nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒06‒14
24 papers chosen by
Keunjae Lee
Pusan National University

  1. The effects of rewards on tax compliance decisions By Fochmann, Martin; Kroll, Eike B.
  2. Saving Europe?: The Unpleasant Arithmetic of Fiscal Austerity in Integrated Economies By Enrique G. Mendoza; Linda L. Tesar; Jing Zhang
  3. Imperfect Financial Markets and the Cyclicality of Social Spending By Maren Froemel
  4. Is the Flat Tax Optimal under Income Risk? By Dominique Henriet; Patrick A. Pintus; Alain Trannoy
  5. Health Insurance Tax Credits, the Earned Income Tax Credit, and Health Insurance Coverage of Single Mothers By Merve Cebi; Stephen A. Woodbury
  6. The effect of tax privacy on tax compliance: An experimental investigation By Blaufus, Kay; Bob, Jonathan; Otto, Philipp E.
  7. Do investors request advance tax rulings to alleviate tax risk (and do tax authorities provide them)? A joint taxpayers' and tax authorities' view on investment behavior By Diller, Markus; Kortebusch, Pia; Schneider, Georg; Sureth, Caren
  8. Can tax rate increases foster investment under entry and exit flexibility? Insights from an economic experiment By Fahr, René; Janssen, Elmar; Sureth, Caren
  9. Assessing the impact of introducing an ACE regime: A behavioural corporate microsimulation analysis for Germany By Finke, Katharina; Heckemeyer, Jost H.; Spengel, Christoph
  10. Is it possible to adjust ‘with a human face’? Differences in fiscal consolidation strategies between Hungary and Iceland By Bruno Martorano; UNICEF Innocenti Research Centre
  11. Unionised Labour Market, Unemployment Allowances, Productive Public Expenditure and Endogenous Growth By Bhattacharyya, Chandril; Gupta, Manash Ranjan
  12. Impact of Economic Freedom, Regulatory Quality, and Taxation on the Per Capita Real Income: An Analysis for OECD Nations and Non-G8 OECD Nations By Cebula, Richard; Clark, Jeff
  13. A Politico-economic Approach on Public Debt in an Endogenous Growth Economy By Arai, Real; Naito, Katsuyuki
  14. Trade Structure and Growth Effects of Taxation in a Two-Country World By Amano, Daisuke; Mino, Kazuo
  15. Can the CCCTB alleviate tax discrimination against loss-making European multinational groups? By Ortmann, Regina; Sureth, Caren
  16. Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions By Benjamin B. Lockwood; Matthew Weinzierl
  17. Inequality and growth in the context of the Mexican economy: Does inequality matter for growth? By Jorge Alberto Charles Coll
  18. Traded Goods, Tax and Intermediation - the Role of Corrupt Nontraded Sector By Mandal, Biswajit
  19. Reduction of income inequality and subjective well-being in Europe By Hajdu, Tamás; Hajdu, Gábor
  20. Fiscal policies in Spain: Main stylises facts revisited By Francisco de Castro; Francisco Martí; Antonio Montesinos; Javier J. Pérez; A. Jesús Sánchez-Fuentes
  21. Property taxation, bounded rationality and housing prices By Elinder, Mikael; Persson, Lovisa
  22. Inequality of opportunity and economic growth: A cross-country analysis By Francisco H. G. Ferreira; Christoph Lakner; Maria Ana Lugo; Berk Ozler
  23. Why has inequality in Germany not risen further after 2005? By Miriam Rehm; Kai Daniel Schmid; Dieter Wang
  24. The environmental Kuznets curve in a public spending model of economic growth By Diallo, Ibrahima Amadou

  1. By: Fochmann, Martin; Kroll, Eike B.
    Abstract: We analyze how the redistribution of tax revenues influences tax compliance behavior by applying different reward mechanisms. In our experiment, subjects have to make two decisions. In the first stage, subjects decide on the contribution to a public good. In the second stage, subjects declare their income from the first stage for taxation. Our main results are threefold: First, from an aggregated perspective, rewards have a negative overall effect on tax compliance. Second, we observe that rewards affect the decision of taxpayers asymmetrically. In particular, rewards have either no effect (for those who are rewarded) or a negative effect (for those who are not rewarded) on tax compliance. Thus, if a high compliance rate of taxpayers is preferred, rewards should not be used by the tax authority. Third, we find an inverse u-shaped relationship between public good contribution and tax compliance. In particular, up to a certain level, tax compliance increases with subjects' own contributions to the public good. Above this level, however, tax compliance decreases with the public good contribution. --
    Keywords: tax evasion,tax compliance,redistribution of taxes,tax affectation,rewarding,public good,behavioral economics,experimental economics
    JEL: C91 D14 H24
    Date: 2014
  2. By: Enrique G. Mendoza; Linda L. Tesar; Jing Zhang
    Abstract: What are the macroeconomic effects of tax adjustments in response to large public debt shocks in highly integrated economies? The answer from standard closed-economy models is deceptive, because they underestimate the elasticity of capital tax revenues and ignore cross-country spillovers of tax changes. Instead, we examine this issue using a two-country model that matches the observed elasticity of the capital tax base by introducing endogenous capacity utilization and a partial depreciation allowance. Tax hikes have adverse effects on macro aggregates and welfare, and trigger strong cross-country externalities. Quantitative analysis calibrated to European data shows that unilateral capital tax increases cannot restore fiscal solvency, because the dynamic Laffer curve peaks below the required revenue increase. Unilateral labor tax hikes can do it, but have negative output and welfare effects at home and raise welfare and output abroad. Large spillovers also imply that unilateral capital tax hikes are much less costly under autarky than under free trade. Allowing for one-shot Nash tax competition, the model predicts a "race to the bottom" in capital taxes and higher labor taxes. The cooperative equilibrium is preferable, but capital (labor) taxes are still lower (higher) than initially. Moreover, autarky can produce higher welfare than both Nash and Cooperative equilibria.
    JEL: E6 E62 F34 F42 H6
    Date: 2014–06
  3. By: Maren Froemel (Department of Economics, University of Konstanz, Germany)
    Abstract: I develop a novel link between frictions in international financial markets and fiscal procyclicality.Complementing existing evidence, A decomposition of government expenditure into social spending and public good spending reveals that the cyclical correlation of social spending exhibits the biggest differences across countries. I build a small open economy model with income inequality, endogenous fiscal policy and sovereign default risk to rationalize this spending procyclicality. Government spending, divided into a public good and social spending, is financed by taxation and external debt. External debt is subject to endogenous risk premia because the government cannot commit to repay its debt. The government conducts a procyclical tax and social spending policy when debt is in or close to the risky zone. Social spending then only redistributes income, failing to smooth private consumption over time. Far away from the crisis zone, fiscal policy is countercyclical, only public goods spending is always procyclical. Social spending is cut most when the government faces positive risk premia, because it is better a substitute of private income than public good spending. It also accounts for the largest part in fiscal adjustment: because taxes are distortionary and cannot be targeted well. Fiscal procyclicality becomes stronger with higher economic inequality as revenue raising through taxation becomes more costly.
    Keywords: Procyclical fiscal policy, default risk, income inequality, redistribution, emerging markets, social spending.
    JEL: E62 F34 F41
    Date: 2014–06–10
  4. By: Dominique Henriet (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM)); Patrick A. Pintus (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM)); Alain Trannoy (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM))
    Abstract: We derive testable conditions ensuring that the income tax is optimal when agents are ex-ante identical but face idiosyncratic income risk. The optimal tax depends positively on both absolute risk aversion and risk variance and negatively on labor supply elasticity and absolute prudence. The comparison with the formula of the optimal non-linear income tax provides the restrictions on both the preferences and the income distribution conditional on effort ensuring that the optimal tax is indeed linear. In general it requires that the ratio of absolute prudence to absolute risk aversion be no less than two; if the income density has a linear likelihood ratio, it requires a (generalized) logarithmic consumption utility. Under HARA utility and linear or logarithmic likelihood ratios, explicit solutions for the optimal non-linear income tax are derived.
    Keywords: optimal income taxation; income risk; linear and nonlinear income tax
    Date: 2014–05
  5. By: Merve Cebi (University of Massachusetts Dartmouth); Stephen A. Woodbury (W.E. Upjohn Institute for Employment Research)
    Keywords: Employment, compensation, health insurance, poverty, inequality, tax policy
    JEL: J3 H2 I3
  6. By: Blaufus, Kay; Bob, Jonathan; Otto, Philipp E.
    Abstract: In this paper, a tax game with audit costs as a public bad is designed to investigate the impact of public disclosure on tax evasion experimentally. Three different types of tax privacy are tested, ranging from complete privacy to full disclosure. We expect to observe two different effects: first, a contagion effect, arising when an individual observes non-compliance of other individuals and therefore reduces his own tax compliance; second, a shame effect of increased tax compliance due to the anticipated shame of being declared a tax evader. We find evidence of increasing tax evasion with reduced tax privacy if information is disclosed anonymously. Our results also indicate that the shame effect is not strong enough to override the contagion effect when both effects are present. Our results are of particular importance for fiscal policy because public disclosure may lead to more evasion instead of less, due to motivational crowding-out of tax morale. --
    Keywords: Tax privacy,Tax evasion,Public bad,Social norm,Conditional cooperation,Economic experiment
    JEL: H24 H26 H30
    Date: 2014
  7. By: Diller, Markus; Kortebusch, Pia; Schneider, Georg; Sureth, Caren
    Abstract: Tax uncertainty often negatively affects investment. Advance tax rulings (ATRs) are commonly used to provide tax certainty. We analyze ATRs from the taxpayers' and tax authorities' perspectives. Investors request ATRs if the fee does not exceed a certain threshold. We integrate this finding into the tax authorities' decision whether to offer ATRs. We find that ATRs are usually only offered if tax authorities are capable of significantly reducing their tax audit costs or increasing the detection probability. Otherwise, ATRs may be beneficial only if the tax authorities restrict them to classes of investments or use investment-specific fees. These results provide new explanations for why ATRs are currently not as intensively requested by taxpayers as expected against the background of high tax uncertainty. Moreover, the findings help to improve the design of ATRs. --
    Keywords: Advance Tax Rulings,Fee Design,Investment Effects,Tax Risk,Tax Uncertainty
    JEL: H21 H25 M41 M42 M48
    Date: 2014
  8. By: Fahr, René; Janssen, Elmar; Sureth, Caren
    Abstract: It is well-known that taxes affect risky investment decisions. Analytical studies indicate that tax rate increases can foster (accelerate) investment if there is flexibility, in particular when an exit option is available. We design an experiment that is based on an analytical model with binomial random walk and entry and exit flexibility. Contrasting the underlying model, we find accelerated investment, which is often considered as an increased willingness to invest, on tax rate increases to be independent of the existence of an exit option. However, we observe this investor reaction only for a tax increase, not for a tax decrease. This investment behavior is driven possibly by tax salience and the mechanisms known from the theory of irreversible choice under uncertainty. Our empirical evidence suggests that the accelerating tax effects are much more common than is predicted by the theoretical literature. Policy makers should therefore carefully consider the behavioral aspects when anticipating taxpayer reactions. --
    Keywords: Investment Decisions,Tax Effects,Timing Flexibility,Economic Experiment
    JEL: H25 H21 C91
    Date: 2014
  9. By: Finke, Katharina; Heckemeyer, Jost H.; Spengel, Christoph
    Abstract: In their famous Mirrlees review (2011) on reforming the tax system for the 21st century, the authors put forward the introduction of an allowance for corporate equity regime. In recent years, several countries introduced an ACE regime. The main feature of an ACE regime is that it removes tax distortions on marginal investment and finance distortions. Yet, by narrowing the tax base an ACE regime potentially requires an increase in tax rates which might affect location choices and profit shifting activity negatively. In this paper, we employ a microsimulation model to determine the consequences of introducing an ACE regime in Germany. The simulation results show that granting an ACE for corporate income tax purposes results in a revenue loss of about 18%. This could be financed by an increase of the combined profit tax rate by 6 percentage points. At firm level, our analysis illustrates the heterogeneous distribution of the reform effect accross the sample. For 50% of firms between the 25th and 75th percentile, introducing an ACE regime reduces tax payments between 35% and 2%. If the ACE is combined with a tax rate adjustment, the tax effect ranges between -32% and +7.1% for firms between the 25th and 75th percentile. With respect to behavioural responses on decision margins, we find that introducing the ACE reduces the mean debt-ratio by about 1.5 percentage points in the short run. For the capital-stock we arrive at a mean short-term increase of 2.4%. Finally, our computations show that the ACE regime with adjusted profit tax rate cannot be overall tax neutral. In particular, the increase in the profit tax rate required to finance the equity allowance induces intensified outward profit-shifting activities and affects location choices negatively. In the short-run the tax revenue is therefore shown to decline to about 95% of its original level. --
    Keywords: Tax Reform,Allowance for Corporate Equity,Microsimulation,Tax Policy Evaluation
    JEL: H25 H32 K34
    Date: 2014
  10. By: Bruno Martorano; UNICEF Innocenti Research Centre
    Abstract: Before the recent economic crisis, Hungary and Iceland were considered to be two excellent models of development. Hungary and Iceland were among the countries affected earliest and most by the recent macroeconomic shock, suffering a similar drop in GDP.While the Hungarian government implemented a flat tax reform in order to stimulate economic activity, the Icelandic government replaced its flat tax system with a progressive one increasing the participation of high income groups in the adjustment process. The aim of this paper is to compare the opposite adjustment paths followed by Hungary and Iceland on selected outcomes.
    Keywords: crisis; financial analysis; financial systems; inequality; tax reforms; tax revenues;
    Date: 2014
  11. By: Bhattacharyya, Chandril; Gupta, Manash Ranjan
    Abstract: This paper develops a model of endogenous economic growth with special focus on the role of unionized labour market and on the interaction between the tax financed productive public expenditure and unemployment benefit policy of the government. We incorporate a ‘Managerial’ labour union in an otherwise identical Barro (1990) model; and use both ‘Efficient Bargaining’ model and ‘Right to Manage’ model to solve the negotiation problem between a labour union and an employers’ association. Properties of growth rate maximizing income tax policy are derived in the steady state equilibrium; and the effects of unionization are analysed on the level of employment, growth rate, welfare and on tax rate respectively. This growth rate maximizing income tax rate appears to be higher than (equal to) the competitive output share of public input in the presence (absence) of unemployment benefit. Unionisation may be good or bad for the economy in the case of Efficient bargaining model; and the nature of the effect depends on the orientation of the labour union. However, this is always bad for both employment and growth in the case of a ‘Right to Manage’ model.
    Keywords: Labour union; Income tax; Public expenditure; Unemployment benefit; Efficient bargaining; Right to manage; Steady-state equilibrium; Endogenous growth
    JEL: H21 H41 J51 J65 O41
    Date: 2014–06–06
  12. By: Cebula, Richard; Clark, Jeff
    Abstract: This study of the impacts of economic freedom, regulatory quality, and the relative burden of taxation on the level of per capita real income/GDP among OECD nations over the 2003-2007 period adopts a modified version of the overall economic freedom index computed by The Heritage Foundation (2013), one with the fiscal freedom and business freedom indices removed. This study then provides PLS fixed effects estimates for five linear specifications/models. Each nation during this time frame can be regarded either as a nation per se or as a de facto “economic region” within the OECD. The analysis first focuses upon all of the OECD nations and then, as a robustness test, subsequently focuses only on non-G8 OECD member nations. The estimations in this study all provide strong empirical support for the three central hypotheses proffered here, namely: (1) the higher the overall degree of economic freedom; the higher the per capita real income (GDP) level; (2) the higher the level of regulatory quality, the higher the level of per capita real income (GDP); and (3) the higher the overall tax burden, expressed as a percent of GDP, the lower the level of per capita real income (GDP).
    Keywords: real per capita GDP; economic freedom; regulatory quality; tax burden
    JEL: H24 H25 H61 K20 P12 P14
    Date: 2014–06–09
  13. By: Arai, Real; Naito, Katsuyuki
    Abstract: We consider an overlapping generations closed economy in which a government finances the cost of public good provision by labor income taxation and/or public debt issuance. The size of these public policies is determined in a repeated probabilistic voting game. We investigate the characteristics of a Markov perfect politico-economic equilibrium in which the size of public policies depends on both the stock of public debt and the level of physical capital, and show that individuals' stronger preferences for public good provision tighten fiscal discipline and promote economic growth.
    Keywords: public debt; probabilistic voting; Markov perfect equilibrium; economic growth
    JEL: D72 H41 H63 O43
    Date: 2014–05–27
  14. By: Amano, Daisuke; Mino, Kazuo
    Abstract: This paper explores the long-run impacts of tax policy in a two-country model of endogenous growth with variable labor supply. We focus on international spillover effects of tax reforms under alternative trade structures. It is shown that if the instantaneous utility function of the representative family in each country is additively separable and if international capital mobility is absent, then a change in taxation in one country does not directly affect capital formation in the other country. Such a conclusion is fundamentally modified if international borrowing and lending are allowed. Due to free financial flows, a change in tax policy in one country directly diffuses to the growth performance of the other country, even though preference structures are assumed to be log-additive forms.
    Keywords: factor-income tax, consumption tax, equilibrium dynamics, two-country model, endogenous growth, variable labor supply,
    Date: 2014–05
  15. By: Ortmann, Regina; Sureth, Caren
    Abstract: In March 2011, the European Commission submitted a proposal for a Council Directive on an optional common consolidated corporate tax base (CCCTB). If this proposed CCCTB system comes into force, taxes calculated under the currently existing system of separate accounting might be replaced by a system of group consolidation and formulary apportionment. Then, multinational groups (MNGs) would face the decision as to whether to opt for the CCCTB system. While prior research focuses mainly on the differences in economic behaviour under both systems in general, we study the conditions under which one or the other tax system is preferable from the perspective of an MNG, with a particular focus on loss offsets. We focus on European MNGs with losses at the parent and subsidiary level. While in our base model, the CCCTB proves to be attractive for temporarily loss-making MNGs, in our extended model we find mixed results. We identify four effects that determine the decision of an MNG: the tax-utilization of losses, the allocation of the tax base, the dividend and intragroup interest taxation. We find, e.g., that the CCCTB system proves advantageous for increasing loss/profit streams (e.g. from start-ups or R&D projects) of the individual group entities, whereas the system of separate accounting is beneficial for decreasing profit/loss streams (e.g. caused by a decrease in return from a mature product). The results of our analysis are helpful for MNGs facing the decision as to whether to opt for the CCCTB system. Moreover, our findings can support legislators and politicians in their tax reform discussions, as we provide information on the possible consequence of implementing this system on the expected decisions of corporate taxpayers that anticipate the tax effects of the CCCTB. --
    Keywords: Loss-Offset,CCCTB,Separate Accounting,Investment Decisions
    JEL: H25 H21
    Date: 2014
  16. By: Benjamin B. Lockwood (Harvard University); Matthew Weinzierl (Harvard Business School, Business, Government and the International Economy)
    Abstract: We use official data and standard optimal tax conditions to infer the positive and normative judgments implicit in U.S. tax policy since 1979. We find that explanations within this framework for the time path of U.S. policy require central parameters of the model, namely the elasticity of taxable income or the marginal social welfare weights on top earners, to take unconventional values. We use inferred social preferences to provide novel estimates of the welfare costs of unequal growth and recessions and find that they are sensitive to the assumed distortionary costs of taxation and the year from which preferences are derived. We explore several possible explanations for our findings with available data.
    Date: 2014–06
  17. By: Jorge Alberto Charles Coll (Universidad Autonoma de Tamaulipas)
    Abstract: This paper contributes to the debate over the relationship between inequality and inclusive growth by testing the proposition of a kinked-non linear relationship between income inequality and economic growth in a country specific context. The proposition is first confirmed with a wide panel dataset of 138 countries, using the Kuznets hypothesis as a vehicle of validation. Then, the non linearity is contrasted for the Mexican economy using a highly disaggregated dataset at the municipal level. An inverted ``U'' shaped relationship is demonstrated, showing that low levels of inequality exert a positive correlation with economic growth, while high levels have a negative one. Additionally, and more importantly, it is demonstrated the existence of an optimal rate of inequality (ORI) that maximizes growth rates and releases the economy from any distortion generated by elevated inequality or taxation. It is confirmed that inequality does matter for growth, governments that wish to promote economic growth should incorporate redistributive policies not only as a part of the social agenda but as an important element of the growth strategy.
    Keywords: Inequality, Growth, Redistribution, Optimal Rate of Inequality.
    JEL: O15 D31 D33 E25
    Date: 2014–05
  18. By: Mandal, Biswajit
    Abstract: This paper uses a Heckscher-Ohlin nugget framework with both traded and non-traded goods. Our motive is to investigate the effects of corruption and tax cut. We assume only the non-traded sector to be corruption affected. We argue that a fall in the degree of corruption surprisingly increases number of intermediators while tax change has no effect on it. But the size of the intermediation activities expands in both the cases. Low corruption diminishes the exportable production and raises importable production while a tax cut does not have any effect. The welfare implication is ambiguous in case of a decrease in cost of corruption. A tax cut, however, raises the welfare unambiguously.
    Keywords: International Trade, Corruption, General Equilibrium, Welfare.
    JEL: D5 D6 D73 F1
    Date: 2014
  19. By: Hajdu, Tamás; Hajdu, Gábor
    Abstract: Using four waves of the European Social Survey (179,273 individuals from 29 countries) the authors analyze the association of reduction of income inequality (redistribution) with subjective wellbeing. Their results provide evidence that people in Europe are negatively affected by income inequality, whereas reduction of inequality has a positive effect on well-being. Since the authors simultaneously estimate the effects of income inequality and its reduction, their results indicate that not only the outcome (inequality), but also the procedure (redistribution) that leads to the outcome influences subjective well-being. The authors argue that living in a country where taxes and transfers reduce income inequality to a greater extent, the poor may feel more protected, and the rich may also feel more generous, which may result in an emotional benefit for them. It is also possible that well-being is associated not only with actual, but also with perceived inequality. The positive effect of redistribution seems to be stronger for less affluent members of the societies and left-wing oriented individuals. The estimations are different in Eastern and Western Europe: In post-communist countries people appear to be harder hit by inequality, whereas the impact of inequality reduction on well-being is higher in the East than in the West. --
    Keywords: subjective well-being,satisfaction,inequality,redistribution,inequality reduction
    JEL: D63 I31
    Date: 2014
  20. By: Francisco de Castro (European Comiission); Francisco Martí (Banco de España); Antonio Montesinos (Banco de España); Javier J. Pérez (Banco de España); A. Jesús Sánchez-Fuentes (Universidad Complutense de Madrid)
    Abstract: We provide key stylised facts on fiscal policy developments in Spain over the past three decades using quarterly data (1986Q1-2012Q2). First, we compute stylised facts on the cyclical properties of fiscal policies over that period. Next, we report updated evidence on the macroeconomic effects of non-systematic fiscal policies, including updated estimates of their macroeconomic impact (fiscal multipliers) for alternative datasets. To perform the analysis in the paper we built up a comprehensive database of seasonally adjusted quarterly fiscal variables for the period of interest.
    Keywords: fi scal policies, stylised facts, fiscal multipliers, mixed-frequencies, time-series models.
    JEL: E62 E65 H6 C3 C82
    Date: 2014–05
  21. By: Elinder, Mikael (Department of Economics); Persson, Lovisa (Department of Economics)
    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 find evidence of partial capitalization in sub-markets with highly valued properties, highly educated citizens and were it is especially difficult 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: 2014–05–18
  22. By: Francisco H. G. Ferreira (World Bank and IZA); Christoph Lakner (World Bank); Maria Ana Lugo (World Bank); Berk Ozler (University of Otago and the World Bank)
    Abstract: Income differences arise from many sources. While some kinds of inequality, caused by effort differences, might be associated with faster economic growth, other kinds, arising from unequal opportunities for investment, might be detrimental to economic progress. We construct two new metadata sets, consisting of 118 household surveys and 134 Demographic and Health Surveys, to revisit the question of whether inequality is associated with economic growth and, in particular, to examine whether inequality of opportunity – driven by circumstances at birth - has a negative effect on subsequent growth. Results are suggestive but not robust: while overall income inequality is generally negatively associated with growth in the household survey sample, we find no evidence that this is due to the component we attribute to unequal opportunities. In the DHS sample, both overall wealth inequality and inequality of opportunity have a negative effect on growth in some of our preferred specifications, but the results are not robust to relatively minor changes. On balance, although our results are suggestive of a negative association between inequality and growth, the data at our disposal does not permit robust conclusions as to whether inequality of opportunity is bad for growth.
    Keywords: inequality, inequality of opportunity, economic growth.
    JEL: D31 D63 O40
    Date: 2014–05
  23. By: Miriam Rehm (Chamber of Labour Vienna); Kai Daniel Schmid (Macroeconomic Policy Institute (IMK) Dusseldorf); Dieter Wang (University of Tubingen)
    Abstract: In this paper we explore the reasons for the trend reversal in the development of household market income inequality in Germany in the second half of the 2000s. We analyse to what extent the increasing relevance of capital income as well as the rising share of atypically employed persons have affected the development of income inequality over the last two decades. We use household data from the German Socio-Economic Panel from 1991-2011 and decompose market income into three income sources: (1) household labour income from full-time work, (2) household labour income from atypical work, and (3) household capital income. We apply the factor decomposition method suggested by Shorrocks (1982) to analyse the contribution of these income forms to overall inequality. Our results suggest that changes in the distribution of capital income were a key factor both in the strong increase of inequality in the first half of the 2000s and in the subsequent trend reversal. This finding contrasts with the reasoning that labour market developments were the main cause behind changes in inequality.
    Keywords: Market income inequality, inequality decomposition, SOEP.
    JEL: D31 D33
    Date: 2014–05
  24. By: Diallo, Ibrahima Amadou
    Abstract: This paper theoretically analyzes the dynamics of economic growth and the environmental Kuznets curve. This curve states an inverse U-relationship between pollution and income. The presented model specifically shows how a dynamic environmental Kuznets curve can emerge by introducing pollution and abatement technology in a public spending model of endogenous economic growth. We also derive the turning point in function of the parameters of the model. The numerical section demonstrates that when taxes are below some threshold, the turning point decreases with taxes but it increases when taxes are above the threshold point given some explanations about an N-shaped Kuznets curve. Additionally, the simulations demonstrate that taxes reduce the level of pollution by pulling down the environmental Kuznets curve. Lastly the numerical exercises highlight that the pollution level of the social planner problem is less than that of the representative agent.
    Keywords: Abatement; Dynamic Optimization; Endogenous Growth Theory; Environmental Kuznets Curve; Numerical Simulations; Pollution; Public Spending; Taxes; Turning Point
    JEL: C61 C63 H23 H41 H54 H61 O41 O44
    Date: 2014–06–09

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