nep-pbe New Economics Papers
on Public Economics
Issue of 2010‒10‒09
eleven papers chosen by
Oliver Budzinski
University of Southern Denmark

  1. Redistributive effects in a dual income tax system By Arnaldur Sölvi Kristjánsson
  2. Taxation Reforms: a CGE-Microsimulation Analysis for Pakistan By Saira Ahmed; Vagar Ahmed; Ahsan Abbas
  3. Base-Broadening Tax Reforms By Callan, Tim; Keane, Claire; Walsh, John R.
  4. How are they spending my taxes? Tax compliance and citizens’ interest in politics By Dawson, Peter; Jones, Philip
  5. Quantifying Spatial Mislocation in Centrally Provided Public Goods By Siva Athreya; Rohini Somanathan
  6. Threat and Punishment in Public Good Experiments By Masclet, David; Noussair, Charles N.; Villeval, Marie Claire
  7. An experimental test of prejudice about foreign people By Pablo Brañas-Garza; Olusegun A. Oyediran; M.Fernanda Rivas
  8. Taxpayers' Response to Warnings of a Possible Tax Audit: Do They Change Their Compliance Behavior? By Niu, Yongzhi
  9. Tax progression: International and intertemporal comparisons using LIS data By Kirill Pogorelskiy; Christian Seidl; Stefan Traub
  10. Fiscal Policy in Latin America: Countercyclical and Sustainable at Last? By Christian Daude; Angel Melguizo; Alejandro Neut
  11. On the failure of European planning for less developed regions. The case of Calabria By Forte, Francesco; Magazzino, Cosimo; Mantovani, Michela

  1. By: Arnaldur Sölvi Kristjánsson (University of Iceland)
    Abstract: Equity issues of the dual income tax have been left aside in the field of economics. Since a dual income tax needs different modelling than a comprehensive one this paper offers firstly a quantitative framework to measure redistributive effects; it turns out that this involves both direct and indirect effects. The effects of horizontal inequity and re-ranking are also incorporated into the decomposition analysis. The approach is applicable using available income and tax statistics. Secondly, partial effects of changes in tax parameters are presented; they are channelled through the direct and indirect effects; and are not always straightforward.
    Keywords: redistributive effect, progressivity, dual income tax.
    JEL: H23 D63 I38 I31
    Date: 2010
  2. By: Saira Ahmed; Vagar Ahmed; Ahsan Abbas
    Abstract: This paper provides an ex ante assessment of taxation reforms being considered in Pakistan, in order to widen the tax base and rationalise the rate structure of different taxes. Amongst the main proposals, those focusing on sales tax and agricultural direct taxes seem relatively more attractive. The former has the highest share in indirect taxes and is also easier to collect, while the latter is intended to bring the presently exempted agricultural incomes into the tax net. As a first step, we study the general equilibrium effects of existing taxes by removing them from the system one at a time. In the second step we study the micro-macro impacts of four policy experiments: a) increasing sales tax rate by 33 percent; b) applying a 10 percent sales tax on presently zero-rated goods; c) increasing sales tax rate by 33 percent and bringing the services sectors in the sales tax net; and d) increasing sales tax rate by 33 percent, bringing the services sectors in the sales tax net, and imposing a 5 percent flat tax on agricultural incomes. In the third step we calculate the lost revenue due to evasion and avoidance. Results from experiments indicate the tough choices for policy makers in trying to improve the currently low tax to GDP ratio in Pakistan. Almost all simulations result in a decrease in investment levels, reduced consumption, and an increase in poverty. We thus recommend a gradual approach to tax reform that can make the adjustment process less painful.
    Keywords: Taxation, Microsimulation, General Equilibrium, Poverty, Inequality, Progressivity, Redistribution
    JEL: H22 D58 C51 C81 I32
    Date: 2010
  3. By: Callan, Tim; Keane, Claire; Walsh, John R.
    Keywords: taxes
    Date: 2010–07
  4. By: Dawson, Peter; Jones, Philip
    Abstract: In neoclassical economics, individuals are assumed to perceive tax payments as commensurate with any other payment. This paper challenges this assumption. Individuals are more likely to identify with the community when they pay a higher share of their income in tax and when compliance is also an expression of civic duty. An analysis of questionnaire responses from over 20 countries suggests that citizens take a greater interest in politics when they are more tax compliant.
    Keywords: tax evasion; information; political participation
    Date: 2010–09
  5. By: Siva Athreya; Rohini Somanathan
    Abstract: In this paper they show how an optimization algorithm can be used to approximately quantify the costs to users of spatial misallocation in centrally provided public goods. This method can be employed to evaluate the large programs of public good construction that have been central features of economic plans in many developing countries. They apply these methods to the allocation of post-offices in an administrative block of South India between1981-1991and find that more appropriate choices for post office locations could have reduced aggregate costs of travel to citizens in this area by at least20%. [Working Paper No. 148]
    Keywords: optimization, algorithm, approximately, quantify, misallocation, spatial, public good, construction, developing countries, travel, citizens
    Date: 2010
  6. By: Masclet, David (University of Rennes); Noussair, Charles N. (Tilburg University); Villeval, Marie Claire (CNRS, GATE)
    Abstract: Experimental studies of social dilemmas have shown that while the existence of a sanctioning institution improves cooperation within groups, it also has a detrimental impact on group earnings in the short run. Could the introduction of pre-play threats to punish have enough of a beneficial impact on cooperation, while not incurring the cost associated with actual punishment, so that they increase overall welfare? We report an experiment in which players can issue non-binding threats to punish others based on their contribution levels to a public good. After observing others’ actual contributions, they choose their actual punishment level. We find that threats increase the level of contributions significantly. Efficiency is improved, but only in the long run. However, the possibility of sanctioning differences between threatened and actual punishment leads to lower threats, cooperation and welfare, restoring them to levels equal to or below the levels attained in the absence of threats.
    Keywords: threats, cheap talk, sanctions, public good, experiment
    JEL: C92 H41 D63
    Date: 2010–09
  7. By: Pablo Brañas-Garza (Department of Economic Theory and Economic History, University of Granada.); Olusegun A. Oyediran (Department of Economic Theory and Economic History, University of Granada.); M.Fernanda Rivas (University of Granada.)
    Abstract: This paper o¤ers two related issues: (i ) an applications of beliefs about the cooperative behavior of others to policy-oriented issues, (ii ) a method of explor- ing prejudices (toward others) where interviewees are oblivious of its purpose. We studied contributions and guesses about others?contributions through an experimental game. Prejudice is examined as an implicitly held belief by a Spanish college student towards any of the speci?ed foreign population groups (i.e. the Asians, the Africans, the Latin Americans and the Westerners). The results show that: at the individual level, there exists some subjects that harbor strong positive (and negative) prejudices toward the foreigners. The prejudice models ?tted also show that: own contributions, femaleness, individual wealth; and beliefs about income status, cultural status, religious intensity, societal co- operation and political orientation have strong in?uences on racial prejudice.
    Keywords: Beliefs, Prejudice, Public Goods Game
    Date: 2010–08–01
  8. By: Niu, Yongzhi
    Abstract: In 2008, the New York State Department of Taxation and Finance sent letters to clients of a fraudulent tax preparer, warning them of a possible audit and asking them to participate in the Department’s Voluntary Disclosure and Compliance Program if they had filed inaccurate tax returns in the past. This study examines the impact of the letters on voluntary compliance in their future (2008 and 2009) returns. In this study, a simple method similar to “difference in differences”, which we call “difference in positions”, is applied. 10,000 samples are randomly drawn from the taxpayer population and the growth rates of Federal adjusted gross income (AGI) for these samples are put into relative frequency density graphs. We then examine the relative positions of the experiment group (the clients of the fraudulent tax preparer) within the normally distributed curves before and after the letters were sent. The change in the relative positions is regarded as the letter impact on voluntary compliance. It is found that the impact is significant in the first year (2008 tax returns) after the letters were sent. The impact is 17.49 percentage points on the AGI growth rate, which translates to $8.68 million of reported AGI for the 507 taxpayers in the experiment group. However, the impact is minimal in the second year (2009 tax returns), indicating that the long-run effect of the letter mailings may be weak.
    Keywords: tax; audit impact; voluntary compliance; differnces-in-differences; difference-in-positions; personal income tax
    JEL: H29 H26
    Date: 2010–09–29
  9. By: Kirill Pogorelskiy (State University – Higher School of Economics, Moscow, Russia); Christian Seidl (University of Kiel, Germany); Stefan Traub (University of Bremen, Germany)
    Abstract: The conventional approach to comparing tax progression (using local measures, global measures or dominance relations for first moment distribution functions) often lacks applicability to the real world: local measures of tax progression have the disadvantage of ignoring the income distribution entirely. Global measures are affected by the drawback of all aggregation, viz. ignoring structural differences between the objects to be compared. Dominance relations of comparing tax progression depend heavily on the assumption that the same income distribution holds for both situations to be compared, which renders this approach impossible for international and intertemporal comparisons. Based on the earlier work of one of the authors, this paper develops a unified methodology to compare tax progression for dominance relations under different income distributions. We address it as uniform tax progression for different income distributions and present the respective approach for both continuous and discrete cases, the latter also being employed for empirical investigations. Using dominance relations, we define tax progression under different income distributions as a class of natural extensions of uniform tax progression in terms of taxes, net incomes, and differences of first moment distribution functions. To cope with different monetary units and different supports of the income distributions involved, we utilized their transformations to population and income quantiles. Altogether, we applied six methods of comparing tax progression, three in terms of taxes and three in terms of net incomes, which we utilized for empirical analyses of comparisons of tax progression using data from the Luxembourg Income Study. This is the first paper that performs international and intertemporal comparisons of uniform tax progression with actual data. For our analysis we chose those countries for which LIS disposes of data on gross incomes, taxes, payroll taxes and net incomes. This pertains to 15 countries, out of which we selected 13. This gave rise to 78 international comparisons, which we carried out for household data, equivalized data, direct taxes and direct taxes inclusive of payroll taxes. In total we investigated 312 international comparisons for each of the six methods of comparing tax progression. In two thirds of all cases we observed uniformly greater tax progression for international comparisons. In a bit more than one fifth of all cases we observed bifurcate tax progression, that is, progression is higher for one country up to some population or income quantile threshold, beyond which the situation is the opposite, i.e., progression is higher for the second country. No clear-cut findings can be reported for just one tenth of all cases. But even in these cases some curve differences are so small that they may well be ignored. We also test consistency of our results with regard to the six methods of comparing tax progression and present here twelve (Germany, the UK and the US) plus four comparing Germany and Sweden out of the total of 312 graphs, each containing six differences of first moment distribution functions. These differences can be interpreted as intensity of greater tax progression. We demonstrate the overall picture of uniform tax progression for international comparisons using Hasse diagrams.Concerning intertemporal comparisons of tax progression, we present the results for the US, the UK, and Germany for several time periods. We align our findings with respect to major political eras in these countries, e.g., G. Bush senior, W. Clinton, and G. Bush junior for the United States; M. Thatcher, J. Major, and A. Blair for the United Kingdom, and for Germany, the last year before German re-unification (1989), the beginning of H. Kohl’s last term as chancellor (1994), and G. Schröder (2000). In addition, we study sensitivity of our results to the equivalence scale parameter.
    Keywords: income tax progression, measurement of uniform tax progression, comparisons of tax progression, tax progression with different income distributions.
    JEL: H23 H24
    Date: 2010
  10. By: Christian Daude; Angel Melguizo; Alejandro Neut
    Abstract: This paper analyses fiscal policy for several economies in Latin America, from the early nineties to the 2009 crisis. We present original estimates of cyclically-adjusted public revenues for Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru and Uruguay implementing the standardised OECD methodology and extending it to include commodity cycles, which have a direct and significant effect on the fiscal balance of several Latin American countries. Based on these estimates, we evaluate the size of automatic tax stabilisers and the cyclicality of discretionary fiscal policy. Additionally, we highlight the uncertainty stemming from the estimation of the output gap, due to large and simultaneous cyclical, temporary and permanent shocks in several Latin American economies.<BR>Cette étude analyse la politique budgétaire dans huit économies d’Amérique Latine, à partir du début des années 1990 et jusqu’à 2009. Nous étudions les estimations des composantes structurelles et cyclique des recettes publiques en l’Argentine, le Brésil, le Chili, la Colombie, le Costa Rica, le Méxique, le Pérou et l’Uruguay, en utilisant la méthodologie de l’OCDE, et en ajoutant l’effet des prix des matières premières, qui ont un impact significatif sur le solde budgétaire en Amérique Latine. A partir de ces résultats, l’étude évalue l'ampleur des stabilisateurs automatiques, et l’stabilisation de la politique budgétaire discrétionnaire. Finalement, nous soulignons l’incertitude de l’estimation de l’écart de production en raison des larges chocs cycliques, temporaires et permanents dans plusieurs économies d’Amérique Latine.
    Keywords: fiscal policy, public finances, business cycle, politique budgétaire, cycle économique, finances publiques
    JEL: E62 H30 H60
    Date: 2010–08–25
  11. By: Forte, Francesco; Magazzino, Cosimo; Mantovani, Michela
    Abstract: This study analyzes the negative performance of Calabria’s Regional Program 2000-2006, for the enhancement of cultural goods to attract tourism, as an example of the waste of resources of EU ambitious planning for the economic convergence. The empirical analysis shows that the variables relating to cultural sites, education sites and sites with tourism or tourism potentialities had no significance or even negative influence. The significant variables were the number of non profits present in the municipalities and the criminal hubs. The presence of cultural sites is not statistically significant in the allocation of funds to the criminal hubs, After the program the number of visitors and revenues from museum and archeological sites of Calabria lower than before while on average in Italy has had a great increase. On the other hand tourism in Calabria experienced a differential increase , in spite of the waste of the funds of the European regional policy.
    Keywords: Cultural goods; tourism; public policies; public expenditure; Southern Italy.
    JEL: R10 H41 Z10
    Date: 2010

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