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on Public Economics |
| By: | Gary Hansen; Selo Imrohoroglu |
| Abstract: | Past government spending in Japan is currently imposing a significant fiscal burden that is reflected in a net debt to output ratio near 150 percent. In addition, the aging of Japanese society implies that public expenditures and transfers payments relative to output are projected to continue to rise until at least 2050. In this paper we use a standard growth model to measure the size of this burden in the form of additional taxes required to finance these projected expenditures and to stabilize government debt. The fiscal adjustment needed is very large, in the range of 30-40% of total consumption expenditures. Using a distorting tax such as the consumption tax or the labor income tax requires either tax to rise to unprecedented highs, although the former is much less distorting than the latter. The extremely high tax rates we find highlight the importance of considering alternatives that attenuate the projected increases in public spending and/or enlarge the tax base. |
| JEL: | E2 E62 H6 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19431&r=pbe |
| By: | Nan Geng |
| Abstract: | This paper reviews Lithuania’s fiscal consolidation since 2009, assesses the contribution of revenue and expenditure to the consolidation, evaluates the quality of measures, and draws lessons for the future. It finds that, despite having the lowest revenue-to-GDP ratio in the EU, Lithuania’s fiscal adjustment has so far relied mainly on expenditure measures, with the quality of measures deteriorating over time. The analysis also suggests that Lithuania’s tax system, in comparison with other EU countries and regional peers, is skewed toward labor and consumption taxes, and plays a more limited role in income redistribution, especially in the upper income brackets. The paper argues therefore that there is ample scope to implement high quality revenue measures in order to complete the fiscal adjustment in the medium term in a sustainable and inclusive manner. |
| Keywords: | Fiscal consolidation;Lithuania;Fiscal policy;Tax structures;Income distribution;Tax system reviews;Lithuania, fiscal consolidation, composition and quality of measures, sustainability and inclusiveness, income redistribution, wealth taxation |
| Date: | 2013–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/157&r=pbe |
| By: | John Norregaard |
| Abstract: | The tax on immovable property has been characterized as probably the most unpopular among tax instruments, in part because it is salient and hard to avoid. But economists continue to emphasize the virtues of the property tax owing to its relatively low efficieny costs, benign impact on growth, and high score on fairness. It is, therefore, generally considered to be underutilized in most countries. This paper takes stock of the arguments for using real property taxation, and presents an updated data-set for high-and middle income countries to illustrate its use. It also reflects the renewed and widespread interest in property tax reform globally, and discusses the many policy and administrative issues that must be carefully considered as prerequisites for successful property tax reform. |
| Keywords: | Property taxes;Developing countries;Transition economies;Tax revenues;Tax reforms;immovable property tax, recurrent property tax |
| Date: | 2013–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/129&r=pbe |
| By: | International Monetary Fund. European Dept. |
| Keywords: | Article IV consultation reports;Economic growth;Fiscal policy;Budgetary policy;Tax revenues;Tax structures;Fiscal sustainability;Banking sector;Economic indicators;Staff Reports;Press releases;Public information notices;Kosovo; |
| Date: | 2013–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:13/222&r=pbe |
| By: | Luc Eyraud; Marialuz Moreno Badia |
| Abstract: | The purpose of this paper is to assess whether expenditure decentralization has contributed to weakening fiscal performance in Europe. Using a panel of EU15 countries for the period 1995-2011, we estimate three econometric models and ask the following questions: (1) does the form of spending decentralization affect the general government fiscal balance?; (2) is there evidence of spending duplication?; and (3) are soft budget constraints prevalent at the subnational level in Europe? Our results indicate that current decentralization models may have some shortcomings and efforts to achieve fiscal consolidation would require improvements in three areas: better matching subnational spending and revenues; reshaping some expenditure assignments to reduce overlap; and improving the effectiveness of institutional arrangements at the subnational level. |
| Keywords: | Government expenditures;Europe;Fiscal consolidation;Economic models;Cross country analysis;fiscal federalism, local governments, fiscal balance, EU |
| Date: | 2013–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/46&r=pbe |
| By: | Katsuyoshi Nakazawa (University of Toyo); Tomohisa Miyashita (PHP research institute) |
| Abstract: | This paper uses survival analysis to examine the time taken to carry out municipality amalgamation in Japan in terms of both forming the amalgamation committee and completing amalgamation. The results show that municipalities that depend on local allocation tax grants as a revenue source, those that have an incentive to become a city that has special administrative discretions, and those that jointly manage local services form a committee and complete amalgamation more quickly. Further, municipalities that have high local public debt tend not to form committees. These findings show that the central government’s “carrot-and-stick” policy has strongly influenced municipality amalgamation. |
| JEL: | H72 H73 H77 R51 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201338&r=pbe |
| By: | Santiago Acosta Ormaechea; Atsuyoshi Morozumi |
| Abstract: | This paper studies the effects of public expenditure reallocations on long-run growth. To do this, we assemble a new dataset based on the IMF’s GFS yearbook for the period 1970-2010 and 56 countries (14 low-, 16 medium-, and 26 high-income countries). Using dynamic panel GMM estimators, we find that a reallocation involving a rise in education spending has a positive and statistically robust effect on growth, when the compensating factor remains unspecified or when this is associated with an offsetting reduction in social protection spending. We also find that public capital spending relative to current spending appears to be associated with higher growth, yet results are non-robust in this latter case. |
| Keywords: | Fiscal policy;Government expenditures;Economic growth;Economic models;Expenditure composition; panel-data analysis; economic growth. |
| Date: | 2013–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/162&r=pbe |
| By: | Gaigné, Carl; Riou, Stéphane; Thisse, Jacques-François |
| Abstract: | We study how political boundaries and fiscal competition interact with the labor and land markets to determine the economic structure and performance of metropolitan areas. Contrary to general belief, institutional fragmentation need not be welfare-decreasing, and commuting from the suburbs to the central city is not wasteful. Thus, the institutional and economic limits of the central city do not coincide at the social optimum. Under tax competition, the central business district is too small. The dispersion of jobs is increased when suburbanite workers consume the public services supplied by the central city. This indicates the need for some metropolitan governance. |
| Keywords: | administrative boundary; economic boundary; fiscal competition; local labor markets; metropolitan area; suburbanization |
| JEL: | H41 H71 R12 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9499&r=pbe |
| By: | Ruud A. de Mooij; Michael Keen; Masanori Orihara |
| Abstract: | That most corporate tax systems favor debt over equity finance is now widely recognized as, potentially, amplifying risks to financial stability. This paper makes a first attempt to explore, empirically, the link between this tax bias and the probability of financial crisis. It finds that greater tax bias is associated with significantly higher aggregate bank leverage, and that this in turn is associated with a significantly greater chance of crisis. The implication is that tax bias makes crises much more likely, and, conversely, that the welfare gains from policies to alleviate it can be substantial—far greater than previous studies, which have ignored financial stability considerations, suggest. |
| Keywords: | Tax systems;Corporate taxes;Banks;Financial crisis;Corporate sector;Taxation;Bank taxation; corporate tax; debt bias; leverage |
| Date: | 2013–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/48&r=pbe |
| By: | Benno Torgler; Theocharis Grigoriadis |
| Abstract: | In this paper, we analyze the effects of religious identity - defined both as personal identification with a religious tradition and institutional ideas on the provision of public goods - on attitudes toward central government. We explore whether citizens belonging to collectivist rather than individualist religious denominations are more likely to evaluate their central government positively. Moreover, we explore whether adherence to collectivist norms of economic and political organization leads to a positive evaluation of central government. Surveys were conducted in Russia and Israel as these countries provide a mosaic of three major world religions - Judaism, Eastern Orthodoxy and Sunni Islam. The information gathered also allows us to study whether attitudes towards religious institutions such as the Russian Orthodox Church, the Chief Rabbinate in Jerusalem, the Jerusalem Islamic Waqf, and the Greek-Orthodox Patriarchate of Jerusalem in Israel are able to predict positive attitudes toward centralized forms of governance. We find strong support for the proposition that collectivist norms and an institutional religious identity enhance positive attitudes towards central government. |
| Keywords: | Religious identity, public goods, collectivism, individualism, local government, centralization, Russia, Israel |
| JEL: | P16 P17 P21 P35 P51 P52 Z12 |
| Date: | 2013–08–15 |
| URL: | http://d.repec.org/n?u=RePEc:qut:qubewp:wp018&r=pbe |
| By: | Sara LaLumia (Department of Economics, Williams College); James M. Salle (The Harris School University of Chicago and the NBER); Nicolas Turner (Office of Tax Analysis, U.S. Department of Treasury) |
| Abstract: | This paper uses data from the universe of tax returns filed between 2001 and 2010 to test whether parents shift the timing of childbirth around the New Year to gain tax benefits. Filers have an incentive to shift births from early January into late December, through induction or cesarean delivery, because child-related tax benefits are not prorated. We find evidence of a positive, but very small, effect of tax incentives on birth timing. An additional $1000 of tax benefits increases the probability of a late-December birth by only about 1 percentage point. We argue that the response to tax incentives is small in part because of confusion about eligibility and delays in the issuance of Social Security Numbers for newborns, as well as a lack of control over medical procedures on the part of filers with the highest tax values. We also document a precise shifting of reported self-employment income in response to variation in incentives from the Earned Income Tax Credit due to childbirth. We estimate that this reporting response reduces federal revenue by hundreds of millions of dollars per year. |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2013-06&r=pbe |
| By: | McKay, Alisdair; Reis, Ricardo |
| Abstract: | Most countries have automatic rules in their tax-and-transfer systems that are partly intended to stabilize economic fluctuations. This paper measures how effective they are. We put forward a model that merges the standard incomplete-markets model of consumption and inequality with the new Keynesian model of nominal rigidities and business cycles, and that includes most of the main potential stabilizers in the U.S. data, as well as the theoretical channels by which they may work. We find that the conventional argument that stabilizing disposable income will stabilize aggregate demand plays a negligible role on the effectiveness of the stabilizers, whereas tax-and-transfer programs that affect inequality and social insurance can have a large effect on aggregate volatility. However, as currently designed, the set of stabilizers in place in the United States has barely had any effect on volatility. According to our model, expanding safety-net programs, like food stamps, has the largest potential to enhance the effectiveness of the stabilizers. |
| Keywords: | Countercyclical fiscal policy; Fiscal multipliers; Heterogeneous agents |
| JEL: | E32 E62 H30 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9454&r=pbe |
| By: | Rodrigo Martins (Faculdade de Economia, Universidade de Coimbra); Francisco José Veiga (Universidade do Minho - NIPE) |
| Abstract: | This paper analyzes the effects of voter turnout on the vote shares received by the incumbent government. A system of simultaneous equations is estimated using a panel dataset of 278 Portuguese municipalities, for the period 1979-2005, covering 10 legislative elections. The results indicate that right-wing governments have lower vote shares when turnout is higher, while left-wing ones seem to be unaffected. There is also evidence of the responsibility hypothesis, that turnout is higher in closer elections, and that regional/local economic variables have non-linear effects on turnout. |
| Keywords: | Vote shares, Turnout, Legislative Elections, Portugal, |
| JEL: | D72 H7 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:15/2013&r=pbe |
| By: | CANTA, Chiara (Université catholique de Louvain, Louvain School of Management and CORE, Belgium); LEROUX, Marie-Louise (Département des Sciences Economiques, UQAM, Canada; Université catholique de Louvain, CORE, Belgium) |
| Abstract: | This paper studies how congestion in the public health sector can be used as a redistributive tool. In our model, agents differ in income and they can obtain a health service either from a congested public hospital or from a non congested private one at a higher price. With pure in-kind redistribution, agents fail to internalize their impact on congestion, and the demand for the public hospital is higher than optimal. We show that under full information, the optimal redistribution and sorting across hospitals can be obtained using a lump-sum tax and a subsidy on the private hospital. If income is not observable but the social planner can assign agents across hospitals, the optimal congestion is higher than in the first best in order to relax incentive constraints. Finally, if agents can freely choose across hospitals, the optimal subsidy on the private hospital price may be negative or positive depending on the relative importance of redistribution and efficiency concerns. |
| Keywords: | optimal taxation, mixed health care systems, waiting times, income redistribution |
| JEL: | H21 H23 H44 I11 |
| Date: | 2013–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2013041&r=pbe |
| By: | Axel Dreher; Kai Gehring; Christos Kotsogiannis; Silvia Marchesi |
| Abstract: | This paper explores the role of information transmission and misaligned interests across levels of government in explaining variation in the degree of decentralization across countries. Within a two-sided incomplete information principal-agent framework, it analyzes two alternative policy-decision schemes —‘decentralization’ and ‘centralization’— when ‘knowledge’ consists of unverifiable information and the quality of communication depends on the conflict of interests between the government levels. It is shown that, depending on which level of policy decision-making controls the degree of decentralization, the extent of misaligned interests and the relative importance of local and central government knowledge affects the optimal choice of policy-decision schemes. The empirical analysis shows that countries’ choices depend on the relative importance of their private information and the results differ significantly between unitary and federal countries. |
| Keywords: | delegation, centralization, communication, fiscal decentralization, state and local government |
| JEL: | H7 H77 D82 D83 C23 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:253&r=pbe |
| By: | Casey B. Mulligan |
| Abstract: | The Affordable Care Act includes four significant, permanent, implicit unemployment assistance programs, plus various implicit subsidies for underemployment. Every sector of the economy, and about half of nonelderly adults, is directly affected by at least one of those provisions. This paper calculates the ACA’s impact on the average reward to working among nonelderly household heads and spouses. The law increases marginal tax rates by an average of five percentage points (of employee compensation), on top of the marginal tax rates that were already present before the it went into effect. The ACA’s addition to labor tax wedges is roughly equivalent to doubling both employer and employee payroll tax rates for half of the population. |
| JEL: | E24 H31 I18 I38 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19365&r=pbe |
| By: | Misra, Kanishka; Surico, Paolo |
| Abstract: | Almost half of American families did not adjust their consumption following receipt of the 2001 or 2008 tax rebates. Another 20%, with low income and more likely to rent, spent a small but significant amount. Households with large spending propensity held high mortgage debt. The heterogeneity is concentrated in a few non-durable categories and a handful of `new vehicle' purchases. The predictions of the heterogeneous response model appear far more accurate than their homogeneous response model counterparts, offering new insights on the evaluation of the two fiscal stimulus programmes. |
| Keywords: | fiscal policy; heterogeneity; stimulus payments |
| JEL: | D91 E21 E62 H31 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9530&r=pbe |
| By: | Aqib Aslam; Enrico Berkes; Martin Fukac; Jeta Menkulasi; Axel Schimmelpfennig |
| Abstract: | For Afghanistan, the dual prospect of declining donor support and high ongoing security spending over the medium term keeps the government budget tight. This paper uses a general equilibrium model to capture the security-development tradeoff facing the government in its effort to rehabilitate macroeconomic stability and welfare. In particular, it considers strategic policy options for counteracting and minimizing the negative macroeconomic impact of possible aid and revenue shortfalls. We find that the mobilization of domestic revenues through changes in tax policy is the preferred policy response for Afghan central government. Such a response helps to place its finances on a sustainable path and preserve most of the growth potential. Cutting expenditures balances public finances, but causes the economy to permanently shrink. Debt financing helps to preserve much of the economy size but can jeopardize the sustainability of public finances. |
| Keywords: | Political economy;Afghanistan;Fiscal policy;Government expenditures;Public investment;Infrastructure;Revenue mobilization;Tax policy;Monetary policy;Economic models;public investment, development spending, security spending |
| Date: | 2013–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/133&r=pbe |
| By: | Jon Bakija (Williams College) |
| Abstract: | Tax policies in the U.S. increase the incentive to donate to charity among those who itemize their deductions, and most of the tax revenue cost goes to subsidize donations made by relatively high-income people. Several types of empirical evidence which I review here suggest that the donation behavior of high-income people in particular is probably rather responsive to these tax incentives. Economic theory helps clarify what factors affect the optimal tax subsidy for charitable giving, and I summarize some of the key insights. Among other things, the theory suggests that the optimal subsidy is likely to be higher when donation behavior is more responsive to tax incentives, but this is just one important piece of a larger puzzle. |
| Keywords: | charitable donations, incentive effects of taxation |
| JEL: | H24 H31 D12 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2013-01&r=pbe |
| By: | Assaf Razin |
| Abstract: | This paper provides overview of recent work on migration and welfare state tax policies: 1. I survey the literature on the tax burden of migration. 2. I empirically identify the differential effect of the generosity of the welfare state on the skill composition of immigrants across the two groups (the "free-migration" group and the "policy-restricted migration" group) in an unbiased way. 3. I outline the implications of the tax burden of migration to tax competition within a union, facing migration from the rest of the world.Each host country in a competitive regime balances on the margin these gains and losses from migration. In doing so, each country takes the well-being of the migrants as given. Therefore, It ignores the fact that a tax-migration policy that admits an extra migrant raises the well-being that must be accorded to migrants by all the other host countries, in order to elicit the migrant to come in; and more capital income leaks, through capital taxation, to immigrants. |
| JEL: | F2 F22 H2 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19346&r=pbe |
| By: | Luc Eyraud; Anke Weber |
| Abstract: | Studies suggest that fiscal multipliers are currently high in many advanced economies. One important implication is that fiscal tightening could raise the debt ratio in the short term, as fiscal gains are partly wiped out by the decline in output. Although this effect is not long-lasting and debt eventually declines, it could be an issue if financial markets focus on the short-term behavior of the debt ratio, or if country authorities engage in repeated rounds of tightening in an effort to get the debt ratio to converge to the official target. We discuss whether these problems could be addressed by setting and monitoring debt targets in cyclically-adjusted terms. |
| Keywords: | Fiscal policy;Debt reduction;Fiscal consolidation;Public debt;Developed countries;fiscal consolidation, fiscal multipliers, public debt |
| Date: | 2013–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/67&r=pbe |
| By: | Ravi Balakrishnan; Chad Steinberg; Murtaza H. Syed |
| Abstract: | This paper assesses how pro-poor and inclusive Asia’s recent growth has been, and what factors have been driving these outcomes. It finds that while poverty has fallen across the region over the last two decades, inequality has increased, dampening the impact of growth on poverty reduction. As a result, relative to other emerging and developing regions and to Asia’s own past, the recent period of growth has been both less inclusive and less pro-poor. Our analysis suggests a number of policies that could help redress these trends and broaden the benefits of growth in Asia. These include fiscal policies to increase spending on health, education, and social safetynets; labor market reforms to boost the labor share of total income; and reforms to make financial systems more inclusive. |
| Keywords: | Economic growth;Asia;Fiscal policy;Government expenditures;Social safety nets;Labor market reforms;China;Asia, Inequality, Inclusive Growth, Poverty, Labor Market, Fiscal Policy, Financial Markets. |
| Date: | 2013–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/152&r=pbe |
| By: | Carlos Caceres; Serhan Cevik; Ricardo Fenochietto; Borja Gracia |
| Abstract: | Libya is highly dependent on exhaustible and volatile hydrocarbon resources, which constitute the bulk of government revenues. Although resource wealth provides the means to promote socio-economic development, procyclical fiscal policies threaten macroeconomic stability as well as fiscal sustainability and intergenerational equity. In three parts, this paper provides an assessment of the cyclically adjusted fiscal stance, analyzes fiscal sustainability according the permanent income framework, and simulates various fiscal policy rules with the objective of developing a rule-based fiscal strategy that would delink the economy from oil price fluctuations, improve the management of resource wealth, and safeguard macroeconomic stability. |
| Keywords: | Fiscal policy;Libya;Hydrocarbons;Revenues;Fiscal sustainability;Fiscal policy, cyclical adjustment, fiscal sustainability, permanent income hypothesis, fiscal rules, natural resources, public financial management |
| Date: | 2013–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/79&r=pbe |
| By: | Miller, Marcus (University of Warwick); Zhang, Lei (University of Warwick) |
| Abstract: | A simple dynamic framework is used to show how consolidation plans that are robust and effective at capacity output can be undermined by demand failure. If the market panics and interest rates rise, the process can indeed become dynamically unstable. Tightening fiscal policy to reassure financial markets can lead to a low level “consolidation trap”, however. Better that the Central Bank acts to keep interest rates low; and that fiscal consolidation efforts be state contingent – allowing room for economic stabilisation. The pro-cyclicality of fiscal policy could also be reduced if, as Shiller has argued, debt amortization were state contingent, being indexed to GDP. Debt; Deficits; Fiscal Consolidation; Economic Stabilisation |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:cge:warwcg:158&r=pbe |
| By: | Arik Levinson |
| Abstract: | The economics of "happiness" shares a feature with behavioral economics that raises questions about its usefulness in public policy analysis. What happiness economists call "habituation" refers to the fact that people's reported well-being reverts to a base level, even after major life events such as a disabling injury or winning the lottery. What behavioral economists call "projection bias" refers to the fact that people systematically mistake current circumstances for permanence, buying too much food if shopping while hungry for example. Habituation means happiness does not react to long-term changes, and projection bias means happiness over-reacts to temporary changes. I demonstrate this outcome by combining responses to happiness questions with information about air quality and weather on the day and in the place where those questions were asked. The current day's air quality affects happiness while the local annual average does not. Interpreted literally, either the value of air quality is not measurable using the happiness approach or air quality has no value. Interpreted more generously, projection bias saves happiness economics from habituation, enabling its use in public policy. |
| JEL: | D03 H41 Q51 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19329&r=pbe |