nep-pbe New Economics Papers
on Public Economics
Issue of 2015‒09‒26
thirty-two papers chosen by
Thomas Andrén

  1. Tax evasion and the optimal non-linear labour income taxation By Salvador Balle; Lucia Mangiavacchi; Luca Piccoli; Amedeo Spadaro
  2. Tax Policy and Economic Growth: A Semi-Parametric Approach Using AMT By Shafi, Maryam; Asghar, Zahid
  3. The revenue and base effects of local tax hikes: Evidence from a quasi-experiment By Baskaran, Thushyanthan
  4. State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data By Xavier Giroud; Joshua Rauh
  5. Behavioral Responses to Local Tax Rates: Quasi-Experimental Evidence from a Foreigners' Tax Scheme in Switzerland By Schmidheiny, Kurt; Slotwinski, Michaela
  6. On the Optimal Provision of Social Insurance: Progressive Taxation versus Education Subsidies in General Equilibrium By Dirk Krueger; Alexander Ludwig
  7. Fiscal equalization under political pressures By Alejandro Esteller-Moré; Umberto Galmarini; Leonzio Rizzo
  8. Does globalization affect top income inequality? By Rene Cabral; Rocio Garcia-Diaz; Andre Varella Mollick
  9. Inefficient Taxation of Sin Goods By Giovanni Immordino; Anna Maria C. Menichini; Maria Grazia Romano
  10. How does petty corruption affect tax morale in sub-Saharan Africa? An empirical analysis. By Jahnke, Bjoern
  11. The Carrot and Stick Approach to Debt Relief : Overcoming Moral Hazard By Marin Ferry
  12. Saving Europe? By Jing Zhang
  13. Earmarking and the Political Support of Fat Taxes By Cremer, Helmuth; Goulão, Catarina; Roeder, Kerstin
  14. Need for (the Right) Speed: the Timing and Composition of Public Debt Deleveraging By Romei, Federica
  15. Renovatio Monetae: Gesell Taxes in Practice By Svensson, Roger; Westermark, Andreas
  16. The Earned Income Tax Credit By Nichols, Austin; Rothstein, Jesse
  17. Shale Public Finance: Local Government Revenues and Costs Associated with Oil and Gas Development By Richard G. Newell; Daniel Raimi
  18. The Welfare and Stabilization Benefits of Fiscal Rules: Evidence from Canadian Provinces By Landon, Stuart; Smith, Constance
  19. What is a Sustainable Public Debt? By Pablo D'Erasmo; Enrique G. Mendoza; Jing Zhang
  20. Determinants of Fiscal Distress in Italian Municipalities By W. D. Gregori; L. Marattin
  21. Human Capital, Labour Supply and Tax Reform By Richard Blundell
  22. Why is Fiscal Policy Often Procyclical? By Alberto Alesina; Filipe Campante; Guido Tabellini
  23. The Role of Precedent in the Tax Legislation By Anna Zolotareva; Stanislav Shatalov
  24. Is There a Debt-threshold Effect on Output Growth? By Alexander Chudik; Kamiar Mohaddes; M. Hashem Pesaran; Mehdi Raissi
  25. Redistribution and Inequality Impact on Economic Growth to the Extent of Economic Freedom By Göksu Aslan
  26. Online Appendix to "Fiscal Stimulus and Distortionary Taxation" By Thorsten Drautzburg; Harald Uhlig
  27. The Key Challenge for Canadian Public Policy: Generating Inclusive and Sustainable Economic Growth By Don Drummond; Evan Capeluck; Matthew Calver
  28. A Schumpetrerian Model of Top Income Inequality By Chad Jones
  29. Public Economics and Sustainable Developments Policy By U.Sankar
  30. The Top Tail of the Wealth Distribution in Germany, France, Spain, and Greece By Stefan Bach; Andreas Thiemann; Aline Zucco
  31. Use of Unemployment Insurance and Public Employment Services after Leaving Welfare By Christopher J. O'Leary
  32. How the 2003 Social Insurance Premium Reform Affects Firm Behavior By Kodama, Naomi; Yokoyama, Izumi

  1. By: Salvador Balle (Department of Physics, University of the Balearic Islands, Spain.); Lucia Mangiavacchi (Department of Applied Economics, University of the Balearic Islands, Spain.); Luca Piccoli (Department of Applied Economics, University of the Balearic Islands, Spain.); Amedeo Spadaro (Department of Applied Economics, University of the Balearic Islands, Spain.)
    Abstract: The present work studies optimal taxation of labour income when taxpayers are allowed to evade taxes. The analysis is conducted within a general non-linear tax framework, providing a characterisation of the solution for risk-neutral and risk-averse agents. For risk-neutral agents the optimal government choice is to enforce no evasion and to apply the original Mirrlees' rule for the optimal tax schedule. The no evasion condition is precisely determined by a combination of a sufficiently large penalty and a constant auditing probability. Similar results hold for risk-averse agents. Our findings imply that a government aiming at maximizing social welfare should always enforce no evasion and provide simple rules to pursue this objective.
    Keywords: Tax evasion, optimal taxation, social welfare.
    JEL: H21 H26 H31
    Date: 2015–08
  2. By: Shafi, Maryam; Asghar, Zahid
    Abstract: The present study explores the impact of tax policy on economic growth using average marginal tax rate and average tax rate for South Asian countries. The data for five developing countries: India, Maldives, Nepal, Pakistan, Sri-Lanka is used for the period of 1991-2010. This study uses Additive Mixed Models with penalized spline methodology. In this study we have constructed the average marginal tax rates using methodology of Seater (1982). It further identifies that the variables like average marginal tax rate (AMTRs), average tax rate (ATR), population growth rate, trade-openness, investment, human capital and real per capita GDP are the significant determinants of economic growth in the sample countries. On average, AMTRs and population growth rate reduce the performance of economic growth in the developing countries. The main findings further suggest that nonlinear effects are exerted by tax policy on economic growth. The increase in average marginal tax rate at the lower level of taxation, effects more adversely, than at higher levels of taxation. So it suggested that to increase the economic growth a substantial tax cut in prevailing tax level is essential in developing countries. As in developing countries the AMTRs affects the economic growth adversely and significantly, so developing countries should introduce tax reforms in a way that will lead to reduce dependence on AMTRs.
    Keywords: Tax Policy, Economic Growth, Semi-Parametric Method, Pakistan, Sri-Lanka, Nepal, India, Maldives, Average Marginal Tax Rate (AMTR)
    JEL: C1 H2 H30
    Date: 2015
  3. By: Baskaran, Thushyanthan
    Abstract: This paper studies the revenue and base effects of local property and business tax hikes using a natural experiment in the German state of North Rhine-Westphalia (NRW). Due to a reform of the local equalization scheme in 2003, a set of municipalities in NRW increased their local tax rates by one to two percentage points while the remaining municipalities kept their rates constant. Using this variation across municipalities and over time to implement a difference-in-differences design covering the period 1995-2010, I find that property tax hikes have a revenue elasticity of unity and no adverse base effects. Business tax hikes have no discernible base effects but also no statistically significant effect on revenues. Furthermore, the results suggest that the tax hikes have no effect on broader economic outcomes such as local employment, firms´ wage bill, and property prices. Overall, increasing local tax rates by one to two percentage points does not seem to affect the local economy adversely.
    Keywords: tax hikes,tax base effects,local business taxes,local property taxes
    JEL: H20 H71 H77
    Date: 2015
  4. By: Xavier Giroud; Joshua Rauh
    Abstract: In a sample of over 27 million establishments of U.S. firms with activities in more than one state, we estimate the impact of state business taxation on business activity. Only firms organized as subchapter C corporations are subject to the corporate tax code, whereas the income of partnerships, sole-proprietorships, and S corporations is passed through annually to the firm's owners and taxed at individual rates. For C corporations, both employment at existing establishments (intensive margin) and the number of establishments in the state (extensive margin) have corporate tax elasticities of -0.4. Pass-through entities, which serve as a control group for the corporate tax reforms, respond only to the personal tax code, with tax elasticities of -0.2 to -0.3. Around half of the effects are driven by reallocation of productive resources to other states where the treated firms have establishments. Capital shows similar patterns but is 36% less elastic than labor. A narrative approach confirms that the results are robust and strongest in the sample of tax changes that were implemented due to inherited budget deficits, long-run goals, or cross-state variation caused by Federal tax reforms.
    JEL: H25 H71 H73
    Date: 2015–09
  5. By: Schmidheiny, Kurt; Slotwinski, Michaela
    Abstract: We study behavioral responses to local income taxes exploiting a special tax regime which applies to foreign employees residing in Switzerland. The used institutional setting generates two thresholds through which locally heterogeneous taxation is assigned: An income threshold at 120,000 Swiss francs and a duration threshold at 5 years of stay in Switzerland. We exploit these thresholds by applying a discontinuity in density design and a fuzzy RDD to administrative income data. We find causal evidence for strategic income bunching for wage earners and tax induced intra-national mobility. Several pieces of evidence suggest that individuals have to "learn the tax code" and that knowledge and information transmission through local networks plays a major role in the behavioral response to tax incentives.
    Keywords: income bunching; income taxes; regression discontinuity design; tax induced mobility
    JEL: H24 H31 J61
    Date: 2015–09
  6. By: Dirk Krueger; Alexander Ludwig
    Abstract: In this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk, but distort the education decision of households. Optimally chosen tertiary education subsidies mitigate these distortions. We highlight the quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers: subsidizing higher education increases the share of workers with a college degree thereby reducing the college wage premium which has important redistributive benefits. We also argue that a full characterization of the transition path is crucial for policy evaluation. We find that optimal education policies are always characterized by generous tuition subsidies, but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium.
    JEL: E62 H21 H24
    Date: 2015–09
  7. By: Alejandro Esteller-Moré (Universitat de Barcelona & IEB); Umberto Galmarini (Università dell’ Insubria & IEB); Leonzio Rizzo (University of Ferrara & IEB)
    Abstract: We examine the design of fiscal equalization transfers aimed at inter-regional redistribution in a setting in which special interest groups distort the fiscal policies of local governments. Equity always calls for tax-base equalization while efficiency calls for tax-base equalization of fiscal capacities backed by strong lobby groups and for tax-revenue equalization of those backed by weak lobby groups. Hence, it is optimal to rely only on tax-base equalization if the special interest groups are similar in terms of lobbying power, whereas a mixed system is optimal if they are highly heterogeneous. Tax competition reinforces the role of tax-base, while tax exporting that of tax-revenue, fiscal equalization.
    Keywords: Fiscal-capacity equalization-grants, inter-regional redistribution, tax competition, equity-efficiency tradeoff, special interest groups, lobbying
    JEL: H77 D72 H21
    Date: 2015
  8. By: Rene Cabral (Escuela de Graduados en Administración Pública y Política Pública, Tecnológico de Monterrey, Campus Monterrey); Rocio Garcia-Diaz (Department of Economics, Tecnológico de Monterrey, Campus Monterrey); Andre Varella Mollick (Department of Economics and Finance, University of Texas - Pan American, USA)
    Abstract: We re-examine in this paper the role of globalization on top income shares (five classes from top 0.1\% to top 10\% of the income distribution) for a sample of 15 economies over the period 1970-2004. We build on previous works by investigating financial globalization measures that complement trade openness. Our system GMM (SGMM) estimations allow for a robust treatment of the endogeneity between income concentration and GDP per capita (as well as with taxation or government size). We find three interesting new results. First, the financial integration measure based on portfolio equity and FDI stocks (GEQ) turns out to have a large impact on top income shares, suggesting that the channel through which globalization affects income concentration is through FDI/equity flows. Second, we find strong support for the progressivity of taxation: there is an almost one to one negative effect of higher tax on top income (top 0.1\%), which declines monotonically until the top 10\% class. Finally, partitioning the sample into GEQ below and above (panel) averages, for relatively low levels of financial globalization increases in GEQ lead to positive effects on income of the extremely rich households. No such result is found for more financially integrated economies, with only an indirect impact through higher domestic taxation on capital and labor income.
    Keywords: Capital Inflows, Dynamic Panels, Globalization, Income Inequality.
    JEL: F31 F32 F33 F34
    Date: 2015–08
  9. By: Giovanni Immordino (Università di Napoli Federico II and CSEF); Anna Maria C. Menichini (Università di Salerno and CSEF); Maria Grazia Romano (Università di Salerno and CSEF)
    Abstract: Within an O. Donoghue and Rabin (2006) style model, we study the optimal sin taxes that a government wants to implement when consumers are time-inconsistent, and taxation is inefficient in terms of administrative, collection and compliance costs. We find that, if the inefficiency of taxation is not too large, the optimal tax is positive and it may be higher or lower than the first best depending on the elasticity of demand with respect to taxation. Finally, the extent of the distortion depends on the degree of inefficiency of taxation.
    Keywords: Hyperbolic preferences, Taxation, Sin goods
    JEL: D03 H21 H31
    Date: 2015–09–16
  10. By: Jahnke, Bjoern
    Abstract: Sub-Saharan Africa economies introduced extensive reforms of their tax systems in the last two decades. In most of these countries taxes are now remitted through the self-assessment system that relies on quasi voluntary compliance and audit selection by risk. However, the revenues from direct taxes remained fairly stable and tax/GDP ratios lack behind the industrialized world. Several scholars argue that corruption is one of the major obstacles to increase tax revenues but focus on perceived corruption and remain on the macro-level. This study uses mirco-level data from the Afrobarometer survey wave 5 and thus relates personal corruption experiences to tax morale. The nationally representative survey includes information about corruption experiences in everyday situations when people need to get access to public goods in 31 sub-Saharan African countries. The paper finds that these petty corruption experiences significantly reduce the peoples willingness to pay taxes and hence contribute to the state community. The survey also provides information about trust in tax department in general as well as the perceived number of corrupt tax officials. A mediation analysis estimates that petty corruption experiences not only cause a directly negative effect on tax morale but also have indirectly affect on tax morale via reduced trust in the tax department.
    Keywords: corruption, tax morale, institutional and governance quality, economic development
    JEL: D73 H26 K42
    Date: 2015–09
  11. By: Marin Ferry (PSL, Université Paris-Dauphine, LEDa, IRD, UMR DIAL)
    Abstract: (english) Using an event-study framework, this paper empirically assesses the impact of debt relief on government's tax effort. Our results suggest that having reached the decision point leads to higher level of tax effort. But our findings also reveal that HIPCs' governments seem to adopt moral hazard behavior (especially when institutional quality is weak) since they deploy the bulk of their tax effort before the decision point in order to get debt relief and then loosen it as they come close to the end of the debt relief process. However, post-debt relief tax effort remains significantly larger than the level recorded before the anticipatory effects took place, thus emphasizing an overall positive effect of the Enhanced HIPC initiative. _________________________________ (français) Cet article évalue l'impact des initiatives d'allègement de la dette multilatérale sur l'effort fiscal des gouvernements bénéficiaires. Les résultats de cette étude indiquent qu'avoir atteint le “point de décision” de l'initiative PPTE conduit les gouvernements concernés à enregistrer un effort fiscal plus important que s'ils n'avaient atteint ce point. Mais des tests additionnels révèlent également un certain aléa moral de la part de ces derniers puisqu'ils semblent déployer l'essentiel de leur effort fiscal dans le but d'obtenir des réductions de dette avant de réduire progressivement ce même effort au fur et à mesure qu'ils s'approchent du “point d'achèvement” et donc de la fin du processus PPTE. Cependant, malgré ce relâchement, le niveau d'effort fiscal observé en fin de parcours reste supérieur à celui enregistré avant que l'effet d'anticipation ne prenne place, permettant ainsi de conclure à un effet global positif de l'initiative PPTE.
    Keywords: Debt Relief, Tax Effort, Event-Study, Moral Hazard, Annulation de dette, Effort fiscal, Event-Study, Aléa Moral.
    JEL: F34 F35 H20 H30 H60
    Date: 2015–09
  12. By: Jing Zhang (Federal Reserve Bank of Chicago)
    Abstract: Europes debt crisis casts doubt on the effectiveness of fiscal austerity in highly-integrated economies. Closed-economy models overestimate its effectiveness, because they underestimate tax-base elasticities and ignore cross-country tax externalities. In contrast, we study tax responses to debt shocks in a two-country model with endogenous utilization that captures those externalities and matches the capital-tax-base elasticity. Quantitative results show that unilateral capital tax hikes cannot restore fiscal solvency in Europe, and have large negative (positive) effects at "home" ("abroad"). Restoring solvency via Nash competition reduces capital taxes sharply but increases labor taxes, and even the Cooperative equilibrium lowers (rises) capital (labor) taxes.
    Date: 2015
  13. By: Cremer, Helmuth (Toulouse School of Economics); Goulão, Catarina (Toulouse School of Economics); Roeder, Kerstin (University of Augsburg)
    Abstract: A fat and a healthy good provide immediate gratification, and cause health costs or benefits in the long run, which are misperceived. Additionally, the fat good (healthy good) increases (decreases) health care costs by increasing (decreasing) the probability of suffering from a chronic disease in the future. Individuals differ in income and in their degree of misperceptions concerning the health effects of the consumption of fat and of healthy goods. The level of the fat tax is determined through majority voting. Individuals vote according to their misperceived utility function. Consequently, excessive fat consumption is not due to a self-control problem but due to information deficiencies or cognitive inability to process information. A fraction of the fat tax proceeds is "earmarked" to reduce health insurance premiums while the remaining fraction finances a subsidy on the healthy good. This earmarking rule is determined at a constitutional stage to maximize utilitarian or Rawlsian welfare, anticipating the induced political equilibrium. We show that the fat tax in the political equilibrium is always lower than the utilitarian fat tax. This is no longer necessarily true with a Rawlsian objective. The determination of the optimal earmarking rule is quite complex. Even in the utilitarian case, it is not just used to boost political support for the fat tax. Instead, it may involve a tradeoff between the fat tax and the healthy good subsidy.
    Keywords: obesity, fat tax, misperception, voting, earmarking
    JEL: I12 I18 D72
    Date: 2015–09
  14. By: Romei, Federica
    Abstract: This paper studies the optimal path for public debt deleveraging in a heterogeneous agents framework under incomplete financial markets. My analysis addresses two questions. What is the optimal fiscal instrument the government needs to use to reduce public debt? What is the optimal speed of public debt deleveraging? The main finding is that public debt should be reduced quickly and by cutting public expenditure. If the fiscal authority is forced to use income taxation instead, public debt deleveraging needs to be slow. Independently of fiscal instruments, the economy may end up in a liquidity trap. I show that, in my model, the zero lower bound has a redistributive effect. If the liquidity trap is very persistent, it can reallocate resources from financially constrained agents to financially unconstrained ones. Due to this mechanism, a very slow public debt reduction achieved by increasing income taxation is very costly in terms of aggregate welfare.
    Keywords: Fiscal policy, Heterogeneous agents, Public debt deleveraging
    Date: 2015
  15. By: Svensson, Roger (Research Institute of Industrial Economics (IFN)); Westermark, Andreas (Sveriges Riksbank)
    Abstract: Gesell taxes on money holdings have received attention in recent decades as a way of alleviating the zero lower bound on interest rates. Less known is that such a tax was the predominant method used to generate seigniorage in large parts of medieval Europe for around two centuries. When the Gesell tax was levied, current coins ceased to be legal tender and had to be exchanged into new coins for a fee – an institution known as renovatio monetae or periodic re-coinage. This could occur as often as twice a year. Using a cash-in-advance model, prices increase over time during an issue period and falls immediately after the re-coinage date. Agents remint coins and the system generates tax revenues if the tax is su¢ ciently low, if the time period between re-coinages is su¢ ciently long, and if the probability of being penalized for using illegal coins is su¢ ciently high.
    Keywords: Seigniorage; Gesell tax; Periodic re-coinage: Cash-in-advance model
    JEL: E31 E42 E52 N13
    Date: 2015–09–08
  16. By: Nichols, Austin; Rothstein, Jesse
    Keywords: Social and Behavioral Sciences
    Date: 2015–03–01
  17. By: Richard G. Newell; Daniel Raimi
    Abstract: Oil and gas development associated with shale resources has increased substantially in the United States, with important implications for local governments. These governments tend to experience increased revenue from a variety of sources, such as severance taxes distributed by the state government, local property taxes and sales taxes, direct payments from oil and gas companies, and in-kind contributions from those companies. Local governments also tend to face increased demand for services such as road repairs due to heavy truck traffic and from population growth associated with the oil and gas sector. This paper describes the major oil- and gas related revenues and service demands (i.e., costs) that county and municipal governments have experienced in Arkansas, Colorado, Louisiana, Montana, North Dakota, Pennsylvania, Texas, and Wyoming. Based on extensive interviews with officials in the most heavily affected parts of these states, along with analysis of financial data, it appears that most county and municipal governments have experienced net financial benefits, though some in western North Dakota and eastern Montana appear to have experienced net negative fiscal impacts. Some municipalities in rural Colorado and Wyoming also struggled to manage fiscal impacts during recent oil and gas booms, though these challenges faded as drilling activity slowed.
    JEL: H25 H71 H72 H76 Q32 Q33 Q41 Q43 Q48
    Date: 2015–09
  18. By: Landon, Stuart (University of Alberta, Department of Economics); Smith, Constance (University of Alberta, Department of Economics)
    Abstract: The growth of debt and deficits in developed countries has led many states to consider the adoption of fiscal rules. There is little evidence on the benefits of different types of rules. This study uses Monte Carlo techniques to examine the impact on welfare and government spending stabilization of five types of government expenditure rules. The simulation employs a three-variable VAR estimated using data for the Canadian provinces. The use of a VAR captures the interactive effects between spending under the fiscal rule, output and revenue. The best fiscal rules reduce government expenditure volatility by about half relative to a balanced budget rule. The stabilization benefit is about twice as great for the three provinces with more resource-based and volatile revenue — Alberta, Saskatchewan and Newfoundland. Some fiscal rules lead to an unsustainable path for government debt or assets under many simulations due to an absence of feedback from the stock of debt or assets to current expenditure. We find that a simple rule, where government expenditure is based on the moving average of past government revenue, is one of the better performing rules and yields a level of expenditure stabilization and a welfare gain similar to the more complicated “debt brake” rule adopted by Switzerland and other countries. The Swiss rule requires forecasts for revenue and output, and its greater complexity may make it more difficult to implement, monitor, and communicate to the public.
    Keywords: fiscal rules; fiscal policy; stabilization; government spending; Canadian government; economic policy
    JEL: E61 E62 E63 H61 H62 H63
    Date: 2015–09–11
  19. By: Pablo D'Erasmo; Enrique G. Mendoza; Jing Zhang
    Abstract: The question of what is a sustainable public debt is paramount in the macroeconomic analysis of fiscal policy. This question is usually posed as asking whether the outstanding public debt and its projected path are consistent with those of the government's revenues and expenditures (i.e. whether fiscal solvency conditions hold). We identify critical flaws in the traditional approach to evaluate debt sustainability, and examine three alternative approaches that provide useful econometric and model-simulation tools to analyze debt sustainability. The first approach is Bohn's non-structural empirical framework based on a fiscal reaction function that characterizes the dynamics of sustainable debt and primary balances. The second is a structural approach based on a calibrated dynamic general equilibrium framework with a fully specified fiscal sector, which we use to quantify the positive and normative effects of fiscal policies aimed at restoring fiscal solvency in response to changes in debt. The third approach deviates from the others in assuming that governments cannot commit to repay their domestic debt, and can thus optimally decide to default even if debt is sustainable in terms of fiscal solvency. We use these three approaches to analyze debt sustainability in the United States and Europe after the recent surge in public debt following the 2008 crisis, and find that all three raise serious questions.
    JEL: E62 F34 F42 H21 H6 H87
    Date: 2015–09
  20. By: W. D. Gregori; L. Marattin
    Abstract: Fiscal distress of local governments and municipalities is a non-negligible component of the public finance turmoil after the Great Recession. In this paper we consider a dataset of Italian municipalities over the period 2000-2012 and look for the main budget determinants of local default. According to our results the default probability is positively affected by the share of loan repayment over total spending. This result is robust to alternative model specifications as well as inclusion of fixed effects, time dummies and macroeconomic control variables.
    JEL: H72 H74
    Date: 2015–09
  21. By: Richard Blundell (University College London)
    Abstract: Slides for plenary talk delivered at the annual meeting of the Society for Economic Dynamics.
    Date: 2015
  22. By: Alberto Alesina; Filipe Campante; Guido Tabellini
    Abstract: Fiscal policy is procyclical in many developing countries. We explain this policy failure with a political agency problem. Procyclicality is driven by voters who seek to ?starve the Leviathan? to reduce political rents. Voters observe the state of the economy but not the rents appropriated by corrupt governments. When they observe a boom, voters optimally demand more public goods or lower taxes, and this induces a procyclical bias in fiscal policy. The empirical evidence is consistent with this explanation: Procyclicality of fiscal policy is more pronounced in more corrupt democracies.
  23. By: Anna Zolotareva (Gaidar Institute for Economic Policy); Stanislav Shatalov (Gaidar Institute for Economic Policy)
    Abstract: The paper analyses available in theory approaches to the definition of judicial precedent. Authors compared precedent and judicial legislation in the countries jus commune and Russia. They assess wide powers of the courts in Russia at the expense of the Constitutional Court and introduction of precedent system in arbitrage
    Keywords: Russian economy, precedent law
    JEL: Y80
    Date: 2014
  24. By: Alexander Chudik; Kamiar Mohaddes; M. Hashem Pesaran; Mehdi Raissi
    Abstract: This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness. Our contribution is both theoretical and empirical. On the theoretical side, we develop tests for threshold effects in the context of dynamic heterogeneous panel data models with cross-sectionally dependent errors and illustrate, by means of Monte Carlo experiments, that they perform well in small samples. On the empirical side, using data on a sample of 40 countries (grouped into advanced and developing) over the 1965- 2010 period, we find no evidence for a universally applicable threshold effect in the relationship between public debt and economic growth, once we account for the impact of global factors and their spillover effects. Regardless of the threshold, however, we find significant negative long-run effects of public debt build-up on output growth. Provided that public debt is on a downward trajectory, a country with a high level of debt can grow just as fast as its peers in the long run.
    Date: 2015–09–08
  25. By: Göksu Aslan (University of Messina)
    Abstract: In this paper, redistribution and inequality impact on economic growth are observed for the countries in the panel framework approach, to the extent of their economic freedom score. There exists a growing research interest on inequality and economic growth relationships in the global level. On the other hand, redistributive policies and their effects are highly controversial since some views cover that the interventions for equality may have negative effects on economic growth. I apply system GMM estimation on a dynamic panel model as to test inequality and redistribution effects on economic growth and compare with ordinary least squares, within group and difference GMM estimations. Dataset includes annual observations from 1995 to 2011 for 141 countries. According to the SYS-GMM estimation results, for economically free countries, both net inequality and redistribution have negative impact on economic growth . The impact of net inequality is absolutely higher than impact of redistribution. For economically unfree countries, net inequality has positive significant effect, while redistribution has negative significant effect which is very low.
    Keywords: Economic growth, GDP, GMM, inequality, redistribution, economic freedom
    JEL: O40 C23 E62
  26. By: Thorsten Drautzburg (Federal Reserve Bank of Philadelphia); Harald Uhlig (University of Chicago)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2015
  27. By: Don Drummond; Evan Capeluck; Matthew Calver
    Abstract: Recent economic and fiscal projections produced by the Centre for the Study of Living Standards suggest that revenue growth over the next 23 years in most provinces and territories will be insufficient to maintain recent i ncreases in health expenditures while holding other spending constant on a real per capita basis. Motivated by these fiscal challenge s , we present a series of policy recommendations for Canada’s governments at all levels to foster greater economic growth. Higher GDP not only offers a means to raise government revenues, it also directly raises the well - being of Canadians. We consider options to boost economic growth in two broad ways. First, by boosting Canada’s productivity performance through policies pro moting private and public investment, education, technological innovation and diffusion, and trade. Second, by tapping into Canada’s underutilized labour supply, particularly by assisting women, older workers, persons with disabilities , Aboriginal people, and immigrants in successfully participating in the workforce. The recommendations in this report are guided by the Organization of Economic Co - operation and Development’ s green growth and inclusive growth frameworks and by the idea that government should take a more active role in supporting the economic activities of individuals and businesses.
    Keywords: Inclusive Growth, Green Growth, Fiscal Projections, Public Policy, Productivity Growth, Canada, Labour Supply, Provinces, Territories, Research and Development, Investment, Human Capital, Education, Internal Trade, International Trade, Immigration, Emigration, Old Age, Ageing, Aboriginal Peoples, Disabilities, Labour Force Participation, Inequality
    JEL: E62 H68 O40 J20
    Date: 2015–09
  28. By: Chad Jones (Stanford University)
    Abstract: Slides for plenary talk delivered at the annual meeting of the Society for Economic Dynamics.
    Date: 2015
  29. By: U.Sankar (Madras School of Economics)
    Abstract: The domain of public economics is increasing as governments‘ policy goal is shifting from economic development to sustainable development. Government has to act as a trustee representing future generations, and public policies must balance and integrate the three pillars (economic, social and environmental) of sustainable development, recognizing the ecological limits to growth. As per the UN development Agenda, sustainable development goals (SDGs) are meant for the period 2015-2030.This paper reviews the global concerns about ecological limits and the need for global partnership and considers the preparatory steps for adoption of SDGs and the means of implementation.
    Keywords: Public economics, General, Public Goods, Environment and Development, Sustainability, Ecological Economics, Ecosystem Services, Government Policy
    JEL: H10 H41 Q56 Q57 Q58
    Date: 2015–06
  30. By: Stefan Bach; Andreas Thiemann; Aline Zucco
    Abstract: We analyze the top tail of the wealth distribution in Germany, France, Spain, and Greece based on the Household Finance and Consumption Survey (HFCS). Since top wealth is likely to be underrepresented in household surveys we integrate the big fortunes from rich lists, estimate a Pareto distribution, and impute the missing rich. Instead of the Forbes list we mainly rely on national rich lists since they represent a broader base for the big fortunes. As a result, the top percentile share of household wealth in Germany jumps up from 24 percent in the HFCS alone to 33 percent after top wealth imputation. For France and Spain we find only a small effect of the imputation since rich households are better captured in the survey. The results for Greece are ambiguous since the data do not show clear concentration patterns.
    Keywords: Wealth distribution, missing rich, Pareto distribution
    JEL: D31 C46 C81
    Date: 2015
  31. By: Christopher J. O'Leary (W.E. Upjohn Institute for Employment Research)
    Abstract: In this paper I examine the rates at which adults in households recently receiving Temporary Assistance to Needy Families (TANF) become jobless, apply for and receive unemployment insurance (UI) benefits, and participate in publicly funded employment services. I also investigate the correlation of UI and employment services receipt with maintenance of self-sufficiency through return to work and independence from TANF. The analysis is based on person-level administrative program records from four of the nine largest states between 1997 and 2003. Evidence suggests that three-quarters of new TANF leavers experience joblessness within three years, and one-quarter of the newly jobless apply for UI benefits. About 87 percent of UI applicants have sufficient prior earnings to qualify for UI benefits; however, only about 44 percent qualify based on their job separation reasons. Among all UI applicants, TANF leavers were found to have much higher rates of voluntary quits and employer dismissals than non-TANF leavers. Nonetheless, 50 percent of TANF leavers who apply for UI ultimately receive benefits. Public employment services are used by one-quarter of newly jobless TANF leavers. Among UI applicants, more than 75 percent use public employment services whether they receive UI benefits or not, while only 14 percent of newly jobless TANF leavers who do not apply for UI choose to use public employment services. Among TANF leavers who become jobless and apply for UI, the rate of return to TANF is lower for those who receive UI benefits. Rates of return to TANF are highest among nonbeneficiary UI applicants and non-UI applicants with low recent earnings.
    Keywords: Unemployment insurance, temporary assistance to needy families, employment service, Wagner-Peyser, welfare, public assistance, unemployment, low-income, self-sufficiency, social safety net
    JEL: J65 I38 J68
    Date: 2015–09
  32. By: Kodama, Naomi; Yokoyama, Izumi
    Abstract: In 2003, a total reward system was introduced for employee pension insurance and health insurance in Japan. This reform increased the insurance premiums for bonuses from 2% to 21.87%, and decreased the premiums for monthly salary from 25.96% to 21.87%. As a result, the social insurance premium burden of some companies increased, while that of others decreased. The variation, depending on the difference in the bonus/monthly salary ratio before the introduction of the total reward system, allows us to measure the influence of the increased social insurance premium burden using a natural experiment. This paper provides new evidence on the possible effect that the 2003 total reward system had on the behavior of firms, specifically its impact on labor demand and wages. Consequently, many firms reduced the number of employees, increased the average number of working hours, and maintained the total number of working hours. In terms of the costs to firms, the increase in average monthly salary associated with longer working hours was compensated for by a decrease in the amount of the average bonus. Our finding of the effects of the 2003 reform on the behavior of firms could lead to the general effects of the increasing social insurance premium burden found in many developed countries.
    Keywords: Bonus ratio, Social insurance premium, Difference-in-differences estimation, Fixed effect model, Dinardo, Fortin, Lemieux decomposition
    JEL: J33 J38 H20
    Date: 2015–09

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