Department: Departament d Economia Pública, Economia Política i Eco. Espanyola

Transcription

1 Fiscal Federalism [562237] Professors: Dra. Núria Bosch Roca / Dr. Jordi Jofre-Monseny Department: Departament d Economia Pública, Economia Política i Eco. Espanyola Course (4 th term) Overview: This post-graduate course covers some of the main topics in Fiscal Federalism, broadly defined as the research area dealing with public economics issues arising in settings where different layers of government coexist (i.e. federal, regional and local governments). The course is organized in five modules. The first module introduces the student to the core normative analysis of fiscal federalism that attempts to allocate government spending and taxing responsibilities efficiently across layers of government assuming that governments are benevolent. There is no market for many of the public goods and services provided by local governments around the world. In the second module, we will study empirical approaches that allow, under some circumstances, to recover demand for local public goods and services. We will also study how differences in income and preferences for local public goods shape the geography of cities. When tax bases such as firms or capital are mobile across jurisdictions, governments can under-provide public goods and services. This will happen if, fearing to loose firms or capital, governments set tax rates that are too low. In the third module, we will study under which circumstances this phenomenon, know as tax competition, occurs. We will also study mechanisms that can mitigate the negative effects of this competition. Grants are a salient feature of inter-governmental relations in all federations and they tend to flow from the federal to regional and local governments. In the fourth module, we will study the potential role of grants in restoring equity and efficiency within federations. In a more positive approach, we will also analyze how federal governments allocate grants based on politics, and how local and regional governments react to grants.

2 In the last module, we will deal with the issue of public sector debt in a decentralized setting. We will see that expectations of being bailed out by the federal government can lead to excessive public spending and debt levels. Course organization: In each module, we will go through the key theoretical models in the topic. We will also review the latest empirical papers on the subject, focusing on those contributions that place more emphasis on modern identification strategies (Differencesin-Differences analyses, Regression Discontinuity Designs, Instrumental Variables approaches ). After each module, students will present papers that constitute relevant contributions to the subject. Grading: A final written examination will be 50% of the final grade. The remaining 50% will be based on paper presentations (between 1 and 2). Prerequisites: This course is an advanced one and requires a previous background in microeconomics, public economics and econometrics. For those that are totally unfamiliar with the economics of subcentral governments, the following reading list is recommended. Introductory reading list: Castells, A. (1988), Hacienda autonómica. Una perspectiva de federalismo fiscal, Ed. Ariel, Barcelona, Chapters I to III. Topham, N. (1983), Local government economics, en R. Milward et al. (eds), Public Sector Economics, Longman, Londres King, D. (1984), Fiscal tiers: The economics of multi-level government, George, Allen & Unwin, London. Oates, W.E. (1972), Fiscal Federalism, Harcourt Brace Jovanovich, New York. Oates, W.E. (1999), An Essay on Fiscal Federalism, Journal of Economic Literature XXXVII, Rosen, H. S. & T. Gayer (2010), Public Finance, McGraw Hill, (Part VI).

3 Module 1 The main pillars of the theory of fiscal federalism 1.1 Approaches to fiscal decentralisation 1.2 Assignment of functions to the different levels of government Decentralisation Theorem. A critical analysis Local public goods 1.3 Revenue assignments to the different levels of government 1.4 From theory to practice Ambrosanio, M. F. & M. Bordignon (2006), Normative versus positive theories of revenue assignments in federations in E. Ahmad & G. Brosio (Eds.) Handbook of fiscal federalism, Edward Elgar, Chentelham, UK, Boadway, R. & A. Shah (2009), Fiscal Federalism. Principles and Practice of Multiorder Governance, Cambridge University Press, (Part one). Dafflon, B. (2006), The assignment of functions to decentralized government: from theory to practice, in E. Ahmad & G. Brosio (Eds.) Handbook of fiscal federalism, Edward Elgar, Chentelham, UK, Lockwood, B. (2006), The political economy of decentralization, in E. Ahmad & G. Brosio (Eds.) Handbook of fiscal federalism, Edward Elgar, Chentelham, UK, Musgrave, R. (1961), Approaches to a fiscal theory of fiscal theory of political federalism, in NBER Public Finance: Needs, Sources and Untilization, Princeton University Press, Princeton, NJ Oates, W.E. (2005), Toward A Second-Generation Theory of Fiscal Federalism, Internacional Tax and Públic Finance, 12 (4), Panizza, U. (1999), On the determinants of fiscal centralization: theory and evidence, Journal of Public Economics, 74, Schakel, A.J. (2010), Explaining Regional and Local Government: An Empirical Test of the Decentralization Theorem, Governance: An International Journal of Policy, Administration, and Institutions, 23 (2), Stegarescu, D. (2005). Costs, Preferences, and Institutions: An Empirical Analysis of the Determinants of Government Decentralization, Discussion Paper No , ZEW, Centre for Europena Economic Research. Tiebout, C. (1956), A Pure Theory of Local Public Expenditures, Journal of Political Economy, 64. Weingast, B.R. (2009), Second Generation Fiscal Federalism: Implications of fiscal incentives, Journal of Urban Economics, 65(3),

4 Module 2 The demand for local public goods and services and residential sorting 2.1 Estimating the demand for local public goods and services The representative resident model The discrete choice approach Hedonic price models 2.2 Schools, peer effects and residential sorting Baum-Snow, N. and Lutz, B.F. (2011), Desegregation, School Choice and Urban Population Decentralization, American Economic Review, 101, Bayer, P., Ferreira, F. and McMillan, R. (2007), A Unified Framework for Measuring Preferences for Schools and Neighborhoods, Journal of Political Economy 115, Black, Sandra E (1999), Do better schools matter? Parental Valuation of Elementary Education, Quarterly Journal of Economics 114(2), Borcherding, T.E. and Deacon, R.T. (1972): The demand for the services of non federal governments, American Economic Review 62, Brueckner, J (2011), Lectures on Urban Economics,Chapter 8 Brueckner, J (1982), A test for allocative efficiency in the local public sector, Journal of Public Economics 19, Platt-Boustan, L. (2012), School Desegregation and Urban Change: Evidence from City Boundaries, American Economic Journal: Applied Economics 4, Tiebout, C. (1956), A Pure Theory of Local Public Expenditures, Journal of Political Economy 64, Wildasin, D. (1986), Urban Public Finance, Chapter 6.

5 Module 3 (Capital) tax competition 3.1 Theories of tax competition Symmetric tax competition Asymmetric tax competition Tax competition with two tax instruments Tax reaction functions 3.2 The empirics of tax competition Taxes and firm location decisions Globalization and changes in corporate taxation Estimating tax reaction functions Brueckner, J. and Saavedra, L.A. (2001): Do local governments engage in strategic property tax competition?, National Tax Journal 54, Bucovetsky, S. (1991), Asymmetric Tax Competition, Journal of Urban Economics 30, DePater, J. and Myers, G. (1994), Strategic capital tax competition: A pecuniary externality and a corrective Device, Journal of Urban Economics 36, Devereux, M., Lockwood, B. y Redoano, M. (2008), Do countries compete over corporate tax rates?, Journal of Public Economics 92, Hines, J (1996), Altered taxes: Taxes and the location of Foreign Direct Investment in America, American Economic Review 86, Wilson, J. (1999), Theories of tax competition, National Tax Journal 52, Zodrow, G. y Mieszkowski, P. (1986), Pigou, Tiebout, property taxation, and the underprovision of local public goods, Journal of Urban Economics 19,

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7 Module 5 Fiscal decentralization and public debt 5.1 Bailout expectations and subcentral public debt 5.2 Empirical predictions The effects of bailout expectations on fiscal discipline Bailout expectations, size and public debt. McGuire, T., Garcia-Milà, T. and Goodspeed, T. (2001), Fiscal decentralization policies and sub-national government debt in evolving federations, UPF Working Paper 549. Pettersson-Lidbom, P. (2010), Dynamic Commitment and the Soft Budget Constraint: An Empirical Test, American Economic Journal: Economic Policy 2, Tyrefors Hinnerich, B (2009), Do merging local governments free ride on their counterparts when facing boundary reform?, Journal of Public Economics 93,