nep-pbe New Economics Papers
on Public Economics
Issue of 2015‒01‒09
thirty papers chosen by
Thomas Andrén

  1. Capital Taxation and Imperfect Competition: ACE vs. CBIT By Brekke, Kurt R.; Pires, Armando J. Garcia; Schindler, Dirk; Schjelderup, Guttorm
  3. How Does Tax Progressivity and Household Heterogeneity Affect Laffer Curves? By Holter, Hans A.; Krueger, Dirk; Stepanchuk, Serhiy
  4. The Elasticity of Taxable Income and Income-shifting: What is "Real" and What is Not? By Jarkko Harju; Tuomas Matikka
  5. Income taxation and equity: new dominance criteria and an application to Romania By Brunori, Paolo; Palmisano, Flaviana; Peragine, Vito
  6. How High Might the Revenue-maximizing Tax Rate Be? By Dan Usher
  7. Electoral effects on the composition of public spending and revenue: evidence from a large panel of countries By Atsuyoshi Morozumi; Francisco José Veiga; Linda Gonçalves Veiga
  8. The Taxation of Owner-Occupied House in Italy: 1974-2014 By Bruno Bises; Antonio Scialà
  9. Evidence of Economic Regularities and Disparities of Italian Regions From Aggregated Tax Income Size Data By Roy Cerqueti; Marcel Ausloos
  10. Regional Investment and Individual Redistribution in a Federation By Sebastian G. Kessing; Benny Schneider
  11. Do Market-Based Tax Incentives Attract New Businesses? Evidence from the New Markets Tax Credit By Amanda Ross; Kaitlyn Wolf
  12. Does Front-Loading Taxation Increase Savings? Evidence from Roth 401(k) Introductions By John Beshears; James J. Choi; David Laibson; Brigitte C. Madrian
  13. Essays on fiscal policy By van Oudheusden, P.
  14. Adaptation, Taxation, and Public Goods By Aronsson, Thomas; Schöb, Ronnie
  15. Is income redistribution a form of insurance, a public good or both? By Peter Backus; Alejandro Esteller-Moré
  16. Pareto and Piketty: The Macroeconomics of Top Income and Wealth Inequality By Charles I. Jones
  17. Foreign vs. domestic public debt and the composition of government expenditure: A political-economy approach By Philipp Harms; Joachim Lutz
  18. The Relationship between Hours of Domestic Services and Female Earnings: Panel Register Data Evidence from a Reform By Halldén, Karin; Stenberg, Anders
  19. Would you commute further for extra money? Region specific income effects on commuting distances By Anette Haas; Malte Reichelt
  20. Evaluating Fiscal Policy: A Rule of Thumb By Nicolas Carnot
  21. Are Public Sector Jobs Recession-Proof? Were They Ever? By Jason L. Kopelman; Harvey S. Rosen
  22. The Confidence Effects of Fiscal Consolidations By Beetsma, Roel; Cimadomo, Jacopo; Furtuna, Oana; Giuliodori, Massimo
  23. The Piketty Transition By Carroll, Daniel R.; Young, Eric R.
  24. The opportunity costs of public funds concepts and issues By Jérôme Massiani; Gabriele Picco
  25. Human Capital and Optimal Redistribution By Koeniger, Winfried; Prat, Julien
  26. German labor market and fiscal reforms 1999 to 2008: Can they be blamed for intra-Euro Area imbalances? By Gadatsch, Niklas; Stähler, Nikolai; Weigert, Benjamin
  27. Overlapping political budget cycles in the legislative and the executive By Foremny, Dirk; Freier, Ronny; Moessinger, Marc-Daniel; Yeter, Mustafa
  28. Does the Unemployement Benefit Institution Affect the Productivity of Workers? Evidence from a Field Experiment By Blanco, M.; Dalton, P.S.; Vargas, J.F.
  29. Means-tested long term care and family transfers By CREMER, Helmuth; PESTIEAU, Pierre
  30. Essays on the impact of government policy, internationalization and financial innovation on financial stability By Bertay, A.C.

  1. By: Brekke, Kurt R. (Dept. of Economics, Norwegian School of Economics); Pires, Armando J. Garcia (SNF - Centre for Applied Research at NHH); Schindler, Dirk (Dept. of Accounting, Auditing and Law, Norwegian School of Economics); Schjelderup, Guttorm (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: This paper studies the market and welfare effects of two main tax reforms – the Corporate Business Income Tax (CBIT) and the Allowance for Corporate Equity tax (ACE). Using an imperfect-competition model for a small open economy, it is shown that the well-known neutrality property of ACE does not hold. Both corporate tax regimes distort market entry and equilibrium prices. A main result is that a small open economy should levy a positive source tax on capital in markets with free firm entry. Which tax system is better from a welfare point of view, depends on production technology, the competitive effects of ACE and CBIT, and whether entry is excessive or suboptimal at the given corporate tax rate. Imposing tax income neutrality yields a higher corporate tax rate with ACE, which increases the scope for CBIT to be welfare improving.
    Keywords: Optimal corporate taxation; Corporate tax reform; Imperfect competition; ACE; CBIT
    JEL: D43 H25
    Date: 2014–11–14
  2. By: Stevan Luković (University of Kragujevac, Faculty of Economics)
    Abstract: Automatic stabilizers as a factor of cyclical fluctuations stabilization attract economists' attention for several decades. This paper deals with the mechanisms through which automatic stabilizers influence economy and positive and negative effects on aggregate demand they can produce. It is common when discussing automatic stabilizers to put the accent on certain tax categories, such as personal income tax and corporate income tax, оr some public expenditures, such as unemployment benefits and social protection. Given that, here only fiscal stabilizers will be discussed, although some nonfiscal categories also demonstrate stabilizing impact.
    Keywords: Personal income tax, Corporate income tax, Unemployment benefits, Social Protection, Income redistribution
    JEL: H20 H29 H62
    Date: 2014–04
  3. By: Holter, Hans A.; Krueger, Dirk; Stepanchuk, Serhiy
    Abstract: How much additional tax revenue can the government generate by increasing labor income taxes? In this paper we provide a quantitative answer to this question, and study the importance of the progressivity of the tax schedule for the ability of the government to generate tax revenues. We develop a rich overlapping generations model featuring an explicit family structure, extensive and intensive margins of labor supply, endogenous accumulation of labor market experience as well as standard intertemporal consumption-savings choices in the presence of uninsurable idiosyncratic labor productivity risk. We calibrate the model to US macro, micro and tax data and characterize the labor income tax Laffer curve under the current choice of the progressivity of the labor income tax code as well as when varying progressivity. We find that more progressive labor income taxes significantly reduce tax revenues. For the US, converting to a flat tax code raises the peak of the Laffer curve by 6%, whereas converting to a tax system with progressivity similar to Denmark would lower the peak by 7%. We also show that, relative to a representative agent economy tax revenues are less sensitive to the progressivity of the tax code in our economy. This finding is due to the fact that labor supply of two earner households is less elastic (along the intensive margin) and the endogenous accumulation of labor market experience makes labor supply of females less elastic (around the extensive margin) to changes in tax progressivity.
    Keywords: Fiscal Policy; Government Debt; Laffer Curve; Progressive Taxation
    JEL: E62 H20 H60
    Date: 2014–11
  4. By: Jarkko Harju; Tuomas Matikka
    Abstract: Previous literature shows that income taxation significantly affects the behavior of high-income earners and business owners. However, it is still unclear how much of the response is due to changes in effort and other real economic activity, and how much is caused by tax avoidance and tax evasion. This distinction is important because it affects the welfare implications and policy recommendations. In this paper we distinguish between real responses and tax-motivated income-shifting between tax bases. We show how the explicit inclusion of income-shifting affects the welfare analysis of income taxation. In our empirical example we find that income-shifting accounts for over two thirds of the overall elasticity of taxable dividend income among Finnish business owners. The large income-shifting response significantly decreases the marginal excess burden compared to the standard model in which the overall elasticity defines the welfare loss. However, in addition to income-shifting, we find that dividend taxation significantly affects the real behavior of owners.
    Keywords: elasticity of taxable income, tax avoidance, income-shifting, real responses
    JEL: H32 H24 H25
    Date: 2014–09–11
  5. By: Brunori, Paolo; Palmisano, Flaviana; Peragine, Vito
    Abstract: This paper addresses the problem of the normative evaluation of income tax systems and income tax reforms. While most of the existing criteria, framed in the utilitarian tradition, are uniquely based on information about individual incomes, this paper, building upon the opportunity egalitarian theory, proposes new equity criteria which take into account also the socio-economic characteristics of individuals. Suitable dominance conditions that can be used to rank alternative tax systems are derived by means of an axiomatic approach. Moreover, the theoretical results are used to assess the redistributive effects of an hypothetical tax reform in Romania through a microsimulation analysis.
    Date: 2014–12–01
  6. By: Dan Usher (Queen's University)
    Abstract: Through tax evasion, through the labour-leisure choice or in other ways, taxpayers reduce the tax base in response to an increase in the tax rate. The process is commonly-believed to generate a humped Laffer curve with a revenue-maximizing tax rate well short of 100%. That need not be so. In the “new tax responsiveness literatureâ€, the revenue-maximizing tax rate is inferred from the observed “elasticity of taxable incomeâ€. It is shown in this article 1) that the inference is unwarranted because the elasticity of taxable income may vary with the tax rate, 2) that the “new tax responsiveness literature†imposes the implicit assumption that tax revenue falls to 0 when the tax rate rises to 100%, 3) that tax revenue may increase together with the tax rate all the way up to 100% and 4) that the Laffer curve is ill-defined because tax revenue at any given rate may depend upon how tax revenue is spent.
    Keywords: revenue-maximizing tax rate, Laffer curve
    JEL: H21 H23
    Date: 2014–12
  7. By: Atsuyoshi Morozumi (University of Nottingham, CFCM); Francisco José Veiga (Universidade do Minho - NIPE); Linda Gonçalves Veiga (Universidade do Minho - NIPE)
    Abstract: This paper examines the effects of elections on central governments’ fiscal policy conducts. We construct a unique database of disaggregated spending and revenue series at the central government level, for a panel of up to 107 countries over the 1975-2010 period. Using this data, we show that under some specific political environments, incumbents generate political budget cycles, predominantly by increasing current, rather than capital, spending and reducing taxes, most often income taxes. However, when democracies are matured, in election years, central governments reallocate their expenditure and revenue components, without changing their total levels. Specifically, they reallocate spending from capital spending to grants to other government units, while reducing income taxes and increasing consumption taxes instead.
    Keywords: Political budget cycles; Spending and revenue composition; Central government; Opportunism
    JEL: E6 D7 H5
    Date: 2014
  8. By: Bruno Bises (Università Roma Tre); Antonio Scialà (Università Roma Tre)
    Abstract: The taxation of the owner-occupied house – the “principal dwelling‖ was a recurrent central issue in the political and economic debate in Italy especially in the last 15 years. It may be useful, therefore, to address this issue, by both examining the theoretical aspects and reviewing the Italian legislation since the general tax reform of the seventies – whose starting point for direct taxation was the year 1974 – with respect to the two tax bases that can be used in the taxation of owner-occupied dwellings, namely the imputed income and the asset value. This paper first analyzes the tax treatment of principal dwellings in Italy on both equity and efficiency grounds over the past forty years and compares it with the solutions adopted in other countries; second an empirical assessment of the evolution of the total tax burden on owner-occupied houses in Italy is proposed.
    Keywords: Housing taxation, Imputed rent, Irpef, Ici, Imu
    JEL: H21 H24 H71
    Date: 2014–11
  9. By: Roy Cerqueti; Marcel Ausloos
    Abstract: This paper discusses the size distribution, - in economic terms - of the Italian municipalities over the period 2007-2011. Yearly data are rather well fitted by a modified Lavalette law, while Zipf-Mandelbrot-Pareto law seems to fail in this doing. The analysis is performed either at a national as well as at a local (regional and provincial) level. Deviations are discussed as originating in so called king and vice-roy effects. Results confirm that Italy is shared among very different regional realities. The case of Lazio is puzzling.
    Date: 2014–11
  10. By: Sebastian G. Kessing; Benny Schneider
    Abstract: We study the strategic incentives of regional governments to allocate their budget to public investment and to public consumption expenditures against the background of an incentive-compatible redistribution policy set by the central government. Regional investment changes the productivity distribution in the economy, which affects the design of the optimal tax-transfer system by the central government. The strategic incentives can differ between rich and poor regions depending on the nature of the investment. Rich and poor regions both have strategic incentives to reduce investment which increases the productivity of all individuals in a region. For investment which only increases the productivity of a part of the population, rich regions have reduced investment incentives, whereas poor regions have increased strategic incentives to invest. Our results hint at potential benefits of appropriate differentiation of matching grants.
    Keywords: optimal income taxation, regional investment, fiscal federalism
    JEL: H21 H72 H77 H54
    Date: 2014
  11. By: Amanda Ross; Kaitlyn Wolf
    Abstract: Policy makers at all levels of government believe that one of the key drivers of local economic growth is new businesses. Therefore, governments design policy with the intention of attracting businesses with the hopes that this will create future growth in struggling areas. Over the past few decades, the federal government has adjusted its approach to aid low-income communities to be based on market-based policies that encourage private investment in low-income communities. The underlying logic of these programs is that the best way to help local areas develop is to set up incentives for businesses at a local level to attract these drivers of growth to disadvantaged communities. By bringing new businesses and employment opportunities to a struggling area, there will be increased employment opportunities and the market will operate to reach an efficient outcome. In this paper, we use the New Market Tax Credit (NMTC) adopted in 2000 by the U.S. government to determine the effect of market-based, government-sponsored tax credits on the location decisions of new businesses. One issue when looking at the impact of business location decisions on growth is there is an inherent endogeneity issue, as entrepreneurs are likely to open their new establishment in growing areas. To address this endogeneity concern, we draw upon an eligibility cutoff in the NMTC to determine the impact of the tax credit on where businesses locate. By comparing census tracts with income levels that make the tract just eligible for the tax credit versus those that are just not eligible for the credit, we are able to obtain causal estimates. Using business location data from the Dun and Bradstreet MarketPlace Files, we find that in Metropolitan Statistical Areas in particular, the tax credit successfully incentivized businesses to locate in lower income census tracts. In particular, we found that these tax credits, aimed at increasing investment, had particularly strong effects on manufacturing. Our results suggest that these market-based tax incentives are having the intended effect of attracting new businesses to struggling areas. Our research fits into a growing literature on the impact of place-based tax programs on the development of local areas
    Keywords: Place-based programs; tax credits; regression discontinuity; entrepreneurship; agglomeration;
    JEL: H25 J60 R23 R41
    Date: 2014–11
  12. By: John Beshears; James J. Choi; David Laibson; Brigitte C. Madrian
    Abstract: Can governments increase private savings by taxing savings up front instead of in retirement? Roth 401(k) contributions are not tax-deductible in the contribution year, but withdrawals in retirement are untaxed. The more common before-tax 401(k) contribution is tax-deductible in the contribution year, but both principal and investment earnings are taxed upon withdrawal. Using administrative data from eleven companies that added a Roth contribution option to their existing 401(k) plan between 2006 and 2010, we find no evidence that total 401(k) contribution rates differ between employees hired before versus after the Roth introduction, which means that the amount of retirement consumption being purchased by 401(k) contributions increases after the Roth introduction. A survey experiment suggests two behavioral factors play a role in the unresponsiveness of contribution rates to their tax treatment: (1) employee confusion about or neglect of the tax properties of Roth balances and (2) partition dependence.
    JEL: D03 D14 G02 H2 H3
    Date: 2014–12
  13. By: van Oudheusden, P. (Tilburg University, School of Economics and Management)
    Abstract: This thesis deals with selected topics in fiscal policy. The first part examines the relationship between fiscal decentralization and certain outcomes, one being the amount of trust citizens have in their government, the other being economic efficiency. The second part looks into the challenge of governments to develop fiscal systems, or policy reforms, that generate sufficient revenues to deal with long-run government budget challenges and promote economic growth at the same time.
    Date: 2013
  14. By: Aronsson, Thomas (Department of Economics, Umeå School of Business and Economics); Schöb, Ronnie (School of Business and Economics)
    Abstract: This paper shows how the first-best and second-best rules for optimal public good provision depend on the adaptation to private and public consumption. Adaptation in private consumption typically leads to over-provision relative to the Samuelson condition, while adaptation in public consumption works the other way around. The two sources of adaptation only cancel out in the extreme case of full adaptation.
    Keywords: Public goods; adaptation; habit-formation; optimal taxation
    JEL: D03 D60 H21 H41
    Date: 2014–12–09
  15. By: Peter Backus (Universitat de Barcelona & IEB); Alejandro Esteller-Moré (Universitat de Barcelona & IEB)
    Abstract: This paper is an empirical study of redistributive preferences. Our interest is what motivates net contributors to support redistributive policies. Using instrumental variable estimation and exploiting a particularity of the Spanish labour market we estimate how workers’ declared preferences for unemployment benefits spending respond to changes in the local unemployment rate. We then decompose this response into the part explained by risk aversion, and thus demand for insurance, and the part explained by the public goods nature of redistribution. Our results suggest that the declared preferences of workers for unemployment benefits spending are driven by demand for insurance rather than any public goods component. We show how these results suggest that preferences for redistribution in the form of unemployment benefits are driven by insurance considerations rather than by any public goods consideration.
    Keywords: Redistribution, Preference formation, Public goods
    JEL: D64 H53 H77
    Date: 2014
  16. By: Charles I. Jones
    Abstract: Since the early 2000s, research by Thomas Piketty, Emmanuel Saez, and their coathors has revolutionized our understanding of income and wealth inequality. In this paper, I highlight some of the key empirical facts from this research and comment on how they relate to macroeconomics and to economic theory more generally. One of the key links between data and theory is the Pareto distribution. The paper describes simple mechanisms that give rise to Pareto distributions for income and wealth and considers the economic forces that influence top inequality over time and across countries. For example, it is in this context that the role of the famous r-g expression is best understood.
    JEL: E0
    Date: 2014–12
  17. By: Philipp Harms (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany); Joachim Lutz (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany)
    Abstract: We consider an economy in which a political-support maximizing government takes into account different generations' preferences when deciding how much to borrow abroad and how much to spend on public consumption and investment. We show that, in equilibrium, the government's choices are shaped by three parameters: the effect of government spending on output, the expected output costs of a default, and the relative political weight of the generations currently alive. We conclude that the joint dependence on these parameters establishes a strong, but non-linear relationship between the share of foreign debt in total public debt and the share of investment in total government spending.
    Date: 2014–11–20
  18. By: Halldén, Karin (SOFI, Stockholm University); Stenberg, Anders (SOFI, Stockholm University)
    Abstract: In 2007, a tax discount reform in Sweden reduced prices of outsourced domestic services (ODS) by 50 percent. Unlike most previous studies, population register data enable us to directly link a proxy for relaxed time constraints, annual changes in households' tax discounts, to changes in earnings. We find that 60 percent of married women's freed hours are applied to labor market work, which tapers off when ODS corresponds to approximately three weeks of full time work. This is substantially higher than previously reported estimates. A causal interpretation is supported by "placebo tests", and we carefully outline the assumptions required.
    Keywords: household work, outsourcing, female labor supply
    JEL: H2 J13 J22
    Date: 2014–11
  19. By: Anette Haas; Malte Reichelt
    Abstract: We start referring to the striking phenomena that over the past decades commuting distances in Germany have steadily risen, although commuting costs increased over-proportionally. This is surprising, as urban economic theory predicts increasing commuting distances especially for higher income, which indicates that either other factors must drive the increase in commuting distances or the income effect may not be as general as so far assumed. We pick up urban economic theory and assume sequential optimization of place of work and residence, occupational specialization and a structure mono- and polycentric sub-labor-markets. Based on these assumptions, we obtain differential predictions on regional income effects and overall commuting distances, which can as well be an explanation for the increasing commuting distances on an aggregate level. To test our assumptions we use both--process data from the German Federal Employment Agency and retrospective life-course data from the German ALWA-ADIAB survey. We draw on the former to show that indeed macro developments of commuter shares and distances match our assumptions and the latter to analyze the determinants of commuting distance on an individual level, focusing especially on the income effect. Identifying the income effect is not straightforward, as employers may reimburse employees for commuting longer distances, thus leading to a causal effect of commuting distance on income rather than vice versa. We account for endogeneity with sensitivity analyses excluding the group of employees who have the highest bargaining power and show that reverse causality does not seem to be a major issue. Income effects do not substantially vary excluding or including this specific group. Descriptively, we can show that commuting distances rise from urban to rural areas. Using a mixed-effects design to disentangle time variant and constant effects for both, individuals and regions, we show that first employees with higher income reside further away from their workplace. Second, we show that a possible change in income results in a small further increase in commuting distance--supporting the assumption of sequential optimization. Third, we show that predominantly employees residing in urban areas increase their relative commuting distance for higher income. In rural areas, where appropriate jobs are rare, commuting longer distances into economic centers seems to prohibit a positive income effect. The results suggest that the positive income effect on commuting, which is found in other studies, does not exist for everyone and heavily depends on the residential location.
    Keywords: Commuting; regional labour markets; wages
    Date: 2014–11
  20. By: Nicolas Carnot
    Abstract: This paper introduces a simple rule for appraising the economic soundness of fiscal policies. It connects fiscal policy to a long-run debt objective, taken as an anchor, while arbitraging symmetrically between this debt objective and output stabilisation. The rule offers a benchmark to assess the evolution of primary expenditure, net of the impact of discretionary revenue measures, taken as a proper operational target for annual fiscal policy. The properties and implications of this rule of thumb are analysed drawing on qualitative arguments and retrospective simulations.
    JEL: E62 H60 H77
    Date: 2014–08
  21. By: Jason L. Kopelman; Harvey S. Rosen
    Abstract: We use data from the Displaced Worker Survey supplements of the Current Population Survey from 1984 to 2012 to investigate the differences in job loss rates between workers in the public and private sectors. Our focus is on the extent to which recessions affect the differential between job loss rates in the two sectors. Our main findings include the following: First, taking into account differences in characteristics among workers does not eliminate sectoral differences in the likelihood of losing one’s job. After accounting for worker characteristics, during both recessionary and non-recessionary periods, the probability of job loss is higher for private sector workers than for public sector workers at all levels of government. Second, the probability of displacement for private sector workers increased during both the Great Recession and earlier recessions during our sample period. Third, it is less straightforward to characterize the experience of public sector workers during recessions. Job loss rates sometimes increased and sometimes decreased, depending on whether the employer was the federal, state, or local government. The impact of the Great Recession on displacement rates for public sector employees was somewhat different from that in previous recessions. Fourth, the advantage of public sector employment in terms of job loss rates generally increased during recessions for all groups of public sector workers. Thus, the answer to the question posed in the title is that public sector jobs, while not generally recession-proof, do offer more security than private sector jobs, and the advantage widens during recessions. These patterns are present across genders, races, and educational groups.
    JEL: H11 J45
    Date: 2014–11
  22. By: Beetsma, Roel; Cimadomo, Jacopo; Furtuna, Oana; Giuliodori, Massimo
    Abstract: We explore how fiscal consolidations affect private sector confidence, a possible channel for the fiscal transmission that has received particular attention recently as a result of governments embarking on austerity trajectories in the aftermath of the crisis. Panel regressions based on the action-based datasets of De Vries et al. (2011) and Alesina et al. (2014) show that consolidations, and in particular their unanticipated components affect confidence negatively. The effects are stronger for revenue-based measures and when institutional arrangements, such as fiscal rules, are weak. To obtain a more accurate picture of how consolidations affect confidence, we construct a monthly dataset of consolidation announcements based on the aforementioned datasets, so that we can study the confidence effects in real time using an event study. Consumer confidence falls around announcements of consolidation measures, an effect driven by revenue-based measures. Moreover, the effects are most relevant for European countries with weak institutional arrangements, as measured by the tightness of fiscal rules or budgetary transparency. The effects on producer confidence are generally similar, but weaker than for consumer confidence. Long-term interest rates, as a measure of confidence in the sovereign, tend to fall around spending-based consolidation announcements that take place in slump periods. Overall, if confidence is a concern and consolidation is unavoidable, spending-based measures seem preferable. Slump periods are not necessarily bad moments for such measures, while strengthening institutional arrangements may help in mitigating adverse confidence effects.
    Keywords: announcements; consolidation plans; consumer- and business confidence; event study; institutional quality; long-term interest rates; revenues; spending
    JEL: H60 H61 H62
    Date: 2014–10
  23. By: Carroll, Daniel R. (Federal Reserve Bank of Cleveland); Young, Eric R. (University of Virginia)
    Abstract: We study the effects on inequality of a "Piketty transition" to zero growth. In a model with a worker-capitalist dichotomy, we show first that the relationship between inequality (measured as a ratio of incomes for the two types) and growth is complicated; zero growth can raise or lower inequality, depending on parameters. Extending our model to include idiosyncratic wage risk we show that growth has quantitatively negligible effects on inequality, and the effect is negative. Finally, following Piketty’s thought experiment, we study how the transition might occur without declining returns; here, we find inequality decreases substantially if financial innovation acts to reduce idiosyncratic return risk, and does not change much at all if it acts to increase capital’s share of income.
    Keywords: inequality; heterogeneity; zero-growth
    JEL: D31 D33 D52 E21
    Date: 2014–12–03
  24. By: Jérôme Massiani (Department of Economics, University Of Venice Cà Foscari); Gabriele Picco
    Abstract: This paper reviews the main conceptual issues regarding the notion of Opportunity Cost of Public Funds (OCPF) and its use in normative economics. This notion occupies only a marginal and sometimes anecdotal role in the public economic literature and appears to be too often used without the definitional unambiguousness that would make it helpful for economic analysis. This situation is unsatisfactory considering the importance of (some of) the mechanisms described by the concept and the magnitude of these effects that are such as to heavily impact any budgetary practice. We find that among the mechanisms that economists call "opportunity costs" the deadweight loss and, to a lesser extent, administrative costs seem to be the most relevant, whereas the impact of the crowding out is more discussible. We also analyze how the question of opportunity costs is contingent upon some hypothesis about the financing mechanism of the public expenditures and we suggest that the most likely situation is the one where public expenses are financed through the eviction of other alternative uses of the public funding. We also provide a review of available quantifications and recommendations to the practitioners.
    Keywords: Opportunity costs of public funds, public expenditure, project evaluation
    JEL: D73 E62 H30
    Date: 2014
  25. By: Koeniger, Winfried; Prat, Julien
    Abstract: We characterize optimal redistribution in a dynastic family model with human capital. We show how a government can improve the trade-off between equality and incentives by changing the amount of observable human capital. We provide an intuitive decomposition for the wedge between human-capital investment in the laissez faire and the social optimum. This wedge differs from the wedge for bequests because human capital carries risk: its returns depend on the non-diversifiable risk of children's ability. Thus, human capital investment is encouraged more than bequests in the social optimum if human capital is a bad hedge for consumption risk.
    Keywords: Human capital; Optimal taxation
    JEL: E24 H21 I22 J24
    Date: 2014–11
  26. By: Gadatsch, Niklas; Stähler, Nikolai; Weigert, Benjamin
    Abstract: In this paper,we assess the impact ofmajor German structural reforms from1999 to 2008 on key macroeconomic variables within a two-country monetary union DSGE model. Bymany, these reforms, especially the Hartz reforms on the labormarket, are considered to be the root of thereafter observed imbalances in the Euro Area. We find that, in terms of German GDP, consumption, investment and (un)employment, the reforms were a clear success albeit the impact on the German trade balance and the current account was onlyminor. Most importantly, the rest of the Euro Area benefited frompositive spillover effects. Hence, our analysis suggests that the reforms cannot be held responsible for the currently observed macroeconomic imbalances within the Euro Area.
    Keywords: Fiscal Policy,Labor Market Reforms,DSGE modeling,Macroeconomics
    JEL: H2 J6 E32 E62
    Date: 2014
  27. By: Foremny, Dirk; Freier, Ronny; Moessinger, Marc-Daniel; Yeter, Mustafa
    Abstract: We advance the literature on political budget cycles by testing separately for cycles in expenditures for elections in the legislative and the executive. Using municipal data, we can separately identify these cycles and account for general year effects. For the executive branch, we show that it is important whether the incumbent re-runs. To account for the potential endogeneity associated with this decision, we apply a unique instrumental variables approach based on age and pension eligibility rules. We find sizable and significant effects in expenditures before council elections and before joint elections when the incumbent re-runs.
    Keywords: election cycles,municipal expenditures,council and mayor elections,instrumental variables approach
    JEL: H11 H71 H72 H74
    Date: 2014
  28. By: Blanco, M.; Dalton, P.S. (Tilburg University, Center For Economic Research); Vargas, J.F.
    Abstract: Abstract: We investigate whether and how the type of unemployment bene t institution affects productivity. We designed a field experiment to compare workers' productivity under a welfare system, where the unemployed receive an unconditional monetary transfer, with their productivity under a workfare system, where the transfer is received conditional on the unemployed spending some time on ancillary activities. First, we fi nd that having an unemployment bene fit institution, regardless of whether it makes transfers conditional or unconditional, increases workers' productivity. Second, we find that productivity is higher under Welfare than under Workfare. Becoming unemployed under Welfare comes at the psychological cost of a drop in self-esteem, presumably due to the shame or stigma associated with receiving an unconditional unemployment benefi t. We document the empirical relevance of precisely this channel. The differences we observe in productivity suggest that this psychological cost acts as an extra non- monetary incentive for workers under Welfare to put a higher effort in their work.
    Keywords: Unemployment Benefi ts; Workfare; Productivity; Self-esteem; Shame
    JEL: J24 J65 J45
    Date: 2013
  29. By: CREMER, Helmuth (Toulouse School of Economics); PESTIEAU, Pierre (CREPP, Universté de Liège; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)
    Abstract: One of the pervasive problems with means-tested public long term care (LTC) programs is their inability to prevent individuals who could afford private long term services from taking advantage of public care. They often manage to elude the means-test net through “strategic impoverishment”. We show in a simple model how this problem comes about, how it affects welfare and how it can be mitigated.
    Keywords: long term care, means-testing, strategic impoverishment, opting out, public insurance, altruism
    JEL: H2 H5
    Date: 2014–06–11
  30. By: Bertay, A.C. (Tilburg University, School of Economics and Management)
    Abstract: For better or worse, the global financial system went through remarkable change over the last decades. Cross-border banking giants emerged; many countries opened up their banking systems welcoming foreign ownership; government ownership in banking, which is deemed to be vicious, declined globally. The financial crisis of 2007-2009, however, changed our understanding of the global financial system and provided renewed impetus to some crucial debates, which may inform the policy-makers to avoid future crises. The chapters of this thesis contribute the ongoing discussions by providing empirical evidence on some crucial aspects. Chapter 2 analyzes the transmission of real estate price changes through multinational banks by investigating the credit supply of banks in response to national and foreign real estate price changes. In Chapter 3, we focus on the internationalization of banks and possible roles of financial safety nets and market discipline related to internationalization. Chapter 4 provides empirical evidence regarding countercyclical behavior of government owned banks, which may be useful during bad times. Finally, in Chapter 5 we focus on the macroeconomic effects of securitization at the aggregate level and show that securitization may have a negative impact on real economic outcomes by changing the credit composition towards consumption.
    Date: 2014

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