Optimal social security tax with myopic agents

Myopic agents lack the foresight to save for their own old age. It is generally believed that correcting myopia is a rationale for a pay-as-you-go (PAYG) pension system. This view has been supported by existing literature showing that the optimal PAYG social security tax should increase when people are more myopic. In this paper we obtain new results opposed to the traditional view. By establishing a very standard general equilibrium OLG model with myopic agents and endogenized marginal product of capital, we show that the optimal social security tax should be lower when people are more myopic. Our numerical analysis also shows that the welfare cost of the social security tax increases with people's degree of myopia. These results suggest that correcting myopia is not a clear rationale for the PAYG social security.     

Political competition,tax salience and accountability. Theory and evidence from Italy

This paper argues that electoral competition may hinder rather than foster political accountability, especially when elected officers can choose among a number of tax instruments. We develop a political agency model showing that politicians in more competitive jurisdictions use less salient tax instruments more intensely. Defining salience as visibility or, analogously, as voters' awareness of the costs associated with specific government revenue sources, we argue that voters are less likely to hold politicians to account for the associated tax burden of a less salient instrument. This in turn implies that strategic politicians will more heavily rely on less salient revenue sources when electoral competition is stronger. Using data on Italian municipal elections and taxes over a 10-year period, we determine the degree of salience of various tax instruments, including property taxes (high salience) and government fees for official documents (low salience). We then show that mayors facing stronger competition for re-election use less salient tax instruments more intensely.     

The evolution of corruption and development in transitional economies: Evidence from China

It is widely accepted in the literature, that the level of corruption is negatively and robustly related to economic development. However, skeptics argue that for transitional economies, this relationship may not hold. Economic reform loosens up the control of local officials and can increase corruption; Corruption and per capita income can be positively related. Using panel provincial data of China from 1995 to 2014 on prosecuted cases of corruption, we discover that during the early phase of China’s economic reform (during Zhu Rongji and Hu-Wen administrations), a positive short-run relationship is indeed observed. But, there is a robust negative long-run cointegration relationship between corruption and per capita income. The development of the market economy improves private wage and income in the long-run. The relatively inefficient and low returns to ordinary corruption cannot compete with rising market returns, which lead to dwindling corruption. However, the share of major corruption cases is increasing over time to be able to compete with rising market wages.     

Fiscal decentralization and government size: The role of democracy

This paper examines how the level of democracy in a country affects the relationship between fiscal decentralization and government size. We argue that political regimes, proxied by their democracy levels, are important for different decentralization theories to predict the impact of fiscal decentralization on government size. We test this argument using panel data from 76 developed and developing countries during 1972–2013. We find strong and robust evidence that fiscal decentralization is negatively associated with government size and that a higher level of democracy tends to mitigate the negative impact of fiscal decentralization. Therefore, our study contributes to the literature by offering a novel insight on mixed results regarding the relationship between fiscal decentralization and government size in the literature.     

Tax-benefit systems and differences in aggregate labour force participation: Comparative evidence from the Czech Republic and Hungary

This paper investigates the extent to which cross-country differences in aggregate participation rates can be explained by differences in tax-benefit systems. We take the example of two countries, the Czech Republic and Hungary, which – despite a lot of similarities – differ markedly in labour force participation rates. Using comparable individual-level labour supply estimates, we simulate how the aggregate participation rate would change in one country if the other country’s tax and social welfare system were adopted. The estimation results for the two countries are quite similar, suggesting that individual preferences are essentially identical in the two countries. The simulation results show that about one-third of the difference in the participation rates of the 15–74 year-old population and more than two-thirds of the participation of the prime-age population can be explained by differences in the tax-benefit systems.     

Viewpoint: Regulating meat consumption to improve health,the environment and animal welfare

Meat consumption has increased significantly in the last 50 years. This trend raises various health and environmental issues, as well as moral concerns regarding farm animal welfare. In this paper, we discuss the regulation of meat consumption in developed countries. Specifically, we discuss possible justifications for this regulation in terms of environmental, health and animal welfare considerations, as well as the effect of fiscal, informational and behavioral regulatory instruments. Finally, we present a list of challenges that policy makers and food scholars may need to confront in the future.     

Openness of the economy,terms of trade,and arms

It is estimated that world military spending in 2011 amounted to over 2.5% of the world's Gross Domestic Product (GDP). This corresponds to a spending of $233 per person in the world at 2010 constant prices, an amount close to the GDP per capita of the poorest country in the world. Therefore, it is important for economists to understand the allocation of resources to this sector of the economy. I present a model that explores the determinants of a country's level of military spending. I show how greater gains from trade can lead to greater military expenditures to protect them. It is also found that expansion in the demand for a country's tradable commodities, that is, an improvement in that country's terms of trade, will impact defense spending. Several other propositions emerge from the model which are then empirically tested using both pooled and time series data. The statistical results support the model's propositions.     

Trade Liberalization and Environmental Taxation in Federal Systems

The literature on trade liberalization and environment has not yet considered federal structures. In this paper, we show how the design of environmental policy in a federal system has implications for the effects of trade reform. Trade liberalization leads to a decline in pollution taxes, regardless of whether pollution taxes are set at the federal (centralized) or local (decentralized) level, and it increases social welfare. The effect under a decentralized system is smaller than if these taxes are set by the federal government, and pollution emissions therefore decline in this case. Moreover, majority bias interacts with trade liberalization if federal taxes are used.     

Defining Capitalism

This article aims to incorporate the essential features of capitalism in an operational definition that identifies capitalism per se (pure laissez‐faire capitalism), and clearly excludes variations such as welfare capitalism and crony capitalism. By concisely highlighting the fundamental structures and mechanisms of capitalism, this essential definition facilitates defences of it that are more robust than those ordinarily offered. It also clarifies the relation between capitalism and phenomena with which it is frequently associated, and suggests a straightforward way of identifying and measuring the extent of capitalism in mixed economies.     

Political budget cycles revisited: Testing the signalling process

A widespread view in the ‘political budget cycles’ literature is that incumbent politicians seek to influence voters’ perceptions of their competence and/or preferences by using the composition of the fiscal budget as a signalling tool. However, little is known about whether voters actually receive and perceive the signal in that way. To empirically assess the relevance of the signalling channel at the municipal level, we conducted a survey among 2000 representative German citizens in 2018. Only a small fraction of voters feel well-informed about the fiscal budget signal and use the information it contains to decide whether to vote for the incumbent politician. Persons paying more attention to the signal sent by local politicians live in smaller municipalities, are more satisfied with their economic situation, are more educated, and do not feel that they are being electorally manipulated. Our analysis raises doubt about the relevance of budget composition as a signalling mechanism for voters at the local level.