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The recent public economics literature involves an apparent consensus that income effects reduce the costs of raising revenues and hence increase the desirable level of public good provision. Higher taxes can indeed reduce the demand for leisure - and hence increase the supply of taxed labor - through income effects. However, the consensus is wrong because the income effects of taxes must be considered symmetrically with those from provision of public goods. This paper uses a model with multiple public goods and taxes to derive consistent measures of the marginal benefits of publicly-provided goods and their marginal social costs. With this model, the authors show that either compensated approaches excluding these income effects or uncompensated approaches including them may be used. If an uncompensated measure of the marginal cost of funds is used, however, the benefits of providing public goods should be adjusted with a simple, benefit multiplier not previously seen in the literature. Once this is done, the optimal level of public provision is independent of whether compensated or uncompensated approaches are used. Proper accounting for these income effects - or their omission using a compensated approach - appears to substantially raise the hurdle for government provision where there are substantial taxes bearing on labor.

Agriculture --- Budget constraints --- Consumers --- Debt Markets --- Economic performance --- Economic theory --- Economic Theory & Research --- Economics --- Economics literature --- Elasticity --- Emerging Markets --- Finance and Financial Sector Development --- Fiscal policies --- Fiscal policy --- Government expenditures --- Income --- Income effect --- Macroeconomics and Economic Growth --- Marginal benefits --- Marginal cost --- Normal good --- Private Sector Development --- Public good --- Public Sector Development --- Public Sector Economics --- Real income --- Tax revenues --- Taxation --- Taxation & Subsidies

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This paper examines international experience with mobilizing funding for both capital and recurrent costs for municipal infrastructure with a view to identifying areas where India could improve its system of financing infrastructure in cities. Based on international data, the analysis shows that there is indeed a wide range of models for funding municipal infrastructure across a group even as relatively homogeneous as the European Union. Although a number of different models operate in countries with very good services, important features of India's municipal finance system stand out. The spending per capita is exceptionally low, even when compared with local governments with few functions. The real estate sector generates meager tax revenues, but transfers from higher levels of government are also meager. Turning to cost recovery models for services, the paper examines international evidence on cost recovery. In practice, a surprisingly large number of countries, including high-income countries, subsidize basic municipal services, particularly in water supply and sanitation. Analysis shows that these subsidies often have perverse distributional effects. Likewise, pricing schemes designed to skew subsidies to low-income households often have unintended distributional effects. Again, evidence from urban India suggests that cost recovery is exceptionally low, not only in absolute terms but relative to the experience of other low and middle-income countries. The paper concludes with a discussion of some of the measures that should be considered for improving finances in Indian cities, including land monetization and capital grants systems designed specifically for reaching secondary cities and towns.

Banks & Banking Reform --- Finance and Financial Sector Development --- Financial services --- Infrastructure finance --- Local government --- Municipal --- Municipal finance --- Municipal Financial Management --- Municipal infrastructure --- Municipal services --- Public Sector Development --- Public Sector Economics --- Public Sector Management and Reform --- Real Estate Markets --- Tax --- Tax revenues --- Transport --- Transport Economics Policy & Planning --- Urban Development

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This paper examines fiscal outcomes in Eastern and Central European countries before and during the global crisis of 2008-2010. These outcomes are evaluated in the context of overall changes in fiscal institutions and global market conditions. Eastern and Central European countries' situations improved dramatically in the pre-crisis period as tax revenues boomed, and fiscal institutions were reformed. Expenditures increased quite significantly in real terms for some of the countries in the pre-crisis era so that when tax revenues collapsed in the wake of the crisis, the countries were left with large deficits. Institutional reform helped countries manage their fiscal situations better, but the crisis also exposed shortcomings of the status quo. In the post-crisis period, fiscal institutions aimed at promoting fiscal discipline are being strengthened. Governments will also need to take a closer look at the sustainability of current expenditure patterns, particularly the strong emphasis on social expenditures.

Central government --- Debt Markets --- Expenditure --- Finance and Financial Sector Development --- Financial crisis --- Fiscal Adjustment --- Fiscal consequences --- Fiscal deficit --- Fiscal Institutions --- Fiscal system --- Macroeconomics and Economic Growth --- Market economy --- Public Sector Development --- Public Sector Economics --- Public Sector Expenditure Policy --- Social expenditures --- Subnational Economic Development --- Tax revenues

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paper presents estimations of the shadow economies for 162 countries, including developing Eastern European, Central Asian, and high-income countries over the period 1999 to 2006/2007. According to the estimations, the average size of the shadow economy (as a percentage of "official" gross domestic product) in 2006 in 98 developing countries is 38.7 percent; in 21 Eastern European and Central Asian (mostly transition) countries, it is 38.1 percent, and in 25 high-income countries, it is 18.7 percent. The authors find that the driving forces of the shadow economy are an increased burden of taxation (both direct and indirect), combined with labor market regulations and the quality of public goods and services, as well as the state of the "official" economy.

Currencies and Exchange Rates --- Debt Markets --- Deregulation --- Development economics --- Economic Theory & Research --- Emerging Markets --- Finance and Financial Sector Development --- GDP --- GDP per capita --- Government regulation --- Gross domestic product --- Gross national product --- Import quotas --- Income --- Inflation rate --- Labor Markets --- Macroeconomics and Economic Growth --- Price controls --- Private Sector Development --- Purchasing power --- Regulatory framework --- Social Protections and Labor --- Tax revenues --- Taxation --- Trade barriers --- Unemployment --- Unemployment rate --- Value added --- Wages

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This paper proposes that, to increase the efficiency of public spending in oil-rich economies, some or all of the oil revenues be transferred to citizens, and fiscal instruments such as taxation be used to finance public expenditures. The authors develop the case as follows. First, they confirm the well-known result that public-expenditure efficiency is lower in oil-rich countries compared with other developing countries. Second, they show that this efficiency gap is associated with differences in accountability to citizens of government's spending decisions. They find that various measures of accountability are systematically weaker in oil-rich countries. They attribute this difference to the fact that oil revenues typically accrue directly to the government, unlike tax revenues, which pass through the hands of citizens. Third, they show that, controlling for a number of factors, accountability is stronger in countries that rely more on direct taxation to finance public spending. They conclude that accountability, and hence public expenditure efficiency, can be increased by transferring oil revenues to citizens and then taxing them to finance public spending. The paper reviews existing schemes that redistribute oil revenues to the population, such as the Alaska Citizen Fund, to assess the feasibility of a modest proposal in African countries. The authors conclude that, while it may be difficult to implement such a proposal in existing oil producers, there is scope for introducing it in some of Africa's new oil producers.

Central government --- Debt Markets --- Expenditure control systems --- Expenditure Efficiency --- Expenditure per Capita --- Finance and Financial Sector Development --- Governance --- Macroeconomic stability --- Macroeconomics and Economic Growth --- Medium-term expenditure --- National Governance --- Policy recommendations --- Public budgets --- Public Expenditure --- Public expenditures --- Public Sector Development --- Public Sector Economics --- Public Sector Expenditure Policy --- Public spending --- Redistribution --- Revenue collection --- Subnational Economic Development --- Tax --- Tax administration --- Tax administration capacity --- Tax base --- Tax policy --- Tax revenues --- Taxation