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on Public Economics |
| By: | Hildegunn Stokke; Jørn Rattsø |
| Abstract: | Income taxation may affect the regional allocation of population when prices vary over space. Our contribution is to compare different income tax systems in a migration equilibrium model for Norway using improved measure of regional wage differences. We apply register data of individual wages for the entire population to identify wage differences, while controlling for both observable and unobservable worker characteristics and allowing for dynamic learning effects on wages. We estimate regional differences in cost of living based on detailed data on housing prices. The model is calibrated to the current nominal income tax system and compared to an undistorted equilibrium without income tax. We investigate two alternative tax systems: Real income taxation where the real tax burden is proportional to real wages and equal real taxes across regions motivated by taxation of amenities. The numerical simulations document large shifts in the regional distribution of the population as the result of income taxation. The elasticity of population with respect to tax payments comes out with a value of -2.64. Nominal income taxation creates a disincentive to locate in productive high-wage regions, and generates a deadweight loss due to locational inefficiencies equal to 0.028% of income. Real income taxation gives a geographic distribution of the population closer to the undistorted equilibrium, and hence with lower deadweight loss, while equal real taxes is the least efficient tax system. |
| Keywords: | Income taxation; regional taxation; cost of living; amenities |
| JEL: | H24 H77 J61 R23 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa15p305&r=pbe |
| By: | Laura Abramovsky (Institute for Fiscal Studies and Institute for Fiscal Studies); David Phillips (Institute for Fiscal Studies and Institute for Fiscal Studies) |
| Abstract: | We develop a tax micro-simulator model (MEXTAX) that can quantify the revenue and distributional impact of tax reforms in Mexico using micro-level data. We use MEXTAX to assess revenue-raising reforms to Mexico’s direct and indirect tax systems of 2010. Initial proposals by the Executive Power included the introduction of a uniform expenditure tax covering traditionally untaxed necessities (such as food). The reform approved by the Congress replaced this with an increase in the standard (non-uniform) rate of VAT, to avoid regressive impacts. Both reform packages included other minor changes to income tax and excise duties. We argue that given that indirect taxes were changed the most in both reforms, expenditure should be used to measured living standards and proportional progressivity. We find that both the reform package proposed and the reform package approved are progressive if expenditure is used as a measure of living standards, although this is not the case for the proposed reform if income is used. However, the proposed reform would have raised more revenues than the approved reform and we argue that the foregone revenues due to the amendments could have been used to target poorer households more effectively using more direct instruments for redistribution. We also find that using alternative assumptions about missing income or labor supply response affect quantitatively, but not qualitatively, results. The model can be extended to incorporate further behavioral margins and to other countries with similar tax structures. |
| Keywords: | Tax policy; micro-simulators; labour supply; Mexico |
| JEL: | H20 H22 H30 J20 D30 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:15/23&r=pbe |
| By: | Guo Ji (Beijing Normal University) |
| Abstract: | Cities, especially those with cultural heritage, attract a large proportion of the world’s tourists each year. A large body of literature studies the sustainability of cultural tourism. It is shown that the excessive visitation of heritage cities strongly affects sensitive urban areas (Russo 2002). The costs of congestion caused by tourism include pressure and damage on urban facilities and premises, typically, historically and culturally important buildings, monuments and artifacts which have variable degrees of “non-excludability” and “non-rivalry” and thus are, at least partly, public goods. Furthermore, the congestion drives citizens and firms to abandon central locations, hampering local development. Spatially differentiated taxation aimed at visitors and tourists is adopted in parts of the world which may promote a more equitable allocation of costs of tourism. However, there is a surprising lack of analytical analysis on either the impacts of tourism on heritage cities or the efficiency of tourist taxation.This paper studies the interactions between tourist tax, local public good provision, which includes protection and restoration of urban facilities/cultural heritage, and the number of tourists in a scenario of multi-regional tax competition between governments of cultural heritage cities. On the one hand, tourism has a positive effect on private income in the heritage cities, as well as government tax revenue. On the other hand however, there is a tourism-related social cost which is equivalent to “congestion” of regular public goods. We believe that the efficiency of tourist taxation is the key to balancing the income and costs brought about by tourism. |
| Keywords: | tourist tax; city infrastructure; tourism externalities; tax competition |
| JEL: | H21 H23 R00 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:3104783&r=pbe |
| By: | Willem Sas |
| Abstract: | In this paper, commuting is introduced to a federal economy where benevolent lower-level (state) governments levy an ad valorem tax on labour income. This results in inefficiently low levels of taxation, even when households as a whole do not migrate. Indeed, rather than attracting more workers by lowering taxes, states are out to boost labour supplied by own residents and impede work incentives of non-residents. When the tax base is co-occupied by the federal and state governments secondly, either under- or overtaxation occurs. We find that when taxation is levied ad valorem, undertaxation is more liable to occur than under unit taxation. For the same underlying reasons lastly, fiscal equalisation is expected to give less cause for overtaxation as commonly assumed. |
| Keywords: | Commuting; fiscal federalism; tax externalities; tax competition |
| JEL: | H71 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa15p690&r=pbe |
| By: | Mertens, Karel |
| Abstract: | Using new narrative measures of exogenous variation in marginal tax rates associated with postwar tax reforms in the US, this study estimates short run elasticities of taxable income of around 1.2 based on time series from 1946 to 2012. Elasticities are larger in the top 1% of the income distribution but are also positive and statistically significant for other income groups. Previous time series studies of tax returns data have found little evidence for income responses to taxes outside the top of the income distribution. The different results in this study arise because of additional efforts to account for dynamics, expectations and especially the endogeneity of tax policy decisions. Marginal rate cuts lead to increases in real GDP and declines in unemployment. This study also presents evidence that the responses are to marginal rather than average tax rates. Counterfactual tax cuts targeting the top 1% alone have positive effects on economic activity and incomes outside of the top 1% but increase inequality in pre-tax incomes. The data and methodology in this study do not permit any conclusions about the impact of tax rate changes targeting lower income taxpayers alone. |
| Keywords: | Fiscal Policy; Income; Income Distribution; Marginal Tax Rates; Tax Changes |
| JEL: | E62 H24 H3 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10896&r=pbe |
| By: | Fidel Perez-Sebastian; Ohad Raveh; Yaniv Reingewertz |
| Abstract: | How do state tax rates respond to federal tax shocks? This paper presents a novel mechanism of heterogeneous vertical tax externalities across levels of fiscal advantage, showing that tax increases can be expansionary even without their reinvestment. States rich with natural resources have a fi scal advantage in the inter-state competition over production factors which allows them to respond better to changes in federal taxes and, consequently, attract capital from other parts of the nation. We add heterogeneity in fiscal advantage levels to an otherwise standard model of vertical tax externalities and horizontal tax competition; the model shows that, irrespective of federal redistribution, the contractionary effect of a federal tax increase can be overturned in states with high fiscal advantage, through an increase in their tax base. Using the case of the U.S., and narrative-based measured federal tax shocks a-la Romer and Romer (2010), we provide empirical evidence for the various aspects of this mechanism. Specifi cally, our lower-bound estimates indicate that, controlling for federal transfers, a 1% increase in the GDP share of capital-related federal taxes at the beginning of a year increases the growth in the per capita tax base by approximately 1.6% in high fi scal advantage states at the end of it, on average. |
| Keywords: | Fiscal shocks, fiscal capacity, federalism, natural resources, factor mobility, tax competition |
| JEL: | H77 H71 Q32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:oxcrwp:160&r=pbe |
| By: | Marta Lachowska (W.E. Upjohn Institute for Employment Research) |
| Abstract: | This paper uses tax rebate payments from the 2008 economic stimulus to estimate the effect of a one-time change in income on three measures of subjective well-being: life satisfaction, health satisfaction, and affect. The income effect is identified by exploiting the plausibly exogenous variation in the payment schedule of the rebates. Using both ordinary least squares and two-stage least squares estimators, I find that the rebates had a large and positive impact on affect, which is explained by a reduction in feelings of stress and worry. For life satisfaction and health satisfaction, there is weaker evidence of a positive impact. Overall, the results show that a temporary increase in liquidity may enhance emotional well-being and that this effect is relatively stronger for low-income respondents. |
| Keywords: | Subjective well-being, affect, income effect, quasi-experimental, instrumental variable |
| JEL: | I31 H31 E62 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:upj:weupjo:15-238&r=pbe |
| By: | Sebastian Dyrda; Marcelo Pedroni |
| Abstract: | This paper studies optimal taxation in an environment where heterogeneous households face uninsurable idiosyncratic risk. To do this, we formulate a Ramsey problem in a standard infinite horizon incomplete markets model. We solve numerically for the optimal path of proportional capital and labor income taxes, (possibly negative) lump-sum transfers, and government debt. The solution maximizes welfare along the transition between an initial steady state, calibrated to replicate key features of the US economy, and an endogenously determined final steady state. We find that in the optimal (utilitarian) policy: (i) capital income taxes are front-loaded hitting the imposed upper bound of 100 percent for 33 years before decreasing to 45 percent in the long-run; (ii) labor income taxes are reduced to less than half of their initial level, from 28 percent to about 13 percent in the long-run; and (iii) the government accumulates assets over time reducing the debt-to-output ratio from 63 percent to -17 percent in the long-run. Relative to keeping fiscal instruments at their initial levels, this leads to an average welfare gain equivalent to a permanent 4.9 percent increase in consumption. Even though non-distortive lump-sum taxes are available, the optimal plan has positive capital and labor taxes. Such taxes reduce the proportions of uncertain and unequal labor and capital incomes in total income, increasing welfare by providing insurance and redistribution. We quantify these welfare effects. We also show that calculating the entire transition path (as opposed to considering steady states only) is quantitatively important. Implementing the policy that maximizes welfare in steady state leads to a welfare loss of 6.4 percent once transitory effects are accounted for. |
| Keywords: | Optimal Taxation; Heterogenous Agents; Incomplete markets |
| JEL: | E2 E6 H2 H3 D52 |
| Date: | 2015–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-549&r=pbe |
| By: | Sebastian Dyrda; Marcelo Pedroni |
| Abstract: | This paper studies optimal taxation in an environment where heterogeneous households face uninsurable idiosyncratic risk. To do this, we formulate a Ramsey problem in a standard infinite horizon incomplete markets model. We solve numerically for the optimal path of proportional capital and labor income taxes, (possibly negative) lump-sum transfers, and government debt. The solution maximizes welfare along the transition between an initial steady state, calibrated to replicate key features of the US economy, and an endogenously determined final steady state. We find that in the optimal (utilitarian) policy: (i) capital income taxes are front-loaded hitting the imposed upper bound of 100 percent for 33 years before decreasing to 45 percent in the long-run; (ii) labor income taxes are reduced to less than half of their initial level, from 28 percent to about 13 percent in the long-run; and (iii) the government accumulates assets over time reducing the debt-to-output ratio from 63 percent to -17 percent in the long-run. Relative to keeping fiscal instruments at their initial levels, this leads to an average welfare gain equivalent to a permanent 4.9 percent increase in consumption. Even though non-distortive lump-sum taxes are available, the optimal plan has positive capital and labor taxes. Such taxes reduce the proportions of uncertain and unequal labor and capital incomes in total income, increasing welfare by providing insurance and redistribution. We quantify these welfare effects. We also show that calculating the entire transition path (as opposed to considering steady states only) is quantitatively important. Implementing the policy that maximizes welfare in steady state leads to a welfare loss of 6.4 percent once transitory effects are accounted for. |
| Keywords: | Optimal Taxation; Heterogenous Agents; Incomplete markets |
| JEL: | E2 E6 H2 H3 D52 |
| Date: | 2015–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-550&r=pbe |
| By: | Tomas Havranek (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic; Czech National Bank); Zuzana Irsova; Jiri Schwarz (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic) |
| Abstract: | Key parameters for the modeling of public finances are tax revenue elasticities with respect to tax bases. Yet the existing studies estimating these elasticities for emerging countries disregard the effects of tax reforms on tax revenue, which renders their estimates inconsistent. We use a unique data set from the Czech Republic to account for the effects of reforms and estimate both short- and long-run tax revenue elasticities. Our results suggest that the long-run elasticities are 1.4 for wage tax, 0.9 for value added tax, and 1.7 for profit tax. The adjustment process for value added tax is fast, but for the remaining two categories it is important to distinguish between the short- and long-run elasticities: the initial response of revenue to changes in the bases is weak. In the case of wage tax it takes half a year for the elasticity to surpass unity. |
| Keywords: | Tax revenue, tax base, elasticity, error correction models |
| JEL: | H24 H25 H27 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2015_23&r=pbe |
| By: | Peter Levell (Institute for Fiscal Studies and Institute for Fiscal Studies); Barra Roantree (Institute for Fiscal Studies and Institute for Fiscal Studies); Jonathan Shaw (Institute for Fiscal Studies and Institute for Fiscal Studies) |
| Abstract: | Most analysis of the effects of the tax and benefit system is based on snapshot information about a single cross-section of people. Such an approach gives only a partial picture because it cannot account for the fact that circumstances change over life. This paper investigates how our impression of redistribution undertaken by the tax and benefit system changes when viewed from a lifetime perspective. To do so, we simulate lifecycle data designed to be representative of the experiences of the baby-boom cohort, born 1945–54. We examine the properties of the current tax and benefit system as well as historical and hypothetical reforms from both a lifetime and a snapshot perspective. We find that much of what the tax and benefit system achieves is effectively to redistribute across periods of life and, as a result, it is much less effective at reducing lifetime inequality than inequality at a snapshot. |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:15/27&r=pbe |
| By: | Richard Collier; Giorgia Maffini |
| Abstract: | In the last few years, the UK has adopted a fiercely competitive business tax policy by reducing the general tax burden on business and expanding individual regimes targeted to mobile factors: CFC rules, interest deductibility rules, and the Patent Box have made the UK very attractive for internationally mobile capital and profits. As the same time, the UK has strongly supported the OECD BEPS project aimed at reducing multinationalsÕ tax avoidance and, hence, we argue, at eliminating or constraining forms of tax competition among countries based on individual regimes targeted to mobile capital and profits. We claim that, especially in the implementation phase of the BEPS recommendations, there will be tensions between the UK competitiveness agenda and its support for the BEPS. Such tensions will be reconciled by shifting the UK tax competition policy from a mix of rate-based plus individual regimes policy to more of a rate-based approach. In this scenario, the government will have to tighten some specific measures aimed at attracting highly mobile capital and profits, such as the patent box regime and possibly interest deductions. At the same time, it will reduce the tax burden on both mobile and less mobile activities by implementing economy-wide cuts, allowed under BEPS. Most likely, such cuts would come from a further reduction in the headline corporate tax rate and the cuts announced in the July 2015 Budget should be interpreted in this light. Cuts in the headline rate essentially reduce the taxation on profits but they do not take account of the fact that for other decisions such as investment in tangible assets and information and communications technology, other elements of the tax code, such as capital allowances, are more important. To foster real investment, the government could consider an increase in capital allowances. Another option would be the introduction of an Allowance for Corporate Equity (ACE). The interesting feature of the ACE in the context of BEPS is that it reduces the incentive to classify financing instruments as tax-advantaged debt. |
| Keywords: | Corporate income tax; BEPS; tax avoidance; international taxation, UK |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:don:donwpa:081&r=pbe |
| By: | Pástor, Luboš; Veronesi, Pietro |
| Abstract: | We develop a simple general equilibrium model with heterogeneous agents, incomplete financial markets, and redistributive taxation. Agents differ in both skill and risk aversion. In equilibrium, agents become entrepreneurs if their skill is sufficiently high or risk aversion sufficiently low. Under heavier taxation, entrepreneurs are more skilled and less risk-averse, on average. Through these selection effects, the tax rate is positively related to aggregate productivity and negatively related to the expected stock market return. Both income inequality and the level of stock prices initially increase but eventually decrease with the tax rate. Investment risk, stock market participation, and skill heterogeneity all contribute to inequality. Cross-country empirical evidence largely supports the model's predictions. |
| Keywords: | asset pricing; entrepreneurship; inequality; redistribution; taxation |
| JEL: | E24 G12 G18 H23 J24 J31 J38 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10899&r=pbe |
| By: | David Bruner; Michael Jones; Michael McKee; Christian Vossler |
| Abstract: | Key Words: |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:apl:wpaper:15-11&r=pbe |
| By: | Hans Bloemen (VU University Amsterdam, the Netherlands) |
| Abstract: | Most empirical studies of the impact of labour income taxation on the labour supply behaviour of households use a unitary modelling approach. In this paper we empirically analyze income taxation and the choice of working hours by combining the collective approach for household behaviour and the discrete hours choice framework with fixed costs of work. We identify the sharing rule parameters with data on working hours of both the husband and the wife within a couple. Parameter estimates are used to evaluate various model outcomes, like the wage elasticities of labour supply and the impacts of wage changes on the intrahousehold allocation of income. We also simulate the consequences of a policy change in the tax system. We find that the collective model has different empirical outcomes of income sharing than a restricted model that imposes income pooling. In particular, a specification with income pooling fails to capture asymmetries in the income sharing across spouses. These differences in outcomes have consequences for the evaluation of policy changes in the tax system and shed light on the effectiveness of certain policies. |
| Keywords: | Labour supply; Household behaviour and Family Economics; Intrahousehold allocation; Taxation; Model construction and estimation |
| JEL: | C51 D1 D13 H24 J22 |
| Date: | 2015–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20150121&r=pbe |
| By: | Milan Deskar Škrbić (Erste & Steiermarkische bank); Hrvoje Šimović (Faculty of Economics and Business, University of Zagreb) |
| Abstract: | When estimating the size of fiscal multipliers one has to take into consideration various structural characteristics of economies which, directly or indirectly, affect the transmission from government stimuli to economic activity. Thus, in this paper we use a ‘bucket approach’ to determination of the size of fiscal multipliers, which enables us to make presumptions on the size of fiscal multipliers, given the structural characteristics of selected Western Balkan economies – Croatia, Slovenia and Serbia. After this ‘non-empirical’ approach we use structural VAR framework to test our hypothesis derived from the ‘bucket approach’. Our results confirmed the hypotheses on the relative size of the multipliers between these three peer countries, with Croatia having the highest spending multiplier and Slovenia the lowest one. |
| Keywords: | fiscal multipliers, Western Balkans, bucket approach, structural VAR |
| JEL: | E62 C32 H20 H30 H50 |
| Date: | 2015–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:zag:wpaper:1510&r=pbe |
| By: | Lara Ibarra,Gabriel; Martinez Cruz,Adan L. |
| Abstract: | This study analyzes the extent of downward bias in the calculation of inequality of opportunity for continuous outcomes such as income. A typically recognized source of bias is the unobserved circumstances as there is a limited set of variables available in household and labor force surveys. Another previously overlooked source is the likely unobservable nature of top incomes. Using Monte Carlo simulations where the underlying inequality of opportunity is predetermined at various levels, the study presents three key findings. First, the omission of a relevant circumstance can bias the inequality of opportunity estimate by as much as 80 percent, depending on how much variation of the outcome such circumstance explains. Second, not observing the top 5 percent of the income distribution can lead to downward biases of anywhere between 12 and 35 percent, and the combination of missing the most favored population and even one relevant circumstance exacerbates the bias of the empirical estimates. The third key result is that the estimated inequality of opportunity is strongly correlated with the amount of variation in the outcome variable explained by the combination of circumstances (measured by the R2). This result suggests that in empirical applications, the inequality of opportunity estimate can be roughly (and quickly) approximated using simple econometric techniques. |
| Keywords: | Economic Theory&Research,Population Policies,Rural Poverty Reduction,Inequality,Poverty Impact Evaluation |
| Date: | 2015–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:7458&r=pbe |
| By: | Christian Hilber; Teemu Lyytikainen |
| Abstract: | We estimate the effect of the UK Stamp Duty Land Tax on household mobility using micro data. The UK (until 2014) provided an ideal setting to explore the impact of housing transfer taxes on mobility decisions. This is partly because the stamp duty liability is quite substantial, at least for more expensive housing (the top rate is currently 7 percent of the purchase price), and partly because the stamp duty liability, until December 3 of 2014, jumped sharply at various cut-off values, providing various ?discontinuities? that can be exploited empirically. Our analysis focuses on a discontinuity where the stamp duty jumps particularly strongly from 1 percent to 3 percent of the purchase price. This discontinuity allows us to isolate the impact of the stamp duty from other determinants of mobility. In our core analysis we use data from the British Household Panel Survey (BHPS) and compare homeowners with self-assessed house values on either side of the cut-off, while controlling for flexible but smooth functions of house values. We find that the stamp duty has a significant negative effect on household mobility and that this effect is confined to short-distance moves and to moves that are housing- rather than job-related. Our core estimates indicate that the 2 percentage-point increase in the stamp duty reduces the annual rate of mobility by between 2 and 3 percentage points. This is a very substantive effect given that in the UK about 5 percent of all owner-occupier households move each year. To further assess the validity and quantitative significance of the response of households to the stamp duty, we turn our attention to a different dataset from the Land Registry that consists of actual transaction prices. Analysing the distribution of transaction prices of all housing sales in England and Wales, we find additional evidence of a strong behavioural response. We document bunching of observed transaction prices at the cut-offs where the tax rate increases and, consistent with the results of our core analysis, we find that a 2 percentage point increase in the tax rate decreases the volume of sales by roughly 30 percent. The contribution of our study to the existing literature is twofold. Firstly, we identify the long-term (equilibrium) effects of the stamp duty on actual household mobility. Secondly, we are able to distinguish between different types of moves. In particular, our analysis distinguishes between short- and long-distance moves and between housing- and job-related moves. This paper is to our knowledge the first quasi-experimental study that directly evaluates the effect of a real estate transfer tax on actual household mobility. |
| Keywords: | Stamp duty; housing transfer taxes; transaction costs; homeownership; mobility |
| JEL: | D23 H21 H27 J61 R21 R31 R38 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa15p1491&r=pbe |
| By: | Dan Biller; Luis Andres; David Cuberes |
| Abstract: | In this paper we develop a dynamic model that explains the pattern of population and production allocation in an economy with an urban location and a rural one. Agglomeration economies make urban dwellers benefit from a larger population living in the city and urban firms become more productive when they operate in locations with a larger labor force. However, congestion costs associated with a too large population size limit the process of urban-rural transformation. Firms in the urban location also benefit from a public good that enhances their productivity. The model predicts that in the competitive equilibrium the urban location is inefficiently small because households fail to internalize the agglomeration economies and the positive effect of public goods in urban production. |
| Keywords: | rural-urban transformation; agglomeration economies; congestion costs; public |
| JEL: | H40 R1 R23 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa15p1484&r=pbe |
| By: | Ronny Freier; Benjamin Bruns; Abel Schumann |
| Abstract: | We study political determinants of municipality amalgamations during a boundary reform in the German state of Brandenburg, which reduced the number of municipalities from 1,489 to 421. The analysis is conducted using an extensive data set on the political decision makers as well as fiscal and socio-economic variables on the level of the individual municipality and on the level of individual mergers. We ask whether party representation in the town council influences the merger decision. To identify the effect, we follow a dual approach and make use of different stages in the reform process. First, municipalities were initially free to choose partners. In a later phase of the reform the state legislature forced municipalities to amalgamate. We can, thus, compare voluntary to forced units. Second, we simulate potential mergers from the map of municipalities and compare voluntary mergers to those simulated units. Both approaches show that political representation mattered significantly during the voluntary stage of the merger reform. |
| Keywords: | H10 |
| JEL: | H11 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa15p188&r=pbe |
| By: | Miki Miyaki (Rikkyo University, College of Business) |
| Abstract: | With the social demand for childcare service diversifying and local governments becoming increasingly cash-strapped, the proportion of public nursery schools in the childcare sector has been shrinking in recent years. The funding reforms of 2004, which abolished the national subsidy to public nursery schools, are seen as one of the triggers of this phenomenon. Using a panel dataset of 983 municipalities across the nation, this paper investigates the impact of the reforms on the operating costs of public nursery schools. We found that different municipalities responded differently to the reforms. In areas with relatively large populations, fiscally stronger municipalities were likely to spend less on public nursery schools in the wake of the reforms, while municipalities in smaller cities spent more. Besides, municipalities that were not compensated for the loss of the national subsidy reduced expenditures in large cities. In small cities, on the other hand, such municipalities actually increased expenditures. |
| Keywords: | operating cost, public nursery school, funding reform, difference-in-differences approach |
| JEL: | H71 H75 H77 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1527&r=pbe |