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on Public Economics |
| By: | Cornia, Giovanni Andrea; Martorano, Bruno |
| Abstract: | The paper analyses the changes in tax policy, tax/GDP ratios, tax incidence and income inequality which have taken place in Latin America during the last decade against the background of the changes observed in these variables during the liberal years of the 1980s and 1990s. The paper argues that the recent tax policy changes and a favourable external environment led to an increase of about three points in the regional tax/GDP ratio, that such increase in taxation took place in a slightly or substantially more progressive way than in the past, that the Gini coefficient of the distribution of household income improved on average by 0.4-0.8 points, and that, as a result, redistribution via taxation improved (especially in the Southern Cone) in relation to the 1990s thanks to greater reliance on direct taxes and a reduction in excises. However, in the mid-late 2000s taxation remains unequalizing in about a third of the countries of the region, especially in Central America. The paper concludes by offering recommendations on how the new fiscal pact evolving in the region can be strengthened to improve the redistributive effect of taxation in the years ahead. |
| Keywords: | tax policy, tax incidence, income inequality, redistribution, fiscal exchange, Latin America |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2011-70&r=pbe |
| By: | António Afonso; João Tovar Jalles |
| Abstract: | We study the relevance of fiscal rules for growth in an EU panel. Our results show that they foster growth, while stricter fiscal rules mitigate the adverse impact on growth from big governments. Moreover, more recent EU member states have gained from the implementation of fiscal rules. |
| Keywords: | fiscal rules, growth, government size, panel analysis |
| JEL: | C23 E62 H60 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp072012&r=pbe |
| By: | Guner, Nezih; Kaygusuz, Remzi; Ventura, Gustavo |
| Abstract: | Based on well-known evidence on labor supply elasticities, several authors have concluded that women should be taxed at lower rates than men. We evaluate the quantitative implications and merits of this proposition. Relative to the current system of taxation, setting a proportional tax rate on married females equal to 4% (8%) increases output and married female labor force participation by about 3.9% (3.4%) and 6.9% (4.0%), respectively. Gender-based taxes improve welfare and are preferred by a majority of households. Nevertheless, welfare gains are higher when the U.S. tax system is replaced by a proportional, gender-neutral income tax. |
| Keywords: | Labour Force Participation; Taxation; Two-earner Households |
| JEL: | E62 H31 J12 J22 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8735&r=pbe |
| By: | Leonel Muinelo-Gallo (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Oriol Roca-Sagalés (Universitat Autónoma de Barcelona (España). Departament d'Economía Aplicada) |
| Abstract: | This paper analyses the relationship between income inequality and economic growth through fiscal policy. To this end, we present and estimate two systems of structural equiation with error components through which gross income inequality determines different fiscal policy outcomes, which subsequently affects the evolution of economic growth and net income inequality. The empirical results, obtained using an unbalanced panel data of 21 high-income OCDE countries during the period 1972-2006, suggest that gross income inequality is a significant determinant of fiscal policy outcomes. Additionally, the results show that distributive expenditures and direct taxes produce significant reductions in GDP growth and net income inequality reflecting the standard efficiency-equity trade-off associated to certain fiscal policy measures. |
| Keywords: | economic growth, inequality, fiscal policy, panel data |
| JEL: | O40 D30 E62 C23 C33 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:ulr:wpaper:dt-04-12&r=pbe |
| By: | Shah, Anwar |
| Abstract: | During the past decade, Indonesia has transformed itself from centralized governance to decentralized local governance. Local governments were given extensive expenditure responsibilities while keeping the tax system centralized. To finance decentralized provincial-local expenditures, Indonesia implemented a new system of intergovernmental finance. This paper provides a review of the equity and efficiency implications of the current system of central-provincial-local transfers. It finds that the system of intergovernmental finance represents one of the most complex systems ever implemented by any government in the world. The system is primarily focused on a gap-filling approach to provincial-local finance to ensure revenue adequacy and local autonomy but without accountability to local residents for service delivery performance. This is done through a great degree of academic rigor using highly complex procedures. The complexity leads to a lack of transparency, inequity and uncertainty in allocation as well as creating incentives for jurisdictional fragmentation and reducing own-tax effort. Simpler alternatives are available that have the potential to address equity objectives while also enhancing efficiency and citizen-based accountability. Such alternatives would represent a move away from complex gap filling and special allocation approaches to simple, output based transfers to finance operating expenditures. These would be complemented by capital grants to deal with infrastructure deficiencies, and fiscal capacity equalization as a residual program with an explicit standard to ensure that all local jurisdictions have adequate means to deliver reasonably comparable levels of public services at reasonably comparable levels of tax burdens across the country. The paper argues that such an alternative system of intergoveernmental finance would preserve autonomy, while enhancing equity, simplicity, objectivity, transparency and accountability. |
| Keywords: | Subnational Economic Development,Public Sector Economics,Municipal Financial Management,National Governance,Debt Markets |
| Date: | 2012–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6004&r=pbe |
| By: | Zou, Heng-fu |
| Abstract: | This paper outlines a dynamic model with three levels of government: federal, state and local in the Stackelberg game structure with the superor government as the leader and all its subordinate governments the followers.It studies the optimal design of block grants and matching grants from both the federal government and the state governments to their numerous subordinate governments respectively as well as the optimal public expendtures and public capital stocks of different levels of government in the long run. Using specific form of utility function, we find that the optimal intergovernmental grants are very different between the level of federal government and state governments. |
| Keywords: | Block grants; Matching grants; Public spending; Public capital stocks; Public investment |
| JEL: | H77 H11 H53 |
| Date: | 2012–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37427&r=pbe |
| By: | Lisi, Gaetano |
| Abstract: | The proposed theoretical work introduces the basic insights of the ‘slippery slope’ framework into the benchmark macroeconomic model of the labour market in order to study the relation between tax compliance (both voluntary and enforced), tax evasion and unemployment. This paper shows that the firm's decision to evade taxes also depends on trust in tax authorities, and affects one of the most important macroeconomic variables: the unemployment rate. Also, the model is able to mimic the crucial interaction between trust and power and its effects on voluntary and enforced compliance. The main result is that with the “right mix” of policy tools of deterrence, trust in tax authorities is maximised, (voluntary) tax compliance increases and a reduction of tax evasion may decrease unemployment. |
| Keywords: | tax evasion; tax compliance; trust and power; unemployment |
| JEL: | J64 K42 H26 |
| Date: | 2012–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37433&r=pbe |
| By: | Ceyhun Elgin; Turkmen Goksel; Mehmet Y. Gurdal; Cuneyt Orman |
| Abstract: | Recent empirical research has demonstrated that countries with higher levels of religiosity are characterized by greater income inequality. We argue that this is due to the lower level of government services demanded in more religious countries. Religion motivates individuals to engage in charitable giving and this leads them to prefer making their contributions privately and voluntarily rather than through the state. To the extent that citizen preferences are reflected in policy outcomes, religiosity results in lower levels of taxes and hence lower levels of spending on both public goods and redistribution. Since measures of income typically do not fully take into account private transfers received, this increases measured income inequality. We formalize these ideas in a general equilibrium political economy model and also show that the implications of our model are supported by cross-country data. |
| Keywords: | religion, voluntary donations, taxation, redistribution, income inequality |
| JEL: | D63 H20 Z12 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1208&r=pbe |
| By: | Dorothea Schäfer |
| Abstract: | We argue that a financial transaction tax complements financial market regulation. With the tax, governments have an additional instrument at hand to influence trading activity. FTT aims to reduce regulatory arbitrage, flash trading, overactive portfolio management, excessive leverage and speculative transactions of financial institutions. The focus clearly addresses these classes of activities that have contributed to the financial crisis. However, if contrary to expectations harmful transactions will not be curbed, FFT generates at least large tax revenues that can contribute to cover the costs of the financial crisis. The trend towards centralized clearing and depositaries makes tax evasion more difficult than it was in the past. Tax avoidance is, of course, never completely avoidable. Therefore the effect of the tax should be monitored closely so that governments can react quickly if tax loopholes and taxinduced geographical relocation plans of financial institutions come to light. |
| Keywords: | Financial stability, transaction tax, public good, central depository |
| JEL: | G20 G24 G28 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1198&r=pbe |
| By: | Shah, Anwar |
| Abstract: | This paper reviews the conceptual challenges as well as lessons from worldwide experiences in implementing public services and expenditure need compensation in fiscal equalization transfers with a view to developing guidance for practitioners. The paper concludes that while in theory a strong case for a comprehensive fiscal equalization can be made, in practice fiscal need equalization as part of a comprehensive equalization program introduces significant complexity. This works against the simplicity, transparency and general acceptability of the program. This does not imply that fiscal need equalization should be abandoned in the interest of simplicity and transparency. Instead simplicity, transparency and local autonomy are preserved by having fiscal need equalization through public service oriented (specific purpose block transfers) output based fiscal transfers that impose no spending requirements for any functions or objects of expenditures. Such transfers contrast with traditional earmarked transfers, which impose conditions on spending for specific purposes or objects of expenditure and subsequent verification/certification of such expenditures. Such output-based block transfers would further enhance citizen based accountability for results and thereby offer potential for enhancing public confidence and trust in government operations. |
| Keywords: | Subnational Economic Development,Banks&Banking Reform,Public Sector Economics,Access to Finance,Municipal Financial Management |
| Date: | 2012–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6006&r=pbe |
| By: | Fatás, Antonio; Mihov, Ilian |
| Abstract: | We analyze empirically the cyclical behavior of fiscal policy among a group of 23 OECD countries. We introduce a framework to capture fiscal policy stance in a way that brings together automatic stabilizers and discretionary fiscal policy. We show that, for most countries, automatic changes in the budget balance play a stronger role in stabilizing output than discretionary fiscal policy. When compared across countries, changes in fiscal policy stance are predominantly linked to differences in government size. Tax revenues are close to being proportional to GDP and, combined with a relatively stable government spending, this leads to a countercyclical budget balance, which in turn helps stabilize aggregate demand. Furthermore, countries with less responsive automatic stabilizers, like the United States, tend to use countercyclical discretionary fiscal policy more aggressively. For all countries discretionary policy has become more aggressive in recent decades. |
| Keywords: | Business Cycles; Fiscal Policy; Stabilization |
| JEL: | E32 E62 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8749&r=pbe |
| By: | Mina Baliamoune-Lutz (Department of Economics, University of North Florida); Pierre Garello (CERGAM-CAE, Aix-Marseille Université) |
| Abstract: | Using macro-level panel data, we examine the effects of taxation and tax progressivity on entrepreneurship in a large group of European countries. We address two main objectives. First, we try to explore whether tax increases discourage entrepreneurial activity, distinguishing between the effects on existing self-employment and new self-employment (nascent entrepreneurship). Second, we investigate the impact of tax progressivity on entrepreneurship, focusing in particular on the impact on new self-employment. We find that tax progressivity at higher-than-average incomes has a robust negative effect on nascent entrepreneurship. We discuss on the policy implications of our results. |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:cgm:wpaper:94&r=pbe |
| By: | Hirota, Haruaki; Yunoue, Hideo |
| Abstract: | The number of municipalities in Japan has decreased from 3,232 in 1999 to 1,820 in 2006 because of municipal mergers, called Heisei-no-Daigappei. This paper estimates the political choices of local council members in Japan’s municipal mergers. In Japan, being a local council member is a full-time job. The local council has “veto powers” over local administration. Since the wage for a local council member is quite high, council members like to keep their seats. The jobs of local council members are affected by municipal mergers, as preferential treatment and penalties are delivered by the central government to the local government in municipal mergers. In our results, merged municipalities apply “Special Provisions” for local council members because of the size of the municipality. The choice of municipality is also affected by the national government’s political power. In addition, Special Provisions lead to additional fiscal burdens. These fiscal burdens will transfer to the whole country because “the Local Allocation Tax grants system” (abbreviated as LAT grants), a national grants system, works well in Japan. The municipalities that choose the Special Provisions exploit the benefits from other municipalities without any additional costs. Our results show that the central government induces the free-rider problem in Japan. |
| Keywords: | municipal mergers; local council size; intergovernmental relations; free riding |
| JEL: | H77 H11 D72 |
| Date: | 2011–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37485&r=pbe |