Why do differences in the degree of fiscal decentralization endure?

A notable difference between the U.S. and many countries in Europe is in the degree of fiscal decentralization. Regional (and local) governments in the U.S. have significant autonomy in setting their own taxes and determining how to spend their revenues. This is not true of their counterparts in Spain, France, the United Kingdom, Czech Republic and many other European countries. In recent years, many countries formerly subject to dictatorshipsor communism have been considering decentralizing fiscal responsibility to sub-national governments as part of the process of democratization (see Bird and Ebel, forthcoming). Yet, much of Europe remains immune to adopting effective decentralization in which sub-national units have true taxing authority.

Price differentials in monetary unions: The role of fiscal shocks

We study the effect of regional expenditure and revenue shocks on price differentials for47 US states and 9 EU countries. We identify shocks using sign restrictions on the dynamicsof deficits and output and construct two estimates for structural price differentials dynamics which optimally weight the information contained in the data for all units. Fiscal shocks explain between 14 and 23 percent of the variability of price differentials both in the US and in the EU. On average, expansionary fiscal disturbances produce positive price differential responses while distortionary balance budget shocks produce negative price differential responses. In a number of units, price differential responses to expansionary fiscal shocks are negative. Spillovers and labor supply effects partially explain this pattern while geographical, political, and economic indicators do not.

The elusive costs and the immaterial gains of fiscal contraints

We study whether and how fiscal restrictions alter the business cycle features macrovariables for a sample of 48 US states. We also examine the 'typical' transmission properties of fiscal disturbances and the implied fiscal rules of states with different fiscal restrictions. Fiscal constraints are characterized with a number of indicators. There are similarities in second moments of macrovariables and in the transmission properties of fiscal shocks across states with different fiscal constraints. The cyclical response of expenditure differs in size and sometimes in sign, but heterogeneity within groups makes point estimates statistically insignificant. Creative budget accounting isresponsible for the pattern. Implications for the design of fiscal rules and thereform of the Stability and Growth Pact are discussed.

The long-run and intergenerational education impacts of intergovernmental transfers

This paper provides regression discontinuity evidence on long-run and intergenerational education impacts of a temporary increase in federal transfers to local governments in Brazil. Revenues and expenditures of the communities benefiting from extra transfers temporarily increased by about 20% during the 4 year period from 1982 to the end of 1985. Schooling and literacy gains for directly exposed cohorts established in previous work that used the 1991 census are attenuated but persist in the 2000 and 2010 censuses. Children and adolescents of the next generation --born after the extra funding had disappeared-- show gains of about 0.08 standard deviation across the entire score distribution of two nationwide exams at the end of the 2000s. While we find no evidence of persistent improvements in school resources, we document discontinuities in education levels, literacy rates and incomes of test takers' parents that are consistent with intergenerational human capital spillovers.

The mechanisms of agglomeration: Evidence from the effect of inter-industry relations on the location of new firms

The objective of this paper is to explore the relative importance of each of Marshall's agglomeration mechanisms by examining the location of new manufacturing firms in Spain. In particular, we estimate the count of new firms by industry and location as a function of (pre-determined) local employment levels in industries that: 1) use similar workers (labor market pooling); 2) have a customer- supplier relationship (input sharing); and 3) use similar technologies (knowledge spillovers). We examine the variation in the creation of new firms across cities and across municipalities within large cities to shed light on the geographical scope of each of the three agglomeration mechanisms. We find evidence of all three agglomeration mechanisms, although their incidence differs depending on the geographical scale of the analysis.

Does partisan alignment affect the electoral reward of intergovernmental transfers?

[spa] En este trabajo analizamos la hipótesis que las transferencias asignadas a los municipios políticamente alineados generan un mayor apoyo político que las transferencias asignada a los municipios gobernados por la oposición. Para contrastar esta hipótesis utilizamos datos de las transferencias recibidas por 617 municipios españoles procedentes de dos niveles de gobierno superiores (Regional o Autonómico y Supra-Local o Diputaciones) durante el período 1993-2003, así como datos de los votos obtenidos en las tres elecciones celebradas en los diferentes niveles de gobierno durante este período.

The mechanisms of agglomeration: Evidence from the effect of inter-industry relations on the location of new firms

The objective of this paper is to explore the relative importance of each of Marshall's agglomeration mechanisms by examining the location of new manufacturing firms in Spain. In particular, we estimate the count of new firms by industry and location as a function of (pre-determined) local employment levels in industries that: 1) use similar workers (labor market pooling); 2) have a customer- supplier relationship (input sharing); and 3) use similar technologies (knowledge spillovers). We examine the variation in the creation of new firms across cities and across municipalities within large cities to shed light on the geographical scope of each of the three agglomeration mechanisms. We find evidence of all three agglomeration mechanisms, although their incidence differs depending on the geographical scale of the analysis.

Optimal fiscal policy in overlapping generations models

[eng] This paper provides, from a theoretical and quantitative point of view, an explanation of why taxes on capital returns are high (around 35%) by analyzing the optimal fiscal policy in an economy with intergenerational redistribution. For this purpose, the government is modeled explicitly and can choose (and commit to) an optimal tax policy in order to maximize society's welfare. In an infinitely lived economy with heterogeneous agents, the long run optimal capital tax is zero. If heterogeneity is due to the existence of overlapping generations, this result in general is no longer true. I provide sufficient conditions for zero capital and labor taxes, and show that a general class of preferences, commonly used on the macro and public finance literature, violate these conditions. For a version of the model, calibrated to the US economy, the main results are: first, if the government is restricted to a set of instruments, the observed fiscal policy cannot be disregarded as sub optimal and capital taxes are positive and quantitatively relevant. Second, if the government can use age specific taxes for each generation, then the age profile capital tax pattern implies subsidizing asset returns of the younger generations and taxing at higher rates the asset returns of the older ones.

Does partisan alignment affect the electoral reward of intergovernmental transfers?

[spa] En este trabajo analizamos la hipótesis que las transferencias asignadas a los municipios políticamente alineados generan un mayor apoyo político que las transferencias asignada a los municipios gobernados por la oposición. Para contrastar esta hipótesis utilizamos datos de las transferencias recibidas por 617 municipios españoles procedentes de dos niveles de gobierno superiores (Regional o Autonómico y Supra-Local o Diputaciones) durante el período 1993-2003, así como datos de los votos obtenidos en las tres elecciones celebradas en los diferentes niveles de gobierno durante este período.