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on Public Economics |
| By: | Dominika Langenmayr (University of Munich); Andreas Hau fler (University of Munich and CESifo); Christian J. Bauer (University of Munich and CESifo) |
| Abstract: | Heterogeneous firm productivity raises the question of whether governments should pursue `pick-the-winner' strategies by subsidizing highly productive firms more, or taxing them less, than their less productive counterparts. We study this issue in a setting where governments can set differentiated effective tax rates in an oligopolistic industry where firms with two productivity levels co-exist. We show that the optimal structure of tax differentiation depends critically on the feasible level of the corporate profit tax, which in turn depends on the degree of international tax competition. When tax competition is weak and optimal profit tax rates are high, favouring high-productivity firms is indeed the optimal policy. When tax competition is aggressive and profit taxes are low, however, the optimal tax policy reverses and favours low-productivity firms. |
| Keywords: | business taxation, firm heterogeneity, tax competition |
| JEL: | H25 H87 F15 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:btx:wpaper:1308&r=pbe |
| By: | Gerald Carlino; Robert P. Inman |
| Abstract: | The American Recovery and Reinvestment Act (ARRA) was the US government’s fiscal response to the Great Recession. An important component of ARRA’s $796 billion proposed budget was $318 billion in fiscal assistance to state and local governments. We examine the historical experience of federal government transfers to state and local governments and their impact on aggregate GDP growth, recognizing that lower-tier governments are their own fiscal agents. The SVAR analysis explicitly incorporates federal intergovernmental transfers, disaggregated into project (e.g., infrastructure) aid and welfare aid, as separate fiscal policies in addition to federal government purchases and federal net taxes on household and firms. A narrative analysis provides an alternative identification strategy. To better understand the estimated aggregate effects of aid on the economy, we also estimate a behavioral model of state responses to such assistance. The analysis reaches three conclusions. First, aggregate federal transfers to state and local governments are less stimulative than are transfers to households and firms. It is important to evaluate the two policies separately. Second, within intergovernmental transfers, matching (price) transfers for welfare spending are more effective for stimulating GDP growth than are unconstrained (income) transfers for project spending. Matching aid is fully spent on welfare services or middle-class tax relief; half of project aid is saved and only slowly spent in future years. Third, simulations using the SVAR specification suggest ARRA assistance would have been 30 percent more effective in stimulating GDP growth had the share spent on government purchases and project aid been fully allocated to private sector tax relief and to matching aid to states for lower-income support. |
| Keywords: | American Recovery and Reinvestment Act of 2009 ; Fiscal policy - United States |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:13-40&r=pbe |
| By: | Savina Princen; Gilles Mourre |
| Abstract: | The paper consists in the proceedings of the workshop organised by the Directorate General for Economic and Financial Affairs held in Brussels on 18 October 2012. Against the background of severe consolidation needs in many EU Member States, the workshop addressed the macroeconomic impact and redistributive effects of consolidation measures on the revenue side, two topics ranking high on the current taxation policy agenda. The proceedings gather together the views of academics, national policy-makers and international institutions expressed during the conference. The presentations and discussions in the first session touched upon the balance between current consolidation measures and their medium-term effects. It also provided insights from macroeconomic modelling to design tax consolidation policy and looked into ways to measure consolidation efforts on the tax side. The second session discussed the best tax bases to be used to safeguard social equity and considered income and capital tax options to make the richest contribute to meeting fiscal adjustment needs. Country-specific presentations showed how tax measures were used for consolidation purposes and looked into various experiences in distributing income through the tax system. |
| JEL: | E62 H24 H26 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0502&r=pbe |
| By: | di Cosmo, Valeria; Hyland, Marie |
| Keywords: | Carbon Tax/scenarios/taxes |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:rb2013/2/7&r=pbe |
| By: | Christoph Ernst (ZEW Mannheim); Katharina Richter (University of Mannheim & ZEW Mannheim); Nadine Riedel (University of Hohenheim, Oxford University CBT & CESifo Munich) |
| Abstract: | This paper examines the impact of tax incentives on corporate research and development (R&D) activity. Traditionally, R&D tax incentives have been provided in the form of special tax allowances and tax credits. In recent years, several countries moreover reduced their income tax rates on R&D output. Previous papers have shown that all three tax instruments are effective in raising the quantity of R&D related activity. We provide evidence that, beyond this quantity effect, corporate taxation also distorts the quality of R&D projects, i.e. their innovativeness and revenue potential. Using rich data on corporate patent applications to the European patent office, we find that a low tax rate on patent income is instrumental in attracting innovative projects with a high earnings potentialand innovation level. The effect is statistically significant and economically relevant and prevails in a number of sensitivity checks. R&D tax credits and tax allowances are in turn not found to exert a statistically significant impact on project quality. |
| Keywords: | corporate taxation, research and development, micro data |
| JEL: | H3 H7 J5 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:btx:wpaper:1301&r=pbe |
| By: | Aaberge, Rolf (Research Department at Statistics Norway and ESOP, University of Oslo); Flood, Lennart (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| 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: | I38 J22 |
| Date: | 2013–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0576&r=pbe |
| By: | Lucas Bretschger (ETH Zurich, Switzerland); Simone Valente (The Norwegian University of Science and Technology) |
| Abstract: | We study the incentives of selfish governments to tax tradable primary inputs un- der asymmetric trade. Using an empirically-consistent model of endogenous growth, we obtain explicit links between persistent gaps in productivity growth and the observed tendency of resource-exporting (importing) countries to subsidize (tax) domestic resource use. Assuming uncoordinated maximization of domestic welfare, national governments wish to deviate (i) from inefficient laissez-faire equilibria as well as (ii) from efficient equilibria in which domestic distortions are internalized. The incentive of resource-rich countries to subsidize hinges on slower productivity growth and is disconnected from the typical incentive of importers to tax resource inflows. i.e., rent extraction. The model predictions concerning the impact of resource taxes on relative income shares are supported by empirical evidence. |
| Keywords: | Productivity Growth; Exhaustible Resources; International Trade. |
| JEL: | F43 O40 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:13-185&r=pbe |
| By: | Estelle P. Dauchy (New Economic School) |
| Abstract: | This paper comprehensively calculates corporate intangible assets by industry from 1998 to 2009, and evaluates the impact of expensing intangible assets on the cost of capital, the METR, and the welfare cost of inter-asset taxation, under current law and alternative tax policy including recent policy proposals. It also estimates the welfare cost of `leveling the playing field’. I find that capitalizing intangible assets can reduce the METR by up to 28 percentage points in finance. The intangible-inclusive welfare cost of inter-asset taxation is twice as large as a conventional measure under current law, and can be much larger than the tax revenue loss of alternative policy. Leveling the playing field may reduce or increase the deadweight loss of inter-asset taxation. The results provide a valuable input for research estimating the impact of investment tax incentives. |
| Keywords: | Intangible Assets, Cost of Capital, Welfare Cost, Inter-asset Taxation, Bonus Depreciation |
| JEL: | H25 E01 E22 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:cfr:cefirw:w0199&r=pbe |
| By: | Estelle P. Dauchy (New Economic School); Christopher Balding (Peking University HSBC Business School) |
| Abstract: | To study the potentially distortionary impact of differing corporate income tax rates on international trade flows, we use an augmented empirical specification of the gravity model. Incorporating an asymmetric trade barrier measure into a modified gravity model, we capture the impact of corporate income tax rates via the price mechanism impact on trade. Holding other factors constant in a gravity model, one should theoretically expect asymmetric corporate income tax rates to impact bilateral trade flows. High (low) tax states have an implied price (dis)advantage relative to trade partners. However, gravity models have explicitly assumed that trade barriers are symmetric between countries. Using asymmetric trade barrier measures of corporate income tax rates differences between countries, we find that bilateral corporate income tax rates wedges do not impact bilateral international trade flows. Our empirical results are robust to alternative proxies for tax asymmetries and exclusion restrictions based on trade regions and time periods. |
| Keywords: | Gravity, Asymmetric Barriers, Corporate Income Tax |
| JEL: | F14 H25 H26 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:cfr:cefirw:w0200&r=pbe |
| By: | Persson, Lovisa (Department of Economics) |
| Abstract: | I investigate consumption smoothing (sensitivity) under a balanced budget rule in Swedish municipalities. In general, I find Swedish municipalities to be highly consumption sensitive during the time period 2001-2011 when the BBR was in place. A one percentage increase in predicted current revenues leads to a 0.74-0.76 percentage increase in current consumption. I use fiscal indicators - the level of own funds and net operating surplus - as proxies for budget balance boundness. Municipalities that perform well in both these fiscal areas are more smoothing than municipalities that do not perform well in either, implying that budget balance plays a role for consumption smoothing behavior. However, consumption sensitivity has decreased in the aggregate since the implementation of the BBR. A possible story is that municipalities were primarily upward sensitive before the BBR, and primarily downward sensitive after the BBR. This explanation also fits the descriptive picture that the aggregate surplus in the sector has turned to positive from negative since the BBR implementation. |
| Keywords: | Local public finance; Balanced budget rules. Consumption smoothing; Fiscal consolidation; Fiscal institutions |
| JEL: | D60 D78 H74 H77 |
| Date: | 2013–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2013_019&r=pbe |
| By: | Bargain, Olivier; Peichl, Andreas |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:13084&r=pbe |
| By: | Serena Fatica |
| Abstract: | The working paper investigates the impacts of corporate taxes on the accumulation of different types of capital assets. The paper analyses the effect of corporate taxes on new investment in different types of capital assets in the manufacturing industries of 11 advanced economies over the period 1991-2007. The magnitude of the asset substitution elasticities points to a significant inter-asset distortionary effect induced by differences in the tax-adjusted user cost of capital. Overall, differential taxation leads on average to under-investment in ICT capital and to over-investment in other machinery and equipment compared to a counterfactual benchmark where marginal tax rates are equalized across assets. Once cross-country heterogeneity in corporate taxation is accounted for, the results are more mixed, in terms of both the size and the direction of the distortions. On average, 4 percent of the aggregate capital stock appears misallocated. |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0503&r=pbe |
| By: | Michael Devereux (Oxford University Centre for Business Taxation); Clemens Fuest (Centre for European Economic Research (ZEW)); Ben Lockwood (Oxford University CBT, CEPR and Department of Economics, University of Warwick,) |
| Abstract: | This paper synthesizes and extends the literature on the taxation of foreign source income in a framework that covers both greenfield and acquisition investment, and a general constraint linking investment at home and abroad for the multinational by introducing a cost of adjustment for the mobile factor. Unless the cost of adjustment is zero, the domestic tax on foreign-source income should always be set to ensure the optimal allocation of the mobile factor between domestic and foreign assets and should follow the classical rules in the literature; national optimality requires the deduction rule, and global optimality requires the credit rule. Only in the zero-cost case does exemption become optimal. Allowances can be set so as to ensure that domestic and foreign asset purchases are undistorted by the tax system: this requires a cash-flow tax on domestic investment in the greenfield case, and a cross-border cash flow tax on foreign investment in both cases. These basic results extend to various extensions of the model. |
| Keywords: | Corporate Taxation, Multinational Firms, Repatriation |
| JEL: | H25 F23 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:btx:wpaper:1303&r=pbe |
| By: | Pia M. Orrenius; Madeline Zavodny |
| Abstract: | Immigrants supply skills that are in relatively short supply in the U.S. labor market and account for almost half of labor force growth since the mid-1990s. Migrant inflows have been concentrated at the low and high ends of the skill distribution. Large-scale unauthorized immigration has fueled growth of the low-skill labor force, which has had modest adverse fiscal and labor market effects on taxpayers and U.S.-born workers. High-skilled immigration has been beneficial in most every way, fueling innovation and spurring entrepreneurship in the high tech sector. Highly skilled immigrants have had a positive fiscal impact, contributing more in tax payments than they use in public services. Immigration reform appears to be on the horizon, and policies such as a legalization initiative, a guest-worker program and more permanent visas for high-skilled workers would likely be an improvement over the status quo. |
| Keywords: | Business cycles ; Minorities - Employment ; Public policy |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1306&r=pbe |
| By: | Éric Langlais; Marie Obidzinski |
| Abstract: | This paper revisits the issue of law enforcement and the design of monetary sanctions when the public law enforcer's incentives depart from those of a benevolent authority, which is the most frequent assumption made in the literature on crime deterrence. We rst consider the case of an elected enforcer. We nd that when the harm generated by offenses is quite small relative to the average private bene ts, equilibrium with weak enforcement/low sanction prevails. Instead, when the harm generated by offenses is high relative to the average private bene ts, it is the equilibrium with strong enforcement/high sanctions that prevails. Therefore, we provide an explanation for the empirical puzzle highlighted by Lin(2007): elected enforcers punish major (minor) crimes more (less) severely than the benevolent social planer. The case of an appointed enforcer prone to rent seeking is also considered. The monetary sanction under rent seeking is closer to the utilitarian level, as compared with the one under election. |
| Keywords: | law enforcement, deterrence, monetary sanctions, punishment, electoral competition, democracy, rent seeking, dictature |
| JEL: | D72 D73 H1 K14 K23 K4 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2013-35&r=pbe |
| By: | Krauss, Alexander; Graham, Carol |
| Abstract: | A burgeoning literature explores the extent to which consumption or income inadequately reflect people's subjective wellbeing, just as GDP at times can provide an incomplete and misleading picture of national wellbeing. Scholars are increasingly using data on subjective wellbeing to complement traditional welfare indicators and to enrich our understanding of wellbeing and quality of life. The paper builds on the present research but it analyzes a much broader, more interdisciplinary, and more policy-relevant range of potential determinants simultaneously than currently existing in the literature on subjective wellbeing. It first analyzes the relative importance of a wide range of characteristics and conditions at the individual, household, regional and macro levels on levels of subjective wellbeing in Colombia in 2010/11; and second, assesses the marginal effects of a number of factors on perceived changes in levels of subjective wellbeing over time for the same respondents from 2008/09 to 2010/11. Findings show that increasing the quality of life of Colombians is largely conditional on minimizing risks and vulnerabilities: reducing the rate and duration of unemployment; improving the delivery of public health services; increasing the share of people with health and pension plans; enhancing safety and security in communities; and reducing levels of discrimination. It finds that job loss has particularly strong effects on levels of satisfaction that are larger than those for increased income, while also controlling for a decrease in income that is often related to being unemployed, suggesting that the human welfare (non-pecuniary) costs of unemployment are driving the strong effects. Moreover, any job, even a low-quality job, is overall better for one's subjective wellbeing than being unemployed. Finally, policy aimed at improving people's subjective wellbeing will likely have the greatest impact if focused on mitigating vulnerabilities and negative shocks that people face. |
| Keywords: | Health Monitoring&Evaluation,Population Policies,Poverty Impact Evaluation,Rural Poverty Reduction,Labor Markets |
| Date: | 2013–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6672&r=pbe |
| By: | John Sabelhaus; David Johnson; Stephen Ash; David Swanson; Thesia Garner; John Greenlees; Steve Henderson |
| Abstract: | Aggregate under-reporting of household spending in the Consumer Expenditure Survey (CE) can result from two fundamental types of measurement errors: higher-income households (who presumably spend more than average) are under-represented in the CE estimation sample, or there is systematic under-reporting of spending by at least some CE survey respondents. Using a new data set linking CE units to zip-code level average Adjusted Gross Income (AGI), we show that the very highest-income households are less likely to respond to the survey when they are sampled, but unit non-response rates are not associated with income over most of the income distribution. Although increasing representation at the high end of the income distribution could in principle significantly raise aggregate CE spending, the low reported average propensity to spend for higher-income respondent households could account for at least as much of the aggregate shortfall in total spending. |
| JEL: | C83 D12 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19589&r=pbe |
| By: | Carla Canelas (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); François Gardes (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Silvia Salazar (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne) |
| Abstract: | In this article, we propose a new method to estimate price effects on micro cross-sectional data using full prices that take into account household domestic production. We use behavioral microsimulations by subpopulations to analyze the redistributive impact of changes on Value Added Tax (VAT) rates in Ecuador and Guatemala. Utility analysis is used to evaluate the consequences on households welfare caused by these tax reforms. The proposed model solves the crucial problem of price data availability in developing countries. The estimates of the full price elasticities highlight the importance of the substitution between time and monetary expenditures within the households domestic production function and show that traditional approaches only tell half of the story. In general, the utility estimates seem to be consistent as they have the expected sign and follow the same pattern of changes in consumption. |
| Keywords: | Consumer demand; full prices; microsimulation; taxes; time-use; welfare |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00881014&r=pbe |
| By: | Liu, Kai (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | I estimate the effects of public health insurance on consumption smoothing and investigate the extent to which the public insurance interacts with private arrangements of self-insurance. Exploiting a dramatic expansion in health insurance coverage in rural China, I find that the introduction of public health insurance helps households completely insure against severe health shocks. The health insurance also reduces the magnitude of decline during a health shock in investments in children's education, agricultural activities and durable goods. The evidence suggests that the benefit of social insurance for low-income households could also come from reducing the use of costly smoothing mechanisms. |
| Keywords: | Public health insurance; Rural China |
| JEL: | D10 I10 O10 |
| Date: | 2013–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2013_016&r=pbe |