Incentives to provide local public goods: fiscal federalism, Russian style

Based on a unique data set on Russian city budgets, this paper shows that revenue sharing between regional and local governments provides local governments with no incentive to increase tax base or provide public goods. Any change in local government’s own revenues is almost entirely offset by changes in shared revenues. This leads to governmental over-regulation of private businesses. It is shown that fiscal incentives are a determinant of the formation of private business and the efficiency of public goods provision. The Russian federalism is compared to the Chinese federalism, where fiscal incentives reputedly are stronger in many provinces

A Policy Maker’s Guide to Designing Payments for Ecosystem Services

Over the past five years, there has been increasing interest around the globe in payment schemes for the provision of ecosystem services, such as water purification, carbon sequestration, flood control, etc. Written for an Asian Development Bank project in China, this report provides a user-friendly guide to designing payments for the provision of ecosystem services. Part I explains the different types of ecosystem services, different ways of assessing their value, and why they are traditionally under-protected by law and policy. This is followed by an analysis of when payments for services are a preferable approach to other policy instruments. Part II explains the design issues underlying payments for services. These include identification of the service as well as potential buyers and sellers, the level of service needed, payment timing, payment type, and risk allocation. Part II contains a detailed analysis of the different types of payment mechanisms, ranging from general subsidy and certification to mitigation and offset payments. Part III explores the challenges to designing a payment scheme. These include the ability to monitor service provision, secure property rights, perverse incentives, supporting institutions, and poverty alleviation

Educational System, Altruism and Inequality in the Distribution of Income

This paper studies the impact of public provision of education on the distribution of income in a framework where parents are altruistic toward children. Any child receives two transfers, one as a non-human transfer and the other as a human capital transfer. Under different education regimes, non-human transfers offset the low realization of innate ability, which despite the human capital transfer implies a low level of earnings. Then the questions that will arise are, first, to what extent skill-compensating investments are important as ex-ante income inequality reduction mechanisms in the private provision system, and secondly, how public education can affect this reduction mechanism. I show that tax policy may have unexpected effects on the compensatory effect, that is, on the income gap. The result is that the distribution of income induced by the public provision system is not more equally distributed. Moreover, the fraction of population that does not improve is just at the bottom of the income distribution. I also explore some possibilities to avoid this negative effect and preserve public education as an essential public service.Altruism, human capital and non-human capital transfers, systems of education, inequality

Constrained Communication with Multiple Agents: Anonymity, Equal Treatment, and Public Good Provision

This paper studies information transmission subject to anonymity requirements and communication in public good provision without transfers. The structure of informative equilibria under anonymity or in public good provision can di¤er substantially from that of direct one-to-one communication, and in particular we distinguish i) informational distortion caused by the intrinsic divergence of preferences between the decision maker and each agent; and ii) informational distortion caused by the decision maker's weak response to each agent's message due to the equal treatment of all agents that results from anonymity or the nature of public goods. We examine the interaction between these two types of distortion and demonstrate that they may partly offset one another. Information transmission and welfare can be enhanced by introducing the second type of distortion through anonymity when the first type of distortion is severe. In public good provision where the intrinsic preference divergence between the utilitarian decision maker and each agent is absent, as the number of agents becomes larger the quality of communication diminishes and informative equilibria converge to the one that can be played by letting each agent report a binary message (e.g. "yes" or "no") even if their preferences and the decision are continuous.Cheap Talk, Anonymous Communication, Equal Treatment, Public Good Provision.

Taxation, Inflation, and Monetary Policy

Given that application of the principle with full loss offset to all assets is impracticable, we may wish to consider provision of only a partial inflation-exclusion to assets for which it is feasible. The problem is examined in this paper by means of a simple model of anticipated inflation, in which individuals may invest either in assets for which full or partial inflation-exclusion is provided, or in cash, for which no loss offset is allowed. Among other issues, we shall examine the short and long run effects of taxation and of the provision of an inflation deduction on the rate of inflation and on the level of savings. We do not discuss the long-run optimum tax and deduction rates, because it turns out that for a given tax revenue, these instruments are perfect substitutes, i.e. their relative size does not affect the equilibrium configuration.

Incentives to provide local public goods: fiscal federalism, Russian style

Based on a unique data set on Russian city budgets, this paper shows that revenue sharing between regional and local governments provides local governments with no incentive to increase tax base or provide public goods. Any change in local government’s own revenues is almost entirely offset by changes in shared revenues. This leads to governmental over-regulation of private businesses. It is shown that fiscal incentives are a determinant of the formation of private business and the efficiency of public goods provision. The Russian federalism is compared to the Chinese federalism, where fiscal incentives reputedly are stronger in many provinces.Federalism; Russia; Local government; Transition

Infrastructure bottlenecks, private provision, and industrial productivity : a study of Indonesian and Thai cities

This research project followed an earlier similar project on Nigeria, applying the same methods. A sample of manufacturers was surveyed to document their responses to infrastructure deficiencies in electricity, water, transport, telecommunications, and waste disposal. They found the manufacturers undertook significant expenditures to offset deficiencies in publicly provided infrastructure services, and that changing public policy toward privately supplied infrastructure and changing the pricing of public infrastructure could yield significant savings in social costs. Thailand and Indonesia have made significant strides in following the policies for private sector participation in infrastructure provision. Nigeria, where public infrastructure monopolies still dominate, lags behind, yet stands to benefit most from such policy reform. Government policy toward the industrial organization and pricing of infrastructure sectors can significantly help a developing economy realize the benefits of private sector participation in the provision of infrastructure services.Banks&Banking Reform,Decentralization,Public Sector Economics&Finance,Environmental Economics&Policies,Municipal Financial Management,Banks&Banking Reform,Municipal Financial Management,Urban Services to the Poor,Urban Services to the Poor,Public Sector Economics&Finance

Biodiverse planting for carbon and biodiversity on Indigenous Land

Carbon offset mechanisms have been established to mitigate climate change through changes in land management. Regulatory frameworks enable landowners and managers to generate saleable carbon credits on domestic and international markets. Identifying and managing the associated co-benefits and dis-benefits involved in the adoption of carbon offset projects is important for the projects to contribute to the broader goal of sustainable development and the provision of benefits to the local communities. So far it has been unclear how Indigenous communities can benefit from such initiatives. We provide a spatial analysis of the carbon and biodiversity potential of one offset method, planting biodiverse native vegetation, on Indigenous land across Australia. We discover significant potential for opportunities for Indigenous communities to achieve carbon sequestration and biodiversity goals through biodiverse plantings, largely in southern and eastern Australia, but the economic feasibility of these projects depend on carbon market assumptions. Our national scale cost-effectiveness analysis is critical to enable Indigenous communities to maximise the benefits available to them through participation in carbon offset schemes

Social Security: The Government Pension Offset

CRS ReportCRSGovtPensionOffset.pdf: 383 downloads, before Oct. 1, 2020

Costa Rica During the Global Recession: Fiscal Stimulus with Tight Monetary Policy

This paper shows that, in spite of a reasonably sized fiscal stimulus package, Costa Rica’s economy continues on a downward path, partly because fiscal policy is being offset by a tightening of monetary policy. The paper notes that the International Monetary Fund has insisted that Costa Rica’s monetary policy remain tight due to worries over inflation targets and a perceived risk of a balance of payments crisis. However, the author notes that the IMF could help prevent a balance of payments crisis through the provision of a credit line of foreign currency, as it has done, for example, in Mexico – a vastly larger economy. The paper also examines the government’s macroeconomic policies in recent years, prior to the world recession, to see what alternative policies might have done better.Costa Rica, IMF, stimulus