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This paper treats local governments as utility maximizing agents when they allocate resources among different service sectors. We present estimates for eight service sectors, based on a modified version of the extended linear expenditure system (ELES) and using observations at the municipal level for Norway. Our econometric model recognizes user fees and budget deficits as endogenous variables. Moreover, the model accounts for heterogeneity in local tastes and production costs. Price information for local public services is not available in the data. However, by allowing for heterogeneity in the marginal budget share parameters, we achieve identification of the complete ELES. The empirical results show that local public services are in general price-inelastic. Welfare services like education, social services and care for the elderly and disabled are income-inelastic, while infrastructure is rather income-elastic. A strong flypaper effect is revealed by the response of user fees to income changes. Finally, results from out-of-sample predictions show that the ELES model is able to simulate local government behavior quite well. Keywords: Local public finance, local government spending, extended linear expenditure system

The success of economic reforms in China is often attributed to favourable starting conditions. Yet structural characteristics and the effects of fiscal decentralisation differ significantly between the prosperous coast and the laggard interior. We argue that the process of income convergence has been uneven both over time and across provinces. Structural legacies and insufficient reform efforts are shown to have worked against enterprise efficiency and economic growth in China's hinterland. We conclude that, particularly, the System of regional transfers needs to be revised, in order to encourage adjustment at the firm level and provide poor provinces with better opportunities for catching up.

The paper analyzes the impact of personal income taxes on strategic business taxation. It sets up a model of tax competition between small jurisdictions whose governments are revenue maximizers and use business taxes on the capital stock and on corporate profits as their policy instruments. Personal income taxes, which are parametrically fixed, discriminate between dividends and interest incomes and determine portfolio choices of households and finance decisions of firms. It turns out that the strategic incentives in business taxation are strongly influenced by personal income tax parameters. In the case of profit taxation this influence is non- monotonic and discontinuous. Generally, Leviathan governments prefer fully equity financed firms. It can be shown that from a government viewpoint profit and capital taxes are perfect substitutes as they create identical strategic incentives.

A new view is emerging in the economic literature on how to analyze and interpret national and subnational revenue systems. Recent work has shown that such systems can be modelled successfully as sets of related policy instruments that are being shaped and used deliberately by vote-maximizing governments. We extend existing empirical work by estimating a two-equation system designed to investigate the use of related tax instruments by U.S. states. The model focuses on two decisions: how much to rely on personal income as a tax base and whether to introduce an income tax credit or rebate for local property taxes. We also raise some general methodological problems that empirical research in the expected vote-maximizing tradition must deal with in the future.

State subsidies to R & D or innovative investments in firms are organized in many different ways. Examples from the plethora of extant subsidy instruments are tax incentives, grants to researchers, project grants, loans, conditional loans, and grants with royalty rights. Very little is currently known about the effectiveness of these subsidy forms. In this paper we compare the effectiveness of eight forms of subsidy for R & D projects. The comparison is based on a survey of Swedish R & D managers, including detailed information about 214 research projects or project proposals. In a first set of results we report managers' general judgments about the effectiveness of different subsidy forms. Second, R & D managers were asked to judge how each subsidy instrument would affect the firm's decision about the size of each project and whether to conduct it. This allows an estimate of how such additional R & D each policy might induce. There are two main conclusions. First, general subsidies do not seem to induce much additional R & D for a given amount of subsidy. Second, among specific subsidies so called 'stock option grants' seem to induce most R & D per subsidy krona. These are grants that give the state a right to recoup some of its funding by exercising a stock option if the firm's value rises rapidly. The main reason that the stock option grant performs well is not that the state can recoup some of its costs but rather that firms do not accept this subsidy for much of the research that they would have conducted even without subsidy.

The public finance system in force in Poland provides for a trade fair fee (Polish - „opłata targowa”) as part of municipalities’ own revenues. The trade fair fee is collected from persons selling at marketplaces located in the municipality. It constitutes own income for the commune’s budget and is an archaic form of public tribute. According to the legal regulations in force in Poland, communes may waive the collection of the exhibition fee, however, there are still many communes collecting it. The assessment of income to the commune budget from the trade fair fee was carried out on the basis of a survey of income to the budget of selected 10 coastal communes in Pomorskie Voivodeship. The selection of coastal municipalities was determined by their specificity in terms of retail trade on markets and squares. This is because the holiday season attracts many tourists and entrepreneurs who sell the goods they offer in the mode of direct retail trade carried out on local markets, streets or squares (often located near the entrance to local beaches). The analysis of income from the fair fee was carried out on the basis of reports on the implementation of the budgets of communes and reports on the income of communes Rb-27s published by commune authorities on the pages of the Public Information Bulletin of a given local government unit. Verification of the revenue of the selected 10 municipalities from the fair fee for 2016-2019 revealed a very low share of the fair fee in the total revenue to the municipalities’ budgets (maximum 1.60% for the Łeba municipality in 2016). Moreover, the communes incur significant costs related to the collection of the trade fair fee, which are connected with the payment of commissions on the collected amounts up to 25% of the total income from the fee. The results of the research indicate that it would be reasonable for the authorities of the analysed communes to consider abolishing the trade fair fee in their area, as the revenue is small compared to the costs incurred. The liquidation of the market fee may attract more traders and improve the image of the commune as a facilitator of business activities involving trade in marketplaces.

This paper addresses the problem of partial tax coordination among regional or national sovereign governments in a repeated game setting. We show that partial tax coordination is more likely to prevail if the number of regions in a coalition subgroup is smaller and the number of existing regions in the entire economy is larger. We also show that under linear utility, partial tax coordination is more likely to prevail if the preference for a local public good is stronger. The main driving force for these results is the response of the intensity of tax competition. The increased (decreased) intensity of tax competition makes partial tax coordination more (less) sustainable.

This study aims to expand the use of tax-benefit microsimulation tools in Indonesia. In particular, it reviews the feasibility of expanding SOUTHMOD, a tax-benefit microsimulation model being applied in developing countries that was developed based on the European Union tax-benefit microsimulation tool (EUROMOD) framework. First, the study reviews the tax and benefits system in Indonesia, followed by an explanation of possible data set and data requirements for simulation. Two potential sources of data are the fifth round of the Indonesia Family Life Survey and the National Socio-Economic Survey. Despite advantages and disadvantages to each, the results of the feasibility study show that both data sets could support the extension of the microsimulation model. This extension should be adjusted to the conditions of the data. For instance, we can focus on simulating indirect taxes, which are more relevant as they represent one of the core revenue sources in developing countries.

The Great Recession had the most severe impact on state tax revenues of any downturn since the Great Depression. We hypothesize that states with more progressive tax structures are more vulnerable to economic downturns, and that progressivity and income volatility may interact to amplify the recession’s fiscal impact. We find that, while potential revenue exposure is greater in more progressive states, the most important source of variation was differences in income concentration and capital gains shares in the top 5 percent of taxpayers. Though the interaction between income volatility and high tax burdens at the top did produce large decreases in tax revenue in a few states, tax progressivity accounted for little of the overall interstate variation in revenue volatility. JEL codes H24; H71