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on Public Economics |
| By: | Trezzi, Riccardo (Board of Governors of the Federal Reserve System (U.S.)); Porcelli, Francesco (University of Exeter) |
| Abstract: | A law issued to allocate reconstruction grants following the 2009 "Aquilano" earthquake has resulted in a large and unanticipated discontinuity across municipalities with comparable damages. Using diff-in-diff analysis we estimate the "local spending" and the "local tax" multipliers--according to the composition of the stimulus--controlling for the negative supply shock generated by the event. The stimulus prevented a fall in economic activity and the multiplicative effects of tax cuts are estimated much higher than those of spending. Our results underline the importance of countercyclical fiscal interventions and suggest the most effective composition of such a stimulus. |
| Keywords: | Natural disasters; fiscal multipliers; Mercalli scale |
| JEL: | C36 E62 H70 |
| Date: | 2014–10–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2014-79 |
| By: | Gehrke, Britta |
| Abstract: | This paper analyzes fiscal policy under fiscal rules in a New Keynesian model with search and matching frictions and distortionary taxation. The model is estimated with US data including detailed information on fiscal instruments. Several findings stand out. First, fiscal rules enhance the positive effects of discretionary fiscal policy on output and unemployment if they influence the expected future path of interest rates. However, effects are smaller as suggested in the existing literature. Second, spending and consumption tax cuts have the largest multipliers. Third, multipliers for labor tax cuts are small. These results originate from the labor market friction and persist in an economy where the friction is more severe. Demand side disturbances explain the majority of labor market dynamics. |
| Keywords: | Fiscal policy,Fiscal rules,Unemployment,Search and matching |
| JEL: | E62 J20 H30 C11 |
| Date: | 2014 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwqwdp:102014 |
| By: | Blaufus, Kay; Braune, Matthias; Hundsdoerfer, Jochen; Jacob, Martin |
| Abstract: | In a real-effort laboratory experiment to manipulate evasion opportunities, we study whether the moral evaluation of tax evasion is subject to a self-serving bias. We find that tax morale is egoistically biased: Subjects with the opportunity to evade taxes judge tax evasion as less unethical as opposed to those who cannot evade. The detection probability does not affect this result. Further, we do not find moral spillover effects, for example, on legal activities. |
| Keywords: | evasion,tax morale,tax compliance,self-serving bias,moral spillover |
| JEL: | H20 H26 |
| Date: | 2014 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:fubsbe:201418 |
| By: | Martin S. Feldstein |
| Abstract: | Limiting tax expenditures can raise revenue without increasing marginal tax rates. Such a policy is equivalent to reducing government spending now done as subsidies through the tax code for a wide range of household spending and income. This paper explores one way of limiting tax expenditures: a cap on the total reduction in tax liabilities that each individual can achieve by the use of deductions and exclusions. The analysis describes the revenue effects and the distributional consequences of such a cap, and examines the sensitivity of these results to various design features. |
| JEL: | H2 |
| Date: | 2014–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:20672 |
| By: | Kindermann, Fabian; Krueger, Dirk |
| Abstract: | In this paper we argue that very high marginal labor income tax rates are an effective tool for social insurance even when households have preferences with high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. To make this point we construct a large scale Overlapping Generations Model with uninsurable labor productivity risk, show that it has a wealth distribution that matches the data well, and then use it to characterize fiscal policies that achieve a desired degree of redistribution in society. We find that marginal tax rates on the top 1% of the earnings distribution of close to 90% are optimal. We document that this result is robust to plausible variation in the labor supply elasticity and holds regardless of whether social welfare is measured at the steady state only or includes transitional generations. |
| Keywords: | Progressive Taxation,Top 1%,Social Insurance,Income Inequality |
| JEL: | E62 H21 H24 |
| Date: | 2014 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cfswop:473 |
| By: | Attinasi, Maria-Grazia; Klemm, Alexander |
| Abstract: | This paper looks at the impact of discretionary fiscal policy on economic growth for a sample of 18 EU countries over the period 1998-2011. The main novelty of this paper is the use, on the revenue side, of a dataset of fiscal measures based on the yield of actual legislative and budgetary measures, rather than approximations, such as changes in cyclically-adjusted variables. Using static and dynamic panel data techniques, we find that fiscal consolidation can be a drag on economic growth in the short-term, although some specific budget categories are not found to be statistically significant. In general, the results also indicate that expenditure-based adjustment tends to be less harmful than revenue-based adjustment. Among expenditure cuts, reductions in government investment and consumption are found to be growth reducing. Among revenues, indirect tax increases are found to have a particularly strong negative impact. Dynamic specifications suggest that consolidation reduces growth mainly in the year of fiscal adjustment, while future growth rates are affected only through the usual time persistence. Nonlinear specifications indicate that spreading out consolidation reduces the negative impact on growth, but only very slightly and in the absence of financial market pressures and/or fiscal sustainability considerations. Additionally, front-loading fiscal consolidation appears to be less detrimental for growth when it is based on expenditure cuts rather than tax increases JEL Classification: H20, H30, H50, C33 |
| Keywords: | fiscal multipliers, fiscal policy and growth, panel data. |
| Date: | 2014–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20141697 |
| By: | Soojin Kim (Purdue University) |
| Abstract: | Two key determinants of optimal tax policies in open economies are the mobility of factors of production, capital and labor; and strategic interaction between governments in setting their policies. This paper develops a two-country, open-economy model with labor mobility and a global nancial market to study optimal taxation. Governments engage in tax competition in which they choose a labor income tax code and a capital income tax rate. A quantitative application of the model to the United Kingdom (UK) and Continental European countries (CE) shows that factor mobility and competition between governments are indeed crucial in the design of optimal policies. Incorporating labor mobility leads to a divergence in the optimal tax system: Unlike in an economy with only capital mobility, where both countries use similar capital income tax rates, the optimal capital income tax rate in the UK is lower than that in the CE when both capital and labor are mobile. This is due to the dierences in productivity between the two countries. In the calibrated economy, the UK, whose productivity is higher than that of the CE, attracts more labor through migration. Thus, the welfare-maximizing level of capital in the relatively small CE is lower than that in the UK. Moreover, I nd that capital income tax rates are higher with competition. With competition, both governments lower capital income tax rates, rendering the marginal benet of a lower tax rate to decrease. The steady-state welfare gain from implementing the Nash equilibrium policies is about 11 percent of consumption of the status quo economy. |
| Date: | 2014 |
| URL: | https://d.repec.org/n?u=RePEc:red:sed014:508 |
| By: | Luttmer, Erzo F.P. (Dartmouth College); Singhal, Monica (Harvard Kennedy School) |
| Abstract: | Standard economic models of tax compliance have focused on enforcement-driven compliance. Notably, tax administrators also tend to place a great deal of emphasis on the importance of improving "tax morale" by encouraging voluntary compliance, creating a culture of compliance, and changing social norms. Tax morale does indeed appear to be an important component of compliance decisions, and there is strong evidence that tax morale operates through a variety of underlying channels. There is less evidence - to date - that indicates we know how to leverage these channels to improve compliance and revenue collection in a consistently successful way. |
| Keywords: | tax compliance, intrinsic motivation, reciprocity, social effects, culture |
| JEL: | H26 |
| Date: | 2014–08 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp8448 |
| By: | Ralph-C Bayer (School of Economics, University of Adelaide) |
| Abstract: | This paper presents a theoretical model and empirical evidence to explain the occurrence of tax amnesties. We treat amnesties as endogenous, resulting from a strategic game between many taxpayers discounting future payments from punishment and a government that trades off costs and benefits of amnesty programs. From the model we derive hypotheses about the factors that should influence the occurrence of tax amnesties. For our empirical test we rely on amnesty information from US States between 1981 and 2011. In line with the theoretical model, our empirical findings suggest that the likelihood of amnesties is mainly driven by a government's fiscal requirements and the taxpayers' expectations on future amnesties. |
| Date: | 2014–01 |
| URL: | https://d.repec.org/n?u=RePEc:adl:wpaper:2014-01 |
| By: | Hernandez-Murillo, Ruben (Federal Reserve Bank of St. Louis) |
| Abstract: | We examine the welfare properties of alternative regimes of interjurisdictional competition for heterogenous mobile firms. Firms differ not only in terms of the degree of mobility across jurisdictions but also in terms of productivity. Alternative taxation regimes represent restraints on the discretionary powers of taxation of local governments. We find that average welfare is higher under discretionary and more efficient taxation regimes (in the sense of minimizing deadweight losses from distortionary taxation) when firms are highly mobile. In this situation, further limiting competition by imposing a system of non-discretionary instruments can reduce average welfare by reducing the efficiency of the local governments at raising and allocating public funds. When firms face high moving costs, on the other hand, switching to a non-discretionary and less efficient taxation regime may increase welfare by preventing local governments from engaging in excessive redistribution of resources. |
| Keywords: | Firms location decisions; jurisdictions; tax competition. |
| JEL: | C72 H21 H32 H73 |
| Date: | 2014–10–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:2014-036 |
| By: | Stephen Coate |
| Abstract: | This paper studies the optimal design of fiscal limits in the context of a simple political economy model. The model features a single politician and a representative voter. The politician is responsible for choosing the level of public spending for the voter but may be biased in favor of spending. The voter sets a spending limit and requires that the politician have voter approval to exceed it. This limit must be set before the voter's preferences for public spending are fully known. The paper first solves for the optimal limit and explains how it depends upon the degree of politician bias and the nature of the uncertainty concerning the voter's preferred spending level. A dynamic version of the model is then analyzed and policies which limit the rate of growth of spending are shown to dominate those that cap spending to be below some fixed fraction of community income. |
| JEL: | H72 |
| Date: | 2014–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:20643 |
| By: | Raul Ramos (Department of Econometrics. University of Barcelona); Vicente Royuela (Department of Econometrics. University of Barcelona) |
| Abstract: | The evolution of income inequality is becoming a great concern all over the World, particularly since the start of the Great Recession. In this work we analyse the main trends of income inequality in Europe over the last decade, both at the national and regional level. Our results point to a large diversity in inequality patterns, as we observe both increases and decreases in inequality both at the regional and at the national level. The EU2020 Strategy aims achieving an inclusive economic growth, benefitting the largest possible number of people. We briefly analyse the main factors impacting inequality and finally derive several policy implications. |
| Keywords: | Inequality, Globalisation, Technological change, European regions. JEL classification: R11, R12, O15, O3, F61 |
| Date: | 2014–10 |
| URL: | https://d.repec.org/n?u=RePEc:aqr:wpaper:201413 |
| By: | Carla Canelas (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); François Gardes (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Silvia Salazar (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne) |
| Abstract: | In this article, we propose a new method to estimate price effects on micro cross-sectional data using full prices that take into account household domestic production. We use behavioral microsimulations by subpopulations to analyze the redistributive impact of changes on Value Added Tax (VAT) rates in Ecuador and Guatemala. Utility analysis is used to evaluate the consequences on households welfare caused by these tax reforms. The proposed model solves the crucial problem of price data availability in developing countries. The estimates of the full price elasticities highlight the importance of the substitution between time and monetary expenditures within the households domestic production function and show that traditional approaches only tell half of the story. In general, the utility estimates seem to be consistent as they have the expected sign and follow the same pattern of changes in consumption. |
| Keywords: | Consumer demand; full prices; microsimulation; taxes; time-use; welfare |
| Date: | 2013–07 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:halshs-00881014 |
| By: | Davide Debortoli; Ricardo Nunes; Pierre Yared |
| Abstract: | This paper develops a model of optimal government debt maturity in which the government cannot issue state-contingent bonds and cannot commit to fiscal policy. If the government can perfectly commit, it fully insulates the economy against government spending shocks by purchasing short-term assets and issuing long-term debt. These positions are quantitatively very large relative to GDP and do not need to be actively managed by the government. Our main result is that these conclusions are not robust to the introduction of lack of commitment. Under lack of commitment, large and tilted positions are very expensive to finance ex-ante since they exacerbate the problem of lack of commitment ex-post. In contrast, a flat maturity structure minimizes the cost of lack of commitment, though it also limits insurance and increases the volatility of fiscal policy distortions. We show that the optimal maturity structure is nearly flat because reducing average borrowing costs is quantitatively more important for welfare than reducing fiscal policy volatility. Thus, under lack of commitment, the government actively manages its debt positions and can approximate optimal policy by confining its debt instruments to consols. |
| JEL: | E62 H21 H63 |
| Date: | 2014–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:20632 |