Pigou, Tiebout, property taxation, and the underprovision of local public goods

Pigou's proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper. A simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services. The case where public services are an intermediate producer good is also considered.     

Property values and pension underfunding in the local public sector

This paper reexamines the empirical implication of the C. Tiebout (J. Pol. Econ.64, 416–424 (1956)) hypothesis, taking account of the fact that many municipal pensions are grossly underfunded. OLS results show that underfunding has no impact on local property values. The motives for incomplete funding of pensions are also examined and are built into a simultaneous equation model. The OLS results are confirmed and some light is shed on factors leading to the underfunding of pensions.     

Media activity and public spending

Politicians seeking reelection need voters to know what they have done for them. Thus, incentives may arise to spend more money where media coverage is higher. We present a simple model to explain the allocation of public spending across jurisdictions contingent on media activity. A politician seeking to maximize the probability of reelection will shift more money to jurisdictions where an extra dollar raises more votes because a larger share of the electorate is informed about his policy. The main prediction of the model is that media activity is higher in the core areas of media markets. This implies higher spending levels there and lower spending levels in remote jurisdictions. Empirical support for this prediction is found using United States data on county-level federal grant allocation, Designated Market Areas and the location of licensed television stations.     

Growth and fluctuations: The role of public dividends and public spending

In this paper, we consider a discrete-time version of the endogenous growth model developed by Barro [Barro, R.J., 1990. Government spending in a simple model of endogenous growth. Journal of Political Economy 98, 103–125], but augmented in order to envisage a public participation in the production of private goods. Public dividends are invested in order to provide a public good; in turn, the public good plays a role of indispensable production externality and, eventually, of growth engine.For what concerns the production of private goods, we find that an optimal policy is always based on a positive participation of the government as shareholder; also, when growth is slow, a public intervention or large substitution effects stabilize the economy.A right mix of short-run services and long-run infrastructures is suggested in slow economies to rule out expectation-driven fluctuations. Infrastructures are mainly recommended in presence of moderate income effects, while services are recommended in presence of strong income effects.     

Property taxation and the demand for housing: An econometric analysis

There is disagreement among economists regarding the effect of a local increase in property taxation on the housing market. In defining the price of housing services studies of the demand for housing have treated the property tax exclusively as an excise tax on housing consumption. Two recent theoretical developments suggest this is a misrepresentation of the tax. One theory holds that the excise effects of property taxation may be shifted backward to the factors employed in the production of housing. The other theory concludes that the property tax is not an excise, but rather serves as an efficient price for local public services. To investigate these hypotheses, data from the Annual Housing Survey were employed to estimate a housing demand model which included the net effective property tax rate among the set of independent variables. In addition to revealing the property tax-housing demand relationship, the model provides more reliable estimates of income and price elasticities by eliminating specification errors found in previous studies. Results indicate that the property tax reduces the housing consumption of central city homeowners, but does not distort the suburban housing market.     

Organized crime and public spending: a panel data analysis

The aim of this paper is to investigate, empirically, what components of public spending imply a decreasing effect on organized crime and what components create opportunities for organized crime, discussing also the role of government efficiency. Using a panel data analysis, the results show a strikingly consistent pattern for the EU Member States. Organized crime mainly operates in the distribution of government spending for local public goods and public provision of private services. There is a decreasing effect on organized crime of the public expenditure devoted to education and social policy. Government efficiency in public spending is beneficial to limit the opportunities of the organized crime.     

Bypassing Barnett: the comprehensive spending review and public expenditure in Wales

Under UK devolution, public expenditure is distributed to the devolved administrations by means of the population-based Barnett formula. However, in the July 2000 Comprehensive Spending Review (CSR) the Treasury bypassed the operation of the Barnett formula to determine public expenditure levels in Wales. This was necessary in order to enable Wales to access European Objective 1 funds for economic regeneration. In so doing, the UK government has set a precedent which is destined to accelerate demands for a thorough and independent review of regional public expenditure needs.     

Bypassing Barnett: the comprehensive spending review and public expenditure in Wales

Under UK devolution, public expenditure is distributed to the devolved administrations by means of the population-based Barnett formula. However, in the July 2000 Comprehensive Spending Review (CSR) the Treasury bypassed the operation of the Barnett formula to determine public expenditure levels in Wales. This was necessary in order to enable Wales to access European Objective 1 funds for economic regeneration. In so doing, the UK government has set a precedent which is destined to accelerate demands for a thorough and independent review of regional public expenditure needs.     

Women in cabinet and public health spending: evidence across countries

This article studies the effect of women’s cabinet representation on public health policy outcomes. Based on a large sample of countries in the year 2000, the analysis shows that an increase in the share of women in cabinet is associated with an increase in public health spending. There is also an indication of a decrease in the gender gap in life expectancies in places with higher cabinet representation of women. The endogeneity of women’s cabinet representation is accounted for by using the share of daughters that a national leader parents as an instrument.     

Corruption and distribution of public spending in developing countries

This paper empirically examines the impact of corruption on the structure of government spending by sector. Using the three-stage least squares method on 64 countries between 1996 and 2001, we show that public corruption distorts the structure of public spending by reducing the portion of social expenditure (education, health and social protection) and increasing the part dedicated to public services and order, fuel and energy, culture, and defense. However, civil and political rights seem to be a stronger determinant of expense on defense than corruption. Our results are robust to instrumentation by the latitude of the country.     

The effect of spillovers on the provision of local public goods

This paper analyzes the provision of local public goods with positive spillovers across jurisdictions. If spillovers are symmetric, the non-cooperative game played by jurisdictions admits a unique equilibrium, and an increase in spillovers reduces the total provision of public goods. Smaller jurisdictions always reduce their contribution, but larger jurisdictions can increase their contribution. When spillovers are asymmetric, equilibrium is unique if spillovers are low, while multiple equilibria exist for high spillover values. In the case of two jurisdictions, an increase in the flow of spillovers to one jurisdiction benefits agents from that jurisdiction but harms agents in the other jurisdiction. Beyond the case of two jurisdictions, the effect of changes in spillovers cannot be signed. An increase in the spillovers flowing to a jurisdiction can actually result in an increase in the supply of public goods by that jurisdiction and harm agents residing in it, while benefiting agents in the other jurisdictions. The results of the paper reveal the complexity of interactions that will plague the design of institutions for multijurisdictional local public good economies with spillovers.      

Long-run growth and welfare effects of public policies with distortionary taxation

In a one-sector growth model with infrastructure investment, we study the impact of fiscal policies on growth. The government collects taxes on labor income and profits. The government uses these revenues to purchase infrastructure investment, provide utility enhancing government services, and to provide transfer payments to the households. We show that the balanced growth rate is an increasing function of the percent of government revenues that goes to infrastructure. We find that the growth maximizing mix of taxes depends on the elasticity of substitution between inputs. In particular, with distortionary taxes, the growth maximizing tax rate on capital is higher the lower the elasticity of substitution between private physical capital and public capital. In addition, the growth maximizing size of the government is higher when the elasticity of substitution between public and private inputs is low. We also investigate welfare effects of other public expenditures as well. Depending on the elasticity of substitution in production, the welfare implications of different public policies can be substantial.     

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.     

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.     

Profit-maximizing communities and the theory of local public expenditures: Comment

It is argued that Sonstelie and Portney's proof that property-value maximization by each local community leads to Pareto efficient supplies of public goods is incorrect. In their analysis, property-value maximization is equivalent to profit maximization by communities. They contend that less than maximum levels of profits would lead to lower utility levels for consumers. However, in their proof, Sonstelie and Portney do not correctly characterize the implications of utility maximization. When those implications are correctly stated, their proof no longer holds.     

Does the nationalization of party systems affect the composition of public spending?

Do political institutions shape the structure of public spending? Based on a sample of elections in eighteen Western European countries over the period 1970–1998, this paper shows that governments’ margin of maneuverability to design and implement fiscal policies depends on the level of party linkage or the nationalization of party systems, defined as the extent to which parties are uniformly successful in winning votes across districts. The mechanism behind this argument is that in weakly nationalized countries there are additional transaction costs to change the structure of budgets as a consequence of the survival of local parties and interests. Therefore, the composition of public spending is more rigid here than in highly nationalized countries.     

Government spending on public infrastructure,prices, production and international trade

This paper examines the impact of a change in government spending on public infrastructure when monopolistic competition prevails in one sector of the economy. The analysis is based on a variation of the Spence-Dixit-Stiglitz model where the presence of internal economies in the production of a differentiated intermediate good leads to specialization based external economies in the production of the final good. It is shown that changes in government spending on public infrastructure can influence relative prices, production, the degree of specialization, and pattern of international trade.     

Efficient inequality: differential allocation in the local public sector

This paper examines the consequences for social efficiency if the locally provided public input can be differentially allocated among residents. We derive the distributional efficiency condition, which is the distribution of public inputs that maximizes within-city gains from trade. Differential allocation also causes modifications to the standard (Samuelsonian) allocative efficiency condition. Additionally, we explore the consequences of differential allocation for the median voter model. Standard empirical voter models are seriously flawed because they fail to distinguish final public output production from either individual demand or the distribution of publicly provided inputs. Finally, we derive the club sharing efficiency condition.