nep-pbe New Economics Papers
on Public Economics
Issue of 2010‒03‒06
fourteen papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Should tax bases overlap in a federation with lobbying? By Alejandro Esteller-Moré; Umberto Galmarini; Leonzio Rizzo
  2. Politics or mobility? Evidence from us excise taxation By Alejandro Esteller-Moré; Leonzio Rizzo
  3. Unwilling or Unable to Cheat? Evidence from a Randomized Tax Audit Experiment in Denmark By Henrik J. Kleven; Martin B. Knudsen; Claus T. Kreiner; Søren Pedersen; Emmanuel Saez
  4. Capitalization of Fiscal Variables and Land Scarcity By David Stadelmann; Steve Billon
  5. Political Fragmentation and Government Spending: Bringing Ideological Polarization into the Picture By Marcela Eslava; Oskar Nupia
  6. Fiscal Policy Reforms and Dynamic Laffer Effects By Oudheusden, P. van
  7. Fiscal Regime Shifts in Portugal By António Afonso,; Peter Claeys; Ricardo M. Sousa
  8. Do Competition and Ownership Matter? Evidence from Local Public Transport in Europe By Marcella Nicolini; Andrea Boitani; Carlo Scarpa
  9. The Tax Exclusion for Employer-Sponsored Health Insurance By Jonathan Gruber
  10. An enabling mechanism for the creation, adjustment, and dissolution of states and governmental units By Hausken, Kjell; Knutsen, John F.
  11. Earnings Determination and Taxes: Evidence from a Cohort Based Payroll Tax Reform in Greece By Emmanuel Saez; Manos Matsaganis; Panos Tsakloglou
  12. Managerial Talent, Motivation, and Self-Selection into Public Management By Delfgaauw, Josse; Dur, Robert
  13. Fiscal Policy and its role in ensuring economic stability By Popa, Ionela; Codreanu, Diana
  14. Taxation and Market Power By Konrad, K.A.; Morath, F.; Müller, W.

  1. By: Alejandro Esteller-Moré (Universitat de Barcelona & IEB); Umberto Galmarini (Università dell'Insubria); Leonzio Rizzo (Università di Ferrara & IEB)
    Abstract: We examine the tax assignment problem in a federation with two layers of government sharing an elastic tax base, in which Leviathan policy makers levy an excise tax in an imperfectly competitive market and producers lobby for tax rate cuts. If the lobby of producers is very influential on policy makers, we find that taxation by both layers of government might be optimal, provided that the market of the taxed good is highly concentrated; otherwise, it is optimal to assign the power to tax only to one level of government. Taxation by both layers of government is not optimal either when the influence of the lobby is weak, whatever the degree of market power. We also examine a richer set of tax setting outcomes, by considering the possibility that state policy makers have heterogeneous tax policy objectives.
    Keywords: vertical tax externalities, tax assignment, lobbying, specific taxation
    JEL: H71 H77 D70
    Date: 2010
  2. By: Alejandro Esteller-Moré (Universitat de Barcelona & IEB); Leonzio Rizzo (Università di Ferrara & IEB)
    Abstract: We test for the state interdependence of gasoline and cigarette taxation in the US (1975-2006). We estimate a tax reaction function, and find that state interdependence is due solely to yardstick competition, since any interaction disappears completely in the case of states with lame duck governors. This result holds for both taxes: the short-run reaction of those states whose governor is eligible to stand for reelection is 0.13 and 0.21 for gasoline and cigarette taxation, respectively. In the long run, the cigarette tax rates levied in a jurisdiction match those of its neighbors perfectly, while the long-run reaction in the case of gasoline is much lower at 0.72.
    Keywords: Tax competition, political accountability, excise taxes
    JEL: H71 H77
    Date: 2010
  3. By: Henrik J. Kleven; Martin B. Knudsen; Claus T. Kreiner; Søren Pedersen; Emmanuel Saez
    Abstract: This paper analyzes a randomized tax enforcement experiment in Denmark. In the base year, a stratified and representative sample of over 40,000 individual income tax filers was selected for the experiment. Half of the tax filers were randomly selected to be thoroughly audited, while the rest were deliberately not audited. The following year, "threat-of-audit" letters were randomly assigned and sent to tax filers in both groups. Using comprehensive administrative tax data, we present four main findings. First, we find that the tax evasion rate is very small (0.3%) for income subject to third-party reporting, but substantial (37%) for self-reported income. Since 95% of all income is third-party reported, the overall evasion rate is very modest. Second, using bunching evidence around large and salient kink points of the nonlinear income tax schedule, we find that marginal tax rates have a positive impact on tax evasion, but that this effect is small in comparison to avoidance responses. Third, we find that prior audits substantially increase self-reported income, implying that individuals update their beliefs about detection probability based on experiencing an audit. Fourth, threat-of-audit letters also have a significant effect on self-reported income, and the size of this effect depends positively on the audit probability expressed in the letter. All these empirical results can be explained by extending the standard model of (rational) tax evasion to allow for the key distinction between self-reported and third-party reported incomes.
    JEL: H3
    Date: 2010–02
  4. By: David Stadelmann; Steve Billon
    Abstract: Fiscal packages usually capitalize into house prices. But if enough land for construction is available, housing developers can supply new houses and capitalization may disappear. We provide a theoretical model in which income taxes and public services capitalize at lower rates when housing supply elasticity increases. Using an empirical linear interaction model, we estimate the impact of available land for construction on capitalization rates with a panel of Swiss communities. Results indicate that fiscal variables do not capitalize differently in communities where housing supply is constrained by land availability. Thus, land availability is not sufficient for capitalization to disappear.
    Keywords: Capitalization; Land Scarcity; Taxes; Local public goods
    JEL: R21 R31 H40
    Date: 2010–01
  5. By: Marcela Eslava; Oskar Nupia
    Abstract: The literature has come to no agreement about the empirical validity of the so-called weak government hypothesis. According to this hypothesis, political fragmentation should lead to higher government expenditure. With the aim of reconciling the empirical evidence with theory, in this paper we discuss and test a new hypothesis about this relationship: that fragmentation should matter for public spending only to the extent that the degree of polarization is high enough. Our results for a sample of presidential democracies show that a marginal change in the level of fragmentation in the governing coalition affects positively the size of the budget, but only if there is some degree of polarization. We also find that what matters for fiscal policy in presidential democracies is the degree of fragmentation and polarization within the governing coalition, rather than in the legislature at large. For parliamentary democracies we find erratic patterns for the relationship between fragmentation and public spending. Our results suggest interesting differences between presidential and parliamentary systems.
    Date: 2010–01–07
  6. By: Oudheusden, P. van (Tilburg University, Center for Economic Research)
    Abstract: We examine the impact of fiscal policy reforms on the long-run government budget balance in a one-sector model of endogenous growth with factor income taxes, a tax on consumption, non-productive public goods expenditures, and a labour-leisure trade-off. In addition, we allow for different structures of government expenditures and public debt. We analytically show that, when performing a dynamic Laffer effect analysis, there exists a set of conditions that hold for a number of endogenous growth models. We find that for the euro area an improvement in the long-run government budget balance is always obtained for a lower tax rate on capital income but is only obtained for a substantial lower tax rate on labour income. Moreover, we show that when lower taxes on factor income are financed by higher taxes on consumption, there exists a wide array of combinations for which there is an improvement in both the long-run government budget balance and lifetime welfare. These combinations, however, differ in their implications for labour supply and immediate welfare effects.
    Keywords: Dynamic Scoring;Laffer Effect;Factor Income Taxation;Endogenous Growth
    JEL: E62 H30 J22 O41
    Date: 2010
  7. By: António Afonso,; Peter Claeys; Ricardo M. Sousa
    Abstract: We estimate changes in fiscal policy regimes in Portugal with a Markov Switching regression of fiscal policy rules for the period 1978-2007, using a new dataset of fiscal quarterly series. We find evidence of a deficit bias, while repeated reversals of taxes making the budget procyclical. Economic booms have typically been used to relax tax pressure, especially during elections. One-off measures have been preferred over structural ones to contain the deficit during economic crises. The EU fiscal rules prompted temporary consolidation, but did not permanently change the budgeting process. Key words: fiscal regimes, Markov Switching, Portugal
    JEL: E62 E65 H11 H62
    Date: 2009–10
  8. By: Marcella Nicolini (Fondazione Eni Enrico Mattei); Andrea Boitani (Catholic University); Carlo Scarpa (University of Brescia and Fondazione Eni Enrico Mattei)
    Abstract: This paper investigates how the ownership and the procedure for the selection of firms operating in the local public transport sector affect their productivity. In order to compare different institutional regimes, we carry out a comparative analysis of 72 companies operating in large European cities. This allows us to consider firms selected either through competitive tendering or negotiated procedures. The analysis of the data on 77 European firms over the period 1997-2006 indicates that firms operate under constant returns to scale. Retrieving the residuals we obtain a measure of total factor productivity, which we regress on firm and city characteristics. We find that when firms are totally or partially in public hands their productivity is lower. Moreover, firms selected through competitive tendering display higher total factor productivity.
    Keywords: Local Public Transport, Public Ownership, Translog Production Function
    JEL: C33 K23 L25 L33 L91
    Date: 2010–01
  9. By: Jonathan Gruber
    Abstract: This paper reviews the issues around and impacts of the tax exclusion for employer-sponsored insurance. After reviewing the arguments for and against this policy, I present micro-simulation evidence on the federal revenue, insurance coverage, and distributional impacts of various reforms to the exclusion.
    JEL: H2 I1
    Date: 2010–02
  10. By: Hausken, Kjell; Knutsen, John F.
    Abstract: The article proposes an enabling mechanism for the creation, adjustment and dissolution of governmental units, giving autonomy to each individual as in a direct democracy. The mechanism is designed such that Pareto optimality is possible, in contrast to earlier models which make various assumptions such as majority voting. Individuals are taken seriously acknowledging that they are best equipped to find their own solutions. The emphasis is on the practical approach of how individuals discover and implement their subjective preferences and how this discovery and implementation process can be facilitated and corresponding costs lowered. Governmental units are subjected to some of the same market forces as business firms. This brings the interaction between governmental units closer to a market structure, and serves to eliminate or reduce many of the coercive elements of government. --
    Keywords: Territorial units,individual liberty,individual decision making,individual welfare,competitive markets,public choice,governmental units,endogenous determination of borders,constitutional economics,political economy
    JEL: H4 H5 H11
    Date: 2010
  11. By: Emmanuel Saez; Manos Matsaganis; Panos Tsakloglou
    Abstract: This paper analyzes the response of earnings to payroll tax rates using a cohort-based reform in Greece. All individuals who started working on or after 1993 face permanently a much higher earnings cap for payroll taxes, creating a large and permanent discontinuity in marginal payroll tax rates by date of entry in the labor force for upper earnings workers. Using full population administrative Social Security data and a Regression Discontinuity Design, we estimate the long-term incidence and effects of marginal payroll tax rates on earnings. Standard theory predicts that, in the long run, new regime workers should bear the entire burden of the payroll tax increase (relative to old regime workers). In contrast, we find that employers compensate new regime workers for the extra employer payroll taxes but not for the extra employee payroll taxes. We do not find any evidence of labor supply responses around the discontinuity, suggesting low efficiency costs of payroll taxes. The non-standard incidence results are the same across firms of different sizes. Tax incidence, however, is standard for older workers in the new regime as they bear both the employee and employer tax. Those results, combined with a direct small survey of employers, can be explained by social norms regarding seniority-based pay which create a growing wedge between pay and productivity as workers age.
    JEL: J23 J38
    Date: 2010–02
  12. By: Delfgaauw, Josse (Erasmus University Rotterdam); Dur, Robert (Erasmus University Rotterdam)
    Abstract: The quality of public management is a recurrent concern in many countries. Calls to attract the economy’s best and brightest managers to the public sector abound. This paper studies self-selection into managerial positions in the public and private sector, using a model of a perfectly competitive economy where people differ in managerial ability and in public service motivation. We find that, if demand for public sector output is not too high, the equilibrium return to managerial ability is always higher in the private sector. As a result, relatively many of the more able managers self-select into the private sector. Since this outcome is efficient, our analysis implies that attracting a more able managerial workforce to the public sector by increasing remuneration to private-sector levels is not cost-efficient.
    Keywords: public management, public service motivation, managerial ability, self-selection
    JEL: H83 J24 J3 J45
    Date: 2010–02
  13. By: Popa, Ionela; Codreanu, Diana
    Abstract: The State, irrespective of its institutional nature and contents throughout history, has been the most important answer or, better said, the best-structured solution of society members to the issues of their world’s complexity. Processes such as globalization and integration, individuals’ increasing reliance upon technology, limited vital resources in order to ensure normal life, social polarization growth, poverty augmentation, migrating flows, occurrence of diseases that can rapidly spread at world level – all the above increase the complexity of our world and make the State’s economic involvement compulsory. In this respect, an important role is held by the fiscal system, originally created to meet strictly financial goals of the State but subsequently enriched by various economic and social objectives due to the development of human society. Fiscality can be viewed as a prerequisite to compensate gaps and for a genuine European policy of economic growth. The impact of fiscality upon society members in every economy is significant, with tax payers’ acceptance or refusal having a major effect upon the State’s intervention by typical means in the entire activity of a society. The paper suggests a analysis of fiscality in Romania. Romania suffers from the lack of ”self-image” and the factors generating it are also to be found in the present paper.
    Keywords: Fiscality; fiscal policy; economic stability
    JEL: H0 G3
    Date: 2010–02–15
  14. By: Konrad, K.A.; Morath, F.; Müller, W. (Tilburg University, Center for Economic Research)
    Abstract: We analyze the incidence and welfare e¤ects of unit sales taxes in experimental monopoly and Bertrand markets. We …nd, in line with economic theory, that …rms with no market power are able to shift a high share of a tax burden on to consumers, independent of whether buyers are automated or human players. In monopoly markets, a monopolist bears a large share of the burden of a tax increase. With human buyers, however, this share is smaller than with automated buyers as the presence of human buyers constrains the pricing behavior of a monopolist.
    Keywords: tax incidence;monopoly;Bertrand competition;experiment
    JEL: H22 L12 L13 C72 C92
    Date: 2010

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