nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒08‒16
seventeen papers chosen by
Keunjae Lee
Pusan National University

  1. Heterogeneity and Government Revenues: Higher Taxes at the Top? By Guner, Nezih; Lopez-Daneri, Martin; Ventura, Gustavo
  2. Tax Principles and Tariff-Tax Reforms By Kenji Fujiwara
  3. Using a Natural Experiment to Examine Tobacco Tax Regressivity By Adel Bosch and Steven F. Koch
  4. Taxing top earners: a human capital perspective By Badel, Alejandro; Huggett, Mark
  5. Does the marginal tax rate affect activity in the informal sector? By Søren Leth-Petersen; Peer Ebbesen Skov
  6. Analysis of the main tax receipts to the budgetary system of the Russian Federation By Sergey Belev
  7. Policy Challenges for the Next 50 Years By Henrik Braconier; Giuseppe Nicoletti; Ben Westmore
  8. The effects of R&D intensity and tax incentives on firms’ growth - empirical evidence from world's top R&D spending firms between 2003 and 2012 By Tiago Soares; Samuel Pereira; Elísio Brandão
  9. Earnings Inequality By Peichl, Andreas; Pestel, Nico
  10. Determinants of Fiscal Slippages in Portuguese Municipalities By Patrícia Martins; Leonida Correia
  11. Resource Allocation and Inefficiency in the Financial Sector By Kinda Hachem
  12. Fiscal Rules and the Procyclicality of Fiscal Policy in the Developing World By Elva Bova; Nathalie Carcenac; Martine Guerguil
  13. Regional economies - shape, performance and drivers By Eaqub, Shamubeel; Stephenson, John
  14. Improving Well-Being in the United States By Aida Caldera Sánchez; Patrick Lenain; Sarah Flèche
  15. What is Behind Latin America’s Declining Income Inequality? By Evridiki Tsounta; Anayochukwu Osueke
  16. Does service reliability influence transit patronage? Evidence from Los Angeles, and implications for transit policy By Sandip Chakrabarti; Genevieve Giuliano
  17. Women's Role in the Swiss Economy By Richard Dutu

  1. By: Guner, Nezih (MOVE, Barcelona); Lopez-Daneri, Martin (University of Southern California); Ventura, Gustavo (Arizona State University)
    Abstract: We evaluate the effectiveness of a more progressive tax scheme in raising government revenues. We develop a life-cycle economy with heterogeneity and endogenous labor supply. Households face a progressive income tax schedule, mimicking the Federal Income tax, and flat-rate taxes that capture payroll, state and local taxes and the corporate income tax. We parameterize this model to reproduce aggregate and cross-sectional observations for the U.S. economy, including the shares of labor income for top earners. We find that a tilt of the Federal income tax schedule towards high earners leads to small increases in revenues which are maximized at an effective marginal tax rate of about 36.9% for the richest 5% of households – in contrast to a 21.7% marginal rate in the benchmark economy. Maximized revenue from Federal income taxes is only 8.4% higher than it is in the benchmark economy, while revenues from all sources increase only by about 1.6%. The room for higher revenues from more progressive taxes is even lower when average taxes are higher to start with. We conclude that these policy recommendations are misguided if the aim is to exclusively raise government revenue.
    Keywords: taxation, progressivity, labor supply
    JEL: E6 H2
    Date: 2014–07
  2. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University)
    Abstract: This paper develops a two-country general equilibrium model to examine the welfare effect of tariff-tax reforms that fix the world price. We show that this reform improves welfare if an origin tax is adjusted, but that it reduces welfare if a destination tax is used. Moreover, this result is reversed in the export tax case. In short, whether the proposed policy reform improves welfare depends on which between imports and exports are taxed as well as tax principles.
    Keywords: destination principle, origin principle, tariff-tax reform
    JEL: F11 F13 H2
    Date: 2014–08
  3. By: Adel Bosch and Steven F. Koch
    Abstract: We take advantage of a tobacco tax hike that occurred during the collection of the South African Income and Expenditure Survey to examine the regressivity of tobacco taxes. We are also able to examine the relative change in regressivity following the tax increase. Like previous research into commodity taxes, we find that tobacco taxes are regressive. However, we find that tobacco tax increases reduce the tax burden at the lower end of the income distribution, such that after the cigarette tax increase, cigarette taxes are less regressive than before the increase.
    Keywords: Tobacco tax, Regressivity
    Date: 2014
  4. By: Badel, Alejandro (Federal Reserve Bank of St. Louis); Huggett, Mark (Georgetown University)
    Abstract: We assess the consequences of substantially increasing the marginal tax rate on U.S. top earners using a human capital model. The top of the model Laffer curve occurs at a 53 percent top tax rate. Tax revenues and the tax rate at the top of the Laffer curve are smaller compared to an otherwise similar model that ignores the possibility of skill change in response to a tax reform. We also show that if one applies the methods used by Diamond and Saez (2011) to provide quantitative guidance for setting the tax rate on top earners to model data then the resulting tax rate exceeds the tax rate at the top of the model Laffer curve.
    Keywords: Human Capital; Marginal Tax Rates; Inequality; Laffer Curve
    JEL: D91 E21 H2 J24
    Date: 2014–07–23
  5. By: Søren Leth-Petersen (Department of Economics, University of Copenhagen); Peer Ebbesen Skov (Department of Economics, University of Copenhagen)
    Abstract: This paper measures the effect of changing the marginal tax rate on earned income on the supply of labor to the informal sector with the purpose of evading taxation. Unlike any previous study, we do this by directly measuring the effect of a Danish 2010 tax reform that changed the marginal rate of taxation of earned income from 63 percent to 56 percent. The analysis is based on longitudinal survey data collected over the period 2009–2012. In each survey round we asked people about their activity in the informal sector. The effect of the tax reform on informal sector activity is measured by comparing the evolution of informal sector activity from 2009 to 2012 for people who in 2009 paid the middle and top rate of tax with people who did not. We find that there is no connection between the marginal tax rate and the supply of labor to the informal sector. As part of the survey we asked people about their perceived marginal net-of-tax income, and we show that the survey participants did not change their perception of their marginal net-of-tax income from before to after the reform. This suggests that the respondents in our survey were not aware of the implications of the reform. We also investigate the effect of the introduction of a tax deduction for the purchase of selected services on the supply of labor to the informal sector. Here again we are unable to detect any effect. Overall, our results indicate the changing the after-tax price of services is not an effective way of reducing undeclared work.
    Date: 2014–05
  6. By: Sergey Belev (Gaidar Institute for Economic Policy)
    Abstract: This paper deals with tax receipts of the Russia's budgetary system
    Keywords: Russian economy; state budget, budgetary system, tax receipts
    JEL: E62 H20 H50
    Date: 2014
  7. By: Henrik Braconier; Giuseppe Nicoletti; Ben Westmore
    Abstract: This paper identifies and analyses some key challenges that OECD and partner economies may face over the coming 50 years if underlying global trends relating to growth, trade, inequality and environmental pressures prevail. For example, global growth is likely to slow and become increasingly dependent on knowledge and technology, while the economic costs of environmental damages will mount. The rising economic importance of knowledge will tend to raise returns to skills, likely leading to further increases in earning inequalities within countries. While increases in pre-tax earnings do not automatically transform into rising income inequality, the ability of governments to cushion this impact may be limited, as rising trade integration and consequent rising mobility of tax bases combined with substantial fiscal pressures may hamper such efforts. The paper discusses to what extent national structural policies can address these and other interlinked challenges, but also points to the growing need for international coordination and cooperation to deal with these issues over the coming 50 years. Défis politiques pour les 50 prochaines années Ce document passe en revue et analyse quelques-uns des problèmes clés auxquels les pays de l’OCDE et leurs partenaires pourraient être confrontés dans les 50 prochaines années si les grandes tendances mondiales se confirment en matière de croissance, d’échanges, d’inégalités et de pressions environnementales. Par exemple, la croissance mondiale va vraisemblablement ralentir et devenir de plus en plus tributaire du savoir et de la technologie. Les coûts économiques des dommages causés à l’environnement vont augmenter. L’importance croissante du savoir dans l’économie aura en général pour effet d’accroître le rendement de la formation, ce qui devrait accentuer les inégalités de revenu au sein des pays. Ces inégalités n’augmenteront pas automatiquement avec le revenu avant impôt, mais les pouvoirs publics auront peut-être du mal à les atténuer, en raison de l’intégration commerciale et de la mobilité croissante des assiettes fiscales, ainsi que des fortes pressions budgétaires auxquels ils sont soumis. Ce document examine les solutions que les politiques structurelles nationales peuvent offrir à ces problèmes et à un certain nombre d’enjeux connexes ; il souligne également le besoin croissant d’une coordination et d’une coopération internationales face à ces questions au cours des 50 prochaines années.
    Keywords: tertiary education, immigration, technological change, structural reforms, climate change, growth, income distribution, environmental damages, projections, global economy, inequality, coordination, fiscal consolidation, interdependence, économie mondiale, enseignement supérieur, dégâts environnementaux, réformes structurelles, interdépendance, coordination, immigration, répartition des revenus, changement climatique, inégalité, changement technologique, prévisions, croissance, consolidation fiscale
    JEL: F H I2 I3 J1 O3 O4 Q5
    Date: 2014–07–02
  8. By: Tiago Soares (FEP-UP, School of Economics and Management, University of Porto); Samuel Pereira (FEP-UP, School of Economics and Management, University of Porto); Elísio Brandão (FEP-UP, School of Economics and Management, University of Porto)
    Abstract: R&D expenditures made by companies, and governmental policies oriented for the promotion of these expenditures in the private sector, are nowadays considered variables that have an impact on firms’ growth in the medium term. This study aims at understanding the simultaneous influence of R&D investment and R&D tax incentives on firms’ growth, for different technological and knowledge-intensity industries. For that, a panel data of 1127 firms belonging to 35 different industries from 21 OECD countries, during the period between 2003 and 2012, was used. The results of the econometric estimation confirm, as foreseen in the literature, the positive effect for firms’ net sales growth of their investment in R&D and of tax policies that benefit the firms which perform these types of activities, particularly in high-tech firms. The results also returned a positive effect of R&D intensity in firms’ growth in the period before crisis (2003 - 2007) and a negative and significant crossover effect of R&D tax credits and R&D intensity in firms’ growth for the period before crisis. The two factors remain insignificant in crisis period, suggesting that other factors gained a more powerful explanation of a firm’s growth in that period.
    Keywords: R&D investment, R&D tax credits, firm’s growth
    JEL: H20 H30 H81 O32
    Date: 2014–07
  9. By: Peichl, Andreas (ZEW Mannheim); Pestel, Nico (IZA)
    Abstract: Inequality has increased considerably in many Western countries over the past decades. When dealing with economic inequality as a research subject the question "inequality of what among whom" arises. Analyses of inequality are typically concerned with the distribution of wages, earnings or income and have been performed by different strands in the literature, mainly in public and in labor economics. We summarize these strands with a special focus on earnings which itself is the product of hourly wages and labor supply in terms of hours and weeks worked. In addition to inequality in labor market outcomes, we additionally pay special attention to equality of opportunity.
    Keywords: earnings inequality, wages, labor supply, equality of opportunity
    JEL: D31 D33 D63 J21 J31
    Date: 2014–07
  10. By: Patrícia Martins; Leonida Correia
    Abstract: In Portugal, a new Local Finance Law was adopted in 2013. The objective was to involve the local governments in the compliance with the supranational fiscal rules imposed by the Stability and Growth Pact and with the national budgetary targets set under the Financial Assistance Program. In this paper, we present a set of stylized facts concerning the importance of local finance in national public finances in Portugal compared to other European countries. In the econometric study, using OLS pooled models, we investigated the economic, political and institutional determinants of slippages in total revenue, total expenditure and local government budget, for the 278 municipalities of Portugal in the 2010-2012 period. We conclude that the revenue and expenditure forecasts should be based on the accrued revenue of the previous year and that significant differences between those values should be justified by local authorities to avoid biased forecasts. Simultaneously, at the implementation stage, the committed expenditure should take into account the accrued revenue of the current year. Recent legislative changes can improve the expenditure execution, but they seem insufficient to prevent the optimistic bias of forecasts.
    Keywords: Fiscal slippages, local government finance, municipalities
    Date: 2014–07
  11. By: Kinda Hachem
    Abstract: I analyze whether banks are efficient at allocating resources across intermediation activities. Competition between lenders means that resources are needed to draw borrowers into credit matches. At the same time, imperfect information between lenders and borrowers means that resources are also needed for screening. I show that the privately optimal allocation of resources is constrained inefficient. In particular, too many resources are spent on getting rather than vetting borrowers but, once properly vetted, not enough matches are retained. Uninformed lending is thus inefficiently high, informed lending is inefficiently low, and a tax on matching activities helps remedy the situation.
    JEL: D62 D83 E44
    Date: 2014–08
  12. By: Elva Bova; Nathalie Carcenac; Martine Guerguil
    Abstract: This paper documents the spread of fiscal rules in the developing world and investigates the relation between fiscal rules and procyclical fiscal policy. We find that, since the early 2000s, developing countries outnumbered advanced economies as users of fiscal rules. Rules were adopted either as part of the toolkit to join currency unions or to strengthen fiscal frameworks during and after large stabilization and policy reform episodes. The paper also finds that the greater use of fiscal rules has not shielded these countries from procyclicality, since fiscal policy remains procyclical following the adoption of a fiscal rule. We find partial evidence that some features of “second generation†rules, such as the use of cyclically-adjusted targets, well-defined escape clauses, together with stronger legal and enforcement arrangements, may be associated with less procyclicality.
    Keywords: Fiscal rules;Fiscal policy;Developing countries;Emerging markets;Business cycles;Fiscal rules, fiscal policty, cyclicality, emerging markets, developing economies
    Date: 2014–07–10
  13. By: Eaqub, Shamubeel (New Zealand Institute of Economic Research); Stephenson, John (New Zealand Institute of Economic Research)
    Abstract: Economic performance is uneven across New Zealand’s regions. This paper highlights the similarities and differences in regional economies, the drivers of past performance, and how that performance is shared in the community (GDP versus household income, for example).
    Keywords: New Zealand; regional eocnomies
    JEL: H70
    Date: 2014–08–05
  14. By: Aida Caldera Sánchez; Patrick Lenain; Sarah Flèche
    Abstract: Life is quite good in the United States compared to other OECD countries, thanks to strong economic growth and technological progress having lifted average income to high levels. Nonetheless, there is evidence that the benefits from growth have not been sufficiently broad based. Self-reported happiness increases with income, an issue particularly resonant in a country with among the highest levels of income inequality in the OECD and a pattern of inequality that appears to be moving toward even more concentration at the very top at the expense of the middle class and the poor. Working hours that remain among the longest in the OECD are also creating challenges for work-life balances, child education, personal care and leisure. These pressures are contributing to higher job strain and work-related stress with unhealthy consequences, including for mental health, and a detrimental impact on employability and medical costs. While these trends cannot be easily reversed, a number of policy options are being usefully rolled out and other initiatives are being considered: federal-level policies improving access to health care and early-childhood education, state-level initiatives favouring workplace flexibility, firm-level investments in job quality and greater attention to the health consequences of job-stress. If successfully adopted, they would go a long way toward improving the well-being of American working families. This Working Paper relates to the 2014 OECD Economic Survey of United States ( States). Améliorer le bien-être aux États-Unis Par comparaison avec d’autres pays de l'OCDE, il fait relativement bon vivre aux États-Unis grâce à une croissance économique soutenue et des progrès technologiques qui ont porté le revenu moyen à un niveau élevé. Néanmoins, des pans entiers de la population américaine n’ont pas tiré avantage de ces améliorations. Après deux décennies de stagnation des revenus du travail pour une majorité des travailleurs, à laquelle s’ajoutent les conséquences de la Grande récession, les familles de la classe moyenne doivent faire à des difficultés financières. La durée du travail aux États-Unis reste en outre l’une des plus longues de la zone OCDE, ce qui accentue les difficultés rencontrées par les Américains pour concilier vie professionnelle et vie privée, élever leurs enfants et se libérer du temps pour leurs loisirs et activités personnelles. Ces pressions contribuent à une augmentation des tensions et du stress au travail, qui ont des effets négatifs sur la santé, y compris mentale, ainsi que des conséquences néfastes sur l’employabilité et les coûts médicaux. S’il est difficile d’inverser ces tendances, plusieurs moyens d’action utiles sont actuellement mis en oeuvre, tandis que d’autres initiatives sont à l’étude : politiques fédérales améliorant l’accès aux soins de santé et à l’éducation préscolaire, initiatives menées par les États en faveur de la flexibilité au travail, investissements consentis par les entreprises pour améliorer la qualité des emplois et attention accrue accordée aux effets du stress au travail sur la santé. Si ces mesures sont effectivement adoptées, elles pourraient grandement contribuer à améliorer le bien-être des ménages américains qui travaillent. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de États-Unis 2014 ( Unis).
    Keywords: quality of life, provision and effects of welfare programmes, job satisfaction, education, wage level and structure, time allocation and labour supply, éducation, répartition du temps et offre de main d'oeuvre, qualité de vie, satisfaction au travail, allocation et effets des programmes sociaux, niveau et structure des salaires
    JEL: I24 I30 I38 J22 J28 J31
    Date: 2014–07–21
  15. By: Evridiki Tsounta; Anayochukwu Osueke
    Abstract: Income inequality in Latin America has declined during the last decade, in contrast to the experience in many other emerging and developed regions. However, Latin America remains the most unequal region in the world. This study documents the declining trend in income inequality in Latin America and proposes various reasons behind this important development. Using a panel econometric analysis for a large group of emerging and developing countries, we find that the Kuznets curve holds. Notwithstanding the limitations in the dataset and of cross-country regression analysis more generally, our results suggest that almost two-thirds of the recent decline in income inequality in Latin America is explained by policies and strong GDP growth, with policies alone explaining more than half of this total decline. Higher education spending is the most important driver, followed by stronger foreign direct investment and higher tax revenues. Results suggest that policies and to some extent positive growth dynamics could play an important role in lowering inequality further.
    Keywords: Income inequality;Latin America;Emerging markets;Developing countries;Social indicators;Cross country analysis;Panel analysis;Income inequality, Latin America, Gini, emerging economies, Kuznets
    Date: 2014–07–15
  16. By: Sandip Chakrabarti; Genevieve Giuliano
    Abstract: This paper explores whether service reliability determines transit patronage. Using a unique historical archive of service supply, performance, and patronage data from the Los Angeles Metro bus and rail system, we analyze whether service reliability explains in part the variation in patronage across transit lines during weekday peak and off-peak periods. By estimating a simple single-stage model of transit line patronage, and a simultaneous equations model to address the recognized endogeneity between transit service supply and consumption, we provide conclusive evidence that service reliability is indeed a significant determinant of peak-period patronage. This means that, all else equal, more reliable transit lines can attract more patrons across their service corridors as they are chosen over alternate lines and competing modes. Our paper presents first empirical evidence on the demand for transit service reliability. Results suggest that transit agencies can expect some system-wide patronage gains from reliability improvements. From a policy perspective, reliability investments may be cost-effective means for increasing productivity of transit lines and systems.
    Keywords: Public transportation, Transit service reliability, Public transit policy
    Date: 2014
  17. By: Richard Dutu
    Abstract: Swiss women are now as well educated as their male counterparts. However, progress remains to be made in the job market where both the supply and price of female labour are below that of men. While the participation rate for women is high and rising, it is offset by a heavy incidence of part-time work, reflecting both personal preferences and factors that limit their labour supply. The lack and high cost of childcare options for parents, as well as burdensome marginal income tax rates for second earners, create disincentives to work more. A falling but persistent net (i.e. unexplained) wage gap of about 7% in favour of men, coupled with under-representation of women as managers and entrepreneurs, further reduce the incentive for women to take full advantage of their high levels of human capital. Priority should be given to removing those barriers by increasing public spending on childcare and out-of-school-hours care at the cantonal and municipal levels. Existing regulations regarding childcare provision should also be investigated to see whether a broader range of price and quality childcare options is feasible. The implicit tax penalty for married women should also be removed, as the Federal Council is currently considering. More flexibility in working arrangements could further alleviate women’s cost of reconciling work and family life. For instance, facilitating flexi-time, annualised hours, job-sharing, part-time and telework options for both women and men, and creating paternity and/or consecutive, take-it-or-leave-it parental leave could facilitate transition in and out of the labour market. Increasing competition in product markets should help reduce the wage gap by replacing old habits with the hunt for talent regardless of gender. Finally, a corporate governance code in favour of a more equal representation of women in leadership positions, and setting ambitious quantitative targets for women on boards combined with the “Comply or Explain” practise, or quotas, should help remove the so-called glass ceiling. This Working Paper relates to the 2013 OECD Economic Review of Switzerland (
    Keywords: education, Switzerland, labour market, gender, wage gap, leadership
    JEL: H5 I2 J16 J2 J3
    Date: 2014–07–15

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