nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒06‒16
23 papers chosen by
Keunjae Lee
Pusan National University

  1. Effective Tax Levels Using the Devereux-Griffith Methodology: 2012 report By ZEW
  2. A general equilibrium evaluation of tax policies in Spain during the Great Recession By María Teresa Álvarez Martínez; José Clemente Polo Andrés
  3. Fiscal adjustment – strategies and consequences: empirical evidence for European Union economies By Brasoveanu, Laura; Brasoveanu, Iulian
  4. Fiscal decentralization and regional disparities: the importance of good governance By Leonel Muinelo-Gallo; Andreas P. Kyriacou; Oriol Roca-Sagalés
  5. Effective Tax Levels at the Industry Level Using the Devereux-Griffith Methodology By ZEW
  6. Levels and Trends in United States Income and Its Distribution: A Crosswalk from Market Income Towards a Comprehensive Haig-Simons Income Approach By Philip Armour; Richard V. Burkhauser; Jeff Larrimore
  7. Analysing the Effects of Fiscal Policy Shocks in the South African Economy By Charl Jooste, Guangling (Dave) Liu and Ruthira Naraidoo
  8. The Effectiveness of R&D Tax Credits: Cross-Industry Evidence By Russell Thomson
  9. The role of mobility in tax and subsidy competition By Haupt, Alexander; Krieger, Tim
  10. Normative Fiscal Policy and Growth: Some Quantitative Implications for the Chilean Economy By Emilio Espino; Martin Gonzalez Rozada
  11. Measuring Top Incomes Using Tax Record Data: A Cautionary Tale from Australia By Richard V. Burkhauser; Markus H. Hahn; Roger Wilkins
  12. VAT in the Public Sector and Exemptions in the Public Interest By Copenhagen Economics
  13. Fair optimal tax with endogenous productivities By Fleurbaey M.; Valletta G.
  14. Persistence of high income inequality and banking crises: 1980-2010 By G. Bellettini; F. Delbono
  15. The new framework for the taxation of venture capital in Italy By Antonella Magliocco; Giacomo Ricotti
  16. Taxation of Cross-Border Dividends Payments Within the EU By Copenhagen Economics
  17. Monetary policy, the tax code, and the real effects of energy shocks By William T. Gavin; Benjamin D. Keen; Finn E. Kydland
  18. Fiscal Sustainability of the European Welfare State: Evidence from Cumulative Excess of the Primary Balance By Stoian, Andreea
  19. Inequality and Growth: The Role of Beliefs and Culture By Strieborny, Martin
  20. Okun's Law and Regional Spillovers:Evidence from Virginia Metropolitan Statistical Areas By Rui M. Pereira
  21. State-Dependent Effects of Fiscal Policy. By Steven Fazzari; James Morley; Irina Panovska
  22. International Labor Movements and Trade (Japanese) By SATO Hitoshi
  23. Rhythms and Cycles in Happiness By Wolfgang Maennig; Malte Steenbeck; Markus Wilhelm

  1. By: ZEW
    Abstract: The project 'Effective tax rates in an enlarged European Union' is based on the methodology used for the calculation of effective tax rates (ETRs) as set out by Devereux and Griffith (1999, 2003). It extends the scope of the calculation of ETRs conducted under the study on effective levels of company taxation within an enlarged EU (2008). The project includes a focus on the effects of tax reforms in the EU27 for the period 1998-2012 and their impact on the level of taxation for both domestic and cross-border investment.
    Keywords: European Union, taxation, effective tax, corporate tax
    JEL: H25
    Date: 2013–01
  2. By: María Teresa Álvarez Martínez (Rutgers, The State University of New Jersey); José Clemente Polo Andrés (Universidad Autónoma de Barcelona)
    Abstract: The main goal of the paper is to assess the effects of several permanent tax rate hikes implemented by the Spanish Government in 2009 and 2010 to counteract the rapid increase of the public deficit and debt registered in 2009 and 2010. It uses a numerical general equilibrium model calibrated to a social accounting matrix elaborated by the authors for the year 2000. The effects of increases in excise, value added and personal income taxes are simulated separately and jointly. The results indicate that the extra revenues obtained from each tax figure are lower than ex-ante calculations estimated by the Government. Moreover, the reductions in the public deficit accomplished are considerably smaller due to general equilibrium effects, such as lower production levels, greater unemployment rates and higher prices and transfers paid by the Government. The joint results indicate the enormous difficulties the Government faces to close the deficit gap by raising taxes.
    Keywords: Computable General Equilibrium Models, Tax Reforms, Public Deficit
    JEL: C68 H20 H30
    Date: 2013–04
  3. By: Brasoveanu, Laura (ASE, Finance Department); Brasoveanu, Iulian (ASE, Finance Department)
    Abstract: The current economic context brings new challenges for all countries in order to take action for fiscal adjustment, as a reaction for decreasing of public revenues, through lowering the tax base and the capacity to collect taxes, and for the inability to adjust the public expenditures. Fiscal adjustment could be done through increasing public revenues, decreasing public expenditures or applying a mixed strategy. The effectiveness and the consequences of a fiscal adjustment depends on the adopted strategy, but also on the size and the composition of the fiscal adjustment. In this paper we identify the fiscal adjustment strategies applied in European Union countries and we examine the evidence on fiscal adjustments in order to determine the relevant factors for the success and expansionary effects.
    Keywords: fiscal policy; fiscal discipline; fiscal adjustment; public revenues; public expenditures
    JEL: H20 H30 H50 H62
    Date: 2012–06–12
  4. By: Leonel Muinelo-Gallo (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Andreas P. Kyriacou (Universitat de Girona (España). Departament d’Economia); Oriol Roca-Sagalés (Universitat Autònoma de Barcelona (España). Departament d’Economia Aplicada)
    Abstract: In this paper we consider how government quality mediates the relationship between fiscal decentralization and regional disparities. Previous work has argued that fiscal decentralization has the potential to reduce income difference across regions but that this potential may not be realized because of governance problems associated with subnational authorities. Our empirical evidence based on a sample of 24 OECD countries over the period 1984 to 2006 lends a measure of support to this idea. We find that fiscal decentralization promotes regional convergence in high government quality settings but, worryingly, it leads to wider regional disparities in countries with poor governance. Because most poor countries are plagued with governance problems, this would caution against fiscal decentralization with a view to reducing regional disparities in these countries.
    Keywords: fiscal decentralization, regional disparities, government quality
    JEL: D73 H71 H73
    Date: 2013–03
  5. By: ZEW
    Abstract: The project 'Effective tax rates in an enlarged European Union' is based on the methodology used for the calculation of effective tax rates (ETRs) as set out by Devereux and Griffith (1999, 2003). This study enhances the existing data by analysing the Effective Tax Rates in different industries.
    Keywords: European Union, taxation, effective tax, corporate tax, sector
    JEL: H25
    Date: 2013–01
  6. By: Philip Armour; Richard V. Burkhauser; Jeff Larrimore
    Abstract: Recent research on United States levels and trends in income inequality vary substantially in how they measure income. Piketty and Saez (2003) examine market income of tax units based on IRS tax return data, DeNavas-Walt, Proctor, and Smith (2012) and most CPS-based research uses pre-tax, post-transfer cash income of households, while the CBO (2012) uses both data sets and focuses on household size-adjusted comprehensive income of persons, including taxable realized capital gains. This paper provides a crosswalk of income growth across these common income measures using a unified data set. It then uses a more consistent Haig-Simons income definition approach to comprehensive income by incorporating yearly-accrued capital gains to measure yearly changes in wealth rather than focusing solely on the realized taxable capital gains that appear in IRS tax return data. Doing so dramatically reduces the observed growth in income inequality across the distribution, but most especially the rise in top-end income since 1989.
    JEL: C81 D31 H24 J3
    Date: 2013–06
  7. By: Charl Jooste, Guangling (Dave) Liu and Ruthira Naraidoo
    Abstract: This paper is the first one to analyse the effect of aggregate government spending and taxes on output for South Africa using three types of a calibrated DSGE model and more data driven models such as a structural vector error correction model (SVECM) and a time-varying parameter VAR (TVP-VAR) to capture possible asymmetries and time variation of fiscal impulses. The impulse responses indicate first, that increases in government expenditure have a positive impact, albeit (at times) less than unity, on GDP in the short run; second, over the long run, the impact of government expenditure on GDP is insignificant; and third, increases in taxes decreases GDP over the short run, while having negligible effects over longer horizons.
    Keywords: Rule-of-thumb consumers, Fiscal multiplier, Government spending, TVP-VAR, SVECM
    JEL: C54 D58 E32 E62 H31
    Date: 2013
  8. By: Russell Thomson (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: This paper presents new estimates of the efficacy of R&D tax incentives using cross-countrycross-industry data and a novel measure of tax policy that incorporates differences in the average capital–labour ratio in R&D investment across industries and variation in the tax treatment of different expenditure types across countries and over time. The results suggest that, in the short run, industry increases R&D investment by 0.24 dollars for every dollar of tax revenue forgone. The results appear to be more robust than estimates based on crosscountry or firm-level data.
    Keywords: Innovation policy, R&D tax credits, determinants of R&D investment
    JEL: E22 O31 O57
    Date: 2013–05
  9. By: Haupt, Alexander; Krieger, Tim
    Abstract: In this paper, we analyse the role of mobility in tax and subsidy competition. Our primary result is that increasing ‘relocation’ mobility of firms leads to increasing ‘net’ tax revenues under fairly weak conditions. While enhanced relocation mobility intensifies tax competition, it weakens subsidy competition. The resulting fall in the governments’ subsidy payments over-compensates the decline in tax revenues, leading to a rise in net tax revenues. We derive this conclusion in a model in which two governments are first engaged in subsidy competition and thereafter in tax competition, and firms locate and potentially relocate in response to the two political choices. --
    Keywords: tax competition,subsidy competition,capital and firm mobility,foreign direct investment
    JEL: H87 H71 F21 H25
    Date: 2013
  10. By: Emilio Espino; Martin Gonzalez Rozada
    Abstract: This paper explores the qualitative and quantitative implications of optimal tax- ation in a developing economy when economic growth is endogenously determined. We di¤erentiate this class of economies from a developed economy in two aspects: 1. the informal sector is quantitatively signi…cant and, 2. tax-collecting technologies are more rudimentary. We characterize competitive equilibrium allocations and Ramsey allocations in the context of a small open economy in which the interest rate is endoge- nously determined, some workers can be hired in the informal market and imperfect tax-collecting technology can be heterogeneous across types of taxes. We calibrate the parameters of our model to the Chilean economy. Overall, our results suggest that capital should still be taxed but considerably less than actual taxes (that is, 10.78% versus 18.5%). Labor should be subsidized (to stimulate accumulation of human capital) while consumption taxes should be increased by 50% approximately (from 19% to 28%). As expected, the better collecting technologies, the higher the corresponding taxes. In this context, the resulting growth rate increases only slightly along the balanced growth path.
    Keywords: Optimal fiscal policy, economic growth, inefficient tax collecting technology
    JEL: E61 E62 H21
    Date: 2013–06
  11. By: Richard V. Burkhauser; Markus H. Hahn; Roger Wilkins
    Abstract: Atkinson, Piketty, and Saez (2011) survey an important new literature using income tax-based data to measure the share of income held by top income groups. But changes in tax legislation that expand the tax base to include income sources (e.g. capital gains, dividends, etc.) disproportionately held by these groups will conflate such an expansion with an increase in the share of income they hold. We provide a cautionary tale from Australia of how comprehensive tax reform legislation in 1985 substantially altered Australian top income series, especially those that do not separate taxable realized capital gains from other taxable income.
    JEL: H0 I0 J0
    Date: 2013–06
  12. By: Copenhagen Economics
    Abstract: The study analyses and measures the issues arising from the current VAT treatment of public bodies and activities carried out in the public interest. It also identifies possible options for the future, and measures their impact.
    Keywords: European Union, taxation, VAT, public sector
    JEL: H27
    Date: 2013–01
  13. By: Fleurbaey M.; Valletta G. (GSBE)
    Abstract: What is a good incentive-compatible policy when one wants to respect individual choices of labor and human capital but eliminate inequalities due to unequal access to human capital and different returns to human capital, and when earnings and human capital expenditures are the only verifiable variables We propose a social ordering that incorporates this goal and we analyze the evaluation of tax reforms and the properties of optimal linear and non-linear taxes. For reform evaluation and for optimal non-linear taxation, the focus is on the situation of individuals with the most disadvantaged characteristics who work full time and spend a certain high amount in human capital.
    Keywords: Equity, Justice, Inequality, and Other Normative Criteria and Measurement; Social Choice; Clubs; Committees; Associations;
    JEL: D63 D71
    Date: 2013
  14. By: G. Bellettini; F. Delbono
    Abstract: Differently from Atkinson and Morelli (2011) who detect no clear link between increases in income inequality and systemic banking crises, we show that a large majority of crises occurred between 1982 and 2008 have been preceded by persistently high levels of income inequality. Such association is robust when considering Gini values for incomes after-tax as well as before-tax and transfers. Moreover, we investigate the pattern of income inequality levels before and after a group of banking crises and the relative levels of income inequality in a large sample of OECD countries that did not experience banking crises between 1980 and 2010.
    JEL: D31 G21
    Date: 2013–06
  15. By: Antonella Magliocco (Bank of Italy); Giacomo Ricotti (Bank of Italy)
    Abstract: This paper examines the current tax policy on venture capital (VC) in Italy, and compares it with the tax incentives adopted by France, Germany, Spain and the UK. The authors analyze ongoing European initiatives to remove tax obstacles to VC in Europe. Focusing on the taxation of VC funds, they also assess whether the requirements for the new Italian tax incentives are consistent with the uniform regulatory standards designated by the 2011 proposal for an EU Regulation on European VC Funds. Finally, in a quantitative analysis, the tax burden on VC investments in Italy is compared with that in other European countries. The results show that the most favourable schemes are in the UK and in France; the effects of the new Italian VC tax incentives are in line with the British and the French schemes. As regards the design of tax incentives, the authors found that as the duration of investment increases, upfront incentives become less effective than capital gains exemptions.
    Keywords: venture capital, taxation
    JEL: G24 H25
    Date: 2013–06
  16. By: Copenhagen Economics
    Abstract: The study carried out by Copenhagen Economics analyses the impact of several alternative solutions to the taxation problems that arise when dividends are paid across borders to individual and portfolio investors within the EU.
    Keywords: European Union, taxation, Dividends
    JEL: H25 H87
    Date: 2012–09
  17. By: William T. Gavin; Benjamin D. Keen; Finn E. Kydland
    Abstract: This paper develops a monetary model with taxes to account for the apparently asymmetric and time-varying effects of energy shocks on output and hours worked in post-World War II U.S. data. In our model, the real effects of an energy shock are amplified when the monetary authority responds to that shock by changing its inflation objective. Specifically, higher inflation raises households’ nominal capital gains taxes since those taxes are not indexed to inflation. The increase in taxes behaves as a negative wealth effect and generates an immediate decline in output, investment, and hours worked. The large drop in investment then causes a gradual but very persistent decline in the capital stock. That protracted decline in the capital stock is associated with an extended period of low productivity growth and high inflation. Those real effects from the increase in nominal capital gains taxes are magnified by the tax on nominal interest income, which is also not indexed to inflation. A prolonged period of higher inflation and lower productivity growth following a negative energy shock is consistent with the stagflation of the 1970s. The negative effects, however, subsided greatly after 1980 because the Volcker disinflation policy prevented the Fed from accommodating negative energy shocks with higher inflation.
    Keywords: Business cycles ; Fiscal policy
    Date: 2013
  18. By: Stoian, Andreea (Bucharest Academy of Economic Studies)
    Abstract: Tanzi and Schuknecht (1997) pointed out that one of the key features of welfare state is to run large fiscal deficits and public debt. This can be explained considering the rise of the social transfers that led to an overall increase of the total government spending. Growing public debt can generate fiscal sustainability issues in the long run. Therefore, the aim of this paper is to study fiscal sustainability using an indicator named the Cumulative Excess of the Primary Balance (CEPB) that avoids the shortcomings induced by non-stationary time series or Structural breaks when applying classical econometric tools. CEPB is derived from a simple Dynamic model of public debt that allows estimating the primary balance that stabilizes public debt. Applying CEPB for annual data extracted for 1980-2007 period for two distinct European welfare regimes, we find that the Nordic welfare states are less exposed to fiscal Sustainability issues in the long run than the Conservative countries.
    Keywords: Fiscal sustainability; budgetary deficit; primary balance; public debt; welfare state
    JEL: E62 H62 H63
    Date: 2012–06–12
  19. By: Strieborny, Martin (Department of Economics, Lund University)
    Abstract: Governments perpetually align their policies to satisfy shifts in voters' relative demand for economic growth versus social equality. Following such shifts, increases (decreases) in government interventions lower (raise) both inequality and growth. This mechanism generates a positive co-movement between inequality and growth. The pattern is weaker in countries where a culturally determined belief that the rich are deserving renders equality a less important objective in the first place. I develop this analytical result in the theoretical framework of Alesina and Angeletos (2005), and I provide robust empirical support for it in a panel of 38 countries over the period 1964-2004.
    Keywords: culture; inequality; growth
    JEL: O15 O40 P16 Z10
    Date: 2013–04–24
  20. By: Rui M. Pereira (Department of Economics, The College of William and Mary)
    Abstract: The purpose of this paper is to examine the strength of the relationship between unemployment and GDP, the importance of regional spillovers and to determine the extent to which this relationship has been stable in Virginia metropolitan statistical areas (MSA) during the Great Recession. Our results indicate a substantially weaker relationship between unemployment and GDP in Virginia than that estimated for the U.S. economy and suggest that regional spillovers are very important in local labor markets and in defining the relationship observed at the national level. The MSA level data further supports asymmetries in Okun's law. the weaker relationship between GDP and unemployment at the local level suggests that while federal fiscal and monetary policies to stimulate aggregate demand during periods of economic recovery may be effective, over time, in reducing the unemployment rate, local economic development policies are not effective in achieving the substantial short term reduction in unemployment needed during recovery. The strong business cycle effects observed in a state like Virginia, relative to the U.S., suggests that countercyclical policies are fundamentally important and should be targeted more generally to exploit regional spillovers.
    Keywords: Okun's law, the Great Recession, Regional Spillovers, Virginia
    JEL: C23 E24 E32 J01 R12
    Date: 2013–06–01
  21. By: Steven Fazzari (Washington University in St. Louis); James Morley (School of Economics, University of New South Wales); Irina Panovska (Washington University in St. Louis)
    Abstract: We investigate the effects of government spending on U.S. economic activity using a threshold version of a structural vector autoregressive model. Our empirical findings support state-dependent effects of fiscal policy. In particular, the effects of a government spending shock on output are significantly larger and more persistent when the economy has a high degree of underutilized resources than when the economy is close to capacity. This evidence is consistent with an underlying structure of the economy in which insufficient aggregate demand often constrains the level of economic activity.
    Keywords: Government Spending, Threshold Model, Vector Autoregression, Nonlinear Dynamics.
    JEL: C32 E32 E62
    Date: 2013–04
  22. By: SATO Hitoshi
    Abstract: Lifting barriers to labor mobility across countries is controversial. Although the Japanese government is attempting to increase the number of skilled immigrants while curbing unskilled immigrants, immigration policy has been a contentiously debated issue in Japan from the perspectives of labor scarcity due to low fertility, industry competition, and the current demand for unskilled immigrant workers in Japan. This paper selectively discusses the recent research on international migration, emphasizing interactions with international trade and offshoring. Recent studies indicate that, given large productivity disparities across countries, liberalizing international migration yields much greater gains than pursuing further liberalization in trade or international capital transactions. Examining international labor movements and trade within unified frameworks reveals new insights into the consequences of international migration from the perspectives of terms of trade, scale economy, and task specialization. As for economic growth, empirical studies suggest that skilled immigrants will accelerate research and development (R&D), which may lead to increases in economic growth. However, it is still uncertain whether a higher economic growth rate owing to immigration will improve per capita welfare. Further empirical analyses are needed to gauge the empirical relevance on theoretical implications about international migration under free trade. Another promising research area is the political economy of international migration in which trade policy and migration policy are simultaneously determined.
    Date: 2013–06
  23. By: Wolfgang Maennig (Chair for Economic Policy, University of Hamburg); Malte Steenbeck (Chair for Economic Policy, University of Hamburg); Markus Wilhelm (Chair for Economic Policy, University of Hamburg)
    Abstract: This study analyses time-dependent rhythms in happiness in three aspects. We show that the Sunday neurosis exists exclusively for men with a medium level of education and both men and women with high levels of education. Men with high levels of education may even experience a weekend neurosis. This study is the first to test for intra-monthly rhythms and to demonstrate that men with a lower educational background may suffer from negative effects on happiness towards the end of the month, potentially due to liquidity problems. The study is also the first to demonstrate that – even when controlling for health and income effects – happiness exhibits seasonal effects over the annual period, depending on gender and education.
    Keywords: Happiness; life satisfaction; weekend neurosis; rhythms in time
    JEL: I31 N70 Q48
    Date: 2013–06–07

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