nep-pub New Economics Papers
on Public Finance
Issue of 2007‒08‒08
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Effort: The Impact of Corruption, Voice and Accountability By Richard M. Bird; Jorge Martinez-Vazquez; Benno Torgler
  2. The Taxation of Couples By Patricia Apps; Ray Rees
  3. Risky Earnings, Taxation and Entrepreneurial Choice : A Microeconometric Model for Germany By Frank M. Fossen
  4. Distributional Implications of the VAT Reform in the Philippines By Daria Zakharova; David Locke Newhouse
  5. Public-Private Partnerships By Federico Etro
  6. The Basic Public Finance of Public-Private Partnerships By Alexander Galetovic
  7. GAMMA, a Simulation Model for Ageing, Pensions and Public Finances By Nick Draper; Alex Armstrong
  8. Social Security’s Financial Outlook: The 2007 Report in Perspective By Alicia H. Munnell; ; ;
  9. Public Goods Provision and Sanctioning in Priveleged Groups By Reuben Ernesto; Riedl Arno

  1. By: Richard M. Bird; Jorge Martinez-Vazquez; Benno Torgler
    Abstract: In this paper we argue that a more legitimate and responsive state is an essential factor for a more adequate level of tax effort in developing countries. While at first glance giving such advice to poor countries seeking to increase their tax ratios may not seem more helpful than telling them to find oil, it is presumably more feasible for people to improve their governing institutions than to rearrange nature’s bounty. Improving corruption, voice and accountability may not take longer nor be necessarily more difficult than changing the opportunities for tax handles and economic structure. The key contribution of this paper is to extend the conventional model of tax effort by showing that not only do supply factors matter, but that demand factors such as corruption, voice and accountability also determine tax effort to a significant extent.
    Keywords: Tax effort; tax reforms; developing countries; Latin America; corruption; voice and accountability
    JEL: H11 H20 O17
    Date: 2007–07
  2. By: Patricia Apps (University of Sydney and IZA); Ray Rees (University of Munich)
    Abstract: This paper is concerned with the question of how couples should be taxed. One reason for the importance of this issue is simply that the overwhelming majority of individuals live in households formed around couples, and so it could be argued that empirically, this is the single most important problem in personal income taxation. A second reason is that the economic theory of optimal taxation and tax reform, at least as it is presented in the mainstream literature, provides little guidance on this issue, resting as it does on models of the single person household. An old insight in the earlier public finance literature is that any discussion of the taxation of two-person households necessarily involves the recognition of the importance of household production. In this paper we try to show how a simple model of household production can be used to help the analysis of optimal taxation and tax reform, and to put the "conventional wisdom", which says that it is optimal to tax women on a separate, lower tax schedule than men, on a firmer basis. What emerges clearly from the analysis is how centrally important the relationship between productivity in household production and female labour supply really is, and how little we know about it empirically.
    Keywords: optimal taxation, household production, labour supply
    JEL: H21 D13 J22
    Date: 2007–07
  3. By: Frank M. Fossen
    Abstract: Which role do individual income prospects play in the decision to be an entrepreneur rather than an employee? In a model of occupational choice, higher expected after-tax earnings attract people to self-employment, while more risky net earnings deter risk-averse individuals. In this paper I analyse the expected value and variance of income in self-employment and dependent employment empirically, accounting for selection. Based on this analysis, structural models of self-employment entry and exit under risk are estimated, which include a standard risk aversion parameter. The model predicts that the German income tax reduction of 2000 induced smaller exit rates out of self-employment for men and smaller entry rates for women.
    Keywords: Entrepreneurship, risk, returns to self-employment, taxation
    JEL: J23 H24 D81 C51
    Date: 2007
  4. By: Daria Zakharova; David Locke Newhouse
    Abstract: This paper assesses the distributional impact of the recent VAT reform in the Philippines and evaluates alternative methods to mitigate the effects of the reform on poor households. The reform was progressive and relatively well targeted. To alleviate the impact of the reform on the poor, several mitigating measures were introduced. Although these measures reduced the adverse impact of the VAT reform for all households, a sizable amount of the benefit accrued to high-income households. Targeted transfer schemes have the potential to deliver a much higher percentage of benefits to the poor.
    Date: 2007–07–12
  5. By: Federico Etro (Department of Economics, University of Milan-Bicocca)
    Abstract: I study Public-Private Partnerships (PPP) as investments in public infrastructures that are alternative compared to direct public investments. I consider different forms of PPP, discussing their relative advantages from the point of view of incomplete contract theory and principal-agent relations. I also provide an empirical investigation concerning recent PPP projects in Europe and Italy.
    Date: 2007
  6. By: Alexander Galetovic (Universidad de Los Andes)
    Abstract: Public-private partnerships (PPPs) cannot be justified because they free public funds. When PPPs are desirable because the private sector is more efficient, the contract that optimally trades demand risk, user-fee distortions and the opportunity cost of public funds is characterized by a minimum revenue guarantee and a cap on the firm's revenues. Yet income guarantees and revenue sharing arrangements observed in practice diffe r fundamentally from those suggested by the optimal contract. The optimal contract can be implemented via a competitive auction with realistic informational requirements; and risk allocation under the optimal contract suggests that PPPs are closer to public provision than to privatization.
    Keywords: Bundling, cost of public funds, subsidies, minimum revenue guarantees,revenue and profit caps, Demsetz auctions
    JEL: H21 H54 L51 R42
    Date: 2007–07
  7. By: Nick Draper; Alex Armstrong
    Abstract: To answer policy questions that have intergenerational implications, a computable simulation model should obey four conditions: it should incorporate long-term demographic developments, it should include a detailed modelling of the public sector, it should decompose the population into several generations and it should account for the behaviour of the various economic agents. This document describes and illustrates a model that meets all these conditions. It is an applied general equilibrium model that is based on generational accounting principles named GAMMA (Generational Accounting Model with Maximizing Agents).
    Keywords: Computable general equilibrium model; Ageing; Pensions and Public Finances
    JEL: E62 H55
    Date: 2007–06
  8. By: Alicia H. Munnell; (Center for Retirement Research, Boston College); ;
    Abstract: The Trustees of the Social Security system have just issued the 2007 report. The report includes projections for the system over the next 75 years, prepared by Social Security’s Office of the Actuary. The bottom line is that the long-run outlook has remained virtually unchanged for the last thirteen years — the system has a 75-year deficit equal to about 2 percent of taxable payrolls and the trust fund faces exhaustion in the early 2040s, after which the system will be able to pay only 75 percent of promised benefits. The clear message of the persistent deficits is that the financing shortfall should be eliminated so that people can be assured they receive the income they need in retirement.
    Keywords: Social Security, 2007 report, long-run outlook, unchanged
    Date: 2007–04
  9. By: Reuben Ernesto; Riedl Arno (METEOR)
    Abstract: In public good provision, privileged groups enjoy the advantage that some of its members find it optimal to supply a positive amount of the public good. However, their inherent asymmetric nature may make the enforcement of cooperative behavior through informal sanctioning harder to accomplish. In this paper we experimentally investigate public good provision in normal and privileged groups with and without decentralized punishment. We find that compared to normal groups, privileged groups are relatively ineffective in using costly sanctions to increase everyone''s contributions. Punishment is less targeted towards strong free-riders and they exhibit a weaker increase in contributions after being punished. Thus, we show that privileged groups are not as privileged as they initially seem.
    Keywords: public economics ;
    Date: 2007

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