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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 estimates a structural dynamic business investment equation and an error correction model of fixed assets growth on a sample of predominantly small and mid-size manufacturers in India. The results suggest that excessive labor regulation, power shortages, and problems of access to finance are all significant factors in industrial growth in the country. The estimated effects of labor regulation, power shortages and access to finance on the rate of business investment all vary by states' levels of industrial development and. Perhaps more importantly, they also depend on a fourth institutional factor, namely, corruption. The rate of fixed investment is significantly lower where power shortages are more severe and labor regulation is stronger over the full sample, but each of these impacts is also greater for businesses self-reportedly affected by corruption. Although access to finance does not seem to influence the rate of investment for most firms, there is evidence that investment decisions are constrained by cash flow in enterprises that are unaffected by corruption or power shortages. There are nuances to this story as we take into account regional specificity, but the key result always holds that labor regulation, power shortages and access to finance influence the rate of fixed investment in ways that depend on the incidence of corruption. In interpreting this finding, we would like to think of corruption as a proxy for the quality of property rights institutions in the sense of Acemoglu and Johnson (2005). On the other hand, we regard labor regulation and the financial environment of small businesses in India as instances of what Acemoglu and Johnson (2005) call 'contracting institutions'. The analysis finds that the interaction between corruption and other aspects of the institutional environment of fixed investment decisions could be seen consistent with the Acemoglu-Johnson view that the quality of property rights institutions exerts more abiding influence on economic outcomes than the quality of contracting institutions.

Access to Finance --- Credit rationing --- Debt --- Economic growth --- Economic Theory and Research --- Emerging Markets --- Environment --- Environmental Economics and Policies --- Finance and Financial Sector Development --- Labor markets --- Labor Policies --- Macroeconomics and Economic Growth --- Marginal cost --- Price elasticity of demand --- Private Sector Development --- Productivity growth --- Property rights --- Social Protections and Labor --- Tax rates --- Wage rates

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In a wide variety of settings, spiteful preferences would constitute an obstacle to cooperation, trade, and thus economic development. This paper shows that spiteful preferences - the desire to reduce another's material payoff for the mere purpose of increasing one's relative payoff - are surprisingly widespread in experiments conducted in one of the least developed regions in India (Uttar Pradesh). In a one-shot trust game, the authors find that a large majority of subjects punish cooperative behavior although such punishment clearly increases inequality and decreases the payoffs of both subjects. In experiments to study coordination and to measure social preferences, the findings reveal empirical patterns suggesting that the willingness to reduce another's material payoff - either for the sake of achieving more equality or for the sake of being ahead - is stronger among individuals belonging to high castes than among those belonging to low castes. Because extreme social hierarchies are typically accompanied by a culture that stresses status-seeking, it is plausible that the observed social preference patterns are at least partly shaped by this culture. Thus, an exciting question for future research is the extent to which different institutions and cultures produce preferences that are conducive or detrimental to economic development.

Bankruptcy and Resolution of Financial Distress --- Competitive Advantage --- Corporate Law --- Debt Markets --- Economic Theory and Research --- Equilibrium --- Expected returns --- Expected utility --- Finance and Financial Sector Development --- Free riders --- Future research --- Gender --- Gender and Social Development --- Law and Development --- Macroeconomics --- Macroeconomics and Economic Growth --- Marginal cost --- Public good --- Utility function

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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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The authors review the applications of noncooperative bargaining theory to water related issues-which fall in the category of formal models of negotiation. They aim to identify the conditions under which agreements are likely to emerge and their characteristics, to support policymakers in devising the " rules of the game " that could help obtain a desired result. Despite the fact that allocation of natural resources, especially trans-boundary allocation, has all the characteristics of a negotiation problem, there are not many applications of formal negotiation theory to the issue. Therefore, the authors first discuss the noncooperative bargaining models applied to water allocation problems found in the literature. Key findings include the important role noncooperative negotiations can play in cases where binding agreements cannot be signed; the value added of politically and socially acceptable compromises; and the need for a negotiated model that considers incomplete information over the negotiated resource.

Common Property Resource Development --- Environment --- Environmental --- Environmental Economics --- Environmental Economics and Policies --- Environmental Problems --- Equilibrium --- Equity --- Incentives --- Industry --- Information --- Interest --- Labor --- Law and Development --- Marginal Cost --- Models --- Natural Resources --- Need --- Policies --- Policy Makers --- Rural Development --- Side Payments --- Supply --- Theoretical Models --- Town Water Supply and Sanitation --- Trade --- Water --- Water and Industry --- Water Conservation --- Water Law --- Water Resources --- Water Resources Law --- Water Supply and Sanitation --- Water Supply and Sanitation Governance and Institutions --- Water Supply and Systems