hours reflect both the distribution of preferences and the distribution of offers. In this framework the choice set is limited and observed hours may not appear to satisfy the revealed preference conditions for `rational' choice. We show first that when the offer distribution is known, preferences can be identified. We then show that, where preferences are known, the offer distribution can be fully recovered. We also develop conditions for identification of both preferences and the offer distribution. We illustrate this approach in a labour supply setting with non-linear budget constraints. The occurrence of non-linearities in the budget constraint can directly reveal restrictions on choices. This framework is then used to study the labour supply choices of a large sample of working age mothers in the UK, accounting for nonlinearities in the tax and welfare benefit system, fixed costs of work and restrictions on hours choices.
    Date: 2014–03
  25. By: Michelle Rendall (University of Zurich)
    Abstract: This paper studies cross-country differences in female employment and aggregate labor market hours over time, by quantifying the role of structural transformation and gender differences in sectoral labor productivity. Some countries have developed large service sectors, while others have not. These sectoral patterns can explain a large part of the cross-country differences in female employment and aggregate hours worked. Empirical evidence on why women predominately work in the service sector is provided. Consistent with previous studies, labor and consumption tax differences are able to explain large sectoral differences across countries. The key is households can produce a substitute for market services and women are, on average, less productive in sectors requiring more brawn, such as industry, giving them a comparative advantage to stay at home and work in the service sector. Therefore, an economy that imposes high taxes does not facilitate the movement of women into the labor market, causing service production to remain at home. This reduces the demand for market services, which feeds back into low total hours worked by women (and the total economy). Subsidies to female employment can circumvent the high tax effect, but lead to welfare loses.
    Date: 2013
  26. By: Richard Wright; Erdal Tekin; Volkan Topalli; Chandler McClellan; Timothy Dickinson; Richard Rosenfeld
    Abstract: It has been long recognized that cash plays a critical role in fueling street crime due to its liquidity and transactional anonymity. In poor neighborhoods where street offenses are concentrated, a significant source of circulating cash stems from public assistance or welfare payments. In the 1990s, the Federal government mandated individual states to convert the delivery of their welfare benefits from paper checks to an Electronic Benefit Transfer (EBT) system, whereby recipients received and expended their funds through debit cards. In this paper, we examine whether the reduction in the circulation of cash on the streets associated with EBT implementation had an effect on crime. To address this question, we exploit the variation in the timing of the EBT implementation across Missouri counties. Our results indicate that the EBT program had a negative and significant effect on the overall crime rate as well as burglary, assault, and larceny. According to our point estimates, the overall crime rate decreased by 9.8 percent in response to the EBT program. We also find a negative effect on arrests, especially those associated with non-drug offenses. EBT implementation had no effect on rape, a crime that is unlikely to be motivated by the acquisition of cash. Interestingly, the significant drop in crime in the United States over several decades has coincided with a period of steady decline in the proportion of financial transactions involving cash. In that sense, our findings serve as a fresh contribution to the important debate surrounding the factors underpinning the great American crime decline.
    JEL: H53 I38 J22 K42
    Date: 2014–03
  27. By: Andrew Hughes Hallett (George Mason University and University of St Andrews); Ansgar Rannenberg (Macroeconomic Policy Institute); Sven Schreiber (Macroeconomic Policy Institute and Freie Universita?t Berlin)
    Abstract: Cogan et al. (2009, 2010) claim that the stimulus package passed by the United States Congress in February 2009 had a multiplier far below one. However, the stimulus’ multiplier strongly depends on the assumed monetary policy response. Based on official statements from the Fed chairman, the economic outlook, past behavior of the FOMC, optimal policy considerations, and financial market expectations, we find that in February 2009 a period of monetary accommodation of three years would have been a reasonable prediction. This implies that an appropriate real time assessment of the stimulus’ effects would have been more optimistic than Cogan et al.’s.
    Keywords: Obama fiscal stimulus, fiscal multiplier, interest rate forecasts
    JEL: E58 E62 E37 E47
    Date: 2014–02–28
  28. By: Daron Acemoglu; Suresh Naidu; Pascual Restrepo; James A. Robinson
    Abstract: We provide evidence that democracy has a significant and robust positive effect on GDP. Our empirical strategy relies on a dichotomous measure of democracy coded from several sources to reduce measurement error and controls for country fixed effects and the rich dynamics of GDP, which otherwise confound the effect of democracy on economic growth. Our baseline results use a linear model for GDP dynamics estimated using either a standard within estimator or various different Generalized Method of Moments estimators, and show that democratizations increase GDP per capita by about 20% in the long run. These results are confirmed when we use a semiparametric propensity score matching estimator to control for GDP dynamics. We also obtain similar results using regional waves of democratizations and reversals to instrument for country democracy. Our results suggest that democracy increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public good provision, and reducing social unrest. We find little support for the view that democracy is a constraint on economic growth for less developed economies.
    JEL: O10 P16
    Date: 2014–03
  29. By: Quentin Max David
    Abstract: In this paper, I analyze the determinants of research production by higher education institutionsin the United States. I use four measures to build an index of top-level academic researchproduction. I show that it is important to account for the presence of outliers in both dimensions(x and y axes), and that most top-ranked institutions can be considered outliers. I find thatuniversity income, the share of income devoted to research expenses, and faculty size significantlyincrease the ability of an institution to produce top-level academic research. I also show that therelationship between average professor quality (proxied by salary) and the production of researchis U-shaped, with a significant share of institutions located on the decreasing part of the curve.

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