nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒07‒21
fourteen papers chosen by
Keunjae Lee
Pusan National University

  1. Dynamic Scoring and Monetary Policy By Gliksberg, Baruch
  2. Optimal Taxation, Inequality and Top Incomes By Yuri Andrienko; Patricia Apps; Ray Rees
  3. Public Finances, Business Cycles and Structural Fiscal Balances By Kai Liu
  4. Determinants of Tax Morale in Spain and Turkey: An Empirical Analysis By Bilgin, Cevat
  5. The influence of decentralized taxes and intergovernmental grants on local spending volatility. By Agnese Sacchi; Simone Salotti
  6. Optimal taxation and debt with uninsurable risks to human capital accumulation By Gottardi, Piero; Kajii, Atsushi; Nakajima, Tomoyuki
  7. Who participates in corporate income tax consolidation? Evidence from Japan By Kazuki Onji
  8. Can the Uncertainty Caused by the Questioning of Tax Measures in Relation to Cooperatives by the ECJ Be Solved? By Sofía ARANA LANDÍN
  9. Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms By Juan Carlos Suárez Serrato; Owen Zidar
  10. Microscopic Models for Welfare Measures Addressing a Reduction of Economic Inequality By Maria Letizia Bertotti; Giovanni Modanese
  11. Experimentation in Democratic Mechanisms By Volker Britz; Hans Gersbach
  12. The effects of local government amalgamation on public spending and service levels. Evidence from 15 years of municipal boundary reform. By Geertsema, J. Bieuwe; Allers, Maarten A.
  13. A toolkit to strengthen government budget surveillance By Diego J. Pedregal; Javier J. Pérez; A. Jesús Sánchez-Fuentes
  14. The rich and the poor in the EU and the Great Recession: Evidence from a Panel Analysis By Giuseppina Malerba; Marta Spreafico

  1. By: Gliksberg, Baruch (Department of Economics, University of Haifa)
    Abstract: I discuss the joint effects of government-taxes and interest-rates. A fiscal authority performs `exogenous' and `endogenous' changes to the income-tax rate and a monetary authority sets the nominal-interest. A wedge between rates of self-financing of tax cuts and the income-tax Laffer curve arrives from the monetary system. I find a new- regime that differs from conventional monetary-fiscal policy interactions. Dynamic scoring exercises show that in the new-regime monetary-policy markedly mitigates negative output effects caused by `exogenous tax actions' designed to reduce public-debt, altogether inducing signi.cant welfare gains. In contrast, where public-debt is at high levels, `exogenous tax cuts' induce welfare losses.
    Keywords: Distorting Taxes; Liquidity Constraints; Dynamic Laffer Curve; Global Analysis; Liquidity Traps; Sovereign Default;
    JEL: C60 E60 H20 H30 H60
    Date: 2014–03–24
  2. By: Yuri Andrienko; Patricia Apps; Ray Rees
    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 di¤erentiated structure of rates in the top percentiles.
    Keywords: Optimal taxation, income distribution, top incomes, inequality
    JEL: H21 H24 D31 D63
    Date: 2014–07
  3. By: Kai Liu
    Abstract: This paper proposes a new framework to analyze and estimate structural fiscal balances. Stochastic trends are properly incorporated, and the numerical solution of the DSGE model serves as part of the Kalman smoother to extract structural fiscal balances. For the UK, a setting of an integrated random walk for the underlying stochastic trends fits the date best. The response of nominal fiscal revenue to the technology shock is small. The shocks to foreign demand and to foreign goods price both have positive effects on fiscal revenue. An expansionary monetary policy shock has a great positive short-run impact on fiscal revenue, but the influence is not persistent because of the open-economy characteristic of the UK. An expansion in government spending can also increase fiscal revenue, but the effect is not persistent as well due to the domestic and external crowd-out effects. A contractionary fiscal policy (cutting government expenditure or increasing the lump-sum tax temporarily), rather than an expasionary one, will benefit economic recovery and also improve fiscal stance. Compared to a temporary increase of the lump-sum tax, cutting government spending is relatively more effective and it alleviates the two kinds of crowd-out effects.
    Keywords: business cycles, structural fiscal balances, DSGE model, Kalman filter and smoother
    JEL: C54 E32 E62 H62
    Date: 2014–06–04
  4. By: Bilgin, Cevat
    Abstract: Tax morale is defined as the intrinsic motivation to pay taxes, and is closely related to tax compliance. Determinants of tax morale need to be investigated for a more comprehensive understanding of tax compliance. In this paper, determinants of tax morale in Turkey and Spain are analysed on the basis of World Values Survey data. Firstly, descriptive statistics of the variables used in the models are provided. Since tax morale is an ordered categorical dependent variable, ordered probit models are estimated separately for Turkey and Spain to derive the relations between tax morale and relevant variables. Marginal effects are computed since the coefficients of the models cannot be interpreted because of the nonlinearity of the estimated models. The marginal effects related to the top level of tax morale category are presented. The independent variables are combined by demographic factors, employment categories, economic status of the respondents and social capital variables. The findings from the estimated model suggest that social capital variables and some of the demographic factors have important effects on tax morale in Turkey. Confidence variables have positive effects; if taxpayers feel confidence in political entities they are willing to pay taxes. Religion and national pride affect tax morale positively. On the other hand, the results are different for Spain; social capital variables do not have effects on tax morale. Specifically, confidence variables are found to be statistically insignificant. Age, education level and the income level have significant effects on tax morale in Spain.
    Keywords: Tax morale; tax evasion; ordered probit.
    JEL: C51 C52 H26 H30
    Date: 2014
  5. By: Agnese Sacchi; Simone Salotti
    Abstract: We study what affects the volatility of sub-central spending in 20 OECD countries. The evidence based on data from 1972 to 2007 shows that the volatility of intergovernmental grants from upper levels is positively associated with the volatility of local expenditure. On the contrary, the volatility of local tax revenues - mainly that of property taxes - exerts the opposite effect. Thus, making local governments rely more on grants than own taxes seems to adversely affect the stability of their spending, while allowing them to autonomously levy taxes on responsive tax bases provides incentives to smooth their expenditure.
    Keywords: local spending volatility, local revenues, property taxes, intergovernmental grants.
    JEL: E62 H71 H77 R50
    Date: 2014–07
  6. By: Gottardi, Piero; Kajii, Atsushi; Nakajima, Tomoyuki
    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: Ramsey equilibrium; Optimal taxation; Incomplete markets; Optimal public debt
    JEL: D52 D60 D90 E20 E62 H21 O40
    Date: 2014
  7. By: Kazuki Onji
    Abstract: When a group of affiliated corporations have the option to file a single tax return based on a combined income, what types of groups would take up the option? This study empirically analyses decisions to participate in a single-jurisdiction consolidated tax filing. The data consists of 2,782 Japanese corporate groups headed by publicly-traded corporations observed over 2002-2007. Results indicate higher likelihood of participation among groups characterised by low correlation in returns among group members, high variance in returns, large number of subsidiaries, and losses accumulated in parents. The significant influence of variance and covariance of returns suggests that a consolidation scheme improves the efficiency of corporate income tax through reducing profit shifting.
    JEL: G34 H25 K34
    Date: 2013
  8. By: Sofía ARANA LANDÍN (University of the Basque Country (UPV/EHU), Spain)
    Abstract: Different Member States provide for special tax treatment of cooperatives, which in some of them, are constitutionally protected. In some cases, a lower tax burden is granted to cooperatives due to their exceptional contribution to the community. Some of the tax measures applying to cooperatives are technical adjustments, while others are pure tax benefits, the latter seeking the promotion of the cooperative model. Ascertaining in which cases a given legal measure can be considered to be a technical adjustment and can be considered to be fair or when the given measure can be regarded as a State aid is a difficult task, as the ECJ jurisprudence has very often varied its point of view. Throughout this paper, we are going to follow the ECJ jurisprudence on State aid for cooperatives in order to check out if having an Act on Social Economy as the Spanish one may help Social Economy entities in this regard.
    Keywords: Social Economy Bill, State aids, Social Economy law, public measures, tax system.
    Date: 2014–09
  9. By: Juan Carlos Suárez Serrato; Owen Zidar
    Abstract: This paper estimates the incidence of state corporate taxes on workers, landowners, and firm owners in a spatial equilibrium model in which corporate taxes affect the location choices of both firms and workers. Heterogeneous, location-specific productivities and preferences determine the mobility of firms and workers, respectively. Owners of monopolistically competitive firms receive economic profits and may bear the incidence of corporate taxes as heterogeneous productivity can make them inframarginal in their location choices. We derive a simple expression for equilibrium incidence as a function of a few estimable parameters. Using variation in state corporate tax rates and apportionment rules, we estimate the reduced-form effects of tax changes on firm and worker location decisions, wages, and rental costs. We then use minimum distance methods to recover the parameters that determine equilibrium incidence as a function of these reduced-form effects. In contrast to previous assumptions of infinitely mobile firms and perfectly immobile workers, we find that firms are only approximately twice as mobile as workers over a ten-year period. This fact, along with equilibrium impacts on the housing market, implies that firm owners bear roughly 40% of the incidence, while workers and land owners bear 35% and 25%, respectively. Finally, we derive revenue-maximizing state corporate tax rates and discuss interactions with other local taxes and apportionment formulae.
    JEL: F22 F23 H2 H22 H25 H32 H71 J23 J3 R23 R30 R58
    Date: 2014–07
  10. By: Maria Letizia Bertotti; Giovanni Modanese
    Abstract: We formulate a flexible micro-to-macro kinetic model which is able to explain the emergence of income profiles out of a whole of individual economic interactions. The model is expressed by a system of several nonlinear differential equations which involve parameters defined by probabilities. Society is described as an ensemble of individuals divided into income classes; the individuals exchange money through binary and ternary interactions, leaving the total wealth unchanged. The ternary interactions represent taxation and redistribution effects. Dynamics is investigated through computational simulations, the focus being on the effects that different fiscal policies and differently weighted welfare policies have on the long-run income distributions. The model provides a tool which may contribute to the identification of the most effective actions towards a reduction of economic inequality. We find for instance that, under certain hypotheses, the Gini index is more affected by a policy of reduction of the welfare and subsidies for the rich classes than by an increase of the upper tax rate. Such a policy also has the effect of slightly increasing the total tax revenue.
    Date: 2014–05
  11. By: Volker Britz (ETH Zurich, Switzerland); Hans Gersbach (ETH Zurich, Switzerland)
    Abstract: We examine whether and how democratic procedures can achieve socially desirable public good provision in the presence of deep uncertainty about the benefits of the public good, i.e., when citizens are able to identify the distribution of benefits only if they aggregate their private information. Some members of the society, however, are harmed by socially desirable policies and try to manipulate information aggregation by misrepresenting their private information. We show that information can be aggregated and the socially desirable policy implemented under a new class of democratic mechanisms involving an experimentation group. Those mechanisms reflect the principles of liberal democracy, are prior{free, and involve a differential tax treatment of experimentation group members which motivates them to reveal their private information truthfully. Conversely, we show that standard democratic mechanisms with an arbitrary number of voting rounds but no experimentation do not generally lead to the socially desirable policy. Finally, we demonstrate how experimentation can be designed in such a way that differential tax treatments occur only off the equilibrium path.
    Keywords: Democratic Mechanisms; Experimentation; Public Goods; Voting; Information Aggregation
    JEL: D62 D72 H40
    Date: 2014–07
  12. By: Geertsema, J. Bieuwe; Allers, Maarten A. (Groningen University)
    Abstract: We use difference-in-difference estimation to study how municipal amalgamation affects local government spending and public service levels in the Netherlands. Employing different models, different control groups and a number of robustness tests, we find no significant effect on aggregate spending. We explore whether this finding is a result of amalgamation effects working in opposite directions for different types of municipalities, cancelling each other out. However, the amalgamation effect for small municipalities does not differ significantly from that for large ones, and the effect for municipalities with homogeneous preferences does not differ from that for jurisdictions with heterogeneous preferences. We also investigate whether amalgamation leads to better public services instead of lower spending. As it turns out, amalgamation reduces spending on administration, but there is no corresponding spending increase on public services. Finally, amalgamation does not raise house prices, which we would expect were it to improve public services
    Date: 2014
  13. By: Diego J. Pedregal (U. Castilla la Mancha); Javier J. Pérez (Banco de España); A. Jesús Sánchez-Fuentes (U. Complutense de Madrid)
    Abstract: In this paper we develop a comprehensive short-term fiscal forecasting system of use for the real-time monitoring of the Spanish government’s borrowing requirement. Spain has been at the centre of the recent European sovereign debt crisis, not least because of sizeable failures in meeting public deficit targets. The system comprises a suite of models, with different levels of disaggregation (bottom-up vs top-down; general government vs sub-sectors), which are suitable for the automatic processing of the large amount of monthly/quarterly fiscal data currently published by the Spanish statistical authorities. Our tools are instrumental in the ex-ante detection of risks to official projections, and can thus help reduce the ex-post reputational costs of budgetary slippage. On the basis of our results, we discuss how official monitoring bodies could expand, on one hand, their toolkit to evaluate regular adherence to targets (moving beyond a legalistic approach) and, on the other, their communication policies as regards sources of risks to (ex-ante) compliance with budgetary targets.
    Keywords: government accountability, transparency, fiscal Forecasting.
    JEL: E65 H6 C3 C82
    Date: 2014–07
  14. By: Giuseppina Malerba (DISCE, Università Cattolica); Marta Spreafico (DISCE, Università Cattolica)
    Abstract: This paper proposes a theoretical framework of the factors affecting the gap between the rich and the poor in the European Union, and utilizes a twelve-year panel (2000-2012) of 27 countries to identify the short-term effects of the macroeconomic performance, the level of household income inequality, and the social protection expenditure, controlling for several structural factors of income disparities. It is assessed their impact on the bottom, median and top shares of household income; it is found a different effect of the three core determinants before the Great Recession and during the crisis years, and a different public commitment depending on the type of welfare regime.
    Keywords: European Union, Great Recession, household disposable income distribution, income inequality, panel models, structural determinants
    JEL: C33 D31 I31 I32 I38
    Date: 2014–04

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