nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒11‒01
twenty-one papers chosen by
Keunjae Lee
Pusan National University

  1. Welfare and Inequality with Hard-to-Tax Markets By Marcelo Arbex; Enlinson Mattos; Laudo M. Ogura
  2. Fiscal extension to ORANI-IT: a computable general equilibrium model for Italy By Felici Francesco; Maria Gesualdo
  3. Tax smoothing in a business cycle model with capital-skill complementarity By Stylianos Asimakopoulos; James Malley; Konstantinos Angelopoulos
  4. Public Goods, Redistribution, and Growth: A Classical Model By Daniele Tavani; Luca Zamparelli
  5. Specific Inputs, International Trade and Tax-Incidence Creation Date: 1996 By K. Bhatia
  6. Determinants of the Time Taken to Deal with Personal Income Tax Affairs in Australia Creation Date: 1993 By J. Pope; C. Dongling
  7. Does E-Filing Reduce Tax Compliance Costs in Developing Countries? By Jacqueline Coolidge; Fatih Yilmaz
  8. Externality of Sales Activities and Policy Effectiveness By Masanori Takaoka
  9. Optimal taxation and labour wedge in models with equilibrium unemployment By Wei Jiang
  10. The Inflation Tax, Variable Time Preference, and the Business Cycle Creation Date: 1998 By R. Lahiri
  11. The Effects of a Commodity Tax in an International Oligopoly Model Creation Date: 1992 By M. Kunizaki
  12. The Paradox of Fiscal Imbalances in India By M. Mahamallik; P. Sahu; S. Mahapatra
  13. Environmental and Related Social Costs of the Tax Treatment of Company Cars and Commuting Expenses By Rana Roy
  14. Estimating the poverty reduction effect of tax and benefit policies in Finland 1993-2013 using a microsimulation method By Pasi Moisio; Kirsi-Marja Lehtelä; Susanna Mukkila
  15. Inequality and the Politics of Redistribution By Tetsuo Ono
  16. Compensated Discount Functions: An Experiment on the Influence of Expected Income on Time Preferences By Attila Ambrus; Tinna Laufey Ãsgeirsdóttir; Jawwad Noor; László Sándor
  17. Optimal Provision and Financing of Public Goods in a Federal State Creation Date: 1992 By R. Ray
  18. Economists in Government Creation Date: 1988 By D.R. Morgan
  19. Secular Stagnation: Evidence and Implications for Economic Policy By Łukasz Rawdanowicz; Romain Bouis; Kei-Ichiro Inaba; Ane Kathrine Christensen
  20. The political economy of MGNREGS spending in Andhra Pradesh: By Sheahan, Megan; Liu, Yanyan; Barrett, Christopher B.; Narayanan, Sudha
  21. Income stratification and the measurement of interdistributional inequality between multiple groups By Paul Allanson

  1. By: Marcelo Arbex (Department of Economics, University of Windsor); Enlinson Mattos (São Paulo School of Economics, Getulio Vargas Foundation); Laudo M. Ogura (Economics Department, Grand Valley State University)
    Abstract: Tax enforcement costs constrain the government's ability to observe economic activities, giving rise to hard-to-tax (HTT) markets. In this paper, we develop a Hotelling-type spatial model of sales taxation to analyze the welfare and distributional effects of the existence of HTT transactions. We show that an economy with HTT markets suffers from lower provision of public goods not only due to higher marginal cost of taxation, but also because (i) the planner might be concerned about the inequality in consumption caused by the unequal taxation across markets and (ii) the tax base might be over-extended to allow for a more inclusive taxation.
    Keywords: Sales tax; Tax evasion; Hard-to-tax markets; Public good provision.
    JEL: H1 H21 H26
    Date: 2014–10
  2. By: Felici Francesco; Maria Gesualdo
    Abstract: In this paper we expand the national multi-sectoral computable general equilibrium (CGE) model ORANI-IT, allowing for a number of fiscal tools. The outcome is a computable general equilibrium tax model of Italy, developed at the Department of Treasury of the Italian Ministry of the Economy and Finance, in collaboration with the Centre of Policy Studies (CoPS), and currently managed at Sogei S.p.A. (IT Economia - Modelli di Previsione ed Analisi Statistiche). The paper demonstrates in considerable detail the methodology to incorporate a fiscal extension, that mainly consists in including a detailed tax information into existing commodity and production tax matrices, to the existing national model. In particular, the procedure to accommodate national data on tax revenues within the model’s database and explicitly model the full range of indirect taxes within the theoretical structure is reported. Within the fiscal extension, the model includes a comprehensive model of Value-Added-Tax (VAT), which accounts for all the typical features of a complex VAT system - such as multi-production, multiple tax rates, different degrees of exemptions and refundability factors - as well as of EU-specific matters relating to taxation of intra-EU exports, and to the scope of VAT and exemptions of public interest. Interestingly, the framework developed in this paper for Italy may be extendible to other European countries, which fall within the EU VAT legislation. The model also features a special emphasis on sectors national accounts, with a detailed system of equations describing government and households budget revenues and expenditures and transactions with the rest of the world. The output is a powerful tool for acquiring new insights on the current fiscal system, through the assessment of tailored fiscal reforms, which can consist of either changes in tax rates and tax bases. Future research may be pursued in the application of the model for evaluating alternative policies.
    Keywords: Computable general equilibrium (CGE) tax models, indirect taxes, value-added-tax, sector accounts, Italy
    JEL: C68 H20 H25
    Date: 2014–09
  3. By: Stylianos Asimakopoulos; James Malley; Konstantinos Angelopoulos
    Abstract: This paper undertakes a normative investigation of the quantitative properties of optimal tax smoothing in a business cycle model with state contingent debt, capital-skill complementarity and endogenous skill acquisition under technology and public expenditure shocks. We fiÂ…nd that skilled and unskilled labour tax smoothing maintain quantitatively under externalities and exogenous shocks in skill acquisition, as well as when the relative skill supply is exogenously determined. We further Â…nd that the government Â…nds it optimal to reduce both the size of the wedge between the marginal rates of substitution and transformation in skill attainment in the long-run and the standard deviation of this wedge over the business cycle. This is achieved by subsidising skill creation and taxing both types of labour income.
    Keywords: skill premium, tax smoothing, optimal Â…scal policy
    Date: 2014
  4. By: Daniele Tavani (Department of Economics, Colorado State University (USA).); Luca Zamparelli (Sapienza, University of Rome)
    Abstract: We extend the basic Classical growth model by introducing a productive and redistributive role for the public sector in an economy populated by two classes, workers (who supply labor, consume, and do not save) and capitalists (who own capital stock, consume and save). The government levies a tax on profits in order to: (i) finance the provision of a public good that augments the production possibilities of the economy, and (ii) integrate labor incomes through a transfer to workers. Following Michl (2009), we focus on two different model ‘closures’, which deliver an endogenous and an exogenous growth rate respectively. In both cases, the analysis of taxation and government spending composition between public goods and transfers requires to specify the government’s preferences. In the endogenous growth model, the government’s choice fixes long-run growth and income distribution. In the exogenous growth model, policy decisions determine income distribution and the employment rate.
    Keywords: Classical growth, functional distribution, redistributive policy.
    JEL: D33 E11 O38
    Date: 2014–10
  5. By: K. Bhatia
  6. By: J. Pope; C. Dongling
  7. By: Jacqueline Coolidge; Fatih Yilmaz
    Keywords: Information Security and Privacy Taxation and Subsidies Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Tax Policy Public Sector Development Information and Communication Technologies Macroeconomics and Economic Growth
    Date: 2014–02
  8. By: Masanori Takaoka (Graduate School of Economics, Osaka University)
    Abstract: Externalities exist when companies perform sales activities (e.g., advertising and sales promotions). However, welfare analysis of policy effectiveness, such as taxation/regulation on sales activities, has not been sufficiently conducted. Existing studies have mainly focused on specifying the deviation factors of sales activities from the socially optimum level, so the influences of tax policies on corporate activities have not been analyzed. Moreover, changes of extrinsic factors should be studied to determine the effectiveness of restrictive regulatory policies. This study extends the conventional methods of analysis at these points and analyzes the interactive effects of six types of policies composed of taxation and regulations: (1) selling expense taxes, (2) ad-valorem duties, (3) specific duties, (4) sales restrictions, (5) price controls, and (6) quantity restrictions. As a result, I propose as effective policies two types of policy mixes: (a) taxation (selling expense, ad valorem, and specific duties) and price cap regulation and (b) taxation (ad valorem and specific duties) and sales activity regulation.
    Keywords: Sales activity, Advertising, Sales promotion, Taxation, Regulation
    JEL: H21 H23 H25
    Date: 2014–08
  9. By: Wei Jiang
    Abstract: In this paper, we develop heterogeneous agent models with equilibrium unemployment to study the optimal taxation and labour wedge. We find that the the presence of profits plays an important role in the determination of both optimal tax policy and labour wedge. Judd-Chamley optimal zero capital tax result can still hold in the model without profits. The optimal labour wedge is zero in the long run. This results in welfare gains of all agents and there is no conflict of interests between agents. But the Benthamite government chooses to subsidise the capital income in the long run in the model with profits due to the presence of productive public investment. The resulting labour wedge is non-zero which generates welfare losses of workers despite welfare gains of capitalists. The government also faces a trade-off between efficiency and equity in this model.
    Keywords: household heterogeneity; equilibrium unemployment; optimal taxation; labour wedge
    JEL: E13 E22 E62
    Date: 2014–09
  10. By: R. Lahiri
  11. By: M. Kunizaki
  12. By: M. Mahamallik; P. Sahu; S. Mahapatra
    Abstract: An attempt has been made to examine the nature and extent of fiscal imbalances in India using the secondary data over a period of thirty years from 1980-81 to 2009-10 (BE). It has been established that there is persistence and growing vertical as well as horizontal fiscal imbalances even after a series of corrective fiscal measures. Efforts to reduce these imbalances found to be ineffective due to contradictions among different measures of fiscal orrection. Methodologies adopted to maintain equity contradict with methodologies used to increase efficiency. The 14th finance commission may take initiative to resolve this paradox through a ‘weight adjustment solution’ which can be helpful in reducing the imbalances. In addition to it, adequate generations of revenue through increasing tax efforts on the part of states and reform in the transfer system are essential for maintaining fiscal balances.
    JEL: E61 E62 E63
    Date: 2014–10
  13. By: Rana Roy
    Abstract: This paper builds upon a recent OECD paper on the personal tax treatment of company cars and commuting expenses in OECD member-countries and aims to arrive at a better understanding of the environmental and related social costs of the tax treatment described therein. The paper begins with an analysis of the larger transport market, which is the primary storehouse of evidence on the nature and extent of the environmental impacts of the various transport modes, the relative importance of the proximate and underlying determinants of these impacts, and the elasticities and functional relationships at work. Non-linearities in the relevant elasticities and functional relationships mean that the tax treatment of company cars may have a greater or lesser impact than is suggested by the size of the company car market. And distortions in relative prices between competing modes in the larger transport market mean that subsidies can have very different impacts depending on the mode in question. The further analysis of the interaction of the current tax treatment of company cars and commuting expenses with the transport market yields several findings. The current under-taxation of company cars is likely to result in a disproportionately large increase in total distance driven, composed of both an increase in the number of cars in use and an increase in distance driven per car. In turn, this is likely to result in disproportionately large impacts on most relevant environmental and related social costs. And a favourable tax treatment of commuting expenses generally, and of employer-paid parking in particular, is likely to impact on the choice of transport mode in favour of the car relative to public transport and non-motorised modes. In turn, this is likely to impact on most relevant environmental and related social costs. An Annex to this paper provides, for the OECD group of countries as a whole, some indicative estimates of the main relevant impacts of the under-taxation of company cars as well as an indicative estimate of its overall social cost. The largest quantified cost elements are additional congestion costs; additional local air pollution costs; and additional traffic accident costs. The overall social cost attributable to the current under-taxation of company cars is estimated at circa EUR 116 billion per year. Ce document fait fond sur une récente étude de l’OCDE sur le traitement des voitures de société et des frais de déplacement domicile-travail dans le cadre de l’impôt sur le revenu des personnes physiques dans les pays membres de l’OCDE. Il vise à mieux cerner les coûts environnementaux et les coûts sociaux connexes de ce traitement. Le document s’ouvre sur une analyse du marché des transports en général, qui offre le principal gisement d’informations sur la nature et l’ampleur des incidences environnementales des différents modes de transport, sur l’importance relative des déterminants immédiats et sous-jacents de ces incidences, ainsi que sur les élasticités et les relations fonctionnelles qui entrent en jeu. Si ces élasticités et relations ne sont pas linéaires, l’impact du traitement fiscal des voitures de société peut être plus fort ou plus faible que ne le laisse penser la taille du marché de ces voitures. En outre, en présence de distorsions affectant les prix relatifs des modes concurrents sur le marché des transports en général, les subventions peuvent avoir des répercussions très différentes selon le mode considéré. Une analyse plus poussée de l’interaction du traitement fiscal actuel des voitures de société et des frais de déplacement domicile-travail avec le marché des transports permet de faire plusieurs constatations. La situation actuelle de sous-imposition de ces voitures est de nature à déboucher sur une hausse disproportionnée de la distance totale qu’elles parcourent, sous l’effet aussi bien de la multiplication des voitures de société en circulation que de l’augmentation de la distance parcourue par chacune. Cette évolution risque elle-même de se répercuter de façon disproportionnée sur la plupart des coûts environnementaux et coûts sociaux connexes. Par ailleurs, un traitement fiscal favorable des frais de déplacement domicile-travail en général, et de la mise à disposition d’une place de stationnement gratuite par l’employeur en particulier, est susceptible de faire pencher le choix du mode de transport en faveur de la voiture plutôt que vers les transports publics et les modes non motorisés, avec là encore des répercussions sur la plupart des coûts environnementaux et coûts sociaux connexes. L’annexe du document présente, pour les pays de l’OCDE pris dans leur ensemble, des estimations indicatives des plus importantes incidences de la sous-imposition des voitures de société, ainsi que des estimations indicatives de son coût social global. Les principaux éléments quantifiés sont les coûts du surcroît de congestion, du surcroît de pollution atmosphérique locale et du surcroît d’accidents de la circulation. Le coût social global attribuable à la sous-imposition des voitures de société est estimé à environ 116 milliards EUR par an.
    Keywords: tax benefit, tax induced behaviour, environmental effects, vehicles, company cars, voitures de société, avantage fiscal, coûts environnementaux, comportement induit par la fiscalité
    JEL: H20 H30 Q51 R41
    Date: 2014–09–30
  14. By: Pasi Moisio; Kirsi-Marja Lehtelä; Susanna Mukkila
    Abstract: The poverty risk rate increased in Finland from 7 to 14 per cent between 1993 and 2010. We have estimated the counterfactual poverty rates for the year 2010 in order to evaluate the impact of changes in tax and benefit systems on the increase of the poverty risk rate. Household disposable incomes are simulated by using the same households of the year 2010 data, but varying the annual taxation and benefit legislation covering the years 1993-2013. The method used is inspired by the Shorrocks-Shapley decomposition method. The benefit cuts after the 1990s depression had a rather modest impact on poverty risk rates and the impact was nullified during 2000s by series of benefit raises. Changes in taxation had a considerably larger impact on the poverty risk rate. The poverty risk rate would be 2.5 percentage points lower if the tax legislation were the same in 2010 as it was in 1993. Furthermore, the level of benefits has decreased compared to the average income level. If the level of benefits would have remained at the same level compared to the average earnings in 2010 as in 1993, the poverty risk rate would be four percentage points lower in 2010. The policy of non-action with social transfers can have a major impact on the relative adequacy and on the poverty reduction effect of social transfers in the long-run.
    Keywords: tax-benefit policy, social policy, poverty, microsimulation, counterfactual, decomposition, Finland
    JEL: C81 D3 I3 H2 H31
    Date: 2014–10
  15. By: Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: This paper analyzes the political economy of public education and in-cash trans- fer in an overlapping generations model of a two-class society in which the dynamics of inequality is driven by the accumulation of human capital. The two redistributive policies are determined by voting, while private education that supplements public education is purchased individually. The model, which includes two-dimensional voting, demonstrates either of the following two types of stable steady-state equilib- ria, which are in line with the evidence: a high-inequality equilibrium with govern- ment expenditure favoring lump-sum transfer, or a low-inequality equilibrium with that favoring public education.
    Keywords: Public education, political economy, inequality
    JEL: D72 D91 I24
    Date: 2013–10
  16. By: Attila Ambrus; Tinna Laufey Ãsgeirsdóttir; Jawwad Noor; László Sándor
    Abstract: This paper examines the empirical question of whether subjects’ static choices among rewards received at different times are influenced by their expected income levels at those times. Moreover, we recover time preferences after compensating for possible income effects. Besides eliciting subjects’ preference between standard delayed rewards, the experimental design also elicited their preferences over delayed rewards that are received only if the subject’s income remains approximately constant. These preferences, along with elicited subjective probabilities of satisfying the condition, make the correction possible. We conducted the experiments in Iceland, where our prompt access to income tax records enabled us to condition delayed rewards on income realizations. We find that background income is associated with preferences over unconditional delayed rewards. While most people exhibited present bias when comparing unconditional delayed rewards, subjects with stable income did not. The results are similar for the entire sample once we correct subjects’ discount functions for income effects. This suggests that income expectations have an effect on choices between future rewards, and that this may account for some of the present-bias observed in experiments.
    Date: 2014–09
  17. By: R. Ray
  18. By: D.R. Morgan
  19. By: Łukasz Rawdanowicz; Romain Bouis; Kei-Ichiro Inaba; Ane Kathrine Christensen
    Abstract: This paper investigates whether OECD countries are facing secular stagnation. Secular stagnation is defined as a situation when policy interest rates bounded at zero fail to stimulate demand sufficiently, due to low or negative neutral real interest rates and low inflation, and when ensuing prolonged and subdued growth undermines potential growth via labour hysteresis and discouraged investment. Obtaining firm evidence is complicated by considerable uncertainties surrounding estimates of economic slack and its impact on inflation, crisis-related hit to potential output and neutral interest rates. However, signs of secular stagnation are most evident in the euro area, particularly in the vulnerable members, in contrast to the United States and the United Kingdom, where evidence is less firm. Japan is arguably in the advanced stage of secular stagnation that started almost two decades ago. In countries with symptoms of secular stagnation, more monetary and fiscal stimulus should be accompanied by structural reforms to boost potential growth and neutral rates. Evidence on hysteresis effects strengthens the case for accommodative policies. In general, the large uncertainty about the size and persistence of hysteresis and risks associated with certain measures pose policy dilemmas and call for a comprehensive policy response. Stagnation séculaire : Evidences et répercussions sur la politique économique Ce document cherche à déterminer si les pays de l’OCDE sont dans une stagnation séculaire. La stagnation séculaire désigne une situation dans laquelle les taux d’intérêt directeurs nuls ne parviennent pas à stimuler suffisamment la demande, en raison de taux d’intérêts réels neutres bas ou négatifs et d’une inflation faible, conjugués à une croissance durablement atone qui affaiblit la croissance potentielle via des effets d’hystérèse sur le marché du travail et un investissement découragé. Obtenir des évidences robustes est difficile du fait des incertitudes considérables entourant les estimations de la sous-utilisation des capacités de production et de son impact sur l’inflation, des effets négatifs de la crise sur la production potentielle et des taux d’intérêt neutres. Toutefois, les signes de stagnation séculaire sont les plus flagrants dans la zone euro, surtout dans les États membres vulnérables, contrairement aux États-Unis et au Royaume-Uni où les évidences sont moins tranchées. Le Japon se trouve probablement en phase avancée de stagnation séculaire, qui a débuté il y a près de vingt ans. Dans les pays montrant des signes de stagnation séculaire, de nouvelles mesures de relance monétaire et budgétaire devraient s’accompagner de réformes structurelles destinées à stimuler la croissance potentielle et les taux neutres. Les effets d’hystérèse plaident en faveur de politiques accommodantes. De manière générale, les incertitudes importantes entourant l’ampleur et la persistance des effets d’hystérèse et les risques associés à certaines mesures posent des dilemmes en termes de politique et nécessitent une réponse politique globale.
    Keywords: monetary policy, inflation, potential output, secular stagnation, neutral interest rates, taux d’intérêt neutres, stagnation séculaire, politique monétaire, production potentielle, inflation
    JEL: E3 E4 E5 E6 J21 O47
    Date: 2014–10–14
  20. By: Sheahan, Megan; Liu, Yanyan; Barrett, Christopher B.; Narayanan, Sudha
    Abstract: While government spending on pro-poor community asset creation and income-transfers could have compounding positive effects on poverty reduction, it is important to first study trends in the allocation of funds, particularly as they relate to the susceptibility of the program to political clientelism. This paper uses expenditure data at the local level in Andhra Pradesh from India’s National Rural Employment Guarantee Scheme, a rights-based program distributing both public and private goods, to investigate the relationship between voting outcomes and program intensity in the seven years straddling a major election. By focusing on one state where accountability and transparency mechanisms have been employed and implementation efforts have been applauded, the authors do not find evidence of blatant vote buying before the 2009 election but do find that patronage played a small part in fund distribution after the 2009 election. Indeed most variation in expenditures is explained by the observed needs of potential beneficiaries, as the scheme intended.
    Keywords: Public policy, Governance, Poverty, rural areas, rural population, social safety nets, social protection, Political economy, clientelism, project allocation, Mahatma Gandhi National Rural Employment Guarantee,
    Date: 2014
  21. By: Paul Allanson
    Abstract: This paper proposes a new class of stratification indices that measure interdistributional inequality between multiple groups. The class is based on a conceptualisation of stratification as a process that results in a hierarchical ordering of groups and therefore seeks to capture not only the extent to which groups form well-defined strata in the income distribution but also the scale of the resultant differences in income standards between them, where these two factors play the same role as identification and alienation respectively in the measurement of polarisation. The properties of the class as a whole are investigated as well as those of selected members of it: the first two integer members may be interpreted as measuring the overall incidence and depth of stratification, while higher-order members are directly sensitive to the severity of stratification between groups. An illustrative application provides an empirical analysis of global income stratification by regions in 1993.
    Keywords: income stratification; interdistributional inequality; multiple groups
    JEL: D31 D63
    Date: 2014–10

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