Do large cabinets favor large governments? Evidence on the fiscal commons problem for Swiss Cantons

The fiscal commons problem is one of the most prominent explanations of excessive spending in political economics. For a panel of the 26 Swiss cantons over the 1980–1998 periods, this paper explores the role of fragmented governments on fiscal policy outcomes. We distinguish between two variants of fragmented governments: cabinet size and coalition size. In addition, we analyze whether constitutional rules for executive and legislature as well as formal fiscal restraints shape the size of government and how different rules interact with fragmentation. The results indicate that the number of ministers in the cabinet is positively associated with the size of government. While fiscal referendums effectively restrict the size of government, there is also evidence that fiscal referendums relax the fiscal commons problem to some extent.     

Strategic Tax Competition in Switzerland: Evidence from a Panel of the Swiss Cantons

Abstract. Tax competition is discussed as a source of inefficiency in international taxation and in fiscal federalism. Two preconditions for the existence of such effects of tax competition are that mobile factors locate or reside in jurisdictions with – ceteris paribus – lower tax rates, and that taxes are actually set strategically in order to attract mobile production factors. It is well known from studies about Swiss cantonal and local income tax competition that Swiss taxpayers reside where income taxes are low. In this paper, empirical results on strategic tax setting by cantonal governments are presented for a panel of the Swiss cantons from 1984 to 1999. Completing the evidence on Swiss tax competition, income tax rates in cantons are the lower, the lower the tax rates of their neighbors.     

The macroeconomic effects of fiscal rules in the US states

Fiscal policy restrictions are often criticized for limiting the ability of governments to react to business cycle fluctuations and, consequently, the adoption of quantitative restrictions is viewed as inevitably leading to increased macroeconomic volatility. In this paper, we use data from 48 US states to investigate how budget rules affect fiscal policy outcomes. Our key findings are that (1) strict budgetary restrictions lead to lower policy volatility (i.e. less aggressive use of discretion in conducting fiscal policy) and (2) fiscal restrictions reduce the responsiveness of fiscal policy to output shocks. These two results should have opposite effects on output volatility. While less discretion should reduce volatility, less responsiveness of fiscal policy might amplify business cycles. We provide empirical support for the first effect: restrictions, by reducing discretion in fiscal policy, can reduce macroeconomic volatility.     

文化对金融的影响力:中国的案例

在LLSV把金融模式的差异归结为各国法律制度的差异时,Stulz则指出文化与金融之间存在很大关联.文化对金融的影响力通过三种途径文化决定价值观,文化决定制度,文化影响资源在经济体中的配置.中国金融的发展同样也能发现传统文化作用的印记.     

The impact of national fiscal rules on the stabilisation function of fiscal policy

We study the relationship between discretionary fiscal policy and macroeconomic stability in 21 OECD countries over the 1985–2012 period. The novelties of our contribution lie in the use of annual panel data, whereas most of the existing evidence is cross-sectional, and more importantly in the thorough investigation of how fiscal rules affect the policy-macroeconomic stability relationship. We find that the aggressive use of discretionary fiscal policy, particularly of government consumption items, leads to higher volatility of output and, to a lesser extent, inflation. However, when strict fiscal rules are introduced, discretionary policy becomes output-stabilising rather than destabilising. This result can be more easily achieved by rules on balanced budgets, rather than on expenditures, revenues, or debt. On the other hand, fiscal rules are unable to affect the inflation-destabilising nature of discretionary policy, if any, probably because of the higher importance of central banks in that respect.     

The effects of fiscal spending shocks on the performance of simple monetary policy rules

We examine the effects of fiscal shocks on the performance of alternative monetary policy rules in a small dynamic general equilibrium framework. We explicitly consider the interaction between fiscal and monetary policy rules which may be present in the real world. We use a simple specification for the fiscal policy rule and various specifications for the (simple) monetary policy rule. Our analysis suggests that some form of flexible inflation targeting regime would perform well in response to fiscal shocks compared to other forms of policy regimes.     

The impact of digital finance on household consumption: Evidence from China

Using panel data from the China Household Finance Survey (CHFS) in 2013, 2015, and 2017 and the digital inclusive finance index developed by Peking University, this study examined impacts of the digital inclusive finance on household consumption and explored its mechanisms. Results suggest that the digital inclusive finance could promote households consumption. A heterogeneity analysis showed that households with fewer assets, lower income, less financial literacy and in third- and fourth-tier cities experienced larger facilitating effects of digital finance on consumption compared to their counterparts. For consumption categories, digital finance was positively correlated with food, clothing, house maintenance, medical care, and education and entertainment expenditures. In terms of consumption structure, digital finance mainly promoted the recurring household expenditures rather than the non-recurring expenditures. Further analyses based on the mediating model found that online shopping, digital payment, obtainment of online credit, purchase of financing products on the internet and business insurance, were the main mediating variables through which digital finance affected household consumption.     

Cartels and the Incentive to Cheat: Evidence from the Classroom

Several points about cartel behavior are illustrated, using the curve on an exam.     

The colonial origins of fiscal capacity: Evidence from patronage governors

We combine historical personnel data from the British colonial administration with modern public finance data to study the impact of colonial governors on fiscal capacity. Exploiting rule-based variation in the allocation of governors connected to their superior at the time of appointment, we find that modern-day countries exposed to more patronage governors exhibit lower fiscal capacity today. These negative effects are persistent over time and driven by indirect taxes that patronage governors disproportionately controlled in the colonial period. The results thus provide evidence for a public finance channel through which the effects of patronage appointments extend beyond decolonization.     

Decentralization and the productive efficiency of government: Evidence from Swiss cantons

Advocates of fiscal decentralization argue that among other benefits, it can increase the efficiency of delivery of government services. This paper is one of the first to evaluate this claim empirically by looking at the association between expenditure decentralization and the productive efficiency of government using a data set of Swiss cantons. We first provide careful evidence that expenditure decentralization is a powerful proxy for legal local autonomy. Further panel regressions of Swiss cantons provide robust evidence that more decentralization is associated with higher educational attainment. We also show that these gains lead to no adverse effects across education types but that male students benefited more from educational decentralization closing, for the Swiss case, the gender education gap.     

The impact of the European Union fiscal rules on economic growth

This paper analyses whether Maastricht and Stability and Growth Pact fiscal rules have affected growth in the European Union negatively. A growth equation is specified for a group of 15 European Union countries (and 8 OECD countries) over the period 1970-2005 to analyse this issue. Panel estimations using fixed-effects, pooled mean group and system-GMM estimators show that the institutional changes that occurred in the European Union after 1992 were not harmful to growth. Moreover, results show that growth is slightly higher in the period in which the fulfilment of the 3% criteria for the deficit started to be officially assessed, i.e. after 1997.     

The role of institutions in finance curse: Evidence from international data

This paper investigates the effect of banking sector development on economic growth in a panel of 87 countries, paying particular attention to the role of institutions in reducing the finance curse phenomenon. The dynamic generalized method-of-moments (GMM) results indicate that institutions play an important role in mediating the positive relationship between banking sector development and growth. This suggests that the marginal impact of financial development on growth depends on institutional quality. Using the four-way partition of institutions classified by Rodrik (2005), we also find that resilient market-regulating, market-stabilizing, and market-creating institutions act as mediators to the financial market in facilitating growth. The results are robust to using alternative institutions indicators, estimation strategies, and stopping the sample before the 2007-2008 global financial crisis.     

The trade-off between risk and incentives in fiscal federalism: Evidence from China

A central argument of the second-generation fiscal federalism literature is that allocating a considerable share of tax revenue to local governments can provide fiscal incentives for local officials to promote economic growth. However, increasing incentives will increase the costs of uncertainty if local government officials are risk averse. Building on the insights of the classic principal-agent models, we predict that the optimal share of tax revenues retained by local government will decrease as the uncertainty of total tax revenues increases. Using Chinese provincial data, we find a robust negative relationship between volatility and the tax-sharing ratio at the sub-provincial level. Our results indicate that optimal decentralization in developing countries balances the trade-off between risk and incentives.     

Revisiting the redistribution effects of intergovernmental fiscal transfers: evidence from Taiwan

This paper employs a panel of 23 local governments in Taiwan over 1998–2010 to re-estimate the redistribution effects of intergovernmental fiscal transfers by considering a self-financing resources of local government as the transition variable in panel smooth transition regression models. Empirical results show that the income (or tax revenues) redistribution effects of fiscal transfer policies are nonlinear and vary with time and across local governments. The grants from central government can improve income and tax revenues distribution of local governments; however, the centrally allotted tax revenues have inverse effects and the total fiscal transfers have ambiguous effects. The total fiscal transfer is a proper policy instrument for improving income redistribution, and the grants for improving tax revenues redistribution. However, high self-financing resources ratios are harmful for these redistribution effects.     

Volatility spillovers and the price of risk: Evidence from the Swiss stock market

This paper investigates the behavior of the risk premium on the Swiss stock market. The risk premium consists of two components, which are estimated separately: the amount of volatility and the unit price of risk. By estimating a bivariate GARCH-M model the volatility of the Swiss market is found to be strongly exposed to spillovers from the other major financial markets. To estimate the unit price of risk a Kalman filter procedure is employed, which allows for variability in this variable. Investors place a high price on risk, when the market is considered `expensive'. First version received: March 1998/final version received: July 1998     

Non-linear budgetary policies: Evidence from 150 years of Italian public finance

We investigate the sustainability of Italy’s public finances from 1862 to 2012 adopting a non-linear perspective. Specifically, we employ the smooth transition regression approach to explore the scope for non-linear fiscal adjustments of primary surpluses in response to the accumulation of debt. The empirical results show the occurrence of a significantly positive reaction of primary surpluses to debt when the debt–GDP ratio exceeded the trigger value of 110 percent. The after-threshold positive response implies that the path of Italy’s fiscal policy is sufficiently consistent with the intertemporal budget constraint.     

Evidence on the political principal-agent problem from voting on public finance for concert halls

Principal-agent problems can arise when preferences of voters are not aligned with preferences of political representatives. Often the consequence of the political principal-agent problem is political catering to special interests. In this paper I provide examples of principal-agent problems regarding public spending. The examples concern construction or extension of concert halls in two German cities. Resistance to public funding for the concert halls was particularly strong in electoral districts with large constituencies on the left. The evidence indicates that political representatives were more bourgeois than their constituencies. In the cases studied asymmetric information did not prevail and voters were able to discipline their representatives through referenda that countered the results of voting by political representatives.     

Bidding behavior in competing auctions: Evidence from eBay

Much of the existing auction literature treats auctions as running independently of one another, with each bidder choosing to participate in only one auction. However, in many online auctions, a number of substitutable goods are auctioned concurrently and bidders can bid on several auctions at the same time. Recent theoretical research shows how bidders can gain from the existence of competing auctions, the current paper providing the first empirical evidence in support of competing auctions theory using online auctions data from eBay. Our results indicate that a significant proportion of bidders do bid across competing auctions and that bidders tend to submit bids on auctions with the lowest standing bid, as the theory predicts. The paper also shows that winning bidders who cross-bid pay lower prices on average than winning bidders who do not.     

The influence of fiscal policy uncertainty on corporate total factor productivity: Evidence from Chinese public companies

This paper uses China's public companies to test the influence of fiscal policy uncertainty on corporate total factor productivity. The study finds that fiscal policy uncertainty has a negative impact on the total factor productivity, and the effect of conservative tax avoidance, a mediating variable between the two, is found more significant for non-state-owned and non-recession-stage enterprises. The study further finds that facing fiscal policy uncertainty, companies reduce R&D investment, which will deteriorate productivity. The overall results show that if the government maintains relatively stable fiscal policies, it will positively improve corporate total factor productivity, even in a longer period.