nep-pbe New Economics Papers
on Public Economics
Issue of 2011‒11‒01
ten papers chosen by
Keunjae Lee
Pusan National University

  1. A Multi-Agent Model of Tax Evasion with Public Expenditure By Paolo Pellizzari; Dino Rizzi; ;
  2. Trade Integration and Business Tax Differentials : Theory and Evidence from OECD Countries By Nelly Exbrayat; Benny Geys
  3. Relative Consumption Concerns and the Optimal Tax Mix By Paul Eckerstorfer
  4. Redistributive Impacts of Personal Income Tax in Urban China By Jing Xu; Ximing Yue
  5. Promoting Infrastructure Development in Brazil By Annabelle Mourougane; Mauro Pisu
  6. Effective Tax and Subsidy Rates on Human Capital in Canada By John B. Burbidge; Kirk A. Collins; James B. Davies; Lonnie Magee
  7. Behavioral Explanation of Tax Asymmetries By Martin Fochmann; Martin Jacob
  8. Government Spending Cyclicality: Evidence from Rainfall Shocks as an Instrument for Cyclical Income By Brückner, Markus; Gradstein, Mark
  9. Optimal redistributive taxation in a multi-externality model By Paul Eckerstorfer
  10. Redistribution Policy and Inequality Reduction in OECD Countries: What Has Changed in Two Decades? By Immervoll, Herwig; Richardson, Linda

  1. By: Paolo Pellizzari (Department of Economics, University Of Venice Cà Foscari); Dino Rizzi (Department of Economics, University Of Venice Cà Foscari); ;
    Abstract: We develop a model where heterogeneous agents maximize their individual utility based on (after tax) income and on the level of public expenditure (as in Cowell, Gordon, 1988). Agents are different in risk aversion and in the relative preference for public expenditure with respect to personal income. In each period, an agent can optimally conceal some income based on conjectures on the perceived probability of being subject to audits, the perceived level of public expenditure and the perceived amount of tax paid by other individuals. As far as the agent-based model is concerned, we assume that the Government sets the tax rate and the penalties, uses all the revenue to finance public expenditure (with no inefficiency) and fights evasion by controlling a (random) fraction of agents. We show that, through computational experiments based on micro-simulations, stable configurations of tax rates and public expenditure endogenously form in this case as well. In such equilibrium-like situations we find: • a positive relationship between the tax rate and evasion still arises. • tax compliance mainly depends on the distribution of personal features like risk-aversion and the degree of preference for public expenditure. • an endogenous level of tax evasion that is almost not affected by reasonable rates of control. A proper choice of the tax rate results instead in voluntary partial compliance. • the enforcement of higher compliance rates requires unrealistic and costly large-scale audits.
    Keywords: Tax evasion, public expenditure, agent-based models
    JEL: H26 H40 C63
    Date: 2011
  2. By: Nelly Exbrayat (Université de Lyon, Lyon, F-69003, France ; Université Jean Monnet, Saint-Etienne, F-42000, France ; CNRS, GATE Lyon St Etienne, Saint-Etienne, F-42000, France); Benny Geys (Norwegian School of Management BI, Nydalsveien 37, N-0442 Oslo, Norway and Social Science Research Center Berlin (WZB), Reichpietschufer 50, D-10785 Berlin, Germany)
    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
    JEL: H2 H3 C23 F12
    Date: 2011
  3. By: Paul Eckerstorfer (Department of Economics, Johannes Kepler University Linz, Austria)
    Abstract: This articles studies the optimal tax mix (taxes on income and commodities) under asymmetric information in a two-type model, when individuals make relative consumption comparisons. The model includes both positional and nonpositional goods, taking into account the fact that relative concerns matter for some but not for all commodities. We find that in general the whole tax system is affected by the externalities caused by the consumption of positional goods, notably also the taxes on income and on a non-positional good. The tax rates on positional goods are higher than in the absence of status effects, reflecting their Pigouvian role. The sign of the Pigouvian part in the income tax schedule is ambiguous and depends crucially on whether status goods are complements or substitutes to leisure.
    Keywords: Optimal Taxation, Externalities, Relative Consumption
    JEL: D62 H21 H23
    Date: 2011–10
  4. By: Jing Xu (The People's University of China); Ximing Yue (The People's University of China)
    Abstract: Not available.
    Date: 2011
  5. By: Annabelle Mourougane; Mauro Pisu
    Abstract: Brazil under-invested in infrastructure for over three decades, and infrastructure investment rates have come up only slowly since 2007. Infrastructure needs are sizeable in almost all sectors. It is likely that at its current stage of development the country will benefit from large pay-offs from infrastructure spending. Against this background, the Brazilian authorities have put in place a large infrastructure plan named Growth Acceleration Programme (Programa de aceleração do crescimento, PAC). This programme has been rightly protected from the fiscal cuts announced in early 2011. Nevertheless, some changes to the policy and regulatory framework could be introduced to make public investment more cost-efficient and to foster private participation. In particular: • The second stage of PAC needs to focus on completing the most worthwhile programmes. In addition, the public-private partnership framework should be streamlined. • In most areas, the regulatory framework is working well, but sectors are at different stages of development. Despite important institutional changes in recent years, policy capture is sometimes still influencing some federal and many state regulatory agency decisions. • In spite of some recent progress, frequent disputes appear to delay some infrastructure projects, especially in the energy sector. The main challenge in this area is to hasten the licensing process, while continuing to put appropriate emphasis on environmental and social protection. • Reforms have been implemented in individual network industries, but there is still some room to inject competition in fixed-line telecommunications and to prevent product cross-subsidisation in the electricity sector. Concession contracts in both roads and rail could be refined to foster private investment in maintenance and network expansion. In water and sanitation, where investments are the most needed, smaller municipalities should be encouraged to invest and form consortia to reap economies of scale. This Working Paper relates to the 2011 OECD Economic Review of Brazil 2011 (<P>Promouvoir le développement des infrastructures au Brésil<BR>Le Brésil a peu investi en infrastructure ces trente dernières années, et les dépenses d’équipement dans ce domaine n’augmentent que lentement depuis 2007. Les besoins sont considérables dans presque tous les secteurs. Au stade actuel de son développement, le pays a sans doute tout intérêt à engager des dépenses d’infrastructure. C’est pourquoi les autorités brésiliennes ont mis en place un vaste plan de développement de l’infrastructure, appelé Programme d’accélération de la croissance (Programa de aceleração do crescimento, PAC). Ce programme a été, à juste titre, épargné par les coupes budgétaires annoncées début 2011. Néanmoins, certaines modifications pourraient être apportées au cadre stratégique et réglementaire afin de rendre l’investissement public plus rentable et de stimuler la participation du secteur privé. En particulier : • La deuxième phase du PAC doit être centrée sur l’achèvement des programmes les plus importants. Par ailleurs, le cadre de partenariat public-privé devrait être simplifié. • Dans la plupart des domaines, le cadre réglementaire fonctionne bien, mais les secteurs en sont à des stades de développement différents. Malgré les importantes réformes institutionnelles de ces dernières années, la captation par des intérêts particuliers continue parfois d’influer sur certaines décisions fédérales et sur des décisions de nombreux organismes de réglementation des États. • Malgré des progrès récents, de fréquents conflits paraissent retarder certains projets d’infrastructure, en particulier dans le secteur de l’énergie. La principale difficulté dans ce domaine consiste à accélérer le processus d’octroi de licences, tout en continuant de mettre l’accent comme il convient sur la protection sociale et environnementale. • Des réformes ont été mises en oeuvre dans certains secteurs de réseau, mais l’on pourrait encore faire jouer davantage la concurrence dans la téléphonie fixe et éviter les péréquations tarifaires dans le secteur de l’électricité. Les contrats de concession, tant pour les routes que pour le rail, pourraient être affinés afin de favoriser l’investissement privé à la fois dans l’entretien et dans l’extension des réseaux. Dans le domaine de l’eau et de l’assainissement, où l’insuffisance des investissements est la plus importante, les petites municipalités devraient être encouragées à investir et à former des consortiums afin de profiter des économies d’échelle réalisables. Ce document de travail se rapporte à l’Étude économique de l’OCDE du Brésil 2011. (
    Keywords: Brazil, infrastructure, PPPs, regulatory framework, Brésil, infrastructure, PPPs, cadre réglementaire
    JEL: H43 H54 H81 K23
    Date: 2011–10–21
  6. By: John B. Burbidge (University of Waterloo); Kirk A. Collins (St. Francis Xavier University); James B. Davies (University of Western Ontario); Lonnie Magee (McMaster University)
    Abstract: Effective tax and subsidy rates (ETRs and ESRs) on human capital investment via postsecondary education are estimated for Canada in the years 2000 and 2006. The flattening of the federal personal income tax structure in 2001 substantially reduced the tax disincentive for investment in human capital. Effective subsidy rates also declined as public spending did not keep pace with rising tuition fees. The change on the tax side was strong enough to dominate the subsidy reduction according to our main results, but disaggregation shows that this result did not hold in all cases. Results are shown for College, Master’s, and PhD programs, in addition to Bachelor’s degrees. They are also broken down by gender, and are shown for the 25th and 75th percentiles as well as the median. Provincial detail and 1997 results are provided in the case of Bachelor’s graduates.
    Date: 2011
  7. By: Martin Fochmann (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Martin Jacob (WHU - Otto Beisheim School of Management)
    Abstract: This note develops a behavioral explanation for the existence of an asymmetric tax treatment of gains and losses when investors are loss averse. We find that loss offset rules should be more restrictive for investors which are (1) more risk averse in case of gains, (2) less risk seeking in case of losses, or (3) more loss averse. Our findings have important policy implications. Tax authorities often implement identical loss offset rules for different investor clienteles. However, there should be specific loss offset rules for investors who differ in risk attitude as well as in loss aversion.
    Keywords: Asymmetric Taxation, Loss Offset Rules, Loss Aversion, Behavioral Economics
    Date: 2011–10
  8. By: Brückner, Markus; Gradstein, Mark
    Abstract: This research revisits the cyclicality of fiscal policies. To identify and estimate more precisely the magnitude of a causal effect of cyclical income on government spending, we employ annual rainfall data as an instrument for national income in the context of sub-Saharan countries. Our results confirm procyclical behavior of government spending and of tax revenues; debt and deficit are found to be countercyclical. Specifically, government spending is procyclical during upturns and acyclical during downturns. We also find that its procyclicality is correlated with corruption, especially among democracies.
    Keywords: cyclicality; Fiscal policy
    JEL: E62
    Date: 2011–10
  9. By: Paul Eckerstorfer (Department of Economics, Johannes Kepler University Linz, Austria)
    Abstract: This paper extends the previous literature on optimal redistributive taxation in the presence of externalities to a multi-externality setting. While taxes on income and on 'clean' commodities are still unaffected by the externalities, which confirms previous results, I find that the existence of more than one externality-generating commodity has important implications for the optimal Pigouvian tax rates. In general the Pigouvian parts of taxation depend also on the externalities induced by the consumption of the other commodities, implying that the interdependence of the externality-generating commodities is relevant for tax policy.
    Keywords: Optimal Taxation, Externalities
    JEL: D82 H21 H23 H24
    Date: 2011–07
  10. By: Immervoll, Herwig (World Bank); Richardson, Linda (OECD)
    Abstract: We use a range of data sources to assess if, and to what extent, government redistribution policies have slowed or accelerated the trend towards greater income disparities in the past 20-25 years. In most countries, inequality among "non-elderly" households has widened during most phases of the economic cycle and any episodes of narrowing income differentials have usually not lasted long enough to close the gap between high and low incomes that had opened up previously. With progressive redistribution systems in place, greater inequality automatically leads to more redistribution, even if no policy action is taken. We find that, in the context of rising market-income inequality, tax-benefit systems have indeed become more redistributive since the 1980s but that this did not stop income inequality from rising: market-income inequality grew by twice as much as redistribution. Between the mid-1990s and the mid-2000s, the redistributive strength of tax-benefit systems then weakened in many countries. While growing market-income disparities were the main driver of inequality trends between the mid-1980s and mid-1990s, reduced redistribution was often the main reason why inequality rose in the ten years that followed. Benefits had a much stronger impact on inequality than social contributions or taxes, despite the much bigger aggregate size of direct taxes. As a result, redistribution policies were often less successful at counteracting growing income gaps in the upper parts of the income distribution.
    Keywords: income inequality, redistribution, working age, OECD
    JEL: D31 H22 H55 C81
    Date: 2011–10

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