nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒02‒08
seven papers chosen by
Keunjae Lee
Pusan National University

  1. Income Tax Buyouts and Income Tax Evasion By Laszlo Goerke
  2. Debt in the U.S. Economy By Kaiji Chenz; Ayse Imrohoroglu
  3. The Fiscal Cost of Trade Liberalization By Julia Cagé; Lucie Gadenne
  4. Determinants of local governments’ reelection: New evidence based on a Bayesian approach By Maria Teresa Balaguer-Coll; María Isabel Brun-Martos; Anabel Forte; Emili Tortosa-Ausina
  5. Fiscal decentralization and political budget By GONZALEZ, Paula; HINDRIKS, Jean; PORTEIRO, Nicolas
  6. Income growth and happiness: Reassessment of the Easterlin Paradox By Beja Jr., Edsel
  7. A note on the extent of US regional income convergence By Mark J. Holmes; Jesus Otero; Theodore Panagiotidis

  1. By: Laszlo Goerke (Institute for Labour Law and Industrial Relations in the EU, University of Trier)
    Abstract: A tax buyout is a contract between tax authorities and a tax payer which reduces the marginal income tax rate in exchange for a lump-sum payment. While previous contributions have focussed on labour supply, we consider the interaction with tax evasion and show that a buyout can increase expected tax revenues. This will be the case if (1) the audit probability is constant and the penalty for evasion is a function of undeclared income or (2) the penalty depends on the amount of taxes evaded, and authorities use information about income generated by the decision about a tax buyout offer when setting audit probabilities. Since individuals will only utilise a tax buyout if they are better off, higher tax revenues imply that such contracts can be Pareto-improving.
    Keywords: Asymmetric information, Revenues, Self-selection, Tax buyouts, Tax evasion
    JEL: D82 H21 H24 H26
    Date: 2014–01
  2. By: Kaiji Chenz (Department of Economics, Emory University, Atlanta); Ayse Imrohoroglu (Department of Finance and Business Economics, Marshall School of Business, University of Southern California)
    Abstract: In 2011, the publicly held debt-to-GDP ratio in the United States reached 68% and is expected to continue rising. Many proposals to curb the government deficit and the resulting debt are being discussed. In this paper, we use the standard neoclassical growth model to examine the future path of output, budget deficits, and debt in the U.S. economy under different tax policies. While this framework is relatively simple, it incorporates the general equilibrium effects of tax policy, which are often missing from the Congressional Budget Office projections. Our results show that debt-to-GNP ratios above 100% are likely to continue into the future and that even small labor supply elasticities have a significant impact on these projections. We also find that labor income tax rates higher than 40% are needed for the deficit-to-GNP ratio to return to its historical level in the long run. Such high tax rates, however, result in about 10% lower per capita GNP and large welfare costs at the steady state compared to the historical tax rates.
    Keywords: Tax distortion; Dynamic Laffer Curve; Debt-to-GNP Ratio.
    JEL: E27 E62 H68
    Date: 2014–02
  3. By: Julia Cagé (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA)); Lucie Gadenne (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA))
    Abstract: This paper puts the recent evolution of tax revenues in developing countries in historical perspective. Using a novel dataset on total and trade tax revenues we compare the fiscal cost of trade liberalization in developing countries and in today's rich countries at earlier stages of development. We find that trade liberalization episodes led to larger and longer-lived decreases in total tax revenues in developing countries since the 1970s than in rich countries in the 19th and early 20th centuries. The fall in total tax revenues lasts more than ten years in half the developing countries in our sample.
    Keywords: Taxation and development ; Trade liberalization ; State capacity ; Tax and tariff reform
    Date: 2014–02
  4. By: Maria Teresa Balaguer-Coll (Department of Finance and Accounting, Universitat Jaume I, Castellón, Spain); María Isabel Brun-Martos (Department of Finance and Accounting, Universitat Jaume I, Castellón, Spain); Anabel Forte (Department of Economics, Universitat Jaume I, Castellón, Spain); Emili Tortosa-Ausina (IVIE @ Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: This paper analyzes the effect of public spending on the probability of municipal reelection of Spanish local governments during the 2000–2007 period, using Bayesian techniques. The results indicate that, in general, increases in local government spending positively impact on the chances of reelection of local governments. Moreover, the capital expenditure over the whole period affects positively to the reelection probability, although the pre-electoral one is preferred, and the electorate rewards increases in current expenditures only in the period before elections. The use of Bayesian techniques is particularly interesting, since results are not boiled down to a summary effect such as the average; on the contrary, it shows exactly how a given covariate affects the probability of being reelected.
    Keywords: Bayesian, election, local government, opportunistic policies
    JEL: D60 H71 H72 H74 H75
    Date: 2014
  5. By: GONZALEZ, Paula; HINDRIKS, Jean; PORTEIRO, Nicolas
  6. By: Beja Jr., Edsel
    Abstract: This paper presents evidence of a positive but very small long run relationship between income growth and happiness, evidence that can disprove the Easterlin Paradox. However, the paper argues that there is actually reason to sustain the paradox because it finds the magnitude of the estimated relationship too small to suggest that income growth has substantial consequence in improving happiness over the long-term. Certainly, the evidence suggests that happiness is more than about raising incomes. This paper argues that a rejection of the paradox is acceptable if and only if the empirical findings indicate economic significance.
    Keywords: Easterlin Paradox; income growth; happiness; dynamics
    JEL: A20 C53 I30 O40
    Date: 2014–02–01
  7. By: Mark J. Holmes (Department of Economics, Waikato University Management School); Jesus Otero (Facultad de Economia, Universidad del Rosario); Theodore Panagiotidis (Department of Economics, University of Macedonia)
    Abstract: Long-run income convergence is investigated in the US context. We employ a novel pair-wise econometric procedure based on a probabilistic definition of convergence. The time-series properties of all the possible regional income pairs are examined by means of unit root and non-cointegration tests where inference is based on the fraction of rejections. We distinguish between the cases of strong convergence, where the implied cointegrating vector is [1,-1], and weak convergence, where long-run homogeneity is relaxed. To address cross-sectional dependence, we employ a bootstrap methodology to derive the empirical distribution of the fraction of rejections. We find supporting evidence of US states sharing a common stochastic trend consistent with a definition of convergence based on long-run forecasts of state incomes being proportional rather than equal. We find that the strength of convergence between states decreases with distance and initial income disparity. Using Metropolitan Statistical Areas data, evidence for convergence is stronger.
    Keywords: Panel data, cross-section dependence, pair-wise approach, income,convergence.
    JEL: C2 C3 R1 R2 R3
    Date: 2013–12

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