Advanced Public Sector Economics I

Transcription

1 Advanced Public Sector Economics I Prof. Dr. Silke Übelmesser FSU Jena Winter 2012/13

2 Organisation Lecture Mo, , SR 120 (Carl-Zeiÿ-Str. 3) We, , SR 232 (Carl-Zeiÿ-Str. 3) (Every second week) Contact Prof. Dr. Silke Übelmesser Chair for Economics / Public Finance (Carl-Zeiÿ-Str. 3 / 5.11) silke.uebelmesser@uni-jena.de Oce Hour: (by appointment) 2 / 24

3 Tutorial We, , SR 232 (Carl-Zeiÿ-Str. 3) (Every second week) Add. Small Group Meeting (as announced) Contact Severin Weingarten Chair for Economics / Public Finance (Carl-Zeiÿ-Str. 3 / 5.13) severin.weingarten@uni-jena.de Oce Hour: (by appointment) 3 / 24

4 Schedule Date Type Date Type Mo 15 Oct 2012 Lecture Mo 7 Jan 2013 Lecture We 17 Oct 2012 Lecture We 9 Jan 2013 Lecture Mo 22 Oct 2012 Lecture Mo 14 Jan 2013 Lecture We 24 Oct 2012 Tutorial We 16 Jan 2013 Tutorial Mo 29 Oct 012 Lecture Mo 21 Jan 2013 Lecture We 31 Oct 2012 Holiday We 23 Jan 2013 Lecture Mo 5 Nov 2012 Lecture Mo 28 Jan 2013 Lecture We 7 Nov 2012 Tutorial We 30 Jan 2013 Tutorial Mo 12 Nov 2012 Lecture Mo 4 Feb 2013 Lect./Tutor. We 14 Nov 2012 Lecture We 6 Feb 2013 Lect./Tutor. Mo 19 Nov 2012 Lecture We 21 Nov 2012 Tutorial Mo 26 Nov 2012 Lecture We 28 Nov 2012 Lecture Mo 3 Dec 2012 Lecture We 5 Dec 2012 Tutorial Mo 10 Dec 2012 Lecture We 12 Dec 2012 Lecture Mo 17 Dec 2012 Lecture We 19 Dec 2012 Tutorial Christmas Break 4 / 24

5 Master Programme of this Chair Basic Modul: Adv. Public Finance (elective course) Every summer term Specialization Area Public Sector Economics Adv. PSE I: Systems Competition (compulsory) Every winter term Adv. PSE II: Education Economics Next summer term Adv. PSE III: Social Security and Fiscal Stability Adv. PSE IV: Health Economics Plus Seminar Public Finance 5 / 24

6 Plan for this chapter Outline 1.1 Course Outline 1.2 Introduction to the Topic and Overview 6 / 24

7 1.1 Course Outline General Course Description Level Master: Compulsory within the study programmes of Economics (M.Sc., M.Ec.) in the subject majors Public Sector Economics and World Economy; Elective within the study programmes of Business Administration (M.Sc.), Business and Economic Education (M.Sc.) Diploma: Exam-relevant course (see separate information) 7 / 24

8 Language Credits Exam This course is held in English. Four hours per week: three hours of lectures and a one-hour tutorial (6 ECTS) Type: 60-minute written exam: 100% Date: Monday, 25 February 2013, , HS / 24

9 Literature / Material Main reference: Sinn, Hans-Werner (2003): The New Systems Competition, Yrjö Jahnsson Lectures, Basil Blackwell, Oxford. Further references as announced in class. Slides (available on the chair's homepage ( - password in class) 9 / 24

10 Content While the old systems competition took place with closed borders, globalization has brought about a new type of systems competition that is driven by the mobility of factors of production. The course examines how this New Systems Competition could lead to the erosion of the European welfare state, induce a race to the bottom in the sense that capital will not even pay for the infrastructure it uses and erode national regulatory systems, among other topics. In general, the new system competition will suer from the same type of market failure which induced the respective government activity in the rst place. 10 / 24

11 Outline 1. Introduction: Competition among States 2. Taxes and Public Infrastructure Goods 3. The Erosion of the Welfare State 4. Social Dumping 5. Ecological Competition 6. The Competition of Product Standards 7. Limited Liability, Risk Taking and the Competition of Bank Regulators 8. The Competition of Competition Rules (Numbering of chapters according to book chapters) 11 / 24

12 1.2 Introduction to the Topic and Overview The New Systems Competition and the Selection Principle It is often argued: systems competition is comparable to competition in private markets. Following Tibout's (1961) Voting with feet: Governments are seen as rms which compete with one another by oering attractive packages of services and (tax) prices. Competition makes them behave in a way compatible with an international welfare optimum. No central government would then be needed and harmonization of scal and regulatory systems would neither be necessary nor desirable. The result would be a benecial new order from the anarchy of uncoordinated national actions. Optimistic view! 12 / 24

13 The view taken here is dierent: Competition among governments, i.e. the New Systems Competition does not resemble competition among private rms because governments undertake a variety of economic activities which cannot be handled satisfactorily by private markets. The so called Selection Principle states that governments should step in where markets fail. It then follows Reintroduction of the market through the backdoor of systems competition will not work. Market failures which induced government to step in in the rst place are likely to appear again at the inter-state level. It is rather likely to bring about the same kind of market failure that justied government intervention in the rst place. Pessimistic (realistic?) view! 13 / 24

14 It then follows: Harmonization or centralized actions on a supra-national level are often necessary when there is Systems Competition. International ineciencies might, however, be reduced since mobile factors of production prefer the more ecient states. Only if no market failure prevails will decentralized actions lead to a Pareto-ecient outcome. Note that the normative argument is not based on the notion of distributional justice (depending on a specic welfare function), but on eciency arguments! So, the New Systems Competition refers to the competition between economic systems for internationally mobile production factors. The Old Systems Competition was between communism and capitalism for economic, cultural and military dominance. 14 / 24

15 Side-Remark Note that not every form of competition is related to the Selection Principle: Tax competition per se does not involve the Selection Principle working via the revenue side. Systems competition, which possibly leads to a violation of the Selection Principle, works via the expenditure side (see Chap. 2-3), regulations (see Chap. 4-8). Of course, both types of competition are often related. Think about public interventions due to market failures which involve expenditures and thus require revenues. Discuss! 15 / 24

16 Overview over this Course Chap. 2: Tax and Infrastructure Competition Do countries compete in tax rates to attract mobile tax bases? Is the level of infrastructure ecient? Chap. 3: Welfare Competition Do countries oer low welfare benets in order to distract potential welfare recipients from moving to the jurisdiction? Chap. 4: Social Dumping Do countries oer low social standards? Chap. 5-8: Regulatory Competition Do countries lower e.g. product, environmental, banking or competitive standards in order to attract rms? 16 / 24

17 Some Illustrations Has capital mobility increased? Exchange rate volatility of EMU members has been reduced to zero. What about interest convergence in EMU countries? What about convergence of corporate tax rates? 17 / 24

18 Is there convergence in interest rates? 1 Figure 1: Interest Rates for 10-Year Gov. Bonds Yes, convergence until the nancial crisis in No, after the nancial crisis in So, interest convergence seems to be repealed. 1 Source: Sinn, H.-W. and T. Wollmershäuser (2011), Target-Kredite, Leistungsbilanzsalden und Kapitalverkehr: Der Rettungsschirm der EZB, ifo Schnelldienst (24. Juni 2011). 18 / 24

19 Is the increased capital mobility accompanied by a Race to the Bottom in corporate tax rates? 458 MICHAEL DEVEREUX, RACHEL GRIFFITH AND ALEXANDER KLEMM Figure 2. Average statutory corporate income tax rate Notes: Statutory tax rate defined as in Figure 1. Average weighted by GDP in US$. be set at 20% of the initial cost per year for each of the 5 years. The rate allowed typically depends on the type of asset, and varies considerably both across countries and over time. A natural measure of the value of such allowances is their present 2 discounted value (PDV). In Figures 3 and 4 we present estimates of the PDV of Devereux, M.P., allowances R. Grith, for investment and A. in Klemm, plant and 2002: machinery, "Corporate expressed as Income a percentage Tax of Reforms the and International Tax Competition." initial cost of the Economic asset. The PDV Policy, would October, zero if there were no (Also allowances the source at all of all following graphs.) and it would be 100% with a cash-flow tax that permitted the cost to be deducted immediately. Figure 2: Corporate Taxes in the EU and G7 Countries 2 19 / 24

20 Figure 3: Corporate Income Tax (CIT) Rates and Eective Average Tax (EAT) Rates in EU-27 Countries 20 / 24

21 It can be observed that statutory corporate income tax rates fell over the 1980s, 1990s as well as the last decade. - The average statutory corporate income tax rate amounted to 48% in the early 1980s but to only 35% by the end of the 1990s. - At the beginning of the new millennium it was slightly above 30%, while the average of the statutory corporate income tax rate in the EU-27 is now blow 24%. - At the same time, the dispersion of rates fell substantially. The Ruding Committee appointed by the EU in 1992 proposed a minimum corporate tax of 30%. - Then, only Ireland had a lower rate. - Less than 10 years later, 1/3 of EU member states had rates at or below this level. 21 / 24

22 What has happened with tax revenue from corporate income as a CORPORATE INCOME TAX 471 proportion of GDP (since 1965)? Figure 12. Corporate income tax revenue (% of GDP) Notes: Average of the countries shown in Figure 13 weighted by GDP in US$. All taxes levied on profits and capital gains of corporations are included. Source: OECD. Figure 4: Corporate Tax Revenue as % of GDP 22 / 24

23 And what has happened with tax revenue from corporate income as 472 MICHAEL DEVEREUX, RACHEL GRIFFITH AND ALEXANDER KLEMM a proportion of total tax revenue (since 1965)? Figure 14. Corporate income tax revenue (% of total tax revenue) Notes: Average of the countries shown in Figure 13 weighted by GDP in US$. All taxes levied on profits and capital gains of corporations are included. Source: OECD. experienced a drop in excess of one percentage point. Between 1982 and 1999 this ratio decreased in only two of the eighteen countries, and only one of them, Japan, experienced a large reduction of nearly two percentage points of GDP. Figure 5: Corporate Tax Revenue as % of Total Tax Revenue 23 / 24

24 In the next chapter, we will have a look at the revenue side of the public budget, i.e. at the evolution of tax rates in the presence of tax competition. In particular, we will see whether tax rates on capital are levied such that the revenue generated suces for an ecient provision of infrastructure or whether Systems Competition leads to a violation of the Selection Principle. 24 / 24