Level Of Public Good Provision Research Articles

The non-linear effect of income on the shadow economy

This paper aims to explore the correlation between individual income and tax evasion. We develop a novel theoretical model based on the argument that the level of public goods provision and the perceived fairness of public services significantly influence an individual's attitude towards taxation. The model reveals a concave pattern, indicating the presence of an income threshold. Initially, as an individual's income increases, tax evasion decreases due to the perceived fairness of their contributions relative to the benefits received from public services. However, beyond this threshold, the tax burden is perceived as unfair, leading to an increase in tax evasion as income levels rise. We also proof that this income threshold is influenced by the tax rate and enforcement system. We also conduct a panel data analysis on a sample of 35 OECD countries from 2007 to 2020 to support the theoretical findings. The empirical investigation confirms a U-shaped relationship between income and the underground economy. Our findings suggest that policymakers should introduce measures to improve the quality of public goods provision, considering the potential adverse effect of higher income on economic growth. This study is the first to theoretically investigate the non-linear relationship between income and tax evasion while also providing empirical evidence.

Debunking the autocratic fallacy? Improving public goods delivery in Russia

AbstractRussia's invasion of Ukraine has not only deeply challenged Russia's international standing but has also endangered its fragile domestic order. Data from the 2022 Berggruen Governance Index reveals that overall state capacity has been stagnating at a fairly low level since the beginning of the millennium, while democratic accountability has been declining steadily and profoundly. In contrast, the provision of public goods has strongly increased during the same period. This puts the assumption of the ‘autocratic fallacy’—the idea that sustained public goods delivery relies on democratic accountability in the long run—to the test. We argue that Russia's resource abundance allowed for the maintenance of a regime‐supporting social contract with the population. However, the basis of that contract has changed significantly due to economic decline, fired by, among other factors, several waves of sanctions and the costs of war and will press the Russian government to find urgent solutions to sustain a high level of public goods provision under such unfavourable conditions.

Impact of electoral competition, swing voters and interest groups on equilibrium policy platforms: Exploring the strategic forces at work

This paper constructs a stylized model of election between two opportunistic candidates who can influence equilibrium policy platforms in exchange for monetary contributions provided by two distinct lobby groups. Two key features are embedded which give rise to a dual uncertainty in the model: the existence of partisan spread across voter groups as well as the embezzlement of campaign funds received by the electoral candidates from the interest groups. We derive and compare the equilibrium platforms of the two office-seeking candidates in three scenarios: none of the above uncertainties exist (benchmark case), only uncertainty about voters’ preferences exist (swing-voter case), and both the uncertainties exist (swing voters and lobby groups case). We find that an opportunistic candidate’s swing-voter tax platform is always lower than the benchmark tax platform. Additionally, the equilibrium tax choice of electoral contenders in the swing voters and opposing lobby groups case is found to be greater than the tax level chosen under the swing-voter case if the lobby group advocating a greater level of tax is sufficiently well-organized such that it outweighs the relative swing-voter effect in that group. Furthermore, we find that when an electoral candidate transitions from being highly corrupt to becoming relatively more honest, the equilibrium level of public good provision adjusts in conformity with the well-organized group’s economic preferences. Finally, if the strength of relative lobbying effect is weaker, a lower partisan bias within that group induces an electoral candidate to choose a tax platform closer to that group’s policy bliss point.

Competition among public good providers for donor rewards.

We present experimental evidence for decision settings where public good providers compete for endogenous rewards which are donations (transfers) offered by outside donors. Donors receive benefits from public good provision but cannot provide the good themselves. The performance of three competition mechanisms is examined in relation to the level of public good provision and transfers offered by donors. In addition to a contest where transfers received by public good providers are proportional to effort, we study two contests with exclusion from transfers, namely a winner-takes-all and a loser-gets-nothing. We compare behavior in these three decision settings to the default setting of no-contest (no-transfers). Results for this novel decision environment with endogenous transfers show that donors offer transfers (contest prizes) at similar levels across contests and contributions to the public good are not significantly different in the three contests settings, but are consistently and significantly higher in all contests compared to the setting with no-transfers. Initially, the winner-takes-all setting leads to a significantly higher increase in public good contributions compared to the other two contests; but this difference diminishes across decision rounds.Supplementary InformationThe online version contains supplementary material available at 10.1007/s10683-022-09766-7.

All-pay auctions versus lotteries as provisional fixed-prize fundraising mechanisms: Theory and evidence

We compare two fixed-prize mechanisms for funding public goods, an all-pay auction and a lottery, where public good provision can only occur if the participants’ contributions equal or exceed the fixed-prize value. We show that the provisional nature of the fixed-prize means that efficiency and endowment conditions must both be satisfied to assure positive public good provision. Our main finding is that provisional fixed-prize lotteries can outperform provisional fixed-prize all-pay auctions in terms of public good provision when endowments are large relative to prize values. We test these predictions in a laboratory experiment where we vary the number of participants, the marginal per capita return (mpcr) on the public good, and the mechanism for awarding the prize, either a lottery or an all-pay auction. Consistent with the theory, we find that the mpcr matters for contribution amounts under the lottery mechanism. However, inconsistent with the theory, bids are significantly higher than predicted and there is no significant difference in the level of public good provision under either provisional, fixed-prize mechanism. We consider several different modifications to our framework that might help to explain these departures from theoretical predictions.

The shape of warm glow: Field experimental evidence from a fundraiser

Theory commonly posits agents who care both for the level of public good provision and the extent to which they personally contribute to the cause. Simply put, agents feel “warm glow” from the donations they make. I discuss a lottery fundraiser conducted in the field devised to exogenously vary the incentive to give and identify the structural parameters of warm glow. Estimates suggest that for participants claiming warm glow as their primary motivation, its shape is increasing and concave. Nevertheless, welfare analysis suggests that warm glow is unlikely to be the only important factor in the decision to give.

Immigration, integration and cooperation: experimental evidence from a public goods game in Italy

ABSTRACT Immigration has rapidly changed the demographic profile of most Western European societies, increasing their ethnic diversity. Some cross-disciplinary literature comparing homogeneous and diverse communities provides observational evidence of a link between high levels of ethnoracial diversity and lower levels of public goods provision. While these results are often interpreted as driven by context/interaction effects, whereby individuals lower their cooperativeness in response to the presence of non-coethnics, they could also be explained by composition effects – immigrants having different baseline levels of cooperativeness, and thereby lowering average cooperation rates. To disentangle these effects, we conducted a lab-in-the-field experiment with a sample of Italians and immigrants from Morocco and the Philippines residing in Milan. In our public goods experiment, participants were randomly assigned to either homogeneous or ethnically mixed groups. We find that Italians behave similarly in both homogeneous and heterogeneous groups, thus contradicting arguments about the negative effects of diversity on the native population, while there are both compositional and interactional effects when considering the behaviour of Moroccan and Filipino immigrants, respectively. Moreover, differences largely disappear when we consider only the behaviour of more socio-economically integrated immigrants, highlighting the need for a more processual understanding of cooperation in multiethnic communities.

Tax evasion and government size: evidence from Italian provinces

We analyze the impact of government size, measured by total spending per capita, on tax evasion at the provincial level in Italy over the period 2001–2015. In order to solve endogeneity issues we rely on a system GMM and find that public expenditure negatively affects tax evasion, as taxpayers perceive the government is efficiently spending resources coming from the tax levy. Results are confirmed when we (1) consider expenditures related to long-term investments, namely capital spending per capita, and (2) directly test the impact of government efficiency on tax evasion. In addition, we show that the impact of public spending is heterogeneous across geographical areas: an increase in public expenditure leads to a downward shift in tax evasion only in the northern part of Italy, characterized by a relatively larger initial level of public goods provision.

Peers or police?: The effect of choice and type of monitoring in the provision of public goods

Punishments are meant to deter bad acts, but we commonly only punish those we catch. At some point in time, a society chooses how to catch bad acts. We explore the effect of how we catch bad acts on public good provision. We contrast monitoring done by peers (e.g., a neighbor reporting illegal dumping) to that done by an organized group (e.g., the police patrolling for crime). We find that when either type of monitoring is exogenously imposed, both peer and group monitoring lead to similar levels of public good provision. However, when monitoring is an endogenous choice, societies fail to implement group monitoring, resulting in a 44% drop in public good provision. In contrast, peer monitoring results in similar levels of public good provision when either endogenously chosen or exogenously imposed. If the willingness to monitor is unknown, it may be safer to use peer rather than group monitoring.

Public good agreements under the weakest‐link technology

AbstractWe analyze the formation of public good agreements under the weakest‐link technology. Whereas policy coordination is not necessary for symmetric players, it matters for asymmetric players; however, this fails in the absence of transfers. By contrast, with a transfer scheme, asymmetry may be an asset for cooperation. We characterize various types and degrees of asymmetry and relate them to the stability of self‐enforcing agreements. Asymmetric distributions of autarky public good provision levels (also representing asymmetric interests in cooperation) that are positively skewed tend to be conducive to the stability of agreements. We show that under such conditions, even a coalition including all players can be stable. However, asymmetries that foster stability (instability) tend to be associated with low (high) gains from cooperation.

Free riding and ethnic heterogeneity

This paper provides a new explanation for lower levels of public good provision in heterogeneous societies compared to their homogeneous counterparts. Social sharing norms force rich individuals to share part of their income with their poor relatives, but do not apply across different ethnic groups. Because there is a more extensive redistribution in more homogeneous societies, the cost of contributing to the public good is lower. The model predicts the level of public goods provision and welfare monotonically decreases with the number of different ethnic groups.

Politicians’ coherence and government debt

We model a society that values coherence between the long-term commitment of politicians to given levels of public good provision and current policy. In that context, we suggest a novel mechanism by which issuing government debt can affect electoral results. Debt is exploited by an incumbent politician who favors a low level of public good supply, taking advantage of the cost paid by her opponent, who is committed to a higher level of supply. More public debt reduces voters’ preferred level of public good consumption and therefore are less likely to elect the opponent, given her commitment to a losing policy.

Local government co-financing of the central government's transport infrastructure investment

We study two districts’ voluntary co-financing of a centrally provided public good, e.g., transport infrastructure. Outcomes are compared to a surplus-maximizing level of public good provision. We show that both co-financing and lobbying raise the amount of public good provided. Co-financing and lobbying are substitutes. Co-financing (or co-financing combined with lobbying) raises the provision of the public good to a higher level than lobbying alone. Co-financing can thus reduce rent-seeking. Finally, we show that under uncertainty about district type (high or low benefit), co-financing combined with lobbying can be used to find and retain a separating equilibrium.

Path to Centralization and Development: Evidence from Siam

AbstractThis article investigates the role of colonial pressure on state centralization and its relationship to subsequent development by analyzing the influence of Western colonial threats on Siam’s internal political reform. Unlike other countries in the region, Siam remained independent by adopting geographical administrative boundaries and incorporating its traditional governance structures into a new, centralized governance system. The authors find that the order in which areas were integrated into the centralized system depended on the interaction between precentralization political structures and proximity to British and French territorial claims. The authors show that areas centralized early in the process had higher levels of infrastructure investment and public goods provision at the time the centralization process was completed in 1915 than those centralized later in the process. They also show that early centralization during the Western colonial era continued to be strongly associated with higher levels of public goods provision and economic development, and that this relationship persists today.

Asymmetric voluntary cooperation: a repeated sequential best-shot experiment

This paper tests the robustness of voluntary cooperation in a sequential best shot game, a public good game in which the maximal contribution determines the level of public good provision. Thus, efficiency enhancing voluntary cooperation requires asymmetric behavior whose coordination is more difficult. Nevertheless, we find robust cooperation irrespective of treatment-specific institutional obstacles. To explain this finding, we distinguish three behavioral patterns aiming at both, voluntary cooperation and (immediate) payoff equality.

Primary Elections and the Provision of Public Goods

We develop a theory of primary elections and the provision of public and private goods. In our model, candidates from two parties compete for the support of “core” party voters in their respective primary elections and “swing” voters in a general election. Candidates within a party share a fixed ideology and offer platforms that distribute a unit of public spending across group-specific private goods and public goods. Without primaries, candidates offer only public goods when they are very valuable, and only private goods to the swing group otherwise. Because public goods appeal to both types of voters, primary elections increase their provision under a broad set of conditions. The level of public good provision is nonmonotonic in ideological polarization. The prediction of increased public goods spending following the adoption of primaries matches patterns in capital expenditures across US states.

International environmental agreements with support

We augment the standard cartel formation game from non-cooperative coalition theory, often applied in the context of international environmental agreements, with the possibility that singletons support coalition formation without becoming coalition members themselves. We assume their support takes the form of a monetary transfer to the coalition, in order to induce larger coalitions, higher levels of public good provision and higher payoffs. We show that, under mild conditions on the costs and benefits of contributing to the public good (e.g. abatement of greenhouse gas emissions), there exist equilibria with support. Allowing for support increases payoffs to each of three types of agents: members, supporters and free-riders.

A Dynamic Analysis of Special Interest Politics and Electoral Competition

This paper characterizes the solution to differential games in the context of electoral competition between two political parties/politicians, in the presence of voters and a special interest group. The basic structure of the analytical model is similar to Lambertini ( https://amsacta.unibo.it/4884/1/415.pdf , 2001, Dynamic games in economics. Springer, Berlin, pp 187–204, 2014), which is extended to model the involvement of a special interest group. Furthermore, voters not only vote but also care for the level of public good provision, while the interest group cares for the regulatory benefit in exchange for financial contribution for campaign expenditure. With a quadratic cost structure, we find that a closed-loop solution collapses to an open-loop equilibrium. Moreover, at the private optimum, the expenditure offered for public good provision, regulatory benefit rendered, voting support from voters, and financial contributions from special interest group received by any political party are always higher than at the social optimum. That is, political parties have the tendency to make excessive offers of expenditure on public good to grab a larger vote share to win the election. Consequently, voters vote retrospectively to the party that offers to overspend more. A higher private optimal regulatory benefit helps the political parties to receive higher financial contributions, which could be potentially used for election campaigns and indirectly contributes to enhance their vote share. The solutions to the control and state variables constitute steady-state saddle point equilibria at both private and social optima.

Matching Schemes and Public Goods: A Review

Matching schemes, where a party matches the contribution of others, reduce the effective price of a good and aim to foster its demand. We review the empirical literature on the effectiveness of these schemes in the context of public goods, especially in the field of charitable giving. As different measures of effectiveness are used, we classify results according to (i) the level of public good provision, (ii) the amount of individuals' contributions, (iii) the likelihood to give and (iv) the contribution conditional on contributing a positive amount. Generalizing results is challenging, since context specific factors matter. Predominantly, a match is found to create a significant increase in public good provision without crowding out individuals' contributions, while the effect on the likelihood of giving and contribution condition on contributing a positive amount is nonnegative. The discussion reveals several avenues for future research, as putting stronger emphasizes on long term effects, public good competition or heterogeneity in responses.

Influence networks and public goods

We consider a model of local public goods in a random network context. The influence network determines (exogenously) who observes whom every period and comprises a wide array of options depending on the degree distribution and the in/out-degree correlations. We show that there exists a unique equilibrium level of public good provision and compare it with the efficient level. We derive further insights for this problem by performing a comparative statics analysis.