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on Public Finance |
| By: | Terezie Výprachtická (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | This paper concentrates on the golden rule of public finance. It reviews the main advantages and disadvantages of the potential implementation of this rule in the European Union. Often the question of the productivity of public capital is at the heart of the rule’s discussions. As this issue has mostly been investigated for the United States, we try to estimate the productivity of public capital using data on the current member states of the European Union. Working both with data on net capital stocks and gross capital formation, we come to the conclusion that there is a cointegrating relationship between capital and output and that this relationship is in most cases positive. However, as there are also other expenditures classified as current spending that have a positive effect on the output in the long run, we argue that the golden rule should not be introduced in the European Union if the current definition of public capital investment does not change for the rule’s purposes. |
| Keywords: | Golden rule of public finance, European Union, Cointegration, Productivity of capital, Cobb-Douglas production function |
| JEL: | C23 E22 E62 H52 H62 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2011_03&r=pub |
| By: | Ivica, Urban |
| Abstract: | When there is a large number of pre-fiscal income equals in the sample, the redistributive effects based on the Gini index may be inappropriately estimated. Due to its roots in the Gini framework, the problem also appears in the application of the Duclos, Jalbert and Araar (2003) (DJA) decomposition of redistributive effects into vertical, classical horizontal inequity and reranking effects. This paper explains how the DJA implementation procedure must be adapted to produce correct estimates of different effects. The procedure is first illustrated on the 12-units hypothetical population and then applied to real data for the Croatian fiscal subsystem comprised of social security contributions, personal income tax, public pensions and cash social benefits. |
| Keywords: | redistributive effect; vertical equity; horizontal equity; pre-fiscal equals |
| JEL: | D63 H23 |
| Date: | 2011–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:28068&r=pub |
| By: | Grégoire Rota-Graziosi (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Hubert Kempf (Paris School of Economics - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | We address in this paper the issue of leadership when two governments provide public goods to their constituencies with cross border externalities as both public goods are valued by consumers in both countries. We study a timing game between two different countries: before providing public goods, the two policymakers non-cooperatively decide their preferred sequence of moves. We establish conditions under which a first- or second-mover advantage emerges for each country, highlighting the role of spillovers and the strategic complementarity or substitutability of public goods. As a result we are able to prove that there is no leader when, for both countries, public goods are substitutable. When public goods are complements for both countries, both countries may emerge as the leader in the game. Hence a coordination issue arises. We use the notion of risk-dominance to select the leading government. Lastly, in the mixed case, the government for whom public goods are substitutable becomes the leader. |
| Keywords: | public good;Spillovers;Subgame Perfect Equilibrium;Strategic Complements;Stackelberg;Pareto Dominance;Risk Dominance |
| Date: | 2011–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00556944&r=pub |
| By: | Massimiliano Piacenza (University of Torino & HERMES); Gilberto Turati (University of Torino & HERMES) |
| Abstract: | This paper aims at assessing the impact on citizens’ well-being of fiscal discipline imposed by Central Government to sub-national governments. Since health care policies involve strategic interactions between different layers of governments in many different countries, we focus on a particular dimension of well-being, namely citizens’ health. We model fiscal discipline by considering sub-national governments expectations of future deficit bailouts from the Central Government. We then study how these bailout expectations affect the expenditure for health care policies carried out by decentralized governments. To investigate this issue, we separate efficient health spending from inefficiencies by estimating an input requirement frontier. This allow us to assess the effects of bailout expectations on both the structural component of health expenditure and its deviations from the ‘best practice’. The evidence from the 15 Italian Ordinary Statute Regions (observed from 1993 to 2006) points out that bailout expectations do not significantly influence the position of the frontier, thus do not affect citizens’ health. However, they appear to exert a remarkable impact on excess spending. |
| Keywords: | Intergovernmental relationships, soft budget constraint, bailout expectations,health care policy, spending efficiency. |
| JEL: | H11 H75 H77 I12 I18 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2011/1/doc2010-56&r=pub |
| By: | Gbewopo Attila (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I) |
| Abstract: | In this paper, we analyze the interaction between corruption, taxation and economic growth. Our contributions are twofold. Theoretically, in an endogenous growth model, we introduce corruption in two different ways: corruption in the public expenditure and corruption in the public revenue. We show two opposing effects. Under certain conditions, corruption can affect growth rate positively but it can also exert a negative effect via fiscal revenue. Not only does it tend to make the tax rate, which maximizes the long run growth rate sub-optimal, but it can also create distortions that can lead to excessive tax rates harmful to growth. The empirical analyses are based on non parametric estimates as well as econometric investigations. Our results support the assumption of a non linear relationship between public resources and growth. Interactions between public resources and institutional variables evidence the following the results: (i) the more countries are corrupt the stronger the negative effects of taxation on the growth (ii) Once the negative effects of corruption are accounted |
| Keywords: | corruption;taxation;growth;developing countries |
| Date: | 2011–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00556668&r=pub |
| By: | Bargain, Olivier (University College Dublin); Dolls, Mathias (University of Cologne); Neumann, Dirk (University of Cologne); Peichl, Andreas (IZA); Siegloch, Sebastian (IZA) |
| Abstract: | Whether observed differences in redistributive policies across countries are the result of differences in social preferences or efficiency constraints is an important question that paves the debate about the optimality of welfare regimes. To shed new light on this question, we estimate labor supply elasticities on microdata and adopt an inverted optimal tax approach to characterize the redistributive preferences embodied in the welfare systems of 17 EU countries and the US. Implicit social welfare functions are broadly compatible with the fiction of an optimizing Paretian social planner. Some exceptions due to generous demogrant transfers are consistent with the ignorance of behavioral responses by some European governments and are partly corrected by recent policy developments. Heterogeneity in leisure-consumption preferences somewhat affect the international comparison in degrees of revealed inequality aversion, but differences in social preferences are significant only between broad groups of countries. |
| Keywords: | social preferences, redistribution, optimal income taxation, labor supply |
| JEL: | H11 H21 D63 C63 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5440&r=pub |
| By: | Ronald B. Davies (Ronald B. Davies, School of Economics, University College Dublin, Newman Building (G215), Belfield, Dublin 4, Ireland); Johannes Voget (Johannes Voget, Mannheim University, Oxford University Centre for Business Taxation , CentER Tilburg University. L9,7, 68131 Mannheim, Germany) |
| Abstract: | This paper empirically examines whether expansion of the EU has increased international tax competition. To do so, we use a market potential weighting scheme to estimate the slope of best responses. We find robust evidence for tax competition. In particular, our estimates suggest that EU membership affects responses with EU members responding more to the tax rates of other members. This lends credence to the above noted concerns. |
| Keywords: | Tax Competition; Foreign Direct Investment; Spatial Econometrics |
| JEL: | F1 F2 H2 H7 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0033&r=pub |
| By: | Cahuc, Pierre (Ecole Polytechnique, Paris); Carcillo, Stéphane (University of Paris 1 Panthéon-Sorbonne) |
| Abstract: | In October 2007 France introduced an exemption on the income tax and social security contributions that applied to wages received for hours worked overtime. The goal of the policy was to increase the number of hours worked. This article shows that this reform has had no significant impact on hours worked. Conversely, it has had a positive impact on the overtime hours declared by highly qualified wage-earners, who have opportunities to manipulate the overtime hours they declare in order to optimize their tax situation, since the hours they work are difficult to verify. |
| Keywords: | tax exemption, overtime hours, working time |
| JEL: | H24 H25 J22 J30 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5439&r=pub |
| By: | Manzo, Marco; Monteduro, Maria Teresa |
| Abstract: | The paper explores the differences between IRAP (the Regional Tax on Productive Activities) and CBIT (the Comprehensive Business Income Tax), which approximately corresponds to allow the deduction of labor cost from the taxable base of IRAP. By developing a DSGE model that ncorporates business taxes, like IRAP or CBIT, we find that tax distortions due to IRAP are more contractionary than those caused by the presence of CBIT. Empirically, tax revenues and redistributive effects are more carefully analyzed. We implement a microsimulation model (MSM) based on a dataset of more than 150,000 incorporated firms. We show that small incorporated firms are particularly harmed by IRAP, especially when business run a loss instead of a profit. This is due to the fact that IRAP is a business tax on value added, which does not allow for the deduction of labor cost. For this purpose, we focus on the introduction of a reform based on the CBIT principle. Our result is that CBIT is particularly costly and more able to enhance the profitability for larger enterprises. Moreover, the tax design of CBIT is more regressive compared to the IRAP including tax allowances. Consequently, an efficiency-equity trade-off between IRAP and CBIT might be emphasized |
| Keywords: | business cycles; tax distortions; micro-simulations models; distributive effects; Italy. |
| JEL: | E62 E32 H25 H32 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:28070&r=pub |
| By: | Leahy, Eimear; Lyons, Seán; Tol, Richard S. J. |
| Abstract: | In this paper we examine the distributional effects of Value Added Tax (VAT) in Ireland. Using the 2004/2005 Household Budget Survey, we assess the amount of VAT that households pay as a proportion of weekly disposable income. We measure VAT payments by equivalised income decile, households of different composition and different household sizes. The current system is highly regressive. With the use of a micro-simulation model we also estimate the impact of changing the VAT rate on certain groups of items and the associated change in revenue. We also consider how the imposition of a flat rate across all goods and services would affect households in different categories. The Irish Government has recently announced that it proposes to increase the standard rate of VAT to 22% in 2013 and to 23% in 2014. We examine the distributional implications of such increases. The general pattern of results shows that those hardest hit are households in the first income decile, households in rural areas, 6 person households and households containing a single adult with children. |
| Keywords: | taxes/Ireland/Household budget/children |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp366&r=pub |