nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒01‒10
23 papers chosen by
Keunjae Lee
Pusan National University

  1. The effect of awareness and incentives on tax evasion By Annette Alstadsæter; Martin Jacob
  2. Comparing the incidence of taxes and social spending in Brazil and the United States By Sean Higgins; Nora Lustig; Whitney Ruble; Timothy Smeeding
  3. How should financial intermediation services be taxed? By Ben Lockwood
  4. Debt and tax losses: the effect of tax asymmetries on the cost of capital and capital structure By MATT KRZEPKOWSKI
  5. Reforming an asymmetric union: on the virtues of dual tier capital taxation By Andreas Hau fler; Christoph Lulfesmann
  6. Swedish Wealth Taxation, 1911–2007 By Du Rietz, Gunnar; Henrekson, Magnus
  7. Cross-border loss offset can fuel tax competition By Andreas Hau fler; Mohammed Mardan
  8. The elasticity of taxable income and income-shifting between tax bases: what is “real” and what is not? By Jarkko Harju; Tuomas Matikka
  9. Small and orthodox fiscal multipliers at the zero lower bound By Braun, R. Anton; Korber, Lena Mareen; Waki, Yuichiro
  10. The investment effect of taxation: evidence from a corporate tax kink By Anne Brockmeyer
  11. Taxation and corporate risk-taking By Dominika Langenmayr; Rebecca Lester
  12. Taxing Cash to Fight Collaborative Tax Evasion? By Giovanni Immordino; Francesco Flaviano Russo
  13. The impact of taxes and social spending on inequality and poverty in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: An overview By Nora Lustig; Florencia Amábile; Marisa Bucheli; George Gray Molina; Sean Higgins; Miguel Jaramillo; Wilson Jiménez Pozo; Veronica Paz Arauco; Claudiney Pereira; Carola Pessino; Máximo Rossi; John Scott; Ernesto Yáñez Aguilar
  14. Chinese Political and Economic Governance System and the Imbalance between Consumption and Investment By Julan Du; Hongsheng Fang; Xiangrong Jin
  15. Learning and international policy diffusion: the case of corporate tax policy By Johannes Becker; Ronald B. Davies
  16. And yet it moves: taxation and labour mobility in the 21st century By Reuven S. Avi-Yonah
  17. Aging and Deflation from a Fiscal Perspective By Hideki Konishi; Kozo Ueda
  18. Democracy of "Taxation-Redistribution" and Peacetime Budget Deficit By Konstantin Yanovskiy; Sergey Zhavoronkov; Dmitry Shestakov
  19. Achieving Fiscal Balance in Japan By Tomoaki Yamada; Sagiri Kitao; Selahattin Imrohoroglu
  20. Consumption and cash-flow taxes in an international setting By Alan J. Auerbach; Michael P. Devereux
  21. Externalities and Taxation of Supplemental Insurance: A Study of Medicare and Medigap By Marika Cabral; Neale Mahoney
  22. Do the haves come out ahead in tax litigation? An empirical study of the dynamics of tax appeals in the UK By Michael Blackwell
  23. Do In-Work Tax Credits Serve as a Safety Net? By Marianne Bitler; Hilary Hoynes; Elira Kuka

  1. By: Annette Alstadsæter (University of Oslo); Martin Jacob (WHU – Otto Beisheim School of Management)
    Abstract: We examine the role of tax incentives and tax awareness on tax evasion. We are able to observe tax evasion of business owners in rich Swedish administrative panel data. During the period of 2006-2009, around 5% of tax returns overstate a claimed dividend allowance even after the tax authority has approved the returns. Tax awareness decreases and complexity increases the likelihood of misreporting. Our results indicate that some of the observed misreporting could be accidental while some misreporting is deliberate tax evasion. We identify a positive and significant effect of tax rates on tax evasion by exploiting a large kink in the tax schedule.
    Keywords: Tax evasion, tax compliance, misreporting, tax awareness, income taxation
    JEL: H26 H24 D14
    Date: 2013
  2. By: Sean Higgins (Department of Economics, Tulane University, USA); Nora Lustig (Department of Economics, Tulane University, USA); Whitney Ruble (Department of Economics, Tulane University, USA); Timothy Smeeding (University of Wisconsin at Madison, USA)
    Abstract: We perform the first comprehensive fiscal incidence analyses in Brazil and the US, including direct cash and food transfers, targeted housing and heating subsidies, public spending on education and health, and personal income, payroll, corporate income, property, and expenditure taxes. In both countries, primary spending is close to 40 percent of GDP. The US achieves higher redistribution through direct taxes and transfers, primarily due to underutilization of the personal income tax in Brazil and the fact that Brazil’s highly progressive cash and food transfer programs are small while larger transfer programs are less progressive. However, when health and non-tertiary education spending are added to income using the government cost approach, the two countries achieve similar levels of redistribution. This result may be a reflection of better-off households in Brazil opting out of public services due to quality concerns rather than a result of government effort to make spending more equitable.
    Keywords: Inequality, fiscal policy, taxation, social spending.
    JEL: D31 H22 I38
    Date: 2013–11
  3. By: Ben Lockwood (CBT, CEPR and Department of Economics, University of Warwick)
    Abstract: This paper considers the optimal taxation of savings intermediation services in a dynamic general equilibrium setting, when the government can also use consumption, income and profit taxes. When 100% taxation of profit is available, taxes on services supplied to firms should be deductible from profit, implying the optimality of a VAT-type tax. As for the rate of tax, in the steady state, an optimal arrangement is to set it equal to the rate of tax on capital income, not consumption. In turn, the capital income tax is zero when the when an unrestricted profit tax is available, but in the more realistic case when such a tax is not available, this rate can be positive or negative, but generally different to the optimal rate of tax on consumption.
    Keywords: financial intermediation services, tax design, banks, payment services
    JEL: G21 H21 H25
    Date: 2013
  4. By: MATT KRZEPKOWSKI (University of Calgary)
    Abstract: Firms with positive income pay corporate taxes on profits and reduce their total tax burden by claiming various credits and deductions. Firms with negative income and no past profits only claim tax offsets to lower future taxes payable, realising both taxes on production and investment incentives when they become profitable. This paper looks at the effect of this asymmetric system of partially offsetting losses on the cost of capital. I find changes in marginal effective tax rates depend on the riskiness of investment. Riskless investments see their corporate tax liabilities deferred into the future under a partial-loss system, decreasing their marginal effective tax rate by between 2 and 4%. Risky investments have higher marginal effective tax rates by between 2 and 7%, as they will pay corporate tax immediately if successful and delay receiving investment tax credits and deductions if unsuccessful. Included in these estimates are changes in the effective tax rate due to changes in the capital structure of firms. Loss firms are unable to immediately deduct interest payments, lowering the optimal debt ratio and increasing the cost of financing. I estimate financial decisions under a partial loss system decrease the industry-wide debt-asset ratio between 2-5 percentage points, but these changes have a minimal effect on effective tax rates.
    Date: 2013
  5. By: Andreas Hau fler (University of Munich and CESifo); Christoph Lulfesmann (Simon Fraser University and CESifo)
    Abstract: The tax competition for mobile capital, in particular the reluctance of small countries to agree on measures of tax coordination, has ongoing political and economic fallouts within Europe. We analyse the effects of introducing a two tier structure of capital taxation, where the asymmetric member states of a union choose a common, federal tax rate in the first stage, and then non-cooperatively set local tax rates in the second stage. We show that this mechanism effectively reduces competition for mobile capital between the members of the union. Moreover, it distributes the gains across the heterogeneous states in a way that yields a strict Pareto improvement over a one tier system of purely local tax choices. Finally, we present simulation results, and show that a dual structure of capital taxation has advantages even when side payments are feasible.
    Keywords: capital tax competition, dual tier taxation, international unions
    JEL: H25 H77 H87
    Date: 2013
  6. By: Du Rietz, Gunnar (Research Institute of Industrial Economics (IFN)); Henrekson, Magnus (Research Institute of Industrial Economics (IFN))
    Abstract: This paper studies the evolution of modern Swedish wealth taxation since its introduction in 1911 until it was abolished in 2007. It offers a thorough description of the rules concerning valuation of assets, deductions/exemptions and tax schedules to characterize effective wealth tax schedules for the period 1911–2006. These rules and schedules are used to calculate marginal and average wealth tax rates for the whole period for a number of differently endowed owners of family firms and individual fortunes. The overall trend in the direct wealth tax was rising until 1971 for owners of large and middle-sized firms and for individuals of similar wealth consisting of non-corporate assets. Average direct wealth tax rates were low until 1934, except for 1913 when a temporary extra progressive defense tax was levied. There were three major tax hikes: in 1934, when the wealth tax was more than doubled, in 1948 when tax rates doubled again and in 1971 for owners of large firms and similarly sized non-corporate fortunes. Effective tax rates peaked in 1973 for owners of large firms and in 1983 for individuals with large non-corporate wealth. Reduction rules limited the wealth tax rates from 1934 for fortunes with high wealth/income ratios. The wealth tax on unlisted net business equity was abolished in 1991. Tax rates for wealthy individuals were decreased in 1991 and in 1992 and then remained at 0.51 percent until 2006, depending on whether the reduction rule was applicable. Tax rates for small-firm owners and small individual fortunes were substantially lower, but the tax difference was much smaller when owners of large fortunes could benefit from the reduction rules. The effective wealth tax was much greater if firm owners had to finance wealth tax payments through additional dividend payouts. In such cases the effective total wealth taxes were affected by high marginal income tax rates and peaked at extremely high levels in the 1970s and 1980s. Towards the end of the wealth tax regime, aggregate wealth tax revenues were relatively small: it never exceeded 0.4 percent of GDP in the postwar period and amounted to 0.16 percent of GDP in 2006.
    Keywords: Wealth tax; Tax avoidance; Entrepreneurship
    JEL: D31 H20 K34
    Date: 2014–01–02
  7. By: Andreas Hau fler (University of Munich and CESifo); Mohammed Mardan (University of Munich)
    Abstract: Following recent court rulings, cross-border loss compensation for multinational firms has become a major policy issue in Europe. This paper analyzes the effects of introducing a coordinated cross-border tax relief in a setting where multinational firms choose the size of a risky investment and host countries noncooperatively choose tax rates. We show that coordinated cross-border loss compensation may intensify tax competition when, following current international practice, the parent firm's home country bases the tax rebate for a loss-making subsidiary on its own tax rate. In equilibrium, tax revenue losses may thus be even higher than is implied by the direct effect of the reform. In contrast, tax competition is mitigated when the home country bases its loss relief on the tax rate in the subsidiary's host country.
    Keywords: cross-border loss relief, tax competition, multinational rms
    JEL: H25 H32 F23
    Date: 2013
  8. By: Jarkko Harju (Government Institute for Economic Research, Finland); Tuomas Matikka (Government Institute for Economic Research, Finland)
    Abstract: Previous literature shows that income taxation especially affects the behaviour of business owners and entrepreneurs. However, it is still unclear how much of the response is due to changes in effort and other real economic activity, and how much is due to tax avoidance and tax evasion. This is important because the nature of the response largely affects the welfare implications and policy recommendations. In this paper we distinguish between real responses and tax-motivated income- shifting between tax bases using the widely-applied elasticity of taxable income (ETI) framework. We use extensive register-based panel data on both the owner and firm-level, which enable us to carefully distinguish between real effects and income-shifting among the owners of privately held corporations in Finland. Our results show that income-shifting accounts for over two thirds of the overall ETI. As the shifted income is also taxed, this significantly decreases the marginal excess burden of income taxation compared to the standard model in which the overall ETI defines the welfare loss. However, in addition to income-shifting effects, we find that dividend taxation significantly affects the real behaviour of the owners.
    Keywords: Personal income taxation, Elasticity of taxable income, Business owners, Tax avoidance
    JEL: H24 H25 H32
    Date: 2013
  9. By: Braun, R. Anton (Federal Reserve Bank of Atlanta); Korber, Lena Mareen (Federal Reserve Bank of Atlanta); Waki, Yuichiro (Federal Reserve Bank of Atlanta)
    Abstract: Does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero? An emerging consensus in the New Keynesian literature is that the answer is yes. New evidence provided here suggests that the answer is often no. For a broad range of empirically relevant parameterizations of the Rotemberg model of costly price adjustment, the government purchase multiplier is about one or less, and the response of hours to a tax cut is either negative or close to zero.
    Keywords: monetary policy; zero interest rate; fiscal multipliers
    JEL: E50 E60
    Date: 2013–12–01
  10. By: Anne Brockmeyer (London School of Economics)
    Abstract: This paper exploits bunching of firms at a tax kink as quasi-experimental variation to identify the effect of a tax rate change on investment, and explore how this effect interacts with variation in capital depreciation rates. The idea is that firms with a taxable income slightly above the kink have an incentive to reduce their income to bunch at the kink, and increasing investment is one possible strategy for that. This means that bunching of firms should be accompanied by a spike in investment at the kink. Building on the standard bunching framework, I estimate the frequency distribution of firms around the kink, and the share of bunchers with excess investments at the extensive and intensive margin. I apply this approach to administrative tax return data for the universe of UK firms from 2001-2007, and show that investment by small firms significantly responds to a tax rate change. I find large and significant spikes in the share of capital investors and median capital costs at the 10k kink. The spikes are larger in 2002-2005 when the kink is larger, and for quickly depreciating capital items, which yield larger tax reductions. I estimate that extensive margin investments explain 7.7-19.2% of bunching and intensive margin investments explain 4.3-16.8% of bunching. Evidence from subsample analysis supports the interpretation of the observed behaviour as real investment rather than evasion or avoidance.
    Keywords: Corporate taxation
    JEL: H25
    Date: 2013
  11. By: Dominika Langenmayr (University of Munich); Rebecca Lester (Massachusetts Institute of Technology)
    Abstract: In the recent period of low growth, many governments look for ways to encourage economic activity. Risky investment by firms is an important source of macroeconomic growth. This paper contributes to recent literature on firm risk-taking by exploring if the corporate tax system can provide incentives for firms to undertake risky investment. To do so, we first model that the effect of taxes on firm risk-taking depends on loss offset possibilities. We then confirm our predictions empirically using a large international firm-level dataset. We find that firm risk-taking is positively and significantly related to the length of the tax loss carryback and carryforward periods and that this relation increases with the level of the tax rate. For firms that cannot expect to offset losses, higher tax rates reduce risk-taking. If loss offset is probable, however, corporate tax rates have a significant and positive effect on risk-taking.
    Keywords: Corporate taxation, firm risk-taking, net operating losses
    JEL: H25 H32 G32
    Date: 2013
  12. By: Giovanni Immordino (Università di Salerno and CSEF); Francesco Flaviano Russo (Università di Napoli Federico II and CSEF)
    Abstract: We build a model of collaborative tax evasion where a buyer negotiates a price discount with a seller in exchange for not asking the receipt and paying cash, which eases tax evasion. Sellers and buyers are heterogeneous with respect to their honesty and to their cost of managing non cash payment instruments. We study the effect of two policy instruments, a tax rebate for the buyer that keeps the receipts and a tax on cash withdrawals (TCW), on tax evasion and government revenue. We find that a mix of these two instruments can reduce tax evasion and increase revenue. The TCW is effective only if sufficiently high, and it must be higher the higher the tax evasion in the country and the bigger the mass of individuals that typically pays in cash. We discuss the implementation problems of the TCW and we suggest how to partially overcome them.
    Keywords: collaborative tax evasion; tax on cash
    JEL: O17 H21
    Date: 2014–01–02
  13. By: Nora Lustig (Tulane University and Center for Global Development and Inter-American Dialogue.); Florencia Amábile (Affilitation available at; Marisa Bucheli (Affilitation available at; George Gray Molina (Affilitation available at; Sean Higgins (Affilitation available at; Miguel Jaramillo (Affilitation available at; Wilson Jiménez Pozo (Affilitation available at; Veronica Paz Arauco (Affilitation available at; Claudiney Pereira (Affilitation available at; Carola Pessino (Affilitation available at; Máximo Rossi (Affilitation available at; John Scott (Affilitation available at; Ernesto Yáñez Aguilar (Affilitation available at
    Abstract: How much redistribution and poverty reduction is being accomplished in Latin America through social spending, subsidies, and taxes? Standard fiscal incidence analyses applied to Argentina, Bolivia, Brazil, Mexico, Peru, and Uruguay using a comparable methodology yields the following results. Direct taxes and cash transfers reduce inequality and poverty by nontrivial amounts in Argentina, Brazil, and Uruguay but less so in Bolivia, Mexico, and Peru. While direct taxes are progressive, the redistributive impact is small because direct taxes as a share of GDP are generally low. Cash transfers are quite progressive in absolute terms, except in Bolivia where programs are not targeted to the poor. In Bolivia and Brazil, indirect taxes more than offset the poverty-reducing impact of cash transfers. When one includes the in-kind transfers in education and health, valued at government costs, they reduce inequality in all countries by considerably more than cash transfers, reflecting their relative size.
    Keywords: fiscal incidence, inequality, poverty, taxes, social spending, Latin America.
    JEL: H22 I3 O1
    Date: 2013–11
  14. By: Julan Du (The Chinese University of Hong Kong and Hong Kong Institute for Monetary Research); Hongsheng Fang (Zhejiang University); Xiangrong Jin (Zhejiang University)
    Abstract: The Chinese government has been pursuing economic growth under the guidance of "growth is a hard principle". In the context of the Chinese political and economic governance system, local governments have employed the overtaking strategy (placing primary emphasis on the development of capital and technology-intensive industries) and the real estate development strategy to push for economic growth and fiscal revenue growth. This has led to a repressed labor share and an elevated capital and government share in primary and secondary income distribution structure. Using the empirical strategy of Acemoglu et al. (2003), we confirm that the development strategies have shaped an imbalanced consumption-investment structure through primary and secondary income distribution as well as other channels. It suggests that the Chinese government will be able to accomplish China's transition from an investment-led growth model to a consumption-based growth model only if it modifies its political and economic governance system and removes the distortions in development strategies.
    Keywords: Overtaking Strategy, Real Estate Development Strategy, Biased Income Distribution Structure, Consumption-Investment Imbalances
    JEL: E62 E65 H20 H77
    Date: 2013–11
  15. By: Johannes Becker (University of Münster); Ronald B. Davies (University College Dublin)
    Abstract: A recent empirical literature has arisen documenting the response of one nation?s policy choices, including tax, environmental, and labour policies, to that of others. This has been largely interpreted as evidence of competition, be it for mobile resources (like FDI, taxable book income etc.) or yardstick. We present a third explanation based on learning. When countries ?tax choices refl?ect private information about unobserved conditions, this encourages nations to update their policies not in order to retain investment or manipulate trade flows, but because the new information conveyed by overseas tax rates allows them to fi?ne-tune their own policies. With this ?social learning?, countries converge on their optimal policies faster than in isolation. Furthermore, this convergence implies a pattern of policy convergence often attributed to competition for mobile resources. The speed of this convergence is smaller in the presence of policy adjustment costs although it remains faster than convergence in isolation. In addition, adjustment costs result in inefficient policy adjustment because countries do not internalize the benefi?ts conveyed by their own adjustments to other nations. Finally, we show that these baseline results are robust to alternative network architectures, the choice of which can be used to replicate stylized facts found in the empirical tax competition literature.
    Keywords: social learning, tax competition
    JEL: H25 H32 H87
    Date: 2013
  16. By: Reuven S. Avi-Yonah (University of Michigan)
    Abstract: A central premise of tax scholarship of the last thirty years has been the greater mobility of capital than labour. Recently, scholars such as Edward Kleinbard have recommended that the US adopt a variant of the “dual income tax” model used by the Scandinavian countries, under which income from capital is subject to significantly lower rates than labour income because of its supposedly greater mobility. This article argues that the premise upon which this argument is built is mistaken, because for individual US taxpayers (as opposed to corporations), there are significant limitations on their ability to avoid tax by moving their capital overseas. Moreover, if we focus on those taxpayers that pay the bulk of the income tax (i.e., the upper middle class and the rich), the data suggest that their ability to legally avoid taxation by expatriation is not significantly lower than their ability to evade it by moving capital, and lower income taxpayers are able to avoid both the income tax and the payroll tax (as well as a VAT) by emigration. The article then develops the policy implications, suggesting that (contrary to recent legislative trends) income from labour and capital should be subject to the same tax rates, but that these rates should be congruent with the price the US population is willing to pay for public services.
    Date: 2013
  17. By: Hideki Konishi (School of Political Science and Economics, Waseda University (; Kozo Ueda (School of Political Science and Economics, Waseda University (
    Abstract: Negative correlations between inflation and demographic aging have been observed across developed nations recently. To understand the phenomenon from a political economy perspective, we embed the fiscal theory of the price level into an overlapping-generations model. We suppose that short-lived governments successively choose income tax rates and bond issues, considering political influence from existing generations and the expected policy responses of future governments. Our analysis reveals that the effects of aging depend on its causes; aging is deflationary when caused by an unexpected increase in longevity, but is inflationary when caused by a decline in the birth rate. Our analysis also sheds new light on the traditional debate about the burden of national debt. Because of price adjustment, the accumulation of government debt imposes no burden on future generations.
    Keywords: Deflation, Fiscal theory of the price level, Population aging, Redistribution across
    JEL: D72 E30 E62 E63 H60
    Date: 2013–12
  18. By: Konstantin Yanovskiy (Gaidar Institute for Economic Policy); Sergey Zhavoronkov (Gaidar Institute for Economic Policy); Dmitry Shestakov (Gaidar Institute for Economic Policy)
    Abstract: The link between an introduction of the universal suffrage and the growth of government spending has been established in some literature (Meltzer, Richard, 1981, Aidt et al., 2006, Funk and Guthmann, 2006). In this article we try to identify a more detailed mechanism behind that link. So, we addressed to the conflict of interest of bureaucrats, and of the state subsidy beneficiaries. Historically the growth of government spending might be traced to the emergence of mainstream left parties, which openly stood in favor of the nanny state and government help from the cradle to the grave[1] as a priority over the provision of pure public goods. Finally we check the hypothesis that the growth of government care correlates with the chronic illnesses of the modern state finance like budget deficit, state debt and inflation.
    Keywords: Universal Suffrage; Left parties; Budget Deficit; Conflict of Interest.
    JEL: D72 D73 H62 N40
    Date: 2013
  19. By: Tomoaki Yamada (Meiji University); Sagiri Kitao (Hunter College); Selahattin Imrohoroglu (University of Southern California)
    Abstract: In this paper we build a micro-data based, large-scale overlapping generations model for Japan in which individuals differ in age, gender, employment status, income, and asset holdings, and incorporate the Japanese pension rules in detail. We estimate age-consumption and age-earnings profiles from the Family Income and Expenditure Survey data, assume complete markets and use these to generate tax revenues and transfer payments for government accounts. We calibrate the model so that it produces the main macroeconomic indicators for 2010. Using existing pension law and fiscal parameters and the medium variants of fertility and survival probability projections, we produce predicted time paths for the ratio JGBs and the pension fund.
    Date: 2013
  20. By: Alan J. Auerbach (University of California, Berkeley); Michael P. Devereux (Oxford University Centre for Business Taxation)
    Abstract: We model the effects of consumption-type taxes which differ according to the base and location of the tax. Our model incorporates a multinational producing and selling in two countries with three sources of rent, each in a different location: a fixed basic production factor (located with initial production), mobile managerial skill, and a fixed final production factor (located with consumption). In the general case, we show that for national governments, there are tradeoffs in choosing between alternative taxes. In particular, a cash-flow tax on a source basis creates welfare-impairing distortions to production and consumption, but is partially incident on the owners of domestic production who may be non-resident. By contrast, a destination-based cash-flow tax does not distort behavior, but is incident only on domestic residents. In the alternative case with the returns to the fixed factors accruing to domestic residents, the only distortion from the source-based tax is through the allocation of the mobile managerial skill. In this case, the source-based tax is also incident only on domestic residents, and is dominated by an equivalent tax on a destination basis.
    Keywords: Cash-flow taxes
    JEL: H25
    Date: 2013
  21. By: Marika Cabral; Neale Mahoney
    Abstract: Most health insurance policies use cost-sharing to reduce excess utilization. The purchase of supplemental insurance can blunt the impact of this cost-sharing, potentially increasing utilization and exerting a negative externality on the primary insurance provider. This paper estimates the effect of private Medigap supplemental insurance on public Medicare spending using Medigap premium discontinuities in local medical markets that span state boundaries. Using administrative data on the universe of Medicare beneficiaries, we estimate that Medigap increases an individual’s Medicare spending by 22.2%. We find that the take-up of Medigap is price sensitive with an estimated demand elasticity of -1.8. Using these estimates, we calculate that a 15% tax on Medigap premiums would generate combined tax revenue and cost savings of $12.9 billion annually. A Pigouvian tax would generate combined annual savings of $31.6 billion.
    JEL: H2 I13
    Date: 2014–01
  22. By: Michael Blackwell (London School of Economics)
    Abstract: This paper considers which parties appeal in tax cases and which parties win such appeals. It adapts party capability theory to derive hypotheses concerning the relative advantages of (certain types of) taxpayers and HMRC, and how this may be aected by institutional factors, such as requirements for permission to appeal, and factors associated with the resources of the parties, such as legal representation. These hypotheses are then tested, using statistical methods, on a dataset assembled by the author of all appeals (including further appeals) from Special Commissioners' decisions since 1981. In doing such this paper both questions what the functions of an appeal system are, and whether the appeal system satises these, as well as addressing the question of whether certain large corporates enjoy favoured treatment by HMRC, which has been a recent issue of public concern in the UK.
    Date: 2013
  23. By: Marianne Bitler; Hilary Hoynes; Elira Kuka
    Abstract: The cash and near cash safety net in the U.S. has undergone a dramatic transformation in the past fifteen years. Federal welfare reform has led to the “elimination of welfare as we know it” and several tax reforms have substantially increased the role of “in-work”' assistance. In 2010, we spent more than 5 dollars on the Earned Income Tax Credit (EITC) for every dollar spent on cash benefits through Temporary Assistance for Needy Families (TANF), whereas in 1994 on the eve of federal welfare reform these programs were about equal in size. In this paper, we evaluate and test whether the EITC satisfies a defining feature of a safety net program—that it responds to economic need. In particular, we explore how EITC participation and expenditures change with the business cycle. The fact that the EITC requires earned income leads to a theoretical ambiguity in the cyclical responsiveness of the credit. We use administrative IRS data to examine the relationship between business cycles and the EITC program. Our empirical strategy relies on exploiting differences in the timing and severity of economic cycles across states. The results show that higher unemployment rates lead to higher EITC recipients and total dollar amounts of credits for married couples. On the other hand, the effect of business cycles on the EITC is insignificant for single individuals, whether measured by recipients or expenditures. In sum, our results show that the EITC serves as an automatic stabilizer for married couples with children but not for the majority of recipients—single parents with children. The patterns we identify are consistent with the predictions of static labor supply theory, and with expectations about how economic shocks are likely to affect one versus two-earner households.
    JEL: H2 I28 I3
    Date: 2014–01

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