nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒07‒13
twenty papers chosen by
Keunjae Lee
Pusan National University

  1. Reforming Tax Expenditures in Italy: What, Why, and How? By Justin Tyson
  2. Reforming Capital Taxation in Italy By Luc Eyraud
  3. Resource Blessing, Revenue Curse? Domestic Revenue Effort in Resource-Rich Countries By Ernesto Crivelli; Sanjeev Gupta
  4. Tax Buoyancy in OECD Countries By Vincent Belinga; Dora Benedek; Ruud A. de Mooij; John Norregaard
  5. Peru: Selected Issues Paper By International Monetary Fund. Western Hemisphere Dept.
  6. Public Investment, Public Finance, and Growth: The Impact of Distortionary Taxation, Recurrent Costs, and Incomplete Appropriability By Christopher Adam; David Bevan
  7. Fiscal Vulnerabilities and Risks from Local Government Finance in China By Yuanyan Sophia Zhang; Steven Barnett
  8. Efficient Labor and Capital Income Taxation over the Life Cycle By Findeisen, Sebastian; Sachs, Dominik
  9. Systematic fiscal policy and macroeconomic performance: A critical overview of the literature By Reicher, Claire
  10. Income Inequality, Fiscal Decentralization and Transfer Dependency By Caroline-Antonia Goerl; Mike Seiferling
  11. Optimal Taxation, Inequality and Top Incomes By Andrienko, Yuri; Apps, Patricia; Rees, Ray
  12. The Bahamas: Tax Reforms for Increased Buoyancy By International Monetary Fund. Fiscal Affairs Dept.
  13. Taxation and Corporate Risk-Taking By Langenmayr, Dominika; Lester, Rebecca
  14. Economic Growth and Government Spending in Saudi Arabia: an Empirical Investigation By Saad A. Alshahrani; Ali J. Alsadiq
  15. Optimal taxation and debt with uninsurable risks to human capital accumulation By Piero Gottardi; Atsushi Kajii; Tomoyuki Nakajima
  16. Corruption, Tax Evasion and Social Values By Anastasia Litinia; Theodore Palivos
  17. Managing Income Tax Compliance through Self-Assessment By Andrew Okello
  18. Comparison of the Tax System Progressivity Over Time: Theory and Application with Mexican Data By Abdelkrim Araar; Luis Huesca
  19. Beyond the Labour Income Tax Wedge: The Unemployment-Reducing Effect of Tax Progressivity By Lehmann, Etienne; Lucifora, Claudio; Moriconi, Simone; Van der Linden, Bruno
  20. The Tax-adjusted Q Model with Intangible Assets: Theory and Evidence from Temporary Investment Tax Incentives By Sophia Chen; Estelle Dauchy

  1. By: Justin Tyson
    Abstract: The IMF has advised country authorities to roll back tax expenditures as a way to support fiscal consolidation efforts—urging them to evaluate tax expenditures according to clear criteria, and assessing their impact on public finances, economic efficiency, equity, and administrative and compliance costs. This paper analyzes tax expenditures in Italy, considering the extent to which tax expenditures can be considered part of an optimal tax system and possible reforms.
    Keywords: Taxes;Italy;Government expenditures;Tax systems;Tax reforms;optimal taxation, efficiency, equity, budget process, tax system, excise tax, personal income tax, double taxation, tax exemption, excise taxes, expenditure programs, tax design, corporate income tax, vat exempt, expenditure “ policies, tax deduction, income taxes, public spending, consumption taxes, tax instrument, tax liability, vat system, tax breaks, expenditure control, tax treatment, potential taxpayers, value-added taxes, revenue collection, tax advantages, tax on capital, progressive income tax system, progressive tax, tax reform, tax exemptions, expenditure reform, government expenditure
    Date: 2014–01–16
  2. By: Luc Eyraud
    Abstract: This paper reviews capital taxation issues in Italy based on a comprehensive definition encompassing taxes on income, transactions, and ownership. It discusses options to enhance the neutrality of the capital income tax system, followed by a detailed analysis of the property tax, the inheritance tax, and various transaction taxes. The paper also examines the case for replacing the set of existing taxes on financial and real assets with a single net wealth tax.
    Keywords: Taxation;Italy;Capital;Income taxes;Income distribution;Tax reforms;Tax systems;property tax, capital taxes, property taxes, taxes on capital, capital stock, tax treatment, income tax system, property taxation, tax measures, tax structure, inheritance tax, real estate tax, tax liability, taxation issues, tax purposes, tax exemptions, direct taxes, tax administration, tax collection, capital income taxation, tax deduction, income tax purposes, international tax, wealth taxes, tax on capital, taxes on income, taxes on property, optimal taxation, benefit tax, tax competition, taxation of wealth, corporate income tax, tax design, personal income tax, tax payment, tax arrangements, tax administrations, interest payments, property tax rates, marginal tax rate, progressive personal income tax, tax coordination
    Date: 2014–01–16
  3. By: Ernesto Crivelli; Sanjeev Gupta
    Abstract: This paper uses a newly constructed revenue dataset of 35 resource-rich countries for the period 1992-2009 to analyze the impact of expanding resource revenues on different types of domestic (non resource) tax revenues. Overall, we find a statistically significant negative relationship between resource revenues and total domestic (non resource) revenues, including for the major tax components. For each additional percentage point of GDP in resource revenues, there is a reduction in domestic (non resource) revenues of about 0.3 percentage points of GDP. We find this primarily occurs through reduced effort on taxes on goods and services—in particular, the VAT— followed by a smaller negative impact on corporate income and trade taxes.
    Keywords: Natural resources;Revenues;Tax revenues;Value added tax;resource revenue, taxation, tax effort, fiscal affairs, tax rates, fiscal affairs department, tax policy, tax system, foreign debt, tax base, fiscal framework, tax burden, tax systems, tax administration, fiscal sustainability, tax ratio, fiscal effort, fiscal deficits, tax bases, fiscal regimes, foreign indebtedness, revenue collection, fiscal impact, public spending, fiscal policy, formal sector
    Date: 2014–01–14
  4. By: Vincent Belinga; Dora Benedek; Ruud A. de Mooij; John Norregaard
    Abstract: By how much will faster economic growth boost government revenue? This paper estimates short- and long-run tax buoyancy in OECD countries between 1965 and 2012. We find that, for aggregate tax revenues, short-run tax buoyancy does not significantly differ from one in the majority of countries; yet, it has increased since the late 1980s so that tax systems have generally become better automatic stabilizers. Long-run buoyancy exceeds one in about half of the OECD countries, implying that GDP growth has helped improve structural fiscal deficit ratios. Corporate taxes are by far the most buoyant, while excises and property taxes are the least buoyant. For personal income taxes and social contributions, short- and long-run buoyancies have declined since the late 1980s and have, on average, become lower than one.
    Keywords: Tax revenue;OECD;Personal income taxes;Corporate taxes;Property taxes;Tax systems;Automatic stabilizers;Economic growth;Econometric models;Regression analysis;Tax buoyancy; Automatic stabilizers; Error Correction Model; OECD.
    Date: 2014–06–19
  5. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
    Keywords: Fiscal policy;Natural resources;China;Capital flows;Spillovers;Dollarization;Selected issues;Peru;fiscal framework, fiscal sustainability, fiscal rules, structural fiscal, fiscal balance, fiscal adjustment, fiscal targets, fiscal revenue, fiscally sustainable, expenditure growth, primary expenditure, fiscal accounts, taxation, fiscal balances, fiscal revenues, budget constraint, tax rates, fiscal pressures, fiscal objectives, budgetary implications, fiscal surpluses, public spending, tax system, fiscal responsibility, key fiscal indicators, fiscal management, fiscal stance, tax revenue, fiscal affairs, fiscal affairs department, fiscal spending, primary deficit, fiscal regime, fiscal regimes
    Date: 2014–01–29
  6. By: Christopher Adam; David Bevan
    Abstract: Effective public investment requires governments to address the "recurrent cost problem" to ensure operations and maintenance (O&M) expenditures are sufficient to sustain the flow of productive public capital services to private factors of production. Building on the model of Buffie et al (2012), this paper explores the macroeconomic implications of this recurrent cost problem and its resolution in a context that recognizes that taxation is distortionary. The model is also used to examine stylized fiscal reforms including the replacement of a distortionary output tax with a uniform consumption tax and budgetary reforms that restore O&M expenditures to their efficient levels. These experiments are stylized but clearly demonstrate the material consequences of the tax and public expenditure structures for growth and debt sustainability in low-income countries.
    Keywords: Public investment;Government expenditures;Budgetary reforms;Taxation;Consumption taxes;Public finance;Economic growth;Low-income developing countries;economic growth; public investment; tax reform; recurrent costs; operations and maintenance
    Date: 2014–05–01
  7. By: Yuanyan Sophia Zhang; Steven Barnett
    Abstract: China weathered the global financial crisis better than most, thanks to a large and timely stimulus. This stimulus, however, was mainly in the form of off-budget infrastructure spending and thus not visible in the headline fiscal data. We construct a time series for the augmented fiscal deficit and debt—augmented to include off-budget activity—that better illustrates the counter-cyclical role of fiscal policy. The results also show that the augmented fiscal deficit and debt are both considerably higher than the headline government data suggest. Nonetheless, at around 45 percent of GDP, the augmented debt is still at a manageable level.
    Keywords: Fiscal risk;China;Government expenditures;Infrastructure;External financing;External borrowing;Budget deficits;Public debt;Debt sustainability;Fiscal policy;Fiscal Vulnerabilities, Fiscal Risks, Local Government Finance, Land Finance, Gross Financing Needs, fiscal deficit, fiscal debt, fiscal data, fiscal activity, fiscal revenue, fiscal position, fiscal reform, government deficit, quasi-fiscal activity, government budget, fiscal costs, fiscal revenues, fiscal space, government spending, fiscal expenditure, fiscal system, central government budget, tax rates, local government spending, fiscal adjustment, fiscal statistics, aggregate demand, primary deficit, intergovernmental fiscal reform, fiscal reforms, fiscal stimulus, fiscal federalism, fiscal activities, local government budget, local government expenditure, fiscal affairs, government revenue, fiscal institutions, fiscal response, fiscal affairs department, local government expenditure responsibilities, fiscal management, general government expenditure
    Date: 2014–01–14
  8. By: Findeisen, Sebastian; Sachs, Dominik
    Abstract: This paper analyzes Pareto optimal taxation of labor and capital income in a lifecycle framework with private information and idiosyncratic risk. We focus on historyindependent tax systems. We thereby complement the Mirrlees taxation literature, which has so far typically either characterized optimal history-dependent distortions or focused on static environments. For labor income taxes, we provide a novel decomposition of tax formulas into a redistribution and an insurance component. The latter is independent of redistributive motives and is determined by the degree of income risk and risk aversion. We show that the optimal linear capital tax rate is non-zero and derive a simple formula, which trades off redistributive and insurance benefits against the efficiency loss from savings distortions. Our quantitative results show that the insurance component contributes significantly to optimal labor tax rates. Optimal capital taxes are significant and yield sizable welfare gains.
    Keywords: Optimal Dynamic Taxation , Capital Taxation , First-Order Approach
    JEL: H21 H23
    Date: 2014
  9. By: Reicher, Claire
    Abstract: The literature on systematic fiscal policy and macroeconomic performance in industrialized countries is large but fragmented. Based on a broad overview of that literature, several patterns emerge. The empirical literature points toward strongly anticyclical policy, which consists of procyclical tax revenues, acyclical tax rates and government purchases, and countercyclical transfer payments. Consolidation in response to the debt has come primarily through adjustments to taxes and possibly purchases. Furthermore, a large government is associated with reduced macroeconomic volatility. The theoretical literature on anticyclical fiscal policy, meanwhile, has gone from mostly focusing on government purchases and tax rates toward beginning to focus on transfer payments, although more quantitative work remains to be done in linking theory with empirics. At the same time, a policy literature has begun to develop, which has applied lessons from the theoretical literature in order to understand different consolidation scenarios and different proposed fiscal rules, particularly in Europe. --
    Keywords: fiscal policy,fiscal rule,fiscal response function,deficits,taxes,government purchases,transfer payments
    JEL: E62 E63 H30
    Date: 2014
  10. By: Caroline-Antonia Goerl; Mike Seiferling
    Abstract: Within the context of reigniting post crisis macroeconomic growth, income inequality has emerged as a topic of significant interest for both academics and policymakers (Bastagli, Coady, and Gupta, 2012) This study builds on past literature on fiscal decentralization suggesting that redistribution is most effectively carried out at sub-central levels of government. Using the IMF’s multi-sector Government Finance Statistics Yearbook database, this paper tests the impact of decentralized redistribution on income inequality for a globally representative sample of countries since 1980. The findings suggest that the decentralization of government expenditure can help achieve a more equal distribution of income. However, several conditions need to be fulfilled: i) the government sector needs to be sufficiently large, ii) decentralization should be comprehensive, including redistributive government spending, and, iii) decentralization on the expenditure side should be accompanied by adequate decentralization on the revenue side, such that subnational governments rely primarily on their own revenue sources as opposed to intergovernmental transfers.
    Keywords: Fiscal policy;Income distribution;Government expenditures;income inequality, fiscal decentralization, transfer dependency, COFOG
    Date: 2014–04–16
  11. By: Andrienko, Yuri (University of Sydney); Apps, Patricia (University of Sydney); Rees, Ray (University of Munich)
    Abstract: In a number of high-income countries over the past few decades there has been a large growth in income inequality and at the same time a shift in the burden of taxation from the top to the middle of the income distribution. This paper applies the theory of optimal piecewise linear taxation to the issue of the taxation of top incomes. Our results suggest that an appropriate response to rising inequality is a shift towards a more progressive multi-bracket income tax system, with a more differentiated structure of rates in the top percentiles.
    Keywords: optimal taxation, income distribution, top incomes, inequality
    JEL: H21 H24 D31 D63
    Date: 2014–06
  12. By: International Monetary Fund. Fiscal Affairs Dept.
    Abstract: In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
    Keywords: Tax reforms;Taxation;Value added tax;Excise taxes;Stamp duties;Tax policy;Tax administration;Technical Assistance;Bahamas, The;
    Date: 2014–01–28
  13. By: Langenmayr, Dominika; Lester, Rebecca
    Abstract: We study whether the corporate tax system provides incentives for risky firm investment. We first model the effects of corporate tax rates and tax loss offset rules on firm risk-taking. Testing the theoretical predictions, we find that firm risk-taking is positively related to the length of tax loss periods. This result occurs because the loss rules shift a portion of investment risk to the government, inducing firms to increase their overall level of risk-taking. Moreover, the corporate tax rate has a positive effect on risk-taking for firms that can expect to use their tax losses, and a negative effect for those that cannot. Thus, the effect of taxes on risky investment decisions varies among firms, and its sign hinges on firm-specific expectations of future tax loss recovery.
    Keywords: Corporate taxation; firm risk-taking; net operating losses
    JEL: H25 H32 G32
    Date: 2014–06–20
  14. By: Saad A. Alshahrani; Ali J. Alsadiq
    Abstract: This paper empirically examines the effects of different types of government expenditures, on economic growth in Saudi Arabia. We use different econometric techniques to estimate the short- and long-run effects of these expenditures on growth and employ annual data over the period 1969-2010. Our findings indicate that while private domestic and public investments, as well as healthcare expenditure, stimulate growth in the long-run, openness to trade and spending in the housing sector can also boost short-run production. These findings draw some policy implications for Saudi policymakers on maximizing the returns of the government spending on economic growth.
    Keywords: Economic growth;Saudi Arabia;Government expenditures;Fiscal policy;Time series;Economic models;Government Spending, Oil Exporting Economy, total expenditures, capital expenditures, defense expenditures, health expenditures, education expenditures, public expenditures, expenditure growth, expenditure categories, consumption expenditure, composition of government spending, medium-term expenditure, medium-term expenditure framework, fiscal affairs, taxation, capital expenditure growth, public spending, government consumption expenditure, fiscal affairs department
    Date: 2014–01–13
  15. By: Piero Gottardi (European University); Atsushi Kajii (Kyoto University); Tomoyuki Nakajima (Kyoto University and CIGS)
    Abstract: We consider an economy where individuals face uninsurable risks to their human capital accumulation, and study the problem of determining the optimal level of linear taxes on capital and labor income together with the optimal path of the debt level. We show both analytically and numerically that in the presence of such risks it is beneficial to tax both labor and capital income and to have positive government debt.
    Keywords: incomplete markets; Ramsey equilibrium; optimal taxation; optimal public debt.
    JEL: D52 D60 D90 E20 E62 H21 O40
    Date: 2014–06
  16. By: Anastasia Litinia (CREA, Université de Luxembourg); Theodore Palivos (Athens University of Economics and Business)
    Abstract: We provide empirical support and a theoretical explanation for the vicious circle of political corruption and tax evasion in which countries often fall into. We address this issue in the context of a model with two distinct groups of agents: citizens and politicians. Citizens decide the fraction of their income for which they evade taxes. Politicians decide the fraction of the public budget that they speculate. We show that multiple self-fulfilling equilibria with different levels of corruption can emerge based on the existence of strategic complementarities, indicating that corruption may corrupt. Furthermore, we find that standard deterrence policies cannot elimi- nate multiplicity. Instead, we find that impose a strong moral cost on tax evaders and corrupt politicians can lead to a unique equilibirum.
    Keywords: Corruption, Tax Evasion, Mutiple Equilibria, Stigma
    JEL: D73 E62 H26
    Date: 2014
  17. By: Andrew Okello
    Abstract: Modern tax administrations seek to optimize tax collections while minimizing administration costs and taxpayer compliance costs. Experience shows that voluntary compliance is best achieved through a system of self-assessment. Many tax administrations have introduced self-assessment principles in the income tax law but the legal authority is not being consistently applied. They continue to rely heavily on “desk†auditing a majority of tax returns, while risk management practices remain largely underdeveloped and/or underutilized. There is also plenty of opportunity in many countries to enhance the design and delivery of client-focused taxpayer service programs, and better engage with the private sector and other stakeholders.
    Keywords: Income taxes;Tax assessments;Tax collection;Tax legislation;Tax policy;Tax administration;Cross country analysis;income tax, tax compliance, self-assessment, risk management, Sub-Saharan Africa
    Date: 2014–03–11
  18. By: Abdelkrim Araar; Luis Huesca
    Abstract: Assessing the progressivity of a fiscal system is relevant to develop a global idea on the extent of redistribution. In this paper we assess the evolution of progressivity over time and how economic shocks and government fiscal policy affects its design. The social performance of fiscal redistributive mechanisms in Mexico has been receiving a growing interest from politicians and researchers. The aim of this paper is to assess the dynamics of progressivity of the fiscal system in Mexico and its effect on inequality and on polarization, and this during the period of 2002-2012. What distinguishes this work is the relevance of the adopted comparison approach of progressivity and where the common support of comparison is imposed. The results of this study confirm the effectiveness of the governmental redistributive mechanisms to decrease after-tax income inequality. Based on our estimates, we find a significant increase in the progressivity of the fiscal system over time, despite the high persistent levels of polarization and inequality in the country. Finally, we find that imposing the common support of comparison has a non-negligible impact on the level of progressivity.
    Keywords: Fiscal Policy, Progressivity, Inequality, Polarization
    JEL: E62 D63 I32 O12
    Date: 2014
  19. By: Lehmann, Etienne (CRED, Université Panthéon Assas Paris 2); Lucifora, Claudio (Università Cattolica del Sacro Cuore); Moriconi, Simone (Università Cattolica del Sacro Cuore); Van der Linden, Bruno (IRES, Université catholique de Louvain)
    Abstract: In this paper we argue that, for a given overall level of labour income taxation, a more progressive tax schedule increases employment. From a theoretical point of view, higher progressivity increases overall employment through a wage moderating effect and also because employment of low-paid workers is more elastic to wages. We test these theoretical predictions on a panel of 21 OECD countries over 1998-2008. Controlling for the burden of taxation at the average wage, our estimates suggest that a more progressive tax schedule reduces the unemployment rate and increases the employment rate. These findings are confirmed when we account for the potential endogeneity of both average taxation and progressivity. Overall, our results suggest that policy-makers should not only focus on the detrimental effects of tax progressivity on in-work effort, but also consider the employment-enhancing effects.
    Keywords: wage moderation, employment, taxation
    JEL: E24 H22 J68
    Date: 2014–06
  20. By: Sophia Chen; Estelle Dauchy
    Abstract: We propose a tax-adjusted q model with physical and intangible assets and estimate it with a self-collected comprehensive database of intangible assets. The presence of intangibles changes the accounting and economic measures of q. We show that when tax changes are temporary, the q model can be estimated by adjusting for the firm’s intangible stock and intangible intensity. We estimate our model using temporary investment tax incentive policies in the United States in the early 2000s. When the q-model accounts for intangible assets, the estimated investment elasticity to tax incentives is generally larger than otherwise. It is also larger for intangible-intensive firms, and increases with firm size.
    Keywords: Intangible capital;Investment;Tax incentives;Tax changes;Econometric models;investment tax incentives, intangible assets, q model of investment, bonus depreciation
    Date: 2014–06–12

This nep-pbe issue is ©2014 by Keunjae Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.