Revenue and formula effects of school finance reform of wealth neutrality

The impact of school finance reform in South Carolina on wealth neutrality is analysed in the context of revenue and formula effects. The total effect is analysed, with or without local revenue effects, by splitting the revenue effect into state revenue and local revenue effects. Results indicate considerable improvements in wealth neutrality from 1978 to 1982. Moreover, only 25% of the total reduction in the wealth coefficient may be attributed to the change in the formula, the remainder being explained by changes in state and local revenues.     

On the neutrality of fiscal policy

The paper explores the relationships between fiscal policy and real economic activity and prices for the six largest industrialized economies. Fiscal policy variables are shown to be consistent and rational functions of the behaviour of the economy. It is also confirmed that fiscal policy seems to have a consistent impact on subsequent real economic activity and prices. When multivariate time series analysis is used to breakdown overall fiscal policy into anticipated and unanticipated components, the anticipated components are shown generally to have just as much forecasting ability for subsequently realized economic variables as the unanticipated components. This does not appear to be consistent with the implications of pure rational expectations models.     

School finance reform and voluntary fiscal federalism

California has transferred the financing of its public schools from localities to the state. In response, many families have supplemented the tax revenue of their local public schools with voluntary contributions. This paper analyzes that phenomenon. We propose a model of partial cooperation among parents in making voluntary contributions to their public schools. Under reasonable conditions, the model predicts that contributions per pupil should decline with school size. We estimate this relationship using data on contributions to California schools. Our estimates reveal that contributions per pupil do decline with size; however, the rate of decline is surprisingly slow.     

Incentive effects of fiscal rules on the finance minister's behavior: Evidence from revenue projections in Swiss Cantons

Predicting available tax revenue accurately is a key step of fiscal policy. It has recently been shown that revenue projection errors have a direct impact on fiscal deficits. In this paper, we explore the relationship between the ideology of the finance minister and tax revenue projection errors, and assess how the stringency of fiscal rules alters this relationship. We use a panel dataset of 26 Swiss cantons over the period 1980–2007 as well as a new dataset of 99 finance ministers at the cantonal level. Our empirical strategy exploits the fact that the allocation of the departments – including the department of finance – to the elected politicians is a random process from the point of view of the voters. We identify a rather counter-intuitive positive effect of the ideology of the finance minister on tax revenue projection errors in the sense that a more left-wing finance minister produces relatively more conservative forecasts. We also find that fiscal rules reduce the effect of ideology on tax revenue projection errors. These results suggest that left-wing finance ministers need to curb deficits relatively more in order to signal the same level of competence to the voters than right-wing finance ministers. They also suggest that fiscal rules render the signal less informative to the voters and thereby reduce the incentive for left-wing finance ministers to be more conservative in their projections.     

Flexible fiscal rules and countercyclical fiscal policy

This paper assesses the impact of different types of flexible fiscal rules on the procyclicality of fiscal policy with propensity scores-matching techniques, thus mitigating traditional self-selection problems. It finds that not all fiscal rules have the same impact: the design matters. Specifically, investment-friendly rules reduce the procyclicality of both overall and investment spending. The effect appears stronger in bad times and when the rule is enacted at the national level. The introduction of escape clauses in fiscal rules does not seem to affect the cyclical stance of public spending. The inclusion of cyclical adjustment features in spending rules yields broadly similar results. The results are mixed for cyclically-adjusted budget balance rules: enacting the latter is associated with countercyclical movements in overall spending, but with procyclical changes in investment spending. Structural factors, such as past debt, the level of development, the volatility of terms of trade, natural resources endowment, government stability, and the legal enforcement and monitoring arrangements backing the rule also influence the link between fiscal rules and countercyclicality. The results are robust to a wide set of alternative specifications.     

Intergovernmental grants in Russia

Two hypotheses about the determinants of Russian intergovernmental grants are tested. According to the first hypothesis, federal transfers to regions correlate with recent voting behaviour of regional electorates. The second hypothesis states that transfers are higher in regions with politically powerful governors. I find a strong confirmation for the first hypothesis and no evidence for the second hypothesis for the years 1995–99. This result is robust across specifications. However, in the years 2000–2004 electoral variables show no effect on transfers. The only significant political variable is Putin’s visits to regions.     

Fiscal decentralization,fiscal rules and fiscal discipline

Fiscal decentralization (FD) and fiscal rules (FR) are institutional mechanisms that are implemented by varying degrees in increasing number of countries. This paper investigates empirically the effect of FR on the effectiveness of FD in achieving fiscal discipline. Panel evidence strongly supports that balanced budget and expenditure rules help FD to achieve this goal, while debt rule has a direct disciplinary effect.     

Monetary–fiscal policy interactions and fiscal stimulus

Increases in government spending trigger substitution effects—both inter- and intra-temporal—and a wealth effect. The ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior. Studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption: higher future taxes create a strong negative wealth effect, while the active monetary response increases the real interest rate. This paper estimates Markov-switching policy rules for the United States and finds that monetary and fiscal policies fluctuate between active and passive behavior. When the estimated joint policy process is imposed on a conventional new Keynesian model, government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized. The paper reports the model's predictions of the macroeconomic impacts of the American Recovery and Reinvestment Act's implied path for government spending under alternative monetary–fiscal policy combinations.     

Growth and the neutrality of money

Using two simple stochastic growth models that nest both exogenous and endogenous growth, this paper shows that money should not be neutral in the long run if it is not neutral in the short run and if growth is endogenous. By contrast, if growth is exogenous, money should be neutral in the long run. The paper also tests whether money is neutral in the long run, finding no contrary evidence. Given that money is not neutral in the short run, this finding indicates that exogenous growth cannot be rejected in favor of endogenous growth.     

Sovereign default risk premia,fiscal limits,and fiscal policy

We develop a closed economy model to study the interactions among sovereign risk premia, fiscal limits, and fiscal policy. The fiscal limits, which measure the government's ability to service its debt, arise endogenously from dynamic Laffer curves. The state-dependent distributions of fiscal limits depend on the growth of lump-sum transfers, the size of the government, the degree of countercyclical policy responses, and economic diversity. The country-specific fiscal limits imply that the market perceives the riskiness of sovereign debt issued by different countries to be different, which is consistent with the observation that developed countries are downgraded at different levels of debt. A nonlinear relationship between sovereign risk premia and the level of government debt emerges in equilibrium, which is in line with the empirical evidence that once risk premia begin to rise, they do so rapidly. Nonlinear simulations show that fiscal austerity measures that aim to balance the government budget in the short run fail to contain the default risk premium, even with sizeable cuts in government purchases; but a long-term plan for fiscal reform, if it credibly changes the market's expectation about future fiscal policies, can alleviate the rising risk premium.     

On model ambiguity and money neutrality

We solve for the equilibrium of a stochastic neo-classical continuous time model without and with money under model ambiguity. We show that: (i) the correction for ambiguity stemming from the money supply is nil at equilibrium; (ii) money is neutral with respect to the stock market equilibrium (the equity risk premium); (iii) money is not neutral with respect to consumption and capital accumulation, and its effect may be quantitatively substantial; (iv) the preference for model robustness affects all the real economic variables as well as the expected inflation rate and the nominal interest rate.     

Accountability and fiscal equalization

A 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.     

Consumption and fiscal policy

This paper uses the life-cycle approach to derive an equilibrium intratemporal efficiency condition which relates the marginal utility of consumption of nondurable goods and services to the marginal utility of consumption of services from durable goods. Given this condition and the assumption that marginal utilities are affected by the level of public spending, a long-run relationship between components of private consumption and public expenditure is then postulated. The application of cointegration analysis to UK data supports the existence and uniqueness of such a long-run relationship, and estimates based on the error correction approach produce results which suggest that (i) a change in public spending has different effects on components of private consumption in the short-run, and (ii) the entire burden of long-run substitution falls on nondurable consumption.     

Net neutrality and asymmetric platform competition

Journal of Regulatory Economics - In this paper we analyze the interplay between access to the last-mile network and net neutrality in the market for Internet access. We consider two competing...     

Vertical fiscal imbalance and local fiscal indiscipline: Empirical evidence from China

Based on Chinese city-level panel dataset, this paper examines the effects of vertical fiscal imbalances (VFI) on local fiscal indiscipline in a partial fiscal decentralization setting. We find that higher VFI induces a form of fiscal indiscipline: a reduction of tax collection effort by local governments. In addition, by exploiting the unique Chinese fiscal institution of “extra-budgetary” revenues, we show that in this case higher VFI does not alter local governments’ tax collection effort. Even though local governments also possess full taxing power for “extra-budgetary” revenues, these revenues do not contribute to the determination of central fiscal transfers to local governments, thus creating very different incentives for local governments response to VFI. Our results shed light on the working mechanism of the VFI and provide significant implications for improving the design of fiscal decentralization policy in China and elsewhere.     

改善金融监管 应对市场开放

入世后，我国金融市场的发展蕴藏着诸多不确定因素，这对金融监管提出了更高的要求。金融监管部门从我国金融业的发展与国家的金融安全角度出发，必须及时调整监管重心和监管方式。通过放松管制，促进金融市场发育，加强监管机构之间的协调配合，提高国内金融机构竞争力，乃防范金融风险的根本途径。     

Panel cointegration and the neutrality of money

Most econometric methods for testing the proposition of long-run monetary neutrality rely on the assumption that money and real output do not cointegrate, a result that is usually supported by the data. This paper argues that these results can be attributed in part to the low power of univariate tests, and that a violation of the noncointegration assumption is likely to result in a nonrejection of the neutrality proposition. To alleviate this problem, two new and more powerful panel cointegration tests are proposed that can be used under quite general conditions. The empirical results obtained from applying these tests to a panel covering ten countries between 1870 and 1986 suggest money and real output are cointegrated, and hence that the neutrality proposition must be rejected.      

Monetary and fiscal policy transmission in Poland

This paper combines a fiscal structural vector-autoregression (SVAR) with a monetary SVAR for the Polish transition economy. Data are constructed from scratch in order to account for features of the transition economy and for delays in implementing legislated government spending and tax changes (fiscal foresight). For monetary policy, we find no price puzzles in the combined SVAR. Also, fiscal foresight variables have no statistically significant effects. We calculate an initial government spending multiplier of 0.70, which later peaks at 1.61 for the cumulative multiplier. This multiplier is much larger than multipliers estimated in previous studies not combining fiscal and monetary policy, where they were found to be close to zero. On the other hand, the tax multiplier is generally near zero in our study. We demonstrate the importance of combining fiscal and monetary transmission mechanisms when assessing the effects of government macroeconomic policies.