nep-pbe New Economics Papers
on Public Economics
Issue of 2015‒06‒05
nineteen papers chosen by
Thomas Andrén

  1. Corporate tax incentives and capital structure: empirical evidence from UK tax returns By Michael P Devereux; Giorgia Maffini; Jing Xing
  2. Optimal Government Spending at the Zero Lower Bound: A Non-Ricardian Analysis By Nakata, Taisuke
  3. Laffer Curves and Public Goods By John Hartwick
  4. Balance-Sheet Households and Fiscal Stimulus: Lessons from the Payroll Tax Cut and Its Expiration By Sahm, Claudia R.; Shapiro, Matthew D.; Slemrod, Joel B.
  5. Making Colombia's Tax Policy More Efficient, Fair and Green By Christian Daude; Sarah Perret; Bert Brys
  6. Education and Optimal Dynamic Taxation: The Role of Income-Contingent Student Loans By Findeisen, Sebastian; Sachs, Dominik
  7. Is International Capital Tax Competition Fueled by the Quest for Increased Productivity? By Aras Zirgulis
  8. When Trade Leads to Inefficient Public Good Provision: a Tax competition model By Emmanuelle Taugourdeau; Abderrahmane Ziad
  9. Corporate Tax and Location Choice for Multinational Firms By Lawless, Martina; McCoy, Daire; Morgenroth, Edgar; O'Toole, Conor
  10. The Calculation of Weighted Price Elasticity of Tax: Turkey (1998-2013) By Yılmaz, Engin; Süslü, Bora
  11. The stabilisation properties of immovable property taxation: Evidence from OECD countries By Hansjörg Blöchliger; Balázs Égert; Bastien Alvarez; Aleksandra Paciorek
  12. Debt Bias in Corporate Income Taxation and the Costs of Banking Crises By Langedijk, Sven; Nicodème, Gaëtan; Pagano, Andrea; Rossi, Alessandro
  13. Structural Alternatives to the Tax Administration By Belev, Sergei; Zolotareva, Anna; Malayrev, Aleksandr; Sokolov, Ilya
  14. The Great Recession, Austerity and Inequality: Evidence from Ireland By Savage, Micheal; Callan, Tim; Nolan, Brian; Colgan, Brian
  15. How to deal with inequality: Welfare system challenges and European responses By Friedl, Andreas; Görlich, Dennis; Horn, Sebastian; Krieger-Boden, Christiane; Lücke, Matthias
  16. The stimulative effect of an unconditional block grant on the decentralized provision of care By Mark Kattenberg; Wouter Vermeulen
  17. Media Coverage and Political Accountability: Theory and Evidence By Strömberg, David
  18. How Health Plan Enrollees Value Prices Relative to Supplemental Benefits and Service Quality By Christian Bünnings; Hendrik Schmitz; Harald Tauchmann; Nicolas R. Ziebarth
  19. Supply response and market imperfections: The implicatios for welfare analysis By Martuscelli, Antonio

  1. By: Michael P Devereux (Centre for Business Taxation, University of Oxford); Giorgia Maffini (Centre for Business Taxation, University of Oxford); Jing Xing (Shanghai Jiao Tong University)
    Abstract: This paper examines how companies' capital structure is affected by the corporate income tax system. Our analysis employs confidential company-level corporation tax return data in the UK. Our main identification strategy is based on variation in companies¡¯ marginal tax rates due to the existence of kinks in the corporate tax rate schedule. Using a dynamic adjustment model of capital structure, we find a positive and substantial long-run tax effect on companies' financial leverage. We show that there are considerable discrepancies between estimates of taxable profits reported in tax return data and in financial statements and that the estimated tax effect on capital structure using financial statements is likely to be biased downward. We find that companies adjust their capital structures gradually in response to changes in the marginal tax rate. Moreover, we find that the external leverage of domestic stand-alone companies and of multinational companies responds strongly to corporate tax incentives.
    Keywords: Corporate taxation, capital structure, tax returns
    JEL: G3 H2
    Date: 2015
  2. By: Nakata, Taisuke (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: This paper analyzes the implications of distortionary taxation and debt financing for optimal government spending policy in a sticky-price economy where the nominal interest rate is subject to the zero lower bound constraint. Regardless of the type of tax available and the initial debt level, optimal government spending policy in a recession is characterized by an initial increase followed by a reduction below, and an eventual return to, the steady state. The magnitude of variations in the government spending as well as their welfare implications depend importantly on the available tax instrument and the initial debt level.
    Keywords: Commitment; distortionary taxation; government spending; liquidity trap; nominal debt; optimal policy; zero lower bound
    JEL: E32 E52 E61 E62 E63
    Date: 2015–05–27
  3. By: John Hartwick (Queen's University)
    Abstract: We set out and solve a static neoclassical model with a labor/leisure choice for agents and a government sector producing a Samuelsonian public good. Numerical solutions vary considerably with the elasticity of substitution for commodities in an agent's utility function. We focus on solutions with an income tax rate set by the government (second best solutions). Government revenue varies with the rate of income tax (expressed in a Laffer Curve) and we observe that such curves generally peak "internally" only for case of "high" elasticity values in the utility function of a representative agent. Inelastic substitution possibilities involve the peaking of the Laffer Curve at a corner with the rate of income tax tending to unity. We report on welfare analysis for small changes in the rate of income tax and on first best outcomes (agents charged Samuelson "prices" for the public good).
    Keywords: Laffer curves, public goods, income tax incidence
    JEL: H22 H24 H41
    Date: 2015–05
  4. By: Sahm, Claudia R. (Board of Governors of the Federal Reserve System (U.S.)); Shapiro, Matthew D. (University of Michigan); Slemrod, Joel B. (University of Michigan)
    Abstract: Balance-sheet repair drove the response of a significant fraction of households to fiscal stimulus following the Great Recession. By combining survey, behavioral, and time-series evidence on the 2011 payroll tax cut and its expiration in 2013, this papers identifies and analyzes households who smooth debt repayment. These "balance-sheet households" are as prevalent as "permanent-income households," who smooth consumption in response to the temporary tax cut, and outnumber "constrained households," who temporarily boost spending. The asymmetric spending response of balance-sheet households poses challenges to standard models, but nonetheless appears important for understanding individual and aggregate responses to fiscal stimulus.
    Keywords: Fiscal stimulus; balance sheets; marginal propensity to consume; payroll tax; survey responses
    Date: 2015–05–20
  5. By: Christian Daude; Sarah Perret; Bert Brys
    Abstract: Tax revenues at 20% of GDP remain low compared to other Latin American countries and the OECD average and tax evasion is pervasive. Lower oil revenues and the expiration of a number of taxes are putting strains on the budget at a time when social and development spending needs are rising. Heavy reliance on corporate income taxes reduces investment. At the same time, the redistributive impact of taxation is reduced because most of income and wealth taxes are paid by firms rather than households. Therefore, Colombia needs a comprehensive tax reform that boosts revenues and shifts the tax burden to support more inclusive and green growth. Tax loopholes and exemptions that reduce the tax base and favour mainly the rich should be reduced significantly. Strengthening the tax administration will help reduce evasion. This Working Paper relates to the 2014 OECD Economic Survey of Colombia. (<P>Axer davantage les politiques fiscales sur l'efficacité, l'équité et l'écologie<BR>Les recettes fiscales de la Colombie, qui s’élèvent à 20% du PIB, sont faibles en comparaison d'autres pays d'Amérique latine ou de la moyenne de l'OCDE, et la fraude fiscale est généralisée dans le pays. La baisse des recettes pétrolières et la suppression d’un certain nombre d’impôts et de taxes exercent une pression budgétaire alors même que les besoins de financement des mesures de développement et de progrès social sont en hausse. Le système fiscal repose largement sur l’impôt sur les bénéfices des sociétés, ce qui décourage l'investissement. En parallèle, les effets redistributifs de la fiscalité sont limités du fait que l’essentiel de la fiscalité sur les revenus et le patrimoine est supporté par les entreprises et non par les ménages. En conséquence, la Colombie doit réformer l’ensemble de sa fiscalité, afin d’augmenter les recettes et de déplacer la charge fiscale pour favoriser une croissance plus inclusive et plus verte. Les nombreuses niches fiscales et exonérations qui réduisent la base imposable et avantagent essentiellement les plus riches devraient être limitées de manière significative. Le renforcement de l'administration de l’impôt permettra de réduire la fraude. Ce document de travail se rapporte à l’Étude économique 2014 de l’OCDE sur la Colombie. ( ique-colombie.htm).
    Keywords: personal income tax, corporate income tax, tax policy, tax evasion, green taxation, fiscalité verte, évasion fiscale, impôt sur le revenu des sociétés, impôt sur le revenu des particuliers, politique fiscale
    JEL: H24 H25 H26
    Date: 2015–05–28
  6. By: Findeisen, Sebastian; Sachs, Dominik
    Abstract: We study the optimal design of integrated education finance and tax systems. The distribution of wages is endogenously determined by the costly education decisions of heterogeneous individuals before labor market entry. Consistent with empirical evidence, this human capital investment decision is risky. We find that an integrated education and tax system in which the government provides education loans to young individuals coupled with income-contingent repayment can always be designed in a Pareto optimal way. We present a simple empirically driven application of the framework to US data in which individuals make a college entry decision. We find the optimal repayment schemes for college loans can be well approximated by a schedule that is linearly increasing in income up to a threshold and constant afterwards. So although the full optimum could lead to complicated non-linear schedules in theory, very simple instruments can replicate it fairly well. The welfare gains from income-contingent repayment are significant.
    Keywords: education; education finance; optimal taxation; student loans
    JEL: H21 H23 I21
    Date: 2015–05
  7. By: Aras Zirgulis (ISM University of Management and Economics)
    Abstract: In this paper we examine the relationship between capital tax competition amongst countries and the productivity spillover effects from foreign capital movements. The traditional theoretical literature regarding tax competition examines the phenomenon through analysis of the competition over tax revenue, which is generated by incoming capital. However, as the theoretical literature on FDI points to improving levels of productivity from managerial and technological spillovers, we investigate the question of whether governments also take into account productivity changes when competing over tax rates. We construct a two country, two firm model incorporating production functions which include productivity spillovers from foreign direct investment. According to our theoretical model, the larger the productivity spillovers from foreign capital, the more intense tax competition will be. We then empirically test this prediction using a spatial dynamic panel data model utilizing a dataset consisting of 42 countries spanning the years of 1998-2012. The empirical model employs system-GMM in order to overcome the endogeneity problem associated with the variables involved in the estimation. We find evidence that productivity levels are having a significant negative impact on tax rates as predicted by the model. Empirical testing is also performed with 21 European Union countries with similar results.
    Keywords: Tax Competition Foreign Direct Investment Productivity Spillovers
    JEL: A10 H23
    Date: 2014–10
  8. By: Emmanuelle Taugourdeau (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); Abderrahmane Ziad (CREM - Centre de Recherche en Economie et Management - CNRS - Université de Caen Basse-Normandie - UR1 - Université de Rennes 1)
    Abstract: This paper analyses the tax competition mechanisms in a context of commodity trade. We show that the trade market equilibrium may restore the efficiency of the public good provision when agents from different countries have symmetric preferences. Asymmetry in preferences implies over or underprovision in public goods depending on the degree of asymmetry between countries. In both cases, the price adjustment leaves the capital stock unchanged so that the stock of capital is not affected by the taxes. Finally, we show that the centralized choice does not systematically restore the efficiency of the public good provision.
    Abstract: Cet article analyse les mécanismes de concurrence fiscale dans un contexte d'échanges de biens entre deux pays. Nous montrons que l'équilibre de la balance commerciale peut restaurer l'efficacité de la fourniture de biens publics lorsque les agents des différents pays ont des préférences symétriques. Une asymétrie dans les préférences des agents entraine une sous-provision ou une sur-provision des biens publics selon le degré d'asymétrie. Dans les deux cas, l'ajustement des prix égalise les rendements du capital de sorte que le stock de capital reste inchangé suite à une modification des taxes. Enfin, nous montrons que l'équilibre centralisé ne restaure pas systématiquement l'efficacité de la fourniture de biens publics.
    Date: 2015–02
  9. By: Lawless, Martina; McCoy, Daire; Morgenroth, Edgar; O'Toole, Conor
    Abstract: The corporate tax rate and regime are policy instruments that are the subject of considerable attention for the role they play in attracting foreign multinationals making location decisions across countries. This paper examines the effects of corporate tax on these location decisions of newly established multinational subsidiaries across 26 European countries over an eight year period. We contribute to the existing literature by examining the effects of a non-linear response of firm location decisions to changes in the tax rate. We find that accounting for this non-linearity improves the performance of the model for all of the alternative measures of the tax rate. We also show that there are large variations in the sensitivity to tax rates across sectors and firm size groups. In particular, financial sector firms are more than twice as sensitive to changes in corporation tax rates relative to other sectors.
    Keywords: Corporation Tax, Location Choice, Multinational firms, FDI
    JEL: C25 F23 H25
    Date: 2015–06–03
  10. By: Yılmaz, Engin; Süslü, Bora
    Abstract: In this study, the assumption of “the weighted price elasticity of tax is a unit in the developing countries” suggested in the first studies which examine the impacts of the inflation on tax revenues, will be reevaluated for Turkey in the period of 1998-2013. We use Turkish tax and price index data for calculating the weighted price elasticity of tax. Via the method of dynamic ordinary least squares (DOLS), the long run weighted price elasticity of tax system is guessed. The importance of this study is the fact that this is first study intended to the calculation of the weighted price elasticity of tax for Turkey. In this sense, it will be instructive study for the reconsideration of the assumption of “the weighted price elasticity of tax is a unit in the developing countries”.
    Keywords: Tanzi Effect, Weighted Price Elasticity of Tax, Taxation
    JEL: H20 H24 H30
    Date: 2015–02–19
  11. By: Hansjörg Blöchliger; Balázs Égert; Bastien Alvarez; Aleksandra Paciorek
    Abstract: This paper contributes to the scarce literature on the macroeconomic effects of property taxes, in particular on the relationships between property taxes, house prices and the wider economy. The paper first estimates a fiscal reaction function which analysis the reaction of property tax revenues to house prices. It then analyses a house price reaction function looking at the relation of how house prices react to changes in property taxes. For a set of OECD countries, the results suggest that property taxes tend to be a-cyclical or slightly pro-cyclical. They provide a stable revenue source for sub-central governments but do not stabilise the economy. The results also suggest that an increase in property tax revenues or in the tax revenue-to-GDP share slows down house price increases and that higher property taxation tends to reduce house price volatility.<P>Les propriétés stabilisatrices de la fiscalité des biens immobiliers : Données relatives aux pays de l'OCDE<BR>Ce document vient compléter les rares travaux publiés sur les effets macroéconomiques des impôts immobiliers, en particulier sur la relation entre la fiscalité immobilière, les prix des logements et l'économie dans son ensemble. Nous estimons d'abord une fonction de réaction budgétaire permettant d'analyser la réaction des recettes d'impôts immobiliers aux variations des prix des logements. Nous analysons ensuite une fonction de réaction des prix des logements, permettant de déterminer comment réagissent les prix des biens immobiliers d'habitation aux variations des impôts immobiliers. Pour un ensemble de pays de l'OCDE, les résultats obtenus laissent à penser que les impôts immobiliers tendent à être acycliques ou légèrement procycliques. Ils constituent une source de recettes stables pour les administrations infranationales mais ne stabilisent pas l'économie. Les résultats obtenus laissent également à penser qu'une hausse des recettes d'impôts immobiliers ou du ratio recettes fiscales/produit intérieur brut (PIB) a pour effet de ralentir les augmentations des prix des logements, et qu'une fiscalité immobilière plus lourde tend à réduire la volatilité des prix des logements.
    Keywords: immovable property tax, stabilisation, housing market, marchés du logement, stabilisation, fiscalité des biens immobiliers
    JEL: E32 H50 H60
    Date: 2015–05–29
  12. By: Langedijk, Sven; Nicodème, Gaëtan; Pagano, Andrea; Rossi, Alessandro
    Abstract: Corporate income taxation (CIT) in most countries favors debt over equity financing, leading to over-indebtedness. This problem is particularly acute for the financial sector. We estimate financial-stability benefits of eliminating this debt bias. We estimate the long-run effects of CIT on bank leverage and, using a Vasicek-based model of banking crisis losses, we find that eliminating this debt bias could reduce public finance losses in the range of 30 to 70%. These results hold even for conservative estimates of bank-leverage and portfolio-risk effects of CIT changes.
    Keywords: capital structure; debt bias; public finance; systemic risk; taxation
    JEL: G01 G28 G32 H25
    Date: 2015–05
  13. By: Belev, Sergei (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Zolotareva, Anna (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Malayrev, Aleksandr (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Sokolov, Ilya (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: This study analyzes several structural alternatives of tax administration in terms of contracts design for tax officers. Particularly, it considers pros and cons of using different efficiency indicators within an efficient contract framework. To understand, which indicators can be used in practice, there has been conducted an analysis of official documents. Since it is not explicitly stated in official data which indicators are used, econometric methods can be viewed as an alternative approach to figure out the presence of relationship between the wage fund and its possible determinants. Overall, the results indicate that the salaries level depends on revenues from taxes and fines, as well as additional revenues from field checks along with expenditures from tax proceeding revisions by courts, ceteris paribus. The estimated effects of these variables constitute only minor fraction of wage payments.
    Date: 2015–04
  14. By: Savage, Micheal; Callan, Tim; Nolan, Brian; Colgan, Brian
    Abstract: The advent of the Great Recession and the widespread adoption of fiscal austerity policies have heightened concern about inequality and its effects. We examine how the distribution of income in Ireland has evolved over the years 2008 to 2013, using data from the CSO?s Survey on Income and Living Conditions. Snapshots of the income distribution show that the greatest falls in income were for the bottom decile (poorest 10 per cent). Longitudinal analysis shows that these sharp falls were not due to decreasing income for those remaining in the bottom decile, but to falling income among those with somewhat higher incomes. Most of those falling into the bottom decile came from the bottom one third of the income distribution.
    Date: 2015–04
  15. By: Friedl, Andreas; Görlich, Dennis; Horn, Sebastian; Krieger-Boden, Christiane; Lücke, Matthias
    Abstract: [Introduction ...] In this paper, we seek to identify innovative ways to limit inequality in households’ disposable incomes and living standards while keeping welfare systems fiscally sustainable. We focus on the welfare systems of EU countries in comparison, to better understand their key features. To set the scene, we review trends in income inequality in Europe in relation to other major world regions. We compare inequality before and after taxes and transfers across European countries to gain insights into the extent of redistribution and, hence, the impact of the national welfare systems (Section 2). Next we review the experience of five European countries that have been identified as examples of distinct welfare system models. We characterize national welfare systems in terms of the extent to which they decommodify labour, emphasize or relax stratification, and engage in social investment rather than income replacement during spells of unemployment (Section 3). We go on to assess the performance of our selected countries in terms of income redistribution, economic growth, polarization between rich and poor, and labour market developments (Section 4). We complement the picture by looking closely at evidence from surveys and economic experiments to assess inequality aversion in our selected countries and relate our findings to the extent of redistribution and other features of the national welfare systems (Section 5). We look for recent challenges for and responses by the welfare systems and reflect on adjustment requirements that lie ahead (Section 6). The final section concludes (Section 7). [...]
    Date: 2015
  16. By: Mark Kattenberg; Wouter Vermeulen
    Abstract: Understanding the impact of central government grants on decentralized health care provision is of crucial importance for the design of grant systems, yet empirical evidence on the prevalence of flypaper effects in this domain is rare. We study the decentralization of home care in the Netherlands and exploit the gradual introduction of formula-based equalization to identify the effect of exogenous changes in an unconditional block grant on local expenditure and utilization. A one euro increase in central government grants raises local expenditure by fifty cents, while adjustments occur through the number of hours as well as through substitution between basic and more advanced types of assistance. These findings suggest that conditioning of grants is not required for the central government to retain some control over the decentralized provision of care.
    JEL: H42 H51 H71 H75
    Date: 2015–06
  17. By: Strömberg, David
    Abstract: This chapter investigates how media coverage filters information and how this affects political accountability and policy. I first present a baseline model of media coverage and its affect political accountability. The model is used to discuss the welfare consequences of private provision of news. It shows how media regulation and public broadcasting may correct market failures, notably the under-provision of news. The model also supplies an array of testable implications, used to organize the existing empirical work. The key empirical questions are: what drives media coverage of politics; how does this coverage influence the information levels and the voting behavior of the general public, the actions and selection of politicians and government policy?
    Keywords: media; policy; regulation; voting
    JEL: D03 D72 H5 L82
    Date: 2015–05
  18. By: Christian Bünnings; Hendrik Schmitz; Harald Tauchmann; Nicolas R. Ziebarth
    Abstract: This paper empirically assesses the relative role of health plan prices, service quality and optional benefits in the decision to choose a health plan. We link representative German SOEP panel data from 2007 to 2010 to (i) health plan service quality indicators, (ii) measures of voluntary benefit provision on top of federally mandated benefits, and (iii) health plan prices for almost all German health plans. Mixed logit models incorporate a total of 1,700 health plan choices with more than 50 choice sets for each individual. The findings suggest that, compared to prices, health plan service quality and supplemental benefits play a minor role in making a health plan choice.
    Keywords: Fee-for-service; capitation; mixed payment systems; physician altruism; laboratory experiment
    JEL: D12 H51 I11 I13
    Date: 2015–03
  19. By: Martuscelli, Antonio
    Abstract: In this thesis we investigate the supply side of farm households in the Tanzanian region of Kagera and incorporate the results into a welfare analysis of price shocks and trade policy options. The first chapter discusses the relevance of agriculture as an engine of growth and poverty reduction and introduces the context and the data used for the empirical analysis. The second chapter tests for separability of the households demand and supply sides and then estimates supply functions for the main crops. We find that separability cannot be rejected for this sample and that farmers are only partially responsive to price incentives. The third chapter analyses the role of market participation decisions and transaction costs for food supply. We find that transaction costs play an important role in households supply decisions. Moreover, we show that there is a positive although small supply response to prices once controlling for the unresponsiveness of self-sufficient households. The fourth chapter extends the standard welfare impact analysis of price shocks to incorporate supply and demand responses as well as the role of market participation and transaction costs. We find that the results are sensitive to the introduction of households’ output, wage and consumption responses.

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