nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒09‒24
24 papers chosen by
Keunjae Lee
Pusan National University

  1. Pathways to Tax Reform Revisted By Leonard Burman; ;
  2. Does size asymmetry exacerbate the inefficiency of tax competition? By Yutao Han; Patrice Pieretti; Benteng Zou
  3. Effects of supervision on tax compliance: Evidence from a field experiment in Austria By Katharina Gangl; Benno Torgler; Erich Kirchler; Eva Hofmann
  4. Fiscal Sustainability: A 21st Century Guide for the Perplexed By Evan Tanner
  5. Fiscal Sustainability, Public Investment, and Growth in Natural Resource-Rich, Low-Income Countries: The Case of Cameroon By Issouf Samaké; Priscilla S. Muthoora; Bruno Versailles
  6. Do the Laws of Tax Incidence Hold? Point of Collection and the Pass-through of State Diesel Taxes By Wojciech Kopczuk; Justin Marion; Erich Muehlegger; Joel Slemrod
  7. Tax bracket creep and its effects on income distribution By Heer, Burkhard; Süssmuth, Bernd
  8. Fiscal Multipliers in the ECCU By Jesus Gonzalez-Garcia; Antonio Lemus; Mico Mrkaic
  9. Russia’s State Budget in 2012 By Sergey Belev; Tatiana Tischenko; Ilya Sokolov
  10. Guinea-Bissau: Staff Report for the 2013 Article IV Consultation; Debt Sustainability Analysis; Informational Annex; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Guinea-Bissau By International Monetary Fund. African Dept.
  11. Philippines: Selected Issues By International Monetary Fund. Asia and Pacific Dept
  12. Tax Coordination, Tax Competition, and Revenue Mobilization in the West African Economic and Monetary Union By Mario Mansour; Gregoire Rota Graziosi
  13. Housing and Tax Policy By Sami Alpanda; Sarah Zubairy
  14. Jointly optimal taxes and enforcement policies in response to tax evasion By PESTIEAU, Pierre; POSSEN, Uri M.; LUTSKY, Steven M.
  15. The design of national fiscal frameworks and their budgetary impact By Nerlich, Carolin; Reuter, Wolf Heinrich
  16. Migration and Tax Competition Within a Union By Razin, Assaf; Sadka, Efraim
  17. That Squeezing Feeling: The Interest Burden and Public Debt Stabilization By Xavier Debrun; Tidiane Kinda
  18. “The relationship between debt level and fiscal sustainability in OECD countries” By Mariam Camarero; Josep Lluís Carrion-i-Silvestre; Cecilio Tamarit
  19. The political economy of pricing and capacity decisions for congestible local public goods in a federal state By Bruno DE BORGER; Stefan PROOST
  20. If Technology Has Arrived Everywhere, Why Has Income Diverged? By Comin, Diego; Mestieri, Martí
  21. Implications of fiscal constraints By Fernando Martin
  22. Ireland: Fiscal Transparency Assessment By International Monetary Fund. Fiscal Affairs Dept.
  23. Can fiscal austerity be expansionary in present Europe? The lessons from Sweden By Erixon, Lennart
  24. A Framework for Efficient Government Investment By Andrew M. Warner

  1. By: Leonard Burman (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244-1020); ;
    Abstract: The U.S. income tax badly needs reform. It is complex, unfair, and inefficient. It doesn’t come close to raising enough revenue to finance government expenditures, and won’t any time in the foreseeable future unless it is revised. Raising tax rates could increase revenues, but it wouldn’t lessen the complexity and would magnify the unfairness and efficiency costs. Not surprisingly, proposals for reform abound. Income tax reform proposals would virtually all trim so-called tax expenditures, the 200 or so exclusions, deductions, and credits that are designed to provide subsidies for particular activities or groups. This would surely make the late Stanley Surrey smile. He invented the term tax expenditure and instructed the Treasury Department to compile a list and tally up their cost. He viewed cuts in tax expenditures as the “pathway to tax reform,†and in 1973 made the case in a book of that title. Surrey and latter-day reformers are surely right that cutting tax expenditures could raise revenue while reducing the economic cost of the tax system and making it simpler and fairer. The only drawback is political: voters like tax expenditures, the biggest of which are the mortgage interest deduction and the tax break on employer-sponsored health insurance. Simply eliminating people’s favorite tax breaks is unlikely to win much public support. This paper revisits Surrey’s pathway, examining various proposals to eliminate, reduce, or reformulate tax expenditures as part of tax reform. I start by outlining the need for tax reform. Then I examine various proposed paths to achieve it. I discuss options to cut tax expenditures and the efficacy of a VAT or carbon tax as a supplement to the income tax. The concluding section summarizes the potential pathways and a few dead ends on the way to tax reform. Key Words: Tax Expenditures; Federal Budget; Deficits; Tax Reform JEL No. H21, H24, H50, H60
  2. By: Yutao Han (CREA, Université du Luxembourg); Patrice Pieretti (CREA, Université du Luxembourg); Benteng Zou (CREA, Université du Luxembourg)
    Abstract: Many authors demonstrate that the tax gap resulting from tax competition increases with the size asymmetry of the competing countries. Consequently, increasing country-size disparities exacerbates the inefficiency of tax competition. The aim of this note is to show that this classical view has no general validity if we consider that countries compete not only in taxes but also in the provision of infrastructure. The simple model we develop for this purpose demonstrates that the effect of size disparity on efficiency depends crucially on the degree of international capital mobility.
    Keywords: tax competition, social welfare, inefficiency, infrastructure
    JEL: H21 H73 F21
    Date: 2013–08
  3. By: Katharina Gangl; Benno Torgler; Erich Kirchler; Eva Hofmann
    Abstract: The tax compliance literature has mainly focused on individual tax evasion rather than firm tax evasion. In general, there is a lack of field experiments on the topic, and measuring tax compliance is challenging. To address this shortcoming in the literature, we conduct a field experiment on firm tax compliance looking at newly founded firms. As a novelty we explore how firms react to closer supervision by the tax administration, looking at timely paying which has no measurement biases. Interestingly, we observe a crowding-out effect of supervision on timely paying of taxes. On the other hand, for those who were non-compliant, supervision reduced the tax amount that was due.
    Keywords: : tax compliance, tax evasion, field experiment, deterrence, tax enforcement, supervision
    JEL: H26 C93 K42
    Date: 2013–08–19
  4. By: Evan Tanner
    Abstract: This paper critically reviews recent work regarding the sustainability of public debt. It argues that Debt Sustainability Analyses (DSAs) should be more than mere mechanical simulation exercises. Instead, a DSA should be linked to some objective regarding the distribution of fiscal burdens and distortions over time (in the tradition of Barro’s 1979 tax smoothing objective). The paper discusses objective functions that yield simple and transparent fiscal policy rules.
    Keywords: Fiscal sustainability;Public debt;Fiscal policy;Debt sustainability analysis;Business cycles;Intertemporal solvency, tax smoothing, debt stabilization, fiscal rule, stochastic simulation.
    Date: 2013–04–22
  5. By: Issouf Samaké; Priscilla S. Muthoora; Bruno Versailles
    Abstract: This paper assesses the implications of the use of oil revenue for public investment on growth and fiscal sustainability in Cameroon. We develop a dynamic stochastic general equilibrium model to analyze the effects of such investment on growth and on the path of key fiscal indicators, such as the non-oil primary deficit and public debt. Policy scenarios show that Cameroon’s large infrastructural needs and relatively low current debt levels could justify a temporary deviation from traditional policy advice that suggests saving part of the oil revenue to smooth expenditure over time. Model simulations show that a relatively high degree of efficiency of public investment is needed for scaled-up public investment to make a significant contribution to growth, while maintaining fiscal sustainability.
    Keywords: Fiscal sustainability;Cameroon;Economic growth;Oil revenues;Fiscal policy;Public investment;Natural resources;Low-income developing countries;Economic models;Cameroon, fiscal policy, DSGE, natural resource-rich countries, low-income countries, public investment, growth.
    Date: 2013–06–11
  6. By: Wojciech Kopczuk; Justin Marion; Erich Muehlegger; Joel Slemrod
    Abstract: The canonical theory of taxation holds that the incidence of a tax is independent of the side of the market which is responsible for remitting the tax to the government. However, this prediction does not survive in certain circumstances, for example when the ability to evade taxes differs across economic agents. In this paper, we estimate in the context of state diesel fuel taxes how the incidence of a quantity tax depends on the point of tax collection, where the level of the supply chain responsible for remitting the tax varies across states and over time. Our results indicate that moving the point of tax collection from the retail station to higher in the supply chain substantially raises the pass-through of diesel taxes to the retail price. Furthermore, tax revenues respond positively to collecting taxes from the distributor or prime supplier rather than from the retailer, suggesting that evasion is the likely explanation for the incidence result.
    JEL: H22 H26 H71 Q48
    Date: 2013–09
  7. By: Heer, Burkhard; Süssmuth, Bernd
    Abstract: We quantitatively analyze the way inflation alters the inequality of the income distribution in the U.S. economy. The main mechanism emphasized in this paper is the bracket creep effect according to which inflation pushes income into higher tax brackets. Governments adjust the nominal income tax brackets slowly and incompletely due to the rise in prices. In the U.S. postwar history, this typically happens less often than once every other tax year. In the first part of the paper, we study time series from the U.S. economy. As our central result we find that irrespective of the level of inflation more frequent income tax schedule adjustments make the relationship between inflation and income inequality more transitory in nature. In the second part of the paper, we develop a general equilibrium monetary model with income heterogeneity that is in line with our time series evidence. We find that a longer duration between two successive adjustments of the tax schedule reduces employment, savings, and output. --
    Keywords: Bracket Creep,Progressive Income Taxation,Inflation,Income Distribution
    JEL: D31 E31 E44 E52 E62
    Date: 2013
  8. By: Jesus Gonzalez-Garcia; Antonio Lemus; Mico Mrkaic
    Abstract: The multipliers of taxes, and government consumption and investment expenditure for the Eastern Caribbean Currency Union (ECCU) are estimated using vector autoregression models with panel data. The impact and long-run multipliers are below unity, suggesting that a great extent of the intended impulse ends up expanding imported demand. The long-run multipliers of taxes and consumption expenditure are non-different from zero statistically, while public investment has a long-run multiplier of 0.6. The results suggest that countercyclical policies to stimulate growth should focus on public investment.
    Keywords: Fiscal policy;Caribbean;Eastern Caribbean Currency Union;Economic models;Government expenditures;Fiscal Multipliers; Panel VAR; OECS; ECCU.
    Date: 2013–05–22
  9. By: Sergey Belev (Gaidar Institute for Economic Policy); Tatiana Tischenko (Gaidar Institute for Economic Policy); Ilya Sokolov (Gaidar Institute for Economic Policy)
    Abstract: This paper deals with 2012 Russia's state budget. Authors speak about general characteristics of the budget system in Russia. They analyse revenues from major taxes and main parameters of the federal budget in 2012 and for 2012-2014, explain budget expenditures and give prospects of the budgetary and tax policy in Russia..
    Keywords: Russian economy, state budget, tax revenues, budget system, fiscal policy
    JEL: E62 H20 H50 H61 H70
    Date: 2013
  10. By: International Monetary Fund. African Dept.
    Keywords: Article IV consultation reports;Political economy;Economic conditions;Fiscal policy;Tax revenues;Revenue mobilization;Fiscal reforms;Banking sector;Economic indicators;Debt sustainability analysis;Staff Reports;Public information notices;Guinea-Bissau;
    Date: 2013–07–03
  11. By: International Monetary Fund. Asia and Pacific Dept
    Keywords: Tax collection;Tax revenues;Revenue mobilization;Tax policy;Workers remittances;Capital inflows;Business cycles;Selected issues;Philippines;
    Date: 2013–04–18
  12. By: Mario Mansour; Gregoire Rota Graziosi
    Abstract: We review the current state of the West African Economic and Monetary Union’s tax coordination framework, against the main objectives of the WAEMU Treaty of 1994: reduce distortions to intra-community trade, and mobilize domestic tax revenue. The process of tax coordination in WAEMU is one of the most advanced in the world—de jure at least—, but remains in many areas ineffective de facto. Nevertheless, the framework has, to some extent, succeeded in converging tax systems, particularly statutory tax rates, and may have contributed to improving revenue mobilisation. Important lessons can be drawn from the WAEMU experience, particularly in terms of whether coordination should take the form of harmonization through a top-down approach, or a softer approach of sharing best practice and limiting certain types of tax competition.
    Keywords: Tax policy;West African Economic and Monetary Union;Revenue mobilization;Tax revenues;tax coordination; tax harmonization; tax competition.
    Date: 2013–07–09
  13. By: Sami Alpanda; Sarah Zubairy
    Abstract: In this paper, we investigate the effects of housing-related tax policy measures on macroeconomic aggregates using a dynamic general-equilibrium model. The model features borrowing and lending across heterogeneous households, financial frictions in the form of collateral constraints tied to house prices, and a rental housing market alongside owner-occupied housing. Using our model, we analyze the effects of changes in housing-related tax policy measures on the level of output, tax revenue and household debt, along with other macroeconomic aggregates. The tax policies we consider are (i) increasing property tax rates, (ii) eliminating the mortgage interest deduction, (iii) eliminating the depreciation allowance for rental income, (iv) instituting taxation of imputed rental income from owner-occupied housing and (v) eliminating the property tax deduction. We find that among these fiscal tools, eliminating the mortgage interest deduction would be the most effective in raising tax revenue, and in reducing household debt, per unit of output lost. On the other hand, eliminating the depreciation allowance for rental income would be the least effective. Our experiments also highlight the differential welfare impact of each tax policy on savers, borrowers and renters.
    Keywords: Economic models; Fiscal Policy
    JEL: E62 H24 R38
    Date: 2013
  14. By: PESTIEAU, Pierre; POSSEN, Uri M.; LUTSKY, Steven M.
  15. By: Nerlich, Carolin; Reuter, Wolf Heinrich
    Abstract: This study analyses the link between fiscal frameworks and their budgetary impact. We look at different features of national numerical fiscal rules in combination with fiscal councils and medium-term budgeting frameworks. We construct our own time-varying dataset for national fiscal frameworks for the period 1990-2012 covering all 27 EU Member States and estimate a dynamic panel on aggregate and disaggregated fiscal policy variables. We find strong support that numerical fiscal rules help to improve the primary balance, and that the budgetary impact can be further strengthened when supported by independent fiscal councils and an effective medium-term budgeting framework. JEL Classification: E61, E62, H60
    Keywords: fiscal council, fiscal framework, Fiscal Policy, fiscal rules, medium term budgeting framework
    Date: 2013–09
  16. By: Razin, Assaf; Sadka, Efraim
    Abstract: We develop a stylized EU-type model of a union consisting of rich, capital-abundant and productive, countries, and poor,capital-scarce and low productivity, countries, in order to explain key features of tax policies and inter- and intra-migration flows. Our purpose is to explain the differences in the tax rates and the generosity of the welfare state, on the one hand, and migration flows, on the other hand, between rich and poor countries, within the union, and migration flows from the rest of the world. We identify a fiscal externality which makes the tax competition and the tax coordination regime to be different one from the other.
    Keywords: capital mobility; fiscal leakage; labor mobility
    JEL: F2 H2
    Date: 2013–08
  17. By: Xavier Debrun; Tidiane Kinda
    Abstract: The paper explores the extent to which the pressure of debt service on other spending items may push governments to embark on fiscal consolidation beyond what is strictly necessary to secure solvency. The empirical analysis identifies thresholds of interest bill indicators beyond which governments appear to shift to policies aimed at durably curbing the debt trajectory. Hence, in the current context of high inherited public debts, countries experiencing rising borrowing costs and interest payments would be more likely to enact more aggressive fiscal consolidations than warranted by strict solvency concerns. Conversely, those benefiting from persistently low interest rates despite rising debt stocks would likely opt for a more gradual fiscal consolidation path than what solvency considerations would normally dictate.
    Keywords: Public debt;Debt burden;Interest rates;Fiscal consolidation;Government expenditures;Public debt, interest payments, fiscal consolidation.
    Date: 2013–05–22
  18. By: Mariam Camarero (Jaume I University); Josep Lluís Carrion-i-Silvestre (Faculty of Economics, University of Barcelona); Cecilio Tamarit (University of Valencia)
    Abstract: In this paper we unify the traditional approaches to testing for fiscal sustainability considering the stock-flow system that fiscal variables configure. Our approach encompasses previous ways of testing for sustainability. The results obtained for a group of 17 OECD countries point to weak fiscal sustainability, as well as to the existence of cointegration between deficit and debt, confirming the relevance of the stock-flow approach. Allowing for structural breaks and multicointegration turns out to be of critical importance to assess whether the fiscal authorities apply their policies looking for sustainability and whether, simultaneously, they try to stabilize real debt target levels..
    Keywords: fiscal sustainability, cointegration, unit roots, structural breaks. JEL classification: H62, E62, C22.
    Date: 2013–09
  19. By: Bruno DE BORGER; Stefan PROOST
    Abstract: This paper studies the political economy of pricing and investment for excludable and congestible public goods in a federal state. Currently, we observe a wide variety of practices, ranging from federal gasoline taxes and road investment to the local supply of -- and sometimes free access to -- libraries, parking spaces and public swimming pools. The two-region model we develop allows for spill-overs between regions, it takes into account congestion, and it captures both heterogeneity between and within regions. Regional decisions are taken by majority voting; decisions at the federal level are taken either according to the principle of a minimum winning coalition or through cooperative bargaining. We have the following results. First, when users form the majority in at least one region, decentralized decision making performs certainly better than centralized decision making if spill-overs are not too large. Centralized decisions may yield higher welfare than decentralization only if users have a large majority and the infrastructure in a given region is intensively used by both local and outside users. Second, if non-users form a majority in both regions, centralized and decentralized decision making yield the same socially undesirable outcome, with prices that are much too high. Third, both bargaining and imposing uniform price restrictions across regions improve the performance of centralized decisions. Fourth, the performance of decentralized supply is strongly enhanced by local self-financing rules; it prevents potential exploitation of users within regions. Self-financing rules at the central level are not necessarily welfare-improving. Finally, the results of this paper contribute to a better understanding of actual policy-making.
    Date: 2013–09
  20. By: Comin, Diego; Mestieri, Martí
    Abstract: We study the lags with which new technologies are adopted across countries, and their long-run penetration rates once they are adopted. Using data from the last two centuries, we document two new facts: there has been convergence in adoption lags between rich and poor countries, while there has been divergence in penetration rates. Using a model of adoption and growth, we show that these changes in the pattern of technology diffusion account for 80% of the Great Income Divergence between rich and poor countries since 1820.
    Keywords: great divergence; technology diffusion; transitional dynamics
    JEL: E13 O14 O33 O41
    Date: 2013–05
  21. By: Fernando Martin (Federal Reserve Bank of St. Louis)
    Abstract: Recent events in the U.S. and Europe have renewed interest in the desirability of imposing constraints on fiscal policy. In the U.S., the implementation of large and persistent deficits as a response to the financial crisis and subsequent recession motivated debates about debt ceilings and brought back proposals for balanced-budget-rules. In the Eurozone, the fiscal crisis driven by excessive debt has forced some governments to enact austerity programs, consisting both of tax increases and expenditure cuts. The objective of this paper is to evaluate the effects of putting constraints on the ability of politicians to run fiscal policy, with an emphasis on how monetary policy interacts with such restrictions. The institutional experiments conducted include balanced budget rules and cooperation between government agencies in setting policy.
    Date: 2013
  22. By: International Monetary Fund. Fiscal Affairs Dept.
    Keywords: Fiscal transparency;Fiscal policy;Budgets;Budgeting;Fiscal risk;Ireland;
    Date: 2013–07–16
  23. By: Erixon, Lennart (Dept. of Economics, Stockholm University)
    Abstract: In the mid-1990s, a Social Democratic government pursued an ambitious fiscal austerity policy in Sweden in the aftermath of a deep recession and public budget crisis. Economic advisors were guided by the idea that fiscal austerity would have neutral or expansionary effects on output and employment. In order to avoid large public deficits in the future the government also introduced radical fiscal rules. The main conclusion in this article is that the fiscal austerity measures in the mid-1990s delayed the Swedish economic recovery and that neither these measures nor the fiscal rules were responsible for the impressive Swedish macroeconomic performance in the following period. The positive economic development in Sweden was driven by export, profit and technology, reflecting an international upswing and the country’s flexible exchange rates and industrial composition. Similar beneficial conditions for expansion are not present in the EMU countries suffering from a budget and debt crisis today.
    Keywords: Fiscal austerity; Swedish stabilization policy; Swedish growth; fiscal rules
    JEL: C32 E22 E43 E62
    Date: 2013–09–04
  24. By: Andrew M. Warner
    Abstract: Welfare economics, scope and performance of government, externalities, public goods, cost-benefit analysis, subsidies economize on spending without losing effectiveness by modifying the conceptual framework guiding state expenditures. The familiar framework says that state intervention is justified when the spending provides public goods or when the intervention addresses externalities, provided the social return is above a threshold. This paper argues that another consideration needs to be brought into the mix - whether, in spite of the externalities, the private sector has an incentive to undertake the activity. It is argued that these two considerations together define a more efficient framework under which to justify state intervention. According to this modified framework, even a benign state interested in social welfare would not in fact address every externality nor necessarily select expenditures with the highest social returns. These points are summarized in a graph which is then used to analyze policy rules, subsidies and effective interaction between the state and the private sector. It is hoped that this paper points to the kind of information that needs to be collected and acted upon so that states may achieve their goals more effectively.
    Keywords: Public investment;Private sector;Government expenditures;Subsidies;Welfare economics, scope and performance of government, externalities, public goods, cost-benefit analysis, subsidies
    Date: 2013–02–28

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