nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒11‒22
twelve papers chosen by
Keunjae Lee
Pusan National University

  1. Recent Reforms of Tax Systems in the EU: Good and Bad News By Gaëlle Garnier; Aleksandra Gburzynska; Endre György; Milena Mathé; Doris Prammer; Savino Ruà; Agnieszka Skonieczna
  2. Effects of carbon taxes in an economy with large informal sector and rural-urban migration By Karlygash Kuralbayeva
  3. Competiton for FDI and profit shifting: on the effects of subsidies and tax breaks By Oscar Amerighi; Giuseppe De Feo
  4. Factor income taxation, growth, and investment specific technological change By Monisankar Bishnu; Chetan Ghate; Pawan Gopalakrishnan
  5. Support for Public Provision with Top-Up and Opt-Out: A Controlled Laboratory Experiment By Neil Buckley; Katherine Cuff; Jeremiah Hurley; Stuart Mestelman; Stephanie Thomas; David Cameron
  6. Are your taxes set in Warsaw? Spatial tax competition in Europe. By Crabbé, Karen
  7. Immigration and Innovation. By Richard Fabling; Norman Gemmell; Richard Kneller; Lynda Sanderson
  8. Fiscal policy and MPC heterogeneity By Jappelli, Tullio; Pistaferri, Luigi
  9. US State Fiscal Policy and Natural Resources By Alexander James
  10. Shadow Economies in highly developed OECD countries: What are the driving forces? By Andreas Buehn; Friedrich Schneider
  11. The political economy of pricing and capacity decisions for congestible local public goods in a federal state. By De Borger, Bruno; Proost, Stef
  12. Thanks, but No Thanks: Firms’ Adoption of R&D Tax Credits. By Kelchtermans, Stijn; Neicu, Daniel; Teirlinck, Peter

  1. By: Gaëlle Garnier (European Commission); Aleksandra Gburzynska (European Commission); Endre György (European Commission); Milena Mathé (European Commission); Doris Prammer (European Commission); Savino Ruà (European Commission); Agnieszka Skonieczna (European Commission)
    Abstract: This paper reviews to what extent Member States followed the tax policy priorities put forward by the European Commission in the Annual Growth Survey of November 2012: shifting taxation away from labour, broadening tax bases, reducing corporate tax debt bias and improving tax compliance. The ‘good news’ which emerges from the analysis is that overall Member States are making efforts to make tax systems more efficient, competitive and fair; the ‘bad news’ is that the extent of the challenges calls for more action in all the priority areas identified.
    Keywords: European Union, taxation, tax policy, tax reform, VAT, tax fraud, corporate taxation, personal income taxation, environment, research and development
    JEL: H11 H20 H24 H25 H26 H27 H87
    Date: 2013–10
  2. By: Karlygash Kuralbayeva
    Abstract: I build an equilibrium search and matching model of an economy with an informal sector and rural-urban migration to analyze the effects of budget-neutral green tax policy (raising pollution taxes, while cutting payroll taxes) on the labor market. The key results of the paper suggest that when general public spending varies endogenously in response to tax reform and higher energy taxes can reduce the income from self-employed work in the informal sector, green tax policy can produce a triple dividend: a cleaner environment, lower unemployment rate and higher after-tax income of the private sector. This is due to the ability of the government, by employing public spending as an additional policy instrument, to reduce the overall tax burden when an increase in energy tax rates does not exceed some threshold level. Thus governments should employ several instruments if they are concerned with labor market implications of green tax policies.
    Date: 2013–12
  3. By: Oscar Amerighi (Universita di Bologna); Giuseppe De Feo (Department of Economics, University of Strathclyde)
    Abstract: We investigate competition for FDI within a region when a foreign multinational firm can profitably exploit differences in statutory corporate tax rates by shifting taxable profits to lower-tax jurisdictions. In such framework we show that targeted tax competition may lead to higher welfare for the region as a whole than lump-sum subsidies when the difference in statutory corporate tax rates and/or their average is high enough. Tax competition is also preferable from an efficiency point of view (overall surplus) by changing the firm’s investment decision when profit shifting motivations induce the firm to locate in the (before tax) least profitable country.
    Keywords: Policy competition for FDI; profit shifting; tax discrimination
    JEL: H25 H26 H32 H73 F23
    Date: 2013–11
  4. By: Monisankar Bishnu (Indian Statistical Institute, New Delhi); Chetan Ghate (Indian Statistical Institute, New Delhi); Pawan Gopalakrishnan (Indian Statistical Institute, New Delhi)
    Abstract: We construct a tractable endogenous growth model with production externalities in which the public capital stock augments investment speci?c technological change. We characterize the ?rst best ?scal policy and show that there exist several labor and capital tax-subsidy combinations that decentralize the planner?s growth rate. The optimal factor income tax mix is therefore indeterminate which gives the planner the flexibility to choose policy rules from a large set. Our model explains why many advanced economies experiencing similar growth rates have widely varying factor income tax rates.
    Keywords: Investment Specific Technological Change, Endogenous Growth, Factor Income Taxation, Welfare, First best fiscal policy, Indeterminacy
    JEL: E2 E6 H2 O4
    Date: 2013–01
  5. By: Neil Buckley; Katherine Cuff; Jeremiah Hurley; Stuart Mestelman; Stephanie Thomas; David Cameron
    Abstract: We empirically test the predictions of political economy models regarding public support for a publicly provided private good financed with proportional income taxes when individuals can purchase the good privately and either continue to consume public provision ('top-up') or forego public provision ('opt-out'). Our laboratory results confirm the predicted majority-preferred tax rate in the mixed financing with top-up treatment, but find significantly higher rates than predicted in the mixed financing with opt-out treatment. Using non-parametric regression analysis, we also explore the relationship between individuals' top-up and opt-out decisions and both their income levels and the implemented tax rates.
    Keywords: publicly provided private good, mixed financing, voting experiment
    JEL: H42 H44 C91 D78
    Date: 2013–11
  6. By: Crabbé, Karen
    Date: 2013
  7. By: Richard Fabling (Motu Economic and Public Policy Research); Norman Gemmell (Victoria University of Wellington); Richard Kneller (University of Nottingham); Lynda Sanderson (The Treasury)
    Abstract: Effective marginal tax rates (EMTRs) can be very different from the statutory rate and vary across firms, reflecting such factors as the extent and nature of taxable deductions (losses, depreciation), asset and ownership structures, and debt/equity financing. We estimate firm-specific EMTRs and related user cost of capital (UCC) measures allowing for shareholder-level taxation using data for 2000-2010 from the Longitudinal Business Database. Examining distributions of various UCC measures we find substantial firm-level heterogeneity, systematic changes as a result of tax reforms between 2004 and 2011, and systematic differences between foreign-owned and domestically-owned firms. Choices among alternative UCC measures make a difference to interpretations.
    Keywords: User cost of capital, tax reform, EMTR, New Zealand
    JEL: D22 G30 H25
    Date: 2013–11
  8. By: Jappelli, Tullio; Pistaferri, Luigi
    Abstract: We use responses to survey questions in the 2010 Italian Survey of Household Income and Wealth that ask consumers how much of an unexpected transitory income change they would consume. We find that the marginal propensity to consume (MPC) is 48 percent on average, and that there is substantial heterogeneity in the distribution. We find that households with low cash-on-hand exhibit a much higher MPC than affluent households, which is in agreement with models with precautionary savings where income risk plays an important role. The results have important implications for the evaluation of fiscal policy, and for predicting household responses to tax reforms and redistributive policies. In particular, we find that a debt-financed increase in transfers of 1 percent of national disposable income targeted to the bottom decile of the cash-on-hand distribution would increase aggregate consumption by 0.82 percent. Furthermore, we find that redistributing 1% of national disposable income from the top to the bottom decile of the income distribution would boost aggregate consumption by 0.33%. --
    Keywords: Marginal Propensity to Consume,Fiscal Policy,Consumption Heterogeneity
    JEL: E21 D91
    Date: 2013
  9. By: Alexander James
    Abstract: An analytical framework predicts that, in response to an exogenous increase in resourcebased government revenue, a benevolent government will partially substitute away from taxing income, increase spending and save. Forty-two years of U.S. state-level data are consistent with this theory. Specifically, a baseline fixed effects model predicts that a 1% point increase in resource revenue results in a .20% point decrease in non-resource revenue, a .50% point increase in spending and a .30% point increase in savings. These results are generally robust to alternative model specifications and the instrumentation of resource-based government revenue. Interaction effects reveal some asymmetry in the fiscal response to revenue shocks according to state political leanings.
    Keywords: Severance Tax, Fiscal Policy, Natural Resources
    JEL: Q38 H20
    Date: 2013–10–14
  10. By: Andreas Buehn; Friedrich Schneider
    Abstract: The main focus of this paper lies on the “driving forces” of the development and size of the shadow economy in 39 highly developed OECD countries. The most influential factors on the shadow economy are tax policies and state regulation, which, if rising, increase the shadow economy, though other, economic factors like unemployment are important, too. Specifically, it is shown that the main driving forces of the size and development of the shadow economy are unemployment, self-employment and the tax burden, which impact the shadow economies in these 30 OECD countries to a different degree. Between 1999 and 2010 unemployment and self-employment have on average the largest relative impact (14.6%), followed by tax morale (14.5%), GDP growth (14.3%), business freedom (14.2%) and indirect taxes (14.1%).
    Keywords: Shadow economy, tax morale, tax pressure, state regulation, undeclared work
    JEL: K42 H26 D78
    Date: 2013–08
  11. 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
  12. By: Kelchtermans, Stijn; Neicu, Daniel; Teirlinck, Peter
    Abstract: This paper sets out to investigate whether firms learn from their peers with respect to managing the R&D process. We do this by considering to what extent firms with similar economic activities and located in the same region mimic peers’ adoption of newly introduced tax credits for R&D, independent from other explanations such as unobserved correlated effects. Using hazard rate models on a dataset of R&D active Belgian companies, we find that there are significant regional and industry-level peer effects from firms that have accessed tax credits on the other enterprises’ probability of doing the same in the future. Specifically, the more companies access tax credits within an industry and region, the higher the probability of their peers doing so in subsequent years. Due to known issues with the econometric identification of peer effects, we use various specifications in order to check the robustness of our results.
    Keywords: R&D tax credits; peer effects; young innovative companies; information diffusion;
    Date: 2013–08–30

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