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on Public Economics |
| By: | Brown, Samuel; Gale, William G. |
| Abstract: | This paper examines the fiscal outlook and tax reform options in the United States. The major conclusions include: the United States faces a substantial fiscal shortfall in the medium- and long-term; both spending cuts and tax increases should contribute to the solution; tax increases need not do significant harm to economic growth; and there are sensible ways to both reform tax structure and raise revenues, including tax expenditure reform, the creation of a value-added tax, the creation of a carbon tax, or an increase in the gasoline tax. |
| Keywords: | tax reform, fiscal policy, fiscal shortfall |
| JEL: | H20 |
| Date: | 2012–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:55056&r=pbe |
| By: | Dominique Henriet (École Centrale Marseille (Aix-Marseille School of Economics), CNRS & EHES); Patrick Pintus (Aix-Marseille Universit´e (Aix-Marseille School of Economics), CNRS & EHESS); Alain Trannoy (Aix-Marseille Universite (Aix-Marseille School of Economics) CNRS EHESS) |
| 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. |
| JEL: | H21 H24 |
| Date: | 2014–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1420&r=pbe |
| By: | Keuschnigg, Christian (Institute for Advanced Studies, Vienna, Austria); Loretz, Simon (Institute for Advanced Studies, Vienna, Austria); Winner, Hannes (University of Salzburg) |
| Abstract: | This survey summarizes the state and development of European tax policy, in particular discussing the harmonization progress in direct as well as indirect taxes. Based on an over-view over the theoretical and empirical literature on tax competition, we further ask whether increased tax coordination is necessary to prevent a race to the bottom. We show that theoretical predictions on the outcome of tax competition are ambiguous, and the empirical evidence in this regard is inconclusive as well. This, in turn, gives rise to an only limited scope of stronger tax harmonization. |
| Keywords: | Tax Competition; tax coordination; European economic integration |
| JEL: | H77 H87 |
| Date: | 2014–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sbgwpe:2014_004&r=pbe |
| By: | Landier, Augustin; Plantin, Guillaume |
| Abstract: | Afluent households can respond to taxation with means that are not economically viable for the rest of the population, such as sophisticated tax plans and international tax arbitrage. This paper studies an economy in which an inequality-averse social planner faces agents who have access to a tax-avoidance technology with increasing returns to scale, and who can shape the risk proÖle of their income as they see fit. Scale economies in avoidance imply that optimal taxation is regressive at the top. This in turn may trigger excessive risk taking. |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:28368&r=pbe |
| By: | Claus Thustrup Kreiner (University of Copenhagen and CEPR); Søren Leth-Pedersen (Department of Economics, University of Copenhagen); Peer Ebbesen Skov (Department of Economics, University of Copenhagen) |
| Abstract: | Intertemporal shifting of wage income takes place when income earned in one tax year is paid out in another tax year in order to save taxes. Shifting has implications for the evaluation of the distortionary and distributional effects of taxes and may cause serious bias in empirical estimates of the elasticity of taxable income (ETI) for use in policy analysis. Based on new monthly payroll records for the universe of Danish employees we provide evidence ofwidespread intertemporal shifting of wage income in response to a tax reform that significantly reduced the marginal tax rates for 1/4 of all employees. Ignoring shifting, we estimate the overall ETI to be 0.1 and find that the ETI is increasing in the earnings level. After controlling for shifting, we obtain negligible ETI estimates at all earnings levels. We show that shifting is concentrated on few individuals spread out evenly across industry sectors, and we provide evidence suggesting that tax salience, liquidity constraints and firm willingness to cooperate in shifting are important factors in explaining shifting behavior. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:rok:spaper:62&r=pbe |
| By: | Cebula, Richard; Nair-Reichert, Usha; Coombs, Christopher |
| Abstract: | This study adopts state-level data to empirically investigate the Tiebout hypothesis (as extended by Tullock) of “voting with one’s feet” for the period referred to in the U.S. as the “Great Recession” (2007-2009). As compared to previous studies, we use more recent data and provide estimates for three time periods: the “Great Recession” (from July 1, 2007 through June 30, 2009), the pre-Great Recession period (July 1, 2004 through June 30, 2006) and the post-Great Recession period (July 1, 2009 through June 30, 2011). This analysis also differs from most previous literature by including a separate cost of living variable and a variable measuring effective state personal income tax rates. After allowing for various economic factors and quality of life/climate variables, migrants (consumer-voters) over the 2007-2009 period appear to prefer states with lower effective state personal income tax rates and higher levels of “fiscal surplus,” defined in this study for each state as the total outlay per pupil on primary and secondary public education minus the per capita property tax level. The three empirical estimates all demonstrate that the Tiebout/Tullock hypothesis was operational not only during but also both before and after the Great Recession since for all three time periods migrants (consumer-voters) manifested a preference for lower effective state personal income tax rates and higher levels of fiscal surplus. |
| Keywords: | total state in-migration; fiscal surplus; effective state income tax rates |
| JEL: | D72 H71 H72 R23 |
| Date: | 2013–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56484&r=pbe |
| By: | Marina Mendes (Centro de Investigación Económica (CIE), Instituto Tecnológico Autónomo de México (ITAM)) |
| Abstract: | Macroeconomists have long been interested in understanding differences in hours worked across countries. Prescott (2004) shows that differences in labor income tax explain the majority of the difference in hours worked between the United States and European countries. In this paper we go one step further in quantifying the impact of labor income tax on differences in hours worked between the United States and European countries. First, we decompose hours worked by gender and marital status, and we find that females are responsible for more than half of the difference in hours worked. Within females, we find that married females are responsible for more than half of the difference in hours worked. Second, given these findings, we quantify the impact of differences in labor income tax in explaining differences in aggregate hours worked. The main contribution of this paper is that we do not restrict the analysis of differences in labor income tax to differences in the progressivity of the tax schedule but we also incorporate differences in the treatment of secondary earners across countries. As a result, we find that differences in labor income tax explain two thirds of the difference in aggregate hours worked across countries, and we also find that differences in the treatment of secondary earner explain two thirds of the difference in hours worked between married and single females. |
| JEL: | E60 H20 J22 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:cie:wpaper:1302&r=pbe |
| By: | Eduardo Davila (Harvard University) |
| Abstract: | This paper characterizes the optimal linear financial transaction tax in an equilibrium model of competitive financial markets. When belief disagreement induces excess trading on assets in fixed supply, two main results arise. First, the optimal tax is positive: although a (small) transaction tax discourages all trades equally, the reduction in fundamental trading creates a second-order welfare loss, while the reduction in non-fundamental trading creates a first-order gain. Second, the cross-sectional covariance between investors’ beliefs and investors’ equilibrium portfolio tax sensitivities becomes the relevant sufficient statistic for the optimal tax, which does not depend on the actual payoff distribution. I find additional results. First, in dynamic environments, controlling for the level of static disagreement, the optimal tax is lower when investors alternate between being buyers and sellers over time. Second, when financial markets determine production in a Walrasian sense, as in a q-theory environment, a marginal tax increase creates an additional first-order distortion (positive or negative). Third, when financial markets determine production by diffusing information, a marginal tax increase creates an additional first-order loss, due to a learning externality. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:114&r=pbe |
| By: | Julien Daubanes; Saraly Andrade de Sá |
| Abstract: | This study analyses the economic rent generated by the exploitation of a non-renewable resource, and the taxation of this rent. We present a synthetic model of a non-renewable-resource sector where deposits must be costly developed before they are exploited; the analysis emphasizes the effect of resource taxation on the discouragement to the development of new reserves. We discuss the limitations of neutral profit-taxation schemes and examine the distortions caused by various resource-taxation systems on the rent and its allocation: tax evasion, royalty-induced distortions, imperfect tax commitment, agency issues... We also discuss the measurement of resource rents for taxation purposes, and issues with the management of the resource tax income. Taxer la rente d'exploitation des ressources non renouvelables : Une note théorique Cette étude analyse la rente générée par l'exploitation d'une ressource non renouvelable, ainsi que la taxation de cette rente. Dans un modèle simple, nous représentons une industrie minière dont les gisements de ressource non renouvelable, pour être exploités, requièrent des efforts de développement ; l'analyse porte principalement sur les effets néfastes de la taxation sur la production de nouvelles ressources. Nous évoquons les limites à la possibilité théorique de ponctionner les profits de manière neutre, puis examinons les distorsions impliquées par les systèmes de taxation existants : évasion fiscale, capacité d'engagement limitée, redevances distorsives, problèmes d'agence... Nous discutons également les manières d'évaluer les rentes à taxer, et les problèmes relatifs à la gestion des revenus fiscaux issus des secteurs miniers. |
| Keywords: | resource rents, tax distortions, non-renewable resources, tax income management, ressources non renouvelables, rentes minières, distorsions fiscales, gestion des revenus fiscaux |
| JEL: | H20 Q30 |
| Date: | 2014–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1149-en&r=pbe |
| By: | Carlino, Gerald A. (Federal Reserve Bank of Philadelphia); Inman, Robert P. (University of Pennsylvania) |
| Abstract: | An important component of the American Recovery and Reinvestment Act’s (ARRA’s) $796 billion proposed stimulus budget was $318 billion in fiscal assistance to state and local governments, yet the authors have no precise estimates of the impact of such assistance on the macroeconomy. In evaluating ARRA, both the Council of Economic Advisors (CEA) and the Congressional Budget Office (CBO) used instead the impacts of direct federal spending and tax relief. These estimates miss the role of states as agents. The authors provide estimates of aid’s multiplier effects allowing explicitly for state behavior, first from an SVAR analysis separating federal aid from federal tax relief, second from a narrative analysis using the political record for unanticipated federal aid programs, and third from constructed macroeconomic estimates implied by an estimated model of state governments’ fiscal choices. The authors reach three conclusions. First, federal transfers to state and local governments are less stimulative than transfers to households and firms. Second, federal aid for welfare spending is more stimulative than is general purpose aid. Third, an estimated model of state government fiscal behavior provides a microeconomic foundation for the observed macroeconomic impacts of aid. |
| Keywords: | American Recovery and Reinvestment Act; ARRA; Macroeconomics; Stimulus; |
| Date: | 2014–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:14-20&r=pbe |
| By: | Chen, Daphne (Florida State University); Qi, Shi (Florida State University); Schlagenhauf, Don E. (Florida State University) |
| Abstract: | We adopt a dynamic stochastic occupational choice model with heterogeneous agents and evaluate the impact of a potential reduction in the corporate income tax on employment. We show that a reduction in corporate income tax leads to moderate job creation. In the extreme case, the elimination of the corporate income tax would reduce the non-employed population by 5.4 percent. In the model, a reduction in the corporate income tax creates jobs through two channels, one from new entry firms and one from existing firms changing their form of legal organization. In particular, the latter accounts for 85.7 percent of the new jobs created. |
| Keywords: | Corporate Income Taxes; Employment; Firm heterogeneity; Entrepreneurs |
| JEL: | C54 E10 E69 H25 H32 |
| Date: | 2014–04–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2014-018&r=pbe |
| By: | Daniel Kanda; Mario Mansilla |
| Abstract: | This paper first attempts to quantify the natural resource wealth of Suriname from the perspective of its impact on the fiscal position, and then assesses the fiscal sustainability gap in that context. It then presents models to address the question of the optimal path of fiscal consolidation given the outlook for natural resource wealth, macroeconomic conditions, and country authority preferences. |
| Keywords: | Fiscal consolidation;Suriname;Natural resources;Mineral products;Fiscal position;Fiscal sustainability;Econometric models;Suriname; Natural Resource Wealth; Optimal Fiscal Consolidation; Fiscal Sustainability; Fiscal Targets |
| Date: | 2014–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:14/121&r=pbe |
| By: | Juan Contreras; Holly Battelle |
| Keywords: | Fiscal multipliers, Panel of countries, SVAR, GMM. |
| JEL: | E62 E63 H60 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2014-15&r=pbe |
| By: | Fabrizio Coricelli (Paris School of Economics); Riccardo Fiorito (Università degli Studi di Siena) |
| Abstract: | In this paper we suggest a new measure of discretionary government spending for OECD countries over the period 1980-2011. To identify the components of discretionary expenditure, we use the volatility and persistence properties of the expenditure series. Discretionary policy cannot be inertial and should be free from prior obligations. Commonly used measures of discretionary fiscal policy do not satisfy these two criteria. We find that discretionary expenditure accounts on average for about 30 percent of total primary expenditure, suggesting that most government spending is driven by inertial and automatic components. These features help explain why government expenditure is generally not counter-cyclical even in advanced economies. Furthermore, the small share of discretionary expenditure over total expenditure significantly reduces the room of manoeuvre for counter-cyclical fiscal policy during recessions. |
| JEL: | E32 E62 H5 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:lui:lleewp:13106&r=pbe |
| By: | Lars Osberg |
| Abstract: | Historically, discussions of income inequality have emphasised cross-sectional comparisons of levels of inequality of income. These comparisons have been used to argue that countries with more inequality are less healthy, less democratic, more crime-infested, less happy, less mobile and less equal in economic opportunity, but such comparisons implicitly presume that current levels of inequality are steady state outcomes. However, the income distribution can only remain stable if the growth rate of income is equal at all percentiles of the distribution. This paper compares long-run levels of real income growth at the very top, and for the bottom 90% and bottom 99% in the United States, Canada and Australia to illustrate the uniqueness of the post-WWII period of balanced growth (and consequent stability in the income distribution). The ‘new normal’ of the United States, Canada and Australia is ‘unbalanced’ growth – specifically, over the last thirty years the incomes of the top 1% have grown significantly more rapidly than those of everyone else. The paper asks if auto-equilibrating market mechanisms will spontaneously equalise income growth rates and stabilise inequality. It concludes that the more likely scenario is continued unbalanced income growth. This, in turn, implies, on the economic side, consumption and savings flows which accumulate to changed stocks of indebtedness, financial fragility, and periodic macroeconomic crises; and, on the social side, to increasing inequality of opportunity and political influence. Greater economic and socio-political instabilities are therefore the most likely consequence of increasing income inequality over time. Souvent, la question des inégalités de revenu est traitée essentiellement à travers des comparaisons transversales entre les niveaux d’inégalité de revenu, et on se fonde sur ces comparaisons pour conclure que dans les pays les plus concernés, les inégalités de revenu se traduisent par un moins-disant en matière de santé, de démocratie, de criminalité, de bonheur et d’opportunités économiques. Mais ces comparaisons posent implicitement que les niveaux actuels d’inégalité sont constants. Or, la distribution des revenus ne peut être constante que si les revenus croissent au même rythme à tous les centiles de la distribution. Dans le présent document, on compare les niveaux de croissance réelle des revenus à long terme tout au sommet de l’échelle ainsi que pour les 90 % et 99 % inférieurs aux États-Unis, au Canada et en Australie afin d’illustrer la particularité propre à la période post-1945, caractérisée par une croissance équilibrée (et donc par la stabilité dans la distribution des revenus). Aux États-Unis, au Canada et en Australie, la « nouvelle norme » est celle d’une croissance « déséquilibrée » - ces trente dernières années, les revenus des 1 % les plus riches ont augmenté bien plus rapidement que tous les autres. Ce document pose la question suivante : des mécanismes d’équilibrage du marché vont-ils spontanément égaliser les taux de croissance du revenu et stabiliser l’inégalité ? Il conclut que le scenario le plus probable est la persistance d’un déséquilibre de la croissance des revenus, qui aura des répercussions économiques (variation des stocks d’endettement due à l’évolution de la consommation et de l’épargne, fragilité financière et déclenchement périodique de crises macroéconomiques) et sociales (hausse des inégalités des chances et des inégalités de poids politique). Le creusement continu des inégalités de revenu se traduira donc selon toute vraisemblance par une instabilité économique et socio-politique accrue. |
| Date: | 2014–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stdaaa:2014/1-en&r=pbe |
| By: | Simon Wren-Lewis; Jonathan Portes |
| Abstract: | Theory suggests that government should as far as possible smooth taxes and its recurrent consumption spending, which means that government debts should act as a shock absorber, and any planned adjustments in debt should be gradual.� This suggests that operational targets for governments (e.g. for 5 years ahead should involve deficits rather than debt, because such rules will be more robust to shocks.� Beyond that, fiscal rules need to reflect the constraints on� monetary policy, and the extent to which governments are subject to deficit bias.� Fiscal rules for countries in a monetary union or fixed exchange rate regime need to include a strong countercyclical element.� Fiscal rule should also contain a 'knock out' if interest rates hit the zero lower bound: in that case the fiscal and monetary authorities should cooperate to formulate a fiscal expansion package that allows interest rates to rise above this bound.� In more normal times, the design of fiscal policy rules is likely to depend on the extent to which governments are subject to deficit bias, and the effectiveness of any national fiscal council.� For example, governments that had not shown a history of deficit bias could aim to target deficits five years ahead (rolling targets), and these would not require cyclical adjustment.� In contrast, governments that were more prone to bias could target a cyclically adjusted deficit at the end of their expected period of office.� In both cases fiscal councils would have an important role to play, in ensuring plans were implemented in the first case and allowing for departures from target when exernal shocks occurrred in the second. |
| Keywords: | fiscal policy, fiscal rules, fiscal councils |
| JEL: | E62 |
| Date: | 2014–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:704&r=pbe |