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on Public Economics |
| By: | Yingxin Shi (Department of Economics & Management, Dalian Nationalities University); Mototsugu Fukushige (Graduate School of Economics, Osaka University) |
| Abstract: | We overcome the problems of data availability and investigate the fiscal multipliers in autonomous prefectures in China. We first estimate the long-run elasticity of gross regional production with respect to fiscal expenditure in autonomous prefectures, using autoregressive distributed lag models. The estimated long-run elasticity is much less than unity, however, and the estimated fiscal multipliers for prefectures are between 0.61 and 4.93, with an average of 1.93. These results indicate that additional fiscal expenditure is still effective in increasing local income and promoting economic growth for most of the autonomous prefectures. |
| Keywords: | Fiscal Multiplier; Autonomous Prefecture; China; autoregressive distributed lag model |
| JEL: | O11 E62 H72 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1310&r=pbe |
| By: | Bev Dahlby (University of Calgary); Jonathan Rodden (Stanford University) |
| Abstract: | We develop a political economy model of intergovernmental transfers. Vertical fiscal balance occurs in a federation when the ratio of the marginal benefit of the public services provided by the federal and provincial governments is equal to their relative marginal costs of production. With majority voting in national elections, the residents of a "pivotal province" will determine the level of transfers such that the residents of that province achieve a vertical fiscal balance in spending by the two levels of government. We test the predictions of the model using Canadian time series data and cross-section data for nine federations. |
| Keywords: | Fiscal federalism, vertical fiscal imbalance, fiscal gap |
| JEL: | H71 H73 H77 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2013/6/doc2013-18&r=pbe |
| By: | Ben Ferrett (School of Business and Economics, Loughborough University, UK); Ian Wooton (University of Strathclyde, UK) |
| Abstract: | We introduce bidding costs into a standard model of tax/subsidy competition between two potential host countries to attract a monopoly firm’s plant. Such a bidding cost, even if it is infinitesimal, qualitatively alters the resulting equilibrium. At most one country offers fiscal inducements to the firm, and this attenuates the “familiar race to the bottom” in corporate taxes. In general, the successful host country benefits from the resulting absence of active tax/subsidy competition, at the expense of the firm’s owners in the rest of the world. |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2013_04&r=pbe |
| By: | Lars-Erik Borge (Department of Economics, Norwegian University of Science and Technology); Pernille Parmer (Department of Economics, Norwegian University of Science and Technology); Ragnar Torvik (Department of Economics, Norwegian University of Science and Technology) |
| Abstract: | The large variation in revenues among Norwegian local governments can partly be explained by revenues collected from hydropower production. This revenue variation, combined with good data availability, can be used to extend the literature on the re- source curse in two directions. First, to ensure that there is no problem of endogeneity in the analysis we obtain a purely exogenous measure of local revenue by instrumenting the variation in hydropower revenue, and thus total revenue, by topology, average pre- cipitation and meters of river in steep terrain. Second, using data for revenue derived from hydropower production in Norwegian local governments we test the 'Rentier State' hypothesis; that revenue derived from natural resources should harm efficiency more than revenue derived from other sources such as taxation. Although we do find that higher local government revenue reduces the efficiency in production of public goods, we do not find that this effect is stronger for natural resource revenue than for other revenue. |
| Keywords: | resource curse, rentier state, identification, local government, political economy |
| JEL: | D78 H11 H27 H71 H72 H75 Q2 |
| Date: | 2013–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:nst:samfok:14913&r=pbe |
| By: | Konstantinos Angelopoulos; James Malley; Apostolis Philippopoulos |
| Abstract: | This paper considers the role of human capital accumulation of agents differentiated by skill type in the joint determination of social mobility and the skill premium. Our approach allows us to evaluate the dynamic e¤ects of tax reforms and education spending policies on economic e¢ ciency as well as on social and wage inequality. The analysis contributes to the literature by showing that endogenous so- cial mobility, human capital for skilled and unskilled labour, and exter- nalities from skilled human capital on social mobility are key channels through which tax-spending policy is transmitted. |
| Keywords: | social mobility, skill premium, tax and education policy |
| JEL: | E62 J31 J62 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2013_10&r=pbe |
| By: | Michal Brzezinski (University of Warsaw) |
| Abstract: | This study examines empirically the impact of income polarization on economic growth in an unbalanced panel of more than 70 countries during the 1960–2005 period. We calculate various polarization indices using existing micro-level datasets, as well as datasets reconstructed from grouped data on income distribution taken from the World Income Inequality Database. The results garnered for our preferred sample of countries suggest that income polarization has a negative impact on growth in the short term, while the impact of income inequality on growth is statistically insignificant. Our results are fairly robust to various model specifications and estimation techniques. |
| Keywords: | economic growth, polarization, inequality, income distribution. |
| JEL: | O11 O15 O4 D31 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2013-296&r=pbe |
| By: | Anke Hoeffler |
| Abstract: | What happens to countries after civil war or other conflict comes to an end? This paper shows that post-war economies can experience a peace dividend involving higher than average growth rates, and that aid can increase this dividend. Since post-war countries face the twin challenges of avoiding further conflict and rebuilding their economies, enhancing the peace dividend is a high priority. While there is evidence that this peace dividend can be increased through aid it is not well understood why this may be the case. The paper considers policy reform and particular types of aid but finds no evidence that they hold the key to understanding why aid increases post-war growth. To rebuild their economies and thus prevent them reverting to conflict, there are distinct policies that post-war governments should pursue in the short term: high aid, low taxation, independent public service delivery and low inflation. Post-war societies face enormous needs while having very limited revenue. Aid should fill the gap in the short run, but in the long run aid dependence can be avoided by phasing in a cap on aid. This cap should be relative to tax revenue. |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dcdaaa:2-en&r=pbe |
| By: | Yutao Han (CREA, Université de Luxembourg); Patrice Pieretti (CREA, Université de Luxembourg); Benteng Zou (CREA, Université de Luxembourg) |
| Abstract: | We revisit the investment home-bias situation of firms and extend the home attachment setting of Mansoorian and Myers (1993) and Ogura (2006) into a dynamic framework. We locate firms based on their home attachment preferences, which is also changing over time based on some updated spillover information. Some applications, in static and dynamic tax competition, are presented following our home-attachment principle. |
| Keywords: | Dynamic tax competition, Home attachment, Foreign direct investment-disinvestment |
| JEL: | C61 F21 H21 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:13-15&r=pbe |
| By: | Kasahara, Tetsuya |
| Abstract: | This paper analyzes the role and effects of public investment policy when coordination problems among agents can result in individually rational but socially inefficient investment decisions. Developing a coordination investment model in which individuals simultaneously and independently determine whether to undertake a risky but potentially more profitable investment project or an alternative with safe but lower returns, we first show that the risk of coordination failure can in equilibrium result in socially inefficient investment and small consumption. We then investigate the role and effects of a public investment policy designed to help mitigate inefficiency. In our model, the size of a feasible public investment policy is determined endogenously. Our numerical results show that the divisibility of investment projects, the presence of financial constraints, the productivity of public investments, and the relative precision of public and private information, as well as the relative tax rates imposed on risky investments and safe investments, have complex effects on the effectiveness of public investment policy and welfare. In particular, we demonstrate that a public investment policy of a larger size and the availability of more precise information do not necessarily increase welfare. |
| Keywords: | Strategic complementarities, coordination games, information precision, public investment policy, financial constraints |
| JEL: | C72 D81 H21 H53 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hituec:589&r=pbe |
| By: | AREZKI Rabah; DUPUY Arnaud; GELB Alan |
| Abstract: | This paper studies the optimal public investment decisions in countries experiencing a resource windfall. To do so, we use an augmented version of the Permanent Income framework with public investment faced with adjustment costs capturing the associated administrative capacity as well as government direct transfers. A key assumption is that those adjustment costs rise with the size of the resource windfall. The main results from the analytical model are threefold. First, a larger resource windfall commands a lower level of public capital but a higher level of redistribution through transfers. Second, weaker administrative capacity lowers the increase in optimal public capital following a resource windfall. Third, higher total factor productivity in the non-resource sector reduces the degree of des-investment in public capital commanded by weaker administrative capacity. We further extend our basic model to allow for ?investing in investing? ? that is public investment in administrative capacity ? by endogenizing the adjustment cost in public investment. Results from the numerical simulations suggest, among other things, that a higher initial stock of public administrative ?know how? leads to a higher level of optimal public investment following a resource windfall. Implications for policy are discussed. |
| Keywords: | Resource Windfall; Public Investment; Total Factor Productivity; Administrative capacity |
| JEL: | E60 F34 H21 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:irs:cepswp:2013-12&r=pbe |
| By: | Mary C. Daly; Daniel J. Wilson |
| Abstract: | A large body of past research, looking across countries, states, and metropolitan areas, has found positive and statistically significant associations between income inequality and mortality. By contrast, in recent years more robust statistical methods using larger and richer data sources have generally pointed to little or no relationship between inequality and mortality. This paper aims both to document how methodological shortcomings tend to positively bias this statistical association and to advance this literature by estimating the inequality-mortality relationship. We use a comprehensive and rich new data set that combines U.S. county-level data for 1990 and 2000 on age-race-gender-specific mortality rates, a rich set of observable covariates, and previously unused Census data on local income inequality (Gini index and three income percentile ratios). Using panel data estimation techniques, we find evidence of a statistically significant negative relationship between mortality and inequality. This finding that increased inequality is associated with declines in mortality at the county level suggests a change in course for the literature. In particular, the emphasis to date on the potential psychosocial and resource allocation costs associated with higher inequality is likely missing important offsetting positives that may dominate. |
| Keywords: | Mortality - United States ; Health |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2013-13&r=pbe |
| By: | Björn Vollan; Yexin Zhou; Andreas Landmann; Biliang Hu; Carsten Herrmann-Pillath |
| Abstract: | There is ample evidence for a “democracy premium”. Laws that have been implemented via election lead to a more cooperative behavior compared to a top-down approach. This has been observed using field data and laboratory experiments. We present evidence from Chinese students and workers who participated in public goods experiments and a value survey. We find a premium for top-down rule implementation stemming from people with stronger individual values for obeying authorities. When participants have values for obeying authorities, they even conform to non-preferred rule. Our findings provide strong evidence that the efficiency of political institutions depends on societal norms. |
| Keywords: | Deterrent effect of legal sanctions, expressive law, authoritarian norms, public goods, democratic voting, China |
| JEL: | A13 C92 D02 D72 H41 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2013-14&r=pbe |
| By: | Sabine D’Costa; Enrique Garcilazo; Joaquim Oliveira Martins |
| Abstract: | This papers aims to understand the impact of nation-wide structural policies such as product market regulation in six upstream sectors and employment protection legislation and that of macroeconomic factors on the productivity growth of OECD regions. In particular we explore how this effect varies with the productivity gap of regions with their country’s frontier region. We use a policy-augmented growth model that allows us to simultaneously estimate the effects of macroeconomic and structural policies on regional productivity growth controlling for region-specific determinants of growth. We estimate our model with an unbalanced panel dataset consisting of 217 regions from 22 OECD countries covering the period 1995 to 2007. We find a strong statistical negative effect of product market regulation on regional productivity growth in five of the six upstream sectors considered and the effects are differentiated with respect to the productivity gap. Our estimates also reveal that dispersion of policies hurts regional productivity growth suggesting that policy complementarity can boost productivity growth. The effects of employment protection legislation are negative overall and are especially detrimental to productivity growth in lagging regions. The three macroeconomic factors we consider also influence regional performance: inflation has a negative effect on regional growth and government debt has a positive effect on average. When differentiating the effects by the distance to the frontier, trade-openness is more beneficial to lagging regions and the negative effects of inflation are less negative in lagging regions. These results reveal a strong link between nation-wide policies and the productivity of regions, which carries important policy implications, mainly that these effects should be taken into account in the policy design. |
| Keywords: | regional productivity growth, regional impact of structural policies, spatial impact of national policies |
| JEL: | E66 R12 |
| Date: | 2013–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:oec:govaab:2013/11-en&r=pbe |
| By: | Edoardo Di Porto (MEMOTEF, Department "Sapienza" University of Rome and EQUIPPE USTL/Lille); Leandro Elia (Institute for the Protection and Security of the Citizen European Commission-Joint Research Centre); Cristina Tealdi (IMT Lucca Institute for Advanced Studies) |
| Abstract: | We analyze how different policy interventions may incentive the transition of workers from the informal to the formal sector. We use Italian data over the period 1998-2008 to evaluate ex post whether the 2003 Italian labor market reform was able to reach the objective to reduce the share of shadow employment. Based on our empirical results, we develop an ex ante evaluation based on a search and matching model, á la Mortensen and Pissarides to determine the right combination of policy interventions which may be effective in generating a significant reduction in undeclared work together with an expansion of the formal sector. We find that in an economy where permanent and temporary contracts coexist, the combination of lower payroll taxes for permanent jobs and higher probability of being audited generates a compression of the informal sector, leaving unemployment unchanged. A similar result can be obtained through a reduction of the firing cost associated with permanent jobs, even though this causes temporary contracts to increase relatively more than permanent contracts. |
| Keywords: | Labor tax evasion, temporary contracts, firing costs, search frictions, policy evaluation |
| JEL: | J38 J63 J64 H26 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:ial:wpaper:2/2013&r=pbe |