nep-pbe New Economics Papers
on Public Economics
Issue of 2011‒03‒12
ten papers chosen by
Keunjae Lee
Pusan National University

  1. The efficient provision of public goods through non-distortionary tax contests By Thomas Giebe; Paul Schweinzer
  2. Local Interaction in Tax Evasion By Barnab s M. Garay; Andr s Simonovits; J nos T¢th
  3. The response of labour taxation to changes in government debt By Fédéric Holm-Hadulla; Nadine Leiner-Killinger; Michal Slavík
  4. Income Taxation of U.S. Households: Basic Facts By Guner, Nezih; Kaygusuz, Remzi; Ventura, Gustavo
  5. Consumer Response to Cigarette Excise Tax Changes By Chiou, Lesley; Muehlegger, Eric
  6. Horizontal inequity under a dual income tax system: principles and measurement By Erlend E. Bø, Peter J. Lambert, and Thor O. Thoresen
  7. A Hotelling Style Model of Spatial Competition for Convenience Goods By B. Curtis Eaton; Jesse Tweedle
  8. Labor Taxation and FDI decisions in the European Union By Hansson, Åsa; Olofsdotter, Karin
  9. Efficient redistribution policy: an analysis focused on the quality of institutions and public education By Elena Sochirca; Sandra Tavares Silva
  10. Unconventional factors of efficiency in public transport. A case study and theory. By Beria, Paolo; Grimaldi, Raffaele

  1. By: Thomas Giebe (Humboldt University at Berlin, School of Business and Economics); Paul Schweinzer (University of York)
    Abstract: We use a simple balanced budget contest to collect taxes on a private good in order to finance a pure public good. We show that—with an appropriately chosen structure of winning probabilities—this contest can provide the public good efficiently and without distorting private consumption. We provide extensions to multiple public goods and private taxation sources, asymmetric preferences, and show the mechanism’s robustness across these settings.
    Keywords: Taxation, Contests, Efficiency
    JEL: C7 D7
    Date: 2011–03
  2. By: Barnab s M. Garay (Faculty of Information Technology - P zm ny P‚ter Catholic University); Andr s Simonovits (Institute of Economics Hungarian Academy of Sciences); J nos T¢th (Department of Analysis - Budapest University of Technology and Economics)
    Abstract: We study a model of tax evasion, where a flat-rate tax only finances the provision of public goods. Deciding on reported income, each individual takes into account that the less he reports, the higher is his private consumption but the lower is his moral satisfaction. The latter depends on his own current report and average previous reports of his neighbors. Under quite general assumptions, the steady state reported income is symmetric and the process converges to the steady state.
    Keywords: tax evasion, steady state, asymptotic stability, symmetrization, networks, monotone maps
    JEL: C62 H26
    Date: 2011–01
  3. By: Fédéric Holm-Hadulla (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Nadine Leiner-Killinger (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Michal Slavík (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: This paper investigates the relationship between government debt and labour taxation for a panel of 18 EU countries over the period 1979-2008. The econometric estimates point to a statistically significant and economically relevant positive response of labour taxation to changes in the general government debt and interest expenditure-to-GDP ratios. The results are robust across a range of econometric specifications and labour tax indicators. JEL Classification: H2, H24, H63, J22.
    Keywords: Debt, labour taxes, fiscal adjustment.
    Date: 2011–03
  4. By: Guner, Nezih (Universitat Autònoma de Barcelona); Kaygusuz, Remzi (Sabanci University); Ventura, Gustavo (University of Iowa)
    Abstract: We use micro data from the U.S. Internal Revenue Service to document how households' tax liabilities vary with income, marital status and the number of dependents. We report facts on the distributions of average and marginal taxes, properties of the joint distributions of taxes paid and income, and discuss how taxes are affected by marital status and the number of children. The data reveals a large dispersion in tax rates and taxes paid. Ranking households according to the average tax rates they face, those at top 1% face taxes in excess of 27.5%, while the median tax rate is about 8%. About 14.5% of married and 31.8% of unmarried households do not pay any taxes. Given the progressivity in the system, tax liabilities are more unequally distributed than income. The top 5% (1%) of households account for 54% (34.8%) of total tax liabilities, while top 5% (1%) of households have 34.8% (20.3%) of total income. We also provide parametric estimates of tax functions for use in applied work in macroeconomics and public finance.
    Keywords: taxation, tax progressivity, households
    JEL: E62 H31 J12 J22
    Date: 2011–03
  5. By: Chiou, Lesley (Occidental College); Muehlegger, Eric (Harvard University)
    Abstract: We use a rich dataset of weekly cigarette sales to examine how consumers adapt their behavior before and after excise tax increases--whether by reducing demand, stockpiling, traveling to low-tax jurisdictions, or substituting towards lower-cost brands. Consumer response varies substantially for different types of cigarettes. Stockpiling primarily occurs for discount cigarettes and is most pronounced at stores far from lower-tax jurisdictions. Border-crossing is greatest at stores close to low-tax jurisdictions and occurs primarily for cigarettes sold by the carton. Finally, we find modest short-run substitution towards lower-cost brands following a tax-increase, consistent with consumers smoothing the transition to higher cigarette taxes. These differences in consumer behavior lead to meaningful differences in tax incidence--pass-through is higher for discount cigarettes which have more inelastic demand. Pass-through is lower near low-tax borders, especially for cigarettes sold by the carton for which cross-border evasion is greatest.
    JEL: D10 D40 H20 H70
    Date: 2010–06
  6. By: Erlend E. Bø, Peter J. Lambert, and Thor O. Thoresen (Statistics Norway)
    Abstract: Tax systems with separate taxation of wage and capital income, also called dual income tax systems, have gained relevance through the Mirrlees Review. Obviously, such tax systems are exposed to horizontal equity (HE) failures, or horizontal inequity (HI). HE and HI have a firm grip on assessment of fair tax policies, both from an academic point of view and in general public debate. The dual income tax system of Norway was modified by the tax reform of 2006 precisely because the previous schedule failed to deliver equal tax treatment of equals. This paper discusses the meaning and measurement of HI effects of dual income tax systems, and evaluates the development of HI for Norway over the time period 2000–2008 using micro data. A copula-based identification strategy efficiently establishes a framework for evaluations of HI over time. The dual income tax system and the early announcement of its impending revision during the period under examination created measurement problems which we had to account for by defining a new income concept for the empirical strategy. As expected, we find less HI in Norway after the reform of 2006.
    Keywords: Dual income tax; Horizontal inequity; Reranking; Copula estimation
    JEL: D31 D63 H31
    Date: 2011–02
  7. By: B. Curtis Eaton; Jesse Tweedle
    Abstract: Ordinarily people do not make special purpose trips to acquire goods like gasoline or roceries, but instead buy them as the need arises in the course of their daily lives. Such goods are commonly called convenience goods. We modify Hotelling's model of spatial competition so that we can analyze the price equilibrium of duopolists that retail a convenience good. Certain features of the duopolists' demand functions suggest that price competition is more severe in the convenience goods model than in the Hotelling model. The same features complicate the analysis because they mean that a pure strategy price equilibrium does not exists for many locational con-figurations. Although we are not able to find the mixed strategy price equilibrium analytically, we do present some numerical results on equilibrium prices that broadly confirm this suggestion. We also provide a more general product differentiation interpretation of the convenience good model.
    Date: 2011–01–01
  8. By: Hansson, Åsa (Department of Economics, Lund University); Olofsdotter, Karin (Department of Economics, Lund University)
    Abstract: This paper uses panel data on bilateral FDI flows in the European Union to empirically analyze the impact of labor and corporate taxations on FDI decisions. While the effect of corporate taxes on FDI is well documented, the impact of labor taxes on FDI has been neglected. This is surprising since labor taxation may influence FDI as well. The reason for this is that taxation of labor affects the production cost and the ability to attract and retain productive labor and ultimately the investment return. By employing a Heckman two-step estimation model, which controls for possible sample selection bias due to many zero bilateral observations, it is found that labor taxes do influence FDI decisions. The effect is significant both statistically and economically, although the magnitude is smaller than for corporate tax.
    Keywords: labor taxation; foreign direct investment
    JEL: F12 F15 F21 H71 H73
    Date: 2011–03–03
  9. By: Elena Sochirca (Faculdade de Economia, Universidade do Porto); Sandra Tavares Silva (CEF.UP, Faculdade de Economia, Universidade do Porto)
    Abstract: In this work we intend to study how the quality of the institutional factor may influence the efficiency of redistribution policy specifically associated with human capital accumulation. We develop a conceptual discussion building on the importance of income redistribution for economic growth and the key role of political institutions in securing growth-enhancing redistribution policies. We introduce endogenous growth theory elements into our analysis by considering as a fundamental source of economic growth human capital accumulation, motivated by tax-financed education secured through efficient redistribution policies. We outline crucial insights on the underlying mechanisms, emphasizing however that extensive research on the subject is undoubtedly still required. In particular, we identify the main factors negatively affecting the decisive role of political institutions and, consequently, distorting efficient redistribution policy. We then define a political-economic equilibrium as a combination of intermediately strong state and efficient control-rights institutions, implying simultaneous protection from expropriation and implementation of efficient redistribution policy, conducive to sustained economic growth.
    Keywords: redistribution policy, human capital, institutions, taxation, public education, economic growth
    JEL: H23 E24 O43
    Date: 2011–03
  10. By: Beria, Paolo; Grimaldi, Raffaele
    Abstract: In this paper we analyse some possible unconventional factors of efficiency in public transport. The occasion for such analysis rises from a case study in the southern Italian region of Sicily. Most of the regional bus service is here historically franchised to some local private bus companies, without tenders or any other form of competition. The structure of the network has never been planned ex-ante, as it is the result of negotiations among bus companies, local and regional authorities. Though this situation is obviously quite far from indications of the regulation theory, it results in a surprisingly efficient system, with very low unit costs. An analysis of this situation is here carried out in order to understand which factors are forcing those companies to be efficient and which problems this situation may generate. The quality and effectiveness of the offered service is also reckoned. Two factors seem to be most relevant to this results: the relatively low level of subsidies together with the fact of being private operators (rather an exception than a rule in Italy). In order to improve their efficiency, those companies also merged together but eventually split again in the last decades in order to reach a more efficient size and suggesting the presence of possible diseconomies of scale in the sector. Taking for granted that a form of regulation is needed, it is here suggested that regulatory strategies should adapt to this counterintuitive fact and not destroy the incentives already effective in the present situation. Our suggestion is to prefer medium sized tenders rather than large ones, not only for granting more contestability, but also for financial reasons.
    Keywords: regulation; bus; economies of scale; public transport; tender
    JEL: R40 L92 L33
    Date: 2010–04

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