Demand for locally provided public services within the median voter's framework: the case of the Brazilian municipalities

In this paper we estimated the demand for local public spending for the Brazilian municipalities within a median voter's framework. The rationale for applying that framework came from the fact that in federal systems voters’ preferences are more likely to be reflected at the local level as the consumers of public services have a better knowledge of the benefits and costs of the local public expenditures. Results obtained are consistent with the theoretical background thus suggesting that this hypothesis might be useful to describe the demand for local public goods in Brazil. In particular, the use of quantile regression permitted us to investigate the impacts of the conditioning variables on local public expenses across different expenditures classes thus allowing for heterogeneity across municipalities. Our results also suggest that the impact of the city size on the quality of club goods shows crowding effects as γ is between zero and one. However, in the estimated models, marginal congestion slightly decreases with expenditure. This is a rather surprising result as one is tempted to conclude that the congestion effect should be higher on big cities. Yet, a more careful look shows the drawbacks of such an interpretation. The indivisibilities preclude the provision of certain services in small towns, concentrating their provision on larger cities. Hence, the higher expenditures of those big cities reflect not only a crowding cost but also the fact that these towns offer a wide range of services when compared to the small ones.     

Impact of microcredit on borrowers’ expenditures: a fuzzy regression discontinuity design approach

This article uses the data from 69 villages in Bangladesh to estimate the effect of participation in microcredit programmes on household expenditures. A regression discontinuity design (RDD) is used to identify the credit effect. Our results show heterogeneous treatment effect on different types of expenditures. We show that access to credit reduces per capita expenditure on durable goods such as kitchen equipment, furniture, repair and maintenance of house and increases the expenditure on per school-going child. We also show insignificant impact of access to credit on non-durable goods and health care, recreation and gifts. Interestingly, our results indicate a positive impact of microcredit on village-level expenditures.     

Earmarking lottery proceeds for public goods: Empirical evidence from U.S. lotto expenditures

This study examines motives for lottery play using a state-level panel of lottery expenditures. We find that expenditures per capita are greater in states that earmark proceeds for public goods. Further, we find that casino gambling only impacts lotto play in general fund states.     

Testing separability of public consumption in household decisions

In this paper we propose a sequential strategy, based on the microeconomic approach of the demand theory, in order to test for separability between private and public consumption. The aim of the present work is to verify, using a conditional almost ideal demand system, whether the different components of public consumption exert conditioning effects on the allocative structure of private spending. The empirical estimation of the model and the separability tests are developed for both a demand system in five functional categories of private spending, and for a demand system in six categories, where the private expenditures on those goods and services which can also be offered by the public sector are enclosed in a single functional category. The results of the separability tests, obtained using UK data for the 1974–2000 period, show that public individual consumption plays an important role in modifying consumer choices, while public collective consumption does not affect private consumption behaviours. The relationships between the different components of private spending and public individual consumption are both of substitutability and complementarity; in particular, we find that public individual consumption and the corresponding private expenditures on ‘Health, education, recreation and social protection’ are complements.     

Quality,quantity and total expenditures on publicly provided goods: the case of public mental hospitals

This paper proposes a positive model of public sector resource allocation for goods where quality, as well as quantity, is a salient dimension. The model views decisions about quality, quantity, and total expenditures as occuring within a ‘zone of contention’, bounded by minimum requirements for quality and quantity - reflecting technological, regulatory and legal constraints - and a maximum ceiling on total expenditures. The model is consistent with a number of alternative views of the political market place. It is formally derived from a Stone- Geary-type objective function. For purposes of estimation, the model can be transformed into a special case of the CALM model [Fischer and Kamlet (1984)]. The identification requirements for the CALM model are derived. The model is then applied to state expenditures on mental hospitals.     

BALANCED BUDGETS: ECONOMIC NIRVANA OR FISCAL CHAOS?

This paper investigates the effect of a pay-as-you-go, balanced budget policy on macroeconomic performance. It uses a simple model of the aggregate demand for money and goods, with temporary monetary equilibrium and quantity adjustments on goods markets. Within this framework, if the monetary/real interaction is strong enough, a balanced budget with sufficiently high tax rates (≡ sufficiently high government expenditures) is consistent with typical bounded fluctuations around a relatively high income, low unemployment equilibrium. Lower tax rates (≡ lower government expenditures) can trigger a sharp decline in revenues, expenditures, employment, and output.     

The recent growth of the internet and changes in household-level demand for entertainment

This paper investigates whether the recent growth of the Internet complements or substitutes for consumption of existing entertainment goods. Applying a difference-in-differences approach to the Consumer Expenditure Survey, I find varying degrees of potential substitutability between Internet growth and consumer expenditures across different entertainment goods. For most goods, these negative effects appear to be sensitive to changes in specifications. In contrast, the negative effect on recorded music expenditure is statistically significant and robust to different specifications.     

Local governance and public goods provision in rural China

In developing countries, identifying the most effective community-level governance mode is a key issue in rural development; therefore, empirical evaluation of these different modes is desperately needed. Since the 1980s, tens of thousands of villages in rural China have held local government elections, providing a good opportunity to investigate the effect of democratization on the level of public goods provision. Using a recent village survey conducted over a significant period of time, this article compares two different governance modes. It finds that elections affect little on the size of revenue but significantly shift the distribution of taxation from individuals to enterprises if possible. However, privatization has made taxation or levies on rural enterprises more difficult. It also shows that elections and power sharing are conducive to improve the allocation of public expenditures.     

What determines public education expenditures in Russia?1

Recent studies suggest that the allocation of expenditures in education is important for growth. The state of public education spending in many transition economies highlights the need for an assessment of the nature of education expenditures in these countries. This paper attempts to fill this gap in the literature by estimating the determinants of education expenditures in the Russian Federation. Results from panel data analysis show that revenue and the student‐population ratio have a positive impact on education expenditures while the effect of population density is negative. Three regional variables also show significant impact. The income and price elasticity of public education expenditures are estimated to be 0.57 and ?0.18, respectively, a result comparable to studies from other countries. The results presented here provide insight into how fiscal institutions and the structure of the political process in Russia may affect the degree of resource allocation in the educational sector during the transition process.     

Religious identity and the provision of public goods: Evidence from the Indian Princely States

This paper describes a simple model of how a ruler’s religious identity affects public goods provision. Our primary insight is that rulers reduce public goods expenditures to a greater degree when there are privately-provided substitutes excludable by religion.The basic idea is that if the good is provided privately to the ruler’s co-religionists, the ruler faces weaker incentives to provide this public good because his co-religionists receive lower marginal utility from its provision. Testing such a conjecture is an empirical challenge, however, since the religious identity of rulers rarely varies over time and place. We address this problem by exploiting variation in the religion of rulers in the Indian Princely States. Using data from the 1911 and 1931 Indian censuses, we find that Muslim-ruled states had lower Hindu literacy but had no significant impact on Muslim literacy. This result is consistent with our model, as Muslim religious schools provided a substitute for public schools that served both Hindus and Muslims. The model is further substantiated by the fact that the religion of the ruler had no statistically significant impact on railroad ownership or post office provision, neither of which had privately-provided substitutes.     

Remittances and healthcare expenditure: Human capital investment or responses to shocks? Evidence from Peru

This paper estimates the effect of international remittances on healthcare expenditures, taking into account both the interdependence with other consumption goods and the effects of health shocks. More precisely, we assess whether the budget allocation decisions of remittance‐receiving households reveal different preferences to invest in health capital, even when the simultaneous effect that health shocks may have on the demand of remittances and on other types of nondurable expenditures is accounted for. Using data from the “Peruvian National Survey of Households,” we find that remittances have a positive impact on healthcare budget shares, net of the remittance‐related income effect and independently of the occurrance of a health shock. They also have a positive impact on housing and a negative one on other expenditure items, that is, clothing, transport, and education. Hence, our results indicate a “pure” tendency of remittance‐receiving households to devote larger shares of their budget to health capital investment, rather than to other types of consumption goods.     

An empirical examination of government expenditures and the ex-ante crowding-out effect for the British economy

The conventional macroeconomic view that consumers make their consumption decisions without regard for goods provided by the government has been examined in the literature. Moreover, the line of research that questions this conventional view argues that this separation does not have a firm theoretical backing. If consumers take government expenditures into account when maximizing their utility functions then the effects of fiscal policy actions will tend to appear weaker than those suggested by most conventional analyses. The examination of this issue should therefore have far-reaching political as well as economic implications within the context of traditional fiscal policies.

This paper will empirically examine the ex antecrowding-out effect of government expenditures upon private consumption expenditures for the British economy. An aggregate consumption function is derived and estimated in the context of a simultaneous equations model based on intertemporal consumption theory. The empirical results should shed some light on the real effects of fiscal policy on the British economy.     

Non-monotonic group-size effect in repeated provision of public goods

This paper analyzes the effect of a change in group size on incentives to contribute in repeated provision of pure public goods. We develop a model in which group members interact repeatedly, and might be temporarily unable to contribute to public goods production during some periods. We show that an increase in the group size generates two opposite effects – the standard free-riding effect that suppresses cooperation, and the novel large-scale effect that enhances cooperation. Our results indicate that the former effect dominates in relatively large groups while the latter dominates in relatively small groups. We, therefore, provide a rationale for a non-monotonic group-size effect that may explain previous empirical and experimental findings.     

The general equilibrium effects of fiscal policy: Estimates for the Euro area

This paper describes a dynamic stochastic general equilibrium model featuring a fraction of non-Ricardian agents in order to estimate the effects of fiscal policy in the Euro area. The model takes into account distortionary taxation on labor and capital income and on consumption, while expenditures are broken down into purchases of goods and services, compensation of public employees and transfers to households. A newly computed quarterly data set of fiscal variables is used. Our results point to the prevalence of mild Keynesian effects of public expenditures. In particular, although innovations in fiscal policy variables tend to be rather persistent, government purchases of goods and services and compensations for public employees have small and short-lived expansionary effects on private consumption, while innovations in transfers to households show a slightly more sizeable and lasting effect. The effects are more significant on the revenue side: decreases in labor income and consumption tax rates have sizeable effects on consumption and output, while a reduction in capital income tax favors investment and output in the medium run. Finally our estimates suggest that fiscal policy variables contribute little to the cyclical variability of the main macro variables.     

Heterogeneity in Consumer Demands and the Income Effect: Evidence from Panel Data

This paper uses unique Spanish panel data on household expenditures to test whether unobservable heterogeneity in household demands (taste, etc.) is correlated with total expenditures (income). The main finding is that tastes are indeed correlated with income for about half of the goods considered, implying that cross‐sectional estimates of income elasticities for these goods are biased. The goods are the following: food eaten outside home, alcohol and tobacco, transportation, and energy. The elasticity of alcohol and tobacco is more than halved when taking unobserved heterogeneity into account. For transportation, the bias is sufficiently large to misclassify the good as a luxury.     

The roles of relative prices,interest rates,and bequests in the consumption function

This paper investigates the roles of relative prices, interest rates, inflation expectations and bequests in the determination of consumer expenditures for four goods in the U.S. The framework employed is a life-cycle extension of the Linear Expenditure System, in which relative prices, wealth, labor income, the nominal interest rate, and anticipated rates of inflation for each good are major arguments. The results provide strong empirical support for the expenditure system employed and suggest a significant role for relative prices and for the bequest motive in shaping saving decisions. We also find that expenditure decisions respond to both interest rates and anticipated inflation in a “Fisherian” fashion, but that the interest elasticity of saving is quite low and of uncertain sign. Our model also provides an estimate of the consumer's “horizon,” defined in the sense of Friedman.     

No news is costly news: The link between the diffusion of the press and public spending

This paper studies the link between the diffusion of news and spending decisions. We exploit a dataset of Italian Regions from 1984 to 2008, approximate the spread of information with the diffusion of newspapers, and estimate the effect of the news before and after 1995. In fact, in the mid-90s two reforms introduced the direct election of the governor, autonomous taxing powers and incentives for fiscal discipline at the regional level in Italy. We test the following hypotheses, derived from the theoretical literature: 1) the diffusion of newspapers affects public expenditures close to elections; 2) the more newspapers are diffused, the larger is the reduction of the electoral cycle; 3) before the reform were implemented, the diffusion of newspapers constrained the increased size of expenditures by reducing the positive variation of capital expenditures; 4) after the reform were implemented, the diffusion of newspapers leaves unaffected the size of expenditures by reducing both the positive variation of capital expenditures and the negative variation of current expenditures. The empirical analysis confirms the expectations; the results, moreover, are robust to alternative categorizations of the press and indicate a larger effectiveness of the diffusion of local press.     

Chasing votes with the public budget

This paper examines the distribution of public resources by an incumbent seeking re-election. I present a model to explain the behavior of an incumbent redistributing public goods and cash transfers. According to the model, politicians use the government budget as a portfolio for electoral investment and diversify expenditure in order to target different groups of voters at the same time. I construct a unique data set of the promises made by the president of Colombia from 2002 to 2010 to municipalities throughout the country's various regions. The empirical results show some evidence that promises of cash transfers targeted swing voters, promises of public goods simultaneously targeted both core and swing municipalities, while opposition municipalities received few promises of cash transfers and public goods, which is consistent with the prediction of the model.     

MEASUREMENT BIAS IN PRICE INDEXES FOR CAPITAL GOODS*

The official U.S. price deflators for investment goods continue to be based on defective methodology, despite frequent criticism in recent years. This paper contributes new price information, which is combined with the empirical results from other studies to yield a revised investment deflator for the 1954–1963 period which (a) rises much more slowly than the official index and (b) declines relative to a revised price index for consumption expenditures.     

Seigniorage and public good in an OLG model with cash-in-advance constraints

This paper is a contribution to the theory of the optimal monetary policy in overlapping generations models with a cash-in-advance constraint applying on old age consumption purchases. We are particularly interested in the study of seigniorage when the latter is used to finance public goods valued by consumers. Assuming that a public good enters the utility function and the existence of cash-in-advance constraints, we find a Laffer curve of seigniorage at steady-state. We also analyze the dynamic optimal monetary policy when the government maximizes an intertemporal social welfare function and can only resort to seigniorage to finance the purchases of the public good. We show that the optimal rate of money growth may be strictly higher than the one which maximizes steady-state seigniorage: the optimal amount of seigniorage may lie on the decreasing part of the Laffer curve of seigniorage. We finally suppose that the government can use lump-sum taxes in addition to seigniorage. Then, the Friedman rule prevails and public expenditures are only financed through lump-sum taxes.