nep-pbe New Economics Papers
on Public Economics
Issue of 2011‒08‒15
four papers chosen by
Keunjae Lee
Pusan National University

  1. Optimal Capital Taxation and Consumer Uncertainty By Justin Svec
  2. Tax Expenditures, the Size and Efficiency of Government, and Implications for Budget Reform By Leonard E. Burman; Marvin Phaup
  4. Panel data evidence on non-Keynesian efects of fiscal policy in the EU New Member By Borys, Paweł; Ciżkowicz, Piotr; Rzońca, Andrzej

  1. By: Justin Svec (Department of Economics, College of the Holy Cross)
    Abstract: This paper analyzes the impact of consumer uncertainty on optimal fiscal policy in a model with capital. The consumers lack confidence about the probability model that characterizes the stochastic environment and so apply a max-min operator to their optimization problem. An altruistic fiscal authority does not face this Knightian uncertainty. It is shown analytically that the government, in responding to consumer uncertainty, no longer sets the expected capital tax rate exactly equal to zero, as is the case in the full-confidence benchmark model. However, our numerical results indicate that the government does not diverge far from this value. Even though the capital income tax rate is close to zero in expectation, consumer uncertainty leads the altruistic government to implement a more volatile capital tax rate across states. In doing so, the government relies more heavily on the capital tax and, consequently, less heavily on the labor income tax to finance the shock to public spending.
    Keywords: Robust control, uncertainty, taxes, capital, Ramsey problem
    JEL: E61 E62 H21
    Date: 2011–08
  2. By: Leonard E. Burman; Marvin Phaup
    Abstract: One possible explanation for the difficulty in controlling the budget is that a major component of spending—tax expenditures—receives privileged status. It is treated as tax cuts rather than spending. This paper explores the implications of that misclassification and illustrates how it can lead to higher taxes, larger government, and an inefficient mix of spending (too many tax expenditures). The paper then suggests options for reform to the budget process that would explicitly incorporate and properly measure tax expenditures. It concludes by considering ways to control tax expenditures (and other spending) and the special challenges presented by tax expenditures.
    JEL: H21 H24 H50 H62
    Date: 2011–08
  3. By: Stacie Beck (Department of Economics,University of Delaware); Alexis Chaves (Bureau of Economic Analysis)
    Abstract: Few macroeconomic studies exist on the effects of taxes on international trade. Our hypothesis is that higher tax rates raise a country’s production costs, leading to a decrease in exports in the long run. With panel data for 25 OECD countries, we use average effective tax rates on consumption, labor income and capital income to examine their impact on bilateral trade. We find that that all three types of taxes reduce the flow of international trade.
    Keywords: tax ratio, average effective tax rate, international trade
    JEL: H20 F10 C23
    Date: 2011
  4. By: Borys, Paweł; Ciżkowicz, Piotr; Rzońca, Andrzej
    Abstract: There is growing evidence that fiscal consolidation may contribute to economic growth even in the short term. In this paper we review recent research on such non-Keynesian fiscal policy effects and apply panel data econometric techniques to examine the consequences of fiscal consolidation in the EU New Member States. We extend the analysis to test potential channels through which non-Keynesian effects may operate. The results confirm that composition of the consolidation determines the output response. Moreover, we find evidence that all types of fiscal consolidations stimulate private investments, while export acceleration is observed only when consolidations involve mostly expenditure curtailment. Private consumption reaction to fiscal policy shows signs of nonlinearity - in the case of minor adjustments Keynesian effects dominate, but they are cancelled out when sizable consolidations are considered.
    Keywords: fiscal consolidation; non-Keynesian efects; New Member States; panel data
    JEL: E62 D81 E32 C23 E23 E44
    Date: 2011–07

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