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on Public Economics |
| By: | Matthias Wrede (University of Marburg and CESifo, Am Plan 2, 35032 Marburg, Germany) |
| Abstract: | This paper analyzes asymmetric tax competition under formula apportionment. It sets up a model with multinationals where two welfare-maximizing jurisdictions of different size levy source-based corporate taxes and allocate taxes using the formula approach. At the Nash equilibrium, tax rates are too low and public goods quantities are too small. The paper shows that the larger country levies a larger tax rate compared to the smaller country as it does under separate accounting. Citizens of the larger country are worse off than those of the smaller country. |
| Keywords: | Multinational enterprises, corporate taxation, formula apportionment, asymmetric tax competition. |
| JEL: | H25 H42 H73 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:200943&r=pbe |
| By: | Benny Geys (Wissenschaftszentrum Berlin für Sozialforschung (WZB)); Federico Revelli (University of Torino) |
| Abstract: | This paper investigates the economic and political determinants of the local tax mix using panel data of 289 Flemish municipalities over the period 1995-2002 and estimating a system of five reduced-form tax revenue-share equations (income, property, business, user fees and other own revenues). The analysis highlights a number of important economic determinants of the observed tax mix while political variables turn out to play a relatively minor role. Finally, the analysis uncovers virtually no evidence of inter-municipal dependence in the determination of the local tax mix. |
| Keywords: | Tax mix, Local government, Flemish municipalities, Decentralisation |
| JEL: | C33 D72 H71 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2009/10/doc2009-17&r=pbe |
| By: | Santanu Gupta; Raghbendra Jha |
| Abstract: | This paper examines how citizens decide on their reservation utilities (expectations), in a model with democratic institutions and majority rule. If all individuals have identical incomes, then political competition amongst citizens, to attract resources from the government brings reservation utilities of citizens down to zero. The same is not the case when individuals have different incomes, but it is the richest and the median income citizens who win in the process and tax resources are equally distributed between them. In a situation where the government is corrupt and siphons off a part of the tax revenues, citizens can by having higher reservation utilities prevent it, but choose not to do so, given the political competition amongst citizens. Corruption is manifested in higher tax rates and not in a decline in public good allocation to jurisdictions. |
| Keywords: | median voter, local public good, reservation utility |
| JEL: | H41 H72 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pas:papers:2009-16&r=pbe |
| By: | John M. Hartwick (Queen`s University) |
| Abstract: | We report on the nature of a utility optimizing transfer from one regional government to another when local public goods are present. Computer examples reveal that small differences in regional endowments result in large differences in equilibrium outcomes for two regions, under optimal transfers. The scale effect (lower tax charge per person for the same public good in more populous regions) leads to the small region generally providing transfers to the larger region. |
| Keywords: | intergovernmental transfers, local public goods, inter-regional resource allocation |
| JEL: | H41 H77 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1221&r=pbe |
| By: | Petra Ens (Georg-August-Universität Göttingen) |
| Abstract: | Literature has long learned about the welfare improving effect of equalization in tax competition environments. By setting incentives to local authorities, public spending becomes efficient in spite of relying on a mobile resource as the tax base. This paper proves that this result cannot hold when local players have influence on the shape of the transfer system. A bargaining concerning equalization may change the incentives arising from equalization. |
| Keywords: | tax competition, fiscal equalization, nash bargaining, cooperation |
| JEL: | H10 H71 H77 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2009/10/doc2009-16&r=pbe |
| By: | Jun-ichi Itaya (Hokkaido University); Makoto Okamuraz (Hiroshima University); Chikara Yamaguchix (Hiroshima Shudo University) |
| Abstract: | This paper addresses the problem of partial tax coordination among regional or national sovereign governments in a repeated game setting. We show that partial tax coordination is more likely to prevail if the number of regions in a coalition subgroup is smaller and the number of existing regions in the entire economy is larger. We also show that under linear utility, partial tax coordination is more likely to prevail if the preference for a local public good is stronger. The main driving force for these results is the response of the intensity of tax competition. The increased (decreased) intensity of tax competition makes partial tax coordination more (less) sustainable. |
| Keywords: | Partial tax coordination, repeated game, tax competition |
| JEL: | H71 H77 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2009/10/doc2009-15&r=pbe |
| By: | Felix Bierbrauer (Max Planck Institute for Research on Collective Goods, Bonn) |
| Abstract: | The literature on public goods has shown that efficient outcomes are impossible if participation constraints have to be respected. This paper addresses the question whether they should be imposed. It asks under what conditions efficiency considerations justify that individuals are forced to pay for public goods that they do not value. It is shown that participation constraints are desirable if public goods are provided by a malevolent Leviathan. By contrast, with a Pigouvian planner, efficiency can be achieved. Finally, the paper studies the delegation of public goods provision to a profit-maximizing firm. This also makes participation constraints desirable. |
| Keywords: | Public goods, Mechanism Design, Incomplete Contracts, Regulation |
| JEL: | D02 D82 H41 L51 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2009_15&r=pbe |
| By: | Olken, Benjamin A. (MIT); Singhal, Monica (Harvard University) |
| Abstract: | Informal payments are a frequently overlooked source of local public finance in developing countries. We use microdata from ten countries to establish stylized facts on the magnitude, form, and distributional implications of this "informal taxation." Informal taxation is widespread, particularly in rural areas, with substantial in-kind labor payments. The wealthy pay more, but pay less in percentage terms, and informal taxes are more regressive than formal taxes. Failing to include informal taxation underestimates household tax burdens and revenue decentralization in developing countries. We propose a simple model of information and enforcement constraints that parsimoniously explains the patterns in the data. |
| JEL: | H27 H41 O17 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp09-033&r=pbe |
| By: | Loretz, Simon (Oxford University Centre for Business Taxation); Moore, Padraig J. (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: | 2009–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sbgwpe:2009_003&r=pbe |
| By: | Kristof DE WITTE; Benny GEYS |
| Abstract: | Provision of most public goods (e.g., health care, library services, education, utilities) can be characterised by a two-stage ‘production’ process. The first stage translates basic inputs (e.g., labour and capital) into service potential (e.g., opening hours), while the second stage describes how these programmatic inputs are transformed into observed outputs (e.g., school outcomes, library circulation). While the latter stage is best analysed in a supply-demand framework, particularly in the former stage one would like to have efficient public production. Hence, unlike previous work on public sector efficiency (which often conflates both ‘production’ stages), this paper analyses how political economy factors shape efficient public good provision in stage one (using local public libraries as our centre of attention). To do so, we use a specially tailored, fully non-parametric efficiency model. The model is rooted in popular Data Envelopment Analysis models, but allows for both outlying observations and heterogeneity (i.e., a conditional efficiency model). Using an exceptionally rich dataset comprising all 290 Flemish public libraries, our findings suggest that the ideological stance of the local government, the wealth and density of the local population and the source of library funding (i.e., local funding versus intergovernmental transfers) are crucial determinants of library efficiency. |
| Keywords: | Nonparametric estimation, Conditional efficiency, Political economy, Public good provision, Libraries. |
| JEL: | C14 C61 I21 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces09.10&r=pbe |
| By: | Amiel, Lindsay (University of Wisconsin); Deller, Steven (University of Wisconsin); Stallmann, Judith (University of Missouri) |
| Abstract: | This report provides detail on the construction of an index of tax and expenditure limitations (TELs) for the 50 US states for the time-frame 1969 to 2005. Separate annual indices are constructed for TELs on state and on local governments. The goal of constructing the indices is to provide a means to test a range of hypotheses concerning the impact of TELs on economic performance and on state and local government fiscal policies. This report documents the construction of the index. The data are provided in Excel spreadsheets so that others may construct alternative indices. |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:wisagr:536&r=pbe |
| By: | Pierre Dehez; Daniela Tellone |
| Abstract: | A group of firms consider collaborating on a project which requires a combination of elements which are owned by some of them. These elements are nonrival but excludable goods i.e. public goods with exclusion like for instance knowledge, data or informations, patents or copyrights. We address the question of how firms should be compensated for the goods they own. We shown that this problem can be framed as a cost sharing game to which standard allocation rules like the Shapley value, the nucleolus or accountings formulas can be applied and compared. Our analysis is inspired by the need for a cooperation between European chemical firms within the regulation program REACH which requires them to submit by 2018 a detailed analysis of the substances they produce or import. |
| Keywords: | cost sharing, Shapley value, core, nucleolus. |
| JEL: | C71 D46 M41 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2009-31&r=pbe |
| By: | Albert Solé-Ollé (Universitat de Barcelona); Pilar Sorribas-Navarro (Universitat de Barcelona) |
| Abstract: | The aim of this paper is to analyze whether Spanish municipalities adjust in response to budget shocks and (if so) which elements of the budget they are more likely to adjust. The methodology we use to answer these questions is a vector error-correction model (VECM), estimated with data from a panel of Spanish municipalities during the period 1988-2006. Our results confirm, first, that municipalities do indeed make adjustments in response to fiscal shocks (i.e., the deficit is stationary in the long run). Second, we find that most of the adjustment to a revenue shock is borne by the municipalities themselves as they proceed to cut expenditures, with a minor role being played by grant financing. By contrast, adjustments to expenditure shocks are shared on largely equal terms by the municipality –through the raising of taxes– and higher tiers of government –through the raising of grants. These results suggest that the viability of the local finance system is feasible with different institutional arrangements. |
| Keywords: | Fiscal adjustment, intergovernmental transfers, local government. |
| JEL: | H70 H72 H77 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2009/11/doc2009-7&r=pbe |
| By: | Aureo de Paula (Department of Economics, University of Pennsylvania); Jose A. Scheinkman (Department of Economics, Princeton University) |
| Abstract: | This paper investigates determinants of informal economic activity. We present an equilibrium model of informality and test its implications using a survey of 48,000+ small firms in Brazil. We define informality as tax avoidance; firms in the informal sector avoid tax payments but suffer other limitations. A novel theoretical contribution in this model is the role of value added taxes in transmitting informality. It predicts that the informality of a firm is correlated to the informality of firms from which it buys or sells. The model also implies that higher tolerance for informal firms in one production stage increases tax avoidance in downstream and upstream stages. Empirical analysis shows that, in fact, various measures of formality of suppliers and purchasers (and its enforcement) are correlated with the formality of a firm. Even more interestingly, when we look at sectors where Brazilian firms are not subject to the credit system of value added tax, but instead the value added tax is applied at some stage of production at a rate that is estimated by the tax authorities, this chain effect vanishes. |
| Keywords: | Informal Sector, VAT, Tax Avoidance |
| JEL: | H2 H3 K4 |
| Date: | 2009–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:09-041&r=pbe |
| By: | Fernández de Pinedo Echevarría, Nadia (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid) |
| Abstract: | If we compare the Castilian fiscal system with English, French or Dutch, two basic differences are apparent: in one hand, in England, France and Holland the fiscal system was a mixture of indirect taxes and direct taxes and in the other hand, the financial revolution had been carried out in the 16th century in Castilia (central Spain), when for different reasons national short-term debt was turned into juros - or long-term debt. But the Dutch Republic in the 16th century and England by the end of 17th century and the beginning of 18th century were able to finance wars thanks to an efficient financial revolution. Traditionally, wars have been the excuse to impose new taxes or to reorganize public funds in order to obtain greater economic resources for financing the deficit originated by the war. Since most of the monarchies’ tax expenses stemmed from war, it is no surprise that the conflict known as the Jenkins´ Ear (1739) contributed to increase the deficit and fuelled a debate regarding a tax reform that would augment income and would be collected in a more egalitarian way. The Castilian tax system was based almost exclusively on indirect taxes. The taxation (alcabalas, millones, cientos, tobacco monopolies, customs…) of consumables ensured that whilst some taxes affected primarily rich consumers (for example tobacco), most taxes targeted the masses. Increasing the fiscal charge via indirect taxes seemed like an unfeasible and damaging option for trade and craftwork. This is the reason why there was an attempt to create a direct tax, similar to the Catalan cadastre. One of these attempts prior to the Marquis of the Ensenada’s cadastre was la décima. It was devised as a direct tax but its manner of collection ultimately depended on the willingness of the local cabildos. |
| Keywords: | Taxation, Spain, Madrid, Indirect/Direct Taxes, 18th Century Tax Collection, War Expenses, Jenkin’s Ear War, The “Décima” |
| JEL: | N33 E62 H71 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpapeh:200905&r=pbe |
| By: | Francesco Porcelli (University of Warwick) |
| Abstract: | Data envelopment analysis and panel data stochastic frontier models are used to evaluate the impact of the 1995 renewal of regional political institutions and the 1998 tax reform (introduction of IRAP) on the efficiency of Italian regional governments. Both methodologies are applied to a longitudinal dataset, including financial and health care data disaggregated at the regional level from 1991 to 2005. Then, efficiency scores for the regional governments are used to examine the evolution of technical efficiency in the Italian health care sector. The final results provide new empirical evidence in support of the findings of recent theoretical models concerning the way in which fiscal decentralization and electoral accountability affect the efficiency of governmental activity. |
| Keywords: | accountability, DEA, decentralisation, efficiency, health, IRAP, Italy, panel data, stochastic frontier |
| JEL: | H11 H51 H77 I11 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2009/10/doc2009-29&r=pbe |
| By: | Gilberto Turati (Università di Torino); Luigi Buzzacchi (Politecnico di Torino, DISPEA) |
| Abstract: | In this paper we consider the institutional arrangements needed in a decentralised framework to cope with the potential adverse welfare effects caused by localized negative shocks, that impact on the provision of public services and that can be limited by precautionary investments. We model the role of a public mutual fund to cover these “collective risks”. We first study the under-investment problem stemming from the moral hazard of Local administrations, when investments are defined at the local level and are not observable by the Central government that manages the mutual fund. We then examine the potential role of private insurers in solving the underinvestment problem. Our analysis shows that the public fund is almost always superior to the private insurance solution. |
| Keywords: | intergovernmental transfers, private insurer, collective risks |
| JEL: | H23 H77 G22 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2009/10/doc2009-21&r=pbe |
| By: | Klein, Peter G. (University of Missouri); Mahoney, Joseph T. (University of Illinois at Urbana-Champaign); McGahan, Anita M. (University of Toronto); Pitelis, Christos N. (University of Cambridge) |
| Abstract: | This paper explores innovation, experimentation, and creativity in the public domain and in the public interest. Researchers in various disciplines have studied public entrepreneurship, but there is little research specifically on the nature, incentives and constraints of public entrepreneurship to innovate in the public interest. We begin by extending concepts of the entrepreneurial firm to include greater interactions in the public domain, and then turn to the role of entrepreneurial firms in fostering institutional change. This focus points toward opportunities for integrating transaction-costs, political and international business theories to achieve a more refined institutional theory of firm-government interactions that incorporates entrepreneurial agency as a principal mechanism for innovating in the fulfillment of public and private interests. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:illbus:09-0106&r=pbe |
| By: | Duclos, Jean-Yves (Université Laval); Makdissi, Paul (University of Ottawa); Araar, Abdelkrim (Université Laval) |
| Abstract: | This paper proposes a methodology for testing for whether tax reforms are pro-poor. This is done by extending stochastic dominance techniques to help identify tax reforms that will necessarily be deemed absolutely or relatively pro-poor by a wide spectrum of poverty analysts. The statistical properties of the various estimators are also derived in order to make the method implementable using survey data. The methodology is used to assess the pro-poorness of possible reforms to Mexico’s indirect tax system. This leads to the identification of several possible pro-poor tax reforms in that country. It also shows how the pro-poorness of a tax reform depends on one’s conception of poverty as well as on the revenue and efficiency impact of the reform. |
| Keywords: | stochastic dominance, pro-poor changes, tax reforms, Mexico |
| JEL: | D12 D63 H21 I32 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4511&r=pbe |
| By: | Bert WEEMAES; Erik SCHOKKAERT |
| Abstract: | We use data from the Survey of Health, Ageing and Retirement in Europe (SHARE) to explain the amount of time invested in volunteering in eight European countries. Direct information on motivations adds to the explanation over and above the effect of socio-demographic variables. The results for specific motivations are in line with the predictions from rational choice theory. While larger levels of ‘warm glow’ and ‘instrumental’ motivations lead to more frequent volunteering, the influence of the ‘public good’ motivation on volunteering frequency is found to be negligible. |
| Keywords: | Volunteering, Motivations, Warm glow, Public good. |
| JEL: | J22 L31 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces09.09&r=pbe |
| By: | Keshab Das |
| Abstract: | An attempt has been made in this paper to critically analyse the parameters/ criteria on which basis awards are finalized. With special reference to poorer states, the following aspects have been discussed: i) Basic parameters of the 13th FC; ii) Distribution neutral factors; iii) Redistributive factors; iv) Fiscal incentive factors; and v) Grants-in-aid. Scope for possible improvement in the working of fiscal federalism and policy implications thence have also been deliberated upon. |
| Keywords: | 13th Finance Commission, Horizontal equity, Fiscal federalism, grants-in-aid, fiscal federalism, policy, states, incentive, Tax Efforts, GDP, |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2262&r=pbe |
| By: | David Powell |
| Abstract: | This paper recognizes that compensating differentials are a function of the income tax rate, using this observation to introduce a methodology for estimating compensating differentials with a specific application to the value of a statistical life (VSL). When taxes change, the pre-tax wages of risky jobs should shift relative to the pre-tax wages of safe jobs in a manner proportional to the VSL. This approach controls for fixed effects without using industry-specific changes in risk as a source of identification. The strategy yields VSL estimates between $50 million and $75 million, an order of magnitude higher than the previous literature. |
| Keywords: | income taxes, value of a statistical life, tax incidence |
| JEL: | H22 H24 J17 J28 J31 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:ran:wpaper:706&r=pbe |
| By: | Klaus Desmet; Michel Le Breton; Ignacio Ortuno-Ortin; Shlomo Weber |
| Abstract: | This paper presents a model of nations where agents vote on the optimal level of public spending. Larger nations benefit from increasing returns in the provision of public goods, but bear the costs of greater cultural heterogeneity. This tradeoff induces agents' preferences over different geographical configurations, thus determining the likelihood of secessions or unions. After calibrating the model to Europe, we identify the regions prone to secession and the countries most likely to merge. As a test of the theory, we show that the model can account for the breakup of Yugoslavia and the dynamics of its disintegration. We also provide empirical support for the use of genetic distances as a proxy for cultural heterogeneity. |
| Keywords: | nation formation, genetic diversity, cultural heterogeneity, secession, unification, Europe, Yugoslavia. |
| JEL: | H77 D70 F02 H40 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ete:vivwps:10&r=pbe |
| By: | McQuaid, Ronald W. (Napier University, Edinburgh); Scherrer, Walter (University of Salzburg) |
| Abstract: | This paper considers the micro- and macro-economic benefits and costs of Public Private Partnerships (PPPs) and some implications of implementing new international accounting standards IFRIC 12. If public sector financial costs are forced to move ‘on balance sheet’ then there are likely to be impacts on the use in PPPs by governments and other public bodies. This may move the basis of PPP choice towards a more ‘level playing field’ with other financing sources, potentially give a more realistic measure of future public commitments and liabilities and reduce incentives to use PPPs for budget enlargement. There may be a refocusing upon the potential efficiency gains of PPPs and potentially a reduction in their use, depending upon the exact interpretations of the standards and other factors. |
| Date: | 2009–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sbgwpe:2009_002&r=pbe |