nep-pbe New Economics Papers
on Public Economics
Issue of 2015‒04‒11
sixteen papers chosen by
Thomas Andrén

  1. Personal Income Tax Reforms: a Genetic Algorithm Approach By Matteo Morini; Simone Pellegrino
  2. Tax and Transfer Policies and the Female Labor Supply in the EU By Kaliskova, Klara
  3. Tax havens under pressure: How do they react? By Patrice Pieretti; Giuseppe Pulina
  4. Tax-Efficient Asset Management: Evidence from Equity Mutual Funds By Clemens Sialm; Hanjiang Zhang
  5. On the timing of tax and investment in fiscal competition models By Hindriks, Jean; Nishimura, Yukihiro
  6. Fiscal Competition versus Fiscal Harmonization: A Review of the Arguments By Krishanu Karmakar; Jorge Martinez-Vazquez
  7. Improving Taxes and Transfers in Australia By Philip Hemmings; Annamaria Tuske
  8. Low-Income Housing Policy By Robert Collinson; Ingrid Gould Ellen; Jens Ludwig
  9. Do federal deficits motivate regional fiscal (im)balances? Evidence from the Spanish case. By Agustín Molina-Parra; Diego Martínez-López
  10. Income tax exemption as a regional state aid in special economic zones and its impact upon development of Polish districts By Adam A. Ambroziak
  11. Out-of-pocket payments in the Austrian healthcare system - a distributional analysis By Alice Sanwald; Engelbert Theurl
  12. Insurance in extended family networks By Orazio Attanasio; Costas Meghir; Corina Mommaerts
  13. Optimal taxation theory and principles of fairness By Fleurbaey, Marc; Maniquet, François
  14. Should we be Austere? A Normative look at Public Debt By Jafri, Juvaria
  15. Mind the Gap: Crowd-Funding and the Role of Seed Money By Deutsch, Joseph; Epstein, Gil S.; Nir, Alon
  16. Welfare state adjustment to new social risks in the post-crisis scenario. A review with focus on the social investment perspective By Thomas Leoni

  1. By: Matteo Morini (ENS Lyon and University of Torino); Simone Pellegrino (University of Torino)
    Abstract: Given a settled reduction in the present level of tax revenue, and by exploring a very large combinatorial space of tax structures, in this paper we employ a genetic algorithm in order to determine the ‘best’ structure of a real world personal income tax that allows for the maximization of the redistributive effect of the tax, while preventing all taxpayers being worse off than with the present tax structure. We take Italy as a case study.
    Date: 2014–12
  2. By: Kaliskova, Klara (CERGE-EI)
    Abstract: This study contributes to the female labor supply responsiveness literature by measuring the effect of tax-benefit policies on female labor supply based on a broad sample of 26 European countries in 2005-2010. The tax-benefit microsimulation model EUROMOD is used to calculate a measure of work incentives at the extensive margin – the participation tax rate, which is then used as the main explanatory variable in a female employment equation. This allows me to deal with the endogeneity of income in a new way by using a simulated instrumental variable based on a fixed EU-wide sample of women. Results suggest that a 10 percentage point increase in the participation tax rate decreases the female employment probability by 2 percentage points. The effect is higher for single mothers, for women in the middle of the skills distribution, and in countries that have lower rates of female employment.
    Keywords: female labor supply, tax and benefit system, Europe, instrumental variable
    JEL: C25 H24 H31 J22
    Date: 2015–03
  3. By: Patrice Pieretti (CREA, Université de Luxembourg); Giuseppe Pulina (CREA, Université de Luxembourg)
    Abstract: This paper contributes to the literature about tax havens by providing a more comprehensive analysis of their role. The aim is to analyze how low tax jurisdictions can react to growing international pressure exerted by high tax countries to enforce compliance with anti-tax planning standards. To this end, we model how a small tax haven tries to attract foreign direct invest- ments from a large high tax region by providing tax planning services and/or a favorable environment for local activities. The model demonstrates that it is always optimal to stigmatize a non-compliant low tax jurisdiction, even if its reputation for being attractive to real foreign investments is thereby affected. Another result is that a welfarist government should, under cer- tain circumstances, optimally tolerate some tax planning. This is all the more likely when the degree of international integration is low and/or the reputation losses resulting from political pressure weakly affect real offshore activities.
    Keywords: Aggressive tax planning, Tax havens, Multinational_rms, Value driven FDIs, Political pressure
    JEL: F21 H26 H25 F23
    Date: 2015
  4. By: Clemens Sialm; Hanjiang Zhang
    Abstract: Investment taxes have a substantial impact on the performance of taxable mutual fund investors. Mutual funds can reduce the tax burdens of their shareholders by avoiding securities that are heavily taxed and by avoiding realizing capital gains that trigger higher tax burdens to the funds’ investors. Such tax avoidance strategies constrain the investment opportunities of the mutual funds and might reduce their before-tax performance. Our paper empirically investigates the costs and benefits of tax-efficient asset management based on U.S. equity mutual funds. We find that mutual funds that follow tax-efficient asset management strategies generate superior after-tax returns. Surprisingly, more tax-efficient mutual funds do not underperform other funds before taxes, indicating that the constraints imposed by tax-efficient asset management do not have significant performance consequences.
    JEL: G11 G18 G23 G28 H2 H22 H24
    Date: 2015–04
  5. By: Hindriks, Jean (Université catholique de Louvain, CORE, Belgium); Nishimura, Yukihiro (Osaka University, Graduate School of Economics, Japan)
    Abstract: We study a model in which asymmetric regions compete for capital with both public investments and taxes. Public investments are chosen in the first stage, and then source income taxes are set in the second stage. Public investments increase the productivity of capital and they also serve to stake out a positive advantage in the tax competition stage. In standard theories of tax competition, investments and taxes were assumed to be chosen simultaneously. Comparing our approach to earlier theory, we show that regions prefer to choose investment before taxes. We also show that sequential choice of taxes is preferable to simultaneous choice of taxes, and that modulo sufficient asymmetry among regions, the simultaneous choice of investment is preferable to the sequential choice of investments. Our theoretical prediction is that both taxes and public investments are distorted downwards in equilibrium.
    Keywords: endogeneous timing, tax competition, public investments
    JEL: H30 H87 C72
    Date: 2014–12–15
  6. By: Krishanu Karmakar; Jorge Martinez-Vazquez (International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University)
    Abstract: A substantial theoretical and empirical literature has developed to addresses the advantages and perils of tax competition and how far it may be desirable to advance tax harmonization. The basic idea of the early literature was that internationally mobile capital moves from countries with higher rates of corporate taxation to lower rate countries. This limits the ability of the governments to tax capital and tend to reduce tax revenue of the government. Subsequent research has extended the basic model of tax competition by incorporating several important facets and qualifications to better reflect the real world. These studies have reached conclusions which are either starkly different from the early literature or have added important qualification to those. The principle theme of these new conclusions is that tax competition need not be as harmful as portrayed earlier. In the article we survey the extant theoretical literature on tax competition and tax harmonization and try to understand what lessons policy makers can learn from it.
    Date: 2014–11–18
  7. By: Philip Hemmings; Annamaria Tuske
    Abstract: Getting tax and transfer systems to efficiently deliver sufficient revenues to achieve macroeconomic targets, address goals in re-distribution and social welfare, encourage employment, accommodate business-competitiveness concerns and incorporate environmental issues is difficult. In Australia, slowing economic growth in the wake of the mining boom has sharpened the trade-offs and brought into focus the importance of encouraging broad-based advances in employment and productive capacity while also dealing with other long-term challenges, in particular population ageing and greenhouse-gas emission reduction. This review particularly recommends shifting away from income taxation to indirect taxation, for instance by raising more revenue from the Goods and Services Tax. The report also advises caution in some recent welfare-reform proposals, and advocates broad support for business rather than targeted subsidies and other forms of corporate welfare. As regards environmental policies, the report comments on the proposed Emission Reduction Fund for reducing greenhouse gases and supports reform to vehicle-related taxation. This Working Paper relates to the 2014 OECD Economic Survey of Australia (<P>Améliorer le système de prélèvements et de prestations en Australie<BR>Il n’est pas facile de faire en sorte que le système de prélèvements et de prestations dégage suffisamment de recettes pour atteindre les objectifs de politique macroéconomique, de redistribution et de bien-être social, encourage la création d’emplois, réponde aux préoccupations de compétitivité des entreprises et contribue à relever les défis environnementaux. En Australie, le ralentissement de la croissance économique à la suite du boom minier a accentué les arbitrages et mis en lumière l’importance d’encourager de larges progrès en matière d’emploi et de capacités productives, tout en relevant d’autres défis à long terme, comme le vieillissement démographique et la réduction des émissions de gaz à effet de serre. Cet examen recommande en particulier de se détourner de l’imposition des revenus au profit de la fiscalité indirecte, par exemple en augmentant les recettes provenant de la taxe sur les produits et services. Le rapport met également en garde concernant certaines propositions récentes de réforme du système de protection sociale, et préconise un large soutien aux entreprises plutôt que des subventions ciblées et d’autres formes d’aide sociale aux entreprises. S’agissant des politiques d’environnement, le rapport formule des observations sur le projet de Fonds pour la réduction des émissions de gaz à effet de serre et appuie la réforme de la taxation des véhicules. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de l'Australie, 2014 ( ue-australie.htm.).
    Keywords: taxes, transfers, taxation, subsidies, income tax, pensions, corporate tax, welfare, carbon tax, indirect tax, goods and services tax, biens et services, impôt indirect, taxe carbone, impôt sur les sociétés, aide sociale, subventions, impôt sur le revenu, fiscalité, transferts, pensions
    JEL: H20 H21 H22 H23 H24 H25 H26 H27 H29 Q58
    Date: 2015–03–27
  8. By: Robert Collinson; Ingrid Gould Ellen; Jens Ludwig
    Abstract: The United States government devotes about $40 billion each year to means-tested housing programs, plus another $6 billion or so in tax expenditures on the Low Income Housing Tax Credit (LIHTC). What exactly do we spend this money on, why, and what does it accomplish? We focus on these questions. We begin by reviewing the history of low-income housing programs in the U.S., and then summarize the characteristics of participants in means-tested housing programs and how programs have changed over time. We consider important conceptual issues surrounding the design of and rationale for means-tested housing programs in the U.S. and review existing empirical evidence, which is limited in important ways. Finally, we conclude with thoughts about the most pressing questions that might be addressed in future research in this area.
    JEL: H53 I3 I38 R28
    Date: 2015–04
  9. By: Agustín Molina-Parra; Diego Martínez-López
    Abstract: This paper studies the vertical and horizontal interactions existing between federal and state governments in terms of public deficits. We estimate a fiscal reaction function for the Spanish regions over the period 1995-2010 paying special attention to the impact of federal fiscal stance on the state fiscal imbalances. Our results indicate that higher public deficits of the central government encourage bigger fiscal imbalances at state level. This vertical interaction is interpreted in the context of yardstick competition models. We also find a significant impact of fiscal decisions taken by governments at the same tier of decision on a specific state.
    Keywords: public de?cit, intergovernmental relations, yardstick competition.
    JEL: H62 H72 H77
    Date: 2015–03
  10. By: Adam A. Ambroziak (Warsaw School of Economics)
    Abstract: Special Economic Zones (SEZs) were established to attract entrepreneurs to invest in Polish regions in order to increase their social and economic development. One of the most important incentives offered in SEZs is state aid in the form of an income tax exemption. The objective of this paper is to verify if the intensity of regional state aid granted to entrepreneurs in SEZs has had a positive impact on the social and economic development of Polish poviats (a poviat is an administrative district). The public aid was received by beneficiaries when they made some profits and, instead of investing, used a tax allowance to decrease their tax base. However, part of the positive outcome of economic activities envisioned in SEZs should be the development of existing businesses and the emergence of start-ups, as well as the improved attractiveness of the region and the inflow of new investors (which should be manifested by an increase in the gross value of fixed assets per entrepreneur and a decrease in the unemployment rate at poviat level). The conducted research allowed for the conclusion that regional state aid in SEZs in the form of an income tax exemption was of a relative higher importance to the poorest regions (higher share in the amount of regional state aid), while its significance was much lower in better developed areas in Poland (lower share in the amount of regional state aid). The year-to-year study showed no relation between state aid granted in SEZs and an increase in GVFA per company or a decrease in the unemployment rate. However on the basis of analysis of the cumulated value of state aid in SEZs for the whole period from 2005 to 2013, we can say that regional state aid in the form of an income tax exemption in SEZs had a positive influence mainly in poviats located in the poorest voivodeships.
    Keywords: regional state aid; special economic zones; regional development; poviats in Poland; public support
    JEL: H25 H32 R11 R58
    Date: 2015–04
  11. By: Alice Sanwald; Engelbert Theurl
    Abstract: Introduction: Out-of-pocket spending is an important source of healthcare financing even in countries with established prepaid financing of healthcare. However, out-of-pocket payments (OOPP) may have undesirable effects from an equity perspective. In this study, we analyse the distributive effects of OOPP in Austria based on cross-sectional information from the Austrian Household Budget Survey 2009/10. Methods: We combine evidence from disaggregated measures (concentration curve and Lorenz curve) and summary indices (Gini coefficient, Kakwani index, and Reynolds-Smolensky index) to demonstrate the distributive effects of total OOPP and their subcomponents. Thereby, we use different specifications of household ability to pay. We follow the Aronson-Johnson-Lampert approach and split the distributive effect into its three components: progressivity, horizontal equity, and reranking. Results: OOPP in Austria have regressive effects on income distribution. These regressive effects are especially pronounced for the OOPP category prescription fees and over-the-counter pharmaceuticals. Dis- aggregated evidence shows that the effects differ between income groups. The decomposition analysis reveals a high degree of reranking and horizontal inequity for total OOPP, and particularly, for therapeutic aids and physician services. Conclusions: The results - especially those for prescription fees and therapeutic aids - are of high relevance for the recent and on-going discussion on the reform of benefit catalogues and cost-sharing schemes in the public health insurance system in Austria.
    Keywords: out-of-pocket health expenditure, healthcare financing inequalities, Kakwani index, vertical equity, horizontal equity, reranking
    JEL: H22 H23 H51 I14
    Date: 2015–04
  12. By: Orazio Attanasio; Costas Meghir; Corina Mommaerts
    Abstract: We investigate partial insurance and group risk sharing in extended family networks. Our approach is based on decomposing income shocks into group aggregate and idiosyncratic components, allowing us to measure the extent to which each is insured, having accounted for public insurance programs. We apply our framework to extended family networks in the United States by exploiting the unique intergenerational structure of the PSID. We find that over 60% of shocks to household income are potentially insurable within family networks. However, we find little evidence that the extended family provides insurance for such idiosyncratic shocks.
    JEL: D12 D31 D91 E21 E24 H31
    Date: 2015–04
  13. By: Fleurbaey, Marc (Princeton University); Maniquet, François (Université catholique de Louvain, CORE, Belgium)
    Abstract: The achievements and limitations of the classical theory of optimal labor-income taxation based on social welfare functions are now well known, although utilitarianism still dominates public economics. We review the recent interest that has arisen for broadening the normative approach and making room for fairness principles such as desert or responsibility. Fairness principles sometimes provide immediate recommendations about the relative weights to assign to various income ranges, but in general require a careful choice of utility representations embodying the relevant interpersonal comparisons. The main message of this paper is that the traditional tool of welfare economics, the social welfare function framework, is flexible enough to incorporate many approaches, from egalitarianism to libertarianism.
    Keywords: optimal taxation, fair social orderings
    JEL: H21 D63
    Date: 2015–02–19
  14. By: Jafri, Juvaria
    Abstract: Excessive debt accumulation is an important policy concern in both developing and advanced economies because it is associated with various issues, particularly low growth and high inflation. This is apparent from the deleveraging vs. deficit spending debate; in this, the focus has tended to be on two specific outcomes, that is, on economic growth, and inflation. So, this debate often overlooks the repercussions of debt on economic freedom. Economic freedom may be regarded not just as a means to macroeconomic growth and stability, but also as in end in itself. It tends to be inhibited when the full consequences of rising public debt, whether from external or domestic sources, are misunderstood, particularly when the underlying basis for debt accumulation is neither stimulus nor smoothing.
    Keywords: public debt, economic freedom, odious debt
    JEL: B5 B53 H3 H30 H5 H6 H62 H63
    Date: 2014–10–24
  15. By: Deutsch, Joseph (Bar-Ilan University); Epstein, Gil S. (Bar-Ilan University); Nir, Alon (Bar-Ilan University)
    Abstract: We analyze voluntary private contributions to public goods and the role seed money plays in signaling the public good's quality to potential subsequent contributors. We present a theoretical model and analyze two sets of naturally occurring data from crowd-funding platforms. After developing the theoretical background we find statistically significant switch points which distinguish between seed contributions to subsequent contributions. A positive change in contribution behavior after the switch suggests an increase in the perceived value of the public good. We find that the signal comprises the number of contributors and the average contribution (as proportion of targeted goal).
    Keywords: public goods, voluntary private provision, crowd-funding platform, seed money
    JEL: H4 H42 H8 D8
    Date: 2015–03
  16. By: Thomas Leoni
    Abstract: The European welfare states have undergone a significant amount of change over the last decades. In light of the unresolved tensions resulting from changed macroeconomic conditions, the emergence of new social risks as well as from the consequences of the Great Recession and its aftershocks, more adjustments are needed. The present policy paper investigates the current outlook on welfare state change, retracing the socio-economic drivers of this change and the salient steps that were undertaken to reform welfare states in the last decades. Since the outbreak of the crisis, calls to adopt a social investment perspective on welfare state reform intensified, both in the academic field and at the EU policy-level. Ample space is therefore devoted to the discussion of this perspective, its conceptual background, ambiguities and applications. For a number of reasons, social investment seems the most appropriate approach to frame the objectives that contemporary welfare states have to pursue and to devise a consistent set of policies. The objections which have been moved against the social investment perspective have however to be taken seriously. This concerns the conceptual framework on which the social investment idea is based, but in particular its policy implementation and the relationship between its three central pillars: activation, human capital development and social inclusion.
    Keywords: Challenges for welfare system, Comprehensive social system, Demographic change, EU integration, European governance, Gender, Labour markets, Post-industrialisation, Welfare reform, Welfare state
    JEL: H5 I3
    Date: 2015–03

This nep-pbe issue is ©2015 by Thomas Andrén. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.