Testing Behavioral Public Economics Theories in the Laboratory

"Behavioral economics", or the application of methods and evidence from other social sciences to economics, has increased greatly in significance in the last two decades. An important method by which many of its predictions have been tested has been via laboratory experiments. In this paper I survey and assess experimental tests of various applications of behavioral economics to the specific area of public economics, or "behavioral public economics". I discuss the basic elements of behavioral economics, the methodology of experimental economics, applications of experimental methods to behavioral public economics, and topics in which future applications should prove useful.experimental methods, behavioral economics

Decentralization and Local Government Borrowing in Indonesia

In this paper, we examine the decentralization reforms now underway in Indonesia, focusing on their effects on local government borrowing. Our general conclusion is that the laws and their implementing regulations seem designed mainly to deal with macroeconomic considerations of the central government, and not to create a system to allow local governments to gain access to credit markets. Indeed, this seems likely to be a reasonable immediate goal, given that the pre-conditions for successful local government borrowing are not currently present in Indonesia. However, the long run goal must remain the creation of a viable framework in which local governments face hard budget constraints but are still able to have access to capital markets. It is here where the current framework in Indonesia is inadequate. To this end, we suggest a number of policies that will help in a transition period from the current reliance on direct administrative control of local borrowing to a greater reliance on market discipline policy. In the next section, we briefly discuss the current macroeconomic conditions of Indonesia, and outline the major features of Laws No. 22/1999 and 25/1999, including their provisions that deal with local government borrowing. In section III, we present a general "framework" that establishes some conditions under which different approaches to local government borrowing can be successful, and we apply this framework to local governments in Indonesia in the section IV. We conclude in section V

Culture Differences and Tax Morale in the United States and Europe

In recent years much research has investigated whether values, social norms, and attitudes differ across countries and whether these differences have measurable effects on economic behavior. One area in which such studies are particularly relevant is tax compliance, given both the noted differences across countries in their levels of tax compliance and the marked inability of standard economic models of taxpayer compliance to explain these differences. In the face of these difficulties, many researchers have suggested that the intrinsic motivation for individuals to pay taxes - what is sometimes termed their "tax morale" - differs across countries. However, isolating the reasons for these differences in tax morale is notoriously difficult. In a common approach, studies sometimes referred to as "cultural studies" have often relied upon controlled laboratory experiments conducted in different countries because such experiments can be set up with identical experimental protocols to allow cultural effects to be isolated. In this paper we first analyze a cross-section of individuals in Spain and the United States using the World Values Survey (WVS). In line with previous experiments, our findings indicate a significantly higher tax morale in the United States than in Spain, controlling in a multivariate analysis for additional variables. We then extend our multivariate analysis to include 14 European countries in the estimations. Our results again indicate that the United States has the highest tax morale across all countries, followed by Austria and Switzerland. We also find a strong negative correlation between the size of shadow economy and the degree of tax morale in those countries

Audit Certainty, Audit Productivity, and Taxpayer Compliance

Strategies for dealing with evasion include such standard policies as stricter enforcement (e.g., increased audit rates, more extensive audits, larger penalties). However, the exact responses of taxpayers to these enforcement measures are quite difficult to measure with existing field data, and so are not known precisely. In this paper we use experimental methods to examine how individuals respond in their compliance decisions to a "certain" probability of audit and to information concerning the "productivity" of an audit. Our design informs some individuals that their return will be audited with certainty prior to making their compliance decision, while other individuals receive information that they will not be audited; we also inform individuals of the productivity of the audit by stating how much unreported income will be discovered via the audit. We find that the announcement of audits increases the compliance rate of those who are told that they will be audited. However, the compliance rate of those who know that they will not be audited falls, and the net effect is that overall compliance falls. Working Paper 06-4

Can Developing Countries Impose an Individual Income Tax?

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Do State Fiscal Policies Affect State Economic Growth?

What factors influence state economic growth? This paper uses annual state (and local) data for the years 1947 to 1997 for the 48 contiguous states to estimate the effects of a large number of factors, including taxation and expenditure policies, on state economic growth. A special feature of the empirical work is the use of orthogonal distance regression (ODR) to deal with the likely presence of measurement error in many of the variables. The results indicate that the correlation between state (and state and local) taxation policies is often statistically significant but also quite sensitive to the specific regressor set and time period; in contrast, the effects of expenditure policies are much more consistent. Of some interest, there is moderately strong evidence that a state's political orientation has consistent and measurable effects on economic growth; perhaps surprisingly, a more "conservative" political orientation is associated with lower rates of economic growth. Finally, correction for measurement error is essential in estimating the growth impacts of policies. Indeed, when measurement error is considered via ODR estimation, the estimation results do not support conditional convergence in state per capita income.fiscal policies, regional economic growth, orthogonal distance regression

Taxpayer Reporting Responses and the Tax Reform Act of 1986

This paper examines the effects of the Tax Reform Act of 1986 on the reporting decisions of taxpayers, using microlevel information from the 1984 and 1989 Statistics of Income. We find that tax reform clearly mattered in the reporting decisions of individuals, with reporting elasticities that cluster between 0.3 and 0.7. However, our results also indicate that individuals' estimated responses vary in different ways for individuals with different income levels, in ways that differ by the types of incomes received by taxpayers, in ways that are sensitive to the estimation approach, and in ways that depend upon data adjustment methods.Tax Reform Act of 1986, income reporting, taxable income elasticity, quantile regression

The Price Effect of Georgia's Temporary Suspension of State Fuel Taxes

This report explores the effect of the fuel tax suspension on the price of gasoline in Georgia. FRC Report 14

Recent Changes in State and Local Funding for Education in Georgia

This report examines how the 2001 recession affected K-12 education spending in Georgia school systems. FRC Report 20