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on Public Economics |
| By: | Acikgoz, Omer |
| Abstract: | Aiyagari (1995) showed that long-run optimal fiscal policy features a positive tax rate on capital income in Bewley-type economies with heterogeneous agents and incomplete markets. However, determining the magnitude of the optimal capital income tax rate was considered to be prohibitively difficult due to the need to compute the optimal tax rates along the transition path. This paper shows that, in this class of models, long-run optimal fiscal policy and the corresponding allocation can be studied independently of the initial conditions and the transition path. Numerical methods based on this finding are used on a model calibrated to the U.S. economy. I find that the observed average capital income tax rate in the U.S. is too high, the average labor income tax rate and the debt-to-GDP ratio are too low, compared to the long-run optimal levels. The implications of these findings for the existing literature on the optimal quantity of debt and constrained efficiency are also discussed. |
| Keywords: | Optimal Taxation, Ramsey Problem, Incomplete Markets, Heterogeneous Agents |
| JEL: | E2 E21 E25 E6 E62 H3 H6 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:50160&r=pbe |
| By: | Metin M. Cosgel (University of Connecticut) |
| Abstract: | An expanding state has to decide how to tax the newly conquered lands, most likely taxed under a different regime. It can either preserve the prevailing system of taxation or change it to conform to its own system. The choice depends on the relative efficiency of the two systems, political constraints, and the political legitimacy of the ruler (formulated here as his ability to collect the tax revenue). This paper examines the problem of how an expanding state would establish a fiscal regime by focusing on the tax system of the Ottoman Empire during its expansion between the fourteenth and sixteenth centuries. After outlining the general structure of the Ottoman system of taxation, it develops a simple theoretical framework to analyze the political economy of an expanding state's choice of a fiscal regime, applies this framework to the Ottoman Empire, and analyzes the interaction between tax rates and bases in a more specific context, namely the system of discriminatory taxation that the Ottomans inherited in the Fertile Crescent. |
| Keywords: | fiscal regime, taxation, conquest, state, political economy, religion, legitimacy, loyalty, constraints, power |
| JEL: | D8 H2 J4 L3 M5 N4 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2013-28&r=pbe |
| By: | David Madden (University College Dublin) |
| Abstract: | To combat growing levels of obesity, health related taxes have been suggested with taxes on foods high in fat or sugar. Such taxes have been criticised on the basis of their regressivity and potentially adverse impact upon poverty. This paper analyses the effect of such taxes on a range of poverty measures and also examines the effect of a revenue-neutral tax subsidy mix with a tax on unhealthy food combined with a subsidy on more healthy food. Using Irish expenditure data, the results indicate that taxes on high fat/sugar goods on their own will be regressive but that a tax-subsidy combination can be broadly neutral with respect to poverty. |
| Keywords: | Poverty efficiency;consumption dominance |
| Date: | 2013–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:201303&r=pbe |
| By: | Jaejoon Woo; Elva Bova; Tidiane Kinda; Yuanyan Sophia Zhang |
| Abstract: | The 2007-09 Great Recession has led to an unprecedented increase in public debt in many countries, triggering substantial fiscal adjustments. What are the distributional consequences of fiscal austerity measures? This is an important policy question. This paper analyzes the effects of fiscal policies on income inequality in a panel of advanced and emerging market economies over the last three decades, complemented by a case study of selected consolidation episodes. The paper shows that fiscal consolidations are likely to raise inequality through various channels including their effects on unemployment. Spending-based consolidations tend to worsen inequality more significantly, relative to tax-based consolidations. The composition of austerity measures also matters: progressive taxation and targeted social benefits and subsidies introduced in the context of a broader decline in spending can help offset some of the adverse distributional impact of consolidation. In addition, fiscal policy can favorably influence long-term trends in both inequality and growth by promoting education and training among low- and middle-income workers. |
| Date: | 2013–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/195&r=pbe |
| By: | Ronald B Davies (University College Dublin) |
| Abstract: | The common consolidated corporate tax base has been suggested as a way to curb tax avoidance by allocating profits across borders via a formula. This paper demonstrates that when transfer pricing occurs both for tariff and tax minimization, that moving from separate accounting to formula apportionment can actually increase transfer pricing. This, combined with arm's length pricing regulations, can result in lower revenues for high-tax countries and lower overall revenues. This casts additional doubt over whether such a move would have its intended, revenue-enhancing effects. |
| Keywords: | Common Consolidated Corporate Tax Base; Vertical FDI; Formula Apportionment; Transfer Pricing |
| JEL: | F24 F36 H25 H87 |
| Date: | 2013–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:201314&r=pbe |
| By: | Bose, Sukanya (National Institute of Public Finance and Policy); Bhanumurthy, N.R. (National Institute of Public Finance and Policy) |
| Abstract: | This paper attempts to present a framework for the estimation of fiscal multipliers for the Indian economy in the structural macroeconomic modelling tradition. Empirical estimates of short-run multipliers are obtained by giving shocks to a range of fiscal instruments - expenditures and taxes. As per our estimates, the values of capital expenditure multiplier, transfer payments multiplier and other revenue expenditure multiplier are 2.45, 0.98, and 0.99, respectively, while the tax multipliers are in the range of -1. Expenditure multipliers were also obtained in the presence of fiscal consolidation targets. These estimates again point to the strong multiplier effect of capital expenditure on output, and underscore the need to prioritize capital expenditure. |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:13/125&r=pbe |
| By: | Özgür Bor (Atýlým University, Turkey); Mustafa Ýsmihan (Atýlým University, Turkey) |
| Abstract: | This study analyzes the role of tax policy in gasoline prices in Turkey by utilizing time series techniques. It provides and compares empirical results by using daily gasoline prices between January 2005 and July 2012, with and without the effect of taxation. Our results, based on the standard asymmetric error-correction model, indicate no evidence of asymmetry in retail gasoline prices, which implies that the government does not benefit from the adjustment of gasoline prices through taxation. However, one can miss the big picture in gasoline pricing by concentrating only on the short term price adjustment dynamics via error-correction models. Therefore, we analyzed the long-run relationships between crude oil and gasoline prices with and without taxes. The results indicate that Turkish government succeeded at implicitly imposing an exceptionally high tax burden on gasoline (about 70%) over the longer term by adjusting non-salient excise tax amounts on gasoline and benefited from the resultant tax revenues as means of public finance. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:tek:wpaper:2013/7&r=pbe |
| By: | Barnett, Richard C.; Bhattacharya, Joydeep; Bunzel, Helle |
| Abstract: | This paper argues that income received via redistributive transfers, unlike labor income, requires no direct sacrifice of leisure; this makes it attractive to many voters even if it leaves them poorer. This point is made within the classic Meltzer and Richard (1981) model wherein heterogeneous voters evaluate an income-redistribution program that finances a lump-sum transfer to all via a distorting income tax. The political-equilibrium policy under majority rule is the tax most preferred, utility-wise, by the median voter. She, and many poorer voters, may support income redistribution that, ironically, leaves them poorer in income terms but with higher utility. |
| Keywords: | income redistribution; voting; Meltzer-Richard |
| JEL: | D72 E6 H2 |
| Date: | 2013–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:36600&r=pbe |
| By: | Susana Martins (Universidade do Minho, Escola de Economia e Gestão); Francisco José Veiga (Universidade do Minho - NIPE) |
| Abstract: | This paper analyzes the effects of government size and of the composition of public expenditure on economic development. Using the system-GMM estimator for linear dynamic panel data models, on a sample covering up to 156 countries and 5-year periods from 1980 to 2010, we find that government size as a percentage of GDP has a quadratic (inverted U-shaped) effect on the growth rate of the Human Development Index (HDI). This effect is especially pronounced in developed and high income countries. We also find that the composition of public expenditure affects development, with the share of five subcomponents exhibiting non-linear relationships with HDI growth. |
| Keywords: | Economic Development, Government Size, Composition of public expenditure; Human Development Index |
| JEL: | H50 O15 O23 O43 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:17/2013&r=pbe |
| By: | Eckhard Hein; Achim Truger |
| Abstract: | The German debt brake is often regarded as a great success story, and has therefore served as a role model for the Euro area and its fiscal compact. In this paper we fundamentally criticize the debt brake. We show that (1) it suffers from serious shortcomings, and its success is far from certain even from a mainstream point of view; (2) from a Post-Keynesian perspective, it completely neglects the requirements for fiscal policies of member-countries in a currency union and will prevent fiscal policy from contributing to the necessary rebalancing in the Euro area; and (3) alternative scenarios, which could avoid the deflationary pressures of the German debt brake on domestic demand and contribute to internally rebalancing the Euro area, are extremely unlikely, as they would have to rely on unrealistic shifts in the functional income distribution and/or investment and savings behavior in Germany. |
| Keywords: | Fiscal Policy; Rebalancing; Functional Income Distribution; Debt Brake; Germany; Euro Area |
| JEL: | E25 E61 E62 E64 E65 H62 H63 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_776&r=pbe |
| By: | Valerie Ramey (University of California, San Diego); Sarah Zubairy (Bank of Canada); Michael Owyang (Federal Reserve Bank of St Louis) |
| Abstract: | A key question that has arisen during recent debates is whether government spending multipliers are larger during times when resources are idle. This paper seeks to shed light on this question by analyzing new quarterly historical data covering multiple large wars and depressions in the U.S. and Canada. Using several methods for estimating multipliers, we find no evidence that multipliers are greater during periods of high unemployment in the U.S. In every case, they are below unity. We do find evidence of higher multipliers during periods of slack in Canada, with some multipliers above unity. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:290&r=pbe |
| By: | Nancy Stokey (University of Chicago) |
| Abstract: | This paper develops a simple model in which uncertainty about future tax policy leads to a temporary reduction in investment. The basic idea is that policy uncertainty creates uncertainty about the profitability of investment. If the uncertainty is likely to be resolved in the not-too-distant future, firms rationally delay committing resources to irreversible projects, reducing current investment. When the uncertainty is resolved, investment recovers, generating a temporary boom. The size of the boom depends on the realization of the fiscal uncertainty, with lower realizations of the tax rate producing larger booms. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:251&r=pbe |
| By: | Paulo Bastos (Research Department, Inter-American Development Bank, United States); Odd Rune Straume (Department of Economics, University of Minho) |
| Abstract: | We examine if an expansion in the supply of public preschool crowds-out private enrollment using rich data for municipalities in Brazil from 2000-2006, where federal transfers to local governments change discontinuously with given population thresholds. Results from a regression-discontinuity design reveal that larger federal transfers lead to a significant expansion of local public preschool services, but show no effects on the quantity or quality of private provision. These findings are consistent with a theory in which households differ in willingness-to-pay for preschool services, and private suppliers optimally adjust prices in response to an expansion of lower-quality, free-of-charge public supply. |
| Keywords: | Preschool education; private and public provision; crowding-out. |
| JEL: | D12 I21 I28 L21 O15 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:16/2013&r=pbe |
| By: | Takahiro Akita (International University of University); Mark Saliganan Pagulayan (The National Economic and Development Authority (NEDA), Philippines) |
| Abstract: | The Philippines has undergone gradual but substantial changes in industrial structure over the past few decades, and these have been associated with the change in the geographical distribution of economic activity. This study analyzes changes in the determinants of regional income inequality in the Philippines associated with these structural changes from 1975 to 2009. This is accomplished by using the bi-dimensional decomposition method. The reduction of the disparity between the National Capital Region (NCR) and the rest of Luzon is essential to decreasing Luzonfs high within-region inequality and overall interregional inequality. But this is not easy to accomplish, since services sectors have enjoyed agglomeration economies that NCR has nurtured under economic liberalization and globalization. Decentralization has been one way to ameliorate the disparity, but its effects are ambiguous. Another option would be to relocate some manufacturing activities to areas outside NCR where they could enjoy localization economies. |
| Keywords: | structural change, regional income inequality, the Philippines, bi-dimensional decomposition, weighted coefficient of variation |
| JEL: | O18 R11 R12 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:iuj:wpaper:ems_2013_14&r=pbe |
| By: | Paul Levine (University of Surrey); Peter McAdam (University of Surrey and European Central Bank); Peter Welz (European Central Bank) |
| Abstract: | We study relative preferences in a general equilibrium model where households make social comparisons and/or get habituated to levels of labour-effort they supply and goods they consume. Bayesian estimations for the US support the existence of a society based on such preferences. In particular, there is evidence that households a) make social comparisons and form habituation patterns in consumption and b) face peer-pressure when supplying labour and are aversely affected by it. Using our empirical estimates we provide numerical results for the optimal tax levels that correct for ine |
| JEL: | H21 H32 C11 C52 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:0713&r=pbe |
| By: | S. M. Ali Abbas; Bernardin Akitoby; Jochen R. Andritzky; Helge Berger; Takuji Komatsuzaki; Justin Tyson |
| Abstract: | task has become particularly challenging in European advanced economies where expectations of low growth and limits to monetary policy support are shifting the burden of adjustment onto fiscal consolidation. The SDN will investigate the main drivers behind successful past debt reversals, focusing on macroeconomic and financial market conditions, the speed and form of fiscal adjustment, and the institutional policy setting, among other things. Its policy conclusions will depend on the emerging stylized facts but are likely to include considerations on the design and pace of fiscal consolidation, taking into account country-specific as well as regional economic, institutional, and political factors. |
| Keywords: | Public debt;Fiscal policy;Privatization;Fiscal reforms;Monetary policy;Developed countries;Debt strategy;Debt reduction; |
| Date: | 2013–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfsdn:13/7&r=pbe |
| By: | Renuga Nagarajan (CEF.UP, Faculdade de Economia da Universidade do Porto); Aurora A.C. Teixeira (CEF.UP, Faculdade de Economia, Universidade do Porto; INESC Porto, OBEGEF); Sandra T. Silva (CEF.UP, Faculdade de Economia da Universidade do Porto) |
| Abstract: | Although a myriad of important theoretical and empirical contributions on ageing populations exist, these contributions are diffuse and lack an integrated vision of the distinct mechanisms through which ageing populations impact on economic growth. As such, in this paper we survey the literature that provides insights on the ageing population and its effect on economic growth. In particular, we sought to uncover the main mechanisms through which ageing impacts on economic growth. The literature review shows that the impact of ageing on the performance of countries is intimately related to the mechanism elected. About 70% of the empirical studies that focused on the ‘public social expenditure’ mechanism convey a negative impact of ageing on economic performance, whereas the majority (60%) of empirical studies that focus on ‘human capital’ fail to uncover any significant statistical relation between ageing and the economic growth proxy and the positive impact is more closely related to the ‘consumption and saving patterns’ mechanism. Estimation methodologies also seem to be associated with distinct impacts of ageing on economic growth, with less sophisticated econometric methods (i.e. OLS and panel) being most often associated with negative (cor)relations. The bulk of the empirical evidence concerns developed countries (and the ‘public social expenditure’ mechanism), with most of the analysis indicating a negative and significant relation between ageing and growth. Given that developed, developing and even the least developed countries are/will be affected by the phenomenon of an ageing population, knowing the degree to which the influence of ageing varies among countries (including developing and the least developed), and through which mechanisms, is essential to specifying sound public policies. |
| Keywords: | Ageing; economic growth; consumption and saving patterns; public expenditure; human capital |
| JEL: | J1 O4 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:504&r=pbe |
| By: | Grabka, Markus M. (DIW Berlin); Marcus, Jan (DIW Berlin); Sierminska, Eva (CEPS/INSTEAD) |
| Abstract: | While most studies on wealth inequality focus on the inequality between households, this paper examines the distribution of wealth within couples. For this purpose, we make use of unique individual level micro data from the German Socio-Economic Panel Study (SOEP). In married and cohabiting couples men's net worth, on average, is 33,000 euros higher than women's. We look at five different sets of factors (demographics, income, labor market, inheritances, financial decision-making in the partnership) that might explain this wealth gap. We find that all factors contribute to the explanation of the wealth gap within partnerships, with inheritances and income being particularly relevant. Furthermore, we find that specific characteristics (e.g., self-employment, no migration background, inheritances, high income) that decrease the wealth gap for women increase it for men. For men the respective coefficients are even stronger in absolute terms. When examining intra-partnership financial decision-making, we find the gap to be significantly smaller when the female partner manages the money and larger if the male partner has the last word in financial decisions. |
| Keywords: | wealth gap, wealth inequality, intra-household allocation, gender, financial decision-making, SOEP |
| JEL: | J2 D13 D31 D69 I31 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7637&r=pbe |
| By: | Layard, Richard (London School of Economics); Chisholm, Dan (World Health Organization); Patel, Vikram (London School of Hygiene and Tropical Medicine); Saxena, Shekhar (World Health Organization) |
| Abstract: | This paper is a contribution to the second World Happiness Report. It makes five main points. 1. Mental health is the biggest single predictor of life-satisfaction. This is so in the UK, Germany and Australia even if mental health is included with a six-year lag. It explains more of the variance of life-satisfaction in the population of a country than physical health does, and much more than unemployment and income do. Income explains 1% of the variance of life-satisfaction or less. 2. Much the most common forms of mental illness are depression and anxiety disorders. Rigorously defined, these affect about 10% of all the world’s population – and prevalence is similar in rich and poor countries. 3. Depression and anxiety are more common during working age than in later life. They account for a high proportion of disability and impose major economic costs and financial losses to governments worldwide. 4. Yet even in rich countries, under a third of people with diagnosable mental illness are in treatment. 5. Cost-effective treatments exist, with recovery rates of 50% or more. In rich countries treatment is likely to have no net cost to the Exchequer due to savings on welfare benefits and lost taxes. But even in poor countries a reasonable level of coverage could be obtained at a cost of under $2 per head of population per year. |
| Keywords: | mental illness, welfare benefits, healthcare costs, life-satisfaction |
| JEL: | I10 I14 I18 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7620&r=pbe |