nep-pbe New Economics Papers
on Public Economics
Issue of 2015‒08‒01
twelve papers chosen by
Thomas Andrén

  1. Accounting for tax evasion profiles and tax expenditures in microsimulation modelling. The BETAMOD model for personal income taxes in Italy By Andrea Albarea; Michele Bernasconi; Cinzia Di Novi; Anna Marenzi; Dino Rizzi; Francesca Zantomio
  2. The Taxation of Superstars By Florian Scheuer; Iván Werning
  3. Long-term Fiscal and Economic Projections for Canada and the Provinces and Territories, 2014-2038 By Don Drummond; Evan Capeluck
  4. Congestion Pricing in Urban Polycentric Networks with Distorted Labor Markets: A Spatial General Equilibrium Model for the Area Randstad By Ioannis Tikoudis
  5. Optimal Fiscal Policy Rule for Achieving Fiscal Sustainability: A Japanese Case Study By Yoshino, Naoyuki; Mizoguchi, Tetsuro; Taghizadeh-Hesary, Farhad
  6. Fiscal Episodes, Technological Progress and Market Power By António Afonso; João Tovar Jalles
  7. The Optimal Timing of Unemployment Benefits: Theory and Evidence from Sweden By Peter Nilsson; Johannes Spinnewijn; Camille Landais
  8. Tax evasion, informality and the business environment in uganda By Joseph, Mawejje
  9. Local government cooperation at work: A control function approach By Zineb Abidi; Edoardo Di Porto; Angela Parenti; Sonia Paty
  10. Immigration, occupational choice and public employment By Luca Marchiori; Patrice Pieretti; Benteng Zou
  11. Welfare Implications of the Renewable Fuel Standard with a Revenue Neutral Carbon Tax By Skolrud, Tristan D.; Galinato, Gregmar I.
  12. When Do Punishment Institutions Work? By Patrick Aquino; Robert S. Gazzale; Sarah Jacobson

  1. By: Andrea Albarea (Department of Economics, University Of Venice Cà Foscari); Michele Bernasconi (Department of Economics, University Of Venice Cà Foscari); Cinzia Di Novi (Department of Economics, University Of Venice Cà Foscari); Anna Marenzi (Department of Economics, University Of Venice Cà Foscari); Dino Rizzi (Department of Economics, University Of Venice Cà Foscari); Francesca Zantomio (Department of Economics, University Of Venice Cà Foscari)
    Abstract: The paper presents the main characteristics of BETAMOD, a static microsimulation model that reproduces the Italian personal income tax (IRPEF), as well as local income taxes, namely the regional and municipal additional income taxes, building on a detailed reconstruction of tax legislation. With respect to the vast majority of existing tax microsimulation models, the peculiarities of BETAMOD concern two aspects: the inclusion of a detailed set of tax expenditures, and the estimation of individual-specific tax evasion rates, which account for the total individual income level, its composition in terms of income sources, and the geographical area of residence.
    Keywords: Tax-benefit microsimulation, tax evasion, tax expenditures, SILC, Italy
    JEL: C15 C63 H20 H24 H26 H31
    Date: 2015
  2. By: Florian Scheuer; Iván Werning
    Abstract: How are optimal taxes affected by the presence of superstar phenomena at the top of the earnings distribution? To answer this question, we extend the Mirrlees model to incorporate an assignment problem in the labor market that generates superstar effects. Perhaps surprisingly, rather than providing a rationale for higher taxes, we show that superstar effects provides a force for lower marginal taxes, conditional on the observed distribution of earnings. Superstar effects make the earnings schedule convex, which increases the responsiveness of individual earnings to tax changes. We show that various common elasticity measures are not sufficient statistics and must be adjusted upwards in optimal tax formulas. Finally, we study a comparative static that does not keep the observed earnings distribution fixed: when superstar technologies are introduced, inequality increases but we obtain a neutrality result, finding tax rates at the top unaltered.
    JEL: H21 H24
    Date: 2015–07
  3. By: Don Drummond; Evan Capeluck
    Abstract: This report presents long-term fiscal and economic projections for Canada, the provinces and the territories for the 2014-2038 period, and discusses their implications for budgetary balance at the provincial/territorial level. In particular, it examines whether economic growth and hence revenue growth (assuming no major changes in tax policy) will be sufficient to fund likely spending pressures. Economic growth is generally projected to be slower over the next 24 years than since 2000. As a result, all, or almost all, provinces and territories, depending upon the economic assumptions, will not be able to meet the test of balancing revenue growth with growth in public spending. Hence, without tax rate increases or action to curtail spending growth, there will be pressure for progressively larger deficits.
    Keywords: Projection, Ageing, Fiscal Sustainability, Demographics, Canada, Budget, Provinces, Revenue Growth, Taxes, Economic Growth
    JEL: E17 E27 E37 E47 E60 E62 E66 H20 H50 H51 H60 H61 H62 H68 H70 H71 H72 J10 O40
    Date: 2015–07
  4. By: Ioannis Tikoudis (VU University Amsterdam, the Netherlands)
    Abstract: The paper presents a polycentric general equilibrium model with congestion externalities and distortionary labor taxation calibrated to fit the key empirical regularities of the regional economy and transport system of Randstad conglomeration. In line with more stylized models, marginal external cost pricing (i.e. a quasi first-best Pigouvian toll that ignores the pre-existing taxation in the labor market) is shown to generate considerable welfare losses. Surprisingly, the quasi first-best Pigouvian toll is welfare decreasing even when the road tax revenue is used to finance labor tax cuts. This is due to the large deviation of marginal external costs from the optimal toll levels, as the latter are found to be negative in many of the network links. Approximations of the key double-dividend effects show that, in those links, the tax interaction effect is strong enough to outweigh both the revenue-recycling and the Pigouvian effect.
    Keywords: applied general equilibrium; network; road pricing; commuting; polycentricity; environmental taxation; double-dividend
    JEL: D58 H21 H23 C63 R13 R40
    Date: 2015–07–23
  5. By: Yoshino, Naoyuki (Asian Development Bank Institute); Mizoguchi, Tetsuro (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute)
    Abstract: Japan’s debt-to-gross domestic product (GDP) ratio is the highest among Organisation for Economic Co-operation and Development (OECD) countries. This paper will firstly answer the question of whether Japanese government debt is sustainable. Next, while the Domar condition and Bohn’s condition are often used in the literature to check whether a government’s debt situation is in a dangerous zone, this paper will show that the Domar condition is obtained only from the government budget constraint (namely the supply of government bonds) and does not take into account the demand for government bonds. A simple comparison of the interest rate and the growth rate of an economy using the Domar condition is not adequate to check the stability of a government’s budget deficit. Both the interest rate and the growth rate of the economy are determined endogenously in the model. Thirdly, this paper shows that Bohn’s condition satisfies the stability of the government budget in the long run by imposing constraints on the primary balance. However, Bohn’s condition does not achieve economic stability—even if the condition is satisfied, the recovery of the economy may not be achieved. This paper will propose a new condition that satisfies both the stability of the government budget and the recovery of the economy. The paper will shed light on these issues both theoretically and empirically. The empirical findings declare that in order to achieve fiscal sustainability based on the optimal fiscal policy rule provided in this paper, both sides of the Japanese government budget (expenditure and revenue) need to be adjusted simultaneously. Moreover, the results show that the decrease in government expenditure has to be to more than the increase in tax revenue.
    Keywords: fiscal policy; fiscal sustainability; Domar condition; Bohn’s condition; fiscal policy rule
    JEL: E42 E63
    Date: 2015–07–10
  6. By: António Afonso; João Tovar Jalles
    Abstract: We assess the impact of fiscal adjustments (and technology) on the evolution of markups in a panel of 14 OECD countries. We allow for smooth changes in the technological parameters by generating measures of TFP compatible with markups and assess the interaction between the two variables. Our results with narrative action-based data show counter-cyclicality since negative fiscal shocks increase markups. Moreover, in times of economic contraction the degree of counter-cyclicality of negative (positive) government spending (tax) shocks is larger than during economic expansions. In addition, markups have a pro-cyclical behaviour after a productivity shock. However, when identifying fiscal consolidations using changes of the cyclically adjusted primary balance, one obtains expansionary effects and a pro-cyclical behaviour in terms of markups and aggregate demand shocks.
    Keywords: imperfect competition, TFP, fiscal consolidation, local projection, business cycle, impulse response functions, GMM
    JEL: D4 E3 E6 H6
    Date: 2015–07
  7. By: Peter Nilsson (Stockholm University); Johannes Spinnewijn (London School of Economics); Camille Landais (London school of economics)
    Abstract: This paper provides a general framework to analyze the optimal time profile of benefits during the unemployment spell. We derive simple sufficient-statistics formula capturing the insurance value and incentive costs of unemployment benefits at different times during unemployment. Our general approach allows to evaluate the separate arguments for increasing or decreasing profiles put forward in the theoretical literature. Using administrative data in Sweden on unemployment, income and wealth, we find that the insurance value is fairly constant over the unemployment spell. From the start of the spell savings and credit play only a limited role in smoothing the loss of earnings. We also exploit duration-dependent kinks in the replacement rate and find that the welfare-relevant unemployment elasticity is twice as high for benefits in the first twenty weeks of the spell compared to benefits given after 20 weeks. Our evidence therefore indicates that the recent change from a flat to a declining benefit profile in Sweden has decreased welfare. The local welfare gains push towards an increasing rather than decreasing benefit profile over the spell.
    Date: 2015
  8. By: Joseph, Mawejje
    Abstract: Uganda has recorded impressive economic growth rates over the last two decades. How¬ever despite the sustained period of growth, the tax effort measured by the tax-to-GDP ratio has stagnated between 10-13 percent of GDP over the same period. Non-empirical evidence has identified the pervasiveness of the informal sector, tax evasion, narrow tax base, and tax breaks variously given out by the government as some of the factors that might explain the inelastic tax system in Uganda. While the informal sector has implications for tax effort, there is limited research on the microeconomic level determinants of informality and tax evasion in Uganda. This paper provides some empirical evidence on how a poor business environment causes tax evasion. In particular, the paper examines specific components of the business environ¬ment that include the efficiency of the legal systems, bureaucratic bribery and the provision of public capital such as adequate provision of electricity and transport infrastructure which is complementary to firm performance and how they relate to tax evasion. I construct an instrument for bureaucratic bribery as the interaction between a firm’s ability to pay and corruption as a business constraint. I compute an individual firm’s ability to pay bribes as the total cost of labour, including wages, salaries, bonuses and social payments adjusted for the level of annual sales. I use instrumental variable OLS and Tobit estimation procedures separately and find that the extent of tax evasion is determined by the quality and efficiency of the legal systems, bureaucratic bribery and inadequate provision of public capital. In addi¬tion I find that the business environment has implications for tax evasion. These results sug¬gest that ameliorating the business environment, strengthening the legal system, adequate provision of public capital such as transport and electricity infrastructure as well as reigning in on bureaucratic bribery will reduce tax evasion and ultimately lead to increasing Govern¬ment revenue collections.
    Keywords: Tax evasion, informality, business environment, EPRC, Community/Rural/Urban Development, Consumer/Household Economics, Demand and Price Analysis, Financial Economics, Industrial Organization, Institutional and Behavioral Economics, Labor and Human Capital, Production Economics, Productivity Analysis, Public Economics,
    Date: 2013–12
  9. By: Zineb Abidi; Edoardo Di Porto; Angela Parenti; Sonia Paty
    Abstract: We analyze voluntary coalition formation using a unique panel data for 1,056 municipalities in the French region of Brittany between 1995 and 2002. We use a control function approach to develop a binary discrete choice model with spatial interactions. We find that a municipality’s decision to cooperate over the provision local public goods depends on the decisions of its neighbours. Comparison with spatial econometrics models (SAR and Durbin) shows that the decision to cooperate is over estimated by these more traditional models. The results are in line with the recent applied spatial economics literature but are derived for a discrete choice model setting.
    Keywords: Inter-municipal Cooperation; Panel Data; Control Function.
    JEL: C3 H2 H4 H7
    Date: 2015–07–01
  10. By: Luca Marchiori; Patrice Pieretti; Benteng Zou
    Abstract: This paper investigates the theoretical effects of immigration in an occupational choice model with three sectors: a low-skilled, a high-skilled and a public sector. The originality of our approach is to consider (i) intersectoral mobility of labor and (ii) public employment. We highlight the fact that including a public sector is crucial, since omitting it implies that low-skilled immigration unambiguously reduces wages and welfare of all workers. However, when public employment is considered, we demonstrate that immigration increases wages in the high-skilled and the public sectors, provided that the immigrant workforce is not too large and the access to public jobs is not too easy. The average wage of natives may also increase accordingly. Moreover, immigration may improve workers? welfare in each sector. Finally, the mechanism underlying these results does not require complementarity between natives and immigrants.
    Keywords: Immigration, occupational choice model, public employment
    JEL: J24 J61 J45 H44
    Date: 2015–07
  11. By: Skolrud, Tristan D.; Galinato, Gregmar I.
    Keywords: Environmental Economics and Policy, Resource /Energy Economics and Policy,
    Date: 2015
  12. By: Patrick Aquino (Harvard Graduate School of Education); Robert S. Gazzale (University of Toronto); Sarah Jacobson (Williams College)
    Abstract: The public good literature has often found that a punishment option increases cooperation while the gift exchange literature has found the opposite. We use a novel experiment to seek the cause of this difference. We begin with a gift exchange game with punishment as it has typically been implemented therein, and modify two features to replicate conditions more like those usually used in a public good game: punishment's power and its timing (whether the punisher publicly pre-commits to punishment before the punishee decides or acts after the punishee). We replicate the result that punishment institutions as they have typically been implemented in gift exchange games "backfire," but show that this bad outcome disappears if punishment is more powerful. We find three reasons that punishment decreases cooperation: lower wages are offered (a stick is substituted for a carrot); punishment is poorly chosen by many punishers; and some agents spitefully choose low cooperation in retribution against a punishing principal, but only if the punishment is weak so that spite is relatively cheap. We find that punishment that is not publicly pre-committed to is not effective in this game, even though this kind of punishment is similar to that used in many public good games in the literature where punishment does seem to increase cooperation. The only punishment institution that increases cooperation is high-power punishment that is publicly pre-committed to. Finally, the existence of a punishment institution often decreases social surplus (when punishment-related losses are considered), although it may eventually increase social surplus if it is powerful and publicly pre-committed to.
    Keywords: punishment, cooperation, reciprocity, gift exchange, public good
    JEL: C91 D03 D64 H41 J41
    Date: 2015–07

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