nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒07‒28
fourteen papers chosen by
Keunjae Lee
Pusan National University

  1. Corporate Effective Tax Rates in Asian Countries By Masaaki Suzuki
  2. Tax evasion, social norms and economic growth By Bethencourt, Carlos; Kunze, Lars
  3. Income Taxation of U.S. Households: Facts and Parametric Estimates By Nezih Guner; Remzi Kaygusuz; Gustavo Ventura
  4. The Impact of Tax Exclusive and Inclusive Prices on Demand By Bradley J. Ruffle; Naomi E. Feldman
  5. Obesity and smoking: can we catch two birds with one tax? By Davide Dragone; Francesco Manaresi; Luca Savorelli
  6. The natural Resource Curse, Fiscal Decentralization, and Agglomeration Economies By Fidel Perez-Sebastian; Ohad Raveh
  7. Taxpaying response of small firms to an increased probability of audit: some evidence from Italy By Carlo Fiorio; Stefano Iacus; Alessandro Santoro
  8. Coalition governments, cabinet size, and the common pool problem: Evidence from the German states By Baskaran, Thushyanthan
  9. Is direct democracy a problem or a promise for fiscal outcomes? The case of the United States By Agnese Sacchi; Aline Pennisi
  10. Military Expenditures and Political Regimes: An Analysis Using Global Data, 1963-2001 By Unal Tongur; Sara Hsu; Adem Yavuz Elveren
  11. How to Enforce Value-Added Tax? The Role of Inter-Sectoral Linkages By Hoseini, M.
  12. Patents in the University: Priming the Pump and Crowding Out By Suzanne Scotchmer
  13. Political Economy of Fiscal Unions By Jan Fidrmuc
  14. Heterogeneity of the effects of health insurance on household savings: Evidence from rural China. By Diana Cheung; Ysaline Padieu

  1. By: Masaaki Suzuki (The Research Center for Advanced Policy Studies, Institute of Economic Research, Kyoto University)
    Abstract: This paper aims to (a) calculate Devereux and Griffith’s (2003) forward-looking effective tax rates for 12 Asian countries over a span of 30 years, (b) show the impact of tax holidays on the effective tax rate in Asian countries, and (c) empirically explore the possibility of tax competition among Asian countries. Through relevant analyses, I arrive at three key conclusions. First, while small countries with little rent in domestic markets set their effective tax rates at almost zero, large countries maintain much higher effective tax rates. Second, for countries that have generous capital allowance systems, tax holidays may lead to a rise in not only the effective marginal tax rates (EMTR), but also the effective average tax rates (EATR). Third, some Asian countries may engage in tax competition, at least over the EATR, for a limited period of time. However, while some countries have raised their effective tax rates in recent years, others have continued with tax reductions. These results indicate that the recent tax interactions among Asian countries differ from the simpler interactions seen among the European countries.
    Keywords: Corporate income tax, Effective tax rates, Tax incentives, Tax competition
    JEL: H25 H87
    Date: 2013–07
  2. By: Bethencourt, Carlos; Kunze, Lars
    Abstract: This paper proposes a theoretical model to account for the most relevant micro- and macroeconomic empirical facts in the tax evasion literature. To do so, we integrate tax morale into a dynamic overlapping generations model of capital income tax evasion. Tax morale is modeled as a social norm for tax compliance. It is shown that accounting for such nonpecuniary costs of evasion may not only explain (i) why some taxpayers never evade even if the gamble is profitable, and (ii) how a higher tax rate can increase evasion, but also that (iii) the share of evaded taxes over GDP decreases with the stage of economic development and (iv) that tax morale is positively correlated with the level of GDP per capita as suggested by recent empirical evidence. Finally, a higher tax rate increases aggregate evasion as well as the number of evaders in the economy when taxpayers decisions are interdependent.
    Keywords: tax evasion, social norms, overlapping generations, economic growth
    JEL: D91 H26 Z13
    Date: 2013–07–18
  3. By: Nezih Guner; Remzi Kaygusuz; Gustavo Ventura
    Abstract: We use micro data from the U.S. Internal Revenue Service to document how Federal Income tax liabilities vary with income, marital status and the number of dependents. We report facts on the distributions of average taxes, properties of the joint distributions of taxes paid and income, and discuss how taxes are affected by marital status and the number of children. We also provide multiple parametric estimates of tax functions for use in applied work in macroeconomics and public finance.
    Keywords: taxation, tax progressivity, households
    JEL: E62 H24 H31
    Date: 2013–07
  4. By: Bradley J. Ruffle (BGU); Naomi E. Feldman (Research Division Federal Reserve Board Washington, D.C.)
    Abstract: We test the equivalence of tax-inclusive and tax-exclusive prices through a series of experiments that differ only in their handling of the tax. Subjects receive a cash budget and decide how much to keep and how much to spend on various attractively priced goods. Subjects spend significantly more when faced with tax-exclusive prices. This treatment effect is robust to different price levels, to initial shopping-cart purchases and persists throughout most of the ten rounds. A goods-level analysis, intra-round revisions as well as results from a third tax-deduction treatment all cast doubt on salience as the source of our findings.
    Keywords: experimental economics, sales tax, VAT, tax salience
    JEL: C91 H20 H31
    Date: 2013
  5. By: Davide Dragone (University of Bologna); Francesco Manaresi (Bank of Italy); Luca Savorelli (University of St. Andrews)
    Abstract: The debate on tobacco and fat taxes often treats smoking and eating as independent behaviors. However, the available evidence shows that they are interdependent, which implies that policies against smoking or obesity may have larger scope than expected. To address this issue, we propose a dynamic rational model where eating and smoking are simultaneous choices that jointly affect body weight and addiction to smoking. Focusing on direct and cross-price effects, we compare tobacco taxes and food taxes and we show that a single policy tool can reduce both smoking and body weight. In particular, food taxes can be more effective than tobacco taxes at simultaneously fighting obesity and smoking.
    Keywords: Addiction, Fat Tax, Obesity, Smoking, Tobacco.
    JEL: D91 H31 I18
    Date: 2013–07–19
  6. By: Fidel Perez-Sebastian; Ohad Raveh
    Abstract: Natural resource abundance is a blessing for some countries, but a curse for othes. We show that differences across countries in the degree of fiscal decentralisation can contribute to this divergent outcome. First, the paper presents a unified theory that combines political and market mechanisms to illustrate why natural resource booms can create negative effects in fiscally decentralized nations. Thereafter, we employ Sachs and Warner's cross-sectional data, and also construct a new panel-data sample to test the hypothesis. Results support the joint effect of the two variables.
    Keywords: Natural resources, economic growth, fiscal decentralization, agglomeration economies, tax competition
    JEL: O13 O18 O40 Q32
    Date: 2013
  7. By: Carlo Fiorio; Stefano Iacus; Alessandro Santoro
    Abstract: Income tax evasion by small rms has been seldom investigated mostly because of lack of data. In this paper we use a large data set produced by the Italian Revenue Agency for this project to analyse a recent policy to contrast business income tax evasion. Since 1998 Italy has adopted a method to audit small businesses (Studi di Settore), which denes the probability of a tax audit based on presumptive and reported levels of sales. In 2007 a letter campaign was implemented by the Italian Revenue Agency aimed at reducing manipulation of reports by threatening that if the "anomaly" was repeated with the 2008 tax declaration, the probability of a thorough tax audit would have drastically increased. By using dierence in dierence with matching methods on a sample of about 50,000 treated firms and 95,000 controls, we find that the letter campaign had a positive and statistically signicant average effect on treated firms. A cost-benet analysis of the policy suggests that the letter campaign generated a net increase of revenues of about 140 million euros.
    Keywords: Business Taxation, Tax Compliance, Coarsened Exact Matching, Studi di Settore
    JEL: H26 H25 C13
    Date: 2013–07
  8. By: Baskaran, Thushyanthan
    Abstract: The theoretical literature on common pool problems in fiscal policy suggests that government fragmentation increases public expenditures. In parliamentary regimes, the fragmentation hypothesis refers to (i) coalition governments and (ii) cabinet size. This paper explores the effect of coalition governments and cabinet size on public expenditures with panel data covering all 16 German States over the period 1975-2010. Identification is facilitated by the large within-variation in the incidence of coalition governments and the size of the cabinet in the German States. In addition, I exploit a feature of state electoral laws to construct a credible instrument for the likelihood of coalition governments. --
    Keywords: government fragmentation,common pool problems,coalition government,cabinet size,public expenditures
    JEL: D78 H61 H72
    Date: 2013
  9. By: Agnese Sacchi; Aline Pennisi
    Abstract: In time of worry for large deficits, the question on whether direct democracy can be a problem or a promise to better rule modern societies may arise. Both theoretical and empirical studies provide mixed answers. This paper investigates both the indirect (i.e. the existence) and the direct effects (i.e. the usage) of direct democracy institutions on major fiscal outcomes across the American States during 1992-2009. Being based on a more recent time span than previous contributions, our study includes more detailed information such as the type of institution, the voting result, and the topics of concern. The main results suggest that States permitting initiatives spend less than those without, confirming some previous findings. However, when initiatives are effectively used, their practice contributes to increase spending among those States allowing them. The intensity of different initiatives also matters for fiscal outcomes as well as the nature of topics involved.
    Keywords: Voter initiatives; Fiscal policy; Positive constitutional economics; State government. (*)
    JEL: H71 H72 P16 O51
    Date: 2013–07
  10. By: Unal Tongur (Department of Economics, METU); Sara Hsu (State University of New York at New Paltz, USA); Adem Yavuz Elveren (Department of Economics, METU and Sutcu Imam University)
    Abstract: This paper examines the determinants of military expenditures with a special focus on political regimes for more than 130 countries for the period of 1963-2001 by employing a dynamic panel data analysis. The paper aims at contributing to the literature by utilizing a recently constructed political regimes data set and considering income inequality, a key variable that has not received substantial attention in the context of political regimes, growth and military expenditures. Covering a large set of countries and an extended time period, the paper reveals further evidence on the linkage between democracy and military expenditures. Our results yield two crucial facts. First, social democratic political regimes have a tendency to spend less on armaments as a share of the national income; compared to social democracy all other political regimes are likely to have higher military burdens, confirming previous findings of the negative relationship between level of democracy and military burden. Second, the analysis shows that higher income inequality, regardless of the model specification and inequality measure, is associated with lower military burden.
    Keywords: Military expenditure, income inequality, terror, political regime, democracy, dictatorship
    JEL: C33 H56
    Date: 2013–07
  11. By: Hoseini, M. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: This paper models and empirically tests a self-enforcing feature of the value added tax (VAT) which is absent in the theory: An incentive that makes formal traders buy from suppliers who pay VAT too. In addition, it explores how the government can deploy this feature to enforce VAT more efficiently by reallocating the enforcement spendings among different sectors. The results suggest that the government should identify the non-compliant firms more strictly in the backwardly linked sectors {which buy their inputs from the others{ and focus on revealing within-firm information. In contrast, in forwardly linked industries, the government should zoom on double checking the transaction records with the corresponding input credit claims. Empirical evidence from Indian service sector enterprises strongly confirms the existence of VAT self-enforcement effect, even in the absence of government punishments.
    Keywords: Value-added tax;Informality;Tax enforcement;Linkage analysis.
    JEL: H26
    Date: 2013
  12. By: Suzanne Scotchmer
    Abstract: The Bayh-Dole Act allows universities to exploit patents on their federally sponsored research. University laboratories therefore have two sources of funds: direct grants from sponsors and income from licensing. Tax credits for private R&D also contribute, because they increase the profitability of licensing. Because Bayh-Dole profits are a source of funds, the question arises how subsidies and Bayh-Dole profits fit together. I show that subsidies to the university can either "prime the pump" for spending out of Bayh-Dole funds, or can crowd it out. Because of crowding out, if the sponsor wants to increase university spending beyond the university's own target, it will end up funding the entire research bill, just as if there were no profit opportunities under the Bayh-Dole Act. A subsidy system that requires university matching can mitigate this problem.
    JEL: K0 L00 O34
    Date: 2013–07
  13. By: Jan Fidrmuc
    Abstract: I formulate a political-economy model of a fiscal union where the threat of secession imposes a limit on fiscal redistribution between regions. I argue that the trade-off between implementing the region's preferred fiscal policy and benefiting from inter-regional risk sharing depends on the nature of economic shocks. Specifically both correlation of shocks across regions and their persis- tence over time are important. The gains from inter-regional risk sharing are potentially large when shocks are negatively correlated and temporary. In con- trast, unions with negatively correlated permanent shocks are likely to prove politically unviable.
    Date: 2013–07
  14. By: Diana Cheung (Centre d'Economie de la Sorbonne); Ysaline Padieu (Centre d'Economie de la Sorbonne)
    Abstract: This paper estimates the impact of the New Cooperative Medical Scheme (NCMS) on household saving across income quartiles in rural China. We use data from the China Health and Nutrition Survey for the 2006 wave and we run an ordinary least squares regression. We control for the endogeneity of NCMS participation by using an instrumental variable strategy. We find evidence that NCMS has a negative impact on savings of lower-middle-income participants, while it does not affect the poorest households. The negative effect of NCMS on savings of middle-income participants holds when we use propensity score matching estimations as a robustness check.
    Keywords: Rural China, New Cooperative Medical Scheme, health insurance, Chinese savings and consumption, propensity score matching.
    JEL: C21 D1 I18 O53
    Date: 2013–07

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