Encouragement and discouragement : Essays on taxation and government expenditure

This thesis consists of an introduction to a topic of optimal use of taxes and government expenditure and three chapters analysing these themes more in depth. Chapter 2 analyses to what extent a given amount of subsidies affects the labour supply of parents. Municipal supplement to the Finnish home care allowance provides exogenous variation to labour supply decision of a parent. This kind of subsidy that is tied to staying at home instead of working is found to have fairly large effect on labour supply decisions of parents. Chapter 3 studies theoretically when it is optimal to provide publicly private goods. In the set up of the model government sets income taxes optimally and provides a private good, if it is beneficial to do so. The analysis results in an optimal provision rule according to which the good should be provided when it lowers the participation threshold into labour force. Chapter 4 investigates what happened to prices and demand when hairdressers value added tax was cut in Finland from 22 per cent to 8 per cent. The pass-through to prices was about half of the full pass-through and no clear indication of increased demand for the services or better employment situation in the sector is found.

Sustained growth, government expenditure and inflation

We construct and simulate a theoretical model in order to explain particular historical experiences in which inflation acceleration apparently helped to spur a period of economic growth. Government financed expenditures affect positively the produtivity growth in this model so that the distortionary effect of inflation tax is compensated by the productive effect of public expenditures. We show that for some interval of money creation rates there is an equilibrium where money is valued and where steady state physica1 capital grows with inflation. It is a1so shown that zero inflation and growth maximization are never the optimal policies.

Determinants of government consumption expenditure in developing countries : a panel data analysis

The paper focuses on the recent pattern of government consumption expenditure in developing countries and estimates the determinants which have influenced government expenditure. Using a panel data set for 111 developing countries from 1984 to 2004, this study finds evidence that political and institutional variables as well as governance variables significantly influence government expenditure. Among other results, the paper finds new evidence of Wagner's law which states that peoples' demand for service and willingness to pay is income-elastic hence the expansion of public economy is influenced by the greater economic affluence of a nation (Cameron1978). Corruption is found to be influential in explaining the public expenditure of developing countries. On the contrary, size of the economy and fractionalization are found to have significant negative association with government expenditure. In addition, the study finds evidence that public expenditure significantly shrinks under military dictatorship compared with other form of governance.

Military expenditure and development in Latin America

Includes bibliography

New insights into rebound effects : theory and empirical evidence

The main objective of the thesis is to seek insights into the theory, and provide empirical evidence of rebound effects. Rebound effects reduce the environmental benefits of environmental policies and household behaviour changes. In particular, win-win demand side measures, in the form of energy efficiency and household consumption pattern changes, are seen as ways for households and businesses to save money and the environment. However, these savings have environmental impacts when spent, which are known as rebound effects. This is an area that has been widely neglected by policy makers. This work extends the rebound effect literature in three important ways, (1) it incorporates the potential for variation of rebound effects with household income level, (2) it enables the isolation of direct and indirect effects for cases of energy efficient technology adoption, and examines the relationship between these two component effects, and (3) it expands the scope of rebound effect analysis to include government taxes and subsidies. MACROBUTTON HTMLDirect Using a case study approach it is found that the rebound effect from household consumption pattern changes targeted at electricity is between 5 and 10%. For consumption pattern changes with reduced vehicle fuel use, the rebound effect is in the order of 20 to 30%. Higher income households in general are found to have a lower total rebound effect; however the indirect effect becomes relatively more significant at higher household income levels. In the win-lose case of domestic photovoltaic electricity generation, it is demonstrated that negative rebound effects can occur, which can potentially amplify the environmental benefits of this action. The rebound effect from a carbon tax, which occurs due to the re-spending of raised revenues, was found to be in the range of 11-32%. Taxes and transfers between households of different income levels also have environmental implications. For example, a more progressive tax structure, with increased low income welfare payments is likely to increase greenhouse gas emissions. Subsidies aimed at encouraging environmentally friendly consumption habits are also subject to rebound effects, as they constitute a substitution of government expenditure for household expenditure. For policy makers, these findings point to the need to incorporate rebound effects in the environmental policy evaluation process.’

Endogenous mortality, human capital and economic growth

We consider growth and welfare effects of lifetime-uncertainty in an economy with human capital-led endogenous growth. We argue that lifetime uncertainty reduces private incentives to invest in both physical and human capital. Using an overlapping generations framework with finite-lived households we analyze the relevance of government expenditure on health and education to counter such growth-reducing forces. We focus on three different models that differ with respect to the mode of financing of education: (i) both private and public spending, (ii) only public spending, and (iii) only private spending. Results show that models (i) and (iii) outperform model (ii) with respect to long-term growth rates of per capita income, welfare levels and other important macroeconomic indicators. Theoretical predictions of model rankings for these macroeconomic indicators are also supported by observed stylized facts.

What if tax reform was a fundamental human right?

As an election looms in Australia, the tax debate continues unabated. Self-interest abounds. When we remove self-interest, we are often reduced to standard design principles for a taxation system. Lost in this discussion is the fundamental purpose of tax, which is to finance government expenditure. Most would argue that tax revenue should be sufficient to meet basic economic and social needs of the community. But how does a community determine what these basic economic and social needs should be? One way is by using a human rights framework. This can provide guidance for both developing and developed countries considering tax reform.

Agriculture, irrigation and poverty reduction in Cambodia: Policy narratives and ground realities compared

This report is a contribution to an assessment of the current status of agriculture in Cambodia, focusing on the linkages between agriculture and water, mainly in the form of irrigation. It seeks to view current government policies on agriculture and irrigation in the context of experiences on the ground, as communicated through the many field studies that cover varied aspects of performance in the agriculture sector and irrigation schemes. In an effort to identify future research areas, this review examines the status quo, and connects or disconnects with stated policy through a broad lens to capture strengths and challenges across crop production, irrigation management and post-harvest contexts. It places irrigation under scrutiny in terms of its value as a major area of government expenditure in recent years, and asks whether it presents the best potential for future gains in productivity, when compared with the prospects offered by investments in other aspects of agriculture. The fieldwork and review of current literature that form the basis of this report were undertaken at the request of, and partly funded by, the Australian Centre for International Agricultural Research (ACIAR). It is also intended to contribute knowledge to the CGIAR Research Program on Aquatic Agricultural Systems (AAS) led by WorldFish, who co-funded the activities.

The role of income inequality on fiscal multipliers

A Work Project, presented as part of the requirements for the Award of a Masters Double Degree in Economics from the Nova School of Business and Economics and University of Maastricht

Overcoming the “European Paradox”: The role of Regional Innovation Systems (RIS) in translating R&D investments into economic and employment growth

The emergence of the so-called “European Paradox” shows that R&D investment is not maximally effective and that increasing the scale of public R&D expenditures is not sufficient to generate employment and sustained economic growth. Increasing Governmental R&D Investment is far from being a “panacea” for stagnant growth. It is worth noting that Government R&D Investment does not have a statistically significant impact on employment, indicating the need to assess the trade-offs of policies that could lead to significant increases in government expenditure. Surprisingly, Governmental R&D Employment does not contribute to “mass-market” employment, despite its quite important role in reducing Youth-Unemployment. Despite the negative side-effects of Governmental R&D Employment on both GVA and GDP, University R&D Employment appears to have a quite important role in reducing Unemployment, especially Youth-Unemployment, while it also does not have a downside in terms of economic growth. Technological Capacity enhancement is the most effective instrument for reducing Unemployment and is a policy without any downside regarding sustainable economical development. In terms of wider policy implications, the results reinforce the idea that European Commission Research and Innovation policies must be restructured, shifting from a transnational framework to a more localised, measurable and operational approach.

Special interests and political business cycles

In this paper we bridge the gap between special interest politics and political business cycle literature. We build a framework where the interplay between the lobby power of special interest groups and the voting power of the majority of the population leads to political business cycles. We apply our set up to explain electoral cycles in government expenditure composition, aggregate expenditures and real exchange rates.

Custos de provisão de cestas de bens públicos

Há décadas os economistas se preocupam com o problema de calcular o Custo Marginal do Financiamento Público (MCF, em inglês). Um dos maiores sucessos nessa área é o modelo de provisão de bem público com taxação distorciva de Wildasin (1984). Nós generalizamos o modelo de Wildasin para incluir uma cesta de bens públicos, ao invés de um único bem. Em seguida realizamos várias estimativas do MCF para o Brasil, algumas inclusive sem a hipótese de independência entre o nível de bem público e a oferta de trabalho, usual na literatura. Os resultados mostram que o Custo Marginal do Financiamento Público no Brasil é relativamente pequeno, entre outras causas devido à pequena sensibilidade da oferta de trabalho ao gasto governamental

Efeitos de política fiscal nos EUA em um modelo FAVAR

O objetivo desse artigo é analisar o impacto da política fiscal sobre diversas variáveis macroeconômicas dos EUA. A metodologia do trabalho empírico baseia-se em um modelo VAR estrutural que incorpora fatores latentes (FAVAR) e para o qual desenvolve-se um esquema de identificação específico. Visto que os fatores são estimados por principal components, estes aproximam-se muito das séries observadas de produção industrial e taxa de juros. Como será visto, este resultado é de fundamental importância para a hipótese de identificação e a escolha dos instrumentos do modelo VAR. Por meio das funções de resposta ao impulso analisa-se os efeitos de um aumento do gasto do governo sobre variáveis de produto e consumo e, por sua vez, corroborando a hipótese de que tanto o PIB quanto as despesas de consumo das famílias aumentam depois desse choque exógeno. Em particular esse efeito sobre o consumo também é verificado quando separamos os indivíduos em várias classes de acordo com renda. Olhando cuidadosamente no entanto pode-se perceber que um aumento no gasto público possui mais impacto sobre os consumidores de renda mais baixa. Ou seja, é provável que por estarem sujeitas a restrições de crédito, as classes mais baixas tem mais dificuldade em suavizar o consumo após um choque agregado.

Investment coordination failures and the confidence channel of fiscal policy

Este trabalho desenvolve um novo "canal de Confiança" da política fiscal e caracteriza a política ótima quando esse canal é levado em consideração. Para esse objetivo, utilizamos um modelo estático com (i) concorrência monopolística, (ii) custos de ajustamento fixos para investir, (iii) complementaridade estratégica devido a informação imperfeita com respeito a produtividade agregada, e (iv) bens privados como substitutos imperfeitos de bens privados. Este arcabouço acomoda a possibilidade de falhas de coordenação nos investimentos, mas apresenta um equilíbrio único. Mostramos que a política fiscal tem efeitos importantes na coordenação. Um aumento dos gastos do governo leva a uma maior demanda por bens privados. Mais importante, este também afeta as expectativas de ordem superior com relação a demanda das demais firmas, que amplifica os efeitos do aumento inicial da demanda devido a complementaridade estratégica nas decisões de investimento. Como as demais firmas estão se deparam com uma demanda maior, espera-se que estas invistam mais, que por sua vez, aumenta a demanda individual de cada firma, que aumenta os incentivos a investir. Denominamos isto como o "canal de confiança" da política fiscal. Sob a ameaça de falhas de coordenação, a política fiscal ótima prescreve produzir além do ponto em que o benefício marginal resultante do consumo de bens públicos é igual ao custo marginal desses bens. Este benefício adicional vem do fato de que a política fiscal pode ampliar a coordenação dos investimentos.