nep-pbe New Economics Papers
on Public Economics
Issue of 2012‒01‒10
ten papers chosen by
Keunjae Lee
Pusan National University

  1. An investigation of granger causality between tax revenues and government expenditures By Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber
  2. The challenges to long run fiscal sustainability in Romania By Canagarajah, Sudharshan; Brownbridge, Martin; Paliu, Anca; Dumitru, Ionut
  3. Tax Evasion, Minimum Wage Non-Compliance and Informality By Basu, Arnab K.; Chau, Nancy; Siddique, Zahra
  4. Fiscal multipliers are not necessarily that large: a comment on Eggertsson (2010) By Lorant, Kaszab
  5. The not so dark side of trust: Does trust increase the size of the shadow economy? By Johanna D'Hernoncourt
  6. Fiscal Deficit cannot be reduced by increasing Taxes (A point to ponder from Pakistan) By Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber
  7. Taxation and Migration: Policies to Manage a Resource Boom By Ratbek Dzhumashev; Jaai Parasnis
  9. Capital controls and spillover effects: evidence from Latin-American countries By Lambert, F.; Ramos-Tallada, J.; Rebillard, C.
  10. Corporate taxes and the location of FDI in Europe using firm-level data By Tomas Silva; Sergio Lagoa

  1. By: Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber
    Abstract: The nexus between government revenue and government expenditure always wins the attention of policy makers and think tanks while they work four making fiscal policies for an economy. This paper is an empirical investigation on the unidirectional causality between government expenditures and the revenues, which government collects from public in shape of various levied taxes. Annual data for Pakistan from the period of 1979 to 2010 for governmental expenditures and its tax revenue have been collected. While, the unidirectional and bidirectional causality were interrogated via applying Granger causality for the outlined variables. The results indicate that there is an uni-directional causality between the expenditures and revenues, which runs from tax revenues to govt. expenditures, that is the previous lags of tax revenue has a causal impact on the current govt. spending.
    Keywords: tax revenue; government expenditure; fiscal policy; granger causality;economy
    JEL: E62
    Date: 2011
  2. By: Canagarajah, Sudharshan; Brownbridge, Martin; Paliu, Anca; Dumitru, Ionut
    Abstract: Romania, along with many other countries in the European Union, faces daunting fiscal challenges. Fiscal balances deteriorated sharply following the global economic crisis, forcing Romania to implement a fiscal consolidation that was one of the largest in the European Union, but which may not be sustainable without a recovery of economic growth. Although the ratio of public debt to gross domestic product is still relatively modest, at around 35 percent, long-term fiscal solvency is threatened by the costs of funding the public pension system in the face of adverse demographic shifts over the next 50 years. Because of widespread tax evasion, the tax system in Romania is one of the least efficient in the European Union. Tax reforms that can reduce the amount of tax lost to evasion and fraud could make a major contribution to enhancing fiscal sustainability.
    Keywords: Debt Markets,Public Sector Expenditure Policy,Emerging Markets,Public Sector Economics,Fiscal Adjustment
    Date: 2012–01–01
  3. By: Basu, Arnab K. (College of William and Mary); Chau, Nancy (Cornell University); Siddique, Zahra (IZA)
    Abstract: We study the impact of tax and minimum wage reforms on the incidence of informality. To gauge the incidence of informality, we use measures of the extent of tax evasion, the extent of minimum wage non-compliance, and the size of the informal workforce. Our approach allows us to examine (i) the distinction between determinants of firm-level reported wage distribution and actual wage distribution, (ii) the complementarity of tax and minimum wage enforcement, (iii) the impact that a minimum wage reform has on tax and minimum wage compliance, and (iv) the impact that a tax policy reform has on tax and minimum wage compliance. We conclude with the design of optimal minimum wage and tax policies (even in the complete absence of minimum wage enforcement). We do so based on two objectives derived from popular concerns associated with an unchecked expansion of informality: tax revenue maximization, and poverty alleviation among workers.
    Keywords: tax evasion, minimum wage reform, flat tax reform, poverty, informality
    JEL: J3 J6 O17
    Date: 2011–12
  4. By: Lorant, Kaszab
    Abstract: This paper comments on Eggertsson (2010a) who argued that some fiscal policy measures like an increase in government spending or sales tax cut can be very effective in the recent peculiar environment of zero Federal Funds rate in the US. In particular, we show that the size of multipliers depends on the type of factor market structure (economy-wide or specific) we assume. Regarding the robustness of the results of Eggertsson (2010a) we argue that multipliers under zero nominal interest rate are a magnitude higher than those with positive interest only if the fiscal stimulus is sufficiently long (around ten years under specific labor market). Our work confirms and extends the results of Christiano (2010) who questioned the quantitative nature of the wage tax hike multiplier of Eggertsson (2010a).
    Keywords: iscal policy; multipliers; homogenous factor market; heterogenous factor market; zero nominal interest
    JEL: E62 E52
    Date: 2011–09–30
  5. By: Johanna D'Hernoncourt
    Abstract: This paper reports a negative relationship between the size of the shadow economy and generalized trust, in a sample of countries, both developed and developing. That relationship is robust to controlling for a large set of economic, policy, and institutional variables, to changing the estimate of the shadow economy and the estimation period, and to controlling for endogeneity. It is independent from trust in institutions and from income inequality, and is mainly present in the sample of developing countries. Those findings suggest that the tax compliance effect of trust dominates its role as a substitute for the formal legal system.
    Keywords: Shadow economy, informal sector, trust; Shadow economy, Informal sector, Trust
    JEL: O11 O17 O57 H26 Z13
    Date: 2012–01
  6. By: Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber
    Abstract: In Pakistan the budget deficits have consistently at increasing trend from 1995 to onwards which is being financed by the governments of now and then through external and domestic borrowing which are resulting a high debt levels due to high interest cost associated with it and this all pave the way for an increase in forthcoming taxes levy by the government time to time. This paper is an empirical investigation of the proposition that Fiscal deficit cannot be reduced by increasing taxes. The finding reveals that an increase in taxes is not the better choice for tackling the jinni of fiscal deficit.
    Keywords: Fiscal deficit; Tax Collection; Error correction model (ECM); ADF unit root test
    JEL: E62
    Date: 2012
  7. By: Ratbek Dzhumashev; Jaai Parasnis
    Abstract: The Australian economy is currently experiencing a resource boom and policy responses to this boom such as migration and taxation, as well as the broader role of monetary and fiscal policies are the subject of academic as well as public debate. This paper investigates the impact of a resource boom in a dynamic macroeconomic model, focusing on the allocation of resources across sectors and changes in income distribution. Further, the paper contributes to the current policy debate by analysing the role and effectiveness of government policy through its migration policy and taxation of the mining sector, in addressing the short run and steady state impacts of a resource boom. Results illustrate that while increased immigration is an appropriate short run response, long run welfare can be enhanced by higher taxation of the mining sector. Indeed, results show that increased tax revenue can fund appropriate transfers to mitigate the adverse effects on labour income and provision of public goods to increase productivity in the rest of the economy.
    Keywords: Dutch Disease, natural resources, economic growth, income distribution
    JEL: E25 E60 H20 Q33 Q38
    Date: 2011–12
  8. By: Paulo Júlio (Gabinete de Estratégia e Estudos, Portuguese Ministry of Economy and Employment)
    Abstract: This article illustrates and formalizes the conditions under which majority voting can lead to either delays or anticipations in public debt stabilizations. Under the assumptions of proportional taxation and universal public expenditures, we present an intertemporal version of the “Meltzer-Richard” result, which captures the difficulty of controlling increases in public expenditures. In the benchmark model delays are endogenous and have redistributive effects, but when a relatively rich minority makes the decisions, we may observe anticipation in public debt stabilization.
    Keywords: Stabilization delays, Economic adjustments, Economic reforms, Majority voting
    JEL: D72 E60
    Date: 2011–11
  9. By: Lambert, F.; Ramos-Tallada, J.; Rebillard, C.
    Abstract: The surge in capital inflows towards emerging countries after 2009 has revived the debate about capital controls. This paper analyzes some of the international implications of restrictions on capital inflows. Focusing on a sample of Latin-American countries, we use detailed balance of payments data and higher frequency data on portfolio bond and equity flows to investigate the potential spillover effects that capital controls imposed in one country may have on neighboring economies. Using various econometric approaches, we find that a rise in the Brazilian tax on portfolio bond inflows has been affecting other Latin-American economies through significant surges in portfolio funds invested either in fixed income or equity securities. The effect is usually short lasting and followed by rapid reductions in those inflows. Yet it can be large. According to our estimates, the increase in the Brazilian tax on portfolio bond inflows may account for the entire surge in bond inflows to Mexico between September and October 2010.
    Keywords: capital flows, capital controls, spillovers, Latin America, VAR.
    JEL: F32 F33 F42
    Date: 2011
  10. By: Tomas Silva (Office for Strategy and Studies, Portuguese Ministry of Economy); Sergio Lagoa (Department of Political Economy, ISCTE - University Institute of Lisbon)
    Abstract: European countries are facing an ever-increasing competition for Foreign Direct Investment (FDI). This paper studies how corporate taxes affect the location of FDI in Europe. Firm-level data is used to estimate a conditional logit model. We start by analysing the impact of the level and volatility of three different tax rates on FDI. Next, we analyse how economic and monetary integration influences the effect of taxes on FDI. The interaction between taxes and the upward and downward cycles of FDI is also analysed. Finally, we focus on how the impact of taxes depends on project characteristics. We conclude that taxes play a significant role in attracting FDI, but the issues analysed imply that there are some nuances in this relation, many of them relevant for policy makers.
    Keywords: FDI, Location, Taxes, Conditional Logit Model
    JEL: F21 H25 H32
    Date: 2011–12

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