nep-pub New Economics Papers
on Public Finance
Issue of 2008‒01‒12
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Property Tax Incidence Debate and the Mix of State and Local Finance of Local Public Expenditures By George R. Zodrow
  2. Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia By Yuriy Gorodnichenko; Jorge Martinez-Vazquez; Klara Sabirianova Peter
  3. The Impact of Direct Democracy on Public Education: Evidence for Swiss Students in Reading, Mathematics and Natural Science By Fischer, Justina A.V.
  4. Public expenditure on education: A review of selected issues and evidence. By Mukherjee, Anit N.

  1. By: George R. Zodrow (Baker Institute for Public Policy, Rice University)
    Abstract: Many states in the US have in recent years changed the mix of state and local revenue sources used to finance local public expenditures, especially primary and secondary education, with local property taxes being replaced by various sources of state tax revenue. This article examines the desirability of such a tax substitution, focusing on the implications of the long-standing debate between the “benefit tax” and “capital tax” views of the incidence of the tax. It also includes a discussion of some recent research that elaborates the capital tax view of the property tax.
    Keywords: Property tax incidence, capitalization, capital tax view, new view, benefit tax view, Texas tax reform, margin tax
    JEL: H10 H21 H22 H71
    Date: 2008
  2. By: Yuriy Gorodnichenko; Jorge Martinez-Vazquez; Klara Sabirianova Peter
    Abstract: Using micro-level data, we examine the effects of Russia's 2001 flat rate income tax reform on consumption, income, and tax evasion. We use the gap between household expenditures and reported earnings as a proxy for tax evasion with data from a household panel for 1998-2004. Utilizing difference-in-difference and regression-discontinuity-type approaches, we find that large and significant changes in tax evasion following the flat tax reform are associated with changes in voluntary compliance and cannot be explained by changes in tax enforcement policies. We also find the productivity response of taxpayers to the flat tax reform is small relative to the tax evasion response. Finally, we develop a feasible framework to assess the deadweight loss from personal income tax in the presence of tax evasion based on the consumption response to tax changes. We show that because of the strong tax evasion response the efficiency gain from the Russian flat tax reform is at least 30% smaller than the gain implied by conventional approaches.
    JEL: D73 H21 H24 H26 J3 O1 P2
    Date: 2008–01
  3. By: Fischer, Justina A.V. (Dept. of Economics, Stockholm School of Economics)
    Abstract: Empirical analyses for the US suggest that stronger people’s control over the school budget is deleterious to student performance. Using Swiss data on ninth graders in mathematics, reading and natural science collected jointly with the PISA study 2000, this paper tests this hypothesis for Switzerland, exploiting inter-cantonal variation in political institutions. For both student performance in reading and mathematics, stronger popular rights appear to lower educational achievement through the school budget channel. In particular, the qualification of teachers is identified as most influential determinant of student achievement, which is shown to be linked to educational spending.
    Keywords: Direct democracy; public finance; economics of education; PISA
    JEL: H10 H41 I28
    Date: 2007–12–31
  4. By: Mukherjee, Anit N. (National Institute of Public Finance and Policy)
    Abstract: The role of education in economic development has been recognised for quite some time in mainstream economic literature. Divergence between the private and social rate of return from education is the rationale for intervention by the state in ensuring equity in opportunity across the population. The so-called `New Growth Theories' predict that higher levels of schooling and better quality of workforce will lead to an increase in the rate of growth, further strengthening the case for public expenditure on education. The outcome of these lines of research also has implications for the financing of education. However, the effectiveness and efficiency of resource allocation by the government has generated considerable debate, both from ideological and technical points of view. It is widely acknowledged that there is a large scope for improvement in both the level, and the quality of publicly-funded education. New institutional arrangements are being designed to address the deficiencies in incentives and monitoring, thereby improving quality.
    Keywords: Public expenditure ; Education
    Date: 2007–03

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