Assistance to poor households when income is not observed: targeted in-kind and in-cash transfers

Policymakers frequently design self-targeting programs or target poor areas to assist poor families when income is not observed. Self-targeting schemes take advantage of differences in participation costs in assistance programs across households. Geographic targeting assumes that transfers are solely determined by the region of residence: to receive the benefits, households not initially present in the targeted areas must relocate away from their original place of residence and live with the poor, which entails a cost that can also be interpreted as a participation cost in the assistance program. The paper shows that a combination of in-kind and in-cash transfers tied to the consumption of a publicly provided private good targeted to the poor becomes very useful when non-poor households have different participation costs. By distinguishing users and non-users of public facilities additional in-cash transfers can be directed to the poor more effectively. The paper demonstrates that the publicly provided good ends up being undersupplied, and the distortion becomes less important as participation costs rise. More importantly, it shows that this kind of redistributive program dominates a pure in-cash scheme.     

Fiscal transfers in Turkey: Do politics matter?

Local fiscal transfer rules in Turkey were revised in 2008, such that, while a significant portion of transfers continued to be based on population size, the remainder was distributed based on other criteria such as the development index. In this paper, we investigate the extent of fiscal fairness in Turkey during the period 2008–2012. We define fiscal fairness by the degree of association of transfers and local spending with the structural and socioeconomic indicators, as opposed to political-party associations. Our empirical analysis reveals that while local fiscal transfers during the investigated period were significantly correlated with the socioeconomic and structural indicators, political factors also played a significant role. Particularly, we find robust evidence that cities where the incumbent party-AKP (Justice and Development Party), who won significantly more votes in the general elections than the main opposition party-CHP (Republican People's Party), received significantly more transfers and fiscal spending than the rest. The evidence also suggests that the metropolitan municipalities held by CHP received significantly more government expenditure than the rest; though less robust than the former. This observation also holds for the metropolitan municipalities held by AKP. Additionally, we observe that cities with metropolitan municipalities that were governed by either the incumbent or the main opposition party, were less fiscally independent than the rest. We also note, however, that given the increasing opacity in data reporting, this study does not account for the large amounts of public funds that are allocated in tenders with special invitees, via public–private partnerships or in the form of social assistance, although they are also likely to constitute a major component of politically-biased fiscal transfers during the study period.     

我国财政转移支付法律制度框架探析——基于国际比较视野

分税制改革以来,政府间转移支付在我国的财政体系中占有越来越重要的地位.与此极不相称的是,我国目前的转移支付制度的法律规范完全依靠中央政府特别是财政部以及地方政府相关部门的条例.这种无法(由全国人大及其常委会通过的法律)可依的局面亟待改变.本文利用新制度主义经济学的“委托-代理”交易成本分析框架,从理论上说明建立政府间财政转移支付法律框架的必要性,然后借鉴若干发达国家和发展中国家在转移支付法律建设上的实践经验,探讨我国的现状和改进的方向.     

Urbanisation,fiscal decentralisation and economic development: A time series evidence

Several empirical tests using Multiple Regression Analyses were conducted on several hypotheses using time series data obtained from the federal and state governments. The results of our analyses establish that the degree of fiscal decentralisation is dependent on intergovernmental transfers and states income per capita. However intergovernmental transfers were not dependent on expenditure decentralisationper se. The degree of urbanisation was found to be inversely related to fiscal decentralisation. The variable measuring the degree of openess was found not statistically significant as an explanatory variable for fiscal decentralisation. However, the share of agriculture was found significant in revenue decentralisation but loses its importance in expenditure decentralisation.The policy implications of the study are that: (i) There is need for the states to develop plans to increase their per capita income, improve their tax collection system, introduce new tax bases and reduce the high degree of free ridership in public goods and services exhibited by the urban population. (ii) The Federal Government should provide specific grants to state governments for urban development, because of the high per capita cost of public goods and services. (iii) The existing Revenue Allocation Act should be reviewed to reflect state government efforts in generating their own revenue from internal sources.     

On minimizing the welfare cost of fiscal policy: evidence from South Asia

This study evaluates whether India, Pakistan, and Sri Lanka minimized the welfare cost of their fiscal policies? For this purpose it tests tax smoothing hypothesis and finds that there is a weak tax smoothing in Pakistan and Sri Lanka whilst fiscal policy in India has not been conducted in an optimal fashion in accordance with the predictions of the hypothesis. The difference in results is due to difference in budget deficits as the deficits of Pakistan and Sri Lanka are higher as compare to India so they are careful to reduce volatility in budget deficits by trying to keep close correspondence between taxes and expenditures while India, with comparatively less deficit, was more careful regarding its debt. Therefore, to minimize the cost a close correspondence between permanent expenditure and taxes are required. In this context the best policy option would be an initiation of prompt action program of tax base expansions and expenditure rationalization.     

Nominal rigidities equilibria in a non-Ricardian economy

I consider a cash-in-advance economy with nominal price rigidities. Nominal interest rates are the cost of liquidity and fiscal policy sets nominal transfers that affect the distribution of wealth. Under a fiscal policy associated with an unequal distribution of wealth and for policies of low or even zero interest rates, coordination failures exist, that is, involuntary unemployment persist even if prices are set at full employment levels. Coordination failures exist if and only if nominal rates are below a threshold. Moreover, I demonstrate the following result on welfare: full employment allocations at a nominal rate equal to the threshold (high liquidity costs) are better, in terms of welfare, from unemployment allocations at any non-negative interest rates below the threshold. On the other hand, under a sufficiently progressive fiscal system that reduces the inequality in the wealth distribution, coordination failures do not exist.     

The Desirability of In‐kind Transfers in the Presence of Distortionary Taxes

A standard argument in welfare economics maintains that private goods should not be publicly provided, because cash transfers are always superior to in‐kind transfers. However, this conclusion does not hold in second best economies. A strong case for the desirability of in‐kind transfer in the presence of distortionary taxes has been made in various recent contributions. Here, we survey the arguments provided in these papers, using a common theoretical framework which enables us to present more clearly the similarities and the differences among the various papers. The use of a common formal model helps us to show how the rationale for public provision of private goods is sensitive to the form of the tax system. It also helps us to provide an explanation why mandatory and non‐mandatory in‐kind transfer schemes have the same effects on social welfare. Finally, we offer some considerations on the relevance of the theory of in‐kind transfers for policy action. JEL Classification Number: H42     

Urban Agglomeration and Dispersion: A Synthesis of Alonso and Krugman

Urban agglomeration becomes increasingly important because of the globalization of world economies. This paper is a general equilibrium analysis of urban agglomeration economies due to product variety, and agglomeration diseconomies due to intra-city congestion in a two-city system framework. Special attention is paid to the impacts of transportation cost decrease on urban concentration and dispersion. Our main result is that dispersion necessarily takes place when the transportation cost is sufficiently low. We also conduct numerical calculations using specific parameter values, and depict a structural transition from dispersion to agglomeration, and then re-dispersion when the transportation costs decrease monotonically over time. Finally, we observe that dispersion is usually bad as compared to agglomeration, from a welfare point of view.     

The Henry George Theorem in a second-best world

The Henry George Theorem (HGT) states that, in first-best economies, the fiscal surplus of a city government that finances the Pigouvian subsidies for agglomeration externalities and the costs of local public goods by a 100% tax on land is zero at optimal city sizes. We extend the HGT to distorted economies where product differentiation and increasing returns are the sources of agglomeration economies and city governments levy property taxes. Without relying on specific functional forms, we derive a second-best HGT that relates the fiscal surplus to the excess burden expressed as an extended Harberger formula.     

Voting on devolution in a federal country with a bicameral national system

We analyse voting on the devolution of the responsibilities for the provision of public goods to local governments in a federal country, with a bicameral national legislature. In our set-up, devolution means a constitutional fiscal reform which reduces federal public expenditure on a local public good, and simultaneously increases the transfers received by regions, via a tax-sharing mechanism. This allows the regions to provide a greater amount of a local public good which can compensate for the reduction of that provided upon a federal basis. We show under which conditions such a devolution reform is adopted or rejected.     

Direct transfers between the former Soviet Union central budget and the republics: Past evidence and current implications

This paper examines the magnitude of direct transfers between the former Soviet Union central buget and individual republics. It shows that Kazakhstan and Central Asian republics were primary recipients of large net transfers of funds from the Soviet central budget amounting in some cases to about ten percent of their GNP. On the contrary, Russia was the single largest net donor of funds to the Soviet central budget through more transfers paid to the union budget than received from it, both in rouble terms and as a share of the GNP.With the dissolution of the central budget in November 1991, these transfers were discontinued. This has caused a dent in fiscal budgets and a large negative income shock in recipient republics. To some extent, external saving is suggested as the way to ease up the burden of the loss of income induced by the collapse of the fiscal system and the system of direct transfers within the former Soviet Union.     

Do We Still Need Cities? Evidence on Rates of Innovation from Count Data Models of Metropolitan Statistical Area Patents

Evidence of the importance of urban agglomeration and the offsetting effects of congestion are provided in a number of studies of productivity and wages. Little attention has been paid to this evidence in the economic growth literature, where the recent focus is on technological change. We extend the idea of agglomeration and congestion effects to the area of innovation by empirically looking for a nonlinear link between population density and patent activity. A panel data set consisting of observations on 302 USA metropolitan statistical areas (MSAs) over a 10-year period from 1990 to 1999 is utilized. Following the patent and R&D literature, models that account for the discreet nature of the dependent variable are employed. Strong evidence is found that agglomeration and congestion are important in explaining the vast differences in patent rates across US cities. The most important reason cities continue to exist, given the dramatic drop in transportation costs for physical goods over the last century, is probably related to the forces of agglomeration as they apply to knowledge spillovers. Therefore, the empirical investigation proposed here is an important part of understanding the viability of urban areas in the future.     

THE EMPIRICS OF THE MUNICIPAL FISCAL ADJUSTMENT

We summarize the literature that uses the vector error-correction model approach to analyze the dynamics of the municipal fiscal adjustment. The international comparison between samples collected from entire countries and specific regions reveals interesting similarities, but also remarkable differences. The main similarities are the fulfillment of the intertemporal budget constraint, the volatility of the budgetary components, and the importance of the intergovernmental transfers as an adjustment instrument. The most remarkable difference is the preponderant role of the own revenues in the USA, probably reflecting the larger fiscal autonomy of US municipalities. In most cases, the large municipalities seem to be more dependent on grants than their small counterparts, although this pattern is broken in Japan. Finally, partial evidence supporting the existence of moral hazard problems and the flypaper effect is provided.     

Finite lifetimes,long-term debt and the fiscal limit

The U.S. faces exponentially rising entitlement obligations. I introduce a fiscal limit—a point where higher taxes are no longer a feasible financing mechanism—into a Perpetual Youth model to examine how intergenerational redistributions of wealth, the average duration of government debt, and entitlement reform impact the consequences of explosive government transfers. Three key findings emerge: (1) Growing government transfers cause more severe and more persistent stagflation than in representative agent models that do not capture intergenerational transfers of wealth; (2) A longer average duration of government debt pushes the financing of government liabilities into the future and reduces the short-run impacts of explosive transfers; (3) The time it takes the economy to rebound from a period of growing transfers increases exponentially with the number of years it takes to pass entitlement reform.     

Partial fiscal decentralization and demand responsiveness of the local public sector: Theory and evidence from Norway

This paper provides an empirical test of a principal tenet of fiscal federalism: that spending discretion, when granted to localities, allows public-good levels to adjust to suit local demands. The test is based on a simple model of partial fiscal decentralization, under which earmarking of central transfers for particular uses is eliminated, allowing funds to be spent according to local tastes. The greater role of local demand determinants following partial decentralization is confirmed by the paper’s empirical results, which show the effects of the 1986 Norwegian reform.     

Fiscal cost of demographic transition in Japan

This paper quantifies the fiscal cost of demographic transition that Japan is projected to experience over the next several decades, in a life-cycle model with endogenous saving, consumption, and labor supply in both intensive and extensive margins. Retirement waves of baby-boom generations, combined with a rise in longevity and low fertility rates, raise the old-age dependency ratio to 85% by 2050, the highest among major developed countries, and generate a significant budget imbalance, as the government faces rising costs of public pension and health and long-term care insurance. Preserving the current level of the transfers will require a major increase in taxation. Using consumption taxes to balance the government budget, the tax rate reaches the maximal value of 48% in late 2070s. A pension reform to reduce benefits by 20% results in a peak tax rate of 37%, which can be reduced further to 28% if the retirement age is also gradually raised by 5 years.     

A note on tax competition in the presence of agglomeration economies

This paper analyzes tax competition in the presence of agglomeration effects. The obtained results are then compared to the results of the traditional model, without agglomeration effects. As is well known, the presence of a fiscal externality affects the provision of the public good in the standard competitive model of tax competition. In the model with agglomeration effects, in addition to this externality, a new effect shows up. This effect reflects heightened government concern about capital flight, which depresses firm productivity by limiting external economies of scale. As a result, capital tax rates end up being lower than in the case where agglomeration effects are not present, worsening the underprovision of the public good. This conclusion holds in both the competitive and strategic versions of the model.     

Optimal mechanisms for siting noxious facilities

We study Bayesian mechanism design in the context of the siting of noxious facilities. Under incomplete information, we characterize optimal mechanisms facilitating the siting and cost sharing of the facility. These mechanisms are allocatively and Pareto efficient. However, it appears that transfers occur when the good is not provided. This result is due to the weakening of the incentive notion to Bayesian–Nash equilibrium and to the balanced budget condition. This phenomenon disappears if the setting is perfectly symmetric.      

On fiscal disparities across cities

Some cities have fewer taxable resources and higher costs for providing public services than do other cities. The result, which is widely regarded as unfair, is a wide variation in the ability of cities to supply public services. But our understanding of these fiscal disparities, particularly on the cost side, is limited. This paper provides a general treatment of fiscal disparities by incorporating input and environmental costs into a model of local expenditure determination, investigating the consequences of fiscal disparities in a system of local governments (including housing price adjustments and migration), and designing intergovernmental grants to offset fiscal disparities.     

Agglomeration elasticities and firm heterogeneity

This paper examines three key issues encountered when estimating the relationship between agglomeration and multi factor productivity (‘agglomeration elasticities’): the sorting of heterogeneous firms, the convexity of agglomeration effects, and the challenges of identifying the impact of persistent spatial differences in effective density. We use a firm-level panel containing production data together with detailed information on the geographic location of employment, covering a high proportion of the New Zealand economy. We are able to control for heterogeneity along firm, region, and industry dimensions, and to estimate separate agglomeration elasticities across industries and regions. Sorting leads to upward biased elasticity estimates but using firm fixed effects can lead to downward bias due to the highly persistent nature of agglomeration variables. Our preferred estimates control for sorting across regions and industries. Overall, we find a positive agglomeration elasticity of 0.066. Within industries and, to a lesser extent within regions, there is pronounced variation in the strength of agglomeration effects, and evidence of decreasing returns to agglomeration. High density areas attract firms that benefit most from agglomeration.