nep-pbe New Economics Papers
on Public Economics
Issue of 2015‒08‒19
23 papers chosen by
Thomas Andrén

  1. Taxing Superstars By Ivan Werning; Florian Scheuer
  2. Optimal Income Taxation with Asset Accumulation By Abraham, Arpad; Koehne, Sebastian; Pavoni, Nicola
  3. Public Education, Pension and Debt Policy By Yasuoka, Masaya; Oguro, Kazumasa
  4. Revisiting the Income Tax Effects of Legalizing Same-sex Marriages By James Alm; J. Sebastian Leguizamon; Susane Leguizamon
  5. Tax Havens and Effective Tax Rates: An Analysis of Private versus Public European Firms By Aziz Jaafar; John Thorton
  6. Changes in the Distribution of After-Tax Wealth: Has Income Tax Policy Increased Wealth Inequality? By Looney, Adam; Moore, Kevin B.
  7. Individual heterogeneity, nonlinear budget sets and taxable income By Soren Blomquist; Anil Kumar; Che-Yuan Liang; Whitney Newey
  8. Income tax and retirement schemes By Philippe Choné; Guy Laroque
  9. Options to Narrow New Zealand’s Saving – Investment Imbalance By Anne-Marie Brook
  10. Wealth Inequality and Social Mobility By Mi Luo; Alberto Bisin; Jess Benhabib
  11. Optimal Taxation with Endogenous Default under Incomplete Markets By Demian Pouzo; Ignacio Presno
  12. Optimal Conventional Stabilization Policy in a Liquidity Trap When Wages and Prices are Sticky By Adiya Belgibayeva; Michal Horvath
  13. Fiscal decentralisation in times of financial crises By David Bartolini; Agnese Sacchi; Simone Salotti; Raffaella Santolini
  14. What future for taxation in the EU ? By Catherine Mathieu; Henri Sterdyniak
  15. Does height affect labor supply? Implications of product variety and caloric needs By Micheli, Martin
  16. Does Credit-card Information Reporting Improve Small-business Tax Compliance? By Joel Slemrod; Brett Collins; Jeffrey Hoopes; Daniel Reck; Michael Sebastiani
  17. Tax Revenues and Intelligence: A Cross-Sectional Evidence By Oasis Kodila-Tedika; Mihai Mutascu
  18. Fiscal Multipliers in the 21st Century By Per Krusell; Laurence Malafry; Hans Holter; Pedro Brinca
  19. Is there a debt-threshold effect on output growth? By Chudik, Alexander; Mohaddes, Kamiar; Pesaran, M. Hashem; Raissi, Mehdi
  20. Reforming the public administration: The role of crisis and the power of bureaucracy By Asatryan, Zareh; Heinemann, Friedrich; Pitlik, Hans
  21. Individual Heterogeneity and Average Welfare By Jerry Hausman; Whitney Newey
  22. The Swedish Macroeconomic Policy Framework By Calmfors, Lars
  23. Applying Behavioral Economics to the Public Sector By James Alm; Carolyn J. Bourdeaux

  1. By: Ivan Werning (Massachusetts Institute of Technology); Florian Scheuer (Stanford University)
    Abstract: We develop a unifying framework for optimal income taxation in multi-activity economies with general production technologies. Agents are characterized by an N-dimensional skill vector that captures intrinsic abilities in N activities. The private return to each activity depends on individual skill and an aggregate activity-specific return, which is a general function of the economy-wide distribution of efforts across activities. The optimal tax schedule features a multiplicative income-specific correction to an otherwise standard tax formula. Because taxes affect the relative returns to different activities, this correction diverges, in general, from the weighted average of the Pigouvian taxes that would align private and social returns in each activity. We characterize this divergence as a function of relative return elasticities, and its implications for the shape of the income tax both generally and in a number of applications, including externality-free economies with general equilibrium effects, economies with increasing or decreasing returns to scale, zero-sum activities such as bargaining or rent extraction, and positive or negative spillovers.
    Date: 2015
  2. By: Abraham, Arpad; Koehne, Sebastian; Pavoni, Nicola
    Abstract: Several frictions restrict the government's ability to tax assets. First, it is very costly to monitor trades on international asset markets. Second, agents can resort to nonobservable low-return assets such as cash, gold or foreign currencies if taxes on observable assets become too high. This paper shows that limitations in asset taxation have important consequences for the taxation of labor income. Using a dynamic moral hazard model of social insurance, we find that optimal labor income taxes become less progressive when governments face limitations in asset taxation. We evaluate the quantitative effect of imperfect asset taxation for two applications of our model.
    Keywords: Optimal Income Taxation, Capital Taxation, Progressivity
    JEL: D82 D86 E21 H21
    Date: 2014
  3. By: Yasuoka, Masaya; Oguro, Kazumasa
    Abstract: Our paper sets the model with public education investment, pension bene t and public debt stock and examines how tax burden and expenditure share between education policy and pension policy a ect the public debt stock ratio to Gross Domestic Product (GDP). Moreover, our paper considers the target policy to be constant public debt ratio to GDP over time. Based on Domar condition, our paper examines scal sustainability and how tax and expenditure policy a ect on the public debt stock ratio to GDP in the long run. The change of expenditure share between public education investment and pension bene t can decrease the public debt ratio to GDP. Moreover, our paper derives two positive income tax rate to hold constant public debt ratio to GDP. Thanks to low tax rate, physical capital accumulation increases and then both income growth and income level increase.
    Keywords: Public Debt, Human Capital, Pension, Education Investment
    JEL: H60 H20 E60 I21
    Date: 2015–07
  4. By: James Alm (Department of Economics, Tulane University); J. Sebastian Leguizamon (Department of Economics, Vanderbilt University); Susane Leguizamon (Department of Economics, Western Kentucky University)
    Abstract: In this paper, we estimate the impacts on income tax collections of legalizing same-sex marriage. We utilize new individual-level data sources to estimate the federal income tax consequences of legalizing same-sex marriages. These data sources also allow us to estimate the impact of legalization on state income tax collections. We find that 23 states would realize a net fiscal benefit from legalization, while 21 states w ould experience a decline in revenue. The potential (annual) changes in state tax revenue range from negative $29 million in California to positive $16 million in New York. At the federal level, our estimates suggest an overall reduction in revenues, ranging from a potential loss of $187 million to $580 million. Overall, we find that the federal and state impacts are quite modest. We also find that our estimates are only marginally affected by alternative assumptions about how many same-sex couples will choose to marry and which partner will claim any children for tax deduction purposes.
    Keywords: marriage, individual income tax, marriage tax, taxable unit
    JEL: H24 J12 J16
    Date: 2014–01
  5. By: Aziz Jaafar (Bangor University); John Thorton (Bangor University)
    Abstract: We examine the impact of tax-haven operations on the effective corporate tax burdens of publicly listed and privately held firms domiciled in Europe. In particular, we consider how European firmsÕ tax haven operations interacts with factors such listing status and home-country tax reporting systems to determine the relative tax burdens of publicly listed and private firms. Our main empirical results show that tax haven operations is associated with lower effective tax rates for both private and public firms, and that the impact of tax havens in lowering effective tax rates is more pronounced for private firms than for public firms.Home country characteristics are also important determinants of effective tax rates for both private and public firms with tax havens. Given that firms, regardless of their listing status, use tax havens as tax avoidance mechanism in lowering tax burdens, regulatory and tax enforcement bodies should focus not only on public firms but also on private firms.
    Keywords: Effective tax rates, Publicly listed firms, Private firms, Tax havens
    JEL: H20 M41
    Date: 2015–05
  6. By: Looney, Adam (Brookings Institution); Moore, Kevin B. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: A substantial share of the wealth of Americans is held in tax-deferred form such as in retirement accounts or as unrealized capital gains. Most data and statistics on assets and wealth is reported on a pre-tax basis, but pre-tax values include an implicit tax liability and may not provide as accurate a measure of the financial position or material well-being of families. In this paper, we describe the distribution of tax-deferred assets in the SCF from 1989 to 2013, provide new estimates of the income tax liabilities implicit in those assets, and present new statistics on the level and distribution of after-tax net worth. The results of our analysis suggest that, relative to published statistics on pre-tax net worth, the distribution of after-tax wealth is slightly less concentrated at each point in time and the effectiveness of the income tax system in reducing wealth inequality has decreased during the last decade. We find the reduction in the long-term capital gains rate is the primary reason for the muted effectiveness of the income tax system in reducing wealth inequality.
    Keywords: Inequality; taxation; wealth
    JEL: H22 H24
    Date: 2015–06–05
  7. By: Soren Blomquist (Institute for Fiscal Studies); Anil Kumar (Institute for Fiscal Studies); Che-Yuan Liang (Institute for Fiscal Studies); Whitney Newey (Institute for Fiscal Studies and MIT)
    Abstract: Many studies have estimated the effect of taxes on taxable income. To account for nonlinear taxes these studies either use instrumental variables approaches that are not fully consistent or impose strong functional form assumptions. None allow for general heterogeneity in preferences. In this paper we derive the expected value and distribution of taxable income conditional on a nonlinear budget set, allowing general heterogeneity and optimization error in taxable income. We find an important dimension reduction and use that to develop nonparametric estimation methods. We show how to nonparametrically estimate the expected value of taxable income imposing all the restrictions of utility maximization and allowing for measurement errors. We characterize what can be learned nonparametrically from kinks about compensated tax effects. We apply our results to Swedish data and estimate for prime age males a significant net of tax elasticity of 0.21 and a significant nonlabor income effect of about -1. The income effect is substantially larger in magnitude than it is found to be in other taxable income studies.
    Keywords: Nonlinear budget sets; nonparametric estimation; heterogeneous preferences; taxable income; revealed stochastic preference
    JEL: C14 C24 H31 J22
    Date: 2015–05
  8. By: Philippe Choné (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique); Guy Laroque (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique)
    Abstract: This article aims at understanding the interplay between pension schemes and tax instruments. The model features extensive labor supply in a stationary environment with overlapping generations and perfect financial markets. Compared with the reference case of a pure taxation economy, we find that taxes become more redistributive when the pension instrument is available, while pensions provide incentives to work.
    Date: 2014–03
  9. By: Anne-Marie Brook (The Treasury)
    Abstract: The Treasury has, at times, suggested giving greater consideration to reforms to narrow the Saving-Investment gap. However, there has been less discussion of specific policy options for doing this. This paper helps to fill the gap by asking what policy reforms could help to narrow the Saving-Investment gap in New Zealand. Lower per capita growth in the capital stock overall does not seem a desirable goal, given the relatively capital shallow nature of the New Zealand economy. This suggests a need for a significantly higher rate of national saving. Previous recommendations to boost national saving have often focused on higher government saving. This paper agrees that higher public saving is desirable but argues that efforts to boost private sector saving rates are at least as important. Potential policy options to boost private sector saving include tax policy changes, a range of different retirement income policy settings and policies that affect the housing market. Internationally, New Zealand stands out as being one of the only OECD countries where individuals do not have access to any significantly tax-preferred saving vehicles other than property. Tax reform thus has potential to both raise the level of saving and improve its composition. One option may be to reduce the tax rate on capital income, such as by extending the existing PIE regime, although such a reform would need to be packaged together with other tax changes to mitigate the equity and revenue impacts. Another option would be to move toward a private save-as-you-go (SAYGO) pension system, which would pair compulsory savings with means-testing of New Zealand Superannuation (NZS). At the same time, there is a growing body of evidence pointing to the effectiveness of default policies that nudge individuals to save more (as KiwiSaver does). Finally, a number of policies are considered that would dampen house price inflation, which may help to boost private saving.
    Keywords: Saving; Investment; Tax; Pension policy
    JEL: D9 E21 H55 O16
    Date: 2014–11
  10. By: Mi Luo (New York University); Alberto Bisin (New York University); Jess Benhabib (NYU)
    Abstract: In this paper we study a model of the dynamics of wealth which we put to data with the objective of estimating the fundamental structural parameters of preferences and technology driving the cross-sectional distribution of wealth. As a consequence we can identify quantitatively the determinants of wealth inequality, including its recent rise and the effects of fiscal policies, e.g., a change in estate taxes. Our analysis of the dynamics of the wealth distribution emphasizes life-cycle wealth accumulation and bequests so as to assess the relative importance of social mobility in the wealth accumulation process. More specifically, we study the dynamics of the wealth distribution in an overlapping generations economy with finitely lived agents and intergenerational transmission of wealth. Our model builds on Benhabib, Bisin, Zhu (2011), generalizing the formulation of preferences for bequest to allow for heterogeneous savings rates depending on wealth, as in Atkinson (1971). The model accounts for a stochastic labor income process and for a stochastic idiosyncratic rate of returns on wealth, which captures returns on entrepreneurial activity, For simplicity, we reduce the stochastic variation over the life cycle assuming that each generation draws a single realization of the labor income and the rate of return process at birth. We also impose a no-borrowing constraint, in order to generate interesting savings patterns over the life cycle. We take the model to data by feeding the labor income process and matching the crosssectional wealth distribution and social mobility in wealth. More precisely, our empirical analysis builds on data regarding three distinct sources: (i) labor income and its transition over generations, (2) cross-sectional wealth distribution, as measured by inter-quantile shares, and (3) social mobility in wealth over generations. With regards to labor income, we resort to individual level data directly, as reported in Chetty, Hendren, Kline and Saez (2014). We collapse their 100 by 100 transition matrix for individual labor income in the U.S. (1980-82 birth cohorts and their parental labor income) as well as the marginal income distributions by centile from de-identified tax records, into a coarser grid of 10 states and an associated 10 by 10 transition matrix. With regards to the cross-sectional wealth distribution, we calculate the inter-quantile shares of net worth from the 2013 wave of the Survey of Consumer Finance. The exact measure we use are shares in bottom 20%, 20-40%, 40-60%, 60-80%, 80-90%, 90-95%, 95-99%, and top 1% of net worth holdings. Finally, with regards to social mobility in wealth, we use the six-year transition matrix (from 1983 to 1989) estimated by Kennickell and Starr-McCluer (1997) using the SCF panel for the following wealth quantiles: bottom 25%, 25-49%, 50-74%, 75-89%, 90-94%, top 2-5%, and top 1%. Our theoretical model of the wealth distribution can be shown to display ergodicity, that is, a unique stationary cross-sectional distribution of wealth, under reasonable restrictions on the stochastic processes governing earnings and the rate of return on wealth. Our baseline estimation procedure therefore involves matching, via the Method of Simulated Moments, the relevant moments of the simulated stationary distribution of wealth and social mobility with the corresponding data. In particular we compare two sets of moments: wealth inter-quantile shares and the inter-generational transition matrix. The sets of parameters we estimate include preferences for bequest, assuming a warm-glow bequest motive, and the mean and variance of a discretized AR(1) rate of return process. We fix (calibrate) several parameters in our estimation, including the intertemporal elasticity of substitution for consumption, the number of periods in the life-cycle, and the discount factor. The results we can report on are still very preliminary, though the fit of the model is very encouraging at this stage. Furthermore, though not explicitly targeted moments, our estimated model generates savings and bequests patterns that match the data, as e.g., documented in Saez and Zucman (2014). Interestingly, we show that the preferences for bequests turn out to display less curvature than preferences for consumption. As a consequence, the optimal savings rate at the estimated parameters is increasing in wealth, an element which feeds directly into wealth inequality. On the other hand this effect appears of rather limited empirical relevance. Most importantly, our preliminary estimates of the rate of return of wealth process display very small persistence across generations, which limits wealth inequality at the stationary distribution but especially induces high social mobility in wealth to match the observed intergenerational mobility in the data. Finally, as implied directly by the theoretical properties of the model, the labor income process has no effects on the stationary distribution of wealth. It affects the transition, however, after e.g., fiscal policy changes. We have not yet exploited these implications in our analysis. While this whole analysis is predicated on the assumption that the observed wealth distribution and mobility in the data represent a stationary distribution, we can exploit time series data on post-war wealth distribution and mobility to estimate our model without imposing any ergodicity assumptions, that is, without imposing that the current wealth distribution in the U.S. be stationary. This is an important issue in the current debate on the rising wealth inequality as e.g., lack of ergodicity seems to be implicitly assumed in Piketty’s study of the dynamics of the wealth distribution. Of course the implications of fiscal policies, notably of a change in the estate tax, would depend dramatically on whether the wealth dynamics process is ergodic or not. Our analysis should be able to settle the issue.
    Date: 2015
  11. By: Demian Pouzo; Ignacio Presno
    Abstract: In a dynamic economy, we characterize the fiscal policy of the government when it levies distortionary taxes and issues defaultable bonds to finance its stochastic expenditure. Default may occur in equilibrium as it prevents the government from incurring in future tax distortions that would come along with the service of the debt. Households anticipate the possibility of default generating endogenous credit limits. These credit limits hinder the government's ability to smooth taxes using debt, rendering more volatile and less serially correlated fiscal policies, higher borrowing costs and lower levels of indebtness. Also, the near-random walk behavior of debt and taxes with risk-free debt under incomplete markets is altered once default risk is incorporated. In order to exit temporary financial autarky following a default event, the government has to repay a random fraction of the defaulted debt. We show theoretically that our debt restructuring process has implications for haircuts and duration of renegotiation episodes that are aligned with the data.
    Date: 2015–08
  12. By: Adiya Belgibayeva; Michal Horvath
    Abstract: We study an economy in a liquidity trap in which wage adjustment is staggered. In this economy, it is optimal not to use expected inflation as a stabilization tool in or out of the liquidity trap. In such a world, the well-known conventional stabilization mix should be applied more forcefully: the forward commitment regarding interest rates should apply for even longer, and government spending should `lean against the wind' more vigorously. This policy strategy generates a real economy boom in the future and helps stabilizing demand in the short run. Tax policy plays a key role in ensuring price stability. This is generally consistent with a short-run income tax hike counteracting deflationary pressures. The initial government spending expansion is thus close to a balanced-budget one.
    Keywords: Zero Lower Bound, Sticky Wages, Inflation Stabilization, Income Tax, Government Spending.
    JEL: E31 E32 E52 E61 E62
    Date: 2015–07
  13. By: David Bartolini; Agnese Sacchi; Simone Salotti; Raffaella Santolini
    Abstract: The virtues of fiscal decentralisation are usually assessed against the provision of local public goods, little is said about its impact on public finances. There is, however, a growing concern that central governments losing control over part of the budget could negatively affect public finances, especially in times of adverse financial conditions. The present work shows that these concerns are misplaced. The empirical investigation on 19 OECD countries, over the period 1980-2010, shows that expenditure decentralisation improves the central budget balance without prejudice for local budgets, thus improving the overall country’s fiscal position. This effect is reinforced when combined with tax autonomy. During periods of financial crises, the disciplinary role of fiscal decentralisation appears to be even stronger, raising concerns about the recentralisation trend recently pursued by some advanced economies precisely to face fiscal distress and economic stagnation.
    Keywords: Fiscal decentralisation; government budget balance; banking crisis.
    JEL: G01 H6 H7
    Date: 2015–07
  14. By: Catherine Mathieu (OFCE); Henri Sterdyniak (OFCE)
    Abstract: The 11th EUROFRAME Conference on economic policy issues in the European Union was held in Paris on 6 June 2014. The aim of the conference is to provide an economic forum for debate on economic policy issues relevant in the European context. In June 2014 the Conference topic was: “What future for taxation in the EU?”. The programme and conference papers are available at the EUROFRAME Conference webpage: Six of the papers given at the Conference are released in this issue of the Revue de l’OFCE. European economies have high taxation levels, which allow financing the European Social Model,characterised by a high level of public and social spending. In 2012, the tax-to-GDP ratio was 39.4% for the whole EU, 40.4% for the euro area, as compared to 39.4% for Japan and 24.5% for the US. There are however wide disparities within the area. The tax-to-GDP ratio is higher than 45% in Denmark, Belgium and France, and ranges between 45% and 40% in Sweden, Finland, Italy and Austria. But it is below 35% in Greece, Spain, Poland, and Portugal; 30% in Slovakia, Ireland, Romania, and Bulgaria. There was no trend in the tax-to-GDP ratio developments at the EU level over the last 20 years.
    Keywords: Taxation; Prospective évonomique; Union européenne
    Date: 2015–07
  15. By: Micheli, Martin
    Abstract: The positive correlation between hourly wages and height, which results in higher labor supply of tall individuals, is well-documented in the literature. Accepting the utilitarian perspective and assuming that height does not affect utility implies that linking income taxes to height is welfare improving. This paper argues that height might not only affect an individual's income but also utility from consumption. Higher caloric needs of tall individuals should result in higher consumption expenditures for food to satisfy these needs. Size specific products should result in lower product variety for sizes where aggregate demand is low, typically sizes for individuals in the tails of the height distribution. Introducing these two channels into a household's maximization problem we derive a labor supply equation that allows for an empirical test for the relevance of these two channels. We use the German Socio-Economic Panel Study to estimate this labor supply equation. Caloric needs do not have a significant effect on labor supply. Product choice, on the other hand, does increase labor supply significantly. This implies that purely focusing on income might not be optimal under the utilitarian framework for tax analysis.
    Abstract: Die positive Korrelation zwischen Stundenlöhnen und Körpergröße, welche in einem höheren Arbeitsangebot großer Individuen resultiert, ist in der einschlägigen Literatur hinreichend dokumentiert. Gegeben die utilitaristische Sichtweise und die Annahme, die Körpergröße habe keinen weiteren Einfluss auf den individuellen Nutzen, spräche dies für eine Ausrichtung der Einkommensteuer an der Körpergröße. In diesem Papier wird argumentiert, dass die Körpergröße jedoch nicht nur das Einkommen, sondern über weitere Kanäle auch den Nutzen eines Individuums beeinflusst. Ein höherer Kalorienverbrauch großer Individuen sollte in höheren Ausgaben für Nahrungsmittel resultieren. Größenspezifische Produkte sollten zu einer geringeren Produktauswahl für Größen mit geringerer Nachfrage führen, typischerweise für solche am Rand der Körpergrößenverteilung. Durch Einführung dieser beiden Kanäle in das Nutzenmaximierungskalkül von Haushalten leiten wir eine Arbeitsangebotsfunktion her, welche einen empirischen Test auf die Relevanz der beiden Kanäle erlaubt. Wir nutzen das Deutsche Sozioökonomische Panel, um die hergeleitete Arbeitsangebotsfunktion zu schätzen. Für Unterschiede beim Kalorienverbrauch finden wir keinen signifikanten Effekt auf das Arbeitsangebot. Eine höhere Produktauswahl steigert das Arbeitsangebot hingegen signifikant. Dies impliziert, dass im Rahmen der Steueranalyse nach utilitaristischer Sichtweise eine ausschließliche Fokussierung auf das Einkommen nicht optimal ist.
    Keywords: height,labor supply,utility,product variety,optimal taxation
    JEL: D11 D12 H21 J22
    Date: 2015
  16. By: Joel Slemrod; Brett Collins; Jeffrey Hoopes; Daniel Reck; Michael Sebastiani
    Abstract: We investigate the response of small businesses operating as sole proprietorships to Form 1099-K, an information report released in 2011 which provides the Internal Revenue Service with information about payment card sales. Theory and distributional analysis isolates affected taxpayers, who report receipts equal to or slightly exceeding the receipts reported on 1099-K. Information reporting made these taxpayers more likely to file a return declaring business income, and increased filers’ reported receipts by up to 24 percent. Taxpayers largely offset increased reported receipts with increased reported expenses, which do not face information reporting, diminishing the impact on reported net taxable income.
    JEL: H26
    Date: 2015–07
  17. By: Oasis Kodila-Tedika (University of Kinshasa); Mihai Mutascu (University of Orleans - LEO)
    Abstract: The paper investigates and tests the hypothesis that the intelligent and educated people are honest taxpayer citizens. In order to validate this hypothesis, the empirical part follows a cross-sectional approach, with OLS and robust estimations, across 55 countries. Considering the IQ as main proxy for human intelligence, the obtained results do not allow us to validate this hypothesis.
    Date: 2015–01–09
  18. By: Per Krusell (Stockholm University); Laurence Malafry (Stockholm University); Hans Holter (University of Oslo); Pedro Brinca (European University Institute)
    Abstract: The recent experience of a Great Recession has brought the effectiveness of fiscal policy back into focus. Fiscal multipliers do, however, vary greatly over time and place. Running VARs for a large number of countries, we document a strong correlation between wealth inequality and the magnitude of fiscal multipliers. To explain this finding, we develop a life-cycle, overlapping generations economy with uninsurable labor market risk. We calibrate our model to match key characteristics of a number of OECD economies, including the distribution of wages and wealth, social security, taxes and debt and study the effects of changing policies and various forms of inequality on the fiscal multiplier. We find that the fiscal multiplier is highly sensitive to the fraction of the population who face binding credit constraints and also negatively related to the average wealth level in the economy. This explains the correlation between wealth inequality and fiscal multipliers.
    Date: 2015
  19. By: Chudik, Alexander (Federal Reserve Bank of Dallas); Mohaddes, Kamiar (University of Cambridge); Pesaran, M. Hashem (University of Southern California); Raissi, Mehdi (International Monetary Fund)
    Abstract: This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness. Our contribution is both theoretical and empirical. On the theoretical side, we develop tests for threshold effects in the context of dynamic heterogeneous panel data models with crosssectionally dependent errors and illustrate, by means of Monte Carlo experiments, that they perform well in small samples. On the empirical side, using data on a sample of 40 countries (grouped into advanced and developing) over the 1965-2010 period, we find no evidence for a universally applicable threshold effect in the relationship between public debt and economic growth, once we account for the impact of global factors and their spillover effects. Regardless of the threshold, however, we find significant negative long-run effects of public debt build-up on output growth. Provided that public debt is on a downward trajectory, a country with a high level of debt can grow just as fast as its peers.
    JEL: C23 E62 F34 H6
    Date: 2015–07–01
  20. By: Asatryan, Zareh; Heinemann, Friedrich; Pitlik, Hans
    Abstract: The need to balance austerity with growth policies has put government efficiency high on the economic policy agenda in Europe. Administrative reforms which boost the efficiency of the administration can alleviate the trade-off between consolidation and public service provision. Against such backdrop, this study explores the determinants of efficiency enhancing public administration reforms for a panel of EU countries using a novel reform indicator. The findings support the political-economic reasoning: An economic and fiscal crisis is a potent catalyst for reforms, but a powerful bureaucracy effectively constrains the opportunities of a crisis to promote this particular type of reform. Furthermore, there is evidence for horizontal learning from other EU countries, and for vertical learning associated with a particular type of EU transfers.
    Keywords: Euro-crisis,public sector efficiency,cohesion policy,theory of bureaucracy
    JEL: H83 H11 D73
    Date: 2015
  21. By: Jerry Hausman (Institute for Fiscal Studies and MIT); Whitney Newey (Institute for Fiscal Studies and MIT)
    Abstract: Individual heterogeneity is an important source of variation in demand. Allowing for general heterogeneity is needed for correct welfare comparisons. We consider general heterogenous demand where preferences and linear budget sets are statistically independent. Only the marginal distribution of demand for each price and income is identified from cross-section data where only one price and income is observed for each individual. Thus, objects that depend on varying price and/or income for an indiviual are not generally identified, including average exact consumer surplus. We use bounds on income effects to derive relatively simple bounds on the average surplus, including for discrete/continous choice. We also sketch an approach to bounding surplus that does not use income effect bounds. We apply the results to gasoline demand. We find tight bounds for average surplus in thisapplication but wider bounds for average deadweight loss.
    Date: 2014–10
  22. By: Calmfors, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: The paper describes the monetary and fiscal policy frameworks in Sweden and analyses how they were established as well as current challenges. Sweden provides a good example of how deep economic crisis, in interaction with independent thinking by academics and other experts as well as policy influences from abroad, can lead to fundamental reforms of policy frameworks. It remains to be seen whether it will be possible in Sweden to adapt the monetary and fiscal frameworks to changed circumstances, while still preserving the benefits they have delivered
    Keywords: Independent central banking; Inflation targeting; fiscal rules; Fiscal councils
    JEL: E58 H61
    Date: 2015–08–01
  23. By: James Alm (Department of Economics, Tulane University); Carolyn J. Bourdeaux (Department of Public Management and Policy, Andrew Young School of Policy Studies, Georgia State University)
    Abstract: "Behavioral economics", or the application of methods and evidence from other social sciences to economics, has increased greatly in significance in the last two decades. In this paper we discuss the basic elements of behavioral economics. We then assess several applications of behavioral economics to the analysis of the public sector, including specific applications to public economics and, importantly, to the closely related area of public budgeting. We conclude with suggestions on -- and predictions of -- topics in which future applications should prove useful.
    Keywords: behavioral economics, public economics, public budgeting
    JEL: H0 H3 H61 H83
    Date: 2014–04

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