nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒06‒07
twelve papers chosen by
Keunjae Lee
Pusan National University

  1. Progressive tax reform in OECD countries : perspectives and obstacles By Godar, Sarah; Paetz, Christoph; Truger, Achim
  2. Instruments, rules and household debt: the effects of fiscal policy By Javier Andrés; J.E. Boscá; Javier Ferri
  3. The Political Economy of Tax Incentives for Investment in the Dominican Republic: “Doctoring the Ball” By Christian Daude; Hamlet Gutiérrez; Ángel Melguizo
  4. Capital Gains Lock-In and Governance Choices By Stephen G. Dimmock; William C. Gerken; Zoran Ivković; Scott J. Weisbenner
  5. Property taxation, bounded rationality and housing prices By Elinder, Mikael; Persson, Lovisa
  6. “Public and Private Production in a Mixed Delivery System: Regulation, Competition and Costs” By Germà Bel; Jordi Rosell
  7. Fiscal Stimuli in the Form of Job Creation Subsidies By Chun-Hung Kuo; Hiroaki Miyamoto
  8. "What Do We Know About the Labor Share and the Profit Share? Part III: Measures and Structural Factors" By Olivier Giovannoni
  9. Issues in the Design of Fiscal Policy Rules By Jonathan Portes
  10. "Income Distribution Macroeconomics" By Olivier Giovannoni
  11. Defense Government Spending Is Contractionary, Civilian Government Spending Is Expansionary By Roberto Perotti
  12. At What Age Do University Students Earn Their First Degree? By OECD

  1. By: Godar, Sarah; Paetz, Christoph; Truger, Achim
    Keywords: tax reform, taxation, trend, OECD countries, réforme fiscale, fiscalité, tendance, pays de l'OCDE, reforma tributaria, tributación, tendencia, países de la OCDE
    Date: 2014
  2. By: Javier Andrés (University of Valencia); J.E. Boscá (University of Valencia); Javier Ferri (University of Valencia)
    Abstract: In this paper, we look at the interplay between the level of household leverage in the economy and fiscal policy, the latter characterised by different combinations of instruments and rules. When the fiscal rule is defined on lump-sum transfers, government spending or consumption taxes, the impact multipliers of transitory fiscal shocks become substantially amplified in an environment of easy access to credit by impatient consumers, regardless of the primary instruments used. However, when the government reacts to debt deviations by raising distortionary taxes on income, labour or capital, the effects of household debt on the size of the impact output multipliers vanish or even reverse, no matter the primary fiscal instrument used. We also find that differences in multipliers between high and low indebtedness regimes belong basically to the short run, whereas the long-run multipliers associated with fiscal shocks are barely affected by the level of household debt in the economy. Finally, we find that fiscal shocks exert an unequal welfare effect on impatient and patient households that can even be of opposite signs. This points to non-negligible distributional impacts of alternative fiscal strategies, especially in economies with highly indebted households.
    Keywords: fiscal multipliers, household debt, distortionary taxes
    JEL: E24 E44 E62
    Date: 2014–10
  3. By: Christian Daude; Hamlet Gutiérrez; Ángel Melguizo
    Abstract: Tax incentives can be a useful tool to stimulate investment in developing countries. However, in these countries interest groups often are able to exert considerable influence in its management, if not its design. From a power-based approach to the political economy of tax reform we find how interest groups work within the institutional framework to seek outcomes that best fit their objectives. When unsuccessful, they become powerful advocates of change. These power dynamics have important implications for the design and management of tax incentives in developing economies. Les mesures d’incitations fiscales peuvent être un outil utile pour stimuler l’investissement dans les pays en développement. Cependant, dans ces pays, les groupes d’intérêt sont souvent en mesure d’exercer une influence considérable sur sa gestion, voire sur sa conception. En suivant une approche de l’économie politique de la réforme fiscale basée sur le pouvoir nous trouvons comment les groupes d’intérêt fonctionnent dans le cadre institutionnel pour obtenir les résultats qui correspondent le mieux à leurs objectifs. Lorsqu’ils échouent, ils deviennent de puissants partisans du changement. Ces dynamiques de pouvoir ont d’importantes implications pour la conception et la gestion des mesures d’incitations fiscales dans les pays en développement.
    Keywords: political economy, tax incentives, Dominican Republic, fiscal policy, incitatifs fiscaux, République dominicaine, politique fiscale, économie politique
    JEL: D78 H25 O25
    Date: 2014–05–28
  4. By: Stephen G. Dimmock; William C. Gerken; Zoran Ivković; Scott J. Weisbenner
    Abstract: Because of differences in accrued gains and investors’ tax-sensitivity, capital gains “lock-in” varies across mutual funds even for the same stock at the same time. Using this variation, we show that tax lock-in affects funds’ governance decisions. Higher tax lock-in decreases the likelihood a fund sells a stock prior to contentious votes, and increases the likelihood the fund votes against management. Consistent with tax motivations, these findings are concentrated among funds with tax-sensitive investors. High aggregate capital gains across funds holding a stock predicts a higher likelihood management loses a vote and a lower likelihood a contentious vote is proposed.
    JEL: G11 G23 G34 H20
    Date: 2014–05
  5. By: Elinder, Mikael (Uppsala Center for Fiscal Studies); Persson, Lovisa (Uppsala Center for Fiscal Studies)
    Abstract: In 2008, the Swedish property tax was reformed and a cap on yearly tax liabilities was introduced. A large fraction of owner occupied houses was subject to a substantial decrease in the tax. When the reform was announced, most analysts projected - in line with tax capitalization theory - that the tax decrease would lead to significant increases in house prices. We estimate price responses and capitalization degrees, using various DID strategies, in which the price dynamics of houses that were subject to a generous tax reduction are compared to the price dynamics of houses with a more modest reduction. Our results are largely inconsistent with capitalization theory. For the majority of properties, we find no evidence that the tax cut led to increases in house prices. However, we nd evidence of partial capitalization in sub-markets with highly valued properties, highly educated citizens and were it is especially dicult to increase supply. We argue that theories of bounded rationality can help explain why house buyers may fail to take a tax decrease into account in the valuation of houses.
    Keywords: announcement effects; capitalization; financial literacy; housing market; inattention; saliency
    JEL: D01 D03 D04 D12 H22 H24 R21 R38
    Date: 2014–05–22
  6. By: Germà Bel (Faculty of Economics, University of Barcelona); Jordi Rosell (Faculty of Economics, University of Barcelona)
    Abstract: Academics and policy makers are increasingly shifting the debate concerning the best form of public service provision beyond the traditional dilemma between pure public and pure private delivery modes, because, among other reasons, there is a growing body of evidence that casts doubt on the existence of systematic cost savings from privatization, while any competition seems to be eroded over time. In this paper we compare the relative merits of public and private delivery within a mixed delivery system. We study the role played by ownership, transaction costs, and competition on local public service delivery within the same jurisdiction. Using a stochastic cost frontier, we analyze the public-private urban bus system in the Barcelona Metropolitan Area. Our results suggest that private firms tendering the service have higher delivery costs than those incurred by the public firm, especially when transaction costs are taken into account. Tenders, therefore, do not help to reduce delivery costs. Our results suggest that under a mixed delivery scheme, which permits the co-existence of public and private production, the metropolitan government and the regulator can use private delivery to contain costs in the public firm and, at the same time, benefit from the greater flexibility of private firms for dealing with events not provided for under contract.
    Keywords: costs, transaction costs, mixed delivery, local governments JEL classification: H0, H7, K00, L33
    Date: 2014–05
  7. By: Chun-Hung Kuo (International University of Japan); Hiroaki Miyamoto (The University of Tokyo)
    Abstract: This paper examines the effects of fiscal stimuli in the form of job creation subsidies in a DSGE model with search frictions in the labor market. We consider two types of job creation subsidies: a subsidy to the cost of posting vacancies and a hiring subsidy. Our model demonstrates that qualitative effects of a vacancy cost subsidy are similar to those of a hiring subsidy. Quantitatively, however, the vacancy cost subsidy is more effective in lowering unemployment than the hiring subsidy. We also compute fiscal multipliers for both traditional increases in government spending and increases in job creation subsidies.
    Keywords: Fiscal Policy, Hiring Subsidy, Unemployment, Search and matching
    JEL: E24 E62 J64
    Date: 2014–05
  8. By: Olivier Giovannoni
    Abstract: Economic theory frequently assumes constant factor shares and often treats the topic as secondary. We will show that this is a mistake by deriving the first high-frequency measure of the US labor share for the whole economy. We find that the labor share has held remarkably steady indeed, but that the quasi-stability masks a sizable composition effect that is detrimental to labor. The wage component is falling fast and the stability is achieved by an increasing share of benefits and top incomes. Using NIPA and Piketty-Saez top-income data, we estimate that the US bottom 99 percent labor share has fallen 15 points since 1980. This amounts to a transfer of $1.8 trillion from labor to capital in 2012 alone and brings the US labor share to its 1920s level. The trend is similar in Europe and Japan. The decrease is even larger when the CPI is used instead of the GDP deflator in the calculation of the labor share.
    Keywords: Labor Share; Composition Effect; Income Inequality; Top Incomes; Purchasing Power
    JEL: D33 E24 E25
    Date: 2014–05
  9. By: Jonathan Portes
    Abstract: Theory suggests that government should as far as possible smooth taxes and its recurrent consumption spending, which means that government debt should act as a shock absorber, and any planned adjustments in debt should be gradual. This suggests that operational targets for governments (e.g. for 5 years ahead) should involve deficits rather than debt, because such rules will be more robust to shocks. Beyond that, fiscal rules need to reflect the constraints on monetary policy, and the extent to which governments are subject to deficit bias. Fiscal rules for countries in a monetary union or fixed exchange rate regime need to include a strong countercyclical element. Fiscal rules should also contain a ‘knock out’ if interest rates hit the zero lower bound: in that case the fiscal and monetary authorities should cooperate to formulate a fiscal expansion package that allows interest rates to rise above this bound. In more normal times, the design of fiscal policy rules is likely to depend on the extent to which governments are subject to deficit bias, and the effectiveness of any national fiscal council. For example, governments that had not shown a history of deficit bias could aim to target deficits five years ahead (rolling targets), and these would not require cyclical adjustment. In contrast, governments that were more prone to bias could target a cyclically adjusted deficit at the end of their expected period of office. In both cases fiscal councils would have an important role to play, in ensuring plans were implemented in the first case and allowing for departures from target when external shocks occurred in the second. 
    Date: 2014–05
  10. By: Olivier Giovannoni
    Abstract: Recent research stresses the macroeconomic dimension of income distribution, but no theory has yet emerged. In this note, we introduce factor shares into popular growth models to gain insights into the macroeconomic effects of income distribution. The cost of modifying existing models is low compared to the benefits. We find, analytically, that (1) the multiplier is equal to the inverse of the labor share and is about 1.4; (2) income distribution matters mostly in the medium run; (3) output is wage led in the short run, i.e., as long as unemployment persists; (4) capacity expansion is profit led in the full-employment long run, but this is temporary and unstable.
    Keywords: Economic Growth; Income Distribution; Multiplier; Factor Share; Output Capacity; Instability
    JEL: D33 E25
    Date: 2014–06
  11. By: Roberto Perotti
    Abstract: Impulse responses to government spending shocks in Standard Vector Autoregressions (SVARs) typically display "expansionary" features. However, SVARs can be subject to a "non-fundamentalness" problem. "Expectations - Augmented" VARs (EVARs), which use direct measures of forecasts of defense spending, typically display "contractionary" responses to a defense news shock. I show that, when properly specified, SVARs and EVARs give virtually identical results. The reason for the widespread, opposite view is that defense shocks have "contractionary" effects while civilian government spending shocks have "expansionary" effects. Existing EVARs and SVARs, however, include only total government spending. In addition, the former are typically estimated on samples that include WWII and the Korean war, when defense shocks prevailed, while the latter are estimated mostly on post-1953 samples, when civilian shocks prevailed.
    JEL: E62 H30 H60
    Date: 2014–05
  12. By: OECD
    Abstract: Across OECD countries, the median age students first graduated from university fell by 6 months between 2005 and 2011. The median age of first graduation ranges from around 22 in Belgium and the United Kingdom to over 27 in Iceland and Israel. The percentage of part-time students has increased from 19.8% in 2005 to 22.0% in 2011, suggesting that more flexible routes between study and work are slowly becoming more widespread. The percentage of older students (aged 30 and over) entering universities has remained constant at around 10%-11% on average between 2005 and 2011.
    Date: 2014–05

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