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on Public Economics |
| By: | Benno Torgler |
| Abstract: | This paper analyses the impact of direct democracy and local autonomy on tax morale and the size of the shadow economy. We use two different data sets on tax morale at the individual level (World Values Survey and International Social Survey Programme) and the macro data of the size of the shadow economy to systematically analyse the effects of institutions in Switzerland, a country where participation rights and the degree of federalism vary across different cantons. The findings suggest that direct democratic rights and local autonomy, have a significantly positive effect on tax morale and the size of the shadow economy. |
| Keywords: | Tax Morale, Shadow Economy, Tax Compliance, Tax Evasion, Direct Democracy, LocalAutonomy |
| JEL: | H26 H73 D70 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:lpf:wpaper:06-2007&r=pbe |
| By: | Jorge Martinez-Vazquez; Benno Torgler |
| Abstract: | This paper studies the evolution of tax morale in Spain in the post-Franco era. In contrast to the previous tax compliance literature, the current paper investigates tax morale as the dependent variable and attempts to answer what actually shapes tax morale. The analysis uses survey data from two sources: the World Values Survey and the European Values Survey, allowing us to observe tax morale in Spain for the years 1981, 1990, 1995, and 1999/2000. The study of the evolution of tax morale in Spain over nearly a 20-year span is particularly interesting because the political and fiscal system evolved very rapidly during that period. |
| Keywords: | Spain, Tax morale, Tax compliance, Constitutional and political changes, fiscal system, endogenous preferences |
| JEL: | H26 H73 K42 O17 Z13 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:lpf:wpaper:03-2007&r=pbe |
| By: | Jan Werner (Institute of Local Public Finance) |
| Abstract: | Germany's fiscal federalism has undergone a process of perpetual reform. On the one hand, some tax sources that have existed up to now – the corporate income tax is a good example in this context – will shortly be phased out because of changes in the system. On the other hand the judgement by the Constitutional Court has required a renewal of Germany's equalisation system. Besides an illustration of tax sharing between the three tiers of government, the main part of this paper deals with the equalisation among the 16 federal states. In the framework of the reforming process of the "Solidarity Pact IIW, the distribution of tax revenues, vertical grants and fiscal equalisation among the federal states were newly arranged. |
| Keywords: | Fiscal Federalism, Grants, Fiscal Autonomy, Germany |
| JEL: | H7 H2 H1 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:lpf:wpaper:02-2008&r=pbe |
| By: | Benno Torgler; Friedrich Schneider |
| Abstract: | The following paper examines the different options to finance local public infrastructure in Ethiopia based on the assumption that the federal government of Ethiopia will not provide any guarantees for local borrowing. Besides a detailed description of the local public finance system and the capital market in Ethiopia, the paper also sets out some international successful practices in municipal infrastructure financing. Based on the observation of the Ethiopian case and the consideration of the international experiences, the paper has two major pillars that very specifically identify actions required for implementation. On the one hand, the paper recommends a number of feasible arrangements to generate a revenue enhancement of the local authorities in the existing intergovernmental framework. On the other hand, the paper suggests a solution - for creditworthy as well as for potentially creditworthy urban local governments (ULG) - to finance their future demand of public infrastructure together with the national finance institutions as well as the international donors. |
| Keywords: | Shadow economy, tax morale, governance quality, government intervention, corruption |
| JEL: | D73 D78 H2 H26 O17 O5 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:lpf:wpaper:04-2007&r=pbe |
| By: | Witterblad, Mikael (Department of Economics, Umeå University) |
| Abstract: | This thesis consists of a summary and four papers. The first two papers are theoretical contributions within the area of optimal taxation and public expenditures under asymmetric information between the government and the private sector, and the last two are empirical contributions to the literature on local public expenditures. Paper [I] concerns the optimal use of publicly provided private goods in an economy with equilibrium unemployment. The paper points out that imperfect competition in the labor market gives rise to additional policy incentives associated with the self-selection constraint, which motivates adjustments in the public provision of private goods. It also addresses employment related motives behind publicly provided private goods. Paper [II] addresses optimal income and commodity taxation in a dynamic economy, where used durable goods are subject to second-hand trade. In our framework, the government is unable to directly control second-hand transactions via commodity taxation. We show how the appearance of a second-hand market affects the use of commodity taxation on the new durable goods as well as the use of income taxation. Paper [III] relates the existence and size of the flypaper effect to observable municipal characteristics. The analysis is based on a political economy model, which implies that the effect of a change in the tax base on the majority voter's tax share will be crucial for finding a flypaper effect. The empirical part is based on Swedish data on municipal expenditures and revenues for the period 1996-2004. The results show that the size of the flypaper effect varies among municipalities depending on the relative composition of grant and tax base. In Paper [IV], the composition of municipal expenditures in Sweden is analyzed by estimating a demand system for local public services, in which tax revenue collection is treated as endogenous. The estimation is based on the QAIDS specification and uses panel data for the period 1998-2005 and for six local public services. The results show that the point estimates of the income elasticities are positive (with one exception), whereas the point estimates of the own-price elasticities are negative and less than one. |
| Keywords: | optimal taxation; unemployment; durable goods; flypaper effects; intergovernmental relations; demand system; local government spending |
| JEL: | D12 D31 D91 H23 H72 H77 J51 |
| Date: | 2008–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0731&r=pbe |
| By: | Souleymane COULIBALY |
| Abstract: | The New Economic Geography literature claims that firms are ready to pay more tax in "big markets" because of agglomeration rents. Tax authorities can thus set higher tax rates in denser economic area, hence an opposite mechanism to the "race to the bottom" process described by the classical tax competition theory. The aim of this paper is to empirically assess the existence of such agglomeration rents. We use Swiss data on municipalities corporate income tax rates and firms location to test the tax gap between these municipalities and the most peripheral one using a theory-based relation. Our estimations indicate that municipalities with higher agglomeration rents (measured as the number of firms plus the "potential of neighboring firms") are setting higher corporate income tax rates, hence confirming the existence of taxable agglomeration rents. |
| Keywords: | agglomeration rents; tax competition; potential of neighboring firms |
| JEL: | C4 H2 R12 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:08.01&r=pbe |
| By: | Sebastian Eckardt |
| Abstract: | What makes governments tick? Why are some public institutions more successful than others in managing resources and delivering services? And even more vitally, how can malfunctioning institutions be reformed so that they perform their responsibilities more effectively? This paper contributes to our understanding of theses overarching questions by exploring the interactions between political institutions and public sector performance in the context of decentralization and local governance. It shows -both theoretically and empirically- that performance outcomes are determined by the extent to which people can hold their governments accountable through political institutions. The basic hypothesis underlying this research is that political accountability, either by encouraging sanctions upon non-compliant public agents or simply by reducing the informational gap regarding government activities, will create forceful incentives for elected officials and civil servants to reduce opportunistic behavior and improve performance. Using a cross-sectional regression the hypothesis is empirically tested against evidence from newly empowered local governments in Indonesia. The empirical findings broadly support our hypotheses. Improved public services on the ground, both in terms of quantity and quality, require informed and well functioning decision making processes that allocate resources to priority areas that meet the demand of the broader community. |
| Keywords: | governance, public services, fiscal decentralization |
| JEL: | D2 D7 H2 H7 O1 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:lpf:wpaper:02-2007&r=pbe |
| By: | Knud J., MUNK |
| Abstract: | Dixit’s 1975 paper ‘Welfare Effects of Tax and Price Changes’ cosntitutes a seminal contribution to the theory of tax reform analysis within a second-best general equilibrium framework. The present paper clarifies ambiguities with respect to normalisation which have led to misinterpretation of some Dixit’s analytical results. It proves that a marginal tax reform starting from a proportional tax system will improve social welfare if it increases the supply of labour, whatever the rule of normalisation adopted, and shows that this result provides the key to understanding what determines the optimal system of commodity taxation as reflected in the Corlett and Hague analysis of optimal taxation in an economy with two produced commodities. Recasting work by Deaton (1981b), it generalises, using an alternative definition of the complementarity between consumption and leisure, to an economy with many commodities the insight that the optimal tax system is determined as a trade-off between two objectives : 1) to encourage the supply of labour to the market, and 2) to limit the distorsion of the pattern of consumption of produced commoditie. This insight cannot be illustrated by simulation studies using standard additive separable utility functions. However, extending work of Atkinson and Stern (1080,1981) the paper presents a parameterised utility function with explicit representation of the use of time, the CES-UT, which allows a flexible representation of the relationship between consumption and leisure. This functional form is used to provide a quantitative illustration of the trade-off which defines the optimal tax system and thus desirable directions of tax reform. |
| Keywords: | Public economics, optimal taxation, tax reform, tax simulation, distance functions, CGE models |
| JEL: | H2 |
| Date: | 2008–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2008006&r=pbe |
| By: | Witterblad, Mikael (Department of Economics, Umeå University) |
| Abstract: | This paper analyzes the composition of municipal expenditures in Sweden by estimating a demand system for local public services, in which tax revenue collection is treated as endogenous. The estimation is based on the QAIDS specification. The empirical application uses panel data for the period 1998-2005 and for six local public services. The results show that the point estimates of all income elasticities except one are positive, and that none of them significantly exceeds one. Furthermore, the point estimates of the own-price elasticities are negative and less than one in absolute value for all services. |
| Keywords: | Demand system; local public finance; local government spending |
| JEL: | D12 H71 H72 |
| Date: | 2008–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0730&r=pbe |
| By: | L. Marattin; M. Marzo |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:625&r=pbe |
| By: | Oscar, AMERIGHI (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)); Giuseppe, DE FEO (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)) |
| Abstract: | In this paper, we provide an explanation of why privatization may attract foreign investors interested in entering a regional market. Privatization turns the formerly-public firm into a less aggressive competitor since profit-maximizing output is lower than the welfare-maximizing one. The drawback is that social welfare generally decreases. We also investigate tax/subsidy competition for FDI before and after privatization. We show that policy competition is irrelevant in the presence of a public firm serving just its domestic market. By contrast, following privatization, it endows the big country with an instrument which can be used either to reduce the negative impact on welfare of an FDI-attracting privatization or to protect the domestic industry from foreign competitors. |
| Keywords: | foreign direct investment, tax competition, public firm, privatization |
| JEL: | F12 F23 H25 H73 L13 L33 |
| Date: | 2008–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2008002&r=pbe |
| By: | Knud J., MUNK |
| Abstract: | Contrary to what is implied by the so called “Wahsington consensus”, Stiglitz (2003) has argued that in the least developed countries border taxes are superior to VAT. However, supported by much respectable research, the IMF and World Bank’s recommend that developing countries substitute VAT for border taxes. The present paper provides an easy to implement parameterised general equilibrium model which may be used as the basis for empirical research, required to reach a consensus opinion within the profession on the issue. The model allows for the fact that different tax systems are associated with different administrative costs, and represents the informal sector as a parameterisation, the CES-UT, of a utility function with explicit representation of the use of time. By means of a quantitative example, it illustrates, on the one hand, that a large informal sector in itself does not justify the use of border taxes, but, on the other hand, when administrative costs of taxation are taken into account, that the size of the informal sector, as claimed as Stiglitz (2003), is indeed important for whether the use of border taxes is desirable or not. |
| Keywords: | Optimal trade policy, VAT, tax-tariff reform, costs of tax administration, informal sector, developing countries |
| JEL: | F11 F13 H21 |
| Date: | 2008–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2008005&r=pbe |
| By: | Casey B. Mulligan; Kevin K. Tsui |
| Abstract: | This paper presents a theory of competition for political leadership between incumbent leaders and their challengers in which the possible equilibrium political market structures range from pure monopoly (unchallenged dictatorship) to perfectly competitive (ideal democracy). Leaders are constrained by the threat of "entry" or their ability to tax (or both), so that regimes with no challengers may nonetheless implement policies in the public interest. We offer economic interpretations of why democratic countries are associated with higher wages, why resource abundant countries tend to be nondemocratic, and how technological change affects political development. By focusing on the incentives for political entry, we show how trade sanctions and other policies designed to promote democracy may actually have the unintended consequences of discouraging political competition. |
| JEL: | H11 L12 P16 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13830&r=pbe |
| By: | Asfaha, Samuel |
| Abstract: | In countries where the political-economy incentives that governments face do not foster prudent revenue management, national revenue funds (NRFs) should not be used to impose optimal expenditure paths. In such countries, NRFs should instead be used as policy tools for re-aligning the diverging interests of governments, influential interest groups and society at large. This paper argues that nation-wide multi-stakeholder consultations are the way to go about it. Any multi-stakeholder consultation should target three important issues: establishing a national revenue management law which is acceptable to all stakeholders; establishing a multi-stakeholder independent oversight and monitoring committee to ensure checks-and-balances and compliance with the national revenue law; and giving the law constitutional status, to protect it from amendment or override by a single entity. |
| Keywords: | national revenue funds; Dutch disease; resource curse; polical-economy; rent-seeking; resource boom; consumption-smoothing; fiscal stabilization; revenue volatility |
| JEL: | H50 H20 H30 O13 Q33 E21 Q38 E30 N50 H60 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:7656&r=pbe |
| By: | Dasgupta, Indraneel (University of Nottingham); Kanbur, Ravi (Cornell University) |
| Abstract: | Wealthy individuals often voluntarily provide public goods that the poor also consume. Such philanthropy is perceived as legitimizing one’s wealth. Governments routinely exempt the rich from taxation on grounds of their charitable expenditure. We examine the normative logic of this exemption. We show that, rather than reducing it, philanthropy may aggravate absolute inequality in welfare achievement, while leaving the change in relative inequality ambiguous. Additionally, philanthropic preferences may increase the effectiveness of policies to redistribute income, instead of weakening them. Consequently, the general normative case for exempting the wealthy from expropriation, on grounds of their public goods contributions, appears dubious. |
| Keywords: | community, public goods, inequality, distribution, philanthropy, egalitarianism |
| JEL: | D31 D63 D74 Z13 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3317&r=pbe |
| By: | Emmanuel PETIT (GREThA) |
| Abstract: | Our analysis is about the role of emotions and moral values in economical analysis. We use the theory of emotions of Livet (2002) in order to understand the behaviour of individuals alternatively in the Akerlof (1991)’s model of undue obedience and in a public good experiment. We argue that the emotional process permits us to reveal to ourselves our true preferences or values. We thus claim that recent economic analysis should take into account the role of emotion not only as a psychic cost or even a rational tool but also as a useful warning process. |
| Keywords: | Theory of emotions, obedience to authority, cooperation, public goods game, moral values |
| JEL: | B49 A13 C90 H41 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:grs:wpegrs:2008-11&r=pbe |