July (2019) issue of Public Finance Review released

Here is the link to the issue. I found particularly interesting the replication study by Calabrese and Gupta, as well as the fact that almost 60 percent of Germans oppose taxing inherited wealth (Bischoff and Kusa). Titles, authors, and abstracts below:


Should Wealth Transfers Be Taxed? Evidence from a Representative German Survey
Ivo Bischoff and Nataliya Kusa
In a representative survey, German citizens are asked whether inherited wealth beyond a certain amount should be taxed. Almost 60 percent state that it should not be taxed. Building on this survey, we identify factors that predict this opposition to the taxation of inherited wealth. We find monetary self-interest, redistributive preferences, and the adherence to traditional values to matter. Women are more likely to oppose wealth transfer taxes. We account for interdependencies to other intrafamilial transfers. Subjects’ attitude toward wealth transfer taxes does not depend on their personal experience in giving long-term care. Yet subjects who expect the typical German family to reward intrafamilial caregiving through higher wealth transfers are less likely to oppose the taxation of inherited wealth. The opposite holds for subjects who expect these taxes to incentivize earlier inter vivos transfers.


Evading the Catastrophic Costs of Nursing Home Care: A Theoretical Inquiry
Gideon Yaniv
While many countries operate publicly funded programs to help care-needing elderly people finance the catastrophic costs of nursing home care, eligibility to public assistance may be means tested. To qualify for a means-tested program, applicants must first exhaust (spend down) their financial assets on privately paying for nursing home care, thereby wiping out their lifetime savings and children’s inheritance. They may naturally consider the possibility of hiding assets from the health agency, consequently shifting the financial burden to taxpayers. The present article adjusts two classical tax evasion models to capture the decision to evade the costs of nursing home care, focusing on the implications on the evaded costs and the program’s deficit of attempting to cope with the escalating costs of nursing home care by imposing a cost-sharing premium on the applicants’ adult children. Some insights on the socially optimal level of the cost-sharing premium are finally discussed.


Fiscal Decentralization, Budget Discipline, and Local Finance Reform in Russia’s Regions
Michael Alexeev, Nikolay Avxentyev, Arseny Mamedov, and Sergey G. Sinelnikov-Murylev
Using a panel of Russian regions, we estimate the link between intraregional fiscal decentralization and regional budget deficits. Although Russia’s regions are not as autonomous (either politically or fiscally) as regions in some other federal states, we obtain robust and statistically and economically significant results. Specifically, expenditure decentralization has a positive effect on consolidated regional budget balances, while transfer dependence of municipalities is associated with higher deficits. The impact of revenue decentralization depends on whether a regional government can use its tax revenue assignments with the same high degree of discretion that generally characterizes explicit fiscal transfers. We show that a 2009 local finance reform that limited the discretion of regional governments to assign regional tax revenue to municipalities has changed the effect of tax decentralization on budget discipline.


Preferences over Public Good, Political Delegation, and Leadership in Tax Competition
Rupayan Pal and Ajay Sharma
Leadership (sequential choice) and political delegation are two mechanisms suggested to restrict “race-to-the-bottom” in tax competition. In this article, we analyze whether these two mechanisms when combined together would lead to unilaterally higher taxation or not. We show that political delegation with leadership in tax competition not only restricts race-to-the-bottom but also mitigates the possibility of overprovision of public good. In sequential choice game, only the follower region delegates taxation power to the policy maker but not the leader region. This puts a check on intensity of tax competition and restricts the under provision of public good.

Replication Studies

A Replication of “Agency Problems of Excess Endowment Holdings in Not-for-profit Firms” (Journal of Accounting and Economics, 2006)
Thad D. Calabrese and Anubhav Gupta
Core, Guay, and Verdi explore whether excessive levels of cash (“endowments”) are associated with nonprofits’ growth in program spending and fixed assets, agency problems, or donors’ monitoring efforts. We replicate their finding that excess endowments are unrelated to growth in program spending. However, unlike the original article, we find that persistent excess endowments are associated with growth in fixed assets. Further, when we alter the model specification to better align with theory, we find excess endowments increase program expense ratios and lead to higher growth in program service spending as well as capital investment. We are also able to replicate the original article’s finding that excess endowments are related to higher CEO and management compensation. However, when we again alter the model specification, we find excess endowments are associated with compensation declines. Overall, we find weaker evidence of a relationship between excess endowments and agency problems than the original article.


A Replication Study of “Openness, Country Size, and Government Size” (Journal of Public Economics 2009)
Andrew Musau
Ram (Journal of Public Economics, 93, 213-218, 2009) questions the body of influential research suggesting that there is a negative association between country size and government size, and country size and openness, which may account for the positive association between openness and government size. Using data from the Penn World Table (PWT), he shows that while openness is positively related to government size, fixed-effects estimates show little evidence of the aforementioned negative associations. We replicate Ram’s results using his data set and a newer revised version of the same data set and find that the ensuing government size–openness association is dependent on the version of the PWT data and the composition of the sample. In addition, we find some evidence of a negative association between country size and government size in the larger sample, but there remains no clear association between openness and country size.


Reply to “A Replication Study of ‘Openness, Country Size, and Government Size’ (Journal of Public Economics 2009)”
Rati Ram
Andrew Musau is able to replicate almost exactly Ram’s estimates from Penn World Table 6.1. Like Ram, Musau is also unable to show a significant negative association between country size and openness and between country size and government size of the kind postulated by Alesina and Wacziarg. To shed further light on the issue, fixed-effects estimates of the three core regressions are obtained from the widely used World Bank data for 174 countries covering the period 1990–2015. The estimates show a highly significant positive association between openness and government size, further reinforcing Ram’s estimates and those from Musau’s 189-country Penn World Table 7.1 sample. While the new country size estimates in openness and government size regressions are negative, the latter lacks significance at any meaningful level. Therefore, the substantive conclusion remains the same as indicated by Ram; while the predominance of evidence supports Rodrik’s thesis of a positive association between openness and government size, statistically significant evidence is lacking to support the Alesina–Wacziarg proposition that the aforesaid positive association is due to a combination of the negative association between country size and openness and between country size and government size.

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