|
on Public Economics |
| By: | Sebastian Hauptmeier (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Ferdinand Mittermaier (Ludwig-Maximilians-Universität München, Geschwister-Scholl-Platz 1, D-80539 München, Germany.); Johannes Rincke (Ludwig-Maximilians-Universität München, Geschwister-Scholl-Platz 1, D-80539 München, Germany.) |
| Abstract: | We set up a model to characterize the reaction functions of governments competing for mobile capital by simultaneously setting both the business tax rate as well as the level of provision of a productive public input. Using a rich data set of local jurisdictions, we then test the predictions of the model with respect to the nature of strategic interaction among governments. Our findings from efficient estimation of a system of spatially interrelated equations for both policy instruments support the notion that local governments use both the business tax rate and public inputs to compete for capital. In particular, we find that if neighbors cut their tax rates, governments try to restore competitiveness by lowering their own tax and increasing spending on public inputs. If neighbors provide more infra-structure, governments react by increasing their own spending on public inputs. JEL Classification: H72, H77, C72. |
| Keywords: | Tax competition, public input competition, system estimation. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20091033&r=pbe |
| By: | Andres Reeson; John Tisdell |
| Abstract: | There are many factors which can motivate people to contribute to public goods. These range from intrinsic motivations such as altruism, through social motivations such as concerns for fairness and approval, to extrinsic incentives which include sanctions and payments. Institutions help determine how these motivations are applied and expressed. Psychological studies indicate that extrinsic incentives can crowd out the intrinsic motivations which prompt voluntary contributions to public goods. We applied experimental economics techniques to examine how people in a public good dilemma respond to changing institutions. Our results showed that the introduction of formal institutions (a regulation and competitive tender) crowded out voluntary contributions, with the supply of public good increasing less than anticipated, and in some circumstances actually decreasing. In particular, the introduction of the competitive tender triggered a ‘market instinct’, with participants who previously had been expressing social preferences now seeking to maximise profits. The effects of crowding out persisted even after an institution was removed, suggesting that it may be difficult to reverse. We conclude that policy makers should tread carefully when considering formal institutions to promote public good provision, particularly where desired actions are already occurring voluntarily to some extent. |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2007-22&r=pbe |
| By: | António Afonso (Technical University of Lisbon, Department of Economics; UECE,Research Unit on Complexity and Economics, R. Miguel Lupi 20, 1249-078 Lisbon, Portugal.); Sebastian Hauptmeier (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | We assess the fiscal behaviour in the European Union countries for the period 1990-2005 via the responsiveness of budget balances to several determinants. The results show that the existence of effective fiscal rules, the degree of public spending decentralization, and the electoral cycle can impinge on the country’s fiscal position. Furthermore, the results also support the responsiveness of primary balances to government indebtedness. JEL Classification: C23, E62, H62. |
| Keywords: | fiscal regimes, fiscal rules, fiscal decentralization, European Union, panel Data. |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20091054&r=pbe |
| By: | Arik Levinson (Department of Economics, Georgetown University) |
| Abstract: | This paper describes and implements a method for estimating the average marginal value of a time-varying local public good: air quality. It uses the General Social Survey (GSS), which asks thousands of people in various U.S. locations how happy they are, along with other demographic and attitude questions. These data are matched with the Environmental Protection Agency's Air Quality System (AQS) to find the level of pollution in those locations on the dates the survey questions were asked. People with higher incomes in any given year and location report higher levels of happiness, and people interviewed on days when air pollution was worse than the local seasonal average report lower levels of happiness. Combining these two concepts, I derive the average marginal rate of substitution between income and air quality – a compensating variation for air pollution. Classification-JEL Codes: Q51, Q53, H41 |
| Keywords: | willingness to pay, stated well-being, pollution, compensating variation |
| Date: | 2009–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~09-09-03&r=pbe |
| By: | Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Villegas-Palacio, Clara (Department of Economics, School of Business, Economics and Law, Göteborg University); Wollbrant, Conny (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | In contrast to previous studies on cross-group comparisons of conditional cooperation, this study keeps cross- and within-country dimensions constant. The results reveal significantly different cooperation behavior between social groups in the same location.<p> |
| Keywords: | Conditional cooperation; experiment; public goods; social group |
| JEL: | C91 H41 |
| Date: | 2009–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0372&r=pbe |
| By: | Tanaka, H.; Hidaka, M. |
| Abstract: | We here expand the static tax competition models in symmetric small regions, which were indicated by Zodrow and Mieszkowski (1986) and Wilson (1986), to a dynamic tax competition model in large regions, taking consideration of the regional asymmetry of productivity of public capital and the existence of capital accumulation. The aim of this paper is to verify how the taxation policy affects asymmetric equilibrium based on a simulation analysis using an overlapping generations model in two regions. It is assumed that the public capital as a public input is formed on the basis of the capital tax of local governments and the lump-sum tax of the central government. As demonstrated in related literature, the optimal capital tax rate should become zero when the lump-sum tax is imposed only on older generations, however, the optimal tax rate may become positive when it is imposed proportionally on younger and older generations. In the asymmetric equilibrium, several cooperative solutions can possibly exist which can achieve a higher welfare standard than the actualized cooperative solution either in Region1 or 2.. |
| Keywords: | Tax competition, Capital taxation, Capital accumulation, Public inputs, Infrastructure |
| JEL: | H21 H42 H71 H77 R13 R53 |
| Date: | 2009–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0929&r=pbe |
| By: | Ratbek Dzhumashev |
| Abstract: | Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effects of this uncertainty, a stochastic dynamic growth model with the public sector is examined. It is shown that deterministic excessive red tape and corruption deteriorate the growth potential through income redistribution and public sector inefficiencies. Most importantly, it is demonstrated that the increase in corruption via higher uncertainty exerts adverse effects on capital accumulation, thus leading to lower growth rates. |
| Keywords: | Corruption, growth, public goods, tax evasion, uncertainty |
| JEL: | D92 D72 E20 E60 H26 H41 G11 O16 O41 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2007-15&r=pbe |
| By: | Simon Loretz (Oxford University Centre for Business Taxation); Padraig J. Moore (Deutsche Bank London) |
| Abstract: | Firms' tax planning decisions, similar to their other operational decisions, are made in a competitive environment. Various stakeholders observe the tax payments and evaluate these against the relevant peer group, which creates interdependencies in the tax planning activities of firms. Introducing the concept of reputational loss we show the positive interdependence in a theoretical model and test it in a spatial econometric model. Empirical evidence suggests that benchmarking takes place both within countries and within industries, however for the latter it is important to include firms in large non-EU OECD countries. Further, the analysis shows that spatial interdependence is stronger for the largest firms and if they have an average effective tax rate above the statutory tax rate. |
| Keywords: | Corporate Taxation; Benchmarking; Tax Competition; Spatial Econometrics |
| JEL: | H25 M40 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:btx:wpaper:0912&r=pbe |
| By: | M. Vittoria Levati (Max Planck Institute of Economics, Jena); Andrea Morone (Department of Economics and Mathematics, University of Bari) |
| Abstract: | Previous research indicates that risky and uncertain marginal returns from the public good significantly lower contributions. This paper presents experimental results illustrating that the effects of risk and uncertainty depend on the employed parameterization. Speci?cally, if the value of the marginal per capita return under the worst state of nature allows for some efficiency gains, the presence of risk and uncertainty about the public good's value is not detrimental to cooperation. This ?nding casts doubt on the hypothesis that risk and uncertainty, per se, weaken people's willingness to contribute. |
| Keywords: | Public goods experiments, Voluntary contributions, Risk, Uncertainty |
| JEL: | C72 C92 D81 H41 |
| Date: | 2009–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2009-062&r=pbe |
| By: | Rolf Aaberge; Ugo Colombino |
| Abstract: | The purpose of this paper is to present an exercise where we identify optimal income tax rules according to various social welfare criteria, keeping fixed the total net tax revenue. Empirical applications of optimal taxation theory have typically adopted analytical expressions for the optimal taxes and then imputed numerical values to their parameters by using “calibration” procedures or previous econometric estimates. Besides the restrictiveness of the assumptions needed to obtain analytical solutions to the optimal taxation problem, a shortcoming of that procedure is the possible inconsistency between the theoretical assumptions and the assumptions implicit in the empirical evidence. In this paper we follow a different procedure, based on a computational approach to the optimal taxation problem. To this end, we estimate a microeconomic model with 78 parameters that capture heterogeneity in consumption-leisure preferences for singles and couples as well as in job opportunities across individuals based on detailed Norwegian household data for 1994. For any given tax rule, the estimated model can be used to simulate the labour supply choices made by single individuals and couples. Those choices are therefore generated by preferences and opportunities that vary across the decision units. We then identify optimal tax rules – within a class of 9-parameter piece-wise linear rules - by iteratively running the model until a given social welfare function attains its maximum under the constraint of keeping constant the total net tax revenue. The parameters to be determined are an exemption level, four marginal tax rates, three “kink points” and a lump sum transfer that can be positive (benefit) or negative (tax). We explore a variety of social welfare functions with differing degree of inequality aversion. All the social welfare functions imply monotonically increasing marginal tax rates. When compared with the current (1994) tax systems, the optimal rules imply a lower average tax rate. Moreover, all the optimal rules imply – with respect to the current rule – lower marginal rates on low and/or average income levels and higher marginal rates on relatively high income levels. These results are partially at odds with the tax reforms that took place in many countries during the last decades. While those reforms embodied the idea of lowering average tax rates, the way to implement it has typically consisted in reducing the top marginal rates. Our results instead suggest to lower average tax rates by reducing marginal rates on low and average income levels and increasing marginal rates on very high income levels. |
| Keywords: | Labour supply, optimal taxation, random utility model, microsimulation. |
| JEL: | H21 H31 J22 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:icr:wpicer:19-2008&r=pbe |
| By: | Lawless, Martina (Central Bank and Financial Services Authority of Ireland) |
| Abstract: | The negative relationship between host-country tax rates and FDI has been tested in a large number of papers. This paper looks at a different channel through which tax systems could affect FDI, namely the complexity of the tax system. Complying with tax authority requirements can be extremely time consuming for business and this implies an additional cost for more complex tax systems. We use measures of the time taken to deal with tax obligations and the number of tax payments for a representative firm compiled by the World Bank to examine their effect on FDI selection and flows from 16 OECD FDI-source countries to 57 host countries. We find a negative and significant effect of tax rates in line with other studies. In addition, the tax complexity measures are found to have a significant inhibiting effect on the presence of FDI for a country pair, but have little impact on the level of the FDI flow once it is established. In other words, the complexity measures affect FDI primarily through the extensive margin. A 10% reduction in tax complexity is found to be comparable in its effect on FDI to a one percentage point reduction in the effective corporate tax rate. The results are robust to the inclusion of other proxies for bureaucracy in the host country. |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:5/rt/09&r=pbe |
| By: | Luca Agnello (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Ricardo M. Sousa (University of Minho, Department of Economics and Economic Policies Research Unit (NIPE), Campus of Gualtar, 4710-057 Braga, Portugal.) |
| Abstract: | This paper empirically analyzes the political, institutional and economic sources of public deficit volatility. Using the system-GMM estimator for linear dynamic panel data models and a sample of 125 countries analyzed from 1980 to 2006, we show that higher public deficit volatility is typically associated with higher levels of political instability and less democracy. In addition, public deficit volatility tends to be magnified for small countries, in the outcome of hyper-inflation episodes and for countries with a high degree of openness. JEL Classification: E31, E63. |
| Keywords: | Public deficit, volatility, political instability, institutions. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20091042&r=pbe |
| By: | Hazama, Yasushi |
| Abstract: | This paper reviews the literature on the prevalence of constitutional review across the world, and particularly in emerging democracies, during the last two decades. Two major questions should be addressed in this regard. First, why has the judiciary been empowered and what factors affect judicial activism? Second, does constitutional review ensure an effective self-enforcing function? In sum, the literature shows that constitutional review can make democracy self-enforcing if there is sufficient competition among political parties or between the legislature and the executive branch of government. In a more sophisticated case, political balance within the court can also ensure the observance of court decisions. |
| Keywords: | Judiciary, Constitutional review, Democracy, Politics |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper192&r=pbe |