Level Of Government Expenditure Research Articles

The impact of diverse preferences on government expenditures

This article analyses the importance of cultural diversity on Canadian government growth. The argument for analysing culture centres on: the belief that agreement on provision levels of government goods and services will be difficult when citizens are different from one another; the belief that individuals would rather see transfers directed to people who are like themselves; and, the importance of maintaining cultural diversity as a societal goal. This article finds that mother tongue diversity is relevant in determining government expenditure levels in Canada while religious diversity is not. These findings represent a unique approach to the determination of government expenditure in Canada and point out consequences for immigration policy.

Are Consumption and Government Expenditures Substitutes or Complements? Morishima Elasticity Estimates from the Fourier Flexible Form

This article provides estimates of Morishima elasticities of substitution between private consumption expenditures (nondurable goods, services, and the stock of durable goods) and government expenditures (federal defense expenditures, federal nondefense expenditures, and state and local expenditures), finding consistent evidence that private consumption and government expenditures are net Morishima substitutes. Elasticities of substitution vary over our sample period, estimated elasticities are generally asymmetric, and short‐run elasticity estimates differ from unity. In the long run, substitution elasticities remain asymmetric and vary over time. Our estimates are free of arbitrary functional form assumptions that can bias statistical inferences arising from our optimization model.

Poland: a successful transition to budget sustainability?

In this paper we evaluate the sustainability of the current fiscal policy regime in Poland, using as framework the intertemporal budget constraint (IBC). Consistency of fiscal policy with the IBC is evaluated using unit root and cointegration tests. In contrast to much previous research on fiscal sustainability, we take account of the possible role of seignorage from money creation as a source of government revenue, by conducting sustainability tests excluding, and then including, seignorage. We find evidence that Polish fiscal policy is sustainable, and that the fiscal regime is ‘expenditure-led’, adjusting tax revenues to the planned levels of government expenditures.

Optimal Fiscal Strategy for Oil Exporting Countries

This paper develops simple guidelines for fiscal policy in oil producing countries, focusing on three issues: intergenerational oil distribution, precautionary saving, and adjustment costs. The paper presents a framework to analyze how the revenue generated by an exhaustible source of wealth that belongs to the government should be distributed between current and future generations. This framework is used to show the strengths and limitations of existing answers, which motivates a new approach for dealing with this question. The paper derives simple, closed form approximations to the optimal level of government expenditure when an important part of government revenue is generated by an uncertain and exhaustible natural resource such as oil. Price uncertainty, budget uncertainty, and the (possibly asymmetric) costs of adjusting expenditure levels are considered.

Environmental Tax Reform and Government Expenditure

In a simple model of production with an imported polluting resource and involuntary unemployment we consider the effects of energy taxes, holding the real wage constant, under differing levels of government expenditure and externalities. Simulations reveal conflict between the goals of net welfare, employment and profitability over much of the relevant parameter range, thus extending the usual discussion of multiple dividends. However, potential net welfare and employment gains are substantial for plausible parameters. The optimal energy tax declines as government expenditure rises and is less than the Pigovian tax for plausible externalities.

Fiscal financing decisions and exchange rate variability

One of the perceived benefits of a flexible exchange rate system is the insulation of the domestic economy from foreign shocks, and the potential for independent policy actions. In view of the considerable uncertainty, which pervades appropriate specification of the relevant theoretical models, the empirical analysis of this paper adopts the vector autoregressive approach. Using quarterly data over the period 1975(2)‐1995(2), models are estimated which test the effect on exchange rates of fiscal variables for seven countries (Australia, Canada, Britain, France, Germany, Italy and the USA). In testing the exchange rate response to a bond financed fiscal expansion, a tax financed fiscal expansion and to a swap of taxes for debt with no change in the level of government expenditure, the results for the seven countries over the recent float are mixed because the impulse response functions to the shocks do not have the same pattern in every country.

Allocating the Costs of Motor Vehicle Crashes Between Vehicle Types

When a truck and an automobile are involved in a crash, the harm to occupants tends to vary with the weight of the vehicles involved. In determining the appropriate level of government expenditures for traffic safety, costs in multivehicle crashes involving different vehicle types must be allocated between occupants and nonoccupants of a particular vehicle type. Four methods for allocating costs among different vehicle types are considered, corresponding to different perspectives, including that of occupants of a vehicle and that of society under different property right assignments. Costs based on the four allocation methods for the United States as a whole and per vehicle mile are also estimated. The allocation method was found to have large effects on the relative magnitude of costs.

Tax Reform Issues In The 1990s: A Case Study Of Lebanon And Its Prospects For Long-Term Prosperity

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Marketing Boards: The Canadian Experience Revisited

farmers to act jointly in the sale of their products to increase their bargaining power. The development, general nature, and objectives of Canadian agricultural marketing boards and the approaches taken in pursuit of these objectives were reviewed in this forum some ten years ago (Veeman 1987). Most of these features still apply and are not repeated here. However, the policy environment within which marketing boards operate has changed greatly in the intervening decade. During this time, there have been changes in society's expectations of the appropriate role of government intervention and an increasing concern to reduce levels of government expenditures. International commitment to the modification and restraint of national levels of support and protection for agriculture through the incorporation of agriculture in the last round of multilateral trade ne-

Optimal Capital Income Taxes and Capital Controls in Small Open Economies

This paper studies the optimal taxation of capital income in a simplemodel of a small open economy where domestic residents can evade taxeson their foreign investment income. The national government can onlytax domestic capital income and can impose capital controls, whichhowever absorb real resources. The design of optimal policy in thismodel depends on the revenue needs of the government. For relativelylow levels of government expenditures, it turns out that the countrydoes not levy capital income taxes but may restrict capital exports.Otherwise, the country taxes domestic capital income and sets capitalcontrols such that capital exports are driven to zero, at an optimum.In contrast to other models with capital controls it turns out thatthis policy can lead to underinvestment in domestic capital.

Ricardian Equivalence: Further Evidence

The Ricardian Hypothesis states that for a given level of government expenditure, aggregate demand is neutral to changes in the debt-to-tax ratio. Many economists argue that the private and governm...

An Address by a Georgist Sympathizer: Practical Issues in Georgist Thought

AbstractThe justice and soundness of the taxation of land rent is acknowledged but problems in assessing imply a need to introduce better methods. This is particularly true when attempting to introduce the more saleable idea of two‐rate tax systems because the allocation of total value of real estate parcels between land and buildings is even more arbitrarily done than determining the total assessment. The ideas fit best at the local level and there is little chance of replacing income or sales taxes. A 100% tax would be impossible since it would lead to an avalanche of tax appeals and the abandonment of some land since a high percentage of assessments are in error. The idea of a single tax does not fit modern times when revenue needs determine taxes, rather than the amount of revenue collected determining proper or necessary government expenditure levels. One tax source may be unpopular and regarded as a dangerous concept. Land is probably less important and less relatively valuable than it used to be because of technological change. Some advances in social legislation may mitigate the need for the drastic reform, George who was a moralist deeply concerned about poverty, felt reform was needed in his day. He was right about the impacts of various taxes on economic activity and income distribution.

The Choice of Fiscal Policy Settings under Alternative Inflation Targets

This paper considers an open-loop Nash game between independent monetary and fiscal authorities. The monetary authority is concerned solely with achieving a desired rate of inflation. The fiscal authority has multiple objectives defined by specific preference parameters. A dynamic game theory approach is used to analyse the impact of different inflation targets on the long-term level of public debt, on the level of government expenditure, and on the dynamic path of the economy.

Equilibrium policy with dynamically naive agents

Within the context of a two-period-lived overlapping generations monetary economy, I define an equilibrium policy as a competitive equilibrium in which agents in their second period of life determine the economy's rates of labor income tax and money supply growth on a period-by-period basis. A numerical example shows that equilibrium policy can be unique and either Pareto undominated or dominated. Since agents are assumed to behave as if their policy choices have no intertemporal effects, the existence of undominated equilibrium policies is only consistent with financing relatively small levels of government expenditure.

Privatization and changes in welfare costs of inflation the case of ENTel Argentina

In a country with permanent deficit-driven inflation problems, the proceeds from privatization may translate into potential reductions of the seigniorage needed to finance a given a level of government expenditure. The changes in welfare costs of inflation brought about by divestiture are quantified in a monetary model. In an Argentine case study, these changes were found to be small, both in terms of GDP and as a percentage of seigniorage revenue. Within the model, this is mainly explained by the low values encountered for the elasticities of money demand with respect to expected inflation, and by the exclusion of considerations about unanticipated inflation.

Federalism and the growth of government revisited

Recent research in public economics has been testing for a relationship in federal states between the decentralization of governments and the total and individual size of government shares in GNP. According to one view, economic theory offers no unambiguous empirical predictions. Provided there is a competitive political environment at each government level, the rivalry between political parties will result in an outcome that conforms approximately to the preferences of the citizens, as interpreted in the conventional median-voter model. Under this scenario, it is not certain what differences might be caused by more decentralization (Oates, 1985). To determine any difference we would have to possess considerable knowledge about the distribution of tastes and the location of the populace. It has been hypothesized, nevertheless, that increased decentralization could result in a higher level of government expenditure. Quoting the economic historian John Wallis, Oates(1985: 749) suggests that since individuals have more control over public decisions at the local than at the state or national level, they will wish to empower the public sector with a wider range of functions and responsibility where these activities are carried out at more localizedlevels of government.

Output Decline and Government Expenditures in European Transition Economies

This paper discusses the role of government expenditure policies in the decline in aggregate output in European transition economies. It is argued that there is little evidence for the hypothesis that more expansionary expenditure policies would have helped to mitigate the output decline. While measurement problems allow for very preliminary conclusions, it appears that government expenditures were, generally, not a binding constraint for output. In those cases where it could be argued that government expenditures were a binding constraint, they were usually not the only one. Government expenditure levels still remain on the high side, at least when compared with European market-based economies, and there exists few reasons for pursuing expansionary expenditure policies to lift European transition economies out of the “transitional recession.” While raising expenditure levels per se is an unappealing policy choice, a further reordering of expenditure priorities is desirable. In particular, increases in the share of government expenditures on capital--human and physical--are needed to improve long-run output potential.

Output Decline and Government Expenditures in European Transition Economies

This paper discusses the role of government expenditure policies in the decline in aggregate output in European transition economies. It is argued that there is little evidence for the hypothesis that more expansionary expenditure policies would have helped to mitigate the output decline. While measurement problems allow for very preliminary conclusions, it appears that government expenditures were, generally, not a binding constraint for output. In those cases where it could be argued that government expenditures were a binding constraint, they were usually not the only one. Government expenditure levels still remain on the high side, at least when compared with European market-based economies, and there exists few reasons for pursuing expansionary expenditure policies to lift European transition economies out of the transitional recession. While raising expenditure levels per se is an unappealing policy choice, a further reordering of expenditure priorities is desirable. In particular, increases in the share of government expenditures on capital--human and physical--are needed to improve long-run output potential.

GOVERNMENT SPENDING IN DEVELOPING COUNTRIES

Throughout the twentieth century governments have been spending ever larger proportions of national income. Three issues arise in discussions about the growth of such spending as it pertains to developing countries: How does it compare with expenditure in industrial nations? What explains the growth in spending by developing country governments? And what are the effects on economic growth? Government expenditure as a share of Gross Domestic Product (GDP) in low- and middle income countries, on average, is lower than comparable shares in industrial market economies and, with few exceptions, is growing. Many factors, including ideology, demographics, a positive income elasticity for public goods, the rising cost of public goods relative to private goods, and perhaps development theory and practice, explain this growth. As for the relationship between government expenditure and economic growth, the empirical evidence does not reveal any strong correlation. The size of government may engender strong ideological debate, but the position that the aggregate level of government expenditure is a significant determinant of growth rates receives little support.

Taxation in Papua New Guinea: Backwards to the future?

This paper explores the evolution, current problems, and possible future developments of the tax system of Papua New Guinea, leaving aside the important question of natural resource taxation. The paper concludes that there is at present a serious mismatch between the nature of Papua New Guinea's economy and its taxes. In particular, taxation must be extended to reach the bulk of economic activity in the country. No matter what is done in this respect, however, Papua New Guinea is most unlikely to be able to finance its current level of government expenditure in the absence of additional aid or natural resource revenue. The major public sector problem confronting the country is therefore not tax reform, but expenditure reform.