Intergovernmental grant rules, the "golden rule" of public finance and local expenditures

The Stability and Growth Pact and the process of fiscal consolidation in several European countries have enhanced the role of fiscal rules at sub-national level. This paper analyzes the combined effect of a rule to allocate capital and current block grants to local governments and the “golden rule” of public finance (surplus of current balance). We argue that the two fiscal rules introduce significant rigidities and distortions in local governments’ expenditures structure since these mimic the structure of revenues. This effect is particularly relevant in municipalities that are more dependent of intergovernmental grants, mainly rural. On the other hand, urban municipalities with greater tax revenues (current revenues) are constrained in their ability to make capital investments because they receive per capita capital grants below what economies of scale would suggest. An empirical analysis of Portuguese local governments shows that it is no longer the median voter, but fiscal rules, that command the broad pattern of expenditure (current versus capital) at a local level. This paper is a contribution to the literature on the perverse effects of fiscal rules.Intergovernmental block grants; Fiscal Rules; Local Government Expenditure; “Golden Rule”

Citizens’ Freedom to Choose Representatives: Ballot Structure, Proportionality and “Fragmented” Parliaments

The analysis of the political consequences of electoral laws has emphasized how individual characteristics of the electoral system (electoral formulas, district magnitude, ballot structure) affect the degree of parliament “fragmentation” and proportionality. This paper argues that the personal attributes of representatives are also an important consequence of electoral laws, and that they are in part determined by citizens’ freedom to choose representatives. We clarify this concept and develop an index of citizens’ freedom to choose members of parliament as a function of the ballot structure, district size and electoral formulae. Using data from twenty nine countries, we find that neither proportionality nor the effective number of parties is significantly affected by voters’ freedom of choice. This result has important normative implications for electoral reform.Ballot structure; Electoral index; Freedom to choose; Personal vote.

How is new information capitalized in asset values? : The role of kurtosis

Purpose – The purpose of this paper is to further understanding of how new information impacts the market value of financial assets. Design/methodology/approach – The paper uses a Bayesian approach to asset valuation, whereby investors use signals conveyed by new information to update their estimate of a structural valuation parameter. The underlying distributions – i.e. the distribution of the information signal and the prior distribution of the valuation parameter – are allowed to exhibit a degree of kurtosis greater than that of the normal distribution. Findings – The revision in asset value as a function of the realization of the information signal is an S-shaped function (in the local region centred on the zero-surprise level of the signal), if the distribution of the information signal features excess kurtosis; conversely, if the prior of the valuation parameter features excess kurtosis, the revision in asset value is an inverted S-shaped function. Research limitations/implications – The paper generates clear implications with respect to the shape of the function relating the revision in asset value to the realization of the signal only in the local region centred on the zero-surprise level of the signal. Practical implications – The paper helps to shed light on the well-known empirical result that the stock price reaction to earnings’ announcements is an S-shaped function, centred on the zero-surprise level of reported earnings. Originality/value – In the financial accounting literature, the paper helps one to understand the role of the distributional assumptions underlying the stock price reaction to earnings’ announcements, namely, the role of excess kurtosis both in reported earnings and in the prior of means earnings.info:eu-repo/semantics/publishedVersio

Positive and negative reciprocity in the labor market

This paper reports results of an experiment designed to analyze whether reciprocal behavior survives in a more hostile environment than usually considered in the literature. In fact, positive reciprocity survives in a treatment favoring selfish behavior, although there is a decrease in the deviations from the subgame perfect Nash equilibrium. Besides positive reciprocity there is negative reciprocity in this new treatment. Additionally, this paper highlights the influence of the experimental design, namely the importance of wage cut points, on subjects' behavior.info:eu-repo/semantics/publishedVersio

Positive and negative reciprocity in the labor market

Traditional gift-exchange experiments were designed with corner equilibria so that evidence of positive reciprocity could not be disentangled from one-sided errors. Our first treatment replicates the traditional design and finds that effort is an increasing function of wage for mid-range wage offers, but this relationship is not significant for high and low offers. The second treatment has an interior equilibrium, asymmetric marginal costs of reciprocity (positive and negative) and lower efficiency gains. There is evidence of a decrease in the deviations from the subgame perfect Nash equilibrium. However, there is still significant reciprocal behavior (positive and negative).info:eu-repo/semantics/publishedVersio

Intergovernmentalgrantrules, the "golden rule" of public finance and local expenditures

The Stability and Growth Pact and the process of fiscal consolidation in several European countries have enhanced the role of fiscal rules at sub-national level. This paper analyzes the combined effect of a rule to allocate capital and current block grants to local governments and the "golden rule" of public finance (surplus of current balance). We argue that the two fiscal rules introduce significant rigidities and distortions in local governments' expenditures structure since these mimic the structure of revenues. This effect is particularly relevant in municipalities that are more dependent of intergovernmental grants, mainly rural. On the other hand, urban municipalities with greater tax revenues (current revenues) are constrained in their ability to make capital investments because they receive per capita capital grants below what economies of scale would suggest. An empirical analysis of Portuguese local governments shows that it is no longer the median voter, but fiscal rules, that command the broad pattern of expenditure (current versus capital) at a local level. This paper is a contribution to the literature on the perverse effects of fiscal rules

Citizens' Freedom to Choose Representatives: Ballot Structure, Proportionality and "Fragmented" Parliaments

The analysis of the political consequences of electoral laws has emphasized how individual characteristics of the electoral system (electoral formulas, district magnitude, ballot structure) affect the degree of parliament "fragmentation" and proportionality. This paper argues that the personal attributes of representatives are also an important consequence of electoral laws, and that they are in part determined by citizens' freedom to choose representatives. We clarify this concept and develop an index of citizens' freedom to choose members of parliament as a function of the ballot structure, district size and electoral formulae. Using data from twenty nine countries, we find that neither proportionality nor the effective number of parties is significantly affected by voters' freedom of choice. This result has important normative implications for electoral reform

Citizensʼ freedom to choose representatives : ballot structure, proportionality and 'fragmented' parliaments

Analysis of the political consequences of electoral laws has emphasized how individual characteristics of the electoral system (electoral formulas, district magnitude, ballot structure) affect the degree of parliament ‘‘fragmentation’’ and proportionality. This paper argues that the personal attributes of representatives are also an important consequence of electoral laws, and that they are in part determined by citizens’ freedom to choose representatives. We clarify this concept and develop an index of citizens’ freedom to choose members of parliament as a function of the ballot structure, district magnitude and electoral formulas. Using data from 26 countries, we find that neither proportionality nor the effective number of parties is significantly affected by voters’ freedom of choice. This result has important normative implications for electoral reform.info:eu-repo/semantics/publishedVersio

Bonus systems in an open portfolio

In this paper, we study bonus systems in an open portfolio, i.e. we consider that a policyholder can transfer his policy to a different insurance company at any time. We make use of inhomogeneous Markov chains to model the system and show, under reasonable assumptions, that the stationary distribution is independent of the market shares, and is easily calculated.info:eu-repo/semantics/publishedVersio