Jorge Martinez-Vazquez

Georgia State University | GSU · Department of Economics

This policy note offers a review of the side effects that policymakers may expect in designing intergovernmental grants. The policy note is based on a very recent comprehensive survey of the main findings in the existing literature on the effects of intergovernmental grants on tax policy and choices, expenditure decisions, fiscal stability, behavio...

The often-forgotten dimension of public infrastructure finance is the difficulty of maintaining a proper level of infrastructure in good condition. Given that increasing responsibilities for public infrastructure investment have been decentralized worldwide, this study investigates the impact of fiscal and political decentralization on infrastructu...

Economic stability plays a crucial role in any fiscal and political decentralization process. In the face of financial and economic shocks, when revenues and expenditures are reduced, countries may decide to gather resources at the central level creating a re-centralization scenario or may take away devolved powers and centralize political institut...

La eventual desconexión entre las preferencias de los votantes y las políticas concretas es de especial interés en Estados descentralizados, donde cualquier iniciativa política también puede verse como una erosión o un refuerzo del autogobierno. El objetivo de este artículo es aplicar este marco conceptual a la armonización del Impuesto sobre Suces...

This paper offers a comprehensive and updated review of the effects of intergovernmental grants. We focus on the main findings in the existing literature on the effects of intergovernmental grants on tax policy and choices, expenditure decisions, fiscal stability and behavioral choices, and political economy. The intricate nature of the subject, in...

Extreme events, such as economic crises, natural disasters or military conflicts, can affect the balance between centralisation and decentralisation forces across countries and transform, temporarily or more permanently, the design of multilevel governance. Using a panel of 91 developing and developed countries from 1960 to 2018, and another for Or...

This chapter reviews the main features of the Spanish model of fiscal federalism and its evolution over the last four decades. It begins by describing the allocation of expenditure responsibilities among the three levels of government in the country: central, regional and local. The allocation of taxes between levels of government is then presented...

The standard theory of optimal jurisdictional size hinges on the existence of economies of scale in the provision of local public goods and services. However, despite its relevance for forced local amalgamation programs and related policies, the empirical evidence on the existence of such economies of scale remains elusive. The main goal of this pa...

Extreme events, such as economic crises, pandemics, natural disasters, or military conflicts, can affect the balance between centralization and decentralization forces across countries and transform, temporarily or more permanently, the design of multilevel governance. Using a panel for 91 developing and developed countries from 1960 to 2018, and a...

This research examines the causal impact of institutional quality on economic development from a novel perspective. At the country level, we exploit variation in the natural malaria prevalence in 1900, just before vector-control methods were developed, to instrument for institutional quality using a two-stage least squares instrumental variables fr...

Unlike many other countries, the United States does not have a comprehensive federal transfer scheme for explicit fiscal equalization but rather employs an array of categorical and block grants, some of which are formula-based while others are project-driven. However, the allocation of many of these grants has equalization effects resulting in the...

Purpose The purpose of this paper is to quantify to what extent the housing bubble in the early-to-mid 2000s in Spain exacerbated land planning corruption among Spain’s largest municipalities. Design/methodology/approach The authors exploit plausibly exogenous variation in housing prices induced by changes in local mortgage market conditions; name...

Value Added Taxes (VAT) constitute a major share of tax revenues in developing countries in which tax evasion is widespread. The literature on VAT evasion, however, is relatively scant. This paper develops a computable general equilibrium framework for analyzing endogenous VAT tax evasion. The analytical framework entails increasing enforcement thr...

This paper offers a comprehensive and updated review of the effects of intergovernmental grants. We focus on the main findings in the existing literature on the effects of intergovernmental grants on tax policy and choices, expenditure decisions, fiscal stability and behavioral choices, and political economy. The intricate nature of the subject, in...

This study investigates how national levels of corruption are influenced by the interaction of two factors in political decentralization: the presence of local elections and the organizational structure of national parties. Previous studies have focused primarily on the role of fiscal decentralization on corruption and have mostly ignored the insti...

Climate change will pose a major challenge for humanity in future decades. Central to the policy debate are its implications for the public finances and the conduct of fiscal policy more generally. This editorial outlines the budgetary effects, the regulatory and standard-setting challenges, internal governmental organisational changes, and the res...

The passage of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) in 1996 devolved responsibility for the design of welfare programs from the federal to state governments in the U.S. The strategies implemented to achieve some of the main goals of the reform might have had the effects of reducing the protection received by...

The Covid-19 pandemic is one of the most powerful examples of negative exter-nalities in local communities, entire countries and across the globe, calling for the coordination of policies at all levels. We focus on the role played by institutions at the country level in fighting the spread of Covid-19 by making policy coordination more difficult or...

Fiscal decentralization has received a great deal of academic research attention in the past three decades. Much of this work has been directed toward advising countries on how they should structure their intergovernmental fiscal systems to move government decision making closer to local constituencies. Yet even with all this good work, there are m...

Foreign Direct Investment (FDI) is widely considered among the most effective instruments for the promotion of economic development. However, not all FDI leads to inclusive economic growth, lifting the welfare of the poorest groups. This paper examines the conditions under which FDI can effectively lead to inclusive growth. By using a fixed effects...

Misallocation of factors of production has been recently viewed as a promising explanation accounting for the large difference in total factor productivity (TFP) across countries. This article differs from previous studies by concentrating on interregional capital misallocation and by focusing on the role of fiscal decentralization in shaping misal...

This paper examines the impact of credit and debit card usage on VAT compliance using annual national level data for 26 European Union countries from 2000 to 2016. Exploiting spatio temporal variation in plastic money use along with an instrumental variables approach, we find that a 1% increase in card payments reduces VAT gaps 0.51 percentage poin...

Dos son los objetivos principales de este trabajo. En primer lugar, con base en la Teoría del Federalismo Fiscal, se identifica las principales debilidades institucionales en el diseño del Estado autonómico (que irremediable-mente se trasladan al funcionamiento). En un segundo estadio, a partir de las mejores prácticas identificadas por la evidenci...

El creciente proceso de desarrollo urbano asigna cada vez mayor protagonismo económico a las áreas metropolitanas, como concepto que trasciende al de ciudad. Sin embargo, la dinámica realidad económica que conforman las áreas metropolitanas, en ocasiones, entra en conflicto con las delimitaciones jurídico-administrativas existentes (regiones y muni...

El creciente proceso de desarrollo urbano asigna cada vez mayor protagonismo económico a las áreas metropolitanas, como concepto que trasciende al de ciudad. Sin embargo, la dinámica realidad económica que conforman las áreas metropolitanas, en ocasiones, entra en conflicto con las delimitaciones jurídico-administrativas existentes (regiones y muni...

Using data for 75 countries, we examine the effects of economic crisis on fiscal and political decentralization. We find that several types of crises lead to fiscal recentralization; only in the case of domestic borrowing crises is the effect further revenue decentralization, probably reflecting the central government’s willingness to empower subna...

This paper analyzes the determinants of welfare benefit levels within a highly fiscally decentralized context. More specifically, we analyze the role of mimicking as a driver of the institutional design of subnational government policies in the absence of federal co‐ordination and financing. Empirically, we focus on the welfare benefit programs of...

Both excessive and insufficient levels of expenditure decentralization reduce efficiency of government and service provision, thereby exerting an adverse impact on national sustainable development. The main goal of this paper is to explore this proposition theoretically and empirically, seeking to determine the optimal level of expenditure decentra...

What actions do governments around the world take that may affect individuals’ trust in the government that positively influence tax morale (or a positive attitude toward tax compliance)? This paper researches which are the most salient government institutions that breed individual trust and the extent to which this trust ends up increasing citizen...

Based on Chinese city-level panel dataset, this paper examines the effects of vertical fiscal imbalances (VFI) on local fiscal indiscipline in a partial fiscal decentralization setting. We find that higher VFI induces a form of fiscal indiscipline: a reduction of tax collection effort by local governments. In addition, by exploiting the unique Chin...

This paper explores the effects of pre-populated personal income tax returns on taxpayers´ tax morale and tax filing behavior. The special questionnaire on Renta Web included in the 2016 wave of the Spanish Institute for Fiscal Studies Fiscal Barometer surveyed individual perceptions on pre-populating income tax returns. Using probit regression ana...

We explore how party structures can condition the benefits of decentralization in modern democracies. In particular, we study the interaction of two political institutions: democratic (de)centralization (whether a country has fiscally autonomous and elected local governments) and party (non)integration (whether power over local party leaders flows...

This article presents a first analysis of the potential link between the level of fiscal decentralization of a country and its public investment in innovation. We present a theoretical model where a “benevolent government” invests in research and development (R&D) aiming at maximizing net income, and R&D results are subject to interregional knowled...

We explore how party structures can condition the benefits of decentralization in modern democracies. In particular, we study the interaction of two political institutions: democratic (de)centralization (whether a country has fiscally autonomous and elected local governments) and party (non)integration (whether power over local party leaders flows...

La apuesta del Instituto de Estudios Fiscales (IEF) por el análisis y conocimiento de los problemas de nuestro sistema de financiación autonómico, así como por la formulación de propuestas de mejora, es sólida y sostenida en el tiempo. Valga como demostración el hecho de que este es ya el quinto libro sobre la materia que dirigimos para el Institut...

This paper revisits the relationship between fiscal decentralization and economic growth by addressing the endogeneity issue stemming from reverse causality and unobserved factors that has plagued previous extensive literature on this subject. In our approach, we use the Geographic Fragmentation Index (GFI) and country size as instrumental variable...

This paper reviews the main features of the Spanish model of fiscal federalism and its evolution over the last four decades. It begins by describing the allocation of expenditure responsibilities among the three levels of government in the country: central, regional and local. The allocation of taxes between levels of government is then presented a...

The general question addressed in this special issue of Regional Studies is whether the Great Recession of 2008 affected the political consensus about decentralization and the conventional wisdom about its impact on economic, political and social outcomes. The present introduction emphasizes the two main lines of enquiry that cut across all the pap...

El objetivo de este trabajo se orienta a extender el debate sobre las propuestas contenidas en el Informe de la Comisión de Expertos para la revisión del modelo de financiación autonómica en aquellos aspectos relacionados con la eficiencia del sistema, esto es, respecto de los incentivos positivos y negativos que inciden en el comportamiento financ...

This paper provides an empirical analysis aimed at disentangling the roles played by decentralization level and design as well as the extended decentralized framework provided by subnational borrowing rules and fiscal responsibility laws on a country’s fiscal stability. Using Organisation for Economic Co-operation and Development (OECD) countries’...

This paper examines the effect of mass media campaigns on income tax filing in Pakistan. The campaigns were conducted during the run up to the filing deadline of October 31 for the 2013–2014 tax year with survey data collected on tax eligible individuals soon after the filing deadline. We apply an inverse probability-weighted regression adjustment...

We explore whether the expectation of debt forgiveness discourages developing countries from attaining sustainable fiscal independence through improving their tax effort. While the international financial community advises poor countries to improve revenue mobilization, the same international community routinely bails out poor countries that fail t...

el primero de los capítulos del libro tiene como objetivo principal realizar un repaso a la literatura que ha tratado de cuantificar la incidencia en España de la economía sumergida y el fraude fiscal, e identificar sus factores determinantes. Los autores, los investigadores asociados a GEN (Governance and Economics Research Network) Fernández Leic...

The field of public economics has witnessed major developments during the last quarter century. The main drivers of change have been new policy challenges such as increasing income inequality, footloose international capital and globalization, population ageing, global warming, and the response to the Great Recession. The increased focus on empiric...

As more and more of the world’s states devolve power and resources to sub-national governments, decentralization has emerged as one of the most important global trends of the new century. Yet, there is still no consensus as to the benefits of decentralization and how to design institutions that can realize these benefits. We investigate the politic...

El endeudamiento constituye una fuente de financiación para los gobiernos subcentrales, con sólido apoyo teórico, empírico y constitucional. Sin embargo, por motivos macroeconómicos, existe también una necesidad de armonizar esa libertad de endeudamiento con el cumplimiento de unos objetivos agregados de estabilidad presupuestaria y sostenibilidad...

El objetivo de este informe de la Red de Investigadores en Financiación autonómica y Descentralización financiera en España (RIFDE) es analizar los instrumentos de política regional y la localización del stock de capital en infraestructuras en España, un análisis que sirve de motivación y fundamento a un conjunto de propuestas de reforma. Dada la r...

The renter illusion hypothesis argues that renters are more likely to support local public expenditures than homeowners because of a misperception about the actual costs and benefits they face. Numerous empirical studies have produced mixed results which are difficult to interpret because of the lack of micro foundations for the renter illusion hyp...

Pakistan has consistently performed low on taxation, with revenue collection hovering around 10 percent of GDP. Tax reforms have been attempted but without significant gains in revenue collection. Due to the recalcitrance of tax revenues, the tax authority attempted to enlist voluntary compliance, as one of the avenues for its efforts to increase c...

Using a nationwide county-level panel dataset for the years 1995–2009, this paper conducts the first analysis in the literature to examine the impacts of fiscal decentralization and fiscal equalization, both measured at the sub-provincial level, on intra-provincial inequality in China. While fiscal decentralization offers significant advantages reg...

This paper examines the determinants of tax morale in Pakistan, a country that has struggled with low tax effort over the past decade. We exploit novel data for individual taxpayers collected in 2014 by Pakistan’s Federal Board of Revenue to estimate a binary probit regression model. Our results are generally in line with the findings of the modern...

In this paper, we offer a comprehensive and updated review of the impact of fiscal decentralization on the economy, society and politics. Our first target is the examination of two crucial and yet unsolved issues in the empirical literature on decentralization: the proper measurement of decentralization itself and its potential endogeneity in econo...

The literature on decentralization has long asserted that decentralized governance increases public sector allocative efficiency. We offer an indirect test of this hypothesis by examining how decentralized governance affects revealed preferences for public goods. Specifically, we examine the relationship between expenditure decentralization and the...

Pakistan has consistently performed low on taxation, with revenue collection hovering around 10 percent of GDP. Tax reforms have been attempted but without significant gains in revenue collection. Due to the recalcitrance of tax revenues, the tax authority attempted to enlist voluntary compliance as one of the avenues for its efforts to increase co...

This paper reexamines the causal link between institutional quality and economic development using "Malaria Endemicity" as an instrument for institutions. This instrument is superior to the previously used instruments in the literature which suffered from measurement error, including "settler mortality." Because the Malaria Endemicity measure captu...

China has been carrying out significant fiscal reforms on intergovernmental fiscal relations for over three decades. However, these reforms have largely concentrated on the revenue side of the budget, and generally have not been coordinated with an explicit strategy for the reform of functional expenditure assignments. Currently, there is large con...

In this paper we examine the design of transfer systems, focusing on the Provincial Equitable Share (PES) in the Republic of South Africa. Provinces in South Africa have been assigned a wide range of responsibilities. Because provinces are almost completely reliant on transfers from the central government, the design of the PES is of critical impor...

China has been carrying out significant fiscal reforms on intergovernmental fiscal relations for over three decades. However, these reforms have largely concentrated on the revenue side of the budget, and generally have not been coordinated with an explicit strategy for the reform of functional expenditure assignments. Currently, there is large con...

In this paper we find that the institutional set up of proportional representation systems matters for the welfare properties related with the ideal structure of government providing local public goods. In particular, we study the role of party centralization vs party decentralization in the provision of local public goods. In this paper, we that t...

Although corruption and tax evasion are distinct and separate problems, they can easily become intertwined and reinforcing. A society that is more corrupt may enable more tax evasion as corrupt officials seek more income via bribes; conversely, higher levels of tax evasion may drive corruption by offering more opportunities for bribes. While a larg...

Using a structural model and a large panel dataset for 150 developed and developing countries covering the period 1970–2009, the present paper examines the potential tradeoff between economic growth and income inequality in the design of tax structure. We find clear evidence of: (i) a tradeoff between growth and inequality for both direct and indir...