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on Public Economics |
| By: | Akay, Alpaslan (IZA); Bargain, Olivier (University of Aix-Marseille II); Dolls, Mathias (IZA); Neumann, Dirk (IZA); Peichl, Andreas (IZA); Siegloch, Sebastian (IZA) |
| Abstract: | This paper offers a first empirical investigation of how labor taxation (income and payroll taxes) affects individuals' well-being. For identification, we exploit exogenous variation in tax rules over time and across demographic groups using 26 years of German panel data. We find that the tax effect on subjective well-being is significant and positive when controlling for income net of taxes. This interesting result is robust to numerous specification checks. It is consistent with several possible channels through which taxes affect welfare including public goods, insurance, redistributive taste and tax morale. |
| Keywords: | subjective well-being, taxation, public goods |
| JEL: | H21 H41 I38 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6999&r=pbe |
| By: | Sokolovska, Olena; Sokolovskyi, Dmytro |
| Abstract: | The paper examines the tax-tariff reform, recommended for Ukraine by donor organization (IMF and the World Bank), which consists in trade liberalization by way of trade tax cuts with simultaneous compensation of state tax revenue losses by VAT base broadening. We developed the mathematical model of evaluation of crossborder taxation influence on commodity flows, on economic agents’ profits and on state tax revenues, which can be considered as extension of “Devarajan” and “Emran–Stiglitz” models, with regard to possibility of tax evasion and receiving the illegally compensated VAT. The evaluation of model using data bases, prepared by Ukrainian State Statistic Committee and Customs administration of Ukraine, revealed that the expediency to reform a tax-tariff system, according to the IMF recommendations, is not clearly obvious and it depends on tax rates elasticity of size of informal sector. We find that providing the trade liberalization by way of substitution of trade tax revenues by enlarged VAT is expedient in those branches of economy, which are characterized by monopoly and oligopoly situation. |
| Keywords: | trade tax; tax-tariff reform; VAT; informal sector |
| JEL: | F13 C30 H26 |
| Date: | 2011–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42643&r=pbe |
| By: | James R. Hines Jr. |
| Abstract: | Federal estate taxes give very wealthy families incentives to transfer resources directly to distant generations in order to avoid taxes on successive rounds of transfers. Until recently such transfers were impeded by the rule against perpetuities, which prevented transfers to most potential not-yet-born beneficiaries. Many American states have recently repealed the rule against perpetuities, raising concerns that the combination of tax incentives and new legal rights encourages the devotion of vast wealth to perpetual trusts designed to benefit distant generations, avoid taxes, and maintain a degree of control over the financial affairs of descendants in perpetuity. This paper analyzes the incentives created by federal transfer taxes, finding the tax benefits from establishing perpetual trusts to be quite modest, in representative cases ranging from 9-25 percent of just one component of the cost. Contrary to popular claims, tax benefits decline as investment returns rise. While U.S. states that have repealed the rule against perpetuities and adopted other policies to encourage trusts host substantial trust assets, evidence from tax returns suggests that perpetual trusts are unlikely to account for a significant portion of this business. Consequently, tax incentives may not be responsible for an important shift of assets into perpetual trusts. |
| JEL: | H24 K11 K34 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18553&r=pbe |
| By: | Yang, Helen |
| Abstract: | A conventional theme of the literature on customary land tenure is that multiple ownership and complex tenure systems are obstacles to agricultural development. By studying the persistence of dual landownership in preindustrial China, I hypothesize that complex property norms could be the endogenous outcome of collective choice under institutional constraints, thus may not be inefficient per se. Dual ownership acted as a tax shelter for heavily taxed peasants who colluded with lightly taxed gentry to maximize the value of land. I show empirically that as gentry's tax privilege declined after the tax reform, peasants started to consolidate landownership.The dual owner system provided a solution to the land-use- inefficiency problem emphasized by David Ricardo: Under unequal taxation, land would end up owned by those with stronger political influence and preferential tax rates rather than by those best able to use it. |
| Keywords: | Economic History; Dual Ownership; Tax Shelter; Tax Inequality; Double Cropping; Preindustrial China; Customary Tenure |
| JEL: | N45 P48 |
| Date: | 2012–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42689&r=pbe |
| By: | Ackermann, Hagen; Fochmann, Martin; Mihm, Benedikt |
| Abstract: | We study how taxes and subsidies affect portfolio choices in a laboratory experiment. We find highly significant differences after intervention, even though the net income is identical in all our treatments and thus the decision pattern of investors should be constant. In particular, we observe that the willingness to invest in the risky asset decreases markedly when an income tax has to be paid or when a subsidy is paid. If we combine both a tax and a subsidy, this effect intensifies. -- |
| Keywords: | tax perception,risk-taking behavior,portfolio choice,distorting taxation,tax,subsidy,behavioral economics |
| JEL: | C91 D14 H24 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:arqudp:138&r=pbe |
| By: | Bevan, David |
| Abstract: | This paper sets out to provide an introduction to two sets of questions, and to some relevant literature that has tried to answer them. The first set of questions concern what determines growth in low-income countries, and how the answers are conditioned |
| Keywords: | structural change, low-income countries, environment, public capital and public financing |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2012-77&r=pbe |
| By: | Bartels, Charlotte |
| Abstract: | Generous income support programs as provided by European welfare states have often been blamed to reduce work incentives for lower income classes and to increase durations of unemployment. Standard studies measure work incentives based on annual income concepts. This paper analyzes how work incentives inherent in the German tax-benefit system evolve when extending the time horizon to three years (long-term). Participation tax rates are computed for 3-year periods 1995-1997 and 2005-2007 to reveal potential effects of the labor market reforms between 2003 and 2005. Results show that long-term work incentives increased even more than short-term work incentives. Particularly for middle-income individuals, this is largely explained by the abolition of earnings-related unemployment assistance. -- |
| Keywords: | welfare,work incentives,unemployment,unemployment insurance |
| JEL: | H31 J65 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:201220&r=pbe |
| By: | Uwe Dulleck (QUT); Jonas Fooken (QUT); Cameron Newton (QUT); Andrea Ristl; Markus Schaffner (QUT); Benno Torgler (QUT) |
| Abstract: | Although paying taxes is a key element in a well-functioning civilized society, the understanding of why people pay taxes is still limited. What current evidence shows is that, given relatively low audit probabilities and penalties in case of tax evasion, compliance levels are higher than would be predicted by traditional economics-of-crime models. Models emphasizing that taxpayers make strategic, financially motivated compliance decisions, seemingly assume an overly restrictive view of human nature. Law abidance may be more accurately explained by social norms, a concept that has gained growing importance as a facet in better understanding the tax compliance puzzle. This study analyzes the relation between psychic cost arising from breaking social norms and tax compliance using a heart rate variability (HRV) measure that captures the psychobiological or neural equivalents of psychic costs (e.g., feelings of guilt or shame) that may arise from the contemplation of real or imagined actions and produce immediate consequential physiologic discomfort. Specifically, this nonintrusive HRV measurement method obtains information on activity in two branches of the autonomous nervous system (ANS), the excitatory sympathetic nervous system and the inhibitory parasympathetic system. Using time-frequency analysis of the (interpolated) heart rate signal, it identifies the level of activity (power) at different velocities of change (frequencies), whose LF (low frequency) to HF (high frequency band) ratio can be used as an index of sympathovagal balance or psychic stress. Our results, based on a large set of observations in a laboratory setting, provide empirical evidence of a positive correlation between psychic stress and tax compliance and thus underscore the importance of moral sentiment in the tax compliance context. |
| Keywords: | tax compliance, psychic costs, stress, tax morale, cooperation, heart rate variability, biomarkers, experiment |
| JEL: | H26 H41 K42 D31 D63 C91 |
| Date: | 2012–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:qut:qubewp:001&r=pbe |
| By: | Cici, Gjergji; Kempf, Alexander; Sorhage, Christoph |
| Abstract: | This study shows that financial advisors provide useful tax advice to their clients, being the first to provide evidence of tangible benefits delivered by financial advisors in the U.S. We find that investors who purchase mutual fund shares through financial advisors exhibit a stronger tendency of avoiding taxable distributions than investors who buy shares directly. This differential is more pronounced for distributions that have large tax implications and are hard-to-predict. Furthermore, the differential gets stronger in December but only when investors face large capital losses, consistent with financial advisors helping the former investors engage in tax-loss selling. -- |
| Keywords: | mutual funds,taxable fund distributions,financial advisors,after-tax returns |
| JEL: | G11 G24 H24 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:1209&r=pbe |
| By: | Tullio Jappelli (University of Napoli "Federico II", CSEF and CEPR); Luigi Pistaferri (Stanford University, CEPR and SIEPR) |
| Abstract: | We use responses to survey questions in the 2010 Italian Survey of Household Income and Wealth that ask consumers how much of an unexpected transitory income change they would consume. We find that the marginal propensity to consume (MPC) is 48 percent on average, and that there is substantial heterogeneity in the distribution. We find that households with low cash-on-hand exhibit a much lower MPC than affluent households, which is in agreement with models with precautionary savings where income risk plays an important role. The results have important implications for the evaluation of fiscal policy, and for predicting household responses to tax reforms and redistributive policies. In particular, we find that redistributing income from the top 10% to the bottom 10% of the income distribution would boost aggregate consumption by about 0.25% of total revenues raised. |
| Keywords: | Marginal Propensity to Consume, Fiscal Policy, Consumption Heterogeneity |
| JEL: | E21 D91 |
| Date: | 2012–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:325&r=pbe |
| By: | Ben-Gad, M. |
| Abstract: | How much can governments shift the cost of government expenditure from today’s voters to tomorrow’s generations of immigrants, without resorting to taxation that is explicitly discriminatory? I demonstrate that if their societies are absorbing continuous flows of new immigrants, we should expect governments that represent the interests of today’s population, even if that population is altruistically linked to future generations, to choose policies that shift some portion of the tax burden to the future. This bias in favor of deficit finance is not infinite. Today’s population or their descendents, together with future immigrants, ultimately pay the higher taxes necessary to finance the accumulated debt, and live with the additional excess burdens these higher taxes generate. For a given rate of immigration and policy horizon, governments balance the deadweight losses associated with fluctuating tax rates against the benefits that accrue to the initial resident population from shifting part of the burden of financing government expenditure to future immigrant families. To measure the deficit bias, I analyse the dynamic behavior of an optimal growth model with overlapping dynasties and factor taxation, calibrated for the US economy. Models with overlapping infinite-lived dynasties allow for a very clear distinction between natural population growth (an increase in the size of existing dynasties) and immigration (the addition of new dynasties). They also provide an alternative to the strict dichotomy between models with overlapping generations, where agents disregard the impact of their choices on future generations, and the quasi-Ricardian world of infinite-lived dynasties with representative agents that fully participate in both the economy and the political system in every period. The trajectory of the debt burden predicted by the model is a good match for the rise in US Federal government debt since the early 1980’s, as well as the increases in debt projected by the Congressional Budget Office over the next few decades. |
| Keywords: | immigration; fiscal policy; public debt |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:cty:dpaper:12/09&r=pbe |
| By: | Thushyanthan Baskaran |
| Abstract: | Is government ideology important for fiscal policy? I study this question with data from all German States over the period 1975-2005. To identify the effect of ideology, I rely on a fuzzy regression discontinuity design. I find that left-wing state governments spend more than state governments with right-wing and mixed ideology. Deficits of left-wing governments are larger than those of right-wing governments but smaller than those of governments with mixed ideology. These results are robust to sensitivity tests. |
| Keywords: | Government ideology, Fiscal policy, Fiscal federalism |
| JEL: | D72 D78 E62 H72 |
| Date: | 2012–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:got:cegedp:144&r=pbe |
| By: | H. Lehmann; A. Muravyev |
| Abstract: | This paper analyzes, using country-level panel data from transition economies and Latin America, the impact of labor market institutions on informal economic activity. The measure of informal economic activity is taken from Schneider et al. (2010), the most comprehensive study to date. The data on institutions, which cover employment protection legislation (EPL), the tax wedge, the unemployment benefit level, unemployment benefit duration and union density, are assembled at the IZA (transition countries) and the World Bank (LAC countries). We find that a more regulated labor market (higher EPL) increases the size of the informal economy. There is also evidence that a larger tax wedge increases informality. The tax wedge elasticity of informal economy, when evaluated at the sample mean, is rather modest, around 0.1%. Our results are broadly in line with the literature, which identifies labor market regulation and the tax wedge as important drivers of informality. |
| JEL: | E24 J21 J42 O17 P20 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp854&r=pbe |
| By: | Javier Olivera (UCD Geary Institute, University College Dublin) |
| Abstract: | This paper analyses the determinants of preferences for redistribution in a pool of 33 European countries over the period 2002-2010. We find that income inequality affects positively the individual demand for redistribution and that the actual level of redistribution implemented in the country decreases the support for more redistribution. Furthermore, a fixed effect model applied to pseudo panels constructed over that period confirms that increases in income inequality over time raise the demand for redistribution. This result is predicted by standard political economy models but has found little empirical support. We show that at least in Europe growing income inequality leads to more individual support for redistribution. |
| Keywords: | Redistribution, Income Inequality, Social Preferences, Pseudo-Panels |
| JEL: | D31 D63 D72 H20 |
| Date: | 2012–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:ucd:wpaper:201225&r=pbe |
| By: | Agnès Bénassy-Quéré (Centre d'Economie de la Sorbonne - Paris School of Economics); Guillaume Roussellet (CREST-ENSAE) |
| Abstract: | We provide a first attempt to include off-balance sheet, implicit insurance to SIFIs into a consistent assessment of fiscal sustainability, for 27 countries of the European Union. We first calculate tax gaps à la Blanchard (1990) and Blanchard et al. (1990). We then introduce two alternative measures of implicit off-balance sheet liabilities related to the risk of a systemic bank crisis. The first one relies of microeconomic data at the bank level. The second one relies on econometric estimations of the probability and the cost of a systemic banking crisis, based on historical data. The former approach provides an upper evaluation of the fiscal cost of systemic banking crises, whereas the latter one provides a lower one. Hence, we believe that the combined use of these two methodologies helps to gauge the range of fiscal risk. |
| Keywords: | Fiscal sustainability, tax gap, systemic banking risk, off-balance sheet liabilities. |
| JEL: | H21 H23 J41 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:12077&r=pbe |
| By: | Bruno de Borger (University of Antwerp); Jan Rouwendal (VU University Amsterdam) |
| Abstract: | We study the impact of fuel taxes and kilometer taxes on households' choices of vehicle quality, on their demand for kilometers driven, and on fuel consumption. Moreover, embedding this information in a model of the car market, we analyze the implications of these taxes for the opportunity costs of owning cars of different quality. Higher quality raises the fixed cost of car ownership, but it may raise (engine size, acceleration speed, etc.) or reduce (fuel technology, etc.) the variable user cost. Our results show that kilometer charges and fuel taxes have very different implications. For example, a higher fuel tax raises household demand for more fuel efficient cars, provided that the demand for car use is inelastic; it reduces the demand for characteristics that raise variable user costs. Surprisingly, however, a kilometer tax unambiguously reduces the demand for more fuel efficient cars. Incorporating price adjustments at the market level, we find th at fuel taxes raise the <I>marginal</I> fixed opportunity cost of better fuel efficiency at all quality levels. <I>Total</I> annual opportunity costs of owning highly fuel efficient cars increase, while they decline for cars of low fuel efficiency. We further find that both a fuel tax and a kilometer charge reduce the <I>total</I> annual fixed ownership cost for car attributes that raise the variable cost of driving (engine power, acceleration speed, etc.). There is thus in general a trade-off between fixed and variable car costs: if the latter increase - due to higher fuel prices or a kilometer charge - total demand for cars decreases and a return to equilibrium is only possible by a decrease in fixed costs. All theoretical results are illustrated using a numerical version of the model. The analysis shows that modeling the effect of tax changes on household behavior alone can produce highly misleading results. |
| Keywords: | car market; car quality; fuel tax; kilometer charge; market equilibrium |
| JEL: | H22 L62 |
| Date: | 2012–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20120122&r=pbe |
| By: | Randall Q. Akee (Tufts and IZA); Timothy J. Halliday (University of Hawaii at Manoa and IZA); Sally Kwak (U.S. Congress, Joint Committee on Taxation) |
| Abstract: | Due to the large social costs of juvenile crime, policymakers have long been concerned about its causes. In the 2009-10 school year, the State of Hawaii responded to fiscal strains by furloughing all school teachers employed by the Department of Education and cancelling class for seventeen instructional days. We examine the effects of this unusually short school year to draw conclusions about the relationship of time in school with crime rates. We calculate marginal effects from a negative binomial model and find that time off from school is associated with significantly fewer juvenile assault and drug-related arrests, although there are no changes in other types of crimes, such as thefts and burglaries. These results are more pronounced in rural parts of the islands which tend to have lower educated, lower income households. |
| Keywords: | Education, Crime, Inequality |
| JEL: | J08 I24 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201221&r=pbe |
| By: | Piergallini, Alessandro |
| Abstract: | Much empirical evidence finds that governments react to fiscal imbalances in a non-linear way, through an increasing marginal response of primary surpluses to changes in debt. This paper shows that non-linear fiscal regimes alter equilibria under active and passive monetary-fiscal policies. The Fisher equation combined with non-linear fiscal policies leads to multiple steady states. Under passive interest rate rules, even if the steady state at which fiscal policy is active is locally saddle-path stable, there exist infinite equilibrium paths originating in the neighborhood of that steady state which converge into a high-debt trap. Under active interest rate rules, even if the steady state at which fiscal policy is active is locally unstable, there exists a saddle connection with the high debt equilibrium along which inflation is uniquely determined. |
| Keywords: | Non-Linear Fiscal Rules; Interest Rate Policy; Multiple Equilibria; Global Dynamics |
| JEL: | E31 E52 E63 |
| Date: | 2012–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42671&r=pbe |
| By: | Zohal Hessami (Department of Economics, University of Konstanz, Germany); Claudio Thum (Center for Economic Studies, University of Munich, Germany); Silke Uebelmesser (Department of Economics, University of Jena, Germany) |
| Abstract: | This paper identifies a novel political-economy explanation for the observed variation in the cash and in-kind (basic health care, public housing or food stamps) mixture of social transfers. We put forward the hypothesis that the share of in-kind transfers is positively correlated with corruption in democratic countries. The argument is derived in a theoretical model which assumes that it is easier for politicians to appropriate cash transfers than in-kind transfers. Voters in corrupt countries know that cash transfers invite corrupt behavior and therefore they elect parties that opt for in-kind redistributive measures. The empirical analysis for 34 OECD countries over the 1984 – 2007 period provides robust evidence in favor of this hypothesis. Moreover, the positive correlation between the in-kind share of social transfers and perceived corruption is stronger for the “most democratic” OECD countries and in countries with specific institutional characteristics such as free media that further enhance democratic accountability. |
| Keywords: | In-kind social transfers, redistribution, corruption, democracy, social expenditures |
| JEL: | D7 H42 |
| Date: | 2012–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1225&r=pbe |
| By: | Marina Halac; Pierre Yared |
| Abstract: | This paper studies the optimal level of discretion in policymaking. We consider a fiscal policy model where the government has time-inconsistent preferences with a present-bias towards public spending. The government chooses a fiscal rule to trade off its desire to commit to not overspend against its desire to have flexibility to react to privately observed shocks to the value of spending. We analyze the optimal fiscal rule when the shocks are persistent. Unlike under i.i.d. shocks, we show that the ex-ante optimal rule is not sequentially optimal, as it provides dynamic incentives. The ex-ante optimal rule exhibits history dependence, with high shocks leading to an erosion of future fiscal discipline compared to low shocks, which lead to the reinstatement of discipline. The implied policy distortions oscillate over time given a sequence of high shocks, and can force the government to accumulate maximal debt and become immiserated in the long run. |
| JEL: | D02 D82 E6 H1 P16 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18545&r=pbe |