Empirical Economics

Bhattarai, Keshab; Whalley, John

doi: 10.1007/s001810050075pmid: N/A

Whether labour bears full burden of household level income and consumption taxes ultimately depends on the degree of substitutability among different types of labour in production. We find more variation in incidence patterns across households with less than perfectly substitutable heterogeneous labour than with perfectly substitutable homogeneous labour in production. This finding is based on results obtained from homogeneous and heterogeneous labour general equilibrium tax models calibrated to decile level income and consumption distribution data of UK households for the year 1994. We use labour supply elasticities implied by the substitution elasticity in households' utility functions and derive labour demand elasticities from the substitution elasticity in the production function.

Giles, David E. A.

doi: 10.1007/s001810050076pmid: N/A

This paper develops and estimates a structural, latent variable, model for the hidden economy in New Zealand, and a separate currency-demand model. The estimated latent variable model is used to generate an historical time-series index of hidden economic activity, which is calibrated via the information from the currency-demand model. Special attention is paid to data non-stationarity, and to diagnostic testing. Over the period 1968 to 1994, the size of the hidden economy is found to vary between 6.8% and 11.3% of measured GDP. This, in turn, implies that the total tax-gap is of the order of 6.4% to 10.2% of total tax liability in that country. Of course, not all of this foregone revenue would be recoverable, as not all of the activity in the underground economy is responsive to changes in taxation or other policies.

Jha, Raghbendra; Mohanty, M. S.; Chatterjee, Somnath; Chitkara, Puneet

doi: 10.1007/s001810050077pmid: N/A

This paper attempts to measure pure tax efficiency of fifteen major Indian states (Andhra Pradesh, Assam, Bihar, Haryana, Gujarat, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa, Punjab, Rajasthan, Tamilnadu, Uttar Pradesh and West Bengal) for the period 1980–81 to 1992–93 in a manner that allows this efficiency to vary both across time as well as across states. It is discovered that there is a moral hazard problem in the design of central grants in that higher grants by the central government to the state governments reduce efficiency of tax collection by these states. The less poor states are more efficient in tax collection. The rankings of states by tax efficiency for the various years do not converge. An index of aggregate tax efficiency is calculated and it appears that this index has been stagnating. It is argued that the weight placed on tax effort in the formula determining central grants to state governments should be increased to improve tax efficiency of state governments.

Sheffrin, Steven M.

doi: 10.1007/s001810050078pmid: N/A

This paper analyzes alternative approaches to measuring the effects of structural tax changes on government growth. It first reviews traditional time series approaches that attempt to disentangle the causal relationships between taxes and spending. It explains why these methods are incapable of uncovering the true causal links because of problems of observational equivalence and why institutional data can assist in making this determination. It then presents the methods and results from two alternative approaches and studies that analyze the effects of changes in tax structures on government growth. Both methods rely on econometric and institutional analysis.

Doi, Takero

doi: 10.1007/s001810050079pmid: N/A

This paper empirically analyses for the first time the median voter hypothesis in Japan as a means of investigating whether or not Japanese prefectural finance reflects the preference of the median voter. The hypothesis is tested by estimating the demand functions of local public goods in each prefecture. As official data on the income of the median voter is unavailable in Japan, respective prefectural data is constructed using official data on income distribution and taxation. Reasonable intuitive interpretation of results indicates that the median voter hypothesis is supported in prefectural finances, and that voter preference affects the outcome of gubernatorial elections, i.e., a governor's reelection probability, by estimating a probit model. When considering the centralized prefectural government system in Japan, these results indicate that central government management of prefectural expenditures via inter-regional grants ultimately reflects jurisdictional median voter preference.

Nemoto, Jiro; Kamada, Kimiyoshi; Kawamura, Makoto

doi: 10.1007/s001810050080pmid: N/A

The purpose of this paper is to empirically assess the optimality of the level of public capital in Japan. We use a methodological approach based on Burgess's (1988) procedure for calculating the public discount rate. This approach involves estimating a production function, but does not necessarily require utility function estimation. The results indicate that, although the Japanese economy experienced a public capital deficiency over the period 1960–1982, public capital moved toward optimal levels throughout the period.

Batina, Raymond G.

doi: 10.1007/s001810050081pmid: N/A

We undertake a sensitivity analysis of the productivity of public capital under the aggregate production function approach. Several proxies are used for the private inputs and for public capital, several dummy variables are included to adjust for energy price shocks, newly revised data is studied, and Stock and Watson's dynamic OLS estimator is used. Our main results are that the productivity of public capital depends critically on the proxies used, the effects are typically smaller than the early estimates, and omitting the oil price shocks introduces significant upward bias in the measured productivity of public capital.