Political Profit: Taxing and Spending in Democracies and Dictatorships

A bstract . The economic analysis of the power to tax and spend, or what Franz Oppenheimer called "the political means," is applied to democracies and to dictatorships. The constraints imposed by democracies and dictatorships on the "iron law of political redistribution" and the "law of hierarchical centralization" are examined. It is shown that the fiscal exploitation inherent in these two laws of political profit reaches its fullest potential in a dictatorship, where a single firm attempts to monopolize the government by forbidding competition to its rule. Democracy and capitalism are correlatives, since they both rest upon rights , which necessarily imply property. Both socialism and dictatorship destroy rights, the former by abolishing private ownership over capital and resources, the latter by forbidding the use of such resources for the purpose of competing against the ruling group. The greater the centralization of the State , the greater its capacity to expand its power; and the greater the scope of the State, the more economical it becomes to centralize the government, with force if necessary. Thus, dictatorship and socialism converge in despotism.     

The Political Economy of Investment in Human Capital

Investments in human capital accumulation, government consumption and total government expenditures present a striking negative correlation with capital shares. This correlation is robust to alternative specifications, lists of controls, and exclusion of outliers. Causality tests strongly support the hypothesis that the direction of causation runs from capital shares to the government spending variables. We present a political economy model of interest groups that can account for these correlations. In contrast, a median voter model predicts positive correlations between capital shares and the government spending variables.     

Local fiscal multipliers and spillover effects: Evidence from Philippine regions

Fiscal policy in developed countries has been a rich topic since the Great Recession. However, research has remained limited for developing countries despite their similar use of fiscal policy and concerns about the efficiency of public spending. To help address this research gap, this paper provides a case study of multiplier effects of local government spending in regions in the Philippines as well as spillover effects of local government spending across regions. An instrumental variable based on the country’s intergovernmental transfer system is used to identify regional public spending in panel regressions. The local fiscal multiplier is estimated to be above one, where a 1-peso rise in spending by local government units in a region corresponds to a 1.2-peso rise in regional output. Multiplier effects are highest for capital expenditures and appear to be primarily driven by the services sector. Spillover effects are comparatively large, at around 1.8–2.0, highlighting the important role of domestic trade when stimulating regional economic activity.     

Proposition 4, Tax Reduction Mirage: An Exploratory Note on Its Potential Spending and Tax Impacts

Abstract . What would the true government expenditure and tax-burden impacts of California's Proposition 4 likely be if it (or its equivalent) were enacted in all states? What happened to actual state plus local government expenditures per capita over the period FY 1970 - FY 1976 is examined. Next, we examine what would have happened to such expenditures (per capita) if Proposition 4 had been in effect over the same period. Comparing the results reveals that Proposition 4 would have exercised no significant impact over per capita state plus local spending levels. This implies that such legislation would not have resulted in significant tax reductions.     

The Constitutionality of a Federal Net Wealth Tax

A bstract . Consideration of a Federal Net Wealth Tax would help settle the question of the scope and limits of the taxing powers of the United States Government. The confusion attending this, which has prevented the federal government from taxing land and kept state taxation of land too low to bean efficient allocator of this resource , can be clarified. The Constitution's Article I, Section VIII, gave the federal government power to levy taxes, duties, imports and excises, as "indirect" taxes, requiring only that the duties, imposts and excises be "uniform throughout the United States." The 16th Amendment authorized a "direct" tax on "incomes, from whatever source derived." The intent of the Founding Fathers—almost all large landholders—was to prevent the new federal government from using land as a tax base. But the distinction between the types of taxes lacks economic meaning. By making the base of a new tax the net wealth of taxpayers. Congress could obtain a Supreme Court test to end the confusion. If the Court, following precedent, required that land be excluded from the tax base, this would assure land as a tax base to the states and permit them to tax it in a way to end speculative withholding of tracts and sites and to bring about orderly development according to current need.     

An evaluation of proposals for metropolitan sharing of commercial and industrial property tax base

This paper examines proposals to withdraw taxing authority over commercial and industrial property from municipalities and confer it on a metropolitan government to be taxed at a uniform rate. A theory which suggests that local tax payments by firms represent compensation for their external effects is used to show that such proposals could reduce the efficiency of land use in the metropolitan area. Empirical work indicates that the proposals would not necessarily be progressive, and in any case they are inferior in this respect to metropolitan taxation of all property.     

Public spending,public governance and economic growth at the Vietnamese provincial level: A disaggregate analysis

This study examines the role of economic governance in the relationship between public spending, private investment, and economic growth in Vietnam at the provincial level. The study data consist of sixty-two Vietnamese provinces for the period 2006–2015. Some notable results are attained by applying a sequential (two-stage) estimation. First, the marginal benefits to economic growth of increased Vietnamese provincial government expenditures may be constrained because of the inefficiency of expenditures on education, business services, and public administration. Second, public spending and private investment are found to be substitutes at the provincial level. Third, based on the Provincial Competitiveness Index (PCI) ranking, used as a proxy for provincial public governance in Vietnam, the significance of public governance can be observed. The study concludes that good governance, characterized by different attributes, such as lower informal charges, greater transparency, and unbiased policy, plays a critical role in improving the impact of government expenditure on economic growth in Vietnamese provinces, particularly through its interactions with private sector investment.     

Budget deficits and the current account balance: New evidence from panel data

This study examines two distinguishing predictions of the finite-horizon open-economy macroeconomic models regarding the effect of fiscal policy on the current account balance: (1) Given the path of government expenditures, a fall in public savings has an adverse effect on the current account balance, and (2) a bond-financed increase in government expenditures exerts a larger adverse effect on the current account balance than a tax-financed alternative. These predictions are vastly different from those of the Ricardian theory. According to this view, (1) lower public savings are met by equal increases in desired private savings, and thus the current account balance does not change, and (2) the response of current account balance to a change in government spending is independent of its financing methods. Empirical analysis of 63 countries is consistent with the conventional theory.     

Asymmetry in the effects of us government spending shocks: evidence and implications

Using quarterly data for the United States, the evidence differentiates the effects of expansionary and contractionary shocks to government spending around an anticipated steady-state trend over time. While interest rates increase in the face of expansionary government spending shocks, there is no evidence of a reduction in the face of contractionary shocks. Consequently, the increased government spending crowds out private investment. Moreover, there is evidence of a reduction in private consumption as agents anticipate a future increase in taxes to finance the increased government spending. As a result, output growth and price inflation are decreasing despite expansionary government spending shocks, on average, over time. In view of this evidence, public finance considerations ought to dominate attempts to stimulate demand using government spending near full-equilibrium capacity utilization in the economy. In contrast, contractionary government spending shocks are not offset by an increase in private spending. Hence, demand contraction is pronounced, slowing output growth and price inflation in the face of a reduction in government spending. The implication is that concerns over the pronounced contractionary effects of a reduction in government spending ought to dominate public finance considerations near full-equilibrium.     

Welfare Spending and Poverty: Cutting Back Produces More Poverty, Not Less

The "New Consensus " on welfare expresses the idea that the major problem in social welfare is dependency , not poverty Much of the evidence for this perspective has come from trend line data indicating that over time poverty did not evaporate in the face of increases in social welfare spending Using various measures of the "dependent" poor, the empirical analysis presented suggests that reducing welfare expenditures relative to need does not produce less poverty and dependency     

Does military expenditure crowd out health-care spending? Cross-country empirics

The trade-off between military expenditure and public health spending has remained an unsettled empirical issue. This paper investigates whether military expenditure has crowded out public health spending in 116 countries (including a subsample of 87 non-OECD countries) over the period 2000–2017. Through our system generalized methods of moments (GMM) estimations, we find that military expenditure, whether it is measured on a per-capita basis or as a proportion of total government expenditure, has a positive impact on the demand for health care. Nonetheless, we find a significant crowding-out effect of military expenditure on domestic government health spending by taking into account government fiscal capacity. The evidence we present supports the long-standing view that military expenditure has a particular ability to compete government financial resources away from publicly funded health spending. By interacting the military expenditure variable with income per capita, we find that an increase in income per capita has neutralized the crowding-out effect of military expenditure on domestic government health spending – less well-off countries stand to suffer most, and wealthy ones stand to suffer least, from the crowding-out effect. The crowding-out effect is statistically more specific to middle- and low-income countries in our samples.

     

The Effects of Fiscal Decentralization on Household Income Inequality: Some Empirical Evidence

Abstract

We investigate the effects of fiscal decentralization on income inequality using a sample of 23 OECD countries over the period 1971–2000. We utilize novel and robust measures of fiscal decentralization based on different degrees of fiscal autonomy of sub-central governments. Our results highlight the importance of both the nature of fiscal decentralization—expenditure versus revenue—and the extent to which independent spending responsibility and taxing powers are actually assigned to local governments. A higher degree of tax decentralization is associated with higher household income inequality within a country. Thus, even if fiscal decentralization could be attractive according to efficiency reasons, it may actually have undesirable consequences on the income distribution.     

Democratic transition and fiscal policy in the Arab world

This paper investigates the relationship between democracy and public debt in the Arab world over the period 2002–2013. The results show strong evidence of an inverted U-shaped relationship between democracy and public debt. This means that democratization is associated with lower debt only when a certain level of democracy is reached. In an attempt to explain these findings, we assume that the effect of democracy on public debt operates mainly through its impact on government spending and government revenue. Our results show that the inverted U-shaped relationship between democracy and public debt stems from the inverted U-shaped democracy-government spending path and the U-shaped democracy-government revenue pattern. This implies that, at the earlier stages of democratization, democracy is associated with an increase in government spending and a decrease in government revenue, which stimulates public debt. However, beyond a certain level of democracy, further democratization reduces government spending and enhances government revenue, leading to lower levels of public debt. Hence, achieving some level of democracy is a key prerequisite to improve the effectiveness of public spending, enhance tax compliance, and thereby control public debt.     

DOES GOVERNMENT SPENDING AFFECT INCOME INEQUALITY? A META-REGRESSION ANALYSIS

In this paper findings of a meta-regression analysis are presented exploring the effects of government spending on income inequality, with a particular focus on low- and middle-income countries. We identify a total of 84 separate studies containing over 900 estimates of the effect of one or more measures of spending on one or more measures of income inequality. The results show some evidence of a moderate negative relationship between government spending and income inequality, which is strongest for social welfare and other social spending, and when using the Gini coefficient or the top income share as the measure of inequality. However, both the size and direction of the estimated relationship between government spending and income inequality is affected by a range of other factors, including the control variables and estimation method used. We also find evidence of publication bias, in that negative estimates of the relationship appear to be under-reported in the literature.     

The impact of adjustment and stabilization policies on infrastructure spending in Central America

During the 1980s and 1990s the countries of Central America experienced protracted fiscal crises and debt repayment problems which resulted in the implementation of structural adjustment agreements. Apart from attempting to reestablish fiscal balance and to control inflation, the proponents of adjustment policies sought to enhance growth by de-emphasizing the wasteful aspects of state spending while maintaining public expenditures on physical and human capital, which were believed to promote private sector productivity. By comparing a pre-debt crisis period with the period given by debt crisis and adjustment, the study reveals that the shares of government spending on human and, particularly, physical infrastructure dropped precipitously during the adjustment period. At the same time, the shares devoted to defense and subsidy categories—as well as interest payments on external debt—generally registered notable gains. The experience of adjustment policies in Central America indicated that substantial discrepancies existed between the idea and the reality.     

Sources of labour productivity: a panel investigation of the role of military expenditure

The objective of this paper is to examine the effect of military expenditure on productivity performance in 70 countries, over the period 1989–2011. We employ the labour productivity as a measure of productivity, while the military burden is initially utilized as an indicator of the level of military expenditure within the framework of a transcendental production function. Applying the system GMM method, it is observed that defence expenditure exerts a negative and statistically significant effect on labour productivity. The negative impact of military expenditure still holds, when an alternative measure of military spending is introduced into the model. The main policy implication of these results is that the overall productivity would be expected to improve, if military expenditures are replaced by civilian expenditures.     

Military expenditure in post-conflict societies

Post-conflict situations face a high risk of reversion to conflict. We investigate the effect of military expenditure by the government during the first decade post-conflict on the risk of reversion. We contrast two theories as to the likely effects. In one, military spending deters conflict by reducing the prospects of rebel success. In the other it acts as a signal to the rebels of government intentions. In the signalling model, low military spending signals that the government intends to adhere to the terms of the peace settlement and so reduces the risk of renewed rebellion. We investigate the effects of post-conflict military spending on the risk of conflict, using our existing models of military expenditure and of conflict risk. We find that, consistent with the signalling model, high military spending post-conflict significantly increases the risk of renewed conflict. This effect of military spending is distinctive to post-conflict period, and becomes progressively more pronounced over the decade. Received: April 2004, Accepted: December 2004, JEL Classification: H56, F35, O10     

Estimating the economic impacts of public spending in a sub-region: an econometric approach.

Expenditures on a public institution represent not only a cost to the taxpayer but an economic benefit to the region in which it is located. The economic impact on a region's income is here calculated through an econometric model and associated multipliers. The impact on government income tax recepits is similarly calculated. The tax revenues are also used in determining the net cost of operation of the institution. These calculations are performed for the expenditures associated with the new State University Hospital at Stony Brook, N.Y. located in the region formed by Nassau and Suffolk Countries. The regional income multiplier is found to be 1.64.     

The interaction between public and private governments: An empirical analysis

Private governments, found in planned developments and condominiums, are increasingly common methods of delivering local services to residents. This paper provides the first empirical study of their impact on local public finance. A novel data set of homeowners' associations allows construction of a panel of private governments in California. Panel methods test whether public expenditures respond to private government prevalence. Estimates indicate that local governments lower spending moderately in response to private government activity, consistent with strategic substitution. The paper then examines various mechanisms to explain this downloading and shows that the substitutability between public and private providers is key to which services are downloaded. Evidence also suggests that the economies of scale in service production in small cities temper the offloading of public services to private governments.