nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒02‒21
fifteen papers chosen by
Keunjae Lee
Pusan National University

  1. A 150-year Perspective on Swedish Capital Income Taxation By Du Rietz, Gunnar; Johansson, Dan; Stenkula, Mikael
  2. Efects of Carbon Taxes in an Economy with Large Informal Sector and Rural-Urban Migration By Karlygash Kuralbayeva
  3. Topics in Fiscal Policy: Evidence from a Representative Survey of the German Population By Bernd Hayo; Florian Neumeier; Matthias Uhl
  4. Progressivity of Taxes and Transfers: the Mexican Case 2012 By Luis Huesca; Abdelkrim Araar
  5. US State Fiscal Policy and Natural Resources By Alexander James
  6. Trade Liberalization and Optimal Taxation with Pollution and Heterogeneous Workers By Bontems, Philippe; Gozlan, Estelle
  7. Optimal Tax Progressivity: An Analytical Framework By Jonathan Heathcote; Kjetil Storesletten; Giovanni L. Violante
  8. Fiscal Reform and Fiscal Sustainability: Evidence from Australia and Sweden By Tomomi Miyazaki
  9. Revenue Forecast Errors in the European Union By António Afonso; Rui Carvalho
  10. Environmental Technology Transfer in a Cournot Duopoly: The Case of Fixed-Fee Licensing By Akira Miyaoka
  11. Overaccumulation, Public Debt, and the Importance of Land By Homburg, Stefan
  12. Motivations of Public to Private transactions: An international empirical investigation By Aurélie Sannajust; Mohamed Arouri; Frédéric Teulon
  13. The Demise of U.S. Economic Growth: Restatement, Rebuttal, and Reflections By Robert J. Gordon
  14. Government Activity and Economic Growth – One Size Fits All? By Joscha Beckmann; Marek Endrich; Rainer Schweickert
  15. Special Economic Zones - 20 years later By Camilla Jensen; Marcin winiarczyk

  1. By: Du Rietz, Gunnar (Research Institute of Industrial Economics (IFN)); Johansson, Dan (Örebro University School of Business); Stenkula, Mikael (Research Institute of Industrial Economics (IFN))
    Abstract: This paper describes the evolution of capital income taxation, including corporate, dividend, interest, capital gains and wealth taxation, in Sweden between 1862 and 2010. To illustrate the evolution, we present annual time-series data on the marginal effective tax rates on capital income (METR) for a marginal investment financed with new share issues, retained earnings or debt. Tax tables covering the period are presented. These data are unique in their consistency, thoroughness and time span covered. The METR is low, is stable and does not exceed five percent until World War I, when it starts to drift somewhat upward and vary depending on the source of finance. The outbreak of World War II starts a period when the magnitude and variation of the METR sharply increases. The METR peaks during the 1970s and 1980s and often exceeds 100 percent. The 1990–1991 tax reform and lower inflation reduce the magnitude and variation of the METR. The METR varies between 15 and 40 percent at the end of the examined period.
    Keywords: Cost of capital; Marginal effective tax rates; Marginal tax wedges; Tax reforms
    JEL: H21 H31 N44
    Date: 2014–02–07
  2. By: Karlygash Kuralbayeva
    Abstract: I build an equilibrium search and matching model of an economy with an informal sector and rural-urban migration to analyze the effects of budget-neutral green tax policy (raising pollution taxes, while cutting payroll taxes) on the labor market. The key results of the paper suggest that when general public spending varies endogenously in response to tax reform and higher energy taxes can reduce the income from self-employed work in the informal sector, green tax policy can produce a triple dividend: a cleaner environment, lower unemployment rate and higher after-tax income of the private sector. This is due to the ability of the government, by employing public spending as an additional policy instrument, to reduce the overall tax burden when an increase in energy tax rates does not exceed some threshold level. Thus governments should employ several instruments if they are concerned with labor market implicatoins of green tax policies.
    Keywords: informal sector, matching frictions, pollution taxes, double dividend subsidy, learning by doing, directed technical change, multiplicative damages, additive damages
    JEL: H20 H23 H30
    Date: 2014
  3. By: Bernd Hayo (University of Marburg); Florian Neumeier (University of Marburg); Matthias Uhl (University of Marburg)
    Abstract: This paper provides background information and basic descriptive statistics for a representative survey of the German population conducted on our behalf by GfK in the first quarter of 2013. The survey addresses important topics in fiscal policy, including: 1) public preferences on the composition of fiscal expenditure; 2) public preferences on public debt; 3) the effect of tax changes on consumption and savings; and 4) the effect of tax changes on labour market activities.
    Keywords: Survey evidence Fiscal policy Public debt Public preferences Consumption Labour supply
    JEL: E21 E62 H30 J22
    Date: 2014
  4. By: Luis Huesca; Abdelkrim Araar
    Abstract: The paper examines the redistributive effect achieved by the tax-benefit system in Mexico in 2012 using personal income tax, indirect taxes, social security contributions and social benefits. Our goal is to analyze progressivity of the fiscal system and go further to demonstrate how the different taxes and benefits contribute to the total redistribution effect. A set of popular tools of studying progressivity, such as the concentration curves and Kakwani progressivity index, are used. In addition, we propose an analytical method to decompose the total progressivity measured by the contributions of different taxes or benefits. We conclude that Mexican tax-benefit system is progressive, with greater pre-fiscal income inequality and high redistributive effect for some specific figures of transfers. The contribution from Vertical Equity (VE) is relatively important, but Horizontal Inequity (HI) lightens its impact. Income taxation does not contribute largely to VE. Further, some program benefits target unequally the deprived population, and then decreases the positive effect induced by VE.
    Keywords: Progressivity, Redistribution, Taxes, Benefits, Targeting
    JEL: C14 D31 D33 H23 H24
    Date: 2014
  5. By: Alexander James
    Abstract: An analytical framework predicts that, in response to an exogenous increase in resource based government revenue, a benevolent government will partially substitute away from taxing income, increase spending and save. Forty-two years of U.S. state-level data are consistent with this theory. Specifically, a baseline fixed effects model predicts that a 1% point increase in resource revenue results in a .20% point decrease in non-resource revenue, a .50% point increase in spending and a .30% point increase in savings. These results are generally robust to alternative model specifications and the instrumentation of resource-based government revenue. Interaction effects reveal some asymmetry in the fiscal response to revenue shocks according to state political leanings.
    Keywords: Severance Tax; Fiscal Policy; Natural Resources
    JEL: H20 H23 H30
    Date: 2014
  6. By: Bontems, Philippe; Gozlan, Estelle
    Abstract: In this paper, we address two questions: (i) how should a government pursuing both environmental and redistributive objectives design domestic taxes when redistribution is costly, and (ii) how does trade liberalization affect this optimal tax system, and modify the economy's levels of pollution and inequalities ? Using a general equilibrium model under asymmetric information with two goods, two factors (skilled and unskilled labor) and pollution, we fully characterize the optimal mixed tax system (nonlinear income tax and linear commodity and production taxes/subsidies). We provide simulations highlighting the linkages between pollution, labor income redistribution and increasing globalization with our endogenous fiscal system. In the redistributive case (i.e. in favor of the unskilled workers) and when the dirty sector is intensive in unskilled labor, we show that (i) trade liberalization involves a clear trade-off between the reduction of inequalities and the control of pollution when the source of externality is mainly production ; this is not necessarily true with a consumption externality; (ii) under openness to trade, the source of the externality matters for redistribution, while it is not the case in autarky. Finally we discuss the impact of an increasing willingness to redistribute income and of a technological shock affecting emissions intensity.
    Keywords: quality signalling, vertical relationship, information disclosure.
    JEL: F13 F18 H21 H23
    Date: 2014–02–05
  7. By: Jonathan Heathcote; Kjetil Storesletten; Giovanni L. Violante
    Abstract: What shapes the optimal degree of progressivity of the tax and transfer system? On the one hand, a progressive tax system can counteract inequality in initial conditions and substitute for imperfect private insurance against idiosyncratic earnings risk. At the same time, progressivity reduces incentives to work and to invest in skills, and aggravates the externality associated with valued public expenditures. We develop a tractable equilibrium model that features all of these trade-offs. The analytical expressions we derive for social welfare deliver a transparent understanding of how preferences, technology, and market structure parameters influence the optimal degree of progressivity. A calibration for the U.S. economy indicates that endogenous skill investment, flexible labor supply, and the externality linked to valued government purchases play quantitatively similar roles in limiting desired progressivity.
    JEL: E20 H20 H40 J22 J24
    Date: 2014–02
  8. By: Tomomi Miyazaki (Graduate School of Economics, Kobe University)
    Abstract: This paper examines how the adoption of a fiscal rule affects the sustainability of fiscal policy in two OECD countries; Australia and Sweden. While recent fiscal reforms undertaken in both these countries are useful for ensuring the sustainability of government budgets, there are a few differences. In Australia, we show that government revenues are not necessarily growing at a faster rate than government expenditures, at least from the viewpoint of a statistical long-run relationship. In contrast, in Sweden, we show the reform is more beneficial for the attainment of a budget surplus.
    Keywords: Fiscal reform; Sustainability of fiscal policy; Expenditure ceilings; Dynamic OLS
    JEL: E62 H61 H62
    Date: 2014–02
  9. By: António Afonso; Rui Carvalho
    Abstract: In this paper we assess the determinants of revenue forecast errors for the EU-15 between 1999 and 2012, based on the forecasts published bi-annually by the European Commission. Our results show that personal income rate changes increase the revenue forecast errors: for forecasts made in t for t, increases in the corporate tax rate implies a decrease in the revenue forecast errors, in t+1 and t+2. Moreover, an increase in GDP forecast errors decreases revenue errors, whereas an increase in the inflation error will increase revenue errors. GDP errors, minority governments, election year and corporate tax rate changes can be associated with optimistic revenue forecasts. On the other hand, yield, inflation errors and VAT tax rate changes are associated with more prudent forecast behaviour.
    Keywords: macro forecasts, revenue forecast errors, EU
    JEL: C23 H20 H68
    Date: 2014–01
  10. By: Akira Miyaoka (Graduate School of Economics, Osaka University)
    Abstract: This study considers a Cournot duopoly market in which a clean firm can transfer its less polluting technology to a dirty firm through a fixed-fee licensing contract. We analyze the impacts of emissions taxes on the incentives of firms to transfer technology as well as on the total pollution level, and examine the properties of the optimal emissions tax policy. We first show that higher emissions taxes weaken incentives for technology transfer and that this can lead to a perverse increase in the level of total pollution. We then compare the optimal emissions tax when technology licensing is possible with that when licensing is infeasible and show that the relationship between the optimal tax rate and the degree of the initial technology gap between firms when licensing is possible can be the opposite of that when licensing is infeasible.
    Keywords: Technology transfer; Cournot duopoly; Pollution; Emissions tax
    JEL: L13 L24 Q58
    Date: 2014–02
  11. By: Homburg, Stefan
    Abstract: In recent contributions, Weizsäcker (2014) and Summers (2014) maintain that mature economies accumulate too much capital. They suggest large and lasting public deficits as a remedy. This paper argues that overaccumulation cannot occur in an economy with land. It presents novel data of aggregate land values, analyzes the issue in a stochastic framework, and conducts an empirical test of overaccumulation.
    Keywords: Dynamic efficiency; overaccumulation; land; fiscal policy; public debt
    JEL: D9 E62 H21
    Date: 2014–02
  12. By: Aurélie Sannajust; Mohamed Arouri; Frédéric Teulon
    Abstract: This article contributes to the financial literature by investigating the motivations of Public to Private transactions in an international perspective (Europe, USA and Asia). We consider seven main possible motivations: tax savings, incentive realignment, control, free cash-flow, growth of prospects, takeover defense and undervaluation. Our empirical findings suggest that low growth prospects, low liquidity and high free cash-flow are the three main motivations for a Public to Private transactions. However, regions show some particularities such as importance of family block-holders in Europe and importance of the level of taxation in Asia.
    Keywords: Public to private, Motivations, Logistic regression.
    JEL: G32 G34
    Date: 2014–02–12
  13. By: Robert J. Gordon
    Abstract: The United States achieved a 2.0 percent average annual growth rate of real GDP per capita between 1891 and 2007. This paper predicts that growth in the 25 to 40 years after 2007 will be much slower, particularly for the great majority of the population. Future growth will be 1.3 percent per annum for labor productivity in the total economy, 0.9 percent for output per capita, 0.4 percent for real income per capita of the bottom 99 percent of the income distribution, and 0.2 percent for the real disposable income of that group. The primary cause of this growth slowdown is a set of four headwinds, all of them widely recognized and uncontroversial. Demographic shifts will reduce hours worked per capita, due not just to the retirement of the baby boom generation but also as a result of an exit from the labor force both of youth and prime-age adults. Educational attainment, a central driver of growth over the past century, stagnates at a plateau as the U.S. sinks lower in the world league tables of high school and college completion rates. Inequality continues to increase, resulting in real income growth for the bottom 99 percent of the income distribution that is fully half a point per year below the average growth of all incomes. A projected long-term increase in the ratio of debt to GDP at all levels of government will inevitably lead to more rapid growth in tax revenues and/or slower growth in transfer payments at some point within the next several decades. There is no need to forecast any slowdown in the pace of future innovation for this gloomy forecast to come true, because that slowdown already occurred four decades ago. In the eight decades before 1972 labor productivity grew at an average rate 0.8 percent per year faster than in the four decades since 1972. While no forecast of a future slowdown of innovation is needed, skepticism is offered here, particularly about the techno-optimists who currently believe that we are at a point of inflection leading to faster technological change. The paper offers several historical examples showing that the future of technology can be forecast 50 or even 100 years in advance and assesses widely discussed innovations anticipated to occur over the next few decades, including medical research, small robots, 3-D printing, big data, driverless vehicles, and oil-gas fracking.
    JEL: D24 E02 E66 J11 J15 O11 O31 Q43
    Date: 2014–02
  14. By: Joscha Beckmann; Marek Endrich; Rainer Schweickert
    Abstract: This study investigates the role of government activity in economic growth, arguing that economic systems are important and that, therefore, one size of government does not fit all countries. Taking a panel of 111 countries over the years from 1971 to 2010, we consider clusters of economic systems as predicted by an extended Varieties of Capitalism (VoC) approach. The empirical growth impact of government activity is positive but u-shaped and depends on both the quality of institutions and the institutional setting. For the polar cases of liberal economies and Scandinavian coordinated market economies, the potential growth impact is quite similar and superior to other clusters of countries. However, the maximum growth effect is realized for above-average levels of government activity in the Scandinavian countries, while this would be detrimental to growth in liberal countries. Hence, high levels of government activity are consistent with growth but only in economic systems consistently rooted in a high level of government activity
    Keywords: Government spending, regulation, economic growth, economic systems, institutions
    JEL: H10 P10 P51
    Date: 2014–01
  15. By: Camilla Jensen; Marcin winiarczyk
    Abstract: In this paper we undertake an ex-post evaluation of whether the special economic zones (SEZs) introduced in Poland in 994 have been successful in meeting regional development objectives. We evaluate the policy on as many of its objectives as possible: employment creation, business creation (which includes attracting foreign direct investment), income or wage effects, and environmental sustainability. We use different panel data methods to investigate this question at the powiat (nuts4 or something similar to a commune) and gmina (nuts5 or something similar to a village) levels in Poland during the 995-20 period. It is also possible to include numerous controls to reduce the problem of the omitted variables bias such as education level, dependency rates, state ownership, general subsidies and whether the area is urban or rural. Our results indicate that SEZs in Poland have been successful in a number of their objectives such as private business creation. The positive effect of the policy however mainly comes through foreign direct investment (FDI), whereas the effects on e.g. investment and employment are small or insignificant. In other areas, such as securing higher income levels and locking firms into the sustainability agenda through the adoption of green technologies and reduced air pollution, we find only a small positively moderating effect of the policy on what are traditionally economically disadvantaged areas in Poland that used to be dependent on the socialist production model. Hence, despite high levels of FDI, the zones policy has not managed to overcome the legacy of backwardness or lagging regions. The main policy implication of the paper is that SEZs may be successful in stimulating activity in the short run but the policy must be seen as one of necessary temporality and can therefore not stand alone. Before launching SEZs, policymakers must have plans in place for follow up measures to ensure the longer term competitiveness and sustainability implications of such an initiative. There is a need to understand the connection between the specific incentive schemes used (in this particular case tax incentives were used) and the kinds of firms and activities they attract, including the behavioral models that those incentives promote.
    Keywords: Special Economic Zones, Panel Data, Policy Evaluation, Regional Development, Reindustrialization, Competitiveness
    JEL: F13 F23 C23 R11 P25
    Date: 2014–02

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