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Fiscal decentralization and intergovernmental grants: the European regional policy and Spanish autonomous regions

Most of the Structural Actions are designed as an incentive to increase public investment in less-developed areas. However, we suspect that the efficiency of the policy is related to the level of fiscal autonomy of the subsidized government. In this paper we construct a paned data model in order to estimate the role of fiscal federalism on the effectiveness of the EU Structural Actions in enhancing public investment. We use data from the seventeen Spanish regions for the period 1993-2007. The estimation is run upon three alternative strategies: firstly we break the sample according to the level of fiscal autonomy of the units; secondly, we insert an interaction term capturing the join effect of both variables, fiscal decentralization and EU Structural Actions; finally, we estimate a simultaneous equation model in which public investment and the EU transfers are decided simultaneously. Results unambiguously support the hypothesis that the effectiveness of the Structural Funds decreases with larger decentralization. Our results suggest also that this could be due to the fact that regions find it more difficult to be eligible for additional EUSF as they gain fiscal autonomy. The general conclusions include the recommendation that the future design of the European Cohesion policy should take into account the heterogeneity of Fiscal Federalism across the Member States in order to the get the most out of it.

Determinants of fiscal decentralization: political economy aspects

This paper empirically investigates the underlying causes of expenditure decentralization, based on the predictions of a new political economy model of partial fiscal decentralization. Under shared expenditure responsibility, the degree of decentralization is endogenous and depends on the relative political conditions prevailing at each level of government. Our empirical results from a panel of democracies support the relevance of political factors as determinants of fiscal decentralization. The relationship between central government electoral strength and both expenditure and revenue centralization emerges as nontrivial and non-linear. Political forces at the central government level driving centralization up and down appear to coexist.

Should tax bases overlap in a federation with lobbying?

We examine the tax assignment problem in a federation with two layers of government sharing an elastic tax base, in which Leviathan policy makers levy an excise tax in an imperfectly competitive market and producers lobby for tax rate cuts. If the lobby of producers is very influential on policy makers, we find that taxation by both layers of government might be optimal, provided that the market of the taxed good is highly concentrated; otherwise, it is optimal to assign the power to tax only to one level of government. Taxation by both layers of government is not optimal either when the influence of the lobby is weak, whatever the degree of market power. We also examine a richer set of tax setting outcomes, by considering the possibility that state policy makers have heterogeneous tax policy objectives.

Fiscal equalization and political conflict

In this paper we analyze the political viability of equalization rules in the context of a decentralized country. In concrete terms, we suggest that when equalization devices are perceived as unfair by one or more regions, political conflict may emerge as a result. Political conflict is analysed through a non cooperative game. Regions are formed by identical individuals who, through lobbying, try to impose their regional preferences on the rest of the country, and political conflict is measured as the total contribution to lobbying. We conclude that the onset of conflict depends on the degree of publicness of the regional budget. When regional budgets are used to provide pure public goods, proportional equalization is politically feasible. However, no equalization rule is immune to conflicte when budgets are used to provide private goods or a linear combination of private and public goods.

Exploring educational mobility in Europe

This paper is concerned with the investigation of the intergenerational mobility of education in several European countries and its changes across birth cohorts (1940-1980), using a new mobility index that considers the total degree of mobility as the weighted sum of mobility with respect to both parents. Moreover, this mobility index enables the analysis of the role of family characteristics as mediating factors in the statistical association between individual and parental education. We find that Nordic countries display lower levels of educational persistence but that the degree of mobility increases over time only in those countries with low initial levels. Moreover, the results suggest that the degree of mobility with respect to fathers and mothers converges to the same level and that family characteristics accounts for an important part of the statistical association between parental education and children’s schooling; a particular finding is that the most important elements of family characteristics are the family’s socio-economic status and educational assortative mating of the parents.

Fiscal federalism and electoral accountability

We study the efficient allocation of spending and taxation authority in a federation in which federal politicians are exposed to electoral uncertainty. We show that centralization may, but need not, result in a loss of electoral accountability. We identify an important asymmetry between positive and negative externalities and show that centralization may not be efficient in economies with positive externalities even when regions are identical and centralization does not entail a loss of accountability. We also show that decentralization can only Pareto dominate centralization in economies with negative externalities.

Venture capital and innovation at the firm level

This paper studies the relationship between venture capital (VC) and innovation using a self-collected dataset containing 119 innovative, VC-funded firms and 164,486 controls that operate in Spain. Probit model estimates indicate that firms that have applied for at least one patent are significantly more likely to obtain VC investments. However, when implementing a matching approach to correct for selectivity, no evidence is found of a significant impact of VC on firms’ patenting activity. Rather, evidence is found of a positive effect of VC on the sales growth of funded firms. These results suggest that, rather than having an impact on innovation activities, venture capitalists (VCs) focus on the commercialization of existing products. A finer breakdown by ownership and investment stage also provides evidence that private VCs and early stage investments are notably more effective at stimulating sales than public VCs and late stage investments respectively.

Which firms want PhDs? The effect of the university-industry relationship on the PhD labour market

PhD graduates hold the highest education degree, are trained to conduct research and can be considered a key element in the creation, commercialization and diffusion of innovations. The impact of PhDs on innovation and economic development takes place through several channels such as the accumulation of scientific capital stock, the enhancement of technology transfers and the promotion of cooperation relationships in innovation processes. Although the placement of PhDs in industry provides a very important mechanism for transmitting knowledge from universities to firms, information about the characteristics of the firms that employ PhDs is very scarce. The goal of this paper is to improve understanding of the determinants of the demand for PhDs in the private sector. Three main potential determinants of the demand for PhDs are considered: cooperation between firms and universities, R&D activities of firms and several characteristics of firms, size, sector, productivity and age. The results from the econometric analysis show that cooperation between firms and universities encourages firms to recruit PhDs and point to the existence of accumulative effects in the hiring of PhD graduates.

On the political economy of tax límits

We study the political economy of state limitations on the taxing powers of local governments, investigating the effects of such restriction on housing markets, community composition, and types of taxes and expenditures undertaken by local governments. We characterize equilibrium when voters choose values of multiple policy (tax and expenditure) instruments, finding that tax limitations have very substantial effects on housing prices and the composition of communities. Political support for tax limits comes from suburban voters and from a subset of central-city voters. Support for tax limits come even from residents of communities that are not constrained by the limits.

Is agglomeration taxable?

Several theoretical papers that examine tax competition with agglomeration effects have stressed the possibility that the governments of jurisdictions in which economic activity is concentrated may tax firms more heavily (taxable agglomeration rents). In this paper, we examine the tax rate setting decisions taken with regard to the Spanish municipal business tax (Impuesto sobre Actividades Económicas). The analysis, carried out with a sample of 2,772 municipalities, focuses on the effect that urbanization economies, localization economies and the market potential of municipalities have on their business tax rates. High urbanization economies and high localization economies are found to increase the business tax rate. Although the evidence is weaker, the results also indicate that municipalities with better access to demand (of consumers) set higher tax rates.

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