nep-pbe New Economics Papers
on Public Economics
Issue of 2011‒11‒07
twelve papers chosen by
Keunjae Lee
Pusan National University

  1. Public Expenditures, Taxes, Federal Transfers, and Endogenous Growth By Liutang Gong; Heng-fu Zou
  2. The Effects of Tax Salience and Tax Experience on Individual Work Efforts in a Framed Field Experiment By Fochmann, Martin; Weimann, Joachim
  3. Financing of Public Goods through Taxation in a General Equilibrium Economy: Theory and Experimental Evidence By Juergen Huber; Martin Shubik; Shyam Sunder
  4. Growth Implications of Structure and Size of Public Sectors By Hans Pitlik; Margit Schratzenstaller
  5. Tax Reform Trends in OECD Countries By Bert Brys; Stephen Matthews; Jeffrey Owens
  6. Non-Tax Compulsory Payments as an Additional Burden on Labour Income By Bert Brys
  7. Effective taxation of top incomes in Germany By Bach, Stefan; Corneo, Giacomo; Steiner, Viktor
  8. Quantifying the role of federal and state taxes in mitigating income inequality By Daniel H. Cooper; Byron F. Lutz; Michael G. Palumbo
  9. Political drivers of and barriers to Public-Private Partnerships: The role of political involvement By Gawel, Erik
  10. Taxation and Labor Force Participation: The Case of Italy By Fabrizio Colonna; Stefania Marcassa
  11. The Evaluation of the Effectiveness of Tax Expenditures - A Novel Approach: An Application to the Regional Tax Incentives for Business Investments in Italy By Antonella Caiumi
  12. Diversity and Public Goods: A Natural Experiment with Exogenous Residential Allocation By Algan, Yann; Hémet, Camille; Laitin, David D.

  1. By: Liutang Gong (Guanghua School of Management, Peking University); Heng-fu Zou (CEMA, Central University of Finance and Economics; Shenzhen University; Wuhan University; The World Bank)
    Abstract: This paper extends the Barro (1990) model with single aggregate government spending and one flat income tax to include public expenditures and taxes by multiple levels of government. It derives the rate of endogenous growth and, with both simulations and special examples, examines how that rate changes with respect to federal income tax, local taxes, and federal transfers. It also discusses the growth and welfare-maximizing choices of taxes and federal transfers.
    Keywords: Public expenditures, Taxes, Federal transfers, Endogenous growth
    JEL: E0 H2 H4 H5 H7 O4 R5
    Date: 2011
  2. By: Fochmann, Martin (University of Magdeburg); Weimann, Joachim (University of Magdeburg)
    Abstract: We conduct a framed field experiment with 245 employed persons (no students) as subjects and a real tax, which is levied on the subjects' income from working in our real effort task. In our first three treatments, the net wage is constant but gross wages are subject to different constant marginal tax rates (0, 25%, 50%). It turns out that the effort is significantly higher under the tax than in the no tax treatment. Subjects perceive a too high net wage because they underestimate the tax. We conjecture that tax perception depends on the tax rate, the presentation of the tax and the experience subjects have with taxation. These conjectures are confirmed in four further treatments employing a direct and an indirect progressive tax scale. It turns out that simple at taxes are particularly prone to being misperceived because their simplicity reduces the tax salience.
    Keywords: field experiment, real effort experiment, tax perception, tax salience, tax experience, behavioral economics
    JEL: C91 D14 H24
    Date: 2011–10
  3. By: Juergen Huber (University of Innsbruck); Martin Shubik (Cowles Foundation, Yale University); Shyam Sunder (Yale School of Management)
    Abstract: We compare general equilibrium economies in which building and maintenance of a depreciating public facility is financed either by anonymous voluntary contributions or by taxing agents on their income from private production. Agents start with an endowment of private goods and money, while the government starts with an endowment of public good and money. All private goods produced are tendered for sale in exchange for money in a sell-all market mechanism. Agents' proceeds from sale are taxed, and they individually allocate their private goods between current consumption and investment in production for the following period. The optimal levels of supply of the public good, and tax rate to sustain it over time, are defined and calculated for infinite and finite horizons. These equilibrium theoretical predications are compared to the outcomes of laboratory economies when (1) the starting public facility is either at or below the optimal level; and (2) the tax rate is either exogenously set at the optimal level, or at the median of rates proposed by individual agents. We find that the experimental economies sustain public goods at about 70-90 percent of the infinite horizon but considerably more than the finite horizon optimum. Payoffs (efficiency) is at 90 percent of the infinite horizon equilibrium level even when the rate of taxation is determined by voting. Starting conditions play only a minor role for outcomes of the economies, as efficiency and the stock of public good adjusts to about the same level irrespective of the starting level. These results contrast with rapid decline in provision of public goods under anonymous voluntary contributions, and point to the possibility that the social institution of government enforced taxation may have evolved to address the problem of under-production of public goods through anonymous voluntary contributions.
    Keywords: Public goods, Experimental gaming, Voting, taxation, Evolution of institutions
    JEL: C72 C91 C92
    Date: 2011–10
  4. By: Hans Pitlik (WIFO); Margit Schratzenstaller (WIFO)
    Abstract: The relationship between government size and growth has received an enormous attention in the economics literature, and the recent financial crisis has forced this topic back on the agenda. A highly controversial debate in this respect is whether large governments are harmful for growth. Endogenous growth theory provides us with the view that tax structure and the composition of public expenditure may be important for growth, perhaps even more than total tax or expenditure levels. Government size and structure are, however, also reflected in the level and structure of market regulations, which may substitute or complement fiscal intervention. The study provides an overview of the growth-friendliness of fiscal and regulatory structures in a cross-section of EU 15 and EU 12 countries and highly developed OECD countries. Peripheral European (transition) countries are also included, whenever respective data are available. Our analysis is based on several measures capturing the expenditure and the tax side of the budgets, as well as regulatory policies. It is shown that the size and the structure of fiscal and regulatory regimes and, hence, the expected long-run growth impact of government activities, still differ markedly across countries.
    Date: 2011–10–28
  5. By: Bert Brys; Stephen Matthews; Jeffrey Owens
    Abstract: Over the last two decades almost all OECD countries have made major structural changes to their tax systems. In the case of the personal and corporate income tax regimes reforms have generally been rate reducing and base broadening, following the lead given by the United Kingdom in 1984 and the United States in 1986. In some countries, including Australia and New Zealand, reforms have been profound and sometimes implemented over a very short period of time. In others, including most of Europe, Japan and many other Asian countries, reform has been a gradual process of adaptation.
    Date: 2011–11–03
  6. By: Bert Brys
    Abstract: In 23 of the 34 OECD member countries, it is compulsory for employers and/ or employees to make additional payments, in addition to taxes and social security contributions, which increase the overall burden on labour income. These non-tax compulsory payments, which are typically paid to privatelymanaged funds, will either increase the employer’s labour costs or reduce the employee’s net take-home pay in a similar way to taxes, although they do not necessarily have the same behavioural impact. This paper discusses the different non-tax compulsory payments levied in OECD member countries and calculates “compulsory payment indicators”, which combine non-tax compulsory payments and taxes into an overall indicator of the burden of compulsory government regulation on labour income. The analysis shows that especially employers have to pay non-tax compulsory payments and that they have a considerable impact on the “tax wedge” rankings that are published in the OECD’s Taxing Wages Report.<P>Les prélèvements obligatoires non fiscaux comme charge additionnelle sur les revenus du travail<BR>Dans 23 des 34 pays membres de l’OCDE, les employeurs et/ou leurs salariés sont tenus d’effectuer des paiements qui ne sont pas définis comme des impôts et cotisations de sécurité sociale et qui alourdissent la charge globale qui pèse sur les revenus du travail. Ces « prélèvements obligatoires non fiscaux », généralement effectués au profit de fonds à gestion privée, ont pour effet d’accroître les coûts de main-d’oeuvre de l’employeur ou de réduire le revenu net disponible du salarié de la même manière que des impôts, bien qu’ils n’aient pas nécessairement les mêmes effets en termes de comportement. Ce document examine les différents prélèvements obligatoires non fiscaux en vigueur dans les pays membres de l’OCDE et calcule des « indicateurs de prélèvements obligatoires », qui combinent les impôts et les prélèvements obligatoires non fiscaux dans un indicateur d’ensemble de la charge sur les revenus du travail induite par la réglementation publique. L’analyse montre que ce sont surtout les employeurs qui sont soumis à des prélèvements obligatoires non fiscaux qui ont des répercussions très sensibles sur le classement du « coin fiscal » publié dans le rapport de l’OCDE intitulé « Les impôts sur les salaires ».
    Keywords: taxes, non-tax compulsory payments, labour income, effective tax rates, impôt, prélèvements obligatoires non fiscaux, revenus du travail, taux effectifs d’imposition
    Date: 2011–11–03
  7. By: Bach, Stefan; Corneo, Giacomo; Steiner, Viktor
    Abstract: We exploit an exhaustive administrative dataset that includes the individual tax returns of all households in the top percentile of the income distribution in Germany to pin down the effective income taxation of households with very high incomes. Taking tax base erosion into account, we find that the top percentile of the income distribution pays an effective average tax rate of 30.5 percent and contributes more than a quarter of total income tax revenue. Within the top percentile, the effective average tax rate is first increasing and then decreasing with income. Since the 1990s, effective average tax rates for the German super rich have fallen by about a third, with major reductions occurring in the wake of the personal income tax reform of 2001-2005. As a result, the concentration of net incomes at the very top of the distribution has strongly increased in Germany. --
    Keywords: personal income tax,taxing the rich,effective progressivity
    JEL: H24 H26 D31
    Date: 2011
  8. By: Daniel H. Cooper; Byron F. Lutz; Michael G. Palumbo
    Abstract: Income inequality has risen dramatically in the United States since at least 1980. This paper quantifies the role that the tax policies of the federal and state governments have played in mitigating this income inequality. The analysis, which isolates the contribution of federal taxes and state taxes separately, employs two approaches. First, cross-sectional estimates compare before-tax and after-tax inequality across the 50 states and the District of Columbia. Second, inequality estimates across time are calculated to assess the evolution of the effects of tax policies. The results from the first approach indicate that the tax code reduces income inequality substantially in all states, with most of the compression of the income distribution attributable to federal taxes. Nevertheless, there is substantial cross-state variation in the extent to which state tax policies compress the income distribution attributable to federal taxes. Cross-state differences in gasoline taxes have a surprisingly large impact on income compression, as do sales tax exemptions for food and clothing. The results of the second approach indicate that there has been little change since the early 1980s in the impact of tax policy on income inequality across almost all states.
    Keywords: Income distribution ; Taxation
    Date: 2011
  9. By: Gawel, Erik
    Abstract: The application and design of public-private partnerships between the extremes of purely public or purely private task fulfilment in public services is, in practice, subject to political processes. Decisions about PPPs (realisation, arrangement) are taken in the political arena and are therefore not theoretical optimisation exercises. The interests and resources of the actors who participate in the political decision-making process as well as the rules of the political process have a powerful influence on whether, in what areas, and in what form PPPs are realised. The distance between this output and solutions that are theoretically desirable given certain ideal goals (e.g. efficiency) and conditions can be referred to as political bias. So what role does the political process play in the realisation of PPPs, in the actual design of PPPs, and in their performance? Using public choice and institutional economics theory this paper analyses what chances of success PPPs have given the existing decision-making structures and the inherent incentives for participating actors, and in what way political influence is brought to bear in the first place. Furthermore, aspects of political science in this field (legitimacy, democratic control) are considered as well. Using PPPs there might be a trade-off between reduced democratic control, but also reinforced market control. It turns out that political involvement might be both an important driver as well as an obstacle for (efficient) PPPs and that it is likely to decrease efficiency either way. A case study for userfinancing PPPs in the transport sector highlights the problems of political renitency. --
    Keywords: public-private partnership,politics,bureaucracy,public choice,contract theory,agency,tax state,transaction cost,governance,legitimacy,transport infrastructure,user financing
    JEL: D72 D73 D78 H11 H44 H63 H83
    Date: 2011
  10. By: Fabrizio Colonna (Banca d'Italia); Stefania Marcassa (Paris School of Economics)
    Abstract: Italy has the lowest labor force participation of women among OECD countries. Moreover, the participation rate of married women is positively correlated to their husbands' income. We show that a high tax schedule together with tax credits and transfers raise the burden of two-earner households, generating disincentives to work. We estimate a structural labor supply model for women, and use the estimated parameters to simulate the effects of alternative revenue-neutral tax systems. We find that joint taxation implies a drop in the participation rate. Conversely, working tax credit and gender-based taxation boost it, with the effects of the former concentrated on low educated women.
    Keywords: female labor force participation, Italian tax system, marginal tax rate, joint taxation, gender-based taxation, working tax credit
    Date: 2011–07
  11. By: Antonella Caiumi
    Abstract: This study evaluates the regional tax incentives for business investment in Italy and addresses the following questions: (i) how much additional investment was stimulated by the government intervention; (ii) has the public financing displaced (part of) the private financing; (iii) to what extent would the outcomes on firm performance have not been achieved without the public support? The methodology consists of applying the matching approach and selects a sample of firms composed of both recipients and non-recipients such that for each subsidised firm a comparable unsubsidised counterpart is found, which is similar in every respect except for the tax benefit. An empirical model of firm’s investment behaviour has then been estimated in order to obtain the tax-price elasticity and to test the sensitivity of investment decisions to the availability of internal funds by taking into account the dynamic structure underlying capital accumulation. This new approach to evaluate tax expenditures allows us to deal with the problem of the endogeneity of firms' participation decisions as well as to account for the different channels through which tax incentives operate. Finally, the impact of the investment tax credit on TFP levels is identified by modelling the productivity dynamics at the firm level.<P>Une approche novatrice pour évaluer l'efficacité des dépenses fiscales : Application aux incitations fiscales régionales en faveur de l'investissement des entreprises en Italie<BR>Cette étude évalue les incitations fiscales régionales en faveur de l’investissement des entreprises en Italie et s’intéresse aux questions suivantes : (i) quel est le montant des investissements supplémentaires induits par l’intervention des pouvoirs publics ; (ii) les fonds publics ont ils supplanté, au moins en partie, les financements privés ; (iii) dans quelle mesure les effets sur les performances des entreprises se seraient ils concrétisés sans aide publique. La méthodologie fondée sur le rapprochement consiste à sélectionner un échantillon composé d’entreprises bénéficiaires et non bénéficiaires, en sorte qu’à chaque entreprise subventionnée corresponde une entreprise comparable non subventionnée, similaire en tous points hormis l’avantage fiscal. Un modèle empirique du comportement de l’entreprise en matière d’investissement est alors estimé afin de calculer l’élasticité de la demande par rapport aux prix et à l’impôt et de tester la sensibilité des décisions d’investissement à l’existence de fonds internes, en tenant compte de la structure dynamique qui sous-entend l’accumulation de capital. Cette nouvelle approche de l’évaluation des dépenses fiscales nous permet de traiter le problème de l’endogénéité des décisions de participation des entreprises, et de prendre en compte les différents canaux par lesquels les incitations fiscales exercent leur action. Enfin, l’impact du crédit d’impôt pour investissement sur les niveaux de la PTF est mesuré en modélisant la dynamique de la productivité au niveau de l’entreprise.
    Date: 2011–11–03
  12. By: Algan, Yann (Sciences Po, Paris); Hémet, Camille (Sciences Po, Paris); Laitin, David D. (Stanford University)
    Abstract: This paper demonstrates the effects of ethnic and religious diversity on the quality of public spaces. Its identification strategy relies on the exogeneity of public housing allocations in France, and thereby eliminates the bias from endogenous sorting. The paper uses micro evidence of social interactions within housing blocks from the representative French Housing survey, which allows for a detailed identification of the channels through which diversity operates. Differentiating among three channels of public goods provision, the paper finds that heterogeneity in the housing block leads to low levels of sanctions for anti-social behavior and low levels of collective action to improve housing conditions, but no losses in public safety.
    Keywords: fractionalization, public goods, collective action, discrimination
    JEL: H10 H41
    Date: 2011–10

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