1,721,014 research outputs found
On the incentives to experiment in federations
No full textConventional wisdom has it that policy innovation is better promoted in a federal rather than in a unitary system. Recent research, however, has provided theoretical evidence to the contrary: a multi-jurisdictional system is characterized-due to the existence of a horizontal information externality-by under-provision of policy innovation. This paper presents a simple model that introduces political competition for federal office and emphasizes that such competition plays an important role in shaping the incentives for experimentation. For, in this case, political actors use the innovative policies to signal ability to the electorate. This effect may offset the effect that arises from the incentive to free ride, and so a federal system may generate more innovation than a unitary one. (c) 2006 Elsevier Inc. All rights reserved
Accountability and fiscal equalization
No full textA common feature of multi-jurisdictional systems is equalization programs. The implementation of such programs, that is based on some measurement of sub-national fiscal capacity and effort, is particularly complex. Within a political economy model, this paper analyzes the impact of such systems on accountability, identifying a positive and a negative effect. The positive effect arises because with equalized fiscal resources, a consequence of equalization, citizens attach more importance to any remaining variation in public good supplies and so punish rent-taking more severely This induces politicians to restrain themselves and so accountability improves. The negative effect arises because the complexity of such programs reduces the informational content of observed public good supplies. This introduces a perverse fiscal incentive that reduces accountability. Thus, the overall impact of equalization programs on accountability depends on the balance of these effects. (C) 2008 Elsevier B.V. All rights reserved
Political Uncertainty and Policy Innovation
No full textConventional wisdom has it that outside sources of information enhance the capability of political institutions to separate selfish from benevolent incumbents. This paper investigates, in the presence of innovative public policies whose outcomes are uncertain, the role of outside information and shows that it is more involved than typically thought. While it is true that enhanced information helps in separating politicians, it also creates an externality that reduces the incentives to experiment with innovative public policies. Copyright 2006 Blackwell Publishing, Inc..
How do institutions affect corruption and the shadow economy?
Full text linkDraft version published as a working paper; version dated February 21, 2005This paper analyzes a simple model that captures the relationship between institutional quality, the shadow economy, and corruption. It shows that an improvement in institutional quality reduces the shadow economy and affects the corruption market. The exact relationship between corruption and institutional quality is, however, ambiguous and depends on the relative effectiveness of institutional quality in the shadow and corruption markets. The analytics also show that the shadow economy and corruption are substitutes. The predictions of the model are empirically tested and confirmed
Present bias and externalities: Can government intervention raise welfare?
No full textAbstract
Quasi‐hyperbolic discounted preferences imply that consumers overemphasize immediate current rewards and overlook future ones (they have a “bias for the present”). Within this context the literature has emphasized that the misalignment between immediate and future rewards can be rectified by government policy. Importantly, it has also been shown that intervention by a government that shares the same biased intertemporal preferences with consumers does not deliver welfare improvements. Focusing on the latter, this paper identifies conditions under which, in the presence of quasi‐hyperbolic preferences and a market imperfection (which takes the form of a negative externality), intervention by a present‐biased government is welfare enhancing. This is the case if the market imperfection is sufficiently strong or the consumers' bias for the present is weak.Economic and Social Research Council http://dx.doi.org/10.13039/50110000026
Multiple taxes and alternative forms of FDI: evidence from cross-border acquisitions
Full text linkArticle“The final publication is available at Springer via http://dx.doi.org/10.1007/s10797-015-9351-6”.This paper explores the role of tax instruments in affecting foreign direct investment (FDI), paying particular attention on their effect on two forms of FDI strategy, ‘horizontal’ and ‘vertical’. Applying a decomposition of FDI strategies to the universe of cross-border mergers (the dominant form of FDI) over the period 1999–2010, it emerges that taxes have a much more nuanced effect on FDI than frequently suggested; while corporate taxes affect FDI negatively, the tax elasticity varies depending on the FDI strategy (with vertical FDI being in general more responsive), the exact measure of taxation, and international tax considerations (double taxation, withholding taxes). Sales taxes also affect FDI, but only horizontally
Aspects of Compliance in Common Pool Resources
No full textThere is an inherent externality across generations in environmental economics: extensive use
of the natural environment by the current generation may affect the welfare of future generations.
The use of the natural environment includes not only the reduction of resource stocks, like fossil
fuels and rain forests, but also the accumulation of pollution stocks. Efficient policy directed to
changing the resource extraction and pollution profiles needs to take into account the internal
and external forces driving resource markets and their impacts on the aggregate economy. But
compliance to these measures is not warranted unless there is an implicit or explicit (or both)
enforcement mechanism in place.
The traditional approach to discuss the optimal centralized exploitation policy has been to
assume that individuals are narrowly self-interested. Empirical evidence suggests, however,
that individuals’ characteristics (heterogeneity) play a key role in resolving collective action
problems. Chapter 1 develops a dynamic model of common renewable resources management
where a centralized mechanism works together with a self-enforcement one—guided by social
norms—to form an institution. The results provide a theoretical explanation for the evidence of
why economies with abundance of resource stocks may not improve their institutions while others
with scarcity of resource stocks may do.
Institutional context is likely to determine the impact of trade liberalization on welfare
and resource conservation. Chapter 2 follows the recent literature on trade and endogenously
determined institution to investigate this link further. It combines a common renewable resource
model with elements of moral hazard and identifies conditions under which countries escape
the ‘tragedy of commons’. It shows that country characteristics and technologies in alternative
sources of income determine how centralized institutions perform and whether there are gains
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from trade.
A key issue underlying global environmental protection is that international trade puts
downward pressure on countries’ environmental standards. Chapter 3 explores—within an
imperfectly competitive environment—the welfare implications of taxation when production
causes environmental pollution (a global public bad) under two tax principles, ‘destination’ and
‘origin’. It shows that the noncooperative environmental tax policy does not always give rise to
taxes that are too low in equilibrium, from welfare point of view, and identifies conditions under
which the presence of a global public bad tilts the welfare comparison towards, interestingly,
either tax principle
Three Essays on Tax Compliance and the Estimation of Income-gaps
Full text linkQuoting James Andreoni, `the problem of tax compliance is as old as taxes themselves'. The sources of missing tax revenues have traditionally concerned tax administrations and particularly now in times when public finances are striving. In the quest for analysing the revenue that is foregone, tax administrations have started to produce a report of their tax gap, understood as the difference between the theoretical tax liability and the actual collection, to obtain a measure of the extent of non-compliance.
Due to the complexity of the non-compliance behaviour and the lack of visibility of certain types of income, different methods are usually put in place in order to offer a plausible range for the estimates. This dissertation dedicates its two first chapters to providing an alternative method for estimating the income-gap (de fined to be one minus the proportion of reported to actual income) for two populations: the self-employed and the employees. The underlying data used for both cases is publicly available survey data on expenditures and income that is generated on a timely manner. This carries substantial advantages. First, relying on a general purpose survey dataset means that the estimation can be updated more frequently than if it was to rely solely on either the timing of administrative data or on survey data that is speci fically targeted to measure
non-compliance. Second, it provides an alternative estimation using an independent source of data which allows for the triangulation of the estimate obtained using administrative sources. Third, it allows tax administrations which do not have readily available administrative data to perform estimations using a type of survey widespread available in most countries.
The third chapter of this thesis explores the role of the extrinsic and intrinsic incentives in explaining engagement in the hidden economy defined as undeclared work practices. This chapter contributes firstly to the literature on shadow economy and to the debate of whether crowding effects are found between extrinsic and intrinsic motivations in a tax environment.ESR
Aspects of Pareto improving environmental tax reforms
No full textClimate change is the greatest and widest-ranging market failure ever seen' Stern (2006 p. xvii). This vigorous description highlights one of the most important and frustrating realization of the last decades. The main reason of that market failure steams from the fact that climate change is a complex global externality. This makes the design of appropriate measures to mitigate the problem and the identification of their effects on economic activity of paramount importance. The transboundary nature of pollution combined with the skewed distribution of the origin and impact of emissions among countries reveals the need for international cooperation in the direction of multilateral agreements among countries.
The characterization of Pareto-efficient environmental and trade policies has been a key issue (and continues to be) in the literature. Predominantly, however, the literature has focused on the role of taxes (trade and pollution) in achieving the first-best paying no attention to the role (if there is any) of non-tradeable goods. Chapter 4 deals with this issue.
A key issue in mitigating climate change is with the appropriate extent of harmonization of environmental policies. This thesis (Chapters 2) addresses this within a general equilibrium model of international trade with endogenous pollution discharges, paying particular attention to the allocation of tax revenues. It argues that there indeed exist instances in which pollution tax harmonization (that moves the initial pollution taxes towards an appropriately weighted pollution tax vector) can deliver potential Pareto improvements.
The difficulty with the achievement of global environmental agreements should not be, however, ignored. Chapter 3 deals with the possibility that governments may act unilaterally in order to mitigate the social cost of pollution. It shows that (under certain conditions) there exist unilateral Pareto improving trade policy reforms. Chapter 5 discusses the welfare implication of environmental policy reforms within a subset of countries. It shows that environmental policy coordination has opposing effect on the welfare of the coordinating and non-coordinating countries
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