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Public Finance and Public Policy in the New Millennium

A conference on the occasion of Richard Musgrave's 90th and CES's 10th birthdays

12-13 January 2001, CESifo Munich, Germany

Scientific Programme: Hans-Werner Sinn

On the occasion of Richard A. Musgrave's 90th and CES's 10th birthdays, CESifo honoured the life, work, and the person of Richard A. Musgrave by holding a conference that brought together a group of leading economists in the field of public finance. More than 30 economists discussed the latest developments and presented new results in public finance. Invited scholars included Alan Auerbach, Harvey S. Rosen, Agnar Sandmo and Robin Boadway, The topics covered ranged from international taxation to social security and fiscal federalism. Both theoretical and empirical papers were presented on these issues. The conference was followed by a ceremony at which the Munich economics faculty awarded an honorary doctorate to Richard A. Musgrave.

In the first session, Modernising Public Policy, Joel Slemrod (University of Michigan) shed light on the extent to which the notion of trust can explain the time profile of taxation and public spending. He argued that trust among citizens and trust in government plays a crucial role in determining tax compliance, tax evasion and gifts to governments. Assar Lindbeck (Stockholm University) surveyed determinants of the contemporary reforms of the welfare state. He viewed the current welfare state as an inheritance from political responses to socio-economic changes in the past. In particular, changes in the family structure and structural changes in the labour market as well as macroeconomic developments are the driving forces behind welfare state reforms. The issue of reforming budgetary language was taken up by David F. Bradford (Princeton University and NYU School of Law). Current budgetary conventions are often not very informative in terms of the economic implications. Bradford proposed a budgetary language that is closely linked to its effects and independent of the institutional environment.

The second session turned to problems of optimal taxation and experiences of the latest Dutch tax reform. John D. Wilson (Michigan State University) presented a model synthesising the new view and benefit view of property taxation while Alan J. Auerbach (University of California, Berkeley) analysed the nature of optimal taxation in imperfectly competitive markets. Agnar Sandmo (Norwegian School of Economics and Business Administration) addressed the question of how a green tax reform affects the costs of taxation. Intuitively, it could be argued that green taxes reduce distortions and the costs of public funds. However, Sandmo demonstrated that this wide-spread belief should be handled with care. The implication of green taxes for the costs of public funds might be opposite to those suggested by simple intuition. Sijbren Cnossen (Erasmus University Rotterdam) reviewed the latest Dutch tax reform and compared the current Dutch tax policy proposal to alternative systems of capital taxation. Based on equity, efficiency and administrative considerations, he recommended a combination of a capital accretion tax on easy-to-value financial products and a capital gains tax on hard-to-value assets. Given the wave of privatisation in almost all Western European countries, Roger Gordon (University of California at San Diego) asked the challenging question of whether privatisation is always advisable in terms of economic efficiency. Taking corporate tax distortions into account, Gordon argued that a privatised firm may be run less efficiently if the tax rate is sufficiently high to offset managerial inefficiencies in state-owned firms. Thus, privatisation in high tax countries may trigger a drop in welfare.

The third session focused on the welfare state in an integrating world. Peter Birch Sørensen (University of Copenhagen) discussed the welfare effects of a transition to a social insurance system based in individual accounts. He showed that there is scope for welfare improvements for a large segment of the population. Harvey S. Rosen and Craig W. Perry (both Princeton University) asked whether the low health insurance coverage of the self-employed induces low utilisation of health care services. They find the relation between insurance coverage and utilisation rates less strong than assumed in the public policy debate. Hans Werner Sinn (CESifo) took a look at the reform proposal of the German pension system. He recommended complementing the current pay-as-you-go system with a partially-funded system where the compulsory savings rate is adjusted to stabilise the contribution rates. Robin Boadway (Queen's University) analysed the way in which social insurance can be used as a redistributive device if moral hazard behaviour is present.

The last session was dedicated to issues of federalism. Risk-sharing through interregional transfer schemes was the topic of the first paper presented by Kai Konrad (Free University of Berlin). He showed that asymmetries in population size imply unequal contribution rates to the transfer scheme. An equally interesting topic was taken up by Richard M. Bird (University of Toronto), who analysed various rules of tax co-ordination and reviewed the current process of developing a new international tax system. Wolfram Richter (University of Dortmund) in turn discussed the implications of various forms of interregional welfare entitlement systems. In particular, he evaluated the benefits and costs of the system of delayed integration. How can co-operation among members of a federation be achieved? This question was finally addressed by Henry Tulkens (Université Catholique de Louvain), who investigated different forms of federalism and their impact on reaching a co-operative agreement.


  • Click here to see the conference programme.
  • Click here to see the speeches and tributes on the occasion of Richard Musgrave's 90th and CES's 10th birthdays.

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