nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒10‒13
23 papers chosen by
Keunjae Lee
Pusan National University

  1. The Political Economy of Growth, Inequality, the Size and Composition of Government Spending By Klaus Schmidt-Hebbel; José-Carlos Tello
  2. Capital Gains Taxation Under Different Tax Regimes, Asset Pricing and Investment Decisions - a Monte-Carlo-Ssimulation of the Influence of Tax Systems on Dividend and Timing Behaviour By Caren SURETH; Dirk LANGELEH
  3. Tax Preferences for Environmental Goals: Use, Limitations and Preferred Practices By James Greene; Nils Axel Braathen
  4. Indeterminacy, Underground Activities and Tax Evasion By Enrico MARCHETTI; Francesco BUSATO; Bruno CHIARINI; Enrico MARCHETTI
  5. Fiscal Decentralization and Public Sector Size in Australia Creation Date: 1988 By P.J. Grossman
  6. Tax Compliance and Public Goods Provision -- An Agent-based Econophysics Approach By S. Hokamp; G. Seibold
  7. Is a Detailed Tax Planning for Investment Decisions Worthwhile? Evidence From Germany By Deborah Knirsch
  8. Heterogeneous Tax Sensitivity of Firm-level Investments By Egger, Peter; Erhardt, Katharina; Keuschnigg, Christian
  9. Payroll Taxation and the structure of qualications and wages in a segmented frictional labor market with intra-rm bargaining By Clément Carbonnier
  10. Review of Russian Legislation in the Sphere of Tax and Civil Legislation in 2013 By Irina Tolmacheva
  11. A model of the confidence channel of fiscal policy By Bernardo Guimaraes; Caio Machado; Marcel Ribeiro
  12. Effects of Green Tax Reforms in Spain. A New Analytical Approach Integrating Micro and Macro-Economic Models By Xavier LABANDEIRA; José M. LABEAGA; Miguel RODRÍGUEZ
  13. Can State and Local Revenue and Expenditure Enhance Economic Growth? A Cross-State Panel Study of Fiscal Activity By Christopher Arthur Clarke; Stephen M. Miller
  14. An ACE Model of International Tax Competition By Flavio Cesar; Klimis Vogiatzoglou
  15. Should We Care About the Composition of Tax Based Stimulus Packages? By Kerim Peren ARIN; Otto F. REICH; Peter H. HELLES
  16. Does Fiscal Decentralization Promote Fiscal Discipline? By Bilin NEYAPTI; Zafer AKIN; Nida CAKIR
  17. The cost of pollution on longevity, welfare and economic stability By Natacha Raffin; Thomas Seegmuller
  18. Fiscal Equalisation and Efficiency By Sophia LEVTCHENKOVA; Jeffrey D PETCHEY
  19. An Analysis of the Implications for the Gold Mining Industry of Alternative Tax Policies: A regional disaggregated model for Australia Creation Date: 1997 By A. Feltenstein
  20. The effects of a money-financed fiscal stimulus By Jordi Galí
  21. Change and Persistence in the Economic Status of Neighborhoods and Cities By Stuart Rosenthal; Stephen L. Ross
  22. Thinking About Corruption in Greece By Costas Azariadis; Yannis M. Ioannides
  23. Distribution of Government Expenditure and Demand for Education Services: The Case of Indonesia By Wawan JUSWANTO

  1. By: Klaus Schmidt-Hebbel (Catholic University of Chile); José-Carlos Tello (Catholic University of Peru)
    Abstract: This paper develops a dynamic general-equilibrium political-economy model for the optimal size and composition of public spending. An analytical solution is derived from majority voting for three government spending categories: public consumption goods and transfers (valued by households), as well as productive government services (complementing private capital in an endogenous-growth technology). Inequality is reflected by a discrete distribution of infinitely-lived agents that differ by their initial capital holdings. In contrast to the previous literature that derives monotonic (typically negative) relations between inequality and growth in one-dimensional voting environments, this paper establishes conditions, in an environment of multi-dimensional voting, under which a non-monotonic, inverted U-shape relation between inequality and growth is obtained. This more general result – that inequality and growth could be negatively or positively related – could be consistent with the ambiguous or inconclusive results documented in the empirical literature on the inequality-growth nexus. The paper also shows that the political-economy equilibrium obtained under multi-dimensional voting for the initial period is time-consistent.
    Keywords: inequality, endogenous growth, multidimensional voting, endogenous taxation
    JEL: D72 E62 H11 H31
    Date: 2014–09
  2. By: Caren SURETH; Dirk LANGELEH
  3. By: James Greene; Nils Axel Braathen
    Abstract: This paper reviews the use of tax preferences to achieve environmental policy objectives. Tax preferences involve using the tax system to adjust relative prices with a view to influencing producer or consumer behaviour in favour of goods or services that are considered to be environmentally beneficial. They take various forms, typically a partial or total exemption from a specified tax. Because tax preferences help to avoid or reduce costs for businesses or consumers, there are often pressures on governments to favour them over other instruments. As a result, they are sometimes used inappropriately, typically to address negative externalities for which they are not well suited. The paper suggests that the comparative advantage of tax preferences is in providing support for positive externalities, that is situations in which a subsidy would help to deliver more social benefits than would otherwise be the case. When designing tax preferences, care must be taken to ensure that they do not encourage technological lock-in, provide perverse incentives for environmentally harmful activities (the rebound effect), or reward producers or consumers for actions they would have taken anyway. Since tax preferences are a form of subsidy, they should be subject to the same degree of scrutiny and oversight as other forms of public expenditure. Ce document examine la question du recours aux avantages fiscaux pour atteindre les objectifs de la politique de l’environnement. Les avantages fiscaux consistent à utiliser le système fiscal pour ajuster les prix relatifs afin d’influencer le comportement des producteurs ou des consommateurs en faveur de biens ou de services considérés comme bénéfiques pour l’environnement. Ils prennent diverses formes, le plus souvent une exemption totale ou partielle d’une taxe particulière. Étant donné que les avantages fiscaux contribuent à éviter ou réduire les coûts pour les entreprises ou les consommateurs, des pressions sont souvent exercées sur les pouvoirs publics pour qu’ils les préfèrent à d’autres instruments. Aussi sont-ils parfois utilisés à mauvais escient, généralement pour traiter des externalités négatives pour lesquelles ils sont mal adaptés. Ce document tend à montrer que l’avantage comparatif de ces instruments réside dans le soutien qu’ils apportent aux externalités positives, à savoir les situations dans lesquelles une subvention aiderait à procurer plus d’avantages pour la collectivité que ce ne serait le cas autrement. Pour concevoir des avantages fiscaux, il faut veiller à ce qu’ils n’encouragent pas le verrouillage technologique, ne créent pas d’incitations perverses en faveur d’activités dommageables pour l’environnement (effet rebond), ou ne récompensent pas les producteurs ou les consommateurs pour des actions qu’ils auraient entreprises de toute façon. Étant donné que les avantages fiscaux sont une forme de subvention, il convient de les surveiller d’aussi près que les autres formes de dépenses publiques.
    Keywords: environmentally motivated tax preferences, tax induced behaviour, environmental effects, avantages fiscaux motivés par des considérations environnementales, comportement influencé par l’impôt, effets environnementaux
    JEL: H20 H23 H25 H30 Q58
    Date: 2014–10–07
  4. By: Enrico MARCHETTI; Francesco BUSATO; Bruno CHIARINI; Enrico MARCHETTI
  5. By: P.J. Grossman
  6. By: S. Hokamp; G. Seibold
    Abstract: We calculate the dynamics of tax evasion within a multi-agent econophysics model which is adopted from the theory of magnetism and previously has been shown to capture the main characteristics from agent-based based models which build on the standard Allingham and Sandmo approach. In particular, we implement a feedback of public goods provision on the decision-making of selfish agents which aim to pursue their self interest. Our results imply that such a feedback enhances the moral attitude of selfish agents thus reducing the percentage of tax evasion. Two parameters govern the behavior of selfish agents, (i) the rate of adaption to changes in public goods provision and (ii) the threshold of perception of public goods provision. Furtheron we analyze the tax evasion dynamics for different agent co mpositions and under the feedback of public goods provision. We conclude that policymakers may enhance tax compliance behavior via the threshold of perception by means of targeted public relations.
    Date: 2014–09
  7. By: Deborah Knirsch
  8. By: Egger, Peter (ETH Zuerich); Erhardt, Katharina (ETH Zuerich); Keuschnigg, Christian (Institute for Advanced Studies, Vienna and University of St. Gallen)
    Abstract: Firms are heterogeneous in size, productivity, ownership concentration, governance, financial structure and other dimensions. This paper introduces a stylized theoretical framework to account for such differences and to explain the heterogeneous tax sensitivity of firm-level investments across firm types. We econometrically test the theoretical predictions, taking account of selection of firms into different regimes. We find important differences in the tax sensitivity of investment of small entrepreneurial and larger managerial firms in different financial regimes that are largely in line with theoretical results.
    Keywords: Corporate tax, personal taxes, firm heterogeneity, access to capital, manager-shareholder conflicts
    JEL: D22 G32 H25 L21
    Date: 2014–09
  9. By: Clément Carbonnier (Université de Cergy-Pontoise, THEMA)
    Abstract: The present paper investigates the incidence of payroll taxation - and more generally labor income taxation - in a search and matching model. The model considers a production function with different type of workers, allowing to understand the interactions between segmented labor markets. Furthermore, the equilibrium is reach through a double process of intra-firm wage bargaining ex post and labor demand ex ante. The model is derived analytically for linear tax function differentiated for worker type, and numerically for non-linear tax functions. The bargaining power parameter is interpreted as reflecting the intra-segment substitutability, in parallel to the inter-segment substitutability deriving from the production function and the segment size and productivity. Some standard results are found, such as the wages,unemployment and incidence increasing with respect to bargaining power; or the payroll tax burden falling mainly on workers. Moreover, it is shown that over-shifting of payroll taxes on net wages may happen. It is also shown that a stronger bargaining power induced weaker direct effect of taxes but larger crossed eects on other segments. In addition, marginal incidence decreases with respect to the payroll tax level and is therefore significantly lower than mean incidence, which may induce an underestimation of overall incidence by empirical analyses. This also induces a marginally decreasing eect on loabor costs of payroll tax cuts.
    Keywords: Search and matching; segemented labor market; intra-rm bargaining; tax incidence
    JEL: H22 J31 J38
    Date: 2014
  10. By: Irina Tolmacheva (Gaidar Institute for Economic Policy)
    Abstract: This paper deals with a review of the tax and civil legislation in Russia.
    Keywords: Russian tax and civil legislation
    JEL: K1 K2 K3
    Date: 2014
  11. By: Bernardo Guimaraes (Escola de Economia de São Paulo (EESP) Fundação Getulio Vargas); Caio Machado (Escola de Economia de São Paulo (EESP) Fundação Getulio Vargas); Marcel Ribeiro (Escola de Economia de São Paulo (EESP) Fundação Getulio Vargas)
    Abstract: This paper presents a simple macroeconomic model where government spending affects aggregate demand directly and indirectly, through an expectational channel. Prices are fully flexible and the model is static, so intertemporal issues play no role. There are three important elements in the model: (i) fixed adjustment costs for investment; (ii) noisy idiosyncratic information about the economy; and (iii) imperfect substitution among private goods and goods provided by the government. An increase in government spending raises the demand for private goods and raises firms’ expectations about what others will be producing and demanding. The optimal level of government expenditure is larger when the desired level of investment is small, which we interpret as times of low economic activity.
    Keywords: fiscal policy, confidence, expectations, fiscal multiplier, aggregate demand
    JEL: E32 E62
    Date: 2014–07
  12. By: Xavier LABANDEIRA; José M. LABEAGA; Miguel RODRÍGUEZ
  13. By: Christopher Arthur Clarke (Washington State University); Stephen M. Miller (University of Nevada, Las Vegas and University of Connecticut)
    Abstract: The slow economic recovery since the 2008 financial crisis and Great Recession requires state and local governments to continue to make difficult decisions concerning which taxes to raise and which expenditures to decrease in order to maintain a balanced budget. As expenditures usually raise economic growth and taxes generally hinder it, seeking the optimum combination of taxes and expenditures encourages prosperity in a state. In this paper, we study the effects of various expenditures and revenue combinations on growth in real state personal income per capita, using a sample of annual observations from 1977 to 2010 for 49 states and the District of Columbia. We find that state and local governments overfund education and parks, recreation, and natural resources while they underfund hospitals and health spending, once netted for charges and user fees. State and local governments also underutilize corporate income taxes as a source of revenue. Finally, we also estimate non-linear and short- and long-run specifications, which generally support prior findings.
    Keywords: Regional growth, state and local finance
    JEL: E62 H21 H70 O40 R11
    Date: 2014–09
  14. By: Flavio Cesar; Klimis Vogiatzoglou
  15. By: Kerim Peren ARIN; Otto F. REICH; Peter H. HELLES
  16. By: Bilin NEYAPTI; Zafer AKIN; Nida CAKIR
  17. By: Natacha Raffin; Thomas Seegmuller
    Abstract: This paper presents an overlapping generations model where pollution, private and public healths are all determinants of longevity. Public expenditure, financed through labour taxation, provide both public health and abatement. We study the complementarity between the three components of longevity on welfare and economic stability. At the steady state, we show that an appropriate fiscal policy may enhance welfare. However, when pollution is heavily harmful for longevity, the economy might experience aggregate instability or endogenous cycles. Nonetheless, a fiscal policy, which raises the share of public spending devoted to health, may display stabilizing virtues and rule out cycles. This allows us to recommend the design of the public policy that may comply with the dynamic and welfare objectives.
    Keywords: Longevity; Pollution; Welfare; Complex dynamics.
    JEL: J10 O40 Q56 C62
    Date: 2014
  18. By: Sophia LEVTCHENKOVA; Jeffrey D PETCHEY
  19. By: A. Feltenstein
  20. By: Jordi Galí
    Abstract: I analyze the effects of an increase in government purchases financed entirely through seignorage, in both a classical and a New Keynesian framework, and compare them with those resulting from a more conventional debt-financed stimulus. My findings point to the importance of nominal rigidities in shaping those effects. Under a realistic calibration of such rigidities, a money-financed fiscal stimulus is shown to have very strong effects on economic activity, with relatively mild inflationary consequences. If the steady state is sufficiently inefficient, an increase in government purchases may increase welfare even if such spending is wasteful.
    Keywords: seignorage, government spending, fiscal multiplier
    JEL: E32 E52 E62
    Date: 2014–09
  21. By: Stuart Rosenthal (Syracuse University); Stephen L. Ross (University of Connecticut)
    Abstract: This paper reviews recent literature that considers and explains the tendency for neighborhood and city-level economic status to rise and fall. A central message is that although many locations exhibit extreme persistence in economic status, change in economic status as measured by various indicators of per capita income is common. At the neighborhood level, we begin with a set of stylized facts, and then follow with discussion of static and dynamic drivers of neighborhood economic status. This is mirrored at the metropolitan level. Durable but slowly decaying housing, transportation infrastructure, and self-reinforcing spillovers, all influence local income dynamics, as do enduring natural advantages, amenities and government policy. Three recurring themes run throughout the paper: (i) Long sweeps of time are typically necessary to appreciate that change in economic status is common; (ii) history matters; and (iii) a combination of static and dynamic forces ensure that income dynamics can and do differ dramatically across locations but in ways that can be understood.
    Keywords: Neighborhood income dynamics, city income dynamics, durable housing, transportation infrastructure, spillovers, persistence, path dependence, cycles
    JEL: R10 R20 R30
    Date: 2014–09
  22. By: Costas Azariadis; Yannis M. Ioannides
    Abstract: The paper addresses the issue of corruption, which appears to be endemic in Greece. It reviews the facts about corruption as multi-faceted phenomenon and its close relationship to tax evasion, by comparing Greece to its EU partners, as well internationally. It addresses corruption as an instance of anti-social behavior by means of a number of simple metaphors that allow reliance on powerful tools of modern social interactions and property rights literatures. It emphasizes that whereas tepid enforcement might reduce somewhat corruption and other instances of anti-social behavior, drastic enforcement is required to move an economy and society to qualitatively different levels of such practices. The paper reviews different EU proposals regarding enforcement mechanisms and pro- poses three key constitutional amendments that are required to allow long-delayed reforms to take hold in Greece.
    Keywords: Bribery, compliance, constitutional amendments, corruption, corruption perception index, economic growth, fiscal deficits, games, multiple equilibria, public goods, tax evasion, trust, whistleblowing
  23. By: Wawan JUSWANTO

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