nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒11‒29
23 papers chosen by
Keunjae Lee
Pusan National University

  1. The effect of tax enforcement on tax morale By Antonio Filippin; Carlo V. Fiorio; Eliana Viviano
  2. United Kingdom: Technical Assistance Report—Assessment of HMRC’s Tax Gap Analysis By International Monetary Fund. Fiscal Affairs Dept.
  3. Fiscal Consolidations and Public Debt in Europe By Gianluca Cafiso; Roberto Cellini
  4. Tax Principles and Coordination of Trade and Domestic Policies under Imperfect Competition By Kenji Fujiwara
  5. Voter Turnout and the Size of Government By Aggeborn, Linuz
  6. The UK's public finances in the long run: the IFS model By Michael Amior; Rowena Crawford; Gemma Tetlow
  7. Fiscal Externalities and Optimal Unemployment Insurance By Nicholas Lawson
  8. Taxation and Corporate Debt: Are Banks any Different? By Jost Heckemeyer; Ruud A. de Mooij
  9. International Resource Tax Policies Beyond Rent Extraction By Simone Valente; Luca Bretschger
  10. The Ins and Outs of Top Income Mobility By Aaberge, Rolf; Atkinson, Anthony B.; Modalsli, Jorgen Heibo
  11. Changes in Income Distributions and the Role of Tax-Benefit Policy During the Great Recession: An International Perspective By Bargain, Olivier; Callan, Tim; Doorley, Karina; Keane, Claire
  12. Fiscal Consolidations and Growth: Does Speed Matter? By Steven Pennings; Esther Pérez Ruiz
  13. The impact of the 2009 value added tax reform on enterprise investment and employment : Empirical analysis based on Chinese tax survey data By Wang, Dehua
  14. Shining a Light on the Mysteries of State: The Origins of Fiscal Transparency in Western Europe By Timothy Irwin
  15. Growth, Deficits and Uncertainty: Theoretical Aspects and Empirical Evidence By Eleftherios Goulas; Athina Zervoyianni
  16. The geography of income inequality in Italy By Paolo Acciari; Sauro Mocetti
  17. On the determinants of local government debt: Does one size fit all? By Maria Teresa Balaguer-Coll; Diego Prior; Emili Tortosa-Ausina
  18. Does Wealth Inequality Matter for Growth? The Effect of Billionaire Wealth, Income Distribution, and Poverty By Bagchi, Sutirtha; Svejnar, Jan
  19. Is it all about the tails? The Palma measure of income inequality By Alex Cobham; Andrew Sumner
  20. A Policy Analysis of HawaiiÕs Solar Tax Credit Incentive By Makena Coffman; Sherilyn Wee; Carl Bonham; Germaine Salim
  21. Low Income Inequality, High Wealth Inequality.The Puzzle of the Rhineland Welfare States By Bas van Bavel; Ewout Frankema
  22. Evaluating pay-as-you-go social security systems By Andreas Bachmann; Kaspar Wüthrich
  23. The decomposition of well-being categories: An application to Germany By Jurgen Faik; Uwe Fachinger

  1. By: Antonio Filippin (University of Milan); Carlo V. Fiorio (University of Milan); Eliana Viviano (Bank of Italy)
    Abstract: In this paper we argue that tax enforcement is an additional contextual factor affecting tax morale, one of the most important determinants of tax compliance. By using a unique dataset that merges a representative sample of Italian households with administrative data on tax enforcement, we find first that tax morale is positively correlated with tax enforcement. Second, to deal with possible endogeneity of tax enforcement, we show that results are confirmed in an IV specification using the change in the tax gap at the provincial level as an instrument for tax enforcement. Finally, we provide evidence that the impact of tax enforcement and social environment is stronger at low quantiles of tax morale. Our results show that apart from lowering the expected value of tax evasion, tax enforcement has an additional and indirect effect on tax compliance through its effect on tax morale.
    Keywords: tax morale, tax enforcement, tax gap.
    JEL: H26 H29 D70
    Date: 2013–10
  2. By: International Monetary Fund. Fiscal Affairs Dept.
    Abstract: This report assesses HMRC’s tax gap analysis program and provides advice and guidance on further improving it. The report addresses three aspects of the program: (1) the models and methodologies employed; (2) the approach to disseminating the results; and (3) the use of the results in supporting compliance activities, evaluating tax revenue performance across taxes and the effectiveness of HMRC. The report also raises some areas of possible further research.
    Keywords: Taxes;Indirect taxation;Tax administration;Tax collection;Technical Assistance;United Kingdom;
    Date: 2013–10–22
  3. By: Gianluca Cafiso; Roberto Cellini
    Abstract: The objective of this paper is to gain insights into the relationship between deficit-reducing policies and the evolution of the debt/GDP ratio. We consider past events of fiscal consolidation in a selected group of EU countries and check what is the associated change of the debt/GDP ratio both from a short and medium-term perspective. As for the medium-term perspective, we do also differentiate between tax-based and savings-based fiscal consolidations. Our results point towards a positive short-term effect, while the medium-term effect turns out to be negative. Savingsbased fiscal consolidations result to be less negative on the debt/GDP ratio’s evolution than tax-based ones.
    Keywords: Fiscal consolidations;debt/GDP ratio;Europe
    JEL: H63 E63
    Date: 2013–11
  4. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University)
    Abstract: We construct an exporting monopoly model to compare destination- and origin-based commodity taxes in a context of a trade and domestic tax reform. We show that an export tax reduction and a change in destination (resp. origin) tax that fix the world price is strictly Pareto-improving (resp. deteriorating), which holds whether markets are integrated or segmented. This result may provide a new rationale for preferring the destination-based consumption tax to the origin-based production tax that has been discussed in the literature of tax harmonization and tax competition.
    Keywords: export tax, consumption tax, production tax, monopoly, strict Pareto improvement/deterioration
    JEL: F12 F13 H2
    Date: 2013–11
  5. By: Aggeborn, Linuz (Department of Economics)
    Abstract: This paper investigates the causal link between voter turnout and policy outcomes related to the size of government. Tax rate and public expenditures are the focal policy outcomes in this study. To capture the causal mechanism, Swedish and Finnish municipal data are used and a constitutional change in Sweden in 1970 is applied as an instrument for voter turnout in local elections. In 1970, Sweden moved from having separate election days for different levels of government, among other things, to a system with a single election day for political elections, thus reducing the cost associated with voting. This constitutional reform increased voter turnout in local elections in Sweden. The overall conclusion of this paper is that higher voter turnout yields higher municipal taxes and larger local public expenditures. Second, there is some evidence that higher turnout decreases the vote share for right-wing parties.
    Keywords: Voter Turnout; Size of government; Sweden; Finland; Local public finance; Instrumental variable regression
    JEL: D70 D72 H39
    Date: 2013–11–05
  6. By: Michael Amior (Institute for Fiscal Studies); Rowena Crawford (Institute for Fiscal Studies); Gemma Tetlow (Institute for Fiscal Studies)
    Abstract: This working paper describes how the IFS’s model of the UK’s long-run public finances (and those of its constituent nations) is constructed. Our model projects tax revenues, public spending and hence public borrowing and debt up to 2062–63. This is done for the UK as a whole and also separately for Scotland and the rest of the UK. The type of model we have built seeks to answer questions of the type ‘is current fiscal policy sustainable without additional taxes needing to be raised or cuts to public spending imposed either now or in the future?’.
    Date: 2013–11
  7. By: Nicholas Lawson (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales [EHESS] - Ecole Centrale Marseille (ECM))
    Abstract: A common finding of the optimal unemployment insurance literature is that the optimal UI replacement rate is around 50%, implying that current levels in the US are close to optimal. However, a key assumption in the existing literature is that unemployment benefits are the only government spending activity. In this paper I show that recommendations for optimal UI levels are dramatically reduced when one incorporates the fact that UI spending is a small part of overall government spending. This occurs because the negative impact of UI on income tax revenues implies added welfare costs, a mechanism that I refer to as a fiscal externality. Using both a calibrated structural job search model and a "suffcient statistics" method that relies on reduced-form elasticities, I find that the optimal replacement rate drops to zero once fiscal externalities are incorporated. However, I also consider the possibility that more generous UI could increase reservation wages and thus potentially increase the tax base, and I show that this second fiscal externality could have important effects on the results, with an optimal replacement rate which could rise above 70%.
    Keywords: unemployment insurance; fiscal externality; job search; suffcient statistics; government spending
    Date: 2013–11
  8. By: Jost Heckemeyer; Ruud A. de Mooij
    Abstract: This paper explores whether corporate tax bias toward debt finance differs between banks and nonbanks, using a large panel of micro data. On average, it finds that there is no significant difference. The marginal tax effect for both banks and non-banks is close to 0.2. However, the responsiveness differs considerably across the size distribution and the conditional leverage distribution. For nonbanks, we find a U-shaped relationship between asset size and tax responsiveness, although this pattern does not hold universally across the conditional leverage distribution. For banks, in contrast, the tax responsiveness declines linearly in asset size. Quantile regressions show further that capitaltight banks are significantly less responsive than are capital-abundant banks; the same pattern holds for the largest non-banks. Still, even the largest banks with high conditional leverage ratios feature a significant, positive tax response.
    Keywords: Taxation;Corporate sector;Debt;Corporate taxes;Banks;Nonbank financial sector;Corporate tax; debt bias; leverage; banks; non-financial firms; quantile regressions
    Date: 2013–10–29
  9. By: Simone Valente (Department of Economics, Norwegian University of Science and Technology); Luca Bretschger (Center of Economic Research, ETH Zürich)
    Abstract: We study the incentives of selfish governments to tax tradable primary inputs under 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: 2013–11–22
  10. By: Aaberge, Rolf (Statistics Norway); Atkinson, Anthony B. (Nuffield College, Oxford); Modalsli, Jorgen Heibo (Statistics Norway)
    Abstract: This paper is concerned with the question of whether top income earners are permanently there or only temporarily receive the highest incomes. How much mobility is there at the top of the income distribution, and how has mobility changed over time? The paper makes both a methodological and an empirical contribution to answering these questions. The first part of the paper introduces a family of top income mobility measures based on differences in average annual incomes of top income earners in short-term and long-term distributions of income. Norwegian income tax records are then employed to study top income mobility in Norway since 1967. The results reveal low levels of top income mobility, but a relatively large increase in mobility starting at the same time as the income shares of the top income receivers started to increase around 1990.
    Keywords: top income shares, income mobility, inequality
    JEL: J31 E24 D63 N34
    Date: 2013–11
  11. By: Bargain, Olivier (University of Aix-Marseille II); Callan, Tim (Economic and Social Research Institute, Dublin); Doorley, Karina (IZA); Keane, Claire (ESRI, Dublin)
    Abstract: This paper examines the impact on inequality and poverty of the economic crisis in four European countries, namely France, Germany, the UK and Ireland, and the contribution of tax and benefit policy changes. The period examined, 2008 to 2010, was one of great economic turmoil, yet it is unclear whether changes in inequality and poverty rates over this time period were mainly driven by changes in market income distributions or by tax-benefit policy reforms. We disentangle these effects by producing counterfactual ("no reform") scenarios using tax-benefit microsimulation and representative household surveys of each country. For the period under study, we find that the policy reaction has contributed to stabilizing or even decreasing inequality and relative poverty in the UK, France and especially in Ireland, a country where rising unemployment would have otherwise increased poverty. Market income inequality has nonetheless pushed up inequality and relative poverty in France. Relative poverty and, notably, child poverty, have increased in Germany due to policy responses combined with the increasing inequality of market income.
    Keywords: tax-benefit policy, inequality, poverty, decomposition, microsimulation, crisis
    JEL: H23 H53 I32
    Date: 2013–11
  12. By: Steven Pennings; Esther Pérez Ruiz
    Abstract: Should fiscal consolidations be front-loaded or proceed at a more steady pace, and how does this affect growth? We make an attempt to address this question using a three-step methodology. First, we modify a standard regression of growth on consolidation size to allow speed to affect the multiplier. Second, using the narrative dataset of Devries and others (2011), we construct a new sample of multi-year consolidation episodes for 17 advanced economies over 1978-2009. Third, we develop a novel concept of speed to measure the pace of the consolidation episodes identified in the data. The main empirical finding is that fast episodes have higher multipliers than gradual consolidations. This provides some preliminary support for consolidating at a steady pace, market access and a credible adjustment plan permitting. However, as the sample size is small, identifying mechanisms and testing robustness is difficult, and so our findings should not be interpreted causally.
    Keywords: Fiscal consolidation;Economic growth;Government expenditures;Developed countries;Time series;Economic models;Fiscal policy, fiscal multipliers, government expenditure, anticipation effects
    Date: 2013–11–11
  13. By: Wang, Dehua (National Academy of Economic Strategy, Chinese Academy of Social Sciences)
    Abstract: This paper uses the "National Tax Survey" enterprise data to assess the impact of China's nationwide VAT reform of 2009 on enterprise fixed-asset investment and employment. The main finding of our research is that the reform significantly increased business investment in fixed assets, but had no obvious effect on employment. Furthermore, the reform promoted corporate investment mainly by encouraging machinery and equipment, but not plant and building investment.
    Keywords: Value-added tax reform, investment in fixed assets, employment
    JEL: H22 H25
    Date: 2013
  14. By: Timothy Irwin
    Abstract: The extent of fiscal transparency in Western Europe has varied over the centuries. Although ancient Greek, Roman, and medieval governments were sometimes open about their finances, the absolute monarchies of the 1600s and 1700s shrouded them in mystery. Factors that have encouraged transparency include (i) the sharing of political power and rulers’ need to persuade creditors to lend and taxpayers’ representatives to approve new taxes; (ii) the spread of technological innovations that reduce the costs of storing and transmitting information; and (iii) the acceptance of political theories that emphasize accountable government and public discussion of government policy.
    Keywords: Fiscal transparency;Western Europe;Public finance;Accounts;Government accounting;fiscal transparency, budgets, public accounts, public finances
    Date: 2013–10–25
  15. By: Eleftherios Goulas (Department of Economics, University of Patras, Greece); Athina Zervoyianni (Department of Economics, University of Patras, Greece; The Rimini Centre for Economic Analysis (RCEA), Italy)
    Abstract: We examine the relationship between fiscal deficits and per-capita income growth in a panel of 27 European countries, allowing for perceived risks, in terms of fiscal sustainability, associated with additional government spending. Such risks are proxied by the conditional variability of manufacturing production and stock market returns and by the unconditional variability of two survey-based economic sentiment indicators. To help clarifying how fiscal variables impact on growth and to provide a point of reference for the interpretation of the empirical results a structural growth model is first identified. We find evidence of an asymmetric relationship, in that fiscal deficits give rise to adverse growth effects if they coincide with high uncertainty regarding the prospects of the economy and no significant negative growth effects in the low-uncertainty case.
    Keywords: growth, fiscal policy, government budget constraint, uncertainty
    JEL: O40 E60 H60 D80
    Date: 2013–06
  16. By: Paolo Acciari (Ministero dellÂ’Economia e delle Finanze); Sauro Mocetti (Bank of Italy)
    Abstract: This paper exploits the tax records to analyze the geography of income inequality in Italy. In 2011, the Gini coefficient, the most common measure of inequality, was 40 per cent at national level. In the South it was 3 percentage points higher than in the Centre-North, mainly because of a smaller share of income held by the lower tail of the distribution. Inequality is also greater in major metropolitan areas. The Gini index has been increasing during the Great Recession. This pattern has been driven by a reduction in incomes, which has been more pronounced for individuals below the median. Regional disparities have been increasing as well.
    Keywords: inequality, regional disparities
    JEL: D31 O15
    Date: 2013–10
  17. By: Maria Teresa Balaguer-Coll (Department of Finance and Accounting, Universitat Jaume I, Castellón, Spain); Diego Prior (Universitat Autònoma de Barcelona, Spain & IESEG School of Management, Lille, France); Emili Tortosa-Ausina (Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: This paper analyzes the factors that directly influence levels of debt in Spanish local governments. Specifically, the main objective is to find out the extent to which indebtedness is originated by controllable factors that public managers can influence, or whether it hinges on other variables beyond managers’ control. The importance of this issue has intensified since the start of the crisis in 2007, due to the abrupt decline of revenues and, simultaneously, to the stagnation (or even increase) in the levels of costs facing these institutions face. Results can be explored from multiple perspectives, given that the set of explanatory factors is also multiple. However, the most interesting result relates to the varying effect of each covariate depending on each municipality’s specific debt level, which suggests that economic policy recommendations should not be homogeneous across local governments.
    Keywords: debt, local government, quantile regression
    JEL: D60 H71 H72 H74 H75
    Date: 2013
  18. By: Bagchi, Sutirtha (University of Michigan); Svejnar, Jan (Columbia University)
    Abstract: A fundamental question in social sciences relates to the effect of wealth inequality on economic growth. Yet, in tackling the question, researchers have had to use income as a proxy for wealth. We derive a global measure of wealth inequality from Forbes magazine's listing of billionaires and compare its effect on growth to the effects of income inequality and poverty. We find that wealth inequality reduces economic growth, but when we control for the fact that some billionaires acquired wealth through political connections, the effect of politically connected wealth inequality is negative, while politically unconnected wealth inequality, income inequality, and initial poverty have no significant effect.
    Keywords: economic growth, wealth inequality, income inequality, billionaires, political connections
    JEL: D31 O40 O43
    Date: 2013–11
  19. By: Alex Cobham (Centre for Global Development (CGD), Washington, DC); Andrew Sumner (King's College London)
    Abstract: The ``Palma'' is the ratio of national income shares of the top 10 percent of households to the bottom 40 percent, reflecting Gabriel Palma's observation of the stability of the ``middle'' 50 percent share of income across countries so that distribution is largely a question of the tails. In this paper we explore the Palma and corroborate the findings that the middle does indeed hold over time and through various stages of tax and transfers. Further, we find that the Gini is almost completely ``explained'' by only two points of the distribution: the same income shares which determine the Palma. It thus appears that both the Gini and the Palma, in practice, summarize the same information about the income distribution: but only in the case of the Palma is this explicit. This, we argue, makes the Palma a more useful (and intuitive) measure of inequality for policymakers and citizens to track.
    Keywords: Inequality, Gini coefficient, Palma.
    JEL: D63 I3
    Date: 2013–10
  20. By: Makena Coffman (University of Hawaii at Manoa, Department of Urban and Regional Planning & University of Hawaii Economic Research Organization); Sherilyn Wee (University of Hawaii Economic Research Organization); Carl Bonham (University of Hawaii Economic Research Organization); Germaine Salim (University of Hawaii at Manoa, Department of Urban and Regional Planning)
    Abstract: This study uses Hawaii as an illustrative case study in state level tax credits for PV. We examine the role of HawaiiÕs tax credit policy in PV deployment, including distributional and tax payer impacts. Hawaii is interesting because its electricity rates are nearly four times the national average as well as has a 35% tax credit for PV, capped at $5,000 per system. We find that PV is an excellent investment for HawaiiÕs homeowners, even without the state tax credit. For the typical household, the internal rate of return with the state tax credit is about 14% and, without it, 10%. Moreover, the vast majority of installations are demanded by households with the median income and higher. We estimate that single-family homeownerÕs in Hawaii may demand as much as 1,100 MW of PV. There are, however, significant grid constraints. Policy currently limits PV generation to no more than 15% of peak load for any given circuit, or approximately 3% of aggregate electricity demand. Tax credits are therefore not likely to increase the overall deployment of PV, but rather spread the cost of installation from homeowners to taxpayers and accelerate the rate at which Hawaii reaches grid restrictions.
    Date: 2013–11
  21. By: Bas van Bavel; Ewout Frankema
    Abstract: Inequality studies tend to assume a positive correlation between income and wealth inequality. We doubt whether this holds for Rhineland welfare states as they seem to combine low income inequality with high wealth inequality levels. We hypothesize that publicly funded life-time income security, which is so typical for Rhineland welfare states, enhances private debt creation, while the redistributive taxes required to finance this system are targeting income rather than wealth.
    Keywords: keyword keyword keyword
    Date: 2013–11
  22. By: Andreas Bachmann; Kaspar Wüthrich
    Abstract: This paper proposes a new method for welfare analysis of unfunded social security systems. Based on an overlapping generations model with endogenous labor supply, we derive a formula for the evaluation of existing pay-as-you-go social security systems that depends on impulse response functions and projected growth rates only. We propose an implementation strategy based on reduced form estimates of a VAR model that is valid under weak assumptions about the deep structure of the model. Our method is related to the sufficient statistic approach (Chetty, 2009). For the current system in the United States, we find that a transitory increase in the payroll tax rate along with higher pension benefits leads to a welfare increase mainly due to welfare gains of today's retirees. A scenario analysis demonstrates the robustness of this result.
    Keywords: unfunded social security system; sufficient statistic; overlapping generations; reduced form VAR
    JEL: E62 H55
    Date: 2013–11
  23. By: Jurgen Faik (FaMa - Neue Frankfurter Sozialforschung, Germany); Uwe Fachinger (Department of Economics and Demography, Institute of Gerontology, University of Vechta, Germany)
    Abstract: In the paper, a combined approach is used to test for inequality differences of several well-being categories for a number of groups of persons. Hereby, total inequality is decomposed into within- and into between-group/category inequality (via a normalised coefficient of variation as the used inequality indicator). The decompositions are categorised into those referring to socio-demographic characteristics (age, sex, nationality, place of residence, household type) and those belonging to different well-being (sub-)categories (several income, wealth, and expenditure categories). Based on the methodical setting, empirical analyses are performed for Germany using the 2008 German Sample Survey of Income and Expenditure (Einkommens- und Verbrauchs-stichprobe; EVS) as the database. Out of our numerous findings for both kinds of decomposi-tion, the overwhelming role of within-group/category inequality becomes evident. By decomposing German (material) well-being inequality in great detail, we shed light on its dimensions, showing that decomposition by income, wealth, and expenditure, as well as by socio-demographic characteristics is important to obtain adequate solutions for socio-political measures. Not considering the fact, from where the real inequality stems from, is like barking up the wrong tree and bears the danger of false political measures regarding social and distributional policy.
    Keywords: Decomposition, Distribution, Inequality, Shift-share analysis, Well-being.
    JEL: D30 D31 D60
    Date: 2013–09

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