nep-pbe New Economics Papers
on Public Economics
Issue of 2015‒12‒08
eighteen papers chosen by
Thomas Andrén

  1. Government Size, Institutions, and Export Performance among OECD Economies By Bournakis, Ioannis; Tsoukis, Christopher
  2. Regional payroll tax cuts and individual wages: Heterogeneous effects across education groups By Hildegunn Ekroll Stokke
  3. Fiscal stimulus in economic unions: what role for states? By Carlino, Gerald A.; Inman, Robert P.
  4. Internal migration and public policy By Giuranno, Michele; Biswas, Rongili
  5. Shifts of Distortion and Corruption over Local Political Cycles in China By Shawn Chen
  6. Fiscal multipliers and time preference By Marcheggiano, Gilberto; Miles, David
  7. Taxation Challenges in Developing Countries By Michael Carnahan
  8. The Role of Tax Exemptions and Credits By James Alm; Bibek Adhikari
  9. Who do you blame in local finance? An analysis of municipal financing in Italy By Massimo Bordignon; Veronica Grembi; Santino Piazza
  10. Fiscal Conditions and Long-term Interest Rates By Koji Nakamura; Tomoyuki Yagi
  11. Study to quantify and analyse the VAT GAP in the EU member states By Luca Barbone; Mikhail Bonch-Osmolovskiy; Grzegorz Poniatowski
  12. Indirect Fiscal Effects of Long-Term Care Insurance By Johannes Geyer; Peter Haan; Thorben Korfhage
  13. Explaining differences in electric vehicle policies across countries: innovation vs. environmental policy rationale By Wesseling , Joeri H.
  14. The Nordic Welfare Model in an Open European Labor Market By Bratsberg, Bernt; Røed, Knut
  15. The Welfare State and the demographic dividend: A cross-country comparison By Gemma Abio Roig; Concepció Patxot Cardoner; Miguel Sánchez-Romero; Guadalupe Souto Nieves
  16. Carbon tax, pollution and spatial location of heterogeneous firms By Nelly Exbrayat; Stéphane Riou; Skerdilajda Zanaj
  17. Banking, Currency, Stock Market and Debt Crises: Revisiting Reinhart & Rogoff Debt Analysis in Spain, 1850-1995 By Maixé-Altés, J. Carles; Iglesias, Emma M.
  18. Loan as a Durable Good and Bank Indirect-Tax Incidence By Soldatos, Gerasimos T.; Varelas, Erotokritos

  1. By: Bournakis, Ioannis; Tsoukis, Christopher
    Abstract: With a panel of 18 OECD countries, 1980-2005, we investigate the determinants of export performance, in particular the effects of the size of government and institutional features. In a model of endogenous extent of domestically-produced goods, government size has a non-linear effect on export performance; the export-maximising size of government (tax receipts) is around 40-45% of GDP; the best size of productive government spending is around 16% of GDP. Product market and labour market-related rigidities affect negatively the export performance both on their own and via a negative effect on the effectiveness of R&D and slow down the speed of adjustment. Among traditional variables, relative unit labour cost, R&D shares in GDP, TFP growth and human capital show up significantly and with the expected signs.
    Keywords: Export shares, government size, institutions, unit labour cost, competitiveness
    JEL: E02 F14 F41
    Date: 2015–11
  2. By: Hildegunn Ekroll Stokke (Department of Economics, Norwegian University of Science and Technology)
    Abstract: The empirical evidence on the incidence of payroll taxation is primarily based on the wage bill of firms. This paper applies matched employer-employee register data on individual wages for all private sector workers in Norway. Exploiting a payroll tax reform and using the difference-indifference approach, I find that 1% reduction in labor costs generates 0.5% wage increase. Among low educated workers the degree of tax shifting equals 50%, while the wage response for highly educated is insignificant. Lower payroll taxes have limited effects on employment. The findings imply that the absolute value of the labor demand elasticity decreases with the level of education.
    Keywords: Payroll tax cut, individual wages, heterogeneous effects, education
    JEL: H22 J23 J31 J38
    Date: 2015–11–21
  3. By: Carlino, Gerald A. (Federal Reserve Bank of Philadelphia); Inman, Robert P. (The Wharton School of the University of Pennsylvania)
    Abstract: The Great Recession and the subsequent passage of the American Recovery and Reinvestment Act returned fiscal policy, and particularly the importance of state and local governments, to the center stage of macroeconomic policymaking. This paper addresses three questions for the design of intergovernmental macroeconomic fiscal policies. First, are such policies necessary? An analysis of U.S. state fiscal policies show state deficits (in particular from tax cuts) can stimulate state economies in the short run but that there are significant job spillovers to neighboring states. Central government fiscal policies can best internalize these spillovers. Second, what central government fiscal policies are most effective for stimulating income and job growth? A structural vector autoregression analysis for the U.S. aggregate economy from 1960 to 2010 shows that federal tax cuts and transfers to households and firms and intergovernmental transfers to states for lower income assistance are both effective, with one- and two-year multipliers greater than 2.0. Third, how are states, as politically independent agents, motivated to provide increased transfers to lower income households? The answer is matching (price subsidy) assistance for such spending. The intergovernmental aid is spent immediately by the states and supports assistance to those most likely to spend new transfers.
    Keywords: Fiscal federalism; Intergovernmental aid; Aggregate Stabilization policy; Multiplier analysis
    JEL: E6 H3 H7 R5
    Date: 2015–11–16
  4. By: Giuranno, Michele; Biswas, Rongili
    Abstract: This paper studies the relation between internal migration and public spending on public goods. We describe centralized public policy when a central government is comprised of elected representatives from local electoral districts. Internal migration determines the median voter in the districts. The median voters decide the equilibrium policy through bargaining. We find the conditions under which exogenous inter-jurisdictional migration results in larger or smaller public spending. The paper also studies whether and when inter-regional migration leads to the efficient policy outcome. We find that the efficient size of government spending depends on the way internal migration leads to convergence among the regional median incomes and the national average income.
    Date: 2015–12
  5. By: Shawn Chen (Business School, University of Western Australia)
    Abstract: Do corrupt firms create negative externality and hurt less corrupt ones? I answer this question by exploring cross-industry distribution of taxation, credit, and corruption over local political cycles in China. It is known that capital-intensive firms are more likely to be corrupt. The paper argues that preferential treatment in taxation or credit allocation towards corrupt firms must result in detrimental treatment against others when governments face resource constraints, and that corruption is generally conducted through political network that expands and shrinks over political cycles. Using the variation in turnover of secretaries of the Chinese Communist Party in 275 prefectures between 2000 and 2007, I find that, as the tenure of the secretaries increases, enforcement of both VAT and corporate income tax as well as access to credit all change in favour of capital-intensive industries but to the detriment of labour-intensive counterparts. I then use the firm-level Entertainment and Travel Cost (ETC) as a proxy of corruption and find that the variation of cross-industry distribution of ETC over secretaries' tenure is in line with the variation in taxation and credit allocation. The finding suggests that corruption may not reduce overall distortions in the economy but only shifts distortions across economic agents.
    Date: 2015
  6. By: Marcheggiano, Gilberto (Monetary Policy Committee Unit, Bank of England); Miles, David (Monetary Policy Committee Unit, Bank of England)
    Abstract: This paper explores the links between fiscal multipliers and household discount rates. We report evidence of a large and statistically significant relationship between reported rates of time preference across countries and the government expenditure multiplier. This study uses recent cross-country data on reported rates of time preferences gathered by Wang, Rieger and Hens (2011). We find that a higher reported rate of time preference is strongly associated with a larger government expenditure multiplier. Our findings may help to explain some of the differences in view over the optimal path for fiscal consolidation in Europe today, between the Germanic and Northern European countries (whose representatives appear to favour a faster fiscal retrenchment) and those in the South (who would like their required fiscal adjustment to occur less rapidly).
    Date: 2015–12–01
  7. By: Michael Carnahan
    Abstract: A well-functioning revenue system is a necessary condition for strong, sustained and inclusive economic development. However, the revenue systems in some developing countries have fundamental shortcomings. Using Public Expenditure and Financial Accountability assessment data, this article provides a summary of the revenue raising capabilities across 58 developing countries. Tax reforms or tax system changes need to be made mindful of that current capacity. The optimal choice of tax regime may be different when administrative capacity is low. The increasing globalisation of economic activity adds a further layer of complexity that developing countries need to manage in building and maintaining their revenue systems. Finally, any proposals to change the revenue system in a developing country need to recognise that, like developed countries, tax reforms are highly political endeavours.
    Keywords: tax policy;tax administration;tax reform;developing countries;fiscal policy
    Date: 2015–01–28
  8. By: James Alm (Department of Economics, Tulane University); Bibek Adhikari (Department of Economics, Tulane University)
    JEL: H71 H72
    Date: 2015–12
  9. By: Massimo Bordignon (Università Cattolica, Milano); Veronica Grembi (Copenhagen Business School); Santino Piazza (IRES Piemonte)
    Abstract: In a political agency model, we study the effect of introducing a less transparent tax tool for the financing of local governments. We show that lower quality politicians would use more the less transparent tax tool to enhance their probability of re-election. This prediction is tested by studying a reform that in 1999 allowed Italian municipalities to partially substitute a more accountable source of tax revenue (the property tax) with a less transparent one (a surcharge on the personal income tax of residents). Using a Difference in Difference approach, we show that in line with theory, Mayors at their first term in power adopted a higher surcharge on the personal income tax and reduced the property tax rate significantly more than Mayors in their final term.
    Keywords: Fiscal federalism, tax transparency, agency Model, property tax
    JEL: H71 H77 D78
    Date: 2015–12
  10. By: Koji Nakamura (Bank of Japan); Tomoyuki Yagi (Bank of Japan)
    Abstract: We conduct a quantitative analysis of the effects of fiscal conditions and other factors on nominal long-term interest rates based on panel data of 23 member states of the Organisation for Economic Co-operation and Development (OECD) for the period from 1980 to 2013. In addition to labor productivity, labor input, and inflation rates, our analysis shows that the fiscal balance, national burden ratio, and current account balance (= domestic savings) influence nominal long-term interest rates. The elasticity of nominal long-term interest rates to the fiscal balance vary, depending on the levels of government debt outstanding, which are thought to affect perceptions of fiscal sustainability in the future. This implies that the elasticity of nominal long-term interest rates to the fiscal balance is non-linear depending on the levels of government debt outstanding. We also find that a low national burden ratio nurtures future expectations of fiscal consolidation and thus keeps long-term interest rates at low levels. In addition, non-traditional monetary policy measures in recent years are found to keep nominal long-term interest rates at low levels.
    Keywords: long-term interest rates; fiscal conditions; monetary policy
    JEL: E43 E52 H62 H63
    Date: 2015–11–27
  11. By: Luca Barbone; Mikhail Bonch-Osmolovskiy; Grzegorz Poniatowski
    Abstract: Only in 2013 the EU Member States lost approximately €168 billion in VAT revenues due to non-compliance, according to a recent study conducted by the Center for Social and Economic Research (CASE) for the European Commission. The report: “Study to Quantify and Analyse the VAT Gap in the EU Member States” examines the reasons for and reality of the VAT underperformance across twenty six Member States* . Compared to 2012, EU26 saw €2.8 billion increase in VAT-GAP in absolute numbers. Overall, 15 Member States decreased their VAT Gaps, with the largest improvements noted in Latvia, Malta, and Slovakia. However, at the same time 11 Member States saw an increase in the VAT Gap, with the largest deteriorations in Estonia and Italy. Emphasizing the diversity of the EU’s tax administrations, the study estimated that the VAT non-compliance in 2013 ranged from 4% in Finland, the Netherlands, and Sweden, to as much as 41% in Romania. “The overall underperformance was due to unfavorable economic environment, as the GDP of the European Union in 2013 was nearly stagnant.” – said Grzegorz Poniatowski, one of the report’s authors – “An increase in VAT gap in 2013 can also be explained by the increasing phenomenon of ‘missing trader frauds’ and carousel frauds”. The report also provides new and expanded evidence on the Policy Gap for the EU-26. The Policy Gap is an indicator of the additional VAT revenue that a Member State could theoretically collect if it applied standard rate to all consumption of goods and services supplied for consideration. The study shows that several Member States, including Belgium, Finland, France, Greece, Ireland, Luxembourg, Netherlands, Portugal, Spain, and the United Kingdom, could collect up to 50% more revenue if they applied a unified tax on all consumption.
    Keywords: Financial sector, Europe, VAT, finance, optimal taxation
    JEL: H20 H24 H25 H26 H62
    Date: 2015
  12. By: Johannes Geyer; Peter Haan; Thorben Korfhage
    Abstract: Informal care by close family members is the main pillar of most longterm care systems. However, due to demographic ageing the need for long-term care is expected to increase while the informal care potential is expected to decline. From a budgetary perspective, informal care is often viewed as a cost-saving alternative to subsidized formal care. This view, however neglects that many family carers are of working age and face the difficulty to reconcile care and paid work which might entail sizable indirect fiscal effects related to forgone tax revenues, lower social security contributions and higher transfer payments. In this paper we use a structural model of labor supply and the choice of care arrangement to quantify these indirect fiscal effects of informal care. Moreover based on the model we discuss the fiscal effects related to non-take up of formal care.
    Keywords: labor supply, long-term care, long-term care insurance, structural model
    JEL: J22 H31 I13
    Date: 2015
  13. By: Wesseling , Joeri H. (CIRCLE, Lund University)
    Abstract: Transition studies’ understanding of differences in public policy is limited due to its tendency to focus on single-country cases. This paper assesses differences in plug-in electric vehicle (PEV) policies expenditures, comprising RD&D subsidies, infrastructure investments and sales incentives, across 13 countries over the period 2008-2014. I explore three conditions that may influence these policy expenditures. <p>Content and statistical analyses show that national PEV policies differed drastically across countries in intensity and orientation, ranging from a focus on supply-side innovation policy to a focus on demand-side environmental policy. The government’s role across national political economies only explain differences in PEV infrastructure investments, while the government’s EV diffusion targets for 2020 surprisingly do not correlate with any PEV policy. Economic interest in the car industry shows and explains why car countries focus their policy on technology development, and non-car countries on technology diffusion. These findings enhance the understanding of national policies in transitions.
    Keywords: innovation policy; demand-side policy; geography of transition; industry support; varieties of capitalism; 2020 target
    JEL: H23 H31 O25 O38 Q58
    Date: 2015–12–01
  14. By: Bratsberg, Bernt (Ragnar Frisch Centre for Economic Research); Røed, Knut (Ragnar Frisch Centre for Economic Research)
    Abstract: Is it possible to sustain an ambitious and redistributive Nordic welfare state in a Europe with open borders? Drawing on longitudinal administrative records spanning four decades, we first present discouraging historical evidence showing that labor migrants from low‐income source countries tend to have unstable employment careers with marked overrepresentation in welfare programs. This pattern extends to post‐accession labor migrants from Eastern Europe, who quickly experience high rates of unemployment. The article discusses possible avenues for making the welfare state "migration robust." We argue that there are alternatives to reclosing borders and/or cutting down welfare state ambitions, and recommend policies based on strengthening of activity requirements in social insurance programs, raising minimum job standards, and substitution of work‐oriented services for cash‐based family allowances.
    Keywords: EU enlargement, social insurance, labor migration
    JEL: F22 H55 J22
    Date: 2015–11
  15. By: Gemma Abio Roig (Universitat de Barcelona); Concepció Patxot Cardoner (Universitat de Barcelona); Miguel Sánchez-Romero (Wittgenstein Centre (IIASA, VID/OAW and WU)); Guadalupe Souto Nieves (Universitat Autònoma de Barcelona)
    Abstract: The sustainability of the welfare state is in doubt in many developed countries due to drastic population ageing. The extent of the problem and the margin for reforms depend - among other factors - on the size of the ageing process and the size of the public transfer system. The latter has a crucial impact on the extent to which the first demographic dividend previous to the ageing process turns into a second demographic dividend. The contribution of the different factors driving the demographic dividend is, ultimately, an empirical question. In this paper we contribute to the debate, exploding the cross-country comparison potentialities of the National Transfer Accounts (NTA) database. In particular, we introduce different configurations of the welfare state transfers – Sweden, United States and Spain - into a realistic demography Overlapping Generations (OLG) model and simulate its effects on the second demographic dividend.
    Keywords: Ageing, demographic dividend, intergenerational transfers, national transfer accounts, overlapping generations model, welfare state.
    JEL: J11 J18 E21 H53
    Date: 2015
  16. By: Nelly Exbrayat (Jean Monnet University, IAE, Saint-Etienne); Stéphane Riou (Jean Monnet University, IAE, Saint-Etienne); Skerdilajda Zanaj (CREA, Université de Luxembourg)
    Abstract: In this paper, we investigate the e¤ects of a global carbon tax and its ability to curb carbon emissions in a two-country setup characterized by an uneven spatial distribution of mobile heterogeneous firms. Trade takes place between the two asymmetric countries and carbon dioxide (CO2) emissions are a by-product of the production activity of manufac- turing firms. We advance the hypothesis that although a global carbon tax is an attractive environmental measure, it may be subject to debate because, among other effects, it can have a significant impact on the location of heterogeneous firms as well as on foreign trade patterns worldwide.
    Keywords: Global carbon tax: spatial selection, heterogeneous firms
    JEL: F12 F15 H87 Q28
    Date: 2015
  17. By: Maixé-Altés, J. Carles; Iglesias, Emma M.
    Abstract: What type of crisis is generated when debt increases? We study the Spanish debt evolution in the 19th and 20th centuries by introducing currency and stock-market crises in the Reinhart and Rogoff (2011) framework. We find their same results for the determinants of banking and debt crises but substituting external and public debt with perpetual debt. Moreover, we find that currency crises depend strongly and positively on financial centers crises and negatively and mildly on perpetual debt. We justify the negative relationship due to an inflation tax. We also find that stock-market crises depend only positively and strongly on financial centers crises.
    Keywords: Austerity, Macroeconomic Policy, Fiscal Policy, Banking Crises, Currency Crises, Stock Market Crises, Debt Crises, Financial History
    JEL: E44 E60 E62 F34 F44 G01 H63 N10 N20
    Date: 2015–12–04
  18. By: Soldatos, Gerasimos T.; Varelas, Erotokritos
    Abstract: This paper maintains that the durable-goods character of loans enables the forward shift of bank indirect taxes à la Coase (1972), increasing thereby the money multiplier and reducing the equity-lending ratio regardless bank industry structure. Consequently, policymakers may use such taxes countercyclically if, of course, the need for depositor insurance is not exaggerated evoking upon the problems of asymmetric information accompanying lending. Also, the “standard” proposition that the ability to shift indirect taxation forward depends negatively on the size of the elasticity of loan demand, is confirmed here, too. The low elasticity of loan demand is related with relationship banking, contemplating thereby that the mix “bank indirect tax-relationship banking” may prove to be critical for capital accumulation and growth depending on the dissemination of such banking. A zero-bank-profit policy is proposed as a stabilization policy beyond the countercyclical manipulation of the tax.
    Keywords: Loan life, Bank indirect-tax incidence, Bank market power, Quantity competition, Capital accumulation
    JEL: E44 G21 H22 H32
    Date: 2015

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