Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
and economic freedom

A report on the IREF Workshop in London (6th June 2016)

On Monday the 6th of June 2016 an IREF workshop in cooperation with St. Mary’s University took place in London. International academic presenters gave talks on their recent research articles, providing stimulating and interesting insights on issues that are at the centre of the IREF proposals. Presentations were also followed by engaging and constructive discussions, often originated from insightful questions and comments from the audience. Here is a brief summary of the talks.

Capture Mechanisms in the Transport Sector

Presenter: Francesco Ramella (Università degli Studi di Torino)

It is often assumed that decision makers behave in a manner consistent with the public interest. Public choice, on the contrary, assumes that people are guided chiefly by their own self interests. The presentation discussed how the "capture" mechanism defined by the public choice theory operates in the transport sector. A definition of the concept of "capture" (prevailing of private/concentrated interests on public/dispersed ones) of public objectives and private interests of politicians, bureaucrats, regulated companies and contractors was proposed. The presenter then discussed capture instruments and the role of "hidden agendas". Some relevant examples in the transport sector were provided for illustration and possible remedies were discussed.

Tax, Regulation and Growth: A Case Study of the UK

Presenter: Lucy Minford (Cardiff Business School)

Endogenous growth theories have proliferated in the last decades. These theories hold that growth is determined through the optimising decisions of rational economic agents; if government policy can affect the decision of the individual, there is scope for it to affect the aggregate growth rate. Finding empirical evidence of the growth effects of government policies is however rather problematic. The presenter discussed a new empirical approach to the problem. Making use of simulated and empirical data, the presentation provided an analysis of the effects of tax and regulatory policies on economic growth in recent UK history highlighting a significant causal effect for tax and regulatory policy on productivity and output between 1970 and 2009.

Welfare Economics for Superhumans. The Legitimacy of Public Choice when Preferences are Incoherent.

Presenter: Sergio Beraldo (University of Napoli ‘Federico II’)

Well-established findings from behavioral research suggest however that individual preferences may be incoherent. An attempt to reconcile behavioural with normative economics is grounded in the idea that reconstructing what the individual would have chosen had he/she been perfectly informed, endowed with absolute self-control and unlimited cognitive abilities is possible.
The presenter, making use of a theoretical framework supported by a variety of useful examples, argued that any attempt to find out individuals’ latent (purified) preferences and to use them as a standard of normative analysis may lead to a superimposition of artificial preferences over actual preferences that would violate individuals’ autonomy and – more importantly - undermine the legitimacy of public choice

Bankruptcy Delay and Firms’ Dynamics

Presenter: Giovanni B. Ramello (Università del Piemonte Orientale)

A number of contributions in the law and economics literature have theorized that bankruptcy regimes favouring the entrepreneur have a positive impact on markets’ dynamics by encouraging firms to take risks and explore new markets. At the same time, by stimulating competition, such regulations help pushing unproductive firms out of the markets more smoothly. The paper focused on Italy and presents empirical evidence to the statements above. The author showed that quicker judicial resolutions and liquidation have an impact on firms’ entry and exit rates in Italy. Speed reduces the indirect costs that a bankrupt firm must undergo and allows more efficient asset allocation.

Income taxation and the timing of marriage

Presenter: Alexander Fink (University of Leipzig)

By modifying the incentive structure, taxes may affect various forms of human behavior. The presenter discussed how the German income tax code influences the timing of civil marriages. The German income tax code contains provisions from which married couples stand to benefit relative to unmarried couples. If their individual incomes differ, legally married couples may benefit from filing their income taxes jointly due to a progressive income tax. The author used data from the German Socio-Economic Panel to test the hypothesis that couples with larger gains from joint taxation are more likely to marry late in the current year instead of early in the subsequent year. The results presented provide strong support for the hypothesis that pecuniary gains from joint taxation incentivize couples to advance their marriages to the current year.

Stress Test Show UK Banks Have Been Subsidized But Remain Unreformed

Presenter: Gordon Kerr (Cobden Partners)

The presenter described Britain’s banking system and showed how a careful look at the date regarding the 7 largest UK banks actually reveals that these banks have similar levels of leverage today as in 2007, shortly before the collapse began with the failure of Northern Rock that September. The Bank of England reached the opposite conclusion from the same source data. Why? The presenter argued that the conclusion that regulators have become conflicted, or “captured” when it comes to systemic solvency cannot be escaped. Finally the presentation provided a set of practical and implementable“Solutions” that would address the problem and help defuse these risks.

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