Social and Behavioral Sciences Commons^™

How Should Environmental Policy Respond To Business Cycles? Optimal Policy Under Persistent Productivity Shocks, Garth Heutel

ECON Publications

How should environmental policy respond to economic fluctuations caused by persistent productivity shocks? This paper answers that question using a dynamic stochastic general equilibrium real business cycle model that includes a pollution externality. I first estimate the relationship between the cyclical components of carbon dioxide emissions and US GDP and find it to be inelastic. Using this result to calibrate the model, I find that optimal policy allows carbon emissions to be procyclical: increasing during expansions and decreasing during recessions. However, optimal policy dampens the procyclicality of emissions compared to the unregulated case. A price effect from costlier abatement during …

Optimal Policy Instruments For Externality-Producing Durable Goods Under Time Inconsistency, Garth Heutel

ECON Publications

When consumers exhibit present bias and are time-inconsistent, the standard solution to market failures caused by externalities—Pigouvian pricing—is suboptimal. I investigate policies aimed at externalities for time-inconsistent consumers. Welfare-maximizing policy in this case includes an instrument to correct the externality and an instrument to correct the present bias. Either instrument can be an incentive-based policy or a command-and-control policy. Calibrated to the US automobile market, simulation results from a model with time-inconsistent consumers suggest that the second-best gasoline tax is 18%–30% higher than marginal external damages. These simulations also suggest that social welfare is maximized with a gasoline tax set …

Budget Making And Intergovernmental Fiscal Relations In Pakistan, Roy W. Bahl, Musharraf Cyan, Sally Wallace

ECON Publications

Learning Objectives:

• Understand the institutional makeup of budget-making in Pakistan.
• Understand how institutions and policy often together define budget-making practices.
• Know and understand subnational governments and their roles in central government expenditure allocation and fulfilling national priorities.
• Know and understand provincial governments and capital budgeting.
• Know and understand transparency and intergovernmental transfers.

Philippines: Designing A Local Government Enhancement Fund, Jorge Martinez-Vazquez

ECON Publications

The main transfer instrument from the central government to local government units (LGUs) in the Philippines, the internal revenue allotment, has been criticized for: its inability to equalize sufficiently, especially regarding the poorer municipalities and provinces, and its funds not having been spent efficiently. For some time, LGUs have petitioned the Government of the Philippines to expand the funding of the IRA. However, there appears to be ample consensus that any additional funding needs to be distributed in a manner that addresses the design flaws of the IRA. In this paper, options for the design of a possible new transfer, …

Intergovernmental Fiscal Relations And Local Public Finance: What Is Next On The Reform Agenda?, Roy W. Bahl

ECON Publications

Is China one of the world’s most decentralized countries, or one of the most centralized? In fact, it is both. On one hand, 70 percent of all government expenditures pass through the subnational government budgets. On the other hand, subnational governments have no in dependent (formal) taxing powers. The question that might be raised is whether the longer-term intention is to develop a system of local public finance that would give subprovincial governments more fiscal discretion, or whether some other structure is envisaged. Either way, the issue to consider is what specific reform packages would move China toward its goal.

Financing Metropolitan Areas, Roy W. Bahl

ECON Publications

No abstract provided.

Financing Subnational Governments With Decentralized Taxes, Roy W. Bahl

ECON Publications

This chapter is about the case for assigning taxing powers to subnational governments, and about the structure of this revenue assignment. As Musgrave (1983) put it in perhaps the seminal paper on this subject, ‘Who Should Tax, Where and What’? This review reconsiders the Musgrave questions after 25 years, asks whether the international trend in tax assignment is in step with what economists have prescribed, and concludes with some thoughts about the most likely future for the decentralization of tax systems. We begin with a discussion of the concept of revenue assignment, and with the theoretical justifications and a priori …

Regulatory Impact Analyses Of Environmental Justice Effects, Spencer Banzhaf

ECON Publications

Recently, the US EPA has pledged to incorporate environmental justice considerations "into the fabric" of its rulemaking procedures. But finding an appropriate way to incorporate environmental justice considerations into policy-making has been a procedural challenge since President Clinton issued Executive Order 12898 over 15 years ago. In particular, environmental justice concerns tend to be overshadowed by efficiency considerations as embodied in benefit-cost analysis. Yet at the same time, both Presidents Obama and Clinton have issued orders to incorporate distributional and equity considerations into benefit-cost analysis, as well as the standard efficiency considerations.

This article argues that the environmental justice and …

Challenges To Intergovernmental Fiscal Relations In Pakistan: The Revenue Assignment Dimension, Roy W. Bahl, Musharraf Cyan, Sally Wallace

ECON Publications

Fiscal decentralization may be a popular political rhetoric, but it is not any easy policy sell. The share of total public expenditures made by subnational governments in developing countries has barely increased over the past three decades (Bahl and Wallace, 2005). Even in countries where expenditure decentralization had taken place (e.g. Indonesia), there has been far less movement toward revenue assignment to subnational governments.

This chapter is focused on the obstacles to success with this dimension of fiscal decentralization. We use the case of Pakistan where 35 percent of government expenditures are made by provincial and local governments but only …

Taxation In Asia, Jorge Martinez-Vazquez

ECON Publications

This publication presents an overview of tax policy and tax administration issues—how countries in Asia and the Pacific compare with the rest of the world in main taxes, revenue collections, tax morale, and others. The implications of reducing reliance on customs tariff revenues and of using the value-added tax on a broader basis, especially in the services sector, have been analyzed. This note suggests an agenda for reform by discussing whether there is space to increase national revenue collections, how to improve tax administration and enforcement, and how these reforms interact with the decentralization paradigm. The individual country performances, the …

Fiscal Decentralization In Asia: Challenges And Opportunities, Jorge Martinez-Vazquez

ECON Publications

This publication discusses the decentralization issues faced by countries of Asia and the Pacific. It includes practical suggestions on how to proceed in this area to achieve economic growth, macroeconomic stability, poverty and income distribution, services delivery improvements, and political accountability. This note elaborates on adequacy of local revenues and autonomy, expenditure management and clear service delivery mandates, horizontal imbalances and limited use of incentives in intergovernmental transfers, financing needs and local government borrowing, and local management capacities as the major challenges in a decentralized fiscal architecture. The recommendations to address the above challenges also note the long- term nature …

The Impact Of Fiscal Decentralization: Issues In Theory And Challenges In Practice, Jorge Martinez-Vazquez

ECON Publications

This publication analyzes the impact of fiscal decentralization and the resultant issues and challenges that countries face in practice. It traces the evolution of fiscal decentralization as a significant and consequential global reform that has made subnational governments' key public sector actors in a majority of countries. This note touches upon its various aspects: incidence and presence in the world; foundation in economics; impact of a list of outcomes, including economic growth, macroeconomic stability, poverty and income distribution, and service delivery and political accountability. It confirms the positive overall impact of decentralized systems, especially when they are well designed and …

Direct Versus Indirect Taxation: Trends, Theory, And Economic Significance, Jorge Martinez-Vazquez, Violeta Vulovic, Yongzheng Liu

ECON Publications

No abstract provided.

Decentralizing Egypt: Not Just Another Economic Reform, Jorge Martinez-Vazquez, Andrey Timofeev

ECON Publications

No abstract provided.

Reining In Provincial Fiscal ‘Owners’: Decentralization In Lao Pdr, Juan Luiz Gomez-Reino, Jorge Martinez-Vazquez, Cristian Sepulveda

ECON Publications

No abstract provided.

Introduction. Local Government Finance: The Challenges Of The 21st Century., Jorge Martinez-Vazquez, Paul Smoke

ECON Publications

No abstract provided.

Local Finance In Latin America, Jorge Martinez-Vazquez

ECON Publications

No abstract provided.

Conclusion. Local Government Finance: The Challenges Of The 21st Century, Jorge Martinez-Vazquez, Paul Smoke

ECON Publications

No abstract provided.

Tax Assignment: Does The Practice Match The Theory?, Roy W. Bahl, Musharraf Cyan

ECON Publications

This paper builds on the existing literature to better explain the tax assignment choices made by countries in different economic circumstances. In particular, we explain why the degree of tax autonomy given to subnational governments is significantly greater in industrial than in developing countries, even when adjustment is made for differences in income level. We consider several arguments for this disparity. First, electoral regimes are not in place for the accountability gains to be fully captured. Second, tax decentralization may result in unacceptable fiscal disparities, and, third, tax administration costs are higher for subnational governments and there is not enough …