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on Public Economics |
| By: | M. Vittoria Levati (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); Matteo Ploner (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany, and University of Trento, Italy); Stefan Traub (Department of Business and Economics, University of Bremen, Germany) |
| Abstract: | We use a two-person public goods experiment to distinguish between efficiency and fairness as possible motivations for cooperative behavior. Asymmetric marginal per capita returns allow only the high-productivity player to increase group payoffs when contributing positive amounts. Asymmetric contributions, however, yield unequal individual payoffs. To assess a priori cooperative preferences, we measure individual 'value-orientations' by means of the decomposed game technique. Overall, our results indicate that fairness (or inequality aversion) is more influential than efficiency in driving behavior. |
| Keywords: | Public goods experiments, Conditional cooperation, Fairness, Efficiency, Value orientations |
| JEL: | A13 C92 D63 H41 |
| Date: | 2007–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-067&r=pbe |
| By: | Dannenberg, Astrid; Riechmann, Thomas; Sturm, Bodo; Vogt, Carsten |
| Abstract: | We present a simple two-steps procedure for a within-subject test of the inequity aversion model of Fehr and Schmidt (1999). In the first step, subjects played modified ultimatum and dictator games and were classified according to their preferences. In the second step, subjects with specific preferences according to the Fehr and Schmidt model were matched into pairs and interacted with each other in a standard public good game and a public good game with punishment possibility. Our results show that the specific composition of groups significantly influences the subjects’ performance in the public good games. We identify the aversion against advantageous inequity and the information about the coplayer’s type as the main influencing factors for the behavior of subjects. |
| Keywords: | individual preferences, inequity aversion, experimental economics, public goods |
| JEL: | C91 C92 H41 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:6088&r=pbe |
| By: | Antonio Scialà (Università di Padova); Riccardo Tilli (Università di Roma) |
| Abstract: | We consider a model in which the labor market is characterized by search frictions and there is monopolistic competition in the goods market. We introduce proportional income taxation and unemployment benefits with Government balanced budget constraint. Then, we evaluate the effects of both more competition in the goods market and higher unemployment benefits on labor market equilibrium and equilibrium tax rate. We show that more competition has a positive effect on equilibrium unemployment and the Government budget. Higher unemployment benefits can be financed either by higher tax rate or increasing goods market competition. Liberalization policies could permit: a) to avoid an increase in unemployment if we allow some rise in the tax rate; b) to decrease unemployment if they are incisive enough to keep the tax rate unchanged. |
| Keywords: | Matching Models, Monopolistic Competition, Fiscal Policy, Unemployment Insurance |
| JEL: | H20 J64 J65 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0047&r=pbe |
| By: | Pirttilä, Jukka (BOFIT) |
| Abstract: | This study considers the pervasive tax evasion of transition economies, with particular reference to Russia’s tax system. Starting with a survey of theoretical literature on tax evasion and corruption, it argues that, although standard tax theory offers many insights, certain special features of transition economies deserve attention. These include the legacy of socialism resulting in a state willing to exercise discretionary power but possibly lacking credibility and public support, the ‘disorganisation’ phenomenon that hampers efficient tax administration, and the relationship of restructuring, speed of reform and the tax system. The paper also contains recommendations on reform of the tax system to achieve reasonable deterrence of evasion. |
| Keywords: | tax evasion; corruption; transition economies; Russia |
| Date: | 2007–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:1999_002&r=pbe |
| By: | Alex Sienaert |
| Abstract: | What drives migration and remittance behaviour in South Africa, and what are the implications for public policy? This paper evaluates existing empirical evidence, posits a simple theoretical model and undertakes a fresh evaluation using longitudinal data spanning 1993 to 2004 from KwaZula-Natal province. Findings generally accord with expectations if migration is a family income-optimising strategy, with remittances sustained by migrant altruism. The key policy-relevant result is that receipt of public transfer income raises the likelihood of migration (most likely because migration is costly and households face liquidity constraints) and hence crowds in private transfers on average. |
| Keywords: | South Africa, Migration, Remittances, Public Pensions |
| JEL: | J4 J61 H31 H55 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:351&r=pbe |
| By: | Felix Schlaepfer (Socioeconomic Institute, University of Zurich); Marcel Schmitt (Economics Division, Federal Research Institute WSL, Birmensdorf, Switzerland); Anna Roschewitz (Economics Division, Federal Research Institute WSL, Birmensdorf, Switzerland) |
| Abstract: | This paper examines the role of simplified heuristics in the formation of preferences for public goods. Political scientists have suggested that voters use simplified heuristics based on the positions of familiar parties to infer how a proposed policy will affect them and to cast a vote in line with their interests and values. Here, we use a two-stage field-survey experiment to investigate how knowledge of party positions affects policy choices. We followed standard procedures in developing an attribute-based choice experiment on alternative land-use policies in Switzerland. In contrast to the usual formulation, however, the hypothetical costs of the proposed policies were formulated as a percentage change in taxes. The benefit of this formulation relative to the usual absolute money amounts is that the credibility of the (hypothetical) costs for respondents does not depend on respondent income. Furthermore, the formulation allowed us to solicit party positions on the proposed policies. Six out of eight contacted parties provided their positions. We then conducted a split-sample mail survey where we included a table of the party positions with a sub-sample of the questionnaires. We report six main experimental results. (1) The response rate of the survey was unaffected by the party positions. (2) The proportion of no-choice answers was decreased by forty percent relative to the control. (3) The party information significantly affected the choices directly and in interaction with respondents’ general attitudes towards public spending for nature and landscape conservation and thus affected the way how individuals mapped from general attitudes to preferences for specific policies. (4) The information interacted with educational level in only eight out of forty choice sets, suggesting that even the more educated relied on simplified heuristics. (5) Respondents who knew the party positions were more sensitive to the tax attribute. (6) For respondents with medium and higher tax bills, the resulting willingness-to-pay estimates were decreased by a factor of two to ten relative to the control. These findings suggest that the party information helped the respondents to articulate more consistent preferences than in the treatment without the party information. |
| Keywords: | agriculture, bounded rationality, choice experiment, contingent valuation, landscape, heuristics, information, preference formation, public goods, voting |
| JEL: | D61 D70 D81 Q26 Q28 Q51 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:soz:wpaper:0712&r=pbe |
| By: | Jie Zhang (MRG - School of Economics, The University of Queensland); James Davies (Department of Economics, University of Western Ontario); Jinli Zeng (Department of Economics, National University of Singapore); Stuart McDonald (Department of Economics, California Institute of Technology) |
| Abstract: | In a neoclassical growth model with public consumption, we show the following Pareto optimal tax rules. The government should tax leisure and private consumption at the same rate, and subsidize net investment at the same rate it taxes net capital income. Also, it should tax capital income more heavily than labor income. In an extension for home production, the additional rule is to tax investment for home production at the same rate of the tax on private market consumption. These tax and subsidy rates should be constant over time except the initial tax rate on capital income. |
| URL: | http://d.repec.org/n?u=RePEc:qld:uqmrg6:17&r=pbe |
| By: | Ohlsson, Henry (Department of Economics) |
| Abstract: | This paper has two objectives. The first is to study the revenue from the gift, inheritance, and estate taxes in Sweden during more than a century. The second is to focus on a unique episode during the second half of the 1940s when gifts and gift tax revenue exploded. This episode has never before been discussed in the research literature. It gives an extremely clear illustration of behavioral response to taxes in general, and the impact of expectations of future tax increases in particular. It is also a very interesting episode in the economic history of Sweden. I have access to aggregate tax revenue data since 1884. Moreover, I have constructed a rich micro data set of all gifts reported during the period 1942–1949 in one county. A first main result is that gift tax revenue during the 1940s started to increase long before a new estate tax and increased wealth taxation were decided and implemented. The increase even began before the legislative process started. Second, both the number and the average values of gifts increased. Promissory notes were, in value, the most common way to give. Finally, gifts, inheritances, and estates were never important sources of tax revenue. Revenue as a share of GDP reached a peak already in the 1930s. The role of these taxes has instead primarily been equity and to provide integrity for other tax bases. |
| Keywords: | gift tax; inheritance tax; estate tax; tax avoidance; expectations |
| JEL: | D10 D31 H24 N33 N34 |
| Date: | 2007–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2007_023&r=pbe |
| By: | Yakovlev , Andrei (BOFIT) |
| Abstract: | This paper discusses Russia’s "black cash" economy. Using interviews and survey data, we examine the mechanics of several distinctly Russian tax evasion schemes and attempt a rough estimate of the scale and dynamics involved in tax evasion based on black cash. Entrepreneurs’ opinions are also used to get an idea of the incentives and costs of black cash tax evasion. We next describe the apparent economic consequences of black cash tax evasion and formulate general formal conditions for successful evasion at firm level. Finally, we recommend several policy measures to reduce the incentives to such behaviour and discuss questions for future research. |
| Keywords: | tax evasion; informal business activity; black cash; Russia |
| Date: | 2007–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:1999_003&r=pbe |
| By: | Christian Keuschnigg (wiiw) |
| Abstract: | This paper develops a model of a monopolistically competitive industry with extensive and intensive business investment and shows how these margins respond to changes in average and marginal corporate tax rates. Intensive investment refers to the size of a firm's capital stock. Extensive investment refers to the firm's production location and reflects the trade-off between exports and foreign direct investment as alternative modes of foreign market access. The paper derives comparative static effects of the corporate tax and shows how the cost of public funds depends on the measures of effective marginal and average tax rates and on the behavioral elasticities of extensive and intensive investment. |
| Keywords: | Competitiveness, competitive model, industry, monopol, business investment, tax rates, corporate taxation, capital stock, effective average tax rate, effective marginal tax rate, elasticities of investment, FDI |
| URL: | http://d.repec.org/n?u=RePEc:wsr:wpaper:y:2007:i:005&r=pbe |
| By: | James K. Boyce (University of Massachusetts Amherst) |
| Abstract: | In the wake of violent conflict, a key element of building a durable peace is building a state with the ability to collect and manage public resources. To implement peace accords and provide public services, the government must be able to collect revenue, allocate resources, and manage expenditure in a manner that is regarded by its citizens as effective and equitable. This paper addresses eight key issues related to this challenge. The first four pertain to resource mobilization: (i) How should distributional impacts enter into revenue policies? (ii) How can postwar external assistance do more to prime the pump of domestic revenue capacity? (iii) Should macroeconomic strictures prescribed for economic stabilization be relaxed to foster political stabilization? (iv) How should the benefits of external resources be weighed against their costs? The second four issues relate to the expenditure side of public finance: (i) How should the dynamics of conflict be factored into public spending policies? (ii) Can the pathologies of a ‘dual public sector’ – one funded and managed by the government, the other by the aid donors – be surmounted by channeling external resources through the government, with dual-control oversight mechanisms to reduce corruption? (iii) How should long-term fiscal sustainability enter into short-term expenditure decisions? (iv) Lastly, is there scope for more innovative solutions to postwar legacies of external debts? |
| Keywords: | peacebuilding; revenue mobilization; external assistance; foreign aid; post-conflict transitions; public expenditure; horizontal equity; odious debt. |
| JEL: | E61 E62 E63 F35 F51 F53 H20 H22 H50 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:ums:papers:2007-09&r=pbe |
| By: | John Creedy; Norman Gemmell |
| Abstract: | This paper examines behavioural responses by companies to changes in profit taxation in their home country. It argues that as well as distinguishing real from shifting responses for profits, it is important to separate the responses of gross profits from those for deductions (such as claims for past or current losses) where these are endogenously related to gross profits declared at home. This occurs in the UK and many other corporate tax regimes. This endogenous response can be expected to differ over the business cycle and, using a microsimulation model of the UK corporate tax regime, it is shown that this can be important for empirical estimates of firms’ overall behavioural responses especially, but not exclusively, during cyclical downturns. It is shown also that endogenous responses of deductions to real or shifting responses for gross profits can be expected to be asymmetrical between periods of above- and below-trend growth. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:998&r=pbe |
| By: | Panu Poutvaara (University of Helsinki and IZA) |
| Abstract: | This paper analyzes educational choices and political support for subsidies to higher education in the presence of a time-consistency problem in income redistribution. There may be political support for so generous subsidization that it motivates the median voter to obtain higher education. As a result of increasing own income, the median voter prefers in the future lower taxes than without higher education. Therefore, the expansion of participation in higher education during the second half of the 20th century may have partly been driven by the aim to limit the political support for overly generous income redistribution. |
| Keywords: | education, time-consistency problem, voting, subsidies to education |
| JEL: | H52 I22 D72 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3023&r=pbe |