nep-pbe New Economics Papers
on Public Economics
Issue of 2013‒12‒15
thirty papers chosen by
Keunjae Lee
Pusan National University

  1. Culture and Taxes: Towards Identifying Tax Competition By Eugster, Beatrix; Parchet, Raphaël
  2. Marginal Tax Rates and Reported Incomes: New Time Series Evidence By Karel Mertens
  3. Privatizzazioni e debito pubblico By Massimo Florio
  4. Tax Evasion, Human Capital, and Productivity Induced Tax Rate Reduction By Max Gillman; Michal Kejak
  5. Taxes, Informality and Income Shifting: Evidence from a Recent Pakistani Tax Reform By Mazhar Waseem
  6. How will the court decide? Tax experts and the estimation of tax risk By Blaufus, Kay; Bob, Jonathan; Trinks, Matthias
  7. Incentive Effects of Fiscal Rules on the Finance Minister’s Behaviour: Evidence from Revenue Projections in Swiss Cantons By Florian Chatagny
  8. Long-Term Participation Tax Rates By Charlotte Bartels
  9. Investigating the determinants of experts' tax aggressiveness: Experience and personality traits By Blaufus, Kay; Zinowsky, Tim
  10. Do Tax Incentives Affect Charitable Contributions? Evidence from Public Charitiesâ Reported Revenues By Nicolas J. Duquette
  11. Two Sources of Bias in Estimating the Peak of the Laffer Curve By Dan Usher
  12. Combining Monetary and Fiscal Policy in an SVAR for a Small Open Economy By Alfred A. Haug; Tomasz Jedrzejowicz; Anna Sznajderska
  13. Measuring Firm-Level Productivity Convergence in the UK: The Role of Taxation and R&D Investment By Ioannis Bournakis; Sushanta Mallick; David Kernohan; Dimitris A.Tsouknidis
  14. U.S. versus Sweden : The effect of alternative in-work tax credit policies on labour supply of single mothers By Rolf Aaberge; Lennart Flood
  15. The Age-Old Problem of Old Age Poverty in Portugal By Carlos Farinha; Isabel Andrade
  16. Distributional benchmarking in tax policy evaluations By Thor O. Thoresen; Zhiyang Jia; Peter J. Lambert
  17. The Great Recession, tax policy, and the future of charity in America By Arthur C. Brooks
  18. Changes in Income Distribution and the Role of Tax-benefit Policy During the Great Recession: An International Perspective By Bargain, Olivier; Callan, Tim; Doorley, Karina; Keane, Claire
  19. Unconventional Fiscal Policy at the Zero Bound By Emmanuel Farhi; Isabel Correia; Juan Pablo Nicolini; Pedro Teles
  20. Assessing Fiscal Capacity at the Local Government Level in South Africa By Margaret Chitiga-Mabugu; Nara Monkam
  21. James M. Buchanan and the European Public Choice Movement: What Did We Learn from Him? By Friedrich Schneider
  22. The effect of tax enforcement on tax elasticities: Evidence from charitable contributions in France By Gabrielle Fack; Camille Landais
  23. Public Attitudes Toward Fiscal Consolidation: Evidence from a Representative German Population Survey By Bernd Hayo; Florian Neumeier
  24. The peculiar distributional character of the Greek taxation system (1995‐2008) and the reform that never took place By Ioannidis, Yiorgos
  25. Fiscal shocks and asymmetric effects: a comparative analysis By Pragidis, Ioannis; Gogas, Periklis; Plakandaras, Vasilios; Papadimitriou, Theophilos
  26. The chicken or the egg: An experimental study of democracy survival, income, and inequality By Dmitry Ryvkin; Anastasia Semykina
  27. Family Taxation and the Female Labor Supply: Evidence from the Czech Republic By Klara Kaliskova
  28. Public sector efficiency: evidence for Latin America By António Afonso,; Alma Romero; Emma Monsalve
  29. Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation By Tomas Lichard; Jan Hanousek; Randall K. Filer
  30. Does sovereign debt weaken economic growth? A Panel VAR analysis. By Lof, Matthijs; Malinen, Tuomas

  1. By: Eugster, Beatrix; Parchet, Raphaël
    Abstract: We propose a difference-in-differences strategy to identify the existence of interjurisdictional tax competition, and to estimate its spatial reach. Our strategy rests on differences between desired tax levels, determined by culture-specific preferences, and equilibrium tax levels, determined by interjurisdictional fiscal externalities as well as by preferences. While fiscal preferences differ systematically and demonstrably between French-speaking and German-speaking Swiss regions, we find that local income tax burdens do not change discretely at the language border but exhibit smooth spatial gradients. The slope of these gradients implies that tax competition constrains tax choices of jurisdictions with a preference for higher taxes up to a distance of around 20 kilometers. Hence, tax competition does constrain income taxation by local governments but its effect is confined to a small spatial scale.
    Keywords: Tax competition, fiscal federalism, culture
    JEL: H31 H71 Z10
    Date: 2013–11
  2. By: Karel Mertens (Cornell University)
    Abstract: This paper estimates the effects of changes in marginal tax rates on reported income for different income groups in the postwar US. A large public finance literature focuses on net-of-tax rate elasticities of reported income because it is indicative of the distortionary effects of taxation. Based on static regressions of income on average marginal tax rates, several recent studies find relatively small elasticities for the top 1% income groups and zero elasticities for other income groups. My estimates are dynamic and account explicitly for the endogeneity of average marginal tax rates. The main findings are (i) that reported incomes respond elastically in the year of a change in tax rates, (ii) that incomes respond also outside the top 1% group and (iii) that the response is larger in the years following the change in marginal rates. These results are based on structural vector autoregressions (SVAR) that allow for dynamic interactions with real GDP, the government budget (debt, spending and revenues), inflation and monetary policy. Unanticipated shocks to net-of-tax rates are identified using a narrative measure of federal tax policy changes using the methodology in Mertens and Ravn (AER forthcoming). Using the SVAR measure of exogenous changes in tax rates as an instrument has a large effect on the results of the static regressions previously considered in the literature: elasticities of reported income rise above 1 and are statistically significant across different income groups, including those below the top 1%. I verify the results for different measures for marginal tax rates and different income concepts: I use the 1960-2000 dataset of Saez (2004), a new dataset constructed from the Statistics of Income that spans 1950-2008, and a recent dataset made available by the CBO that starts in 1979. My empirical findings indicate that marginal tax rate changes have considerable effects on behavior, which has important implications for fiscal policy.
    Date: 2013
  3. By: Massimo Florio (DEAS, Universita' di Milano)
    Abstract: The proposal to use privatization proceeds in order to decrease public debt in Italy is criticized for several reasons. The Italian debt, now more than 133 per cent of the GDP is the outcome of fundamental fiscal unbalances, including large tax evasion. Without targeting such unbalances, the privatization proceeds will only contribute to delaying a fiscal crisis. Moreover, when a government sells its assets, it exchanges real or financial assets with cash, and the ratio Debt/Gdp is a poor indicator of the net wealth of the state. The possibility that selling government assets may create a demand side shock is unlikely. Eventually, given the difficulty to tax income in a country with large tax evasion, taxation of private wealth should be considered. Private wealth/Gdp per capita ratio in Italy is higher than in Germany and in several other developed countries, and is a symptom of the fiscal anomaly of the country, as this private wealth is the counterpart of public debt, tax evasion, tax elusion, corruption, and rent capture by some social groups.
    Keywords: Public debt, privatization, tax evasion, private wealth
    JEL: L33 H26 H63
    Date: 2013–11–11
  4. By: Max Gillman (Department of Economics, University of Missouri-St. Louis); Michal Kejak
    Abstract: The paper shows a key role of human capital in explaining how US postwar growth and welfare could have increased while tax rates declined. As in evidence, we assume that the share of government revenue in output has remained stable and model tax evasion within an endogenous growth model with human capital. A trend upwards in the productivity of the goods or human capital sectors grad- ually decreases the degree of tax evasion, and causes a trend upwards in time spent in human capital accumulation. These productivity increases also increase the ratio of tax revenue to GDP at any given tax rate such that the tax rate must be reduced in order to be consistent with the stylized fact of a constant share of government revenue in output. Based on estimated US postwar goods and hu- man capital sectoral productivities, the model explains 30% of the actual decline in a weighted average of postwar US top marginal personal and corporate tax rates. The estimated joint sectoral productivity increases are asymmetric with a larger relative increase in the human capital investment sector, a result related to McGrattan and PrescottÂ’s (2010) relatively larger increase in the productivity of the sector producing intangible capital relative to the goods sector. We show that in a special case of exogenous growth without human capital investment, the explanatory power of the tax trend drops signiÂ…cantly.
    Keywords: Tax evasion, intermediation technology, endogenous growth, human capital productivity, dynamic general equilibrium.
    JEL: E13 E62 H26 O41
    Date: 2013–11
  5. By: Mazhar Waseem
    Abstract: This paper analyzes the effects of personal income taxation on earnings, formality and business organization choices of agents. I use a tax reform introduced in Pakistan in 2009, which increased taxation of partnership firms substantially relative to other unincorporated firms, as a natural policy experiment to identify behavioral responses to taxation that include movement into informality, under-reporting taxable earnings, and income shifting to tax-favored business forms. Relying on administrative tax records that comprise the universe of income tax returns filed in 2006â11, I find that the tax rate rise caused the exit of a large number of treated firms: the number of such firms reporting positive taxable earnings declined by 41% in 2009, by another 27% in 2010, and by an additional 15% in 2011. By tracking personal income tax returns of owners of the exited firms, I find that around 45% of the owners moved into informality, the rest switched their business organization. For the treated firms that did not exit, I document almost 50% reduction in reported earnings compared to untreated firms. Combining these estimates of behavioral responses with a simple conceptual framework, I compute that 133% of the projected increase in tax revenue was lost through the behavioral responses, implying that the new tax rate on partnership earnings was on the wrong side of the Laffer curve and would not have been optimal under any social preferences. The excess burden created by the reform increases by nearly 17% if negative spillovers on VAT base are also taken into account.
    JEL: H21 H24 H32 O17
    Date: 2013–12–09
  6. By: Blaufus, Kay; Bob, Jonathan; Trinks, Matthias
    Abstract: Tax accounting and tax law concern the probability thresholds that can require the taxpayer to estimate the likelihood that a tax position would be upheld by a court. Tax complexity and the consequent ambiguity results in a reliance by most taxpayers on a tax expert estimate of this likelihood. This study examines whether the tax experts are able to accurately forecast the outcome of tax court decisions and compares tax expert predictions to those of laymen. Our results reveal no significant differences with respect to the forecasting performance of professional tax advisors and laymen. Moreover, the tax advisors exhibit a significantly higher level of overconfidence compared to laymen and the degree of overconfidence increases with professional experience. A comparison of two groups of tax experts, tax advisors and revenue agents demonstrates that the tax advisors exhibit the highest level of overconfidence and form stronger appeal recommendations that indicate a type of advisor bias. --
    Keywords: tax risk,overconfidence,client advocacy,tax controversy,forecasting
    JEL: M40 K20 H20
    Date: 2013
  7. By: Florian Chatagny (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: Predicting available tax revenue accurately is a key step of fiscal policy. It has recently been shown that revenue prediction errors have a direct impact on fiscal deficits. In the current paper we explore the relationship between the ideology of the finance minister and tax revenue projection errors and assess how the stringency of fiscal rules does alter this relationship. We use a panel dataset on 26 Swiss cantons over the period 1980-2007 as well as a new dataset on 99 finance ministers at the cantonal level. We find a rather counter-intuitive positive relationship between the ideology of the finance minister and tax revenue projection errors in the sense that a more left wing finance minister produces relatively more conservative forecasts. We also find that fiscal rules reduce the effect of ideology on tax revenue projection errors. These results suggest that left wing finance ministers need to curb deficits relatively more in order to signal the same level of competence than a right wing finance minister to the voters. It also suggests that fiscal rules render the signal less informative to the voters and thereby reduce the incentive for left wing finance ministers to be more conservative in their projections.
    Keywords: Ideology, Finance minister, Fiscal Rules, Tax Revenue Projections
    JEL: C23 H68 H71
    Date: 2013–12
  8. By: Charlotte Bartels
    Abstract: Generous income support programs as provided by European welfare states have often been blamed to reduce work incentives for the lowskilled and to increase durations of unemployment. Standard studies measure work incentives based on annual income concepts. This paper analyzes work incentives inherent in the German tax-benefit system when extending the time horizon to three years (long-term). Participation tax rates are computed for 1-year and 3-year periods 1995-1997 and 2005-2007 to reveal potential effects of the labor market and tax reforms between 1999 and 2005. The results show that participation tax rates are significantly lower over a 3- year period pointing at an overestimation of the disincentives by standard measures. Reforms reduced participation tax rates, particularly for singles and low-income individuals.
    Keywords: Welfare, work incentives, unemployment, unemployment insurance
    JEL: H31 J65
    Date: 2013
  9. By: Blaufus, Kay; Zinowsky, Tim
    Abstract: This study analyzes how the Big Five personality traits and professional experience affect the aggressiveness of tax preparers' recommendations. To this aim, we conduct a survey among tax professionals of a Big Four accounting firm and tax students. Using treatment-effects regressions, we find that personality traits have direct and indirect effects on tax aggressiveness. The indirect effects are due to a selection effect. Personality traits affect the decision to remain in the organizational environment of the Big Four accounting firm, and the experience in this firm is significantly related to tax aggressiveness. Our data suggest that enhancing work experience at the accounting firm leads to lower tax aggressiveness and that the organizational culture appears to be an important determinant of tax aggressiveness. Moreover, we provide evidence that the danger of potential reputation losses reduces subjects' tax aggressiveness regardless of whether the subject is highly experienced. --
    Keywords: tax preparers,tax aggressiveness,experience,personality traits,Big Five,reputation loss
    JEL: M40 M41 H25 H26
    Date: 2013
  10. By: Nicolas J. Duquette
    Abstract: This paper estimates the effect of the charitable contribution deduction on public charities' donation revenue. The effect is identified by exploiting variation in the change in tax incentives across US states following the federal Tax Reform Act of 1986. At the margin, a one percent increase in the tax cost of giving causes charitable receipts to fall by about four percent, a larger effect than has usually been found in the literature using household data. This result does not reflect intertemporal substitution and is robust to a variety of checks. Further analysis reveals that the effect is stronger for some sectors, notably health charities, and is driven by upper-income households. Tax reform proposals limiting upper-income households' charitable contribution deduction would sharply reduce some charities' contribution revenue.
    JEL: H20 H73 L30
    Date: 2013–12–09
  11. By: Dan Usher (Queen's University)
    Abstract: Important as it is for public policy, there is still no consensus about the size of the revenue-maximizing tax rate at the top of the Laffer curve. The purpose of this essay is not to supply a correct rate, but to identify difficulties in doing so. 1) Estimates of the revenue-maximizing tax rate are distorted by the discrepancy between the “elasticity of taxable income†at observed tax rates and as it would become at the revenue-maximizing tax rate, a discrepancy illustrated with reference to tax evasion as the source of the contraction in the tax base in response to increases in the tax rate. 2) When the response of tax revenue to tax rate is through the supply of labour, the Laffer curve may not be humped at all because the supply of labour may expand, rather than contract, in respond to an increase in the tax rate, causing tax revenue to rise more than proportionally to the tax rate all the way up to 100%.
    Keywords: Duty to Vote, Tax Evasion, Labour-leisure Choice
    JEL: H21 H26
    Date: 2013–11
  12. By: Alfred A. Haug (Department of Economics, University of Otago, New Zealand); Tomasz Jedrzejowicz (National Bank of Poland); Anna Sznajderska (National Bank of Poland)
    Abstract: This paper combines a monetary structural vector-autoregression (SVAR)with a fiscal SVAR for Poland. Fiscal foresight, in the form of implementation lags, is accounted for with respect to both discretionary government spending and tax changes. We demonstrate the importance of combining monetary and fiscal transmission mechanisms. However, ignoring fiscal foresight has no statistically significant effects. We calculate an initial government spending multiplier of 0.14, which later peaks at 0.48. The tax multiplier is close to zero. We also find that monetary policy in Poland transmits mainly through the real sector, that is through real GDP and the real exchange rate.
    Keywords: Structural vector autoregressions, monetary and fiscal policy, fiscal foresight, narrative approach
    JEL: E52 E62 C51
    Date: 2013–10
  13. By: Ioannis Bournakis; Sushanta Mallick; David Kernohan; Dimitris A.Tsouknidis
    Abstract: This paper examines the direct effects of corporate tax on firm productivity along with the interaction effects of tax policy and R&D activity on productivity at firm level for over 13,062 firms during 2004-2011. Our main findings are first, that there is evidence for productivity convergence and we find that there is a positive robust relationship between R&D and firm productivity, whereas tax policy has a negative distortionary effect on TFP. Second, firms with greater export orientation do not seem to achieve much improvement in productivity, whereas the favourable productivity effect in the case of R&D-based firms suggests that if there are tax incentives in place for R&D type activity, it can promote innovation and drive productivity convergence (lagging firms closing the technology gap with those at the frontier), particularly so when there is a continued decline in overall economic activity. The results also show a significant non-linear effect of tax rate on firm-level productivity, identifying an inverse U-shaped relationship
    Keywords: Total Factor Productivity, Catch-Up, Effective Tax Rate, Firm-level Productivity Convergence, UK.
    JEL: O3 O4
    Date: 2013–11
  14. By: Rolf Aaberge; Lennart Flood (Statistics Norway)
    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
  15. By: Carlos Farinha; Isabel Andrade
    Abstract: The redistributive effect of the Portuguese welfare state through pensions, benefits and taxes is investigated in detail over the 2006-10 period using disposable income as benchmark. All social and fiscal policy instruments analysed contribute significantly to the reduction in inequality and poverty, with benefits other than pensions being the most cost-efficient. However, the impact of the economic crisis and austerity policies implemented from 2010 has reversed the previous trends and affected negatively the efficacy and efficiency of all instruments.
    Keywords: income inequality, redistribution, tax and expenditure policy, Portugal.
    JEL: C81 D31 H22 H55
    Date: 2013–12
  16. By: Thor O. Thoresen; Zhiyang Jia; Peter J. Lambert (Statistics Norway)
    Abstract: Given an objective to exploit cross-sectional micro data to evaluate the distributional effects of tax policies over a time period, the practitioner of public economics will find that the relevant literature offers a wide variety of empirical approaches. For example, studies vary with respect to the definition of individual well-being and to what extent explicit benchmarking techniques are utilized to describe policy effects. The present paper shows how the concept of distributional benchmarking can be exploited to describe methodological options for the tax policy analyst. We present classifications of the various approaches which can be found in the literature for evaluations of individual taxation along these lines, and provide empirical illustrations and interpretations for the case of the personal income tax schedule of Norway for the period 2000–2010.
    Keywords: Tax policy; Common base; Welfare metric
    JEL: H23 H24 I31 J22
    Date: 2013–11
  17. By: Arthur C. Brooks (American Enterprise Institute)
    Abstract: This paper estimates the price and income elasticities of charitable giving using the 2009 Panel Study of Income Dynamics. It then considers the likely effects of the 2013 personal income tax rate increases and possible tax deduction limits currently under consideration. �
    Keywords: taxation,philanthropy,charitable giving,America's culture of philanthropy
    JEL: A H
    Date: 2013–12
  18. By: Bargain, Olivier; Callan, Tim; Doorley, Karina; Keane, Claire
    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.
    Date: 2013–12–06
  19. By: Emmanuel Farhi; Isabel Correia; Juan Pablo Nicolini; Pedro Teles
    Abstract: When the zero lower bound on nominal interest rates binds, monetary policy cannot provide appropriate stimulus. We show that, in the standard New Keynesian model, tax policy can deliver such stimulus at no cost and in a time-consistent manner. There is no need to use inefficient policies such as wasteful public spending or future commitments to low interest rates.
  20. By: Margaret Chitiga-Mabugu (Human Sciences Research Council, Pretoria, South Africa); Nara Monkam (Department of Economics, University of Pretoria)
    Abstract: In recent years, local governments in South Africa have faced daunting challenges, notably significant service delivery backlogs, poor financial management, corruption, and poor capacity due to lack of skills. As a result, numerous municipalities are deemed to be in financial distress, and already questions have been raised concerning their capability to efficiently deliver on expected outcomes on a sustainable basis and to cope with economic shocks. In this context, South Africa has embarked upon a comprehensive review of the local government equitable share (LES) formula which constitutes the main unconditional grant that accrues to municipalities. The objective of this paper is to assess fiscal disparities across municipalities using a comprehensive approach to measuring fiscal capacity. In assessing the overall level of fiscal capacity, the paper uses the Representative Revenue System (RRS) and the Representative Expenditure System (RES) methodologies. To the best of our knowledge, such comprehensive measures of fiscal capacity at the municipal level have yet to be applied in the South African context. Additionally, the contribution of this paper lies mainly in that it provides a more systematic measure of municipal fiscal capacity that should be taken into account in the revision and improvement of the current LES formula to ensure that the LES funds are equitably distributed. Furthermore, an appropriate measure of fiscal capacities across municipalities in South Africa will provide the Municipal Demarcation Board with a tool to re-determine municipal boundaries based on objective and empirical evidence rather than political considerations.
    Keywords: Fiscal capacity, Revenue capacity, Expenditure need, Revenue effort, RRS, RES
    JEL: H11 H20 H71 H72 H77
    Date: 2013–11
  21. By: Friedrich Schneider
    Abstract: In this note, three major areas of Buchanan’s research are briefly described: (1) The ideas of Knut Wicksell on Buchanan’s work, (2) constitutional economics and the veil of ignorance, and (3) the role of government and/or the power to tax. It is shown that these three areas had a major influence on the European public choice movement, for example, at the European constitutional group.
    Keywords: Work of James Buchanan, constitutional economics, veil of ignorance, power to tax, European public choice Society, Knut Wicksell, role of government
    JEL: D78 E26 H2 H11 H26 K42 O5 O11 O16 O17
    Date: 2013–12
  22. By: Gabrielle Fack; Camille Landais
    Abstract: Optimal tax formulas expressed in "sufficient statistics" are usually calibrated under the assumption that the relevant tax elasticities are unaffected by other available policy instruments. In practice though, tax authorities have many more instruments than the mere tax rates and tax elasticities are functions of all these policy instruments. In this paper we provide evidence that tax elasticities are extremely sensitive to a particular policy instrument: the level of tax enforcement. We exploit a natural experiment that took place in France in 1983, when the tax administration tightened the requirements to claim charitable deductions. The reform led to a substantial drop in the amount of contributions reported to the administration, which can be credibly attributed to overreporting of charitable contributions before the reform, rather than to a real change in giving behaviours. We show that the reform was also associated with a substantial decline in the absolute value of the elasticity of reported contributions. This finding allows us to partially identify the elasticity of overreporting contributions, which is shown to be large and inferior to -2 in the lax enforcement regime. We further show using bunching of taxpayers at kink-points of the tax schedule that the elasticity of taxable income also experienced a significant decline after the reform. Our results suggest that optimizing the tax rate for a given tax elasticity when other policy instruments are not optimized can lead to misleading conclusions when tax authorities have another instrument that could set the tax elasticity itself at its optimal level as in Kopczuk and Slemrod [2002].
    Date: 2013–11
  23. By: Bernd Hayo (University of Marburg); Florian Neumeier (University of Marburg)
    Abstract: The poor state of public finances in many countries has led to calls for fiscal consolidation. In practice, implementing concrete consolidation measures appears to meet with public resistance, suggesting that the success of consolidation efforts strongly depends on the popularity of the chosen measures. To identify public attitudes toward fiscal consolidation and alternative consolidation measures, we conducted a survey among 2,000 German citizens. Applying ordered and multinominal logit models, we test theory-based hypotheses about the determinants of individual attitudes toward public debt. We find that, inter alia, personal economic situation, time preferences, fiscal illusion, and trust in politicians exert a significant impact on attitudes toward fiscal consolidation and preferences for alternative consolidation measures.
    Keywords: Public debt; fiscal consolidation; sovereign debt crisis; public attitudes; Germany
    JEL: D72 H31 H63
    Date: 2013
  24. By: Ioannidis, Yiorgos
    Abstract: The period 1995‐2008 is a period of fundamental transformation for the Greek economy. The dominance of services in the GDP and the decline of manufacturing and agriculture, the expansion of wage earners and the decline of self‐employment, the strengthening of large companies versus the smaller ones, the massive influx of immigrants and women in the labour market, the economic expansion to the Balkans and Turkey, the liberalization of the financial system, the euro, are all aspects of a transformation that occurred during that period. So, at a first glance it seems to be a paradox that the structure of the taxation system and its results only changed marginally. The explanation of this paradox lies in the peculiar distributive (as opposed to redistributive)character of the taxation system. Namely, the fact that the government interventions during the period 1995‐2008 resulted in the distribution of the surplus generated from the robust growth to business elites and specific social groups, instead of using this surplus to fund a reform of the taxation system aiming at a fairer distribution of the tax burden. Unfortunately, the combination of the tax agenda of the conservative party in government (Nea Dimocratia) along with a populist rhetoric of the opposition did not allow the promotion of the so needed tax reform.
    Keywords: taxation, political economy, tax-evation
    JEL: E20 E60 E64
    Date: 2013
  25. By: Pragidis, Ioannis (Democritus University of Thrace, Department of Economics); Gogas, Periklis (Democritus University of Thrace, Department of Economics); Plakandaras, Vasilios (Democritus University of Thrace, Department of Economics); Papadimitriou, Theophilos (Democritus University of Thrace, Department of Economics)
    Abstract: We empirically test the effects of unanticipated fiscal policy shocks on the growth rate and the cyclical component of real private output and reveal different types of asymmetries in fiscal policy implementation. The data used are quarterly U.S. observations over the period 1967:1 to 2011:4. In doing so, we use both a vector autoregressive and the novel support vector machines systems in order to extract the fiscal policy shocks series. The latter has never been used before in a similar macroeconomic setting. Within our research framework, in order to test the robustness of our results to alternative aggregate money supply definitions we use two alternative moentary aggregates. These are the commonly reported by central banks and policy makers simple sum monetary aggregates at the MZM level of aggregation and the alternative CFS Divisia MZM aggregate. From each of these four systems we extracted four types of shocks: a negative and a positive government spending shock and a negative and a positive government revenue shock. These eight different types of unanticipated fiscal policy shocks are next used to empirically examine their effects on the growth rate and the cyclical component of real private GNP in two sets of regressions: one that assumes only contemporaneous effects of the shocks on output and one that is augmented with four lags of each fiscal shock.
    Keywords: Fiscal Policy; Asymmetric Effects; VAR
    JEL: E62
    Date: 2013–12–09
  26. By: Dmitry Ryvkin (Department of Economics, Florida State University); Anastasia Semykina (Department of Economics, Florida State University)
    Abstract: Many empirical studies have found a positive association between economic development and democracy survival across countries; however, establishing a causal link between the two with naturally occurring data is problematic. We address this question in a laboratory experiment with democracy defined in a narrow sense as the ability of citizens to invest freely in profitable projects and vote on redistributive income taxation. The level of economic development is measured as the efficiency of investment. In the alternative regime -- autocracy -- the dictator decides on the investment levels and taxation for the whole group. Citizens can voluntarily switch from democracy to autocracy by a majority vote. Using a 2x2 between-subject design, we explore how the likelihood of such switches, referred to as democracy breakdown, varies with economic efficiency and inequality in initial endowments. We find, consistent with theoretical predictions, that democracy breakdown is more likely the lower the efficiency, and increases with the degree of inequality.
    Keywords: democracy breakdown, economic efficiency, inequality, voting, experiment
    JEL: D72 P48 C92
    Date: 2013–12
  27. By: Klara Kaliskova
    Abstract: Married couples file joint tax returns in many European countries. Nevertheless, research quantifying the effect of joint taxation on the work incentives of secondary earners is scarce thanks to a lack of recent policy changes. This study makes use of the introduction of joint taxation in the Czech Republic in 2005 to estimate its effect on married women's labor supply. Results based on difference-in-differences and on triple differences with several alternative control groups suggest that the introduction of joint taxation lead to a decline of about 3 percentage points in the employment rate of married women with children. Participation declines are twice as large when the tax work disincentives are highest-among women with high-income husbands.
    Keywords: joint taxation; female labor supply; difference-in-differences;
    JEL: J21 H24
    Date: 2013–11
  28. By: António Afonso,; Alma Romero; Emma Monsalve
    Abstract: We compute Public Sector Performance (PSP) and Public Sector Efficiency (PSE) indicators and Data Envelopment Analysis (DEA) efficiency scores for a sample of twenty-three Latin American and Caribbean Countries (LAC) to measure efficiency of public spending for the period 2001-2010. Our results show that the PSE is inversely correlated with the size of the government, while the efficiency frontier is essentially defined by Chile, Guatemala, and Peru. Moreover, on average, output quantities could theoretically be proportionally increased by 19 percent with the same level of inputs. In addition, the performed Tobit analysis suggests that more transparency and regulatory quality improve the efficiency scores, while more transparency and control of corruption increase output-oriented efficiency.
    Keywords: public sector performance, technical efficiency, Tobit, DEA, Latin America, Caribbean.
    JEL: C14 C61 H50 N16 O54
    Date: 2013–12
  29. By: Tomas Lichard; Jan Hanousek; Randall K. Filer
    Abstract: We develop a novel estimator of unreported income, perhaps due to tax evasion, that does not depend on as strict identifying assumptions as previous estimators based on microeconomic data. The standard identifying assumption that the self- employed underreport income whereas wage and salary workers do not is likely to fail in countries where employees are often paid under the table or have a secondary source of self-employed income. Assuming that evading individuals have a higher consumption-income gap than non-evading ones due underreporting both to tax authorities and in surveys, an endogenous switching model with unknown sample separation enables the estimation of consumption-income gaps for both underre- porting and truthful households. This avoids the need to identify non-evading and evading groups ex ante. This methodology is applied to data from Czech and Slovak household budget surveys and shows that estimated evasion is substantially higher than found using previous methodologies.
    Keywords: endogenous switching regression; shadow economy; tax evasion; undereporting;
    JEL: C34 H26
    Date: 2013–10
  30. By: Lof, Matthijs; Malinen, Tuomas
    Abstract: We estimate a panel vector autoregressive model to analyze the highly disputed relationship between debt and growth. Using data on 20 developed countries, we find no evidence for a robust effect on debt to growth, even for higher levels of sovereign debt. We do find a significant negative reverse effect of growth to debt, which explains the negative correlation.
    Keywords: Public debt, debt share, GDP growth
    JEL: C33 H63 O43
    Date: 2013–10

This nep-pbe issue is ©2013 by Keunjae Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.