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on Public Economics |
| By: | Gary D. Hansen (University of California, Los Angeles (E-mail: ghansen@econ.ucla.edu)); Selahattin Imrohoroglu (University of Southern California (E-mail: selo@ marshall.usc.edu)) |
| 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. |
| Keywords: | Government debt, fiscal policy, aging, Japan |
| JEL: | E2 E62 H6 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:13-e-10&r=pbe |
| By: | S. DE SCHOENMAKER; P. VAN CAUWENBERGE; H. VANDER BAUWHEDE |
| Abstract: | Since decades, scholars and policy makers have been interested in how fiscal policy influences entrepreneurship. Until now, research has focused on fiscal policy at the federal or regional level and used macro-economic outcome measures. Considerably less attention was given to how municipal governments can influence economic outcomes at the micro level. The present study examines the effect of municipal taxes, spending and tax compliance costs on firm profitability within the Flemish hospitality industry. This is a unique research setting, since Flemish municipalities have far-ranging fiscal autonomy which has resulted in a proliferation of local taxes, many of which are specific to the hospitality industry. The findings reveal that local taxes have a negative impact on firm profitability, while aggregate public spending has a positive influence. While both influences are economically significant, the tax effect exceeds the public spending impact. Finally, we find no impact of compliance costs from local taxes. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:13/854&r=pbe |
| By: | Kunihiko Konishi (Graduate School of Economics, Osaka University) |
| Abstract: | This study constructs a variety expansion growth model with public research spending, in which public researchers raise the productivity of private R&D. We show that the rela- tionship between public research spending and the growth rate follows an inverted U-shape. This is because public research spending increases private R&D productivity, but crowds out labor input to private R&D. It is also shown that the welfare-maximizing level of pub- lic research spending is below the growth-maximizing level. With regards to tax policy, a zero-proffit tax maximizes both growth and welfare. Finally, the study analyzes the stability of the steady state, showing that the equilibrium is indeterminate when the governmentfs revenue source depends on asset income tax. |
| Keywords: | Public expenditure, Endogenous growth, Innovation, Indeterminacy |
| JEL: | E62 O41 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1326&r=pbe |
| By: | Yutao Han (yutao.han@uni.lu) |
| Abstract: | In this paper, we investigate whether partial tax coordination is beneficial to countries within and outside a tax union, in which countries are supposed to compete in taxes and infrastructure. Our results demonstrate that, a subgroup of countries agreeing on a common tax rate, can harm both member and nonmember states. This is in contrast to the classical findings that partial tax harmonization is Pareto improving. When a minimum tax rate is imposed within a tax union, we demonstrate that it does not necessarily improve the welfare of the member countries. Moreover, both the high tax and low tax countries can be worse off. This is at odds with a classical result that a high tax country benefits from the imposition of a lower tax bound. |
| Keywords: | Tax competition, infrastructure competition, partial tax coordination, social welfare |
| JEL: | H21 H87 H73 F21 C72 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:13-24&r=pbe |
| By: | Ritwik Banerjee (Department of Economics and Business, Aarhus University) |
| Abstract: | Unsustainable levels of debt in some European economies are causing considerable strain in the Euro area. Successful debt consolidation in high debt economies is one of the most important important objective for the European policy makers. I use a dynamic general equilibrium closed economy model to compute the dynamic Laffer Curves for Portugal, Ireland, Greece and Spain for different class of taxes. The general equilibrium effects of the interaction of labor tax, consumption tax and capital tax is demonstrated. Location of each economy on its Laffer curve suggests that there exists a scope for considerable revenue generation by raising consumption and labor tax rates but no such possibilities exist for capital tax rate. Thus revenue generation with certain tax rates as instruments, may hold a key to successful and sustained debt reduction. |
| Keywords: | Laffer Curve, Public Debt, Portugal, Ireland, Greece, Spain |
| JEL: | E60 E62 H30 |
| Date: | 2013–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2013-23&r=pbe |
| By: | Thornton Matheson; Victoria J. Perry; Chandara Veung |
| Abstract: | Global investment patterns mean that effective taxation of foreign investors is of increasing importance to the economies of lower income countries. It is thus of considerable concern that the historical framework for cross-border income tax arrangements is not always well suited to allow low-income countries (LICs) effectively to generate tax revenues from profits on foreign direct investment (FDI). Several aspects of this framework contribute to the problem. This paper discusses, in particular, the likely effect of a shift by major economies from the system of worldwide corporate taxation toward a territorial system on the volume, distribution, and financing of FDI, focusing on LICs. It then empirically analyzes bilateral outbound FDI data for the UK for 2002–10 to determine whether the move to territoriality made corporations more sensitive to hostcountry statutory tax rates. Supporting evidence for this hypothesis is found for FDI financed from new equity. |
| Keywords: | Corporate taxes;United Kingdom;Japan;Foreign direct investment;Developing countries;Low-income developing countries;Tax revenues;international corporate income tax, international taxation, worldwide taxation, territorial taxation, foreign direct investment in developing countries |
| Date: | 2013–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/205&r=pbe |
| By: | Möhlmann, Axel |
| Abstract: | This paper studies differences in tax morale attitudes between East and West Germany using multiple recent data sets. Contrary to previous 1990s evidence, but in line with recent studies on an east-west mentality gap, we find a persistent higher tax morale in East Germany and no indication of convergence over time. Distinguishing between region of living and birth and periods of within-country migration reveals that the East Germans who stayed determine the results and that migration vanishes differences. Regional economic heterogeneity of tax revenue transfers cannot explain the results. We find a framing effect on the tax morale gap with questions phrasing tax paying as the duty of a good citizen. This result suggests no gap of tax morale with moral reasoning related to the social order and citizenry. |
| Keywords: | tax morale, German reunification, east-west differences, convergence, moral reasoning |
| JEL: | H26 H73 |
| Date: | 2013–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:50766&r=pbe |
| By: | Nicolas Herault (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Francisco Azpitarte (Brotherhood of St Laurence; and Melbourne Institute of Applied Economic and Social Research, The University of Melbourne) |
| Abstract: | In this paper we propose a framework to study changes in the redistributive consequences of income taxes and transfers. In contrast with previous approaches the new method allows decomposition of the change in the redistributive impact into four components: the immediate effect of changes in the tax-transfer system in the absence of labour supply responses; the effect of labour supply changes induced by changes in the tax-transfer system; the effect of all other labour supply changes; and a residual capturing the variation not explained by the previous factors. We illustrate the use of our decomposition method by analysing the changes in the redistributive impact of the tax and transfer system in Australia between 1999 and 2007. We find that labour supply changes, and in particular the increase in employment rates over the period, explain to a large extent the observed reduction in the redistributive effect of the tax-transfer system. A sizable part of these labour supply changes were found to be direct responses to tax-transfer reforms. Interestingly, we find that tax reforms were not responsible for the observed reduction in tax progressivity. |
| Keywords: | Income, redistributive effect, labour supply, taxes and transfers |
| JEL: | H23 J22 D31 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2013n33&r=pbe |
| By: | Patrick Gonzalez |
| Abstract: | The State may tax the extraction of a public natural resource in different ways. I consider the relative performances of a fixed fee, an ad valorem tax and a rent tax when the State must receive a minimal revenue for exploitation to take place. Taxing the resource may lower the probability that a firm will extract the resource. I show that the performance of each tax depends on the expected value of the resource: when it is high, the rent tax brings more revenue to the State; when it is low, the fixed fee is efficient while the rent tax does poorly. For an intermediate value, the ad valorem tax may bring the highest expected revenues among the three although it is always dominated by an hybrid tax that combines the latter two. |
| Keywords: | Rent, Royalties, Mining, Extraction Industry |
| JEL: | L71 H23 H25 Q34 Q38 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:creacr:2013-6&r=pbe |
| By: | Gérard GAUDET; Pierre LASSERRE |
| Abstract: | We provide an analytical overview of the distortionary eects of some common forms of taxes faced by the nonrenewable resources sector of the economy. In the category of taxes meant specifically to capture the resource rent, we look at a specific severance tax, an ad valorem severance tax, a profit tax and a "lump-sum" tax, with emphasis on their effects on the extraction decisions over time and on the initial reserves to be developed. In the category of taxes meant for all sectors of the economy, we look at the corporate income tax and its special provision for the resource sector in the form of a depletion allowance, with emphasis on the effects on the intra-industry resource extraction decisions and on the inter-industry allocation of investment. |
| Keywords: | Nonrenewable resources, taxation, neutrality, distortion, resource rent, capital allocation |
| JEL: | Q31 Q38 H21 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:15-2013&r=pbe |
| By: | Manuel Coutinho Pereira; Lara Wemans |
| Abstract: | This paper develops a new measure of quarterly discretionary tax shocks for Portugal that result from changes in legislation, following the narrative approach. It covers the years from 1996 to 2012 and was based on a comprehensive analysis of tax policy measures taken in the course of this period. The …ndings point to strongly negative and persistent e¤ects of legislated tax increases on GDP and private consumption, matching the tendency of the narrative approach to yield comparatively high tax multipliers. |
| JEL: | E62 E43 E32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201315&r=pbe |
| By: | Johann Brunner; Susanne Pech |
| Abstract: | We study the optimal tax system in a dynamic model where differences in wages induce differences in inheritances, and the transition from parent ability to child ability is described by a Markov chain. We characterize expected inheritances in the steady state and show that the Atkinson-Stiglitz result on the redundancy of indirect taxes does not hold in this framework. In particular, given an optimal income tax, a bequest tax as well as a consumption tax are potential instruments for additional redistribution. For the bequest tax the sign of the overall welfare e¤ect depends on the reaction of bequests and on inequality aversion, while for the consumption tax the sign is always positive because the distorting e¤ect is outweighed by the induced increase in wealth accumulation. A necessary condition for a positive welfare effect is the empirically validated relation that more able individuals on average have more able parents than less able individuals. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2013_15&r=pbe |
| By: | Valentini, Edilio |
| Abstract: | It is well known that many standard results on optimal taxation and tax reforms have a straightforward counterpart in the monopoly pricing context and the Ramsey-Boiteux pricing rule represents the most obvious and well known example of this connection. What is less acknowledged, maybe even by many regulatory economists, is that this parallelism exists also with respect to a number of properties that characterize some types of price cap regulation. This paper reviews the economic literature that explored such properties, showing that there is a strong parallelism between the price cap results that are surveyed in this paper and those originating from the well-established theories on optimal indirect taxation and tax reforms, as well as public pricing. |
| Keywords: | Indirect taxation, public pricing, price cap regulation |
| JEL: | H21 L51 |
| Date: | 2013–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:50889&r=pbe |
| By: | Aaberge, Rolf (Statistics Norway); Flood, Lennart (University of Gothenburg) |
| Abstract: | An essential difference between the design of the Swedish and the US in-work tax credit systems relates to their functional forms. Where the US earned income tax credit (EITC) is phased out and favours low and medium earnings, the Swedish system is not phased out and offers 17 and 7 per cent tax credit for low and medium low incomes and a lump-sum tax deduction equal to approximately 2300 USD for medium and higher incomes. The purpose of this paper is to evaluate the efficiency and distributional effects of these two alternative tax credit designs. We pay particular attention to labour market exclusion; i.e. individuals within as well as outside the labour force are included in the analysis. To highlight the importance of the joint effects from the tax and the benefit systems it appears particular relevant to analyse the labour supply behaviour of single mothers. To this end, we estimate a structural random utility model of labour supply and welfare participation. The model accounts for heterogeneity in consumption-leisure preferences as well as for heterogeneity and constraints in job opportunities. The results of the evaluation show that the Swedish system without phase-out generates substantial larger labour supply responses than the US version of the tax credit. Due to increased labour supply and decline in welfare participation we find that the Swedish reform is self-financing for single mothers, whereas a 10 per cent deficit follows from the adapted EITC version used in this study. However, where income inequality rises modestly under the Swedish tax credit system, the US version with phase-out leads to a significant reduction in the income inequality. |
| Keywords: | labour supply, single mothers, in-work tax credit, social assistance, random utility model |
| JEL: | J22 I38 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7706&r=pbe |
| By: | Alejandro D. Guerson |
| Abstract: | This paper evaluates policy alternatives to achieve permanent fiscal consolidation in Hungary, based on a general equilibrium calibration. The main finding is that the composition of the consolidation, as determined by the mix of revenue and expenditure measures, has important implications for growth, employment, investment, and other key macroeconomic variables. A reduction in current expenditures yields the smallest GDP contraction in the short term and can increase output in the long term by stimulating labor participation and private investment. On the other end of the spectrum, a consolidation of government investment and corporate taxes are the most costly, as disincentives for private investment result in protracted declines in GDP that compound over time to GDP losses that are multiple times the initial size of the consolidation. |
| Keywords: | Fiscal consolidation;Hungary;Fiscal policy;Economic models;fiscal consolidation, Hungary, DSGE models, overlapping generations households, liquidity constrained households, financial accelerator, macro-financial linkages |
| Date: | 2013–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/207&r=pbe |
| By: | Lees, Kirdan (New Zealand Institute of Economic Research) |
| Abstract: | A new report from the New Zealand Institute of Economic Research (NZIER) highlights the unprecedented fiscal challenges that New Zealand politicians will face in coming decades. NZIER recommends that tough decisions around taxes and government spending need to be taken now, and stuck to, in order to avoid a US-like situation in the future when the economic and political costs of correcting debt levels become dangerously high. A bipartisan agreement on funding superannuation costs would be a good starting point. |
| Keywords: | fiscal sustainability; superannuation; pensions; New Zealand |
| JEL: | E61 E62 J26 |
| Date: | 2013–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:ris:nzierw:2013_005&r=pbe |
| By: | Peter Skott (University of Massachusetts Amherst); Soon Ryoo (Adelphi University) |
| Abstract: | We show that (i) dynamic inefficiency may be empirically relevant in a modified Diamond model with imperfect competition, (ii) if fiscal policy is used to avoid inefficiency and maintain an optimal capital intensity, the required debt ratio will be inversely related to the growth rate, and (iii) austerity policies reductions in government consumption and entitlement programs for the old generation raise the required debt ratio. |
| Keywords: | Public debt, dynamic efficiency, growth effects, austerity |
| JEL: | E62 E22 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ums:papers:2013-10&r=pbe |
| By: | Valerio Ercolani; João Valle e Azevedo |
| Abstract: | We investigate the reaction of output to government spending shocks at the zero lower bound (ZLB) on the nominal interest rate when government and private consumption are non-separable in preferences. In particular, substitutability between private and government consumption significantly reduces the otherwise large output multipliers obtained at the ZLB. Additionally, the coupling of substitutability with a debt-stabilizing fiscal rule can generate negative output multipliers on impact. |
| JEL: | E32 E62 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201310&r=pbe |
| By: | Juin-Jen Chang (Institute of Economics, Academia Sinica, Taipei, Taiwan); Jang-Ting Guo (University of California, Riverside, CA, USA); Jhy-Yuan Shieh (Department of Economics, Soochow University, Taipei, Taiwan); Wei-Neng Wang (Department of Economics, Soochow University, Taipei, Taiwan) |
| Abstract: | This paper examines the quantitative interrelations between sectoral composition of public spending and equilibrium (in)determinacy in a two-sector real business cycle model with positive productive externalities in investment. When government purchases of con- sumption and investment goods are set as constant fractions of their respective sectoral output, we show that the public-consumption share plays no role in the models local dynamics, and that a sufficiently high public-investment share can stabilize the economy against endogenous belief-driven cyclical uctuations. When each type of government spending is postulated as a constant proportion of the economys total output, we find that there exists a trade-off between public consumption versus investment expenditures to yield saddle-path stability and equilibrium uniqueness. |
| Keywords: | Government Spending; Equilibrium (In)determinacy; Business Cycles |
| JEL: | E32 E62 O41 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:sin:wpaper:13-a010&r=pbe |
| By: | Bargain, Olivier (University of Aix-Marseille II); Peichl, Andreas (ZEW Mannheim) |
| Abstract: | Previous reviews of static labor supply estimations concentrate mainly on the evidence from the 1980s and 1990s, Anglo-Saxon countries and early generations of labor supply modeling. This paper provides a fresh characterization of steady-state labor supply elasticities for Western Europe and the US. We also investigate the relative contribution of different methodological choices in explaining the large variation in elasticity size observed across studies. While some recent studies show that genuine preference heterogeneity across countries explains only a modest share of this variation (Bargain et al., 2013), we focus here on time changes and estimation methods as key contributors of the differences across studies. Both factors can explain larger elasticities in older studies (i.e. an increase in female labor market attachment over time and a switch from the Hausman estimation approach to discrete-choice models with tax-benefit simulations). Meta-analysis evidence suggests that smaller elasticities in the recent period may be due to the time factor, i.e. a likely change in work preferences, both in the US and in Europe. |
| Keywords: | household labor supply, elasticity, taxation, Europe, US |
| JEL: | C25 C52 H31 J22 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7698&r=pbe |
| By: | Merkus, Erik; Allers, Maarten (Groningen University) |
| Abstract: | The fiscal federalism and public choice literatures stress that government bailouts should be avoided as they increase the probability that governments incur unsustainable debt levels or take excessive risk (moral hazard problem). The current problems in the euro area seem to confirm this view. However, in the Netherlands, the law explicitly stipulates that local governments that are unable to balance their books will be bailed out. Surprisingly, this does not seem to create problems. Only few local governments apply for bailout, and the amounts they receive are modest. We analyze the Dutch case and discuss possible explanations for this apparent anomaly. We test empirically if voters punish financial mismanagement in local governments, but find no evidence for this hypothesis. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugsom:13014-eef&r=pbe |