The paper enlightens popular part of the budget policy – deficit finance. In the process of securing economic conditions to surpass the current economic crises, the governments all over the world incline towards debt deficit finance. The intention is to describe the implications such as multiplier effect, crowding out effect, correlation between budget and trade deficit. One of them are positive, they increase the aggregate demand and national income, other negative in term that they crowd out the private sector from the capital market under increased demand for loanable funds. —
Does additional government spending improve the electoral chances of incumbent political parties? This paper provides the first quasi-experimental evidence on this question. Our research design exploits discontinuities in federal funding to local governments in Brazil around several population cutoffs over the period 1982-1985. We find that extra fiscal transfers resulted in a 20% increase in local government spending per capita, and an increase of about 10 percentage points in the re-election probability of local incumbent parties. We also find positive effects of the government spending on education outcomes and earnings, which we interpret as indirect evidence of public service improvements. Together, our results provide evidence that electoral rewards encourage incumbents to spend part of additional revenues on public services valued by voters, a finding in line with agency models of electoral accountability.
Government spending, voting, regression discontinuity.
Financial Transaction Tax: Small is Beautiful
Zsolt Darvas (Bruegel, Hungarian Academy of Sciences, Corvinus University of Budapest)
Jakob von Weizsäcker (Thüringer Wirtschaftsministerium, Bruegel)
The case for taxing financial transactions merely to raise more revenues from the financial sector is not particularly strong. Better alternatives to tax the financial sector are likely to be available. However, a tax on financial transactions could be justified in order to limit socially undesirable transactions when more direct means of doing so are unavailable for political or practical reasons. Some financial transactions are indeed likely to do more harm than good, especially when they contribute to the systemic risk of the financial system. However, such a financial transaction tax should be very small, much smaller than the negative externalities in question, because it is a blunt instrument that also drives out socially useful transactions. There is a case for taxing over-the-counter derivative transactions at a somewhat higher rate than exchange-based derivative transactions. More targeted remedies to drive out s ocially undesirable transactions should be sought in parallel, which would allow, after their implementation, to reduce or even phase out financial transaction taxes.
In a small open country such as Slovenia, drivers can either purchase automotive fuel within the country or abroad. A simple demand model is used to test the proposition that changes in excise tax policy caused the decline of purchases in the country, and to delineate the effects of excise tax policy from the effects of the simultaneously occurring economic crisis. To do that, short- and long-run, and direct- and cross-price elasticities are estimated for the purchase of gasoline and automotive diesel in five regions: Slovenia’s four border regions and the interior. For the estimation of « volume of transportation » elasticity, vehicle crossings through road sites with automatic traffic meters are used. The simulations indicate that more than half of the decline in the purchase of automotive fuels in 2009 can be attributed to excise tax policy and less than half to the economic crisis, and that the increase in tax revenues generated by excise tax policy significantly exceeded the decrease in the sellers’ earnings.