This paper deals with the fiscal cost of climate induced urban flooding. A hedonic analysis of the sales price of around 900 residential properties, transacted from 2015 to 2019, reveals that flood risk lowers the mean sales price of residential homes by a margin of 12.6% to 15%. An analysis of officially defined zonal Annual Statement Rates (ASR), which is the common revenue base for two important taxes levied by state and local Government, is analysed for around 735 revenue zones of Greater Mumbai for the period 2003 to 2023. It suggests robust and distribution-sensitive effects of flood risk on property values. Findings of the paper underscore the need for land-based revenue options and the formulation of appropriate adaptation strategies.
In recent years the EU has been concerned about third countries reciprocating access, in their own domestic Public Procurement Markets (PPM), to EU firms as much as Europe does to third countries’ companies. Reaching a consensus on how to behave with third countries firms was a difficult and time taking process in EU. This paper aims to contribute to understand the difficulties of reciprocation in opening PPM. Within a stylised game theoretic framework, the main message of the paper suggests that open PPM may be more likely under two main conditions. When in the countries’ negotiations the perspective of contracting authorities prevails or, when the business firms’ perspective prevails, however as long as negotiators can reliably estimate and explicitly take into account the companies’ costs for executing contracts. Because of the model assumptions and limitations, the above findings can only be interpreted as examples rather than general conclusions.
Chief ministers in India play among the most important roles in determining access to a wide range of public services. Do chief ministers use the power of their office to enhance public service delivery broadly across the states in which they govern? Or do they more narrowly direct resources towards the individual constituencies they represent and in which they must seek re-election? Using a geographical proximity design, we examine new data covering 1992 to 2012 to study the impact of chief minister representation on a constituency’s access to electricity and find clear variations in distribution strategies across states. We find that chief ministers target their constituencies with increases in electricity supply. These variations in public service targeting are driven by differences in institutional environment and political security of India’s chief ministers. We also find some evidence of short-term positive spillovers in the local region.
This study examines the impact of lowering the voting age from 18 to 16 in selected Norwegian municipalities in 2011. The quasi-experimental design reveals a reduction in net operating surplus by approximately NOK 600 (€60) per capita in affected local governments. This aligns with micro evidence suggesting that younger individuals have higher discount rates and greater propensity for risk-taking. Heterogeneity analyses suggest that the effect is more pronounced in municipalities with low party fragmentation, a high share of left-leaning representatives, and a high share of young representatives.
Prior research on FEMA has shown that politics plays a role in disaster announcements and that windfalls from FEMA payments lead to increased corruption. While intuitive, these studies cover a short time frame. Here, I extend the time period of study from 1979 to 2023 and include various controls not in the prior FEMA research. Even with decades of more data and running different regressions, the earlier findings are confirmed.
Recent studies have argued that governments should play a more active role in driving innovation by undertaking high-risk, mission-oriented investments. In this framework, governments should shape markets instead of fixing them. The mission-oriented economy highlights state-led technological breakthroughs, yet it overlooks the informational role of market discipline. Insulated from profit-and-loss feedback, government-led missions will supplant entrepreneurial successes with engineering ones. This raises broader concerns about equating risk-taking with entrepreneurship and replacing decentralized discovery with centralized direction. This article examines these tensions and outlines a framework for understanding how markets and states contribute differently to innovation.
To bolster entrepreneurship and innovation in welfare service provision, numerous countries have established quasi-markets. Yet, the actual benefits from these reforms have often been modest. We posit that quasi-markets can realize their potential only within the appropriate institutional framework, which highlights the need for studies in the field of institutional economics that identify how best to regulate quasi-markets so that they deliver in line with these expectations. While competition and the presence of for-profit actors are necessary conditions for quasi-market improvements, they alone are insufficient. We illustrate this point by showing how the three leading entrepreneurship conceptions-Knightian, Kirznerian, and Schumpeterian-risk falling short of their potential in typical quasi-market setups. Most importantly, our analysis identifies the necessity for a set of complementary institutions that are epistemic in nature. Such reforms should help bolster (Knightian, Kirznerian, and Schumpeterian) quasi-market entrepreneurship and help users construct the requisite knowledge to make informed choices.
It is well known that corruption is harmful to the economy. Corruption's effect on the sectoral composition of economic activity, however, is comparatively understudied. We examine the relationship between corruption and the distribution of employment and establishments across sectors in Brazilian municipalities. We test whether the shares of employees and establishments across sectors are influenced by the amount of corruption in the area. We also test whether sectors are more concentrated in general using an employment share weighted HHI measure. We find that there are larger shares of employment and establishments in the relatively non-corrupt agricultural sector in highly corrupt areas and, likewise, lower shares of employment/establishments in relative corruption-prone sectors (e.g., construction). Our strongest evidence of the impact of corruption is shown through market concentration, where concentration is higher in more corrupt municipalities across every sector.
This paper examines political budget cycles in Colombian subnational governments during 1998-2014. Using a balanced panel of 298 municipalities and 31 departments and estimating dynamic panel models through the Generalized Method of Moments (GMM), we find that election years are associated with increases in public expenditure and fiscal deficits, and - for municipalities - with decreases in tax revenues. An expenditure composition analysis shows that local governments reallocate spending toward highly visible investment categories such as roads, infrastructure, and public services during electoral periods, consistent with the signaling mechanism described in the literature. Political alignment with the presidential coalition amplifies fiscal manipulation at the municipal level, while ideology has no significant effect. Interaction models and a placebo test confirm that the electoral cycle operates as a broadly uniform, opportunistic phenomenon across municipalities. These findings suggest that fiscal discipline frameworks should be complemented with stronger transparency and monitoring of investment execution during electoral periods.
The increasing frequency and severity of natural disasters pose mounting challenges to the long-term fiscal sustainability of governments. Yet empirical evidence on the fiscal impacts of natural disasters remains fragmented and inconclusive. This study presents the first comprehensive meta-analysis of the fiscal effects of natural disasters, synthesizing 1,438 effect sizes from 43 empirical studies. We estimate both the overall average effect and disaggregated impacts across key fiscal outcomes. The results show that natural disasters have a statistically significant negative overall effect on public finances, driven primarily by increased government expenditures, alongside an increase in intergovernmental transfers and a decline in debt levels. However, average effects on own-source revenues and budget balances are not statistically significant. The meta-analysis further uncovers substantial heterogeneity in estimated effects depending on the types of fiscal outcomes, disaster measurement approaches, and econometric model specifications. These findings underscore the importance of building disaster-resilient public financial management systems.
Rising public debt and persistent fiscal imbalances have renewed interest in fiscal rules as key instruments of fiscal governance. While existing research largely focuses on their role in promoting fiscal discipline, less attention has been paid to whether fiscal rules are associated with the efficiency of public spending. This study examines the relationship between fiscal rule stringency and public spending efficiency using panel data for 35 OECD countries from 2006 to 2019. Employing fixed effects, dynamic panel estimators, and instrumental variable approaches, the analysis shows that stronger fiscal rules are positively and significantly associated with higher spending efficiency. The relationship is particularly pronounced during periods of fiscal deterioration and is strongest for expenditure-based rules. Overall, the findings indicate that fiscal rules operate not only as constraints on fiscal aggregates but also as institutional mechanisms that promote a more efficient use of public resources.
Do natural disasters change budget allocations in county government? Drawing on punctuated equilibrium theory and Peterson's (1981) typology of government programs, we test whether counties with greater disaster damage increase their developmental spending relative to redistributive and allocational spending. Data from Florida's 67 counties from 2005 to 2022 reveal that governments tend to increase developmental expenditures in the second year post-disaster and reduce allocational and redistributive expenditures. The pattern holds until year four, after which governments return to pre-disaster allocations. The traditional commission form of government attenuates the effect of disaster damage on developmental spending, whereas having a home rule charter has only a modest influence in the immediate aftermath of disasters. The level of federal aid also conditions the effect of disaster experience on local governments' allocation decisions shortly after a disaster, but not in the longer run.
This paper studies the impact of the local property tax on business by exploiting a tax reform approved in Italy in 2015, when heavy equipment is excluded from the business property tax base. The exogenous variation due to the policy change is the key to setting a quasi-natural experiment. Using a Difference-in-Differences approach, I show that firms that previously employed heavy equipment in production increase their capital more than firms that did not. This result demonstrates that the tax acts as a capital tax on the portion of business capital that is less fixed. To the extent that the increase in equipment is randomly determined, I can construct another experimental setting that looks at the years in which the change in equipment occurs due to the policy. Using a fuzzy difference-in-differences, I investigate how increased capital investments affect value added and profits.
In this study, we examine how ordinary taxes and earmarked taxes influence tax pass-through in a market experiment. We hypothesize that tax pass-through is lower for earmarked taxes than for ordinary taxes and that this difference depends on market conditions, specifically the balance between the trade surpluses for sellers and buyers. Our findings confirm that ordinary taxes result in full tax pass-through, whereas earmarked taxes result in less pass-through. Under earmarked taxes, sellers adjust the level of pass-through based on their trade surplus relative to the buyers' trade surplus. These results underscore the need to distinguish between tax types. The results of our study provide novel insights into the resource allocation effects of different tax types, offering significant implications for policymakers seeking to regulate goods with externalities through taxation.
This paper examines tax compliance among small and micro enterprises in Greece. Given the country's high debt and need for tax revenue, compliance is critical for economic stability. The study utilizes an original dataset, which combines reported and actual pre-tax income for 218 Greek firms over the period 2013-2024, and employs a direct, non-imputed Compliance Ratio to ascertain actual tax compliance behavior. The panel-based analysis reveals an average compliance rate of approximately 48%, thus indicating that there is considerable and ongoing non-compliance with tax regulations among small and medium-sized firms. The findings highlight a strong relationship between tax ethics, audits, and compliance. Young entrepreneurs, in particular, demonstrate higher ethical standards, leading to greater compliance. Enhancing audit mechanisms and increasing awareness can serve as effective tools in combating tax evasion. The study underscores the importance of ethical behavior and regulatory enforcement in improving tax compliance. Strengthening these aspects could significantly reduce evasion among small businesses, helping Greece secure much-needed tax revenue and support economic growth.
This study examines the redistributive effects of tax system compositions across 107 countries from 1990 to 2020, using multiple econometric techniques and robustness checks to assess both short- and long-term dynamics. By stratifying countries by income levels and incorporating measures of tax effort, progressivity, and inequality quartiles, the analysis provides a detailed view of fiscal redistribution. Results show strong temporal persistence and relative support for the median voter hypothesis in high- and middle-income economies. Economic growth and informality negatively affect redistribution, while unemployment has income-specific impacts. Tax structure is central: PIT and SSC are most effective in high- and middle-income countries, while CIT and indirect taxes dominate in low-income economies. Structural progressivity enhances redistribution across all groups, and tax effort is particularly impactful in low-income countries. These findings highlight the importance of appropriate tax policy and fiscal capacity in achieving sustained redistribution.
Tax federalism refers to the distribution of tax powers across different government levels and is measured using the tax decentralization and tax autonomy indices. This paper focuses on analyzing the relationship between tax federalism and economic growth. Based on a sample of OECD countries from 2000 to 2022, using standard estimation techniques, it identifies a negative relationship between the tax decentralization indicator and economic growth. However, due to methodological distortions in the quantification of tax decentralization, this relationship does not appear to be reliable. Therefore, it is more appropriate to view tax federalism from the perspective of tax autonomy, which, within the model, demonstrates a positive and statistically significant relationship with economic growth. This suggests that countries aiming to foster economic growth should consider a broader delegation of tax competencies to lower government levels. When considering the economic development standpoint, the tax autonomy indicator loses its significance in less-developed countries.
The economic development of China has typically been characterized by the expansion of local government debt alongside the rising risk of a real estate bubble. However, literature that empirically analyzes the risk transmission path between the two factors is limited. This research analyzes the effect and operation mechanism of real estate bubbles on local government debt through a double fixed-effects model, using macroeconomic data from 278 Chinese cities from 2014 to 2022. The empirical results indicate that real estate bubbles have begun to threaten local government debt. This effect is realised through three main channels: deepening local governments' dependence on land finance, weakening their financial self-sufficiency, and raising local governments' expectations of external assistance. Heterogeneity analysis reveals that such risk shocks are particularly pronounced in regions with less developed economies and rapid population growth.
This paper introduces a novel application of the Updated Okun Method to estimate fiscal multipliers. By leveraging Okun's Law to compute potential output and the output gap, we construct a new measure of the fiscal stance that improves transparency and interpretability. Applying this approach to France and Italy, we find that both economies were operating below full potential for most of the sample period, and that fiscal policy was more contractionary than standard estimates suggest. Our analysis reveals significant differences in fiscal multiplier effects across the two countries, with evidence of state-dependence in France, where fiscal policy is more effective during periods of economic slack, while no such variation is observed for Italy. These findings underscore the importance of aligning fiscal policy with economic conditions, particularly in the context of public debt sustainability debates.
We study the dynamic impact of intergovernmental transfers on local government budgets. Unlike the extensive literature that focuses primarily on developed countries, this paper shifts the focus to the developing world. Using Argentina as an ideal case of a multi-tiered government and employing dynamic analytical methods, we disentangle the nature of local fiscal adjustments following a shock in transfers from the intermediate level of government. In the short run, transfers lead to increases in both spending and own tax revenues. As the growth of spending outpaces that of own tax revenues, a deficit emerges. In the long run, local governments restore fiscal balance by adjusting both spending and taxation to levels consistent with a balanced budget. The steady-state equilibrium involves a higher level of public spending, driven by the endogenous growth of transfers. These findings are robust to a battery of robustness checks. We further extend the analysis by examining: the composition of spending and own tax revenues throughout the fiscal adjustment process; the role of local government size; and the influence of conditionality in certain types of transfers -an aspect often overlooked in the literature, but highly relevant for shaping results. Finally, we offer a comparative discussion that places our findings within the broader literature. Overall, the paper provides valuable insights for the design of local fiscal policy.
