nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒10‒03
24 papers chosen by
Keunjae Lee
Pusan National University

  1. On the Optimality of U.S. Fiscal Policy: 1960-2010 By Salvador Ortigueira
  2. The distributional effects of personal income tax expenditure By Avram, Silvia
  3. Tax Competition and Tax Coordination in the European Union: A Survey By Keuschnigg, Christian; Loretz, Simon; Winner, Hannes
  4. Personal Income Tax Reforms: a Genetic Algorithm Approach By Matteo Morini; Simone Pellegrino
  5. Monetary Developments and Expansionary Fiscal Consolidations: Evidence from the EMU By António Afonso; Luís Martins
  6. Outside the corridor : fiscal multipliers and business cycles into an agent-based model with liquidity constraints By Mauro Napoletano; Jean Luc Gaffard; Andrea Roventini
  7. Are tax incentives attracting more foreign direct investments in Asia and the Pacific? By Steve Gui-Diby
  8. Europe's Fatal Affair with VAT By Mason Gaffney
  9. Taxing the Job Creators: Effcient Progressive Taxation with Wage Bargaining By Nicholas Lawson
  10. Asia’s Little Divergence: State Capacity in China and Japan before 1850 By Sng, Tuan-Hwee; Moriguchi, Chiaki
  11. Sectoral Composition of Government Spending and Macroeconomic (In)stability By Jang-Ting Guo; Juin-Jen Chang; Jhy-Yuan Shieh; Wei-Neng Wang
  12. Inequality and Poverty in Uruguay by Race: the Impact of Fiscal Policies By Florencia Amábile; Marisa Bucheli; Máximo Rossi
  13. Integrating VAT into EUROMOD. Documentation and results for Belgium By Decoster, André; Ochmann, Richard; Spiritus, Kevin
  14. Corrupción, desigualdad y evasión de impuestos By Elvio Accinelli; Edgar J. Sánchez Carrera
  15. The effect of tax-benefit changes on the income distribution in EU countries since the beginning of the economic crisis By De Agostini, Paola; Paulus, Alari; Sutherland, Holly; Tasseva, Iva Valentinova
  16. Does the Composition of Government Expenditure Matter for Long-run GDP Levels? By Gemmell, Norman; Kneller, Richard; Sanz, Ismael
  17. Estate Taxation and Human Capital with Information Externalities By Aaron Hedlund
  18. The taxation of farm income in Italy. Evidences from the EU-SILC database By Severini, Simone; Tantari, Antonella; Rocchi, Benedetto
  19. Neutrality Theorem Revisited: An Empirical Examination of Household Public Goods Provision By Ken Yamada; Hisahiro Naito
  20. Public spending and growth: the role of institutions By Atsuyoshi Morozumi; Francisco José Veiga
  21. Economic crisis and fiscal federalism in Italy By Maria Flavia Ambrosanio; Paolo Balduzzi; Massimo Bordignon
  22. The Composition of Government Expenditure and Economic Growth : The Case of Sri Lanka By R.A.Susantha Kumara Ranasinghe; Kumara Ranasinghe; Ichihashi Masaru
  23. Bangladesh - Revenue Mobilization Program for Results: VAT Improvement Program Technical Assessment By World Bank
  24. The Effect of Informal Employment and Corruption on Income Levels in Brazil By Jamie Bologna

  1. By: Salvador Ortigueira
    Abstract: This paper assesses the optimality of U.S. fiscal policy from 1960 to 2010. With this purpose, we present a tractable neoclassical economy with a benevolent government and characterize time-consistent, optimal fiscal policy. We then compare the model's prescriptions for income tax rates and government expenditure with their empirical counterparts observed in the U.S. in this period. We find that U.S. income taxation and government consumption expenditure were in line with the model's prescriptions from 1960 to 2000. However, starting in the early 2000s and for the rest of the decade, U.S. fiscal policy trended in a direction opposite to that of the optimal policy prescribed by the model. In particular, U.S. income tax rates declined below their optimal rates, and government consumption expenditures as a share of GDP sharply increased above their optimal levels. By way of example, while our model prescribes a 10% reduction in the government consumption expenditure-to-GDP ratio between 2001 and 2010, the U.S. ratio increased by 23% in this period.
    Keywords: U.S. fiscal policy, Optimal fiscal policy
    JEL: E62 H24 H40 H50
    Date: 2014–08
  2. By: Avram, Silvia
    Abstract: Less visible than benefit expenditure, spending channelled through the tax system via tax concessions and advantages can amount to substantial amounts of foregone revenue. In this paper we use EUROMOD, a tax-benefit micro-simulation model covering all EU member states, to investigate the size and distributional effects of tax allowances and tax credits in 6 European countries. We also investigate in detail which types of policy instruments have the most potential to redistribute towards the bottom and which are likely to be mostly benefitting households at the top of the income distribution. We examine both categorical targeting (i.e. eligibility rules that depend on some individual or household general characteristics) and explicit income targeting .We find that with a few exceptions the impact of tax allowances and tax credits on inequality is small. Tax credits are generally more progressive than tax allowances. However, with the exception of refundable tax credits, the design of the allowances/credits appears to be less important than the characteristics of the population they are targeting and/or other features of the income tax system in determining the redistributive effect. Consequently, tax concessions appear ill-suited to target resources towards households in the bottom part of the income distribution.
    Date: 2014–07–04
  3. By: Keuschnigg, Christian; Loretz, Simon; Winner, Hannes
    Abstract: This survey summarizes the state and development of European tax policy, in particular discussing the harmonization progress in direct as well as indirect taxes. Based on an over-view over the theoretical and empirical literature on tax competition, we further ask whether increased tax coordination is necessary to prevent a race to the bottom. We show that theoretical predictions on the outcome of tax competition are ambiguous, and the empirical evidence in this regard is inconclusive as well. This, in turn, gives rise to an only limited scope of stronger tax harmonization.
    Keywords: Tax Competition, tax coordination, European economic integration
    JEL: H87 H77
    Date: 2014–08
  4. By: Matteo Morini (ENS Lyon, RHÔNE ALPES COMPLEX SYSTEMS INSTITUTE (IXXI), Lyon, France; Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Simone Pellegrino (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)
    Abstract: Given a settled reduction in the present level of tax revenue, and by exploring a very large combinatorial space of tax structures, in this paper we employ a genetic algorithm in order to determine the optimal structure of a personal income tax that allows the maximization of the redistributive effect of the tax, while preventing all taxpayers being worse off than with the present tax structure. We take Italy as a case study.
    Keywords: Personal income taxation, Genetic algorithms, Micro-simulation models, Reynolds-Smolensky index, Tax reforms
    JEL: C63 C81 H23 H24
    Date: 2014–09
  5. By: António Afonso; Luís Martins
    Abstract: This paper provides new insights about the existence of expansionary fiscal consolidations in the Economic and Monetary Union, using annual panel data for 14 European Union countries over the period 1970-2012. Different measures for assessing fiscal consolidations based on the changes in the cyclically adjusted primary balance were calculated. A similar ad-hoc approach was used to compute monetary expansions, in order to include them in the assessment of non-Keynesian effects for different budgetary components. Panel Fixed Effects estimations for private consumption show that, in some cases, when fiscal consolidations are coupled with monetary expansions, the traditional Keynesian signals are reversed in the cases of general government final consumption expenditure, social transfers and taxes. Keynesian effects prevail when fiscal consolidations are not matched by monetary easing. Panel probit estimations suggest that longer and expenditure-based consolidations contribute positively for its success, whilst the opposite is the case for tax-based ones.
    Keywords: fiscal consolidation, monetary expansion non-Keynesian effects, panel data, probit
    JEL: C23 E21 E5 E62 H5 H62
    Date: 2014–07
  6. By: Mauro Napoletano (OFCE Sciences Po, Skema Business School); Jean Luc Gaffard (OFCE Sciences Po, Skema Business School); Andrea Roventini (Università du Verona,Scuola Superiore Sant'Anna, Pisa & OFCE Sophia Antipolis)
    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 fiscal multipliers in response to dierent microeconomic shocks hitting the economy. We show that decit-spending scal policy dampens the eect 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 effects of two different balanced budget rules.In the first 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 fiscal multipliers arevery low with both balanced-budget rules. Finally, we show that scal multipliersare higher into more leveraged economies.
    Date: 2014–09
  7. By: Steve Gui-Diby (Macroeconomic Policy and Development Division, United Nations Economic and Social Commission for Asia and the Pacific)
    Abstract: Tax rates are key tools for mobilizing domestic resources and addressing specific market failures. Countries often offer tax concessions or reduce corporate tax rates in order to boost private investment or to direct investment to “desired areasâ€. Corporate tax rates, especially for foreign investors, have been reduced significantly in many Asia-Pacific economies during the last seven years. However, this policy has had limited success in the region in terms of foreign direct investment (FDI) inflows, but at the same time has deprived governments from valuable resources required to support inclusive and sustainable development especially when government budget is in distress. Estimated tax losses due to the reduction of corporate tax rates, as well as alternative options for attractive FDI, including regional tax agreement on avoidance of tax competition, are analyzed in this policy brief.
  8. By: Mason Gaffney (Department of Economics, University of California Riverside)
    Abstract: World lenders have dismissed warnings from credit rating firms and kept buying and holding U.S. Treasuries for security. The likely reason is that our tax system is stronger than Europe's. The major difference is that Europe has come to rely heavily on VATs, while the U.S. stands alone in not having any. VAT's broad tax base is not succeeding in maintaining revenues, even as tax rates climb. J.S. Mill faulted general sales taxes like VAT for taxing capital itself, not just its income, for turning over; Frank Ramsey and A.C. Pigou for ignoring different elasticities of supply and demand. Gaffney refutes the idea that such taxes foster capital formation. VAT arose in 1954 France, and metastasized quickly worldwide. It reversed two centuries of progress in tax systems and turned Europe back towards the practices of l'ancien régime before 1800. The next step is on how the U.S.A. came to adopt and develop tax systems more congenial to commerce and industry and high wages than did Europe. Credit is due to Turgot, and allied French économistes who bent the minds of our Founding Fathers. Credit is later due to leaders of The Progressive Movement who framed our early income-tax laws. Step 3 explains how Germany's Currency Reform under Erhard quickly raised Germany back from the dead, and it how it demonstrated a fundamental principle of how taxes affect incentives positively, the wealth effect. Then, the original French VAT grew as the unseen protegé of European unity, while the U.S.A. fostered VAT everywhere around the world except at home. Step 4 illustrates how Europe stagnated as VAT grew, and how banks and public exchequers grew mutually dependent, together building a house of cards based on future tax revenues – revenues that VAT cannot provide, even as it chokes off productive commerce and industry and employment. Step 5 explains the theory of the excess burdens of VAT taxation, and faults economists, both conventional and Austrian, for failing to expound and highlight these, and relate them to Europe's unstanchable flood of troubles. Step 6 traces the role of a host of economic scholars and statesmen in rationalizing, endorsing and promoting VAT, from Thomas Hobbes to the Republican Platform of 2012. Step 7 discusses the role of the cartel of international agencies and banks in promoting "harmony", in taxing, lending and collecting. It gives evidence that Europe has NOT reached the limit of its taxable capacity; rather, it needs a better tax system and philosophy, with higher rates on narrower and less elastic bases.
    Date: 2013–01
  9. By: Nicholas Lawson (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))
    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
  10. 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
  11. By: Jang-Ting Guo (Department of Economics, University of California Riverside); Juin-Jen Chang (Academia Sinica); Jhy-Yuan Shieh (Soochow University); Wei-Neng Wang (Soochow University)
    Abstract: This paper examines the quantitative interrelations between sectoral composition of public spending and equilibrium (in)determinacy in a two-sector real business cycle model with positive productive externalities in investment. When government purchases of con- sumption and investment goods are set as constant fractions of their respective sectoral output, we show that the public-consumption share plays no role in the modeliÌs local dynamics, and that a su¢ ciently high public-investment share can stabilize the economy against endogenous belief-driven cyclical aÌuctuations. When each type of government spending is postulated as a constant proportion of the economyiÌs total output, we Önd that there exists a trade-o§ between public consumption versus investment expenditures to yield saddle-path stability and equilibrium uniqueness.
    Keywords: Government Spending; Equilibrium (In)determinacy; Business Cycles
    JEL: E32 E62 O41
    Date: 2013–09
  12. By: Florencia Amábile (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Marisa Bucheli (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Máximo Rossi (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: In Uruguay the tax structure and social spending reduce inequality and poverty for the whole society (Bucheli et al. 2013). In this study we analyze the effect of fiscal policy by race considering whites, afros and indigenous. The main question of our paper is whether the reduction of inequality and poverty benefit a racial group over the others or affectracial ethnic groups equally. The three racial groups are equally likely to be taken off extreme poverty by the direct transfer system. However, the hazard of leaving moderate poverty is lower for indigenous than for the other two groups. So the direct transfer system reduces poverty of the three groups but does not achieve to put racial groups on an equal footing. When analyzing the average income, the qualitative conclusions are on the same direction. Racial gap narrows slightly –led by in-kind transfers- and does not disappear.
    Keywords: inequality, poverty, race, fiscal policy, direct transfers.
    JEL: I38 I32 D63 H22 H24
    Date: 2014–02
  13. By: Decoster, André; Ochmann, Richard; Spiritus, Kevin
    Abstract: This paper documents the integration of microsimulation tools for direct taxation, indirect taxation, and social benefits in the context of the European tax and benefit simulator, EUROMOD. Integration has been developed in parallel for two countries: Belgium and Germany. The paper at hand documents the process and presents simulation results for the case of Belgium. An integrated database underlying EUROMOD that contains householdlevel information on income and consumption is generated. Consumption micro data from the 2009 cross section of the household budget survey for Belgium is used to impute information on spending for durable and non-durable commodities into EU-SILC data, applying regression-based imputation techniques. Engel curves are estimated at the household level for total non-durable spending, expenditures on durable goods, as well as non-durable expenditure share equations. The imputed household spending is then used to simulate the baseline VAT system in EUROMOD, for which we report an incidence analysis. Finally, several arbitrary policy reforms implementing VAT rate uniformity are analyzed with respect to their distributional impact.
    Date: 2014–06–16
  14. By: Elvio Accinelli (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Edgar J. Sánchez Carrera (Universidad Autónoma de San Luis Potosí)
    Abstract: In this paper, we consider a society composed of citizens grouped in different economic strata based on income, who must pay taxes, but there are incentives to do so, and a set of public officials (auditors), whose function is to monitor compliance with the tax rules among citizens. We assume that corrupt auditors can accept bribes from evaders. We show that income inequality as a driver acts of corruption and tax evasion. Next we introduce an evolutionary model to analyze the progress or regression of evasion and corruption among public officials. We conclude with some observations on policies and incentives to combat these social ills.
    Keywords: corrupt behavior; taxes; evolutionary game.
    JEL: C72 C73 O11 O55 K42
  15. By: De Agostini, Paola; Paulus, Alari; Sutherland, Holly; Tasseva, Iva Valentinova
    Abstract: We compare the distributional effects of policy changes introduced in the period 2008-2013 in twelve EU countries using the EU microsimulation model EUROMOD. The countries, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Latvia, Lithuania, Portugal, Romania and the UK, chose different policy mixes to achieve varying degrees of fiscal consolidation or expansion. We find that comparisons of the size and distributional effects of policy changes over time are sensitive to the counterfactual assumption that is adopted in adjusting 2008 policies for changes in prices and incomes over the period. Nevertheless, it is clear that the direct tax, public pension and cash benefit changes had broadly progressive effects across the pre-policy change income distributions, except in Germany, Estonia and Lithuania. Including increases in VAT alters the comparative picture by making the policy packages appear more regressive, to varying extents. The paper also explores the implications of the policy changes for measures of risk of poverty and examines the incidence of the changes by age.
    Date: 2014–05–02
  16. By: Gemmell, Norman; Kneller, Richard; Sanz, Ismael
    Abstract: We examine the long-run GDP impacts of changes in total government expenditure and in the shares of different spending categories for a sample of OECD countries since the 1970s, taking account of methods of financing expenditure changes and possible endogenous relationships. We provide more systematic empirical evidence than available hitherto for OECD countries. Our results provide strong evidence that reallocating total spending towards infrastructure and education would be positive for long-run income levels. Increasing the share of social welfare spending (and away from all others pro-rata) may be associated with, at most, modestly lower long-run GDP levels.
    Keywords: Government expenditure composition, Fiscal policy, GDP,
    Date: 2014
  17. By: Aaron Hedlund (Department of Economics, University of Missouri-Columbia)
    Abstract: This paper investigates the effects of estate taxation when firms cannot directly observe worker skill levels. Imperfect labor market signaling gives rise to an information externality that causes workers to free-ride off of others' human capital acquisition. Inherited wealth exacerbates the information externality because risk-averse workers with larger inheritances exert less effort to acquire skills. By reducing these inheritances, an estate tax induces greater skill acquisition effort, resulting in a higher number of skilled workers, and in many cases, increased wages and output. In a parametrized model, I establish that the optimal estate tax rate is significantly above zero.
    Keywords: information externalities, signaling, free-rider problem, labor markets, bequests, inheritance taxes
    JEL: D62 D82 E21 E24 E60 H21
    Date: 2014–08–08
  18. By: Severini, Simone; Tantari, Antonella; Rocchi, Benedetto
    Abstract: In this paper the level of taxation of Italian farm households is studied by analyzing the data of agricultural households in the Italian EU-SILC database. The proposed approach allows to use the EU- SILC database to fill missing information on FADN database through a methodology of statistical matching. The work provides some indications on the level of tax burden and on some factors affecting it as well as on the degree of progressivity of the taxation of agricultural incomes. The results suggest that the level of tax burden is not very much affected by the amount of income actually produced. Indeed, the taxation of agricultural incomes seems paradoxically to have a regressive effect favouring farm families in which farming accounts for the large part of family income.
    Keywords: income taxation, statistical matching, farm household income, Agribusiness, Consumer/Household Economics, H24, Q12,
    Date: 2014
  19. By: Ken Yamada; Hisahiro Naito
    Abstract: Households have many economic roles in society. One of such roles is to share household-level public goods that are jointly consumed by members of the household. Several theoretical models have been proposed in the literature: the unitary model, the non-cooperative game theoretical model and the bargaining model. Using both the information on Japanese Tax reforms conducted in the 1990s as natural experiments and Japanese panel data that has information on household expenditures in detail, we examine the relevance of the unitary model and the non-cooperative game theoretical model. We find that the neutrality result regarding income redistribution does not hold, which shows the failure of the unitary model. We also find evidences that the non-cooperative game model does not hold either.
    Date: 2014–08
  20. By: Atsuyoshi Morozumi (School of Economics & CFCM, University of Nottingham); Francisco José Veiga (Universidade do Minho - NIPE)
    Abstract: This paper examines the role of institutions in the nexus between public spending and economic growth. Using a newly assembled dataset of 80 countries over the 1970-2010 period with disaggregated public spending, we show that only when institutions prompt governments to be accountable to the general public, does the capital component of public spending significantly promote growth, especially when financed by a fall in current spending or by increased revenues. Meanwhile, a rise in current spending does not show robust growth-promoting potential, regardless of the level of government accountability. Our interpretation of these findings is that, while capital spending innately has a larger growth-fostering effect than current spending, inefficiencies inherent in the former type of spending, caused by officeholders’ rent-seeking behavior under unaccountable governments, mitigate its fostering effect.
    Keywords: Public spending, Economic growth, Institutions
    JEL: O43 H50 O11
    Date: 2014
  21. By: Maria Flavia Ambrosanio (Università Cattolica, Milano); Paolo Balduzzi (Università Cattolica, Milano); Massimo Bordignon (Università Cattolica, Milan)
    Abstract: For almost two decades, starting from the early ‘90s, Italy experienced the strongest wave of decentralization reforms in its post II World War history. The causes were both economic and political. Yet, in recent years, again economic and political causes seem to call for opposite reforms. Along with a second wave of scandals, this time interesting local politicians, the crisis that has hit our country since 2008 is having relevant effects on the relationships between central and local governments. The aim of this paper is to assess dimension and direction of these effects. We first review the situation of “fiscal federalism” in Italy before the crisis, summarizing the decentralization process in the ‘90s, its consequences in terms of financing and functions for local governments, the constitutional reform of 2001 and the implementation problems this created. We then look at the numbers of the crisis; the “double dip” of the economic cycle in the period 2007- 2013, the policies implemented to contrast the financial market confidence crisis and the distribution of the burden of the fiscal consolidation across levels of government. We also discuss the institutional features of the implemented policies, in particular referring to number of local governments and to the financial relationships between level of governments, including taxes, transfers, fiscal rules and bankruptcy procedurals. Finally, we look at the future: what consequences will the new European rules, as enshrined in the new art. 81, have on the financial relationships between levels of government? And how is the balance of power between the center and the periphery going to change in lieu of the new proposed Constitutional reform?
    Keywords: crisis, fiscal federalism, decentralization
    JEL: H50 H60 H70
    Date: 2014–09
  22. By: R.A.Susantha Kumara Ranasinghe (Graduate School for International Development and Cooperation, Hiroshima University); Kumara Ranasinghe (Graduate School for International Development and Cooperation, Hiroshima University); Ichihashi Masaru (Graduate School for International Development and Cooperation, Hiroshima University)
    Abstract: Government expenditure is one of the key fiscal policy variables that can influence economic growth in any country. Empirical studies examining the impact of government expenditure on economic growth have been heavily debated in recent years, in both developed and developing countries, and most investigations provided mixed results. This study recommends policy implications based on results derived from the following objectives: (1) to investigate the impact of government size on economic growth and determine which government budget will provide the biggest impact on economic growth; (2) to investigate the impact of each component of government investment and government consumption on economic growth. This study employed the Ordinary Least Squares (OLS) regression technique. Data from the Central Bank of Sri Lanka and World Bank from 1960 to 2013 were employed for the aggregated and disaggregated analysis. This study confirms that government size is positively associated with economic growth in Sri Lanka, while government investment provides the biggest impact on growth. Government consumption in Agriculture, Health, and Welfare, and government investment in Education, Agriculture, and Transportation and Communication, have a positive and statistically significant impact on economic growth. However, government consumption in Education and Defense has a negative, but significant, impact on economic growth. Moreover, this study found that private investment and exports promote economic growth of Sri Lanka.
    Keywords: Government Expenditure, GDP, Economic Growth, Sri Lanka
    Date: 2014–09
  23. By: World Bank
    Keywords: Law and Development - Tax Law Taxation and Subsidies Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Private Sector Development - E-Business Macroeconomics and Economic Growth
    Date: 2014–01
  24. By: Jamie Bologna (West Virginia University, College of Business and Economics)
    Abstract: This paper exploits a unique dataset on corruption and informal sector employment in 476 Brazilian municipalities to estimate whether corruption impacts GDP or income levels once variation in informal economic activity is taken into account. Overall, I find that higher levels of corruption and a larger informal economy are generally associated with poor economic outcomes. However, only the size of the informal economy has a statistically significant effect. This effect is robust to the inclusion of a variety of controls and fixed effects, as well as an instrumental variable analysis. Further, these effects are large in magnitude. For example, a one standard deviation increase in the share of total employees that are informally employed explains a decrease in GDP per-capita of about 18 percent.
    Keywords: corruption, informal economy, income levels, growth
    JEL: D73 O17 O43
    Date: 2014–09

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