Efficiency Of Public Goods Provision Research Articles

The Import of Capital Taxes and Environmental Standards Compared To Agglomeration on Capital Flow

The effect of competition for mobile capital on local (jurisdictional) policy making is critical to the fiscal-environmental federalism literature. This existing body of literature, however, is deficient in examinations of how influential local policy levers, environmental standards and taxation, compare with fundamental capital location determinants like agglomeration forces. The purpose of this investigation is to broaden the agglomeration augmented interjurisdictional competition model to effectively compare local policy and agglomeration influences on capital flow. When jurisdictions do not have access to forms of taxation that allow for the efficiency of public goods provision, agglomeration forces notably impact fiscal policy weight. Herein, the magnitude of agglomeration directly effects the determination of the capital tax rate which in turn influences the provision of public goods. Subsequent inefficient public goods provision will distort the local choice of environmental standards. The capital tax must be complimented by 'benefit' taxation to finance efficient public expenditure. Interestingly, when public goods are provided efficiently, the capital tax doubles as a Pigovian remedy and a subsidy instrument depending, largely, on the strength of agglomeration forces.

Natural resource windfalls and efficiency in local government expenditure: Evidence from Peru

AbstractWe study the role of natural resource windfalls in explaining the technical efficiency of public expenditure. Using a rich dataset of expenditure and public good provision for 1836 municipalities in Peru for the period 2001–2010, we estimate a nonmonotonic relationship between the efficiency of public good provision and the level of natural resource transfers. Local governments that were extremely favored by the boom in mineral prices were more efficient in using fiscal windfalls, whereas those that only benefited from modest transfers were more inefficient. These results can be explained by the increase in political competition associated with the boom. However, the fact that increases in efficiency were related to reductions in public good provision casts doubts on the beneficial effects of political competition in promoting efficiency.

Political donations, public procurement and government efficiency

Public procurement markets are worth 10–15% of global GDP. Recent empirical evidence suggests that firms’ political donations can induce important distortions in the allocation of public procurement contracts. In this article, we employ a non-parametric efficiency model to study the implications of such distortions for the regional governments’ efficiency. Using a unique dataset covering the Czech regions over the 2007–2017 period, we find that the efficiency of public good provision is lower when a larger share of public procurement contracts is awarded to firms donating to the party in power (‘party donors’) – even when we account for quality differences in public goods provision. We link the dependence on politically connected firms to the institutional design of the procurement allocation process (i.e. the use of less restrictive and less open allocation procedures), which helps explaining the mechanics behind the observed decrease in efficiency.

Endogenous Shared Punishment Model in Threshold Public Goods Games

Population growth and greater human well-being imply increased use of scarce resources, which makes innovative proposals for fair redistribution policies necessary. The utilisation of common-pool resources (CPRs) offers an economising solution to this problem; however, addressing the complex issue of harmonising the participants’ interests is challenging. The use of CPRs has been theoretically discussed for decades and is addressed by theory of public goods (PGs) provision. Surprisingly, experimental tests of this theory have observed systematic deviations from the theoretical conclusions. Economists have applied agent-based methods to resolve this puzzle. We follow this approach and propose an agent-based model that innovatively employs voting on the punishment of free/cheap riders. The voting participants simultaneously determine the strictness of the punishment meted out to free/cheap riders and the cost burden of this punishment system. The proposed endogenous shared punishment model works within the threshold public goods game framework. Simulation results show that the presented method is more efficient than models with full or no punishment. Furthermore, the involvement of activists increases the likelihood of PGs provision. Introducing voting into PGs provision increases its efficiency and thus extends the set of available solutions to increase the efficiency of PGs provision.

Does Taxation Influence Efficiency of Public Services Provision: Case of European Countries

Public services are identified as services provided by the government of certain jurisdiction (country or local community) in order to ensure citizens’ welfare and social protection. The efficiency of public services provision depends on numerous economic, social, and institutional factors. In turn, numerous scientific debates are about the optimization of taxation in order to increase the efficiency of public goods provision. Therefore, the purpose of the research is to clarify empirically the cohesion between public services provision and taxation for the sample of European countries (Latvia, Lithuania, Estonia, Czech Republic, Germany, Slovak Republic, Hungary, Poland, Romania, Bulgaria, Slovenia, and Ukraine) for 2005-2018. Correlation analysis and panel data regression analysis results allow concluding that provision of public goods (safety, education, health care) highly dependent on social contributions and taxes on goods and services, and less on taxes on income, profits, and capital gains. Moreover, tax growth dynamics in chosen European countries is twice, triple or even five times more rapid than growth dynamics of all dependent variables (only government expenditures on education and social contributions annual growth rates are almost equal). Such a discrepancy might result in an increase of social tensions, shadow economy, intensification of tax avoidances and tax evasion processes, lack of population to government loyalty. All this proves the necessity of improvement of financial resources redistribution in order to improve the efficiency of public services provision. Keywords: budget, government expenditure, government efficiency, public goods, tax revenue.

Political Donations, Public Procurement and Government Efficiency

Firms’ political donations can induce distortions in the allocation of public procurement contracts. In this article, we employ an advanced non-parametric efficiency model to study the public sector (cost) efficiency implications of such distortions. Using a unique dataset covering the Czech regions over the 2007-2014 period, we find that the efficiency of public good provision is lower when a larger share of public procurement contracts is awarded to firms donating to the party in power (‘party donors’). We link this efficiency difference to two underlying mechanisms: i.e. shifts in procurement contract allocations from firms with previous procurement experience to party donors, and the use of less restrictive allocation procedures that benefit party donors.

Natural Resource Windfalls and Efficiency of Local Government Expenditures: Evidence from Peru

We study the role of natural resource windfalls in explaining the efficiency of public expenditures. Using a rich dataset of expenditures and public good provision for 1,836 municipalities in Peru for period 2001-2010, we estimate a non-monotonic relationship between the efficiency of public good provision and the level of natural resource transfers. Local governments that were extremely favored by the boom of mineral prices were more efficient in using fiscal windfalls whereas those benefited with modest transfers were more inefficient. These results can be explained by the increase in political competition associated with the boom.

A Unified Analysis of Tiebout Models and Tax Competition Models

I construct a fiscal competition model in which immobile residents compete for mobile workers. This framework nests two influential theories, Tiebout (1956) and tax competition (Zodrow and Mieszkowski, 1986), which yield contrasting predictions on the efficiency of public goods provision in a federation. Using it, I investigate the efficiency of decentralized public goods provision from a unified perspective. When mobile workers are homogeneous, mobility does not matter for the efficiency of public goods provision, as long as policies can be differentiated between mobile and immobile residents. I also reveal the sources and the characterizations of inefficiency results in various circumstances by exploiting a unique feature of the model. Then, I introduce taste heterogeneity of mobile workers. When the heterogeneity is sufficiently large, public goods for mobile workers are efficiently provided due to Tiebout sorting. Moreover, Tiebout sorting may greatly mitigate welfare loss from 'race to the bottom' by reducing the effective number of competing jurisdictions. Several extensions are also discussed.

Ghost-House Busters: The Electoral Response to a Large Anti–Tax Evasion Program *

AbstractThe incentives of political agents to enforce tax collection are key determinants of the levels of compliance. We study the electoral response to the Ghost Buildings program, a nationwide anti tax evasion policy in Italy that used innovative monitoring technologies to target buildings hidden from tax authorities. The program induced monetary and non-monetary benefits for non-evaders and an increase in local government expenditures. A one standard deviation increase in town-level program intensity leads to a 4.8% increase in local incumbent reelection rates. In addition, these political returns are higher in areas with lower tax evasion tolerance and with higher efficiency of public good provision, implying complementarity among enforcement policies, the underlying tax culture, and the quality of the government.

Efficiency of public goods provision in Wenchuan earthquake-stricken rural areas, Sichuan, China

Purpose – The purpose of this paper is to evaluate the efficiency of public goods provision in Wenchuan earthquake-stricken rural areas. The study was undertaken in August and September 2012 by the field survey of 24 villages. Design/methodology/approach – This paper, by applying the methods of analytic hierarchy process and fuzzy comprehensive evaluation, aims to evaluate the efficiency by means of villagers’ satisfaction, which is designed in the idea of combining overall goal-classifications and specific indicators, including 7 classifications and a total of 36 specific indicators. Findings – Based on maximum membership principle by the fuzzy comprehensive evaluation, the calculation results in 0.4485862 as a “general” level of the evaluation membership of efficiency in the post-quake public goods provision, and 3.0634837 as overall comprehensive score, a level lower than 3.5. Practical implications – The efficiency by means of villagers’ evaluation is generally at a lower degree. Although the reconstruction has completed some high-quality infrastructure, schools, hospitals and houses, we still face more macroscopic and long-term problems of recovering and sustaining the post-quake communities in many fields. Originality/value – It is more worthy to consider how to improve the efficiency of the reconstruction, especially in public goods and public services provision in the quake-stricken rural areas.

Risk sharing and the efficiency of public good provision under tax competition

This paper investigates tax competition under uncertainty, when local governments levy a linear source-based tax on corporate income. As the corporate tax transfers part of the risk of investment from firms to the government (risk sharing), two differences to the previous literature arise. First, the capital mobility externality may be positive or negative, depending on how strong the risk sharing effect of taxation is. Second, the sign of the tax exporting externality is also indeterminate. Each government not only exports the burden of taxation, but also bears risk which would have been borne by foreigners instead. Thus, while the socially optimal tax rate equates the risk exposure of the private and the public sectors, the equilibrium decentralized tax may be inefficiently high or low.

A POLITICAL ECONOMY THEORY OF PARTIAL DECENTRALIZATION

We revisit the classic problem of tax competition in the context of federal nations, and derive a positive theory of partial decentralization. A capital poor median voter chooses to use redistributive capital taxes to provide public goods. The expectation of high capital taxes, however, results in a small capital stock which lowers returns to redistribution. The median voter therefore wants to commit to a lower level of capital taxes. She does so by setting a partial degree of decentralization in the Constitution. The equilibrium degree of decentralization balances the positive effect of tax competition on capital taxes with the loss in redistribution that results. We show that the degree of decentralization is nonmonotonic in inequality, increasing in the redistributive efficiency of public good provision, and decreasing in capital productivity. When public goods are heterogeneous in their capacity to transfer funds, all voters agree that goods with high redistributive capacity should be decentralized.

Ghost-House Busters: The Electoral Response to a Large Anti Tax Evasion Program

The incentives of political agents to enforce tax collection are key determinants of the levels of compliance. We study the electoral response to the Ghost Buildings program, a nationwide anti tax evasion policy in Italy that used innovative monitoring technologies to target buildings hidden from tax authorities. The program induced monetary and non-monetary benefits for non-evaders and an increase in local government expenditures. A one standard deviation increase in town-level program intensity leads to a 4.8 percent increase in local incumbent reelection rates. In addition, these political returns are higher in areas with lower tax evasion tolerance and with higher efficiency of public good provision, implying complementarity among enforcement policies, the underlying tax culture, and the quality of the government.

Efficiency of public goods provision in space

This article incorporates a political decision process into an urban land use model to predict the likely location of a public good. It fills an important gap in the literature by modeling the endogenous location of open space. The article compares open space decisions made under a majority rules voting scheme with welfare-improving criterion and finds households tied to a location in space compete for public goods. Significant differences emerge between the two decision criteria, indicating that requiring referenda for open space decisions is likely to lead to inefficient outcomes. Specifically, many open space votes are likely to fail that would lead to welfare improvements, and any open space decisions that do pass will require amenities larger than needed to achieve the social optimum. The more dispersed and large the population, the larger the gap between the socially efficient level and the level needed for a public referendum to pass.

Tax increment financing: interaction between two overlapping jurisdictions

This paper analyzes the interaction between two overlapping jurisdictions (a school district and a city), when one of them (the city) uses TIF (tax increment financing) to finance an improvement in the provision of its public good. Both jurisdictions levy taxes on property, and they provide different public goods. The city is not allowed to raise its tax rate to increase public good provision, but since the increment in the public good causes property values to increase, the city's revenue is higher with the new level of public good. However, if this new revenue is not enough to finance the new public good level, then TIF allows the city to “capture,” for a limited period of time, all extra revenues the school district obtains due to the increase in property values. Then the city and the school district choose the public good level to satisfy their budget constraints with the goal of maximizing total property values. Two different results regarding efficiency of public good provision are obtained depending on the equilibrium concept used. With Nash behavior, the result is underprovision of the public good provided by the school district. The second, and more interesting, case is when the school district takes into account that its decisions affect the provision of the city's public good. In this “leader–follower” equilibrium, where the school district plays the role of the leader, the results show that the provision of the school district public good depends on how the city's public good is provided. If the city's public good is underprovided (overprovided) then the school district's public good is overprovided (underprovided).

Incentives to provide local public goods: fiscal federalism, Russian style

Based on a unique data set on Russian city budgets, this paper shows that revenue sharing between regional and local governments provides local governments with no incentive to increase tax base or provide public goods. Any change in local government’s own revenues is almost entirely offset by changes in shared revenues. This leads to governmental over-regulation of private businesses. It is shown that fiscal incentives are a determinant of the formation of private business and the efficiency of public goods provision. The Russian federalism is compared to the Chinese federalism, where fiscal incentives reputedly are stronger in many provinces.

Local public goods and their capital-gain effects

An attempt is made to analyze the capital-gain effect of local public goods and to investigate the conditions under which the efficient provision of local public goods and optimal population size are realized. This requires a two-period model where an owner-resident takes into consideration the effects of public good provision on both the utility from their consumption and the land value. In this study, the Brueckner-Joo model [Brueckner, J.K., Joo, M.-S., 1991. Voting with capitalization. Regional Science and Urban Economics 21, 453–469] is improved so that internal consistency is met, and optimal population size is determined as well. As for the allocative efficiency test of public goods provision, a hypothesis different from that of Brueckner–Wildasin is derived. Where public goods are provided by current residents on the basis of their capital-gains motivation, the sign of the coefficients of public good variables in the land price regression gives different signals to different groups of residents, concerning the efficiency of public goods provision. It is also shown that the optimal population size in a city is necessarily larger than the efficient size which minimizes the per capita provision cost of public goods. This suggests that, under the capital-gain hypothesis, the coefficient of population size must be significantly negative in the land price regression.

Incentives to Provide Local Public Goods: Fiscal Federalism, Russian Style

This paper investigates how the institutional structure of the government affects the incentives of local governments to provide public goods both to individuals and private businesses. Using a unique data set on budgets of Russian cities, I show that the existing revenue sharing schemes between regional and local governments provide local governments with no fiscal incentive to increase their tax base and, therefore, to foster the growth of businesses. The main result is that in Russia, any change in local government's own revenues is almost entirely offset by changes in shared revenues. This situation leads to predatory governmental behavior towards private businesses. This finding is compared to the structure of federalism in China, where fiscal incentives are very strong. Some evidence is provided that local governments' fiscal incentives are an important determinant of (1) the formation of private businesses, (2) the allocation of local public finances among different uses, and (3) the efficiency of public goods provision at the local level. These findings shed some light on the puzzle of why Russia has grown more slowly and has less efficient public goods provision, compared to other countries undertaking economic reforms.