nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒09‒25
25 papers chosen by
Keunjae Lee
Pusan National University

  1. Why tax effort falls short of capacity in Indian states: A Stochastic frontier approach By Garg, Sandya; Ashima Goyal; Rupayan Pal
  2. The Effects of Repatriation Taxes on FDI:Evidence from OECD Multinationals By Hirokazu Mizobata; Masaaki Suzuki
  3. Taxes in Cities By Marius Brülhart; Sam Bucovetsky; Kurt Schmidheiny
  4. The redistributive effect and progressivity of taxes revisited: an international comparison across the European Union By Verbist, Gerlinde; Figari, Francesco
  5. Tax smoothing in a business cycle model with capital-skill complementarity By Angelopoulos, Konstantinos; Asimakopoulos, Stylianos; Malley, James
  6. Income redistribution in the European Union By Avram, Silvia; Levy, Horacio; Sutherland, Holly
  7. Utilising microsimulation to estimate new marginal returns to education: Ireland 1987-2011 By Darragh Flannery; Cathal O'Donoghue
  8. On the (De)Stabilizing Effect of Public Debt in a Ramsey Model with Heterogeneous Agents By Kazuo Nishimura; Carine Nourry; Thomas Seegmuller; Alain Venditti
  9. Progressivity-Improving VAT Reforms in Italy By Francesca Gastaldi; Paolo Liberati; Elena Pisano; Simone Tedeschi
  10. Pareto-improving Consumption Tax When the Return from Capital is idyosyncratic and (Optimal or non-Optimal) Capital Income Tax is available By Hisahiro Naito
  11. Outside the corridor : fiscal multipliers and business cycles into an agent based models with liquidity constraints By Mauro Napoletano; Jean-Luc Gaffard; Andrea Roventini
  12. State-Dependent Effects of Fiscal Policy. By Steven Fazzari; James Morley; Irina Panovska
  13. Taxing the Job Creators: Efficient Progressive Taxation with Wage Bargaining By Nicholas Lawson
  14. A General Microsimulation Model for the EU VAT with a specific Application to Germany By Lars-H. R. Siemers
  15. Asia's Little Divergence: State Capacity in China and Japan before 1850 By Sng, Tuan-Hwee; Moriguchi, Chiaki
  16. Gross incomes in the Belgian SILC dataset: An analysis by means of EUROMOD By Decoster, André; Vandelannoote, Dieter; Vanheukelom, Toon; Verbist, Gerlinde
  17. Indeterminacy with Progressive Taxation and Sector-Specific Externalities By Jang-Ting Guo; Sharon G. Harrison
  18. Cigarette Taxation and Pregnancy: Policy Based Estimates of the Price Elasticity of Smoking During Pregnancy By David Simon
  19. Can Removing the Tax Cap Save Social Security? By Shantanu Bagchi
  20. Growth, Unemployment, and Fiscal Policy: A Political Economy Analysis By Tetsuo Ono
  21. Fiscal consolidation, public debt and output dynamics in the euro area : lessons from a simple model with time-varying fiscal multipliers By Christophe Blot; Marion Cochard; Bruno Ducoudré; Danielle Schweisguth; Xavier Timbeau; Jérôme Creel
  22. Simple Macroeconomic Policies and Welfare: a quantitative assessment By Eurilton Araújo; Alexandre B. Cunha
  23. Measuring Income Inequality and Poverty at the Regional Level in OECD Countries By Mario Piacentini
  24. The Ramsey Steady State under Optimal Monetary and Fiscal Policy for Small Open Economies By Angelo Marsiglia Fasolo
  25. Government deficit sustainability, and monetary versus fiscal dominance:the case of Spain, 1850-2000 By Oscar Bajo-Rubio; Carmen Díaz-Roldán; Vicente Esteve

  1. By: Garg, Sandya (Indira Gandhi Institute of Development Research); Ashima Goyal (Indira Gandhi Institute of Development ResearchInstitute of Economic Growth); Rupayan Pal (Indira Gandhi Institute of Development Research)
    Abstract: Taxation is an important tool to enhance the economic development and to finance the expenditure responsibilities of a government. This paper attempts to measure the tax capacity and tax effort of 14 major Indian states from 1992-92 to 2010-11 using Stochastic Frontier Analysis. The use of tax capacity frontier helps to identify those states which are operating near their tax capacity and states which are away from tax frontier. The results indicate presence of large variation in tax effort index across states and which seems to be increasing over time. Econometric analysis suggests that economic and structural variables have significant impact on the tax capacity. While per-capita gross state domestic product has positive effect on states' own tax revenue, relative size of agriculture sector of a state has adverse effect on its own tax revenue. The evidence on tax efficiency suggests that the higher inter-governmental transfers tend to reduce tax efficiency. Outstanding liabilities and expenditure on debt repayment also indicate adverse effect on tax efficiency, but the adverse effect of the latter is lesser than the former. Enactment of Fiscal Responsibility and Budget Management Act seems to have improved the tax efficiency which has been further strengthened by the better law and order inside states. Higher political competition inside a state, represented by effective number of parties, has favourable effect on the tax efficiency of a state. Implications are drawn for policy.
    Keywords: tax capacity, tax effort, stochastic frontier analysis, fiscal federalism
    JEL: H21 H29 H71 H77
    Date: 2014–08
  2. By: Hirokazu Mizobata (Kyoto University); Masaaki Suzuki (Mizuho Research Institute)
    Abstract: This study empirically investigates whether the tax differentials between home and host countries differently affect multinationals' foreign investment and profit shifting decisions under contrasting international tax systems. In particular,we compare these differential tax effects between credit and exemption systems, using firm-level data on selected OECD countries. Based on the presented analysis, we find that tax differentials affect multinationals' foreign investment decisions to a larger degree under the exemption system than under the credit system when a home country's tax rate is larger than that in the host country.By contrast, our results show that the tax effects on profit shifting are similar under both these systems.
    Keywords: Corporate taxation, International tax system, Multinational firms
    JEL: H25 H87
    Date: 2014–09
  3. By: Marius Brülhart; Sam Bucovetsky; Kurt Schmidheiny
    Abstract: Most cities enjoy some autonomy over how they tax their residents, and that autonomy is typically exercised by multiple municipal governments within a given city. In this chapter, we document patterns of city-level taxation across countries, and we review the literature on a number of salient features affecting local tax setting in an urban context. Urban local governments on average raise some ten percent of total tax revenue in OECD countries and around half that share in non-OECD countries. We show that most cities are highly fragmented: urban areas with more than 500,000 inhabitants are divided into 74 local jurisdictions on average. The vast majority of these cities are characterized by a central municipality that strongly dominates the remaining jurisdictions in terms of population. These empirical regularities imply that an analysis of urban taxation needs to take account of three particular features: interdependence among tax-setting authorities (horizontally and vertically), jurisdictional size asymmetries, and the potential for agglomeration economies. We survey the relevant theoretical and empirical literatures, focusing in particular on models of asymmetric tax competition, of taxation and income sorting and of taxation in the presence of agglomeration rents.
    Keywords: cities; taxes; tax competition; fiscal federalism; agglomeration; sorting
    JEL: H71 H73 R28 R51
    Date: 2014–08
  4. By: Verbist, Gerlinde; Figari, Francesco
    Abstract: Over the last few years concern for income inequality in European countries has increased remarkably. In this context, taxation is an important redistributive instrument and we investigate the redistributive role of direct taxes. We focus on the EU-15 countries and the evolution over the period 1998-2008, using EUROMOD, the EU-wide tax-benefit model. The research aim of this paper is twofold. First, we investigate empirically whether there is a link between pre-tax income inequality and redistribution through taxes. Second we hereby test whether there is a relationship between progressivity and the average tax level, the two building stones of the redistributive impact of taxes.
    Date: 2014–04–09
  5. By: Angelopoulos, Konstantinos; Asimakopoulos, Stylianos; Malley, James
    Abstract: This paper undertakes a normative investigation of the quantitative properties of optimal tax smoothing in a business cycle model with state contingent debt, capital-skill complementarity, endogenous skill formation and stochastic shocks to public consumption as well as total factor and capital equipment productivity. Our main finding is that an empirically relevant restriction which does not allow the relative supply of skilled labour to adjust in response to aggregate shocks, signi cantly changes the cyclical properties of optimal labour taxes. Under a restricted relative skill supply, the government fi nds it optimal to adjust labour income tax rates so that the average net returns to skilled and unskilled labour hours exhibit the same dynamic behaviour as under fl exible skill supply.
    Keywords: skill premium, tax smoothing, optimal scal policy,
    Date: 2014
  6. By: Avram, Silvia; Levy, Horacio; Sutherland, Holly
    Abstract: The systems of direct taxes and cash benefits in the 27 Member States of the European Union (EU) vary considerably in size and structure. We explore their redistributive effects using EUROMOD, the tax-benefit microsimulation model for the EU. As well as describing redistributive effects in aggregate this allows us to assess and compare the effectiveness of individual types of policy in reducing income disparities. We consider the following categories of benefits and taxes: income taxes, tax allowances, tax credits, social contributions, cash benefits designed to target the poor or redistribute inter-personally (through means-testing) as well as cash benefits intended to redistribute intra-personally across the lifecycle (through social insurance or contingency-based entitlement). We derive results for the 27 members of the European Union using policies in effect in 2010 and present them for each country separately as well as for the EU as a whole.
    Date: 2014–04–30
  7. By: Darragh Flannery (Department of Economics, University of Limerick); Cathal O'Donoghue (Rural Economic Research Centre (RERC), Teagasc, National University of Ireland, Athenry, Galway)
    Abstract: In this paper we utilise microsimulation techniques in the form of an income generation model and a tax/benefit model to estimate both the fiscal and net private return to education at a marginal level. This is carried out empirically using Irish data across the period 1987-2011 and is the first study to utilise these techniques in such a manner. The results indicate that a more generous tax/benefit system, combined with a greater state burden of the cost of education over the period 2000-2005 may have helped increase the individual’s return to education, while reducing the state return from investing in education. However, this trend is revered between 2005-2011, as the fiscal crisis in Ireland forces significant changes to the Irish tax/benefit system. The methodology employed allows us to specifically analyse the impact of various components of the tax/benefit system upon these returns across time and show the role of income tax changes upon the return to education for the individual and the state.
    Keywords: returns to education, income generation, tax/benefit, Ireland
    Date: 2012–06
  8. By: Kazuo Nishimura (RIEB, Kobe University - Kobe University, KIER, Kyoto University - Kyoto University); Carine Nourry (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), IUF - Institut Universitaire de France - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique); Thomas Seegmuller (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM)); Alain Venditti (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), EDHEC Business School - Département Comptabilité, Droit, Finance et Economie)
    Abstract: We introduce public debt in a Ramsey model with heterogenous agents and a public spending externality affecting utility which is financed by income tax and public debt. We show that public debt considered as a fixed portion of GDP can have a stabilizing or destabilizing effect depending on some fundamental elasticities. When the public spending externality is weak and the elasticity of capital labor substitution is low enough, public debt can only be destabilizing, generating damped or persistent macroeconomic fluctuations. Whereas when the public spending externality and the elasticity of capital labor substitution are strong enough, public debt can be stabilizing, driving to monotone convergence an economy experiencing damped or persistent fluctuations without debt.
    Keywords: endogenous cycles; heterogeneous agents; public spending; public debt; borrowing constraint
    Date: 2014–06
  9. By: Francesca Gastaldi (Università di Roma, La Sapienza, Italy); Paolo Liberati (Università di Roma Tre, Italy); Elena Pisano (Banca d'Italia, Italy); Simone Tedeschi (Università di Roma, La Sapienza, Italy)
    Abstract: International institutions are recommending policies aimed at shift- ing the tax burden from labour and business incomes to less growth- detrimental forms of taxation, such as consumption taxes. However, de- spite the expected positive macroeconomic effects, a criticism about in- creasing the role of Vat arises from its alleged regressivity over income. Yet, the empirical evidence on this issue is very narrow due to the unavail- ability of joint and detailed data on income and consumption. This paper fills this gap by measuring the distributional impact of Vat in Italy using information on both households' expenditures and incomes integrated in a micro simulation model (EGaLiTe). The paper shows that the regressive profile of Vat in terms of disposable income is almost entirely driven by the very bottom and the top quantiles, which however, at least in part, can be affected by temporary unalignments of income and consumption. Fur- thermore, the current Vat structure in Italy is not optimally targeted to distributional aims, and a different allocation of goods among the existing three rates could mitigate the regressive impact of the tax. In addition, unlike the common opinion that reducing the number of Vat rates would compromise distributional outcomes, it is shown that a two-rate Vat could generate a better distributional impact compared to the current arrange- ment. Finally, the paper proposes a methodology to take into account behavioural responses to price changes in order to assess possible day- after repercussions on the aggregate demand for consumption related to alternative simulated reforms.
    Keywords: Vat, Redistribution, Tax Incidence
    JEL: H22 H23 H25 C15 D12
    Date: 2014–09
  10. By: Hisahiro Naito
    Abstract: In the standard multi-period model, the consumption tax and the wage tax are equivalent. When a capital market is incomplete, such that the rate of return from capital is idiosyncratic, the consumption tax, in contrast to the wage tax, can play a role in risk-sharing. However, risk-sharing may disappear if the government applies a linear or non-linear capital income tax, because the source of risk is the return from capital. The present study shows that a consumption tax, when instituted in the presence of a wage tax, increases welfare when the capital market is incomplete, even if the government applies a non-linear capital income tax for risk-sharing and subsidizes investments.
    Date: 2014–08
  11. By: Mauro Napoletano (OFCE); Jean-Luc Gaffard (OFCE); Andrea Roventini (Department of economics)
    Abstract: We build an agent-based model to study how _scal multipliers can change over the business cycle. Our approach considers the economy as a complex evolving system. In that, _scal state-dependent multipliers are emergent disequilibrium phenomenon stemming from the interaction among an ecology of heterogeneous agents. We study _scal multipliers in response to di_erent microeconomic shocks hitting the economy. We show that de_cit-spending _scal policy dampens the e_ect of a shock and lowers its persistence. Moreover, we show that the size and dynamics of the _scal multi- plier is inversely related to the evolution of credit rationing in the aftermath of the shock. We also investigate the e_ects of two di_erent balanced budget rules. In the _rst type of such experiments, government expenditure is constrained to be equal to tax revenues of each period. In the second one the tax rate is eventually raised to balance a given level of government expenditure. We show that _scal multipliers are very low with both balanced-budget rules. Finally, we show that _scal multipliers are higher into more leveraged economies.
    Keywords: keynesian economics; fiscal multipliers; corridor effects; agent based models; liquidity constraints
    JEL: E63 E21 C63
    Date: 2014–09
  12. 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 eects of government spending on U.S. output with a threshold structural vector autoregressive model. We consider Bayesian model comparison and generalized impulse response analysis to test for nonlinearities in the responses of output to government spending. Our empirical ndings support state-dependent eects of scal policy, with the government spending multiplier larger and more persistent whenever there is considerable economic slack. Based on capacity utilization as the preferred threshold variable, the estimated multiplier is large (1.6) for a low-utilization regime that accounts for more than half of the sample observations from 1967-2012 according to the estimated threshold level.
    Keywords: Government Spending, Threshold Model, Vector Autoregression, Nonlinear Dynamics, Impulse-Response Comparison, Bayesian
    JEL: C32 E32 E62
    Date: 2014–08
  13. By: Nicholas Lawson (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)
    Abstract: The standard economic view of the personal income tax is that it is a distortionary way of raising revenue which nonetheless has value because it tends to increase equality. However, when wages deviate from marginal product, the laissez-faire equilibrium is inefficient, and there can be an independent efficiency rationale for income taxation. I study a setting of wage bargaining within hierarchical teams of workers and managers, and show that the efficiency case for taxing managers depends on a "job-creation" effect: if increased labour supply allows managers to supervise larger teams and thus collect larger rents, they will have an incentive to work too hard to create jobs at their firm. In other words, it is because of their job-creation activity that the "job creators" should be heavily taxed. Simulation of a calibrated model suggests an efficient tax schedule that is progressive over most of the income distribution with a top marginal rate of between 50% and 60%, and this result is not sensitive to the magnitude of the labour supply response to taxation. For a planner with redistributive motives, optimal marginal tax rates are also considerably higher at the top of the distribution in the presence of wage bargaining rather than a competitive labour market.
    Keywords: optimal income taxation, progressive taxation, wage bargaining, team production
    Date: 2014–08
  14. By: Lars-H. R. Siemers
    Abstract: The sales taxes in the EU - and in several other countries - are practiced as value- added tax of the consumption type with invoice method. Literature on microsimulation models (MSM) for this type of VAT is rare, though the importance of VAT has continuously increased. We discuss the issues of VAT-MSM in detail and develop a basic general VAT-MSM, applicable to the EU member states (and beyond). To illustrate the functioning of the general model, we apply it in detail to the specific case of Germany. We provide comprehensive estimation results for the distributional and fiscal effects of the German VAT. Finally, we simulate the effects of a small VAT reform in 2010, comparing static and behavioral response simulations.
    Keywords: VAT microsimulation, VAT exemption, RWI-VAT-SIM, EU
    JEL: H22 H23 H24 C6 D12 D31 D63
    Date: 2014
  15. By: Sng, Tuan-Hwee; Moriguchi, Chiaki
    Abstract: This paper explores the role of state capacity in the comparative economic development of China and Japan. Before 1850, both nations were ruled by stable dictators who relied on bureaucrats to govern their domains. We hypothesize that agency problems increase with the geographical size of a domain. In a large domain, the ruler's inability to closely monitor bureaucrats creates opportunities for the bureaucrats to exploit taxpayers. To prevent overexploitation, the ruler has to keep taxes low and government small. Our dynamic model shows that while economic expansion improves the ruler's finances in a small domain, it could lead to lower tax revenues in a large domain as it exacerbates bureaucratic expropriation. To test these implications, we assemble comparable quantitative data from primary and secondary sources. We find that the state taxed less and provided fewer local public goods per capita in China than in Japan. Furthermore, while the Tokugawa shogunate's tax revenue grew in tandem with demographic trends, Qing China underwent fiscal contraction after 1750 despite demographic expansion. We conjecture that a greater state capacity might have prepared Japan better for the transition from stagnation to growth.
    Keywords: Comparative Institutional Analysis, Geography, Principal-Agent Problem, Institutions and Growth
    JEL: D73 N15 N40 O43 P52
    Date: 2014–08
  16. By: Decoster, André; Vandelannoote, Dieter; Vanheukelom, Toon; Verbist, Gerlinde
    Abstract: Income aggregates and poverty and inequality measures tend to show important differences when calculated either with disposable income reported in SILC data, or with the same income concept calculated on the basis of the microsimulation model EUROMOD, which starts from gross incomes in SILC. This is one of the reasons why gross income data in SILC are often regarded with some suspicion. In this paper we try to shed light on this question by 1) comparing gross incomes in SILC with gross incomes reported on the fiscal form for the same individuals; 2) testing a re-calibration of gross incomes proposed by Immervoll and O’Donoghue (2001), to make them consistent with reported net incomes. We find that on average fiscally reported gross incomes exceed gross incomes in the survey. It is not clear however, whether the method of constructing updated gross incomes through an iterative method using the observed net incomes and withholding tax rules, is a genuine improvement upon the reported gross income distribution
    Date: 2014–08–28
  17. By: Jang-Ting Guo (Department of Economics, University of California Riverside); Sharon G. Harrison (Barnard College, Columbia University)
    Abstract: This paper quantitatively examines the empirical plausibility of equilibrium indeterminacy and sunspot-driven cyclical fluctuations in a real business cycle model with two distinct production sectors that yield consumption and investment goods, together with separable or non-separable preferences. When calibrated to match the observed progressivity of the U.S. federal individual income tax schedule, each version of our model economy exhibits an indeterminate steady state under empirically realistic combinations of the household's labor supply elasticity and the degree of productive externalities in the investment goods sector. Therefore, macroeconomic instability due to agents' self-fulfilling expectations may in fact be a prevalent feature of the U.S.
    Keywords: Indeterminacy, Progressive Taxation, Sector-Specific Externalities.
    JEL: E30 E32 E62
    Date: 2014–09
  18. By: David Simon (University of Connecticut)
    Abstract: Cigarette taxation has long been a policy tool used to incentivize healthier behavior. Pregnant women are a group of particular interest in this context due to their unique position to pass health capital down to the next generation. This paper reviews the literature on the tax and price responsiveness of pregnant women to smoking during pregnancy. I first discuss the use of cigarette taxes as a natural experiment and the econometric specifications typically used in the literature. I continue to review overall trends in the tax responsiveness of smoking during pregnancy as well as results by subgroups. Next, I discuss evidence on how facing a tax during pregnancy might uniquely effect women’s decision to smoke. I conclude with a discussion of how taxes have been extended into second-stage effects on birth outcomes and future avenues of research. I generally find evidence of pregnant women responding to tax increases, although the elasticities have decreased in magnitude in more recent years. This is consistent with the story suggesting that the least addicted smokers quit in the 1990s, leaving less elastic smokers in the 2000s. Furthermore, women seem to be more responsive to taxes during pregnancy than before pregnancy. Overall, cigarette taxes can be used to evaluate health outcomes, which is a fertile area for future research.
    Keywords: Smoking, pregnancy, health, cigarettes, tax policy, price elasticity
    JEL: H2 H3 I1 J1
    Date: 2014–07
  19. By: Shantanu Bagchi (Department of Economics, Towson University)
    Abstract: The maximum amount of earnings in a calendar year that can be taxed by Social Security in the U.S. is currently capped at $106,800. In this paper, I use a general-equilibrium overlapping-generations model to examine if removing this cap can solve Social Security's budgetary problems. I find that in general, removal of the cap increases Social Security revenues, but by only a small percentage, and most of these extra revenues go towards paying benefits to high-income retirees no longer subject to the cap. Even when the cap is removed only from taxes but retained on the amount of earnings creditable towards Social Security benefits, the fiscal advantages are quite small.
    Keywords: Social Security, Tax cap, Mortality risk, Productivity shock, Partial insurance, general equilibrium.
    JEL: E21 E62 H55
    Date: 2014–09
  20. By: Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: This study presents an overlapping-generations model featuring endogenous growth, collective wage-bargaining, and probabilistic voting over fiscal policy. We charac- terize a Markov-perfect political equilibrium of the voting game within and across generations and show the following results. First, greater bargaining power of unions lowers the growth rate of capital and creates a positive correlation between unem- ployment and government debt. Second, greater political power of the old lowers the growth rate and shifts government expenditure from the unemployed to the old. Third, a balanced budget requirement increases the growth rate but may benefit the old at the expense of the unemployed.
    Keywords: Economic Growth; Fiscal Policy; Government Debt; Unemployment; Voting
    JEL: E24 E62 H60
    Date: 2014–08
  21. By: Christophe Blot (OFCE Sciences Po); Marion Cochard (OFCE Sciences Po); Bruno Ducoudré (Ofce,Sciences Po); Danielle Schweisguth (OFCE Sciences Po); Xavier Timbeau (OFCE Sciences Po); Jérôme Creel (OFCE Sciences Po, ESCP Europe)
    Abstract: EMU countries have engaged in a consolidation of fiscal policies since 2011. This paper deals with the public debt and output dynamic consequences of this strategy. To thisend, we develop a simple macroeconomic modelof the Euro area, where fiscal multipliers time-varying. Recent empirical evidence has indeed shown that fiscal multipliers werehigher in time of crisis. We then analyze the ability of EMU countries to comply with thenew fiscal rules on public debt. he path of public debt and output gap is simulated according to different hypothesis related to fiscal multiplier, monetary policy andhysteresis effects. Not all EMU countries would be able to reach a 60% debt-to-GDP ratio in 2032. An alternative strategy may be to spread austerity in order to report part of consolidation to periods where the fiscal multiplier will be weaker. The gain of spreading austerity may yet be partly offset by higher risk premium. There is then a need to find institutional arrangements to avoid panics in the sovereign debt markets. Finally, it is shown that it would not be very efficient to implement an expansionary fiscal policy in Germany in order to balance austerity in the Euro area. Since output gap is nearly closed in Germany, the multiplier effect of a positive fiscal stance would be low and spillover effects would not be significant
    Date: 2014–07
  22. By: Eurilton Araújo; Alexandre B. Cunha
    Abstract: We quantitatively compare three macroeconomic policies in a cash-credit goods framework. The policies are: the optimal one; another one that fully smoothes out oscillations in output; and a simple one that prescribes constant values for tax and monetary growth rates. As often found in the related literature, the welfare gains or losses from changing from a given policy to another are small. We also show that the simple policy dominates the one that leads to constant output
    Date: 2014–08
  23. By: Mario Piacentini
    Abstract: The extent to which income inequality and poverty vary within countries across different regions is very relevant for policy decisions and monitoring. However, sub-national measures are scarce, given the complexity of producing indicators at the regional level from the available data and the methodological issues related to cross-countries comparability. This paper presents a set of indicators of income inequality and poverty across and within regions for 28 OECD countries. These indicators were produced through a new household-level data collection based on internationally harmonized income definitions undertaken as part of the OECD project on “Measuring regional and local well-being for policymaking”. The data were collected at the OECD TL2 territorial level, corresponding to NUTS2 regions in Europe and to large administrative subdivisions (e.g. States in Mexico and Unites States) for non-European countries. These estimates confirm that there are significant variations in levels of income inequality within countries, and that regional breakdowns are useful for understanding sources and patterns of income disparities and poverty. For most of the countries relying on survey data for measuring income distribution, standard cross-sectional indicators of income inequality and relative poverty at this regional level are estimated with low precision in the smallest regions due to small samples. This has two main implications for data producers and analysts. First, systematic reporting of confidence intervals is needed to make meaningful comparisons of inequality levels across regions and with respect to the national averages. Second, averaged measures for multiple years or small area estimation methods should be considered as means for obtaining more robust measures. The issues related to the estimation of standard errors for three-year averages in rotational panel surveys and to the definition of the computational sampling structure for sub-national estimates are discussed in the paper. Il est très utile, pour les décisions des pouvoirs publics et leur suivi, de mesurer les variations entre les régions d’un même pays en termes d’inégalités de revenu et de pauvreté. Or les mesures infranationales dans ce domaine sont rares, compte tenu des difficultés liées à l’élaboration d’indicateurs régionaux à partir des données disponibles et des problèmes méthodologiques inhérents à la comparabilité entre pays. Ce rapport présente une série d’indicateurs régionaux des inégalités de revenu et de la pauvreté couvrant 28 pays de l'OCDE. Ces indicateurs sont issus d’une nouvelle collecte de données réalisée auprès des ménages, fondée sur des définitions du revenu harmonisées à l’échelle internationale dans le cadre du projet de l'OCDE sur la mesure du bien-être au niveau régional et local aux fins de l’élaboration des politiques publiques. Les données ont été recueillies au niveau territorial 2 de l'OCDE, qui correspond aux régions du niveau 2 de la NUTS en Europe et aux grandes subdivisions administratives (comme les États au Mexique ou aux États-Unis) dans les pays non européens. Ces estimations confirment l’existence de fortes variations du niveau des inégalités de revenu dans les pays, et elles montrent que les ventilations régionales sont utiles pour comprendre les causes et l’évolution des disparités de revenu et de la pauvreté. Pour la plupart des pays qui s’appuient sur des données d’enquêtes pour mesurer la distribution des revenus, les indicateurs transversaux standards des inégalités de revenu et de la pauvreté relative au niveau régional sont peu précis en ce qui concerne les régions les plus petites, en raison de la taille restreinte des échantillons. Ce phénomène a deux implications majeures pour les producteurs de données et les analystes : tout d’abord, une notification systématique des intervalles de confiance est nécessaire pour procéder à des comparaisons utiles des inégalités entre les régions et par rapport aux moyennes nationales. Ensuite, il convient d’envisager la possibilité d’utiliser des mesures moyennes sur plusieurs années ou des méthodes d’estimation spécifiques aux petits zones afin d’aboutir à des mesures plus précises. Le rapport examine également les problèmes liés à l’estimation des erreurs types pour les moyennes sur trois ans dans les enquêtes par panel avec échantillonnage par rotation, ainsi qu’à la définition de la structure d’échantillonnage pour les estimations infranationales. Les correspondants nationaux de la Base de données de l’OCDE sur la distribution des revenus et les délégués du Groupe de travail sur les indicateurs territoriaux sont invités à commenter les conclusions de ce rapport et à faire part de leur avis sur la possibilité d’améliorer et de reproduire les statistiques régionales sur le revenu des ménages à l’avenir.
    Date: 2014–08–28
  24. By: Angelo Marsiglia Fasolo
    Abstract: This paper describes the steady state allocations and prices for small open economies under optimal monetary and fiscal policy in a medium-scale DSGE model. The model encompasses the most common nominal and real rigidities normally found in the literature in a single framework. The Ramsey solution for the optimal monetary and fiscal policy is computed for a large space of the parameter set and for different combinations of fiscal policy instruments. Results show that, despite the large number of frictions in the model, optimal fiscal policy follows the usual results in the literature, with high taxes over labor income and low taxes (subsidies) on capital income. On the other hand, the choice of fiscal policy instruments is critical to characterize optimal monetary policy. Frictions associated with the small open economy framework do not play a critical role in characterizing the Ramsey planner's policy choices
    Date: 2014–07
  25. By: Oscar Bajo-Rubio; Carmen Díaz-Roldán; Vicente Esteve
    Abstract: In this paper, we provide a test of the sustainability of the Spanish government deficit over the period 1850-2000, emphasizing the role played by monetary and fiscal dominance in order to get fiscal solvency. Since the condition of fiscal solvency was satisfied, government deficit would have been sustainable along the sample period. In addition, the whole period can be characterized as one of fiscal dominance.
    Keywords: Fiscal policy, Sustainability, Fiscal Theory of the Price Level, Monetary dominance, Fiscal dominance.
    Date: 2014–09

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