Lars P. Feld

Economic Growth and Judicial Independence: Cross Country Evidence Using a New Set of Indicators

Rational politicians are interested in judicial independence (JI) in order to make their promises credible. But if politicians’ preferences deviate from the dicta of the judiciary, they also have incentives to renege on judicial independence. These two conflicting aspects are measured by two indicators: (i) de iure JI focusing on its legal foundations and (ii) a de facto JI focusing on countries’ actually experience. Whether JI affects economic growth is tested for a cross section of 57 countries. While de iure JI does not have an impact on real GDP growth per capita growth, de facto JI positively influences it.

Achieving Compliance When Legal Sanctions are Non-Deterrent

Law backed by non-deterrent sanctions (mild law) has been hypothesized to achieve compliance because of norm activation. We experimentally investigate the effects of mild law in the provision of public goods by comparing it to severe law (deterrent sanctions) and no law. The results show that exogenously imposing mild law does not achieve compliance, but compliance is much improved if mild law is endogenously chosen, i.e. self-imposed. We show that voting for mild law induces expectations of cooperation, and that people tend to comply with the law if they expect many others to do so.

Budget Referendums and Government Spending: Evidence from Swiss Cantons

New government spending must be approved by a referendum of citizens in many Swiss cantons. This decisionmaking procedure seems like a simple way to address citizen-legislator agency problems, but little systematic evidence is available concerning its effect on spending outcomes. We estimate spending regressions for Swiss cantons using panel data from 1986 to 1997. After controlling for demographics and other determinants of spending, mandatory referendums on new spending are found to reduce the size of the budget by 17% for the median canton.

Survey on the Shadow Economy and Undeclared Earnings in OECD Countries

In most OECD countries the policy instrument of choice to prevent people from working in the shadows has been deterrence. While deterrence is well founded from a theoretical point of view, the empirical evidence on its success is weak: tax policies and state deregulation appear to work much better. The discussion of the recent literature underlines that in addition to economic opportunities, the overall situation in the labor market and unemployment are crucial for an understanding of the dynamics of the shadow economy. Copyright 2010 The Authors. Journal Compilation Verein fur Socialpolitik and Blackwell Publishing Ltd. 2010.Abstract This paper investigates consumer expenditures of German households pre- and post-retirement. The widely observed distinct drop in spending upon retirement entry poses an empirical puzzle since life cycle theory predicts smoothing of the marginal utility of consumption over time. As one explanation, I explore the role of home production as a substitute for consumer expenses. Taking a combined look at consumer expenditures and time use pre- and post-retirement, I find a significant drop of about 17% of pre-retirement expenses at retirement which coincides with an increase in time spent on home production of an additional 89 minutes per day, accounting for 21% of average home production.

Tax Evasion and Voting: An Experimental Analysis

The puzzle of tax compliance is why people pay taxes instead of evading them: given the low expected fines, rational taxpayers should decide to underreport taxable income. However, most taxpayers truthfully declare their income to the tax authorities, a behaviour that is usually explained by tax morale. In this paper, we study in an experimental setting which factors shape tax morale. The main result is that the higher legitimacy of an endogenous fine as compared to an exogenously determined fine leads to higher tax compliance. This result is robust to competing explanations like commitment, and reciprocity as two motivations accompanying group decision making. Copyright 2002 by WWZ and Helbing & Lichtenhahn Verlag AG

Direct Democracy Matters for Economic Performance: An Empirical Investigation

Since the 1960s, the discussion whether democracy is a precondition for or a result of economic growth has not yet been finished. In this paper, a comparative institutional analysis of the relative performance of direct and representative democratic decision making in the Swiss economy is undertaken using a cross section of the twenty-six Swiss states in 1989 and panel data for the states from 1982 to 1993. The empirical results and robustness tests support the hypothesis that the stronger control of the representatives by the voters due to obligatory and optimal referenda leads to better economic performance. Copyright 1997 by WWZ and Helbing & Lichtenhahn Verlag AG

Direct democracy, political culture, and the outcome of economic policy: a report on the Swiss experience

Political culture in Switzerland is, to a large extent, influenced by its direct democracy. Compared to purely representative systems, direct democracy leads to a different type of communication among citizens and also between citizens and representatives. The opportunity of deciding for themselves on political issues provides citizens with incentives to collect more information. Because citizens are better informed, politicians have less leeway to pursue their personal interests. As a consequence, public expenditure and public debt are lower when citizens enjoy direct democratic rights. Citizens also feel more responsible for their community: tax evasion is lower in direct than in representative democratic systems.

Fiscal Decentralization and Economic Growth in OECD Countries: Is There a Relationship?

We study the effect of fiscal decentralization on economic growth for twenty-three Organisation for Economic Co-operation and Development countries from 1975 to 2008. In order to proxy fiscal decentralization, we use both traditional Government Finance Statistics (GFS)–style measures and new measures that account for the degree of subnational tax autonomy. The regressions with GFS–style measures indicate that fiscal decentralization has a negative but statistically insignificant effect on growth. Regressions with the new measures also result in negative coefficient estimates. However, they are larger in absolute terms and statistically significant. For the empirical literature on fiscal federalism, these results imply that measures of fiscal decentralization that account for subnational tax autonomy should be preferred to traditional GFS-style measures. From a policy perspective, we conclude that policy makers should be aware of the economic trade-offs when pursuing reforms toward more fiscal decentralization.

Income Tax Competition at the State and Local Level in Switzerland

Tax competition is supposed to lead to inefficiencies in the provision of public goods and difficulties for decentralized redistribution. A necessary condition for these effects to occur is that residence and location decisions are determined by fiscal considerations. In this paper, the impact of personal income taxes and transfer payments on residence decisions of taxpayers is analyzed using cross sectional data on the distribution of different groups of taxpayers in different income groups among the 26 Swiss cantons and the 137 largest Swiss cities. We find that tax competition with respect to personal income taxes is relatively strong in Switzerland.

Strategic Tax Collection and Fiscal Decentralization: The Case of Russia

Abstract In a centralized federation, in which tax rates and taxation rules are set by the federal government, manipulating the thoroughness of tax auditing and the effectiveness of tax collection could be attractive for regional authorities. In this article, we test for strategic tax collection empirically using data of the Russian Federation. Russia’s regional authorities in the 1990s have always been suspected of tax auditing manipulations in their favour. However, in the 2000s, increasing bargaining power of the centre seems to induce tax collection bodies in the regions to manipulate tax auditing in favour of the federal centre. Our findings confirm the existence of strategic tax collection for the Yeltsin period; the results for the Putin period are however ambiguous.