nep-pbe New Economics Papers
on Public Economics
Issue of 2011‒02‒26
23 papers chosen by
Keunjae Lee
Pusan National University

  1. On the determinants of local tax rates: new evidence from Spain By Francisco J. Delgado; Santiago Lago-Peñas; Matías Mayor
  2. Fiscal Federalism and Decentralization in Mongolia By Lkhagvadorj, Ariunaa
  3. Incentive Effects of Fiscal Equalization: The Case of France By Fischer, Justina AV; Thiessen, Ulrich
  4. Inequality, Inequity Aversion, and the Provision of Public Goods By Kölle, Felix; Sliwka, Dirk; Zhou, Nannan
  5. Three Essays On Tax Salience: Market Salience and Political Salience By Gamage, David; Shanske, Darien
  6. Sectoral Effects of Tax Reforms in an Open Economy By Olivier CARDI; Romain RESTOUT
  7. Does Tax Policy Affect Executive Compensation? Evidence from Postwar Tax Reforms By Carola Frydman; Raven S. Molloy
  8. Die relative Steuerlast mittelständischer Kapitalgesellschaften By Gebhardt, Heinz; Siemers, Lars-H. R.
  9. Earnings Shocks and Tax-Motivated Income-Shifting: Evidence from European Multinationals By Dhammika Dharmapala; Nadine Riedel
  10. Fiscal regulation and expenditure pattern in Maharashtra state By Rode, Sanjay
  11. Comparing the Treatment of Charities Under Value Added Taxes and Retail Sales Taxes By Walter Hellerstein
  12. The effects of land transfer taxes on real estate markets: Evidence from a natural experiment in Toronto By Ben Dachis; Gilles Duranton; Matthew A. Turner
  13. The Elasticity of Taxable Income and the Optimal Income Tax Rate in Japan: Evidence from the Japanese Household Microdata By Yukinobu Kitamura; Takeshi Miyazaki
  14. Strategy-proof allocation mechanisms for economies with public goods By Diego Moreno; María José Moscoso
  15. Preference Heterogeneity and Optimal Capital Taxation By Mikhail Golosov; Aleh Tsyvinsky; Matthew Weinzierl
  16. Fiscal decentralisation in the Netherlands: History, current practice and economic theory By Frits Bos
  17. Population Aging, the Composition of Government Spending,and Endogenous Economic Growth in Politico-Economic Equilibrium By Kuehnel, Johanna
  18. Media Firm Strategy and Advertising Taxes By Kind, Hans Jarle; Koethenbuerger, Marko; Schjelderup, Guttorm
  19. The optimal rate of inequality: A framework for the relationship between income inequality and economic growth By Charles-Coll, Jorge A.
  20. Consumption and Cash-Flow Taxes in an International Setting By Alan J. Auerbach; Michael P. Devereux
  21. The Impact of Fiscal Consolidation and Structural Reforms on Growth in Japan By Pelin Berkmen
  22. Investing in Public Investment: An Index of Public Investment Efficiency By Annette Kyobe; Jim Brumby; Chris Papageorgiou; Zac Mills; Era Dabla-Norris
  23. 資本への固定資産税の経済効果-固定資産税の「New View」の検証 By 宮崎, 智視; 佐藤, 主光

  1. By: Francisco J. Delgado (University of Oviedo); Santiago Lago-Peñas (REDE, IEB and University of Vigo); Matías Mayor (University of Oviedo)
    Abstract: This paper studies the determinants of local tax rates. For the two main local taxes in Spain - the property tax and the motor vehicle tax - we test the existence of tax mimicking, yardstick competition and political trends in a sample of 2,713 municipalities. Using different spatial models, the results support the hypothesis of tax mimicking, with coefficients over 0.40. We also show the relevance of political variables such as the ideology of the incumbents and political fragmentation. The fact that incumbents with weaker political support display stronger mimicking behaviour is interpreted as evidence in favour of yardstick competition. Finally, we find incumbents mimic neighbouring municipalities ruled by the same political party, confirming the political trends hypothesis.
    Keywords: Local taxation, tax mimicking, yardstick competition, political trends
    JEL: C31 H71 H77
    Date: 2011
  2. By: Lkhagvadorj, Ariunaa
    Abstract: Fiscal federalism has been an important topic among public finance theorists in the last four decades. Developing and transition countries have developed a variety of forms of fiscal decentralization as a possible strategy to achieve effective and efficient governmental structures. A generalized principle of decentralization due to the country specific circumstances does not exist. Therefore, decentralization has taken place in different forms in various countries at different times, and even exactly the same extent of decentralization may have had different impacts under different conditions. As a former socialist country Mongolia has had a highly centralized governmental sector. The result of the analysis below revealed that the Mongolia has introduced a number of decentralization measures, which followed a top down approach and were slowly implemented without any integrated decentralization strategy in the last decade. As a result Mongolia became de-concentrated state with fiscal centralization. The revenue assignment is lacking a very important element, for instance significant revenue autonomy given to sub-national governments, which is vital for the efficient service delivery at the local level. According to the current assignments of the expenditure and revenue responsibilities most of the provinces are unable to provide a certain national standard of public goods supply. Hence, intergovernmental transfers from the central jurisdiction to the sub-national jurisdictions play an important role for the equalization of the vertical and horizontal imbalances in Mongolia. The critical problem associated with intergovernmental transfers is that there is not a stable, predictable and transparent system of transfer allocation. The amount of transfers to sub-national governments is determined largely by political decisions on ad hoc basis and disregards local differences in needs and fiscal capacity. Thus a fiscal equalization system based on the fiscal needs of the provinces should be implemented. The equalization transfers will at least partly offset the regional disparities in revenues and enable the sub-national governments to provide a national minimum standard of local public goods.
    Keywords: Fiscal Federalism; Decentralization; Revenue Autonomy; Expenditure Assignment; Intergovernmental transfers.
    JEL: H77
    Date: 2010–02
  3. By: Fischer, Justina AV; Thiessen, Ulrich
    Abstract: This empirical study shows for 22 French regions between 2002 and 2008 that fiscal equalization does not appear to distort incentives for regional governments. We find a growth-enhancing impact of inter-governmental transfers on regional growth, with no major differences between donor and recipient regions. Only for the extremely poor recipient regions do we find an insignificant transfer effect. In addition, a high 'marginal tax on own tax revenues' appears to trigger income compensation efforts, yielding higher regional growth. These findings contradict previous empirical studies for federal countries that tend to find adverse incentive effects of fiscal equalization on regional governments and growth. Overall, our tentative explanation for our own contrasting results is that France’s system of transfers is relatively moderate with regard to both the volume and the 'marginal tax on regional tax revenues', and also that local governments in France have – in comparison with other industrial countries – relatively well established own revenues.
    Keywords: Fiscal equalization; inter-governmental transfers; French regions; decentralization
    JEL: E62 H7 R11
    Date: 2011–02–14
  4. By: Kölle, Felix (University of Cologne); Sliwka, Dirk (University of Cologne); Zhou, Nannan (University of Cologne)
    Abstract: We investigate the effects of inequality in wealth on the incentives to contribute to a public good when agents are inequity averse and may differ in ability. We show that equality may lead to a reduction of public good provision below levels generated by purely selfish agents. But introducing inequality motivates more productive agents to exert higher efforts and help the group to coordinate on equilibria with less free-riding. As a result, less able agents may benefit from initially disadvantageous inequality. Moreover, the more inequity averse the agents, the more inequality should be imposed even by an egalitarian social planner.
    Keywords: public goods, inequality, inequity aversion, social welfare, voluntary provision, income distribution, heterogeneity
    JEL: H41 D31 D63 J31 M52
    Date: 2011–02
  5. By: Gamage, David; Shanske, Darien
    Abstract: This Article analyzes the behavioral economics literatures on how individuals understand taxation (i.e., tax salience). We evaluate how taxpayers respond to different presentations of tax prices both in their roles as market participants and as voters. We aim to combat several naïve notions about tax salience that currently exert a pernicious influence on tax lawmaking. In particular, we argue that it is normatively desirable for governments to reduce tax salience with respect to market decision making, and that there is nothing normatively objectionable about governments also reducing tax salience with respect to political decision making.
    Keywords: Economics, Law and Economics, Politics, Taxation, Taxation-Federal Income
    Date: 2011–02–15
  6. By: Olivier CARDI (Université Panthéon-Assas ERMES, Ecole Polytechnique); Romain RESTOUT (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: We use a neoclassical open economy model with traded and non traded goods to investigate the sectoral effects of three tax reforms: i) two revenue-neutral shifting the tax burden from labor to consumption taxes and ii) one labor tax restructuring keeping the marginal tax wedge constant. Regardless of its type, a tax reform crowds-in both consumption and investment and raises employment. Whereas tax reforms have a small impact on GDP, they exert substantial effects on sectoral outputs which move in opposite direction in the short-run. The sensitivity analysis reveals that raising the elasticity of labor supply or reducing the tradable content in consumption expenditure amplifies the heterogeneity in sectoral output responses. Finally, allowing for the markup to depend on the number of competitors, we find that a substantial share of sectoral output variations can be attributed to the change in the markup triggered by firm entry.
    Keywords: Non Traded Goods; Employment; Current Account; Tax Reform
    JEL: F41 E62 E22
    Date: 2010–12–21
  7. By: Carola Frydman; Raven S. Molloy
    Abstract: The trends in executive pay and labor income tax rates since the 1940s suggest a high elasticity of taxable income with respect to tax policy. By contrast, the level and structure of executive compensation have been largely unresponsive to tax incentives since the 1980s. However, the relative tax advantage of different forms of pay was small during this period. Using a sample of top executives in large firms from 1946 to 2005, we also find a small short run response of salaries, qualified stock options, and bonuses paid after retirement to changes in tax rates on labor income—even though tax rates were significantly higher and more heterogeneous across individuals in the first several decades following WWII. We explore several potential explanations for the conflicting impressions given by the long-run and short-run correlations between taxes and pay, including changes in social norms and concerns about pay equality.
    JEL: G30 H24 H32 J31 J33 N32
    Date: 2011–02
  8. By: Gebhardt, Heinz; Siemers, Lars-H. R.
    Abstract: Statistical offices do not provide sufficiently disaggregated tax statistics for calculating the relative tax burden of SMEs. We estimate the respective average and median tax burden of small, medium-sized and big corporations in Germany for the period 1998 to 2007 using enterprises micro panel data by applying OLS and quantile regression techniques. We find that the average tax burden levied on profit over the ten years was about 24%, and thus lower than forward-looking techniques suggest. The majority of small corporations did bear a significantly lower burden than the residual bigger corporations. We also provide evidence that medium-sized corporations faced a significantly higher median tax burden than big corporation. This implies an inverse U-shaped trajectory of median tax burden with respect to size of enterprise. Presumably big corporations are internationally operating and hence have more opportunities to manipulate the tax base. Hence, medium-sized corporations seem to have been disadvantaged to big corporations within the German corporation tax. Finally, the size of tax relief provided by the “Tax Reform 2000” was correlated positively with size of enterprise. This size-dependent tax burden identifies a so far neglected type of tax distortion. Future tax reforms hence also have to address size neutrality.
    Keywords: Steuerlastmessung; KMU; Steuerreform; Umsatzneutralität
    JEL: H21 H25 H71
    Date: 2011–01–31
  9. By: Dhammika Dharmapala (University of Illinois at Urbana Champaign); Nadine Riedel (Oxford University Centre for Business Taxation)
    Abstract: This paper presents a new approach to estimating the existence and magnitude of tax-motivated income shifting within multinational corporations. Existing studies of income shifting use changes in corporate tax rates as a source of identification. In contrast, this paper exploits exogenous earnings shocks at the parent firm and investigates how these shocks propagate across low-tax and high-tax multinational subsidiaries. This approach is implemented using a large panel of European multinational affiliates over the period 1995 -2005. The central result is that parents’ positive earnings shocks are associated with a significantly positive increase in pretax profits at low-tax affiliates, relative to the effect on the pretax profits of high-tax affiliates. The result is robust to controlling for various other differences between low-tax and high-tax affiliates and for country-pair-year fixed effects. Additional tests suggest that the estimated effect is attributable primarily to the strategic use of debt across affiliates. The magnitude of income shifting estimated using this approach is substantial, but somewhat smaller than that found in the previous literature.
    Date: 2011
  10. By: Rode, Sanjay
    Abstract: The Fiscal Responsibility and Budgetary Management Act of 2004 has improved state finances of Maharashtra, India. It has also reduced fiscal deficit for state. The sources of income from various state own tax revenue have increased except other taxes on income and expenditure. There is further scope for improving sources of state own tax revenue. After the FRBM Act, the development expenditure on irrigation and flood control, industry and mining has declined in the state. It is statistically significant and negatively co-related. The development expenditure on education sports, arts & culture, science, technology & environment, and transport & communication has significantly increased. In order to control the fiscal deficit, state government should apply strict methods to reduce the non development expenditure. It should increase development expenditure which has long term effect on overall economic development.
    Keywords: Fiscal deficit; Development expenditure; Fiscal responsibility; budgetary management
    JEL: H70 H0
    Date: 2010–11–28
  11. By: Walter Hellerstein (University of Georgia)
    Abstract: This paper compares the treatment of charities under value added taxes (VATs) and retail sales taxes (RSTs) from both a normative and descriptive perspective. There is general agreement that an ideal VAT and an ideal RST would tax supplies or sales in the same way by imposing a uniform levy on all sales to final consumers and relieving businesses of any economic burden from the tax, except the burden of tax collection. Although it may appear desirable to relieve charities’ purchases or sales of a VAT or RST burden to encourage charitable undertakings, attempting to support charities through modification of the VAT or RST creates a number of problems. These include undermining economic neutrality, by distorting input choices, incentivizing self-supply, and frustrating the destination principle; producing negative revenue consequences; fostering “exemption” or “rate reduction” creep; and adding to the complexity of tax administration. Because of these concerns, “best practices” for charities under a VAT or an RST counsel against special treatment within the tax regime itself and favor support of charities through direct government subsidies. In practice, however, most VAT and RST regimes do seek to provide relief for charities within the tax regime. Most VAT regimes treat charities as exempt, imposing no tax on their sales but taxing their purchases without credit or refund for taxes paid. Under the American subnational RST, over half the states with RSTs relieve charities of the burden of paying sales tax and roughly one third exempt charities’ sales from taxation, although many charities’ sales fall outside the scope of the American RST, which generally does not apply to services. As a consequence, VATs and RSTs often give rise to the problems identified above.
    Date: 2011
  12. By: Ben Dachis; Gilles Duranton; Matthew A. Turner
    Abstract: Taxes levied on the sale or purchase of real estate are pervasive but little studied. By exploiting a natural experiment arising from Toronto’s imposition of a Land Transfer Tax (LTT) in early 2008, we estimate the impact of real estate transfer taxes on the market for single family homes. Our data show that Toronto’s 1.1% tax caused a 15% decline in the number of sales and a decline in housing prices about equal to the tax. Relative to an equivalent property tax, the associated welfare loss is substantial, about $ 1 for every $ 8 in tax revenue. The magnitude of this welfare loss is comparable to those associated with better known interventions in the housing market. Unlike many possible tax reforms, eliminating existing LTTs in favour of revenue equivalent property taxes appears straightforward.
    Keywords: Land transfer tax, property tax, land regulation
    JEL: R21 R51
    Date: 2011–02–14
  13. By: Yukinobu Kitamura; Takeshi Miyazaki
    Date: 2010–08
  14. By: Diego Moreno; María José Moscoso
    Abstract: We show that strategy-proof allocation mechanisms for economies with public goods are dictatorial -- i.e., they always select an allocation in their range that maximizes the welfare of the same single individual (the dictator). Further, strategy-proof and efficient allocation mechanisms are strongly dictatorial -- i.e., they select the dictator's preferred allocation on the entire feasible set. Thus, our results reveal the extent to which the conflict between individual incentives and other properties that may be deemed desirable (e.g., fairness, equal treatment, distributive justice) pervades resource allocation problems.
    Keywords: Allocation mechanisms, Public goods, Strategy-proofness, Dictatorship, Efficiency
    Date: 2010–10
  15. By: Mikhail Golosov; Aleh Tsyvinsky; Matthew Weinzierl
    Abstract: We analytically and quantitatively examine a prominent justification for capital income taxation: goods preferred by those with high ability ought to be taxed. We study an environment where commodity taxes are allowed to be nonlinear functions of income and consumption and find that, when ability is positively related to a preference for a good, optimal marginal commodity taxes on this good may be regressive: i.e., declining with income. We derive an analytical expression for optimal commodity taxation, allowing us to study the forces for and against regressivity. We then parameterize the model to evidence on the relationship between skills and preferences and examine the quantitative case for taxes on future consumption (saving). The relationship between skill and time preference delivers quantitatively small, generally regressive capital income taxes and would justify only a fraction of the prevailing level of capital income taxation.
    Date: 2010–06
  16. By: Frits Bos
    Abstract: This paper describes and discusses the division of tasks between Dutch central and local government and their financing in view of economic theory.
    JEL: D70 H11 H70 N43 N44
    Date: 2010–12
  17. By: Kuehnel, Johanna
    Abstract: This paper introduces a democratic voting process into an OLG economy in order to analyze the effects of a rising old-age dependency ratio on the composition of government spending and endogenous economic growth. Forward-looking agents vote each period on the public policy mix between productive government expenditure and public consumption spending that benefits the elderly. Population aging shifts political power from the young to the old. While this does not affect public productive expenditure, it leads to an increase in public spending on the elderly and a slowdown in economic growth. However, the overall effect on long-term economic growth is positive. This is due to reduced capital dilution or increased saving.
    Keywords: Demographics; Endogenous Economic Growth; Government Spending; Markov Perfect Equilibrium; Probabilistic Voting
    JEL: D72 E62 O41
    Date: 2011–02–17
  18. By: Kind, Hans Jarle (Dept. of Economics, Norwegian School of Economics and Business Administration); Koethenbuerger, Marko (Dept. of Economics, University of Copenhagen); Schjelderup, Guttorm (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: Empirical evidence suggests that people dislike ads in TV programs and other media products. In such situations standard economic theory prescribes that the advertising volume can be optimally reduced by levying a tax on ads. However, making use of recent advances in the theory of firm behavior in two-sided markets, we show that taxation of ads may be counterproductive. In particular, we identify a number of situations in which ad-adverse consumers are negatively affected by the tax, and we even show that the tax may lead to higher ad volumes. This unorthodox reaction to a tax may arise when consumers significantly dislike ads, i.e. in situations where traditional arguments for corrective taxes are strongest.
    Keywords: Two-sided markets; media market; pricing strategy; taxation
    JEL: H20
    Date: 2011–02–21
  19. By: Charles-Coll, Jorge A.
    Abstract: This paper contributes to the debate over the relationship between inequality and growth by proposing that the disparities in empirical studies derive from the fact that they have not accounted for the level of inequality as a factor that can affect the sign of the relationship. An inverted “U” shaped relationship is demonstrated, showing that low levels of inequality exert a positive correlation with economic growth while high levels have a negative one. Additionally, and more importantly, it is demonstrated the existence of an optimal rate of inequality (ORI) that maximizes growth rates and releases the economy from any distortion generated by elevated inequality or taxation. Empirical evidence from a broad panel of countries as well as a bibliometric analysis is presented to validate these propositions.
    Keywords: Inequality, Growth, Redistribution, Optimal Rate of Inequality
    JEL: E25 D31 D33 O15
    Date: 2010–08–27
  20. By: Alan J. Auerbach; Michael P. Devereux
    Abstract: We model the effects of consumption-type taxes which differ according to the base and location of the tax. Our model incorporates a monopolist producing and selling in two countries with three sources of rent, each in a different location: a fixed factor (located with production), mobile managerial skill, and a monopoly mark-up (located with consumption). In the general case, we show that for national governments, there are tradeoffs in choosing between alternative taxes. In particular, a cash-flow tax on a source basis creates welfare-impairing distortions to production and consumption, but is incident on the owners of domestic production who may be non-resident. By contrast, a destination-based cash-flow tax does not distort behavior, but is incident only on domestic residents. In the alternative case of perfect competition, with the returns to the fixed factor accruing to domestic residents, the only distortion from the source-based tax is through the allocation of the mobile managerial skill. In this case, the sourcebased tax is also incident only on domestic residents, and is dominated by an equivalent tax on a destination basis, or by a sales tax.
    Date: 2010–05
  21. By: Pelin Berkmen
    Abstract: With Japan’s public debt reaching historical levels, the need for fiscal consolidation and structural reforms have increased. As fiscal consolidation will require a sustained and large adjustment in the fiscal balance, its growth effect is a concern particularly for the short run. This paper uses the IMF’s Global Integrated Monetary and Fiscal Model to analyze the growth impact of fiscal consolidation and structural reforms. Although fiscal consolidation has short-term costs, the potential long-term benefits are considerable, and reforms that raise potential growth could support consolidation. Simulations show that the external environment also matters but domestic policies should be the priority.
    Keywords: Economic growth , Economic models , Fiscal consolidation , Fiscal policy , Fiscal reforms , Japan , Monetary policy , Taxes ,
    Date: 2011–01–13
  22. By: Annette Kyobe; Jim Brumby; Chris Papageorgiou; Zac Mills; Era Dabla-Norris
    Abstract: This paper introduces a new index that captures the institutional environment underpinning public investment management across four different stages: project appraisal, selection, implementation, and evaluation. Covering 71 countries, including 40 low-income countries, the index allows for benchmarking across regions and country groups and for nuanced policy-relevant analysis and identification of specific areas where reform efforts could be prioritized. Potential research venues are outlined.
    Date: 2011–02–17
  23. By: 宮崎, 智視; 佐藤, 主光
    Abstract: 本稿では,日本の固定資産税が資本課税であるのかについて,固定資産税の「New View(Capital Tax View)」の検証を通じて明らかにする.System GMMによる推計の結果,家屋への固定資産税は家屋の資産価格を引き下げる効果が有意に得られる一方,宅地の資産額についても有意に負の影響を与えるとの結果を得た.また,家屋の実効税率の,宅地資産額への弾力性を地域別に計測した結果,ほとんどの地域で実際の弾力性の数値は理論で想定される値よりも大きくなるが,都市圏を中心とした一部の府県では,理論値の方が大きくなることが示された.以上の結果は,基本的には固定資産税の「Traditional View」に近い状況が得られる一方,都市圏を中心とした一部地域では,「New View」で想定される状況が観察されることを示すものである.
    Date: 2011–01

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