nep-pbe New Economics Papers
on Public Economics
Issue of 2011‒09‒16
eleven papers chosen by
Keunjae Lee
Pusan National University

  1. "The Impacts of Various Taxes on Foreign Direct Investment" By Stacie Beck; Alexis Chaves
  2. Tax policy and income inequality in the U.S., 1978—2009: A decomposition approach By Olivier Bargain; Mathias Dolls; Herwig Immervoll; Dirk Neumann; Andreas Peichl; Nico Pestel; Sebastian Siegloch
  3. The Private Provision of International Impure Public Goods: the Case of Climate Policy By Martin Altemeyer-Bartscher; Anil Markandya; Dirk T.G. Rübbelke
  4. Trade Integration and Business Tax Differentials: Theory and Evidence from OECD Countries By Nelly Exbrayat; Benny Geys
  5. The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States By Mertens, Karel; Ravn, Morten O
  6. Government and Growth By Milad Zarin-Nejadan
  7. A Wealth Tax on the Rich to Bring down Public Debt?: Revenue and Distributional Effects of a Capital Levy By Stefan Bach; Martin Beznoska; Viktor Steiner
  8. Viewing tax policy through party-colored glasses: What German politicians believe By Janeba, Eckhard; Heinemann, Friedrich
  9. Capital Regulation, Liquidity Requirements and Taxation in a Dynamic Model of Banking By Nicolo, G. De; Gamba, A.; Lucchetta, M.
  10. Public Capital in Resource Rich Economies: Is there a Curse? By Sambit Bhattacharyya; Paul Collier
  11. Cost-Benefit Analysis for Investment Decisions: Forward, Table of Contents, Preface and Chapter 1 (The Integrated Analysis of Investment Projects) By Glenn Jenkins; Chun-Yan Kuo; Arnold C. Harberger

  1. By: Stacie Beck (Department of Economics,University of Delaware); Alexis Chaves (U.S. Bureau of Economic Analysis, U.S. Department of Commerce)
    Abstract: Previous work on the effect of taxes on foreign direct investment (FDI) focused primarily on capital income taxes. We investigate the proposition that other forms of taxation may also deter FDI. We use tax ratios, i.e., average effective tax rates, on consumption, labor and capital income for a panel of 25 OECD countries from 1975-2006. We find that increases in relative tax rates on capital income encourage net FDI outflow whereas increases in labor income tax rates have the opposite effect. Increases in relative consumption tax rates have insignificant impacts.
    Keywords: Tax Ratio, Foreign Direct Investments
    JEL: F21 H20 C33
    Date: 2011
  2. By: Olivier Bargain (UC Dublin, IZA and CEPS/INSTEAD); Mathias Dolls (University of Cologne and IZA); Herwig Immervoll (OECD, ISER and IZA); Dirk Neumann (University of Cologne and IZA); Andreas Peichl (IZA, University of Cologne, ISER and CESifo); Nico Pestel (University of Cologne and IZA); Sebastian Siegloch (University of Cologne and IZA)
    Abstract: We assess the effects of U.S. tax policy reforms on inequality by applying a new decomposition method that allows us to disentangle mechanical effects due to changes in pre-tax incomes from direct effects of policy reforms. While tax reforms implemented under Democrat administrations, in particular the EITC reforms in the 1990s and the ARRA in 2009, had an equalizing effect at the lower half of the distribution, the disequalizing effects of Republican reforms are due to tax cuts for high-income families. As a consequence of partisan politics, overall policy effects almost cancel out over the whole time period.
    Keywords: Tax policy, Inequality, Redistribution, Political Economy, Great Recession
    JEL: H23 H31 H53 P16
    Date: 2011
  3. By: Martin Altemeyer-Bartscher; Anil Markandya; Dirk T.G. Rübbelke
    Abstract: We discuss a tax-transfer scheme that aims at addressing the under-provision problem associated with the private supply of international public goods and at bringing about Pareto optimal allocations internationally. In particular, we consider the example of the global public good ‘climate stabilisation’, both in an analytical and a numerical simulation model. The proposed scheme levies Pigouvian taxes globally, while international sidepayments are employed in order to provide incentives to individual countries for not taking a free-ride from the international Pigouvian tax scheme. The side-payments, in turn, are financed via the environmental taxes. As a distinctive feature we take into account ancillary benefits that may be associated with local public characteristics of climate policy. We determine the positive impact that ancillary effects may exert on the scope for financing side-payments via environmental taxation. A particular attractive feature of ancillary benefits is that they arise shortly after the implementation of climate policies and therefore yield an almost immediate payback of investments in abatement efforts. Especially in times of high public debt levels, long periods of amortisation would tend to reduce political support for investments in climate policy.
    Date: 2011–09
  4. By: Nelly Exbrayat (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Benny Geys (BI Norwegian School of Management - BI Norwegian School of Management)
    Abstract: Building on recent contributions to the New Economic Geography literature, this paper analyses the relation between asymmetric market size, trade integration and business income tax differentials across countries. First, relying on a foot-loose capital model of tax competition, we illustrate that trade integration (or decreasing trade costs) reduces the importance of relative market size for differences in the extent of corporate taxation between countries. Then, using a dataset of 26 OECD countries over the period 1982-2004, we provide supportive evidence of these theoretical predictions: i.e., market size differences are strongly positively correlated with corporate income tax differences across countries but, crucially, trade integration weakens this link. These findings are obtained controlling for the potential endogeneity of trade integration and are robust to various alternative specifications and robustness checks.
    Keywords: Tax competition; Trade integration; New Economic Geography; Tax differentials
    Date: 2011
  5. By: Mertens, Karel; Ravn, Morten O
    Abstract: This paper estimates the dynamic effects of changes in taxes in the United States. We distinguish between the effects of changes in personal and corporate income taxes using a new narrative account of federal tax liability changes in these two tax components. We develop an estimator in which narratively identified tax changes are used as proxies for structural tax shocks and apply it to quarterly post WWII US data. We find that short run output effects of tax shocks are large and that it is important to distinguish between different types of taxes when considering their impact on the labor market and the major expenditure components.
    Keywords: fiscal policy; measurement error; narrative identification; tax changes
    JEL: E20 E32 E62 H30
    Date: 2011–09
  6. By: Milad Zarin-Nejadan (Institute of economic research IRENE, Faculty of Economics, University of Neuchâtel, Switzerland)
    Abstract: The relative size of the State in industrialized economies has increased dramatically during the past century giving rise to legitimate fears that such a trend might end up having an adverse impact on growth. This paper explores the relationship between the development of government activities and economic growth. It starts by evoking problems related to the measurement of the public sector before reviewing statistical evidence on the long-term growth of the share of the State in the economy. It then provides a number of explanations for this phenomenon including those pertaining to the functioning of the political system itself thereby pointing towards inefficiencies. The next step is to explore the principal avenues along which government interventions can positively or negatively interfere with the growth potential of the economy. It turns out that while public expenditures – especially those responding to market failures – tend to be favorable to growth, most taxes are growth-hindering. The final part of the paper singles out some pitfalls in the empirical investigation of this relationship. The conjecture is that the nonlinear and possibly endogenous nature of the hypothesized nexus can explain the lack of consensus in empirical studies conducted so far.
    Keywords: Government growth, Public expenditure, Taxes, Economic growth, Endogenous growth
    JEL: E62 H11 H21 H50 O40
    Date: 2011–08
  7. By: Stefan Bach; Martin Beznoska; Viktor Steiner
    Abstract: The idea of higher wealth taxes to finance the mounting public debt in the wake of the financial crises is gaining ground in several OECD countries. We evaluate the revenue and distributional effects of a one-time capital levy on personal net wealth that is currently on the German political agenda. We use survey data from the German Socio-Economic Panel (SOEP) and estimate the net wealth distribution at the very top, based on publicly available information about very rich Germans. Since net wealth is strongly concentrated, the capital levy could raise substantial revenue, even if relatively high personal allowances are granted. We also analyze the compliance and administrative costs of the capital levy.
    Keywords: Capital levy, wealth distribution, microsimulation
    JEL: H24 D31 H22
    Date: 2011
  8. By: Janeba, Eckhard; Heinemann, Friedrich
    Abstract: Abstract: The process of globalization has an important impact on national tax policies. Most of the literature does not focus directly on the political decision making process and assumes that the desired tax policy is responding to objective underlying tradeoffs. Based on an original survey of members of German national parliament (Bundestag) in 2006/7 we document a strong ideological bias among policy makers with respect to the perceived mobility of international tax bases (real capital and paper profits). Ideology influences also directly and indirectly the perceived national autonomy in tax setting and preferences for a EU minimum tax for companies. There seems little consensus as to what the efficiency costs of capital taxation in open economies are, even though our survey falls in a period of extensive debate about and actual adoption of a company tax reform bill in Germany.
    Keywords: Globalization; business taxation; beliefs; member of parliament; profit shifting; party discipline; yardstick competition
    JEL: H25 D83 D78
    Date: 2011–08
  9. By: Nicolo, G. De; Gamba, A.; Lucchetta, M. (Tilburg University, Center for Economic Research)
    Abstract: This paper formulates a dynamic model of a bank exposed to both credit and liquidity risk, which can resolve financial distress in three costly forms: fire sales, bond issuance and equity issuance. We use the model to analyze the impact of capital regulation, liquidity requirements and taxation on banks' optimal policies and metrics of efficiency of intermediation and social value. We obtain three main results. First, mild capital requirements increase bank lending, bank efficiency and social value relative to an unregulated bank, but these benefits turn into costs if capital requirements are too stringent. Second, liquidity requirements reduce bank lending, efficiency and social value significantly, they nullify the benifits of mild capital requirements, and their private and social costs increase monotonically with their stringency. Third, increases in corporate income and bank liabilities taxes reduce bank lending, bank effciency and social value, with tax receipts increasing with the former but decreasing with the latter. Moreover, the effects of an increase in both forms of taxation are dampened if they are jointly implemented with increases in capital and liquidity requirements.
    Keywords: Capital requirements;liquidity requirements;taxation of liabilities. JEL Classifications
    Date: 2011
  10. By: Sambit Bhattacharyya; Paul Collier
    Abstract: As poor countries deplete their natural resources, for increased consumption to be sustainable some of the revenues should be invested in other public assets. Further, since such countries typically have acute shortages of public capital, the finance from resource depletion is an opportunity for needed public investment. Using a new global panel dataset on public capital and resource rents covering the period 1970 to 2005 we find that, contrary to these expectations, resource rents significantly and substantially reduce the public capital stock. This is more direct evidence for a policy-based ‘resource curse’ than the conventional, indirect evidence from the relationships between resource endowments, growth and income. The adverse effect on public capital is mitigated by good economic and political institutions and worsened by GDP volatility and ethnic fractionalization. Rents from depleting resources have more adverse effects than those that are sustainable. Our main results are robust to a variety of controls, and to instrumental variable estimation using commodity price and rainfall as instruments, Arellano-Bond GMM estimation, as well as across different samples and data frequencies.
    Keywords: Natural resources; public capital
    JEL: E0 O1
    Date: 2011
  11. By: Glenn Jenkins (Queen's University, Canada and Eastern Mediterranean University, Cyprus); Chun-Yan Kuo (Queen's University, Canada); Arnold C. Harberger (University of California, Los Angeles, USA)
    Abstract: The goal of a proper project evaluation is to stop bad projects and to prevent good projects from being rejected. This book on Cost-Benefit Analysis for Investment Decisions is aimed at helping public officials and private analysts develop and evaluate investment projects to promote economic and social well-being of the country in question. The book proceeds from the formulation and definition of a project to the data requirements for an evaluation, then to the criteria used for accepting a good or rejecting a bad project from both the financial and the economic viewpoints, and finally to the analysis and management of many types of uncertainty faced by various stakeholders. These components are integrated into the analysis in a consistent manner. This chapter contains an overview of the book and of the components of such an integrated appraisal.
    Keywords: Integrated Analysis, Project Definition, Project Cycle
    JEL: H43
    Date: 2011–08

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