Jørn Rattsø

Different macroclosures of the original Johansen model and their impact on policy evaluation

Abstract It seems necessary to get a better understanding of the economics involved in the rather large and complicated computable general equilibrium models now being implemented in several countries. This paper contributes to the discussion on how the results from such models depend on the choice of closure rule. Within a very general setup, the original Johansen model, the different behaviors of the model are discussed under different closure rules, and the effects of fiscal policy under the alternative closures are quantified by numerical experiments.

Demographic shift, relative costs and the allocation of local public consumption in Norway

Local government responses to shifting demand and supply conditions are investigated. The desired allocation of local public consumption is determined in a voter group decision model where different age groups compete for services within an exogenous budget constraint. The model is implemented in an AIDS demand system built into a partial adjustment framework. The estimates indicate that the dramatic shift in the age composition of the population from the young to the elderly during the period studied has led to higher educational spending per pupil and less health care services per elderly. Age groups in decline are able to resist reallocations and gain in terms of spending per head.

POLITICAL CONTROL OF ADMINISTRATIVE SPENDING: THE CASE OF LOCAL GOVERNMENTS IN NORWAY*

Excessive administrative spending in local governments has been a concern in the public debate in Norway. Administration takes resources away from welfare services such as primary education and care for the elderly. Since administrative spending varies considerably between local governments, a study of the political and economic factors involved is warranted. The central hypothesis is that the administrators will have more power relative to the politicians when political control is divided between parties. Estimation of a demand model of administration added political structure shows strong empirical correlations between types of coalition governments and socialist controlled governments and the level of administrative spending. Divided political control strengthens the hands of the agenda setting bureaucrats. Copyright Blackwell Publishers Ltd 1998.

The Relationships Between Costs and User Charges: The Case of a Norwegian Utility Service

The paper investigates the relationships between costs and user charges in the sewage industry in Norwegian local governments. The purpose of the analysis is to answer the following questions: (i) To what extent is a higher unit cost passed on to consumers in terms of a higher user charge? (ii) Does user charge financing lead to higher or lower unit cost? The econometric analysis indicates that around 40 per cent of a cost increase is passed on to consumers in terms of higher user charge. Moreover, user charge financing has a significant negative effect on the unit cost. An increase in the degree of user charge financing by 10 per cent-points is predicted to reduce the unit cost by 5-8 per cent.

Efficiency Variation Among the Norwegian High Schools: Consequences of Equalization Policy

Abstract The performance of the regulated school system in Norway is investigated by analyzing the relationship between resource use and student achievement in 34 Norwegian high schools. The marginal school effect on student achievement is estimated, and the output of the schools is described by the number of graduates and the school effect. Using this separation between quantity and quality, a reference frontier representing best practice among the schools is established by Data Envelopment Analysis, and the technical efficiencies are measured. The schools have very different student achievements, but the variation is not related to differences in resource use. The school system is oriented towards the equalization of student results, but the schools show systematic differences in the handling of high and low achievers.

Political economic determinants of school spending in federal states: Theory and time-series evidence

Abstract To develop the understanding of public sector growth, this paper addresses the determinants of one important component of public spending, public education. Disaggregation of school expenditure allows for an analysis of how different decisions at the national and the local government level contribute to increased spending. A bargaining model between the central government and a teacher union is combined with a demand model of educational services at the local government level. Political characteristics are assumed to influence the central government bargaining strength over teacher wages and working hours. The model is implemented using a database for economic, political and school factors in Norway during 1880–1990. Political strength, measured as stable government and low party fragmentation of parliament, is shown to be important to hold down teacher employment. Socialist orientation of the government tends to drive up both teacher wages and employment. The inelastic response of local governments to centrally determined cost factors imply that they are not able to hold back spending growth following higher costs.

Fiscal Discipline and Asymmetric Adjustment of Revenues and Expenditures: Local Government Responses to Shocks in Denmark:

Fiscal discipline is a concern because of possible spending and deficit bias in fiscal and political institutions. This study investigates adjustments under fiscal federalism, concentrating on decentralized government in Denmark and allowing for a comparison with neighbors Norway and Sweden and with similar analyses of U.S. states. Fiscal adjustments are investigated as responses to shocks measured as deviations from budgeted current surplus. The econometric results show that local governments respond by compensating adjustment of tax rates and expenditures. The shock responses tend to be asymmetric. Positive shocks hardly affect the income tax rate, whereas negative shocks induce higher tax rates. The authors interpret the asymmetry as the result of spending pressure due to redistributive politics and show that political characteristics are important for tax determination. They conclude that the Danish design of controlling the local public sector avoids fiscal imbalances but allows a bias toward expansion.

Local public choice of school spending: disaggregating the demand function for educational services

Abstract The determinants of school spending are investigated using a disaggregated demand model augmented to include political factors. High school spending by county governments is disaggregated to identify the sources of variation in teacher–student ratio, non-wage spending per student, and student enrollment. The disaggregation throws new light on the role of cost factors in explaining the expansion of educational services. High school spending is shown to be highly inelastic to county revenue and major cost factors. The spending decision is analyzed as an example of the common pool problem in distributive politics. Schools offer benefits to each municipality, and municipalities fight for new schools since the costs are shared. The political decision implies a balancing between this spending pressure and the coordinated interests of the county. Political strength, measured by the party fragmentation of the council, is shown to hold down costs and allow for more student enrollment. On the other hand, the spending pressure measured by the average size of the municipalities in the county, influences all three spending components, and the effects depend on the political strength.

Local government service production: The politics of allocative sluggishness*

A partial adjustment model with endogenous speed of adjustment is developed to analyze how pressure from interest groups and mass media influence the adjustment process of local governments. A survey questionnaire to the local politicians is used to measure the pressure indicators. Based on a combined cross-section and time-series data base for Norwegian local governments, the sluggishness of the adjustment process is estimated. The dynamics of the adjustment process is shown to reflect the activity of interest groups and media pressure. Pressure groups related to primary education explain an important part of the sluggishness observed. Pressure groups promoting kindergartens and health care/care for the elderly stimulate reallocations.

Spending Growth with Vertical Fiscal Imbalance: Decentralized Government Spending in Norway, 1880-1990

Vertical fiscal imbalance, decentralized responsibility of spending with centralized financing, creates a common pool problem with spending pressure towards central funds. A model of decentralized government spending under vertical fiscal imbalance is developed, and the importance of national political characteristics for internalization of costs and spending level is investigated in an econometric analysis of Norway during 1880-1990. We argue that in a parliamentary democracy, the internalization of costs is influenced by the party fragmentation of parliament. This is confirmed by the econometric analysis using a Herfindahl index as a measure of fragmentation and political strength.