nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒10‒02
nineteen papers chosen by
Keunjae Lee
Pusan National University

  1. Audits and tax offenders: recent evidence from Greece By Athanasios O. Tagkalakis
  2. The stability of tax elasticities in The Netherlands By Leon Bettendorf; Duncan van Limbergen
  3. Foreign Experience of Special Rules According to the Corporate Income Tax for Consolidated Group of Taxpayers By Tatiana Malinina
  4. Problems of Definition of Residency for Tax Purposes: Prospects for the Development of Russian Legislation Part 2 By A. Zolotareva; Anastasia Kireeva; S. Shatalov
  5. Problems of Definition of Residency for Tax Purposes: Prospects for the Development of Russian Legislation Part 1 By A. Zolotareva; Anastasia Kireeva; S. Shatalov
  6. The political economy of pricing and capacity decisions for congestible local public goods in a federal state By De Borger, Bruno; Proost, Stef
  7. Efficiency of the pension reform: the welfare effects of various fiscal closures By Jan Hagemejer; Krzysztof Makarski; Joanna Tyrowicz
  8. Taxes, Debts, and Redistributions with Aggregate Shocks By Anmol Bhandari; David Evans; Mikhail Golosov; Thomas J. Sargent
  9. Offshore financial centers: Safe or tax havens By Patrice Pieretti; Jacques-François Thisse; Skerdilajda Zanaj
  10. Vision Versus Prudence: Government Debt Financing of Investment By John Freebairn; Max Corden
  11. Is Deregulation Necessary? The Effects of Employment Protection on Unemployment By Sabina Avdagic
  12. Monetary-Fiscal Policy Interactions: Interdependent Policy Rule Coefficients By Gonzalez-Astudillo, Manuel
  13. Political Business Cycles in Local Indonesia By Bambang Suharnoko Sjahrir; Krisztina Kis-Katos; Guenther G. Schulze
  14. Taxpayer Search for Information: Implications for Rational Attention By Jeffrey Hoopes; Daniel Reck; Joel Slemrod
  15. Wage, Income and Consumption Inequality in Japan, 1981-2008: from Boom to Lost Decades By Jeremy Lise; Nao Sudo; Michio Suzuki; Ken Yamada; Tomoaki Yamada
  16. Modeling capital gains taxes for trading strategies of infinite variation By Christoph K\"uhn; Bj\"orn Ulbricht
  17. Macroeconomic context and fiscal policy : Europe and Central Asia during 2000-2012 By Islam, Roumeen
  18. Estimating Fiscal Health of Cities: A Methodological Framework for Developing Countries By Simanti Bandyopadhyay
  19. Productivity and the Welfare of Nations By Basu, Susanto; Pascali, Luigi; Schiantarelli, Fabio

  1. By: Athanasios O. Tagkalakis (Bank of Greece)
    Abstract: Using a novel dataset on summer 2012 tax inspections by the Hellenic Ministry of Finance in tourist and high economic activity areas in 13 regions in Greece we found that the intensification of tax audits can induce tax compliance. This finding is very important at the current juncture for Greece as it shows that improvement in tax administration and tax enforcement mechanisms can deter tax evasion, increase tax revenues and contribute to the on-going fiscal consolidation effort.
    Keywords: taxation; audit; compliance.
    JEL: H26 E26 K42
    Date: 2013–02
  2. By: Leon Bettendorf; Duncan van Limbergen
    Abstract: We estimate long-run and short-run elasticities of Value Added Tax and Personal Income Tax revenues with respect to their bases for the Netherlands. We find VAT elasticities around one in the long-run and short-run. The long-run PIT elasticity is significantly below one, while the short-run elasticity is around one. We experiment with alternative definitions of the tax base for both taxes. We first find that elasticity estimates remain unaffected by using a broader base for both taxes. Second, the conclusion on whether elasticities differ between `good' and `bad' times depends whether the definition of these regimes is based on the deviation of tax revenues from the long-run level or on the output gap. Third, stability over time cannot be rejected for all elasticities, except for the long-run PIT elasticity to the broad base.
    JEL: E62 H24 H68
    Date: 2013–09
  3. By: Tatiana Malinina (Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The paper deals with the general provisions for the purposes of consolidation income taxation of corporations and foreign experience of organizing consolidated income taxation of groups of companies. Emphasis paid to the problem of the distribution of consolidated tax base between individual members of the group.
    Keywords: corporate income tax
    Date: 2013–05
  4. By: A. Zolotareva (Russian Presidential Academy of National Economy and Public Administration); Anastasia Kireeva (Russian Presidential Academy of National Economy and Public Administration); S. Shatalov (Russian Presidential Academy of National Economy and Public Administration)
    Abstract: In developed countries, special tax treatment of income of controlled foreign companies is widely used to prevent tax avoidance. The rules to this effect are aimed primarily at taxation of passive income undistributed to resident taxpayers. Several approaches can be distinguished, each of which has its advantages and disadvantages.
    Keywords: tax resident, Controlled Foreign Corporation, tax optimization
    JEL: H2
    Date: 2013–06
  5. By: A. Zolotareva (Russian Presidential Academy of National Economy and Public Administration); Anastasia Kireeva (Russian Presidential Academy of National Economy and Public Administration); S. Shatalov (Russian Presidential Academy of National Economy and Public Administration)
    Abstract: Annotation: Principal directions of tax policy for the subsequent fiscal year have provided for reforming the institution of tax residence in the Russian law. However, this proved to be difficult due to the inadministrability of taxation of passive income of foreign companies, which is not distributed to the Russian resident.
    Keywords: tax resident, Controlled Foreign Corporation, tax optimization
    JEL: H2
    Date: 2013–06
  6. By: De Borger, Bruno; Proost, Stef
    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
  7. By: Jan Hagemejer (National Bank of Poland; Faculty of Economic Sciences, University of Warsaw); Krzysztof Makarski (National Bank of Poland; Warsaw School of Economics); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)
    Abstract: Pension system reforms involve fiscal consequences. In practice, a variety of fiscal closures may be implemented, while not all of them involve the same extent of distortions. This paper develops an overlapping generations model to analyze the case of a shift from pay-as-you-go defined benefit system to a partly funded defined contribution system. We calibrate the system to mimic the economy of Poland, which actually implemented such reform in 1999. We analyze the efficiency of the reform with two main closure types: public debt and taxes. Regardless of the fiscal closure scenario this particular reform seems to be efficient in terms of welfare and enhances economic performance. Comparing the welfare of various closures we find that while labor taxation yields relatively higher welfare gain, public debt closure involves least need for the redistribution if capital pillar is to be implemented.
    Keywords: PAYG, pension system reform, time inconsistency, welfare
    JEL: C68 E17 E25 J11 J24 H55 D72
    Date: 2013
  8. By: Anmol Bhandari; David Evans; Mikhail Golosov; Thomas J. Sargent
    Abstract: A planner sets a lump sum transfer and a linear tax on labor income in an economy with incomplete markets, heterogeneous agents, and aggregate shocks. The planner's concerns about redistribution impart a welfare cost to fluctuating transfers. The distribution of net asset holdings across agents affects optimal allocations, transfers, and tax rates, but the level of government debt does not. Two forces shape long-run outcomes: the planner's desire to minimize the welfare costs of fluctuating transfers, which calls for a negative correlation between the distribution of net assets and agents' skills; and the planner's desire to use fluctuations in the real interest rate to adjust for missing state-contingent securities. In a model parameterized to match stylized facts about US booms and recessions, distributional concerns mainly determine optimal policies over business cycle frequencies. These features of optimal policy differ markedly from ones that emerge from representative agent Ramsey models like Aiyagari et al (2002).
    JEL: E62 H21 H63
    Date: 2013–09
  9. By: Patrice Pieretti (CREA, Universite de Luxembourg); Jacques-François Thisse (Universite catholique de Louvain); Skerdilajda Zanaj (CREA, Universite de Luxembourg)
    Abstract: This paper explains why and how a small country can be an offshore financial center (OFC). We build a model involving a small and a large country competing for portfolio investments. They use two instruments, taxation and institutional infrastructure. We identify the conditions for an OFC to be a tax haven, a safe haven or both. The existence of a tax haven need not be as bad as claimed in the media because its presence fosters institutional competition which is beneficial to all investors,
    Keywords: offshore financial centers, portfolio investments, institutional infrastructure competition, tax competition
    JEL: H40 H54 G20
    Date: 2013
  10. By: John Freebairn (Department of Economics, The University of Melbourne); Max Corden (Department of Economics, The University of Melbourne)
    Abstract: This article explores the arguments for and against the use of government debt to finance large-scale public investments. Relative to the options of higher taxation or lower other expenditures, debt finance means that both the costs and the benefits of the investment fall on future generations. Debt funded public investments can be an important component of a fiscal stimulus policy package, especially when the effectiveness of monetary policy is limited. While the vision arguments presume socially beneficial investment projects are chosen, political choices often involve projects with low benefit cost ratios. More debt involves higher and higher costs, not only interest costs, but also laxer fiscal choices, a weaker basis for macroeconomic policy to counter future economic shocks, and in extreme cases a loss of policy autonomy. An independent and transparent body to undertake benefit cost assessments of investment projects, and with public release and scrutiny, would support a higher level of debt finance.
    Keywords: Government investment, fiscal policy, debt finance
    JEL: E62 H54 O43
    Date: 2013–09
  11. By: Sabina Avdagic
    Abstract: Using new data, the paper examines the effect of employment protection legislation (EPL) on aggregate and youth unemployment in advanced OECD economies and in Central and Eastern Europe during 1980-2009. The analysis assesses both the direct and indirect effects of EPL on levels of unemployment, as well as the short-term and long-term effects of changes in EPL on changes in unemployment. The results offer no clear support for the argument that EPL is a cause of either aggregate or youth unemployment. While EPL reaches statistical significance at conventional levels in some models, the results are sensitive to small changes in the sample or the use of alternative estimators. The only finding that appears robust concerns the interaction between EPL and the tax wedge, which suggests some scope for reform complementarity in tackling youth labour market problems. On the whole, the analysis suggests that government efforts to tackle unemployment by deregulating EPL alone may well be unwarranted.
    Keywords: employment protection legislation, aggregate unemployment, youth unemployment
    JEL: J4 J48 P16 P52
    Date: 2013–09–23
  12. By: Gonzalez-Astudillo, Manuel
    Abstract: In this paper, we formulate and solve a New Keynesian model with monetary and fiscal policy rules whose coefficients are time-varying and interdependent. We implement time variation in the policy rules by specifying coefficients that are logistic functions of correlated latent factors and propose a solution method that allows for these characteristics. The paper uses Bayesian methods to estimate the policy rules with time-varying coefficients, endogeneity, and stochastic volatility in a limited-information framework. Results show that monetary policy switches regime more frequently than fiscal policy, and that there is a non-negligible degree of interdependence between policies. Policy experiments reveal that contractionary monetary policy lowers inflation in the short run and increases it in the long run. Also, lump-sum taxes affect output and inflation, as the literature on the fiscal theory of the price level suggests, but the effects are attenuated with respect to a pure fiscal regime.
    Keywords: Time-varying policy rule coefficients, monetary and fiscal policy interactions, nonlinear state-space models
    JEL: C11 C32 E63
    Date: 2013–07–16
  13. By: Bambang Suharnoko Sjahrir; Krisztina Kis-Katos; Guenther G. Schulze (Department of International Economic Policy, University of Freiburg)
    Abstract: We analyze the determinants of the excessive administrative spending of local governments in Indonesia. In an unbalanced panel data set of 399 districts for 2001‐2009, we show that the proliferation of districts has not led to increased administrative spending; instead a lack of political accountability is responsible for this excess. The degree of political competition influences the level of administrative spending significantly; newly introduced direct elections of district heads, however, did not curtail the waste.
    Keywords: administrative expenditures, decentralization, direct elections, Indonesia
    JEL: D73 H76 H11 R51
    Date: 2013–07
  14. By: Jeffrey Hoopes; Daniel Reck; Joel Slemrod
    Abstract: We examine novel data on searches for capital-gains-tax-related information to determine when and how taxpayers acquire information. We find strong seasonal increases in information search around tax filing deadlines, suggesting that taxpayers seek information to comply with tax laws. Positive correlations between stock market activity and information search and year-end spikes in information search on capital losses suggest that taxpayers seek information for tax planning purposes. Policy changes and news events cause noteworthy information search. Overall, these data suggest that taxpayers are not always fully informed, but that rational attention and exogenous shocks to tax salience drive taxpayer information search.
    JEL: D80 D83 H24 H31
    Date: 2013–09
  15. By: Jeremy Lise (University College London); Nao Sudo (Bank of Japan); Michio Suzuki (University of Tokyo); Ken Yamada (Singapore Management University); Tomoaki Yamada (Meiji University)
    Abstract: In this paper we document the main features of the distributions of wages, earnings, consumption and wealth in Japan since the early 1980s using four main data sources: the Basic Survey on Wage Structure (BSWS), the Family Income and Expenditure Survey (FIES), the National Survey of Family Income and Expenditure (NSFIE) and the Japanese Panel Survey of Consumers (JPSC). We present an empirical analysis of inequality that specifically considers the path from individual wages and earnings, to household earnings, after-tax income, and finally consumption. We find that household earnings inequality rose substantially over this period. Inequality in disposable income and in consumption also rose over this period but to a lesser extent, suggesting taxes and transfers as well as insurance channels available to households help to insulate household consumption from shocks to wages. We find the same pattern in inequality trends when we look over the life cycle of households as we do over time in the economy. Additionally we find that there are notable differences in the inequality trends for wages and hours between men and women over this period. Keywords: inequality trends; life-cycle inequality; wage dynamics.
    Keywords: inequality trends; life-cycle inequality; wage dynamics
    JEL: D31 D91 E23
    Date: 2013–09
  16. By: Christoph K\"uhn; Bj\"orn Ulbricht
    Abstract: In this article we show that the payment flow of a linear tax on trading gains from a security with a semimartingale price process can be constructed for all c\`agl\`ad and adapted trading strategies. It is characterized as the unique continuous extension of the tax payments for elementary strategies w.r.t. the convergence "uniformly in probability". In this framework we prove that under quite mild assumptions dividend payoffs have almost surely a negative effect on investor's after-tax wealth if the riskless interest rate is always positive.
    Date: 2013–09
  17. By: Islam, Roumeen
    Abstract: This paper examines the interaction between fiscal policy and the broader macroeconomic context in open economies. It asks two questions. First, what was the relationship between fiscal policy and current account balances in countries in Europe and Central Asia during the past dozen years? Second, how might changes in (a) output composition and (b) financial sector profitability affect revenues and thus, the assessment of the underlying structural fiscal balance? The study finds that, for flexible exchange rate countries, expansionary fiscal policy has been associated with wider current account deficits. Moreover, changes in net exports and in financial sector profitability may have significant impacts on fiscal balances because of changes in revenues from the value-added tax and the corporate profits tax as a share of gross domestic product. These findings suggest that the countries of Europe and Central Asia have reason to be prudent in terms of fiscal policy choices, even as gross domestic product rises.
    Keywords: Debt Markets,Economic Theory&Research,Currencies and Exchange Rates,Emerging Markets,Access to Finance
    Date: 2013–09–01
  18. By: Simanti Bandyopadhyay (National Institute of Public Finance and Policy New Delhi)
    Abstract: The main objective of the paper is to propose a framework in which fiscal health conditions can be assessed and the main determinants affecting fiscal health can be identified, inspite of severe data constraints. The paper draws on big urban agglomerations in India as well as smaller cities as a sample and attempts to identify the difference, if any, in the main determinants for variations in fiscal health conditions across different size classes of cities. To compensate for the lack of statistical rigor in the estimations of expenditure needs and revenue capacities, we propose a framework which analyses the ratio of expenditure needs to revenue capacity by fitting an econometric model. It is a two-step method, in the first stage we estimate the expenditure need and revenue capacity separately by simple methods discussed above. In the second stage we take the ratio of expenditure need and revenue capacity as an indicator of financial performance of a ULB and fit an econometric model to explain the performance of ULBs on the basis of factors which are likely to affect the performance of the ULBs. We find that the role of the higher tiers of the government is important in bigger and smaller size class of cities in their financial management. However, for bigger cities we find that the own source revenues can also play an important role in bringing down the fiscal ratio. In the smaller ULBs the role of the demand indicators is not that prominent but the cost indicators play a relatively prominent role. In case of bigger agglomerations, the demand indicators are more prominent than the cost indicators.
    Date: 2013–09–19
  19. By: Basu, Susanto (Boston College and NBER); Pascali, Luigi (Department of Economics, University of Warwick); Schiantarelli, Fabio (Boston College and IZA)
    Abstract: We show that the welfare of a country’s infinitely-lived representative consumer is summarized, to a firrst order, by total factor productivity (TFP) and by the capital stock per capita. These variables suffice to calculate welfare changes within a country, as well as welfare di¤erences across countries. The result holds regardless of the type of production technology and the degree of product market competition. It applies to open economies as well, if TFP is constructed using domestic absorption, instead of gross domestic product, as the measure of output. Welfare relevant TFP needs to be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates, and will typically sum to less than one. These results are used to calculate welfare gaps and growth rates in a sample of advanced countries with high-quality data on output, hours worked, and capital. We also present evidence for a broader sample that includes both advanced and developing countries. JEL classification: Productivity ; Welfare ; TFP ; Solow Residual JEL codes: D24 ; D90 ; E20 ; O47
    Date: 2013

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