nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒06‒02
34 papers chosen by
Keunjae Lee
Pusan National University

  1. Eliciting Taxpayer Preferences Increases Tax Compliance By Jan-Emmanuel De Neve; Cait Lamberton; Michael I. Norton
  2. Production vs Revenue Efficiency With Limited Tax Capacity: Theory and Evidence From Pakistan By Best, Michael; Brockmeyer, Anne; Kleven, Henrik; Spinnewijn, Johannes; Waseem, Mazhar
  3. Heterogeneous Consumers and Fiscal Policy Shocks By Anderson, Emily; Inoue, Atsushi; Rossi, Barbara
  4. Optimal Environmental Policy, Public Goods and Labor Markets over the Business Cycle By Anna Grodecka; Karlygash Kuralbayeva
  5. The impact of Cigarette Excise Tax Increases and Harmonisation in the East African Community By Posen, Jodie; van Walbeek, Corne
  6. Fiscal Policy for Health Policy Makers By Robert Gillingham
  7. Trends in Top Incomes and their Taxation in OECD Countries By Michael Förster; Ana Llena-Nozal; Vahé Nafilyan
  8. Tax Reforms and Intertemporal Shifting of Wage Income: Evidence from Danish Monthly Payroll Records By Kreiner, Claus Thustrup; Leth-Petersen, Søren; Skov, Peer Ebbesen
  9. Using a Natural Experiment to Examine Tobacco Tax Regressivity By Adel Bosch; Steven F. Koch
  10. Revenue potential, tax space, and tax gap : a comparative analysis By Khwaja, Munawer Sultan; Iyer, Indira
  11. A Sub-national Perspective on Financing Investment for Growth II - Creating Fiscal Space for Public Investment: The Role of Institutions By Camila Vammalle; Rudiger Ahrend; Claudia Hulbert
  12. Business Group Taxation and R&D Activities By Masanori Orihara
  13. Optimal Tax Progressivity: An Analytical Framework By Heathcote, Jonathan; Storesletten, Kjetil; Violante, Giovanni L
  14. Household Debt and the Dynamic Effects of Income Tax Changes By Cloyne, James; Surico, Paolo
  15. Baumol’s cost disease and the sustainability of the welfare state By Andersen, Torben M; Kreiner, Claus Thustrup
  16. Intergenerational altruism and house prices: evidence from bequest tax reforms in Italy By G. Bellettini; F. Taddei; G. Zanella
  17. Policy Uncertainty and Aggregate Fluctuations By Mumtaz, Haroon; Surico, Paolo
  18. "Evaluation of Public R&D Policy: A Meta-Regression Analysis" By SYOUM NEGASSI; JEAN-FRANCOIS SATTIN
  19. Cyclical Patterns in Government Health Expenditures Between 1995 and 2010 By Edit V. Velenyi; Marc F. Smitz
  20. An allegory of the political influence of the top 1% By De Donder, Philippe; Roemer, John E
  21. Ageing populations, retirement incomes and public policy: what really matters By Littlewood, Michael
  22. Human Capital Mobility: Implications for Efficiency, Income Distribution, and Policy By Wildasin, David
  23. Government quality and spatial inequality: A cross-country analysis By Ezcurra, Roberto; Rodríguez-Pose, Andrés
  24. Does Wealth Inequality Matter for Growth? The Effect of Billionaire Wealth, Income Distribution, and Poverty By Bagchi, Sutirtha; Svejnar, Jan
  25. The Effect of Increasing Earnings Dispersion on Social Security Payroll Tax Receipts By Richard Kopcke; Zhenyu Li; Anthony Webb
  26. Modelling Long Bonds - The Case of Optimal Fiscal Policy By Faraglia, Elisa; Marcet, Albert; Scott, Andrew
  27. Public investment and regional politics: The case of Turkey By Muysken J.; Crombrugghe D.P.I. de; Celbis M.G.
  28. An Interpretation of the Gini Coefficient in a Stiglitz Two-Type Optimal Tax Problem By Bo Sandemann Rasmussen
  29. Work and Tax Evasion Incentive Effects of Social Insurance Programs: Evidence from an Employment-Based Benefit Extension By Bergolo, Marcelo; Cruces, Guillermo
  30. Why Do Some Countries Spend More for Health? An Assessment of Sociopolitical Determinants and International Aid for Government Health Expenditures By Li-Lin Liang; Andrew J Mirelman
  31. Taking Stock of Fiscal Health: Trends in Global, Regional, and Country Level Health Financing By Lisa Fleisher; Adam Leive; George Schieber
  32. Public education, endogenous fertility and economic growth By Ko Shakuno
  33. Work and tax evasion incentive effects of social insurance programs. Evidence from an employment-based benefit extension By Marcelo Bergolo; Guillermo Cruces
  34. Does Economic Growth Reduce Corruption? Theory and Evidence from Vietnam By Bai, Jie; Jayachandran, Seema; Malesky, Edmund J.; Olken, Benjamin

  1. By: Jan-Emmanuel De Neve; Cait Lamberton; Michael I. Norton
    Abstract: Two experiments show that eliciting taxpayer preferences on government spending—providing taxpayer agency--increases tax compliance. We first create an income and taxation environment in a laboratory setting to test for compliance with a lab tax. Allowing a treatment group to express nonbinding preferences over tax spending priorities, leads to a 16% increase in tax compliance. A followup online study tests this treatment with a simulation of paying US federal taxes. Allowing taxpayers to signal their preferences on the distribution of government spending, results in a 15% reduction in the stated take-up rate of a questionable tax loophole. Providing taxpayer agency recouples tax payments with the public services obtained in return, reduces general anti-tax sentiment, and holds satisfaction with tax payment stable despite increased compliance with tax dues. With tax noncompliance costing the US government $385billion annually, providing taxpayer agency could have meaningful economic impact. At the same time, giving taxpayers a voice may act as a two-way "nudge," transforming tax payment from a passive experience to a channel of communication between taxpayers and government.
    Keywords: Tax compliance, taxpayer agency, taxpayer satisfaction, government spending
    JEL: D03 H26 H30 H50 I31
    Date: 2014–05
  2. By: Best, Michael; Brockmeyer, Anne; Kleven, Henrik; Spinnewijn, Johannes; Waseem, Mazhar
    Abstract: This paper analyzes the design of tax systems under imperfect enforcement. A common policy in developing countries is to impose minimum tax schemes whereby firms are taxed either on profits or on turnover, depending on which tax liability is larger. This production inefficient tax policy has been motivated by the idea that the broader turnover tax base is harder to evade. Minimum tax schemes give rise to a kink point in firms' choice sets as the tax rate and tax base jump discontinuously when one tax liability surpasses the other. Using administrative tax records on corporations in Pakistan, we find large bunching around the minimum tax kink. We show that the combined tax rate and tax base change at the kink provides small real incentives for bunching, making the policy ideal for eliciting evasion. We develop an empirical approach allowing us to put (tight) bounds on the evasion response to switches between profit and turnover taxation, and find that turnover taxes reduce evasion by up to 60-70% of corporate income. Our analysis sheds new light on the use of production-inefficient tax tools in countries with limited tax capacity and can easily be replicated in other contexts as the quasi-experimental variation needed is ubiquitous.
    Date: 2013–11
  3. By: Anderson, Emily; Inoue, Atsushi; Rossi, Barbara
    Abstract: This paper studies stylized empirical facts regarding the effects of unexpected changes in aggregate macroeconomic fiscal policies on consumers that are allowed to differ depending on their individual characteristics. We use data from the Consumption Expenditure Survey (CEX) to estimate individual-level impulse responses as well as multipliers for government spending and tax policy shocks. The main empirical finding of this paper is that unexpected fiscal shocks have substantially different effects on consumers depending on their age, income levels, and education. In particular, the wealthiest individuals tend to behave according to the predictions of standard RBC models, whereas the poorest individuals tend to behave according to standard IS-LM (non-Ricardian) models, due to credit constraints. Furthermore, government spending policy shocks tend to decrease consumption inequality, whereas tax policy shocks most negatively affect the lives of the poor, more so than the rich, thus increasing consumption inequality.
    Keywords: Fiscal policy; Government spending shocks; Heterogeneity; Tax shocks
    JEL: D1 E21 E4 E52 H31 I3
    Date: 2013–09
  4. By: Anna Grodecka; Karlygash Kuralbayeva
    Abstract: This paper studies the design of optimal fiscal policy in a real business cycle model with distortionary taxes and a climate change externality. Governments face the dual task of internalizing environmental externalities and raising revenues to finance the provision of public goods, including public capital. At their disposal governments have access to two tax instruments: tax on emissions and labor tax. We find that a tax on labor is an efficient instrument to finance public spending and facilitate the adjustment of the economy to the temporary improvement in productivity. Therefore, labor tax is cut in the model. Tax on emissions follows a distinct pattern depending on whether the potential economic expansion in response to a positive productivity shock is strong or weak: it is procyclical in the model that features public capital and is countercyclical in the models with public consumption only. The model implies that by restraining or boosting expansion in the short-run, the optimal carbon tax policy can help policy makers reconcile short-term concerns over economic growth with longer-term risks from climate change. The welfare gains from such short-run policies are non-negligible and can amount to USD 121.9bn or 0.7% of the US GDB.
    Keywords: public finance, public goods, business cycles, distortionary taxes, environmental policy
    JEL: E32 H23 Q54 Q58
    Date: 2014
  5. By: Posen, Jodie (WESGRO); van Walbeek, Corne (School of Economics, University of Cape Town)
    Abstract: This paper proposes a model that can be used to predict the likely impacts of tobacco tax increases and harmonisation in the East African Community. The model has five sections, one for each EAC country. These sections consider different cigarette market segments based on tax or price differentials. The model can therefore calculate the likely effects of excise tax increases and harmonisation on the retail selling price of cigarettes, cigarette consumption, government revenue and industry revenue for each individual country and for the EAC as a whole. Two Scenarios are presented in this paper. Scenario 1 explores an increase in the current excise tax rates and a harmonisation across the EAC of a uniform specific tax of UDS 0.60. A sensitivity analysis is conducted to assess the robustness of the assumptions in this scenario. Scenario 2 discusses the use of a mixed tax structure with a specific excise tax of USD 0.60 or an ad valorem excise tax of 40% of the retail selling price, whichever is higher. The advantages and disadvantages of a uniform specific excise tax and other tax structures such as tiered specific taxes, ad valorem taxes and mixed tax structures are explored. Factors such as administrative ease, predictability of revenue flows, inflation and income growth are discussed. A uniform specific tax is shown to be the most preferable excise tax structure, even over a mixed tax structure. The results show that, with an assumed price elasticity of demand of -0.6, as excise tax is increased in the region, consumption decreases and government revenue increases. Scenario 1 shows a decrease in consumption by around 2.3 billlion cigarettes, or 18%, compared to current consumption levels across the EAC of around 12.9 billion cigarettes. Scenario 2 shows a slightly higher decline in consumption of 2.7 billion cigarettes or 21%. In terms of government excise revenue, Scenario 1 shows an increase of around USD 140 million or 80% from the current government revenue of around USD 176 million across the EAC. The second scenario reveals an even greater increase of USD 173 million or 98%. These results show that excise tax increases and harmonisation will contribute to public health and financial objectives of governments in the region.
    Keywords: East African Community; excise tax; tax harmonisation
    JEL: H21
    Date: 2014
  6. By: Robert Gillingham
    Abstract: This paper summarizes the basic principles that should form the basis of fiscal policy. These principles encompass decisions on the functions of government, its spending, and the financing of its spending that affect economic growth, employment, inflation, and economic welfare. Although the principles are broadly applicable, it is especially important that health policy makers understand them. Ensuring access to health care is one of society's, and therefore the government's, most important goals. In meeting this goal, policy makers must be cognizant of fiscal realities; what they can reasonably expect government to achieve in the health sector and at what cost. Resources are limited, and many valuable programs in both the private and public sectors vie for them. Allocating these resources efficiently is of paramount importance, with implications for what the government does and how it finances its activities. The absolute level and share of government resources allocated to the health sector will depend on a variety of factors, but the bottom line is that health programs must compete with other government programs for scarce resources to ensure that these resources are put to their best use.
    Keywords: health, fiscal policy for health, public finance, revenue mobilization, expenditure decision making ;� health, fiscal policy for health, public finance, revenue ... See More + mobilization, expenditure decision making, , accounting, accounting standards, Accumulation of Debt, addiction, adverse selection, aging, asymmetric information, beneficiaries, beneficiary, bequest, borrowing requirement, budget surplus, budgeting, capital gains, cash flows, cash transfers, commodities, consumer durable, consumer durables, consumers, CONSUMPTION TAXES, contract laws, corporate income tax, corporate income taxes, crime, debt, debt ratio, debt relief, decision making, dedicated revenue, deficits, demand curve, democratic environment, deposits, developing countries, development agencies, development assistance, discounted value, distributional equity, dividends, durable goods, economic crisis, economic development, economic efficiency, economic growth, Economic Outlook, economies of scale, elasticity, electricity, environmental issues, Equity issues, evasion, Excise Taxes, exercises, expenditure, expenditures, exports, externalities, finances, financial assets, financial risk, financial services, FISCAL POLICY, fiscal surplus, fraud, GDP, GDP per capita, good governance, government action, government asset, government budget, government budgets, government finance, government finances, Government financing, government funds, GOVERNMENT INTERVENTION, Government investment, government involvement, government revenues, government securities, government spending, growth rate, health care, health outcomes, HEALTH POLICY, health services, health spending, horizontal equity, housing, human capital, Human Development, immunization, implicit tax, income elasticity of demand, income groups, income level, income support, income tax, INCOME TAXES, incomes, indebtedness, inefficiency, inflation, inflation taxes, inheritance, insurance, insurance premium, interest rate, interest rates, Intergovernmental fiscal relations, International Bank, international standards, INTERVENTION, investment projects, isolation, issuance, labor market, laws, less developed countries, level of debt, levies, levy, licenses, life expectancy, loan, local government, local governments, local taxes, long-term interests, low-income countries, low-income country, marginal cost, Market failures, Market mechanisms, market prices, middle-income countries, Monetary Fund, moral hazard, mortgage, mortgage interest, national income, natural resources, negative externalities, negative externality, net debt, NONTAX REVENUE, normal good, Nutrition, old-age income, open economy, output, outputs, PARETO EFFICIENCY, payroll taxes, pension, pension contributions, pension system, pension systems, PENSIONS, personal income, personal property, POLITICAL ECONOMY, political economy of reform, pollution, positive externalities, prepayment, price rationing, Price subsidies, private market, private markets, private sector, privatization, progressive taxes, property rights, property taxes, provisions, public, public asset, public good, public goods, public health, Public pension, PUBLIC PENSIONS, public sector, public-private partnerships, Purchasing power, rapid growth, rate of return, rates of return, real income, real property, rent seeking, reserves, returns, REVENUE SOURCES, roads, sales taxes, savings, savings accounts, securities, small enterprises, social cost, social costs, stocks, structure of government, supply curve, surgery, sustainable reforms, tax, tax collections, tax policy, tax rate, tax rates, tax revenues, tax subsidies, tax subsidy, tax system, tax systems, TAXATION, technological change, trade liberalization, trade tax, Trade Taxes, trades, transparency, Treasury, Trust Fund, trust funds, turnover, unemployment, urbanization, user charges, value added, value of assets, vertical equity, voters, wages, waste, WEALTH, wealth tax, WEALTH TAXES, workers, world economy, world trade
    Date: 2014–03
  7. By: Michael Förster; Ana Llena-Nozal; Vahé Nafilyan
    Abstract: The shares of top income recipients in total pre-tax income have increased in OECD countries in the past three decades, particularly in most of the English-speaking countries but also in some Nordic (from low levels) and Southern European countries. Today, the richest one percent receives between 7% of all pre-tax income in Denmark and the Netherlands up to almost 20% in the United States. This increase is the result of the top 1% capturing a disproportionate share of overall income growth over the past thirty years: around 20 – 25% in Australia and the United Kingdom, up to 37% in Canada and even 47% in the United States. At the same time, tax reforms in almost all OECD countries reduced top personal income tax rates as well as rates of other taxes affecting the highest income earners. Indeed, while top tax rates were equal to or above 70% in half of the countries in the mid-1970s, this rate has been halved in many countries by 2013. Au cours des trois dernières décennies, la part du revenu avant impôts revenant aux titulaires de hauts revenus a augmenté au sein des pays de l’OCDE, en particulier dans la plupart des pays anglophones mais aussi dans certains pays nordiques (démarrant toutefois d’un niveau relativement bas) et certains pays du sud de l’Europe. Aujourd’hui, les un pourcent les plus riches perçoivent entre 7% du revenu individuel total avant impôts au Danemark et aux Pays-Bas et presque 20% aux États-Unis. Cette forte progression est le résultat d’un partage inéquitable des fruits de la croissance des revenus aux cours des trente dernières années. En effet, entre 20% et 25% des bénéfices de la croissance est captée par les un pourcent les plus riches en Australie et au Royaume-Uni, et jusqu’à 37% au Canada, voire 47% aux États-Unis. Dans le même temps, les réformes fiscales de la plupart des pays de l’OCDE ont été dans le sens d’une réduction des taux d’imposition et d’autres taxes affectant les plus hauts revenus. Ainsi, alors que les taux d’imposition des plus hauts revenus étaient aux alentours de 70% dans la moitié des pays de l’OCDE dans les années 70, ils sont, en 2013, réduits de moitié dans de nombreux pays.
    JEL: D31 D63 H20
    Date: 2014–05–15
  8. By: Kreiner, Claus Thustrup; Leth-Petersen, Søren; Skov, Peer Ebbesen
    Abstract: Intertemporal shifting of wage income takes place when income earned in one tax year is paid out in another tax year in order to save taxes. Shifting has implications for the evaluation of the distortionary and distributional effects of taxes and may cause serious bias in empirical estimates of the elasticity of taxable income (ETI) for use in policy analysis. Based on new monthly payroll records for the universe of Danish employees we provide evidence of widespread intertemporal shifting of wage income in response to a tax reform that significantly reduced the marginal tax rates for 1/4 of all employees. Ignoring shifting, we estimate the overall ETI to be 0.1 and find that the ETI is increasing in the earnings level. After controlling for shifting, we obtain negligible ETI estimates at all earnings levels. We show that shifting is concentrated on few individuals spread out evenly across industry sectors, and we provide evidence suggesting that tax salience, liquidity constraints and firm willingness to cooperate in shifting are important factors in explaining shifting behavior.
    Keywords: elasticity of taxable income; income shifting; monthly payroll records
    JEL: H24 H31
    Date: 2013–10
  9. By: Adel Bosch (Department of Economics, University of Pretoria); Steven F. Koch (Department of Economics, University of Pretoria)
    Abstract: We take advantage of a tobacco tax hike that occurred during the collection of the South African Income and Expenditure Survey to examine the regressivity of tobacco taxes. We are also able to examine the relative change in regressivity following the tax increase. Like previous research into commodity taxes, we find that tobacco taxes are regressive. However, we find that tobacco tax increases reduce the tax burden at the lower end of the income distribution, such that after the cigarette tax increase, cigarette taxes are less regressive than before the increase.
    Date: 2014–05
  10. By: Khwaja, Munawer Sultan; Iyer, Indira
    Abstract: This paper contributes to the empirical literature on the key determinants of the revenue generating potential in 61 countries. The paper uses a broad set of data and econometric methods to conduct analyses that are of relevance to revenue potential. Earlier studies have not distinguished between the revenue potential based on economic fundamentals of countries and that based on what the legal framework prescribes. This study uses a dual approach to revenue potential to examine the issue. Two sets of variables are used, one related to the intrinsic economic structure and strength of countries that affect revenue potential and the other related to tax policy variables. Accordingly the analysis finds two sets of revenue potentials: one can be termed"revenue potential (economic),"and the other"revenue potential (legal)."The difference between the revenue potential (legal) and the actual revenue collected is commonly understood as the"tax gap."The difference between the revenue potential (economic) and the actual revenue collected can be termed the"tax space,"the amount of revenue that a country can afford to collect, given its economic strength, not based on what the parliament has mandated. The results show that legally mandated revenue potentials in countries in Eastern Europe and Central Asia are often higher than the revenue potential based on what the country's economic fundamentals can afford. The paper also makes use of a tax effort index and finds that although many countries are performing close to the revenue potential (economic), it is more difficult to match up to the revenue potential (legal). The relationship between the revenue potential and the shadow economy, value added tax productivity, and some other determinants are examined to test whether some countries are taxing beyond their means.
    Keywords: Taxation&Subsidies,Debt Markets,Emerging Markets,Fiscal Adjustment,Tax Law
    Date: 2014–05–01
  11. By: Camila Vammalle; Rudiger Ahrend; Claudia Hulbert
    Abstract: Sub-national governments (SNGs) are key players for public investment in OECD countries, responsible for nearly two-thirds of it. At the same time, both the well-being of the population and economic performance depend on an adequate provision of public services, which require public facilities and thus public investment. Ensuring that sub-national governments command the resources for necessary public investment is hence important. While in the immediate, the fiscal space of a SNG for public investment is basically determined by its current fiscal capacities, in a longer-term perspective the evolution of fiscal space comes to depend increasingly on the institutional context. This includes the national framework of fiscal relations across levels of government, the nature and characteristics of SNGs’ revenue sources and spending responsibilities, SNGs resilience to crises, and their structural ability to borrow. This paper explores the institutional ability of SNGs to influence their fiscal space for public investment. In this context, it also analyses the main challenges to be faced by SNG finances in the decades to come, as well as recent reforms implemented by SNGs to tackle these specific issues. Les gouvernements infranationaux, responsables de deux tiers de l’investissement public dans les pays de l’OCDE, jouent un rôle crucial en matière d’investissement. Le bien-être de la population et la performance économique reposent en partie sur une provision adéquate de services publics, et réclament des infrastructures et équipements efficaces, financés à travers l’investissement public. S’assurer que les gouvernements infranationaux ont à leur disposition des ressources suffisantes pour investir constitue donc un enjeu de taille. À court terme, leur marge de manoeuvre budgétaire disponible pour l’investissement est déterminée, en grande part, par leur capacité financière immédiate. Cependant dans une perspective de long terme, l’évolution de cette marge de manoeuvre repose davantage sur le contexte institutionnel – relations budgétaires entre niveaux de gouvernement, nature et caractéristiques des sources de revenus et de dépenses infranationales, résilience des gouvernements infranationaux aux crises, capacité structurelle à emprunter. Cet article analyse la capacité institutionnelle d’un gouvernement infranational à influencer sa marge de manoeuvre budgétaire disponible pour l’investissement. Pour ce faire, il étudie les principaux défis que devraient rencontrer les gouvernements infranationaux dans les décennies à venir, ainsi que les réformes introduites récemment pour y répondre.
    Keywords: institutions, sub-national government, public investment, fiscal space, fiscal relations across levels of government, public services, services publics, gouvernements infra-nationaux, marge de manoeuvre budgétaire, relations budgétaires entre niveaux de gouvernement, investissement public, institutions
    JEL: G28 H41 H71 H74 H77
    Date: 2014–05–22
  12. By: Masanori Orihara (Economist, Policy Research Institute, Ministry of Finance, Japan, University of Illinois at Urbana-Champaign)
    Abstract: Economic theory dating to Domar and Musgrave (1944) suggests that the tax treatment of gains and losses can affect firmsf incentives to undertake high-risk investments. Exploiting a 2002 tax law change in Japan that allows business groups to adopt a consolidated taxation system (CTS) and using an IV strategy, I identify the causal impact of mitigating tax loss asymmetry on R&D activities. With unique firm-level panel data between 1997 and 2011, I show that CTS adoption increases total R&D expenses among individual business groups. More specifically, CTS adoption increases the following, especially among parent companies of business groups: the number of employees engaging in R&D; expenses for property, plant, and equipment for R&D; and expenses for R&D outsourcing. Evidence of ex-ante efficiency of CTS adoption measured by market-to-book ratio is limited, while CTS adoption improves expost efficiency measured by income from patent transactions. These findings support that mitigating tax loss asymmetry facilitates efficient developments of high-risk investments in line with Domar and Musgrave.
    Keywords: business group, corporate income tax, loss treatment, R&D activity, instrumental variable method
    JEL: G30 H25 O30
    Date: 2013–11
  13. By: Heathcote, Jonathan; Storesletten, Kjetil; Violante, Giovanni L
    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.
    Keywords: income distribution; labor supply; partial insurance; progressivity; skill investment; valued government expenditures; welfare
    JEL: D30 E20 H20 H40 J22 J24
    Date: 2014–03
  14. By: Cloyne, James; Surico, Paolo
    Abstract: Using a long span of expenditure survey data and a new narrative measure of exogenous income tax changes for the United Kingdom, we show that households with mortgage debt exhibit large and persistent consumption responses to tax changes. Home-owners without a mortgage, in contrast, do not appear to react, with responses not statistically different from zero at all horizons. Splitting the sample by age and education yields only limited evidence of heterogeneity as the distributions of these demographics tend to overlap across housing tenure groups. We interpret our findings through the lens of traditional and more recent theories of liquidity constraints, providing a novel interpretation for the aggregate effects of tax changes on the real economy.
    Keywords: liquidity constraints; mortgage debt; narrative tax changes
    JEL: E21 E62 H31
    Date: 2013–09
  15. By: Andersen, Torben M; Kreiner, Claus Thustrup
    Abstract: If productivity increases more slowly for services than for manufactured goods, then services suffer from Baumol’s cost disease and tend to become relatively more costly over time. Since the welfare state in all countries is an important supplier of tax financed services, this translates into a financial pressure which seems to leave policymakers with a trilemma; increase taxes (and hence tax distortions), cut spending or redistribute less. Under the assumptions underlying Baumol’s cost disease, we show that these dismal implications are not warranted. The welfare state is sustainable and Baumol growth leaves scope for Pareto improvements.
    Keywords: publicly provided goods; redistribution; tax distortions; Welfare state sustainability
    JEL: H21 H4 H5
    Date: 2013–12
  16. By: G. Bellettini; F. Taddei; G. Zanella
    Abstract: We identify the degree of intergenerational altruism in an OLG framework à la Barro exploiting the quasi-experimental variation generated by reforms of bequest taxation (estate or inheritance tax, in the U.S.) and taxes on inter vivos real estate donations (gift tax, in the U.S.) that were enacted in Italy between 2000 and 2001. Employing a unique data set containing information on the housing stock and house prices in 13 large Italian cities between 1993 and 2004, we identify the structural parameter of interest via the effect of changes in the tax rate on house prices. We find that the intergenerational altruism parameter is about 20%. Given the possible anticipation of the reform this estimate should be interpreted as a lower bound.
    JEL: E60 E65 H24
    Date: 2014–05
  17. By: Mumtaz, Haroon; Surico, Paolo
    Abstract: This paper estimates the impact on the US economy of four types of uncertainty about (i) government spending, (ii) tax changes, (iii) public debt sustainability and (iv) monetary policy. Following a one standard deviation shock, uncertainty about debt sustainability has the largest and most significant impact on real activity, with negative effects on output, consumption and investment after two years around 0.5%, 0.3% and 1.5% respectively. Uncertainty on the other economic policies has also detrimental consequences but these tend to be smaller and short-lived, especially for taxes and monetary policy. About 30% of output fluctuations are explained by policy uncertainty at most frequencies, with the lion’s share accounted for by debt sustainability. Our results are based on a new empirical framework that allows the volatility of identified shocks to have a direct impact on the endogenous variables of an otherwise standard structural VAR.
    Keywords: debt sustainability; economic policy uncertainty; long-run effects.
    JEL: D80 E32 E63
    Date: 2013–10
  18. By: SYOUM NEGASSI (University Paris 1 Pantheon Sorbonne and Visiting Professor Department of Economics,University of Delaware); JEAN-FRANCOIS SATTIN (University Paris 1 Pantheon Sorbonne)
    Abstract: Economic theory and empirical evidence indicate that technological innovation is an important determinant of long-term economic development. Various country policies have been launched in favour of private research and development (R&D) with economic development as the main objective. As often in economics, public intervention is grounded on the presumed existence of market failures. The purpose of this paper is two-fold. First, it provides an overview of the history of R&D-related tax policies in more than ten industrial countries. Second, after reviewing the existent empirical evidence on the effectiveness of R&D tax credits policies, it presents a meta-regression analysis based on an econometric model. Our results show that an R&D tax credit is strongly significant in the studies taken cumulatively.
    Keywords: R&D, Meta-analysis
    JEL: C01 C12 H53 H54 O31 O32
    Date: 2014
  19. By: Edit V. Velenyi; Marc F. Smitz
    Abstract: The 2008-09 global economic crises have shown that no country is immune to external challenges. When policy controls are missing or not used efficiently, crises can reverse progress even in advanced economies. This unexpected outcome has increased concerns about the ability of governments in developing countries to manage downturns. The question is whether current and future crises will reinforce the procyclical responses or whether these governments will be able to escape the procyclical trap. In the fiscal domain, countercyclical trends in developing countries are promising. Over the last decade, about a third of the developing world has been able to escape the procyclicality trap. Yet, little is known about the evidence on the cyclical patterns of government health spending. This descriptive analysis, which covers 183 countries between 1995 and 2010, provides empirical evidence on the cyclicality of government health expenditures, using panel data from a global macro database, the fiscal health database. The objective is to propose user-friendly diagnostic approaches in this area that can be easily replicated and updated to inform technical discussions and policy making
    Keywords: allocation of resources, analytical capacity, Article, automatic stabilizer, automatic stabilizers, balance of payment, banking crises, Burns, BUSINESS CYCLE, business ... See More + cycles, capital flows, capital formation, capital investment, capital spending, Central Bank, central government, central government spending, checks, Country Risk, credit markets, creditworthiness, crisis countries, currency crises, data analysis, DATA AVAILABILITY, data quality, debt, debt crises, debt payments, demand for health, demand for health care, demand for services, developing countries, diagnostic tool, economic cycle, economic development, economic downturn, economic downturns, economic fluctuations, economic growth, ECONOMIC POLICIES, economic policy, ECONOMIC RISK, economic shocks, education spending, efficiency gains, exchange rate, exchange rates, expenditure growth, EXPENDITURES ON HEALTH, exporters, external borrowings, external debt, family planning, financial crises, Financial Crisis, financial flows, financial markets, financial protection, financial resources, financial risk, financial sustainability, financial variables, financing policies, fiscal adjustment, fiscal austerity, fiscal behavior, fiscal constraints, fiscal deficits, Fiscal Health, fiscal impact, fiscal institutions, fiscal policies, fiscal policy, fiscal rules, fiscal stabilization, Fiscal Statistics, fiscal targets, foreign direct investment, government budgets, government consumption, government expenditure, GOVERNMENT EXPENDITURES, government revenue, government revenues, government spending, gross domestic product, growth potential, growth rate, health budgets, health care, health care financing, health coverage, Health Database, health expenditure, HEALTH EXPENDITURES, health financing, health insurance, health insurance funds, health needs, Health Organization, health outcomes, health policies, Health Policy, health sector, health sector reform, health service, health services, health share, health spending, health status, health system, Health Systems, Health Systems Research, health targets, household income, human capital, Human Development, illness, income countries, income effects, income elasticity, income groups, income growth, interest payments, International Bank, intervention, Keynesian theories, liquidity, loan, loan repayment, local currency, local governments, low-income countries, macroeconomic environment, Monetary Fund, National Health, national income, nongovernmental organizations, Nutrition, pensions, personal income, policy formulation, policy responses, political economy, Political Risk, poverty reduction, price volatility, private sector, provision of health services, provision of water, public education, public expenditure, public expenditures, public health, public health spending, public investment, public investments, public sector, public spending, purchasing power, remittances, reserves, returns, Risk Groups, risk management, safety net, sanitation, sector budget, sector policies, sector policy, sectoral allocation, sectoral policies, SOCIAL EXPENDITURES, social insurance, social policies, social policy, social programs, social protection, social safety nets, social services, solvency, sovereign debt, tax, total spending, transparency, Trust Fund, unemployment, voluntary sector
    Date: 2014–01
  20. By: De Donder, Philippe; Roemer, John E
    Abstract: We study how rich shareholders can use their economic power to deregulate firms that they own, thus skewing the income distribution towards themselves. Agents differ in productivity and choose how much labor to supply. High productivity agents also own shares in the productive sector and thus earn capital income. All vote over a linear tax rate on (labor and capital) income whose proceeds are redistributed lump sum. Capital owners also lobby in order to ease the price cap imposed on the private firm. We solve analytically for the Kantian equilibrium of this lobbying game together with the majority voting equilibrium over the tax rate, and we perform simulations. We obtain numerically that, as the capital income distribution becomes more concentrated among the top productivity individuals, their increased lobbying effort generates efficiency as well as equity costs, with lower labor supply and lower average utility levels in society.
    Keywords: Kantian equilibrium; lobbying; political economy; regulatory capture
    JEL: D72 H31
    Date: 2013–11
  21. By: Littlewood, Michael
    Abstract: When setting public policies on retirement incomes, governments should focus on objectives they have a unique capacity to influence. Only governments can reliably eliminate poverty in old age, level the tax and regulatory playing fields for financial service providers/savers and gather impeccable, deep data. They can also help citizens to understand the things that really matter to individual saving decisions. Governments should avoid trying to influence or direct private provision for retirement by tax breaks or compulsion (‘hard’ or ‘soft’). That those common interventions seem not to work is only one of their many shortcomings. Then, citizens and employers should make their own decisions about financial provision for retirement.
    Keywords: retirement incomes, public policy, universal pension, private provision
    JEL: H55 J14 J26
    Date: 2014–05–27
  22. By: Wildasin, David (University of Kentucky)
    Abstract: Mobility of highly-skilled workers affects and is affected by labor market conditions, taxes, and other policies. This paper documents the demographic and fiscal importance of international migration, especially in aging societies, reviews the efficiency and distributional effects of mobility, and analyzes the economic incidence of fiscal transfers to low-skilled workers that are financed by taxes on imperfectly-mobile high-skilled workers in a dynamic model, distinguishing the short-run, transitional, and long-run gains and losses to contributors and beneficiaries.
    Keywords: migration, taxes, redistribution, dynamic incidence
    JEL: J11 J24 J61 H2 H5
    Date: 2014–05
  23. By: Ezcurra, Roberto; Rodríguez-Pose, Andrés
    Abstract: This paper examines the relationship between government quality and spatial inequality across 46 countries over the period 1996-2006. The results of the analysis point to the existence of a negative and significant association between government quality and the magnitude of regional disparities. Countries with better quality of government register lower levels of spatial inequality. This finding is robust to the inclusion in the analysis of additional explanatory variables that may affect both regional disparities and governance outcomes. The observed link between government quality and spatial inequality is confirmed by various robustness tests.
    Keywords: government quality; spatial inequality
    JEL: H11 R12
    Date: 2013–11
  24. By: Bagchi, Sutirtha; Svejnar, Jan
    Abstract: A fundamental question in social sciences relates to the effect of wealth inequality on economic growth. Yet, in tackling the question, researchers have had to use income as a proxy for wealth. We derive a global measure of wealth inequality from Forbes magazine’s listing of billionaires and compare its effect on growth to the effects of income inequality and poverty. We find that wealth inequality reduces economic growth, but when we control for the fact that some billionaires acquired wealth through political connections, the effect of politically connected wealth inequality is negative, while politically unconnected wealth inequality, income inequality, and initial poverty have no significant effect.
    Keywords: Billionaires; Economic Growth; Income Inequality; Political Connections; Wealth Inequality
    JEL: D31 O40 O43
    Date: 2014–01
  25. By: Richard Kopcke; Zhenyu Li; Anthony Webb
    Abstract: This paper decomposes trends in the distribution of earnings over the period 1982-2009 and calculates the effect of increases in dispersion in wage and salary earnings on revenues from the U.S. Social Security Old-Age and Survivors Insurance payroll tax. This tax is levied on earnings, up to a maximum that, with minor changes, has been indexed since 1975 to movements in average wages. If the earnings of very high earners increase more rapidly than those of individuals with earnings below the taxable maximum, the percentage of total earnings that is subject to the tax will decrease and tax revenues will be lower than would otherwise be the case. Using the Continuous Work History Sample (CWHS), we show that most of the increase in the dispersion of wage and salary earnings over the above period was the result of increases of within-cohort, rather than between-cohort, earnings disparities. Between–cohort disparities increased among women, but not among men. The increases in earnings dispersion would have resulted in a substantial decline in the percentage of workers earning more than the taxable maximum, had it not been for the aging of the outsize boomer cohort into their peak earning years. The percentage of total earnings subject to the payroll tax has declined substantially. To restore this percentage to the 1982 level would require an increase in the 2009 taxable maximum from $106,800 to $144,248, which would approximate the 97th percentile of the earnings distribution, well above historic norms. We estimate that, if there had been no increase in earnings dispersion, 2009 payroll tax receipts from wage and salary earnings would have been 6 percent higher, of which 4 percent can be attributed to increases in within-cohort dispersion.
    Date: 2014–05
  26. By: Faraglia, Elisa; Marcet, Albert; Scott, Andrew
    Abstract: We show how to model portfolio models in the presence of long bonds. Specifically we study optimal fiscal policy under incomplete markets where the government issues bonds of maturity N > 1. Assuming the existence of long bonds introduces an additional intertemporal mechanism that makes taxes more volatile in order to achieve lower debt management costs. In other words, fiscal policy is secondary to debt management. Modelling optimal policy with long term bonds is computationally demanding because of the promises made to cut future taxes. The longer the maturity of bonds the more promises need to be monitored and the larger the state space. We consider three means of overcoming this problem - a computational method using the “condensed PEA”, an approximation whereby long bonds are modelled as a sequence of geometrically declining coupons and a model of independent powers where the fiscal authority and interest rate setting authority are separate. We compare the accuracy and properties of solutions across these three approaches and examine how the properties of optimal fiscal policy differ in the case of long bonds compared to one period debt.
    Keywords: Debt Management; Fiscal Policy; Government Debt; Maturity Structure; Tax Smoothing; Yield Curve
    JEL: E43 E62 H63
    Date: 2014–05
  27. By: Muysken J.; Crombrugghe D.P.I. de; Celbis M.G. (UNU-MERIT)
    Abstract: The determinants of the regional allocation of transportation and communication investments are analysed for the twenty-six statistical regions of Turkey for the years 1999 through 2011. A unique regional GVA series covering this period is constructed for this purpose. We specifically account for the possibility of dependence between allocation decisions for different infrastructure types. Estimation results strongly suggest that political bias has been present in the allocation decisions of regional transportation and communication public investments in Turkey. Keywords Public Infrastructure; Regional Policy; Investment Allocation.
    Keywords: National Government Expenditures and Related Policies: Infrastructures; Other Public Investment and Capital Stock; Capitalist Systems: Political Economy; Transportation Systems: Government and Private Investment Analysis; Road Maintenance, Transportation Planning; Regional Development Planning and Policy;
    JEL: P16 R42 R58 H54
    Date: 2014
  28. By: Bo Sandemann Rasmussen (Department of Economics and Business, Aarhus University, Denmark; Department of Economics and Business, Aarhus University, Denmark)
    Abstract: In a two-type Stiglitz (1982) model of optimal non-linear taxation it is shown that when the utility function relating to consumption is logaritmic the shadow price of the incentive constraint relating to the optimal tax problem exactly equals the Gini coefficient of the secondbest optimal income distribution of a utilitarian government. In this sense the optimal degree of income redistribution is determined by the severity of the incentive problem facing the policy-maker. Extensions of the benchmark model to allow for more general functional forms of the utility function and for more than two types of workers reveal that also in these cases the desired degree of income redistribution is positively correlated with the shadow prices of the incentive constraints.
    JEL: H21 H23 H24
    Date: 2014–05–25
  29. By: Bergolo, Marcelo (IECON, Universidad de la República); Cruces, Guillermo (CEDLAS-UNLP)
    Abstract: This article studies how social insurance programs shape individual's incentives to take up registered employment and to report earnings to the tax authorities. The analysis is based on a social insurance reform in Uruguay that extended healthcare coverage to the dependent children of registered private-sector workers. The identification strategy relies on a comparison between individuals with and without dependent children before and after the reform. The reform increased benefit-eligible registered employment by 1.6 percentage points (about 5 percent above the pre-reform level), mainly due to an increase in labor force participation rather than to movement from unregistered to registered employment. The shift was greater for parents with younger children and for cohabiting adults whose partners' jobs did not provide the couples' children with access to the benefit. Finally, the reform increased the incidence of underreporting of salaried earnings by about 4 percentage points (25 percent higher than the pre-reform level), mostly for workers employed at small firms. The increase in fiscal revenue from higher levels of registered employment was several orders of magnitude greater than the loss of revenue due to an increase in underreporting.
    Keywords: labor supply, work incentives, social insurance, tax evasion
    JEL: J22 H26 O17
    Date: 2014–05
  30. By: Li-Lin Liang; Andrew J Mirelman
    Abstract: A consensus exists that rising income levels and technological development are among the key drivers of total health spending. However, determinants of public sector health expenditure are less well understood. This study examines a complex relationship across government health expenditure (GHE), sociopolitical risks, and international aid, while taking into account the impact of national income and fiscal capacity on health spending. The author apply a two-way fixed effects and two-stage least squares regression method to a panel dataset comprising 120 countries for the years 1995 through 2010. Our results show that democratic accountability has a diminishing positive correlation with GHE, and that levels of spending are higher when the government is more stable. Corruption is associated with less spending in developing countries, but with more spending in high-income countries. Furthermore, the author find that development assistance for health (DAH) substitutes for domestically financed government health expenditure (DGHE). For an average country, a 1 percent increase in total DAH or DAH to government is associated with a 0.02 percent decrease in DGHE. Our work highlights that policy reforms that aim to eliminate corruption are fundamental to improving the capacity of developing countries to scale up GHE, and to increasing the efficiency of health care systems in developed countries in containing health care costs. To minimize fungibility, donors may impose stronger monitoring mechanisms for corruption. Delivering aid through NGOs may be an option in countries with high ethnic tensions; however, the ability to do so depends on institutional arrangements and the capacity of NGOs in individual countries.
    Keywords: accountability, aggregate health expenditure, aggregate income, anticorruption, anticorruption reforms, bribes, cabinet, coalition government, corrupt, Corruption, corruption ... See More + in government, debt, delivery system, democracies, democracy, democratic accountability, democratic systems, determinants of health, Econometric Analysis of Health Care Expenditure, Economic Review, election, External Debt, financial resources, Fiscal Policy, fraud, Health Affairs, health care, health care costs, Health Care Expenditure, Health Care Finance, Health Care Reform, Health Care Spending, health care systems, health coverage, Health Economics, health expenditure, health expenditure growth, Health Expenditures, health financing, health insurance, health insurance coverage, Health Organization, Health Outcomes, Health Policy, health programs, health resources, health sector, Health Services, health spending, health systems, hospital systems, Human Development, Human Resources, incentive structures, income countries, Income Elasticity, Income Elasticity of Health Care, income groups, informal sector, insurance premiums, International Health Care, investigation, kickbacks, leadership, low-income countries, medical resources, medical technology, monitoring mechanisms, National Health, nepotism, Nutrition, older people, patronage, pocket payment, political interests, political opponents, political party, political system, political systems, Politicians, Private Health Services, private sector, Provision of Health Care, Public Health, Public Health Care, Public Health Spending, Public Policy, public sector, public spending, social health insurance, social welfare, transparency, Tuberculosis
    Date: 2014–01
  31. By: Lisa Fleisher; Adam Leive; George Schieber
    Abstract: This note analyzes levels and trends of health expenditures by country, income group, and region in the context of overall government revenue, expenditure, and GDP trends between 1995 and 2010. The study uses available data from the World Health Organization's (WHO) National Health Accounts, the International Monetary Fund's (IMF) fiscal data bases, and the World Bank's World Development Indicators. The paper provides snapshots of health financing patterns, both public and private, at different points in time, as well as analyzing the stability of these relationships and tracing their evolution during this period. In general, there is little variation in the average income elasticity's of total, government, and out-of pocket (OOP) health spending by income level or region. The elasticity's of government health spending to total government expenditures and revenues exhibit more variation across both income groups and region than the income elasticity. Controlling for demographics moderately reduces the magnitude of these estimates. Many elasticity estimates are close to one, indicating the importance of income as a driving force behind health spending. Some countries exhibit fluctuations in the income elasticity of government health spending but many have increasing elasticity's over the 1995 to 2010 period. These trends highlight the simple macro-fiscal context for health spending, and flag situations that require more in-depth analyses as countries struggle with the fiscal sustainability of their health systems, particularly as they pursue universal insurance coverage and significant supply side expansions.
    Keywords: absolute difference, analysis of variance, average income, average share, base year, benchmarks, capita health spending, clean water, Country Level, crowding, debt, demand ... See More + for health, DESCRIPTIVE STATISTICS, determinants of health, developing countries, economic factors, exchange rates, exogenous shocks, families, financial crisis, fiscal policy, GDP, GDP per capita, government expenditures, health care, Health Care Spending, Health Economics, health expenditure, health expenditures, Health Financing, HEALTH INDICATORS, health insurance, health interventions, Health Organization, health outcomes, health policies, health policy, health programs, health share, health spending, health status, health systems, high correlation, human capital, Human Development, illness, income countries, income elasticities, income elasticity, income groups, income level, income levels, incomes, infant mortality, insurance, insurance coverage, life expectancy, life expectancy at birth, linear regression, low income, Macroeconomic Context, Mean Income, medical care, middle income countries, middle income country, mortality, mortality rates, National Health, nominal income, non-governmental organizations, Nutrition, obesity, physician, policy perspective, Political Economy, population share, positive coefficient, private spending, public health, public health interventions, public health programs, real GDP, regression analysis, significant differences, taxation, trough
    Date: 2013–11
  32. By: Ko Shakuno
    Abstract: Using a closed-economy overlapping generations model with en- dogenous fertility, child quality choice and human capital accumula- tion, this paper examine the effects of public investment in education on fertility rate and per capita output growth rate under a pay-as-you- go (PAYG) social security system. Parents face a trade-off between the quantity and quality of children. Differently from previous studies, this paper shows that there is an inverted U-shaped relation between pub- lic investment in education and fertility. Small sized public education policy stimulates fertility and impedes growth.
    Date: 2014–05
  33. By: Marcelo Bergolo (IECON-UDELAR and CEDLAS-UNLP); Guillermo Cruces (CEDLAS-UNLP, CONICET and IZA)
    Abstract: This article studies how social insurance programs shape individual’s incentives to take up registered employment and to report earnings to the tax authorities. The analysis is based on a social insurance reform in Uruguay that extended healthcare coverage to the dependent children of registered private-sector workers. The identification strategy relies on a comparison between individuals with and without dependent children before and after the reform. The reform increased benefit-eligible registered employment by 1.6 percentage points (about 5 percent above the prereform level), mainly due to an increase in labor force participation rather than to movement from unregistered to registered employment. The shift was greater for parents with younger children and for cohabiting adults whose partners’ jobs did not provide the couples’ children with access to the benefit. Finally, the reform increased the incidence of underreporting of salaried earnings by about 4 percentage points (25 percent higher than the pre-reform level), mostly for workers employed at small firms. The increase in fiscal revenue from higher levels of registered employment was several orders of magnitude greater than the loss of revenue due to an increase in underreporting.
    JEL: J22 H26 O17
    Date: 2014–05
  34. By: Bai, Jie; Jayachandran, Seema; Malesky, Edmund J.; Olken, Benjamin
    Abstract: Government corruption is more prevalent in poor countries than in rich countries. This paper uses cross-industry heterogeneity in growth rates within Vietnam to test empirically whether growth leads to lower corruption. We find that it does. We begin by developing a model of government officials' choice of how much bribe money to extract from firms that is based on the notion of inter-regional tax competition, and consider how officials' choices change as the economy grows. We show that economic growth is predicted to decrease the rate of bribe extraction under plausible assumptions, with the benefit to officials of demanding a given share of revenue as bribes outweighed by the increased risk that firms will move elsewhere. This effect is dampened if firms are less mobile. Our empirical analysis uses survey data collected from over 13,000 Vietnamese firms between 2006 and 2010 and an instrumental variables strategy based on industry growth in other provinces. We find, first, that firm growth indeed causes a decrease in bribe extraction. Second, this pattern is particularly true for firms with strong land rights and those with operations in multiple provinces, consistent with these firms being more mobile. Our results suggest that as poor countries grow, corruption could subside
    Keywords: corruption; economic growth
    JEL: D73 O43
    Date: 2013–10

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