Now or later? The political economy of public investment in democracies

This paper explores the impact of elections on public investment. Working with a sample of 67 presidential and parliamentary democracies between 1975 and 2012, we find that the growth rate of nominal public investment is higher at the beginning of electoral cycles and decelerates thereafter. The peak in public investment growth occurs 28 months before elections, and each month closer to the next election the growth rate of public investment declines by 0.7 percentage points. Other political variables, such as cabinet ideology and government fragmentation have less influence on short-term public investment dynamics. Fiscal rules and stronger institutions seem to attenuate the impact of elections on investment, but available information is insufficient to draw definitive conclusions. These results are robust to a number of controls, including for fixed elections.     

Public–private wage differentials in Turkey: public policy or market dynamics?

We evaluate public–private sector wage differentials by gender in Turkey between the years 2005 and 2013. Using micro data from Household Labor Force Surveys we find a positive premium for low wage earners and a penalty of working in the public sector at the higher end of the distribution. Although the penalty has not disappeared, the price effect has increased at both ends of the distribution. The increase at the lower tail is attributed to a higher price effect in the public sector, whereas at the higher tail it has been a result of a relatively uneven wage increase in the private sector along the distribution, rather than an explicit public wage policy.     

Who is afraid of capital mobility? on taxation of labor income and the level of public services in an open economy

This paper deals with the effects of international capital mobility on the taxation of labor income and on the size of the public sector. It employs a model of the labor market where national trade unions set the wage level in their country and national governments set the tax rate of a proportional labor-income tax. The tax revenues are used to finance a public good and unemployment benefits. In this model, competition between the national trade unions caused by international capital mobility leads to full employment, and the governments supply the public good on the first best level. As no unemployment benefits have to be financed, the tax on labor income may decline with the introduction of capital mobility. These tax cuts may even overcompensate the unions for the wage decline.     

The political economy of corporatism in medicine: Self-regulation or cartel management?

This paper seeks to explain why delegation of regulatory authority to medical associations (medical Corporatism) is so prominent in health care. It argues that the interests of politicians and physicians in limiting access to medical markets rather than the interests of patients in the control of quality of medical care determines this delegation. Recent trends in physician densities, their impacts on physician incomes, and rates of return to a medical career in several industrialized countries are adduced as evidence to support this claim.     

International aid from the recipient perspective: public or private good input assistance?

This article proposes a theoretical model from the recipient perspective that considers what type of assistance a donor country should provide: public good assistance or private good assistance. We investigate the effects of migration and free riders under both types of assistance. We empirically apply this model to the rapidly growing economies and a large official development assistance disbursement for East Asia.     

How private is private information? The ability to spot deception in an economic game

We provide experimental evidence on the ability to detect deceit in a buyer–seller game with asymmetric information. Sellers have private information about the value of a good and sometimes have incentives to mislead buyers. We examine if buyers can spot deception in face-to-face encounters. We vary whether buyers can interrogate the seller and the contextual richness. The buyers’ prediction accuracy is above chance, and is substantial for confident buyers. There is no evidence that the option to interrogate is important and only weak support that contextual richness matters. These results show that the information asymmetry is partly eliminated by people’s ability to spot deception.     

Saving the public from the private? Incentives and outcomes in dual practice

We consider a monopoly physician offering free public treatment and, if allowed, a private treatment for which patients have to pay out of pocket. While patients differ in the propensity to benefit from private treatment it always yields better health outcomes than public treatment but is also more costly in terms of money and time. We study the physician's supply of private care and allocation of time costs across public and private patients and contrast these with the first‐best allocation. To increase the willingness‐to‐pay for private treatment the physician shifts time costs to public patients. While this turns out to be socially optimal, the resulting positive network effect leads to an over‐provision of private care if time costs are sufficiently high. A second‐best allocation arises when the health authority sets public reimbursement but has no control over private provision. Depending on the welfare weight the health authority attaches to physician profits, a ban of dual practice may improve on the second‐best allocation. Notably, a ban benefits not only public patients but also private patients with a moderate propensity to benefit from private care.     

Who provides the capital for Chinese growth: the public or the private sector?

We focus on the role of the government in the provision of investment in China, through the medium of a Dynamic Stochastic General Equilibrium model of the economy in which the form of the production function reflects this governmental role. Using indirect inference, we estimate and test for the elasticity of substitution between government and nongovernment capital in both Constant Elasticity of Substitution (CES) and Cobb–Douglas technologies. The results underscore the strong substitution relationship between government and nongovernment capital from 1949, supporting CES rather than the Cobb–Douglas technology. They also show that the orientation of public investment changed after the start of the ‘Socialist Market Economy’ in 1992: government capital became more complementary to nongovernment capital as it focused more on infrastructure and withdrew from industrial production, intervening only in times of crisis, for stabilization purposes, indirectly via the state banks.     

Sociology of economics or sociology of economy? theoretical-methodological arguments for sociological economics

This paper makes a proposal for reintroducing sociological or social economics into contemporary economic science. Such a reintroduction is proposed to be substantive, by analyzing the social structuring of the economy, and formal, by including sociological/social economics in the current (JEL) classification system of economic disciplines (code A.15). Both epistemological and ontological arguments can be presented to support the proposal. Epistemological arguments invoke the presence of essential components of sociological economics in the development of economic thought, and ontological arguments stress the role of social factors in economic life. In this paper I present primarily epistemological (theoretical-methodological) arguments for sociological economics, and secondarily ontological ones. I show that the present designation, sociology of economics, is something different from sociological or social economics in that the former refers to economic epistemology (knowledge) and the latter to economic ontology (reality). I conclude that, in addition to a sociology of economic science, we need a sociology of economic life. There is nothing surprising in the habit of economists to invade the sociological field. A major part of their work—practically the whole of what they have to say on institutions and on the…[social] forces which shape economic behavior—inevitably overlaps the sociologist’s preserves. In consequence, a no man’s land or everyman’s land has developed that might conveniently be called economic sociology … [or sociological economics] (Schumpeter 1956:134). The author is grateful to two anonymous referees for their constructive comments on an earlier version of this article.     

The phenomenon of equifinality in innovative development of the monetary private ownership economy —An axiomatic set-up

The phenomenon of the equifinality can be understood as a possibility to achieve a given final state in many potential ways, regardless of the initial state. The study of this phenomenon is particularly relevant in today's world, where one of the main problems is the transformation of post-communist countries' economies so that they reach the states close to the economic systems of developed countries. This transformation takes place in the process of economic development stimulated by innovation, with the active role of the banking sphere.Thus, the main purpose of this study is to define the concept of equifinality achieved in a finite time, in an innovative development of the economic system controlled by the banks and the analysis of its properties. For this purpose the possible trajectories of development are studied here in a space of innovative extensions of private ownership economy with money, for which the target state is an innovative extension of a given model.This analysis uses the apparatus of an Arrow–Debreu general equilibrium theory and the theory of dynamical systems. Simultaneously, the work presented is a development of earlier studies in modeling of the Schumpeter's vision of the economic development (Ciałowicz and Malawski, 2007, 2011).     

A vote at the opera? The political economy of public theaters and orchestras in the German states

Policymakers generally have powerful incentives to attract votes by strategically manipulating public policies, for instance by increasing public spending during election periods or by implementing ideologically valued policies for their electoral base. At first sight, public theaters and orchestras appear an unlikely domain for such tactics. Highbrow culture is elitist and provides few jobs to artists as voters (patronage). However, we argue that policymakers indirectly target a larger highbrow culture-consuming voting public, as this public is more likely to go voting, to actively engage in politics, and to influence other voters' political behavior through political and sociological multiplier effects. We find evidence of such manipulation tactics in Germany, 1993–2010. Artist numbers increase during state-level, and even more during municipal-level, election years (electioneering). More tentatively, leftwing party power increases cultural subsidies and jobs in Eastern states.     

Does the crowding-in effect of public spending on private consumption undermine neoclassical models?

Empirical evidence from vector autoregressions (VARs) showing that public spending shocks crowd in private consumption has been seen as evidence against standard neoclassical models of the business cycle. We show that a standard real business cycle model in which all agents including the government optimize is compatible with the results from the empirical literature. A VAR estimated using artificial data simulated from the model indicates that, under standard assumptions to identify public spending shocks, an increase in public spending is associated with an increase in private consumption and the real wage. The implied impulse responses are qualitatively and quantitatively similar to those in the empirical literature.     

Attracting private investment: Tax reduction,investment subsidy,or both?

This paper uses a real-option model to examine the net benefit to a government from using tax cut and/or investment subsidy as incentives to induce immediate investment. Although earlier papers generally concluded that investment subsidy dominates tax cut, it is observed that many governments use a combination of subsidy and tax cut. We show that, when the government uses a different discount rate from private firms, and when it has to borrow money to provide an investment subsidy, it is possible to get an internal optimum; that is, it might be optimal for the government to provide an investment subsidy as well as charge a positive tax rate on the profits from the project. Thus, we provide an explanation for the puzzling fact that many governments provide an investment subsidy to a firm while simultaneously taxing its profits.     

Public–private partnerships for the provision of public goods: Theory and an application to NGOs

When will a public good or service be provided by the government, when will it be provided by a NGO, and when will we see a private–public partnership? This paper provides a model where a typical public good requires different inputs which raises the possibility of partnerships to exploit comparative advantages of different parties. But hold-up problems due to contractual incompleteness in specifying tasks discourage separation of ownership and management. The fact that public goods have the property of non-rivalry and non-excludability and that NGOs tend to be non-profits drives our key results. We apply the framework to NGOs in developing countries which, in the last few decades, have been increasingly involved in various capacities in the provision of a wide range of public goods and services.     

Where are we in the political economy of reform?

We review the experiences of developing countries with market-oriented reforms, using the tools of modern political economy. We impose intellectual discipline by requiring that actors behave rationally using available information and that basic economic relationships such as budget constraints be accounted for. We attempt to integrate two approaches, one based on dynamic games played by interest groups, with one that focus on limited information and the dynamics of learning.

We describe the “starting point” as the set of “old” policies and we attempt to explain the dynamics (political, economic and informational) that lead to reform (section II). We analyze strategies for reformers subject to political constraints (section Ш). We evaluate the aggregate and distributional costs of reforms, emphasizing the importance of looking at the right counterfactuals (section IV).

We conclude by pointing to the challenges ahead: the second-stage institutional reforms necessary to take off from underdevelopment.     

Segregation and gender wage gaps in the private and the public sectors: an analysis of Danish linked employer–employee data, 2002–2012

This paper examines the relation between segregation and the gender wage gap in the public and the private sectors in Denmark from 2002 to 2012. The analysis shows that male–female differences in the share of females in occupations, industries, establishments and job cells (occupations within establishments) constitute 46 % of the raw gender wage gap in the private sector, while segregation in the public sector accounts for as much as 63 %. Segregation thus plays a substantially more important role in accounting for the gender wage gap in the public sector than in the private sector. While the importance of segregation for wage formation decreased substantially in the public sector over time, it only decreased slightly in the private sector. Although the remaining gender wage gap, after controlling for segregation, is close to zero in the public sector, a substantial within-job cell differential remains after controlling for segregation in the private sector.     

Determinants of compliance with fiscal rules: Misplaced efforts or hidden motivations?

This paper empirically examines which factors have influenced numerical compliance with fiscal rules in Latin American and Caribbean countries over the period 2000 to 2020. We use logistic regression models to associate three groups of specific factors with a greater or lesser probability of compliance with the rule: the macroeconomic and political environment of the countries and the design features of the enforced rules. We find that only changes in the macroeconomic and political context affect the probability of compliance with the enforced rules. In contrast, the institutional design of the fiscal rules does not seem to play an essential role in the compliance outcome. This result suggests that adjustments in this direction are not decisive for rule compliance.     

Booming or emerging? China's technological capability and international collaboration in patent activities

China's economy and technology have experienced astounding growth in the last two decades. The OECD 2005 reports show that China has overtaken the USA to become the world's largest exporter of information and communications technology goods. In order to assess the progress China has made in technology development, this study examines the inventive activities in China and the pattern of international collaborations between China and other major industrialized countries or regions. This study analyzes the patent data from the United States Patent and Trademark Office (USPTO) focusing on joint patent application between China and the eight most inventive OECD countries and two Asian economic entities (South Korea and Taiwan). The results reveal increasing collaborations in inventive activities between China and other major inventive countries over the past decade, and suggest that China's technology capability may have begun to boom along with its fast economic growth.