Robert Schwager

A Simulation Method to Measure the Tax Burden on Highly Skilled Manpower

A model is presented for simulating the tax burden on highly skilled manpower. The effective average tax rate, defined as the relative wedge between total remuneration and disposable income, is computed. Income and payroll taxes and social security contributions not yielding an equivalent benefit are taken into account. The compensation package consists of cash payments and old-age provision. To integrate retirement benefits and their tax treatment, an inter-temporal approach is used. The results indicate that Germany and France have higher tax burdens than the UK and the USA, that Germany grants the strongest tax relief for families, and that occupational pension plans are favourable in all countries.

Efficient Revenue Sharing and Upper-Level Governments: Theory and Application to Germany

Recent literature has emphasized that redistributive grant systems may tend to internalize fiscal externalities arising from tax competition. This paper further explores the conditions under which local grant systems enforced by the state government will enhance efficiency. A system of redistributive grants among governments is introduced into a standard model of tax competition. This basic model is then extended in order to allow for variations in the government objectives at the state level. A subsequent empirical analysis of local tax policy exploits the experience with local fiscal revenue sharing in Germany. The results suggest that attempts of state level governments to extract fiscal resources from the local revenue sharing system exert an upward pressure on tax rates.

Agglomeration, Population Size, and the Cost of Providing Public Services: An Empirical Analysis for German States

This paper is concerned with the question as to what extent population size and density affect the cost of providing public services at the subnational level. Empirical estimates of cost functions are obtained from an analysis of the expenditures of German states disaggregated into about 40 functions of government. The empirical results indicate that generally there is no significant relationship between population density and the cost of public goods. At the same time, cost are almost proportionately related to population size indicating that goods and services provided by the German states display only a limited degree of publicness.

Administrative Federalism and a Central Government with Regionally Based Preferences

Administrative federalism is defined as a constitution where the central state sets quality standards for public projects, and the local jurisdictions decide which projects are to be carried out. Decentralized decisions are inefficient because of an interjurisdictional spillover. A centralized decision is inefficient because the center favors one region and is restricted to distortionary instruments when redistributing between regions. For intermediate values of the spillover, it is shown that administrative federalism leads to a higher welfare than both centralization and decentralization. Moreover, because jurisdictions fear to be exploited, they only join a federation whose constitution is administrative federalism but not one with a fully centralized constitution.

Double Standards in Educational Standards - Are Disadvantaged Students Being Graded More Leniently?

A simple model of decentralised graduation standards is presented. It is shown that a school whose students are disadvantaged on the labour market applies less demanding standards because such students have less incentives to graduate. The models predictions are tested using Dutch school-level data. Since students in the Netherlands have to participate both in a central and in a school specific examination, we can identify the grading policy of individual schools. We find that schools which harbour greater shares of disadvantaged students tend to set lower standards. This effect is largest in the branch of secondary schooling preparing for university.

The Effective Tax Burden of Companies and on Highly Skilled Manpower: Tax Policy Strategies in a Globalized Economy

Company taxes and taxes on highly skilled labour both influence the attractiveness of a particular region as a location for investment. We measure the effective tax burden on capital investment and on highly qualified labour in 33 locations across Europe and the United States. We then correlate both types of tax burden in order to study the different tax policy strategies applied in different countries. We identify three causes for different strategies: political institutions, preferences for redistribution and equality, and the position in globalisation and growth. Small countries, high growth rates, and federal structure with high tax autonomy stand for countries with lower tax burdens, especially on companies. Large countries, representative democracies with coalitions, and a high preference for redistribution are likely to induce higher tax burdens.

Grade inflation, social background, and labour market matching

A model is presented where workers of differing abilities and from different social backgrounds are assigned to jobs based on grades received at school. It is examined how this matching is affected if good grades are granted to some low ability students. Such grade inflation is shown to reduce the aggregate wage of the lower class workers because employers use social origin as a signal for productivity if grades are less than fully informative. Moreover, the high-ability students from the higher class may benefit from grade inflation since this shields them from the competition on the part of able students from the lower classes.

Redistribution and Administrative Federalism

In this paper, redistribution is studied in the presence of migration externalities. Administrative federalism is defined as a constitution where statutory tax and transfer levels are set nationally, while local administrations may refuse to pay the transfer or rebate the tax in single cases, thereby introducing horizontal inequity. With risk aversion, this is less attractive than reducing the level of redistribution in a horizontally equal way. It is shown that administrative federalism leads to higher transfers and higher utilitarian welfare than decentralized decisions, that it may implement the first-best solution, and that horizontal inequality never occurs in equilibrium.

Double Standards in Educational Standards – Do Schools with a Disadvantaged Student Body Grade More Leniently?

Abstract A simple model of decentralized graduation standards is presented. It is shown that a school whose students are disadvantaged on the labor market applies less demanding standards because such students have lower ability or less incentives to graduate. The model’s predictions are tested using Dutch school-level data. Since students in the Netherlands have to participate in both a central and a school specific examination, we can identify the grading policy of individual schools. We find that schools which harbor greater shares of disadvantaged students tend to set lower standards. This association is most pronounced in the track of secondary schooling that prepares for university.

Public Universities, Tuition and Competition - A Tiebout Model

A simple Tiebout model is presented where states provide university education to both immobile and mobile students. State governments choose the quality of public universities by trading off the value of education for the local immobile student population and the costs, net of tuition revenues, of running the university. The quality of education and the assignment of students to universities in an efficient allocation are characterised. It is shown that decentralised decisions result in efficient choices if states are allowed to choose tuition levels freely. If tuition is capped, ine?ciently low qualities are likely to arise.