nep-pbe New Economics Papers
on Public Economics
Issue of 2015‒09‒05
twenty papers chosen by
Thomas Andrén

  1. Taxation of Dividend Income and Economic Growth: The Case of Europe By Dackehag, Margareta; Hansson, Åsa
  2. Tax Policy in MENA Countries: Looking Back and Forward By Mario Mansour
  3. Tax elasticity to business cycle: an overview of three taxes from 1979 to 2013 in France By Q. LAFFÉTER; M. PAK
  4. Enforcement, Socio-Economic Diversity, and Tax Filing Compliance in the United States By James Alm; Jeremy Clark; Kara Leibel
  5. Marginal tax rates under asymmetric taxation By Kruschwitz, Lutz; Löffler, Andreas
  6. The impact of taxes on bilateral royalty flows By Dudar, Olena; Spengel, Christoph; Voget, Johannes
  7. Decomposing income polarization and tax-benefit changes across 31 European countries and Europe wide, 2004-2012 By Wang, Jinxian; Caminada, Koen; Goudswaard, Kees; Wang, Chen
  8. The effect of stock market indexing on corporate tax avoidance By Alex Young
  9. Global tax policy and the synchronization of business cycles By Sly, Nicholas; Weber, Caroline
  10. On the External Validity of Laboratory Tax Compliance Experiments By James Alm; Kim M. Bloomquist; Michael McKee
  11. Understanding and Combatting Tax Evasion By James Alm
  12. Triangular cases - tax obstacles to labour mobility in the European Union and tax avoidance By Ernst&Young
  13. Relative Income and Subjective Wellbeing: Intra-national and Inter-national Comparisons by Settlement and Country Type By Arthur Grimes; Marc Reinhardt
  14. From Systemic Banking Crises to Fiscal Costs: Risk Factors By David Amaglobeli; Nicolas End; Mariusz Jarmuzek; Geremia Palomba
  15. Income and Wealth Effects on Private-Label Demand: Evidence From the Great Recession By Jean-Pierre Dubé; Günter J. Hitsch; Peter E. Rossi
  16. Social Transfers: Incentives and Disincentives to Labour Insertion and Income Generation By Simone Cecchini
  17. Long-Term Care Reform and the Labor Supply of Household Members: Evidence from a Quasi-Experiment By Johannes Geyer; Thorben Korfhage
  18. Corporate social responsibility in India - An Effort to bridge the welfare gap By Jayati Sarkar; Subrata Sarkar
  19. Prosocial Behavior and Policy Spillovers: A Multi-Activity Approach By Ek, Claes
  20. Would you choose to be happy? Tradeoffs between happiness and the other dimensions of life in a large population survey By Matthew D. Adler; Paul Dolan; Georgios Kavetsos

  1. By: Dackehag, Margareta (Department of Economics, Lund University); Hansson, Åsa (Department of Economics, Lund University)
    Abstract: More recently researchers have turned to analyze how the tax structure, rather than the overall tax level, affects economic performance. For instance, several papers have investigated how taxation on corporate and individual (labor) income influences growth. Taxation of dividend income may also influence growth via its impact on investments and firm behavior. Within the academic community there is conflicting views about the impact taxation of dividends has on firm behavior and, hence, on economic performance. According to the “traditional view”, taxation of dividends is distortionary and increases the cost of equity. According to the “new view”, taxation of dividends does not influence the marginal cost of capital and consequently has no impact on investment decisions. To our knowledge, this paper is the first study to explore how tax rates on dividends affect economic growth, by using panel data from 1990 till 2008 for 18 European countries. We find that taxation of dividend income negatively influences economic growth, a result that corroborates the old view of dividends taxation as distortionary and also has some policy implication for the European countries in question.
    Keywords: Economic growth; taxation of corporate income; taxation of personal income
    JEL: H21 H24 H25 O40
    Date: 2015–08–14
  2. By: Mario Mansour
    Abstract: This paper reviews trends in taxation and revenue in MENA countries over 1990-2012, with a focus on non-resource taxes. On average, non-resource revenues declined slightly, while resource revenues soared. Country experiences vary: rates of main taxes and their revenues tend to be higher in the Magreb than in the Mashreq, except for the value-added tax, where lower rates are associated with equal or higher revenue; most oil producers raise little tax revenues—generally less than 5 percent of GDP—and most have reduced them since the late 1990s. But there are similarities: unlike common experience around the world, income taxes (not indirect taxes) have partially compensated for lost revenue from trade liberalization; revenues from indirect taxes have remained stable; personal income taxes have played an unimportant role as a revenue tool; and fees and stamp duties are significant revenue sources. Looking forward, tax reform challenges will also vary across countries: the Maghreb needs to focus on efficiency-enhancing reforms, especially in capital income and consumption taxes; the Mashreq have some room to increase revenue; and, there are ample opportunities to improve equity and reduce complexity of tax systems in all countries. Finally, the recent decline in oil prices and revenues is a reminder that even resource-rich GCC countries need to lay the basis of a tax system for the future.
    Keywords: Corporate income taxes;Consumption taxes;Cross country analysis;Algeria;Egypt;Saudi Arabia;Oman;Personal income taxes;Jordan;Kuwait;Libyan Arab Jamahiriya;Lebanon;Iraq;Iran, Islamic Republic of;Morocco;North Africa;Middle East;Mauritania;Yemen, Republic of;Syrian Arab Republic;Tax policy;Stamp duties;Taxation;Tax revenues;United Arab Emirates;Tunisia;resource revenues, tax reform, MENA, tax, revenues, revenue, taxes, General, Personal Income and Other Nonbusiness Taxes and Subsidies, Business Taxes and Subsidies, Taxation, Subsidies, and Revenues: Other Sources of Revenue, Other,
    Date: 2015–05–05
  3. By: Q. LAFFÉTER (Insee); M. PAK (Insee)
    Abstract: Taxes in France have not always increased as anticipated, since tax revenue was sometimes higher than expected, for instance during the jackpot episode in 1999, or lower than expected, in 2009 and more recently in 2013. The purpose of this study is to examine the sensitivity of the three main State taxes in France to the business cycle over the 1979-2013 period: the personal income tax (PIT), the value added tax (VAT), and the corporate income tax (CIT). First these taxes need to be corrected for the effects of discretionary measures, which partly influence how taxes grow. Second, the elasticities of these taxes, broadly measured under an unchanged tax system, are estimated. Starting with a simple model to estimate the instantaneous elasticity of each tax to GDP, more complex specifications relying on the existing literature are then tested, in order to acknowledge sensitivity of each tax to the economic environment. According to our results, PIT revenues instantaneous elasticity to an activity shock is almost equal to one if annual inflation adjustments are considered as automatic rather than discretionary. VAT revenues behave almost in a similar way. However this response to activity is slightly stronger when stemming from a shock on volume rather than a shock on price. The CIT is a tax based on the previous year, but it is very sensitive to instantaneous shock, thus acting as a stabilizer. It is also sensitive to asset prices.
    Keywords: personal income tax, corporate income tax, VAT, discretionary measures, endogenous growth of tax receipts, tax elasticities
    JEL: H24 H25 H31 H32
    Date: 2015
  4. By: James Alm (Department of Economics, Tulane University); Jeremy Clark (Department of Economics and Finance, University of Canterbury); Kara Leibel (Office of Research, Internal Revenue Service)
    Abstract: In this paper we examine the determinants of tax filing compliance in the United States. We use county-level data on non-filing rates for the tax year 2000, obtained directly from the Internal Revenue Service. We include explanatory variables identified in the "rational compliance" framework, including an enforcement index against identified non-filers, the audit rate of filers, and the average penalty rate for both filers and non-filers. We also examine the role of socio-economic diversity on tax compliance, testing whether within-county heterogeneity in household income, language, race, and religion can help explain variation in non-filing rates. We find that non-filing is increasing with heterogeneity by race, though not by income or language, and that non-filing is decreasing with heterogeneity by religious membership. As for enforcement variables, we find that non-filing rates tend to fall with the enforcement index. Other variables have somewhat mixed results.
    Keywords: tax evasion, social capital, diversity
    JEL: H2 H26 H31
    Date: 2015–08
  5. By: Kruschwitz, Lutz; Löffler, Andreas
    Abstract: This paper attempts to analytically determine the impact a tax shield (marginal tax rate) has on the value of a levered firm assuming that gains and losses are taxed differently. Previous research has done this by employing empirical methods and simulation studies. We are able to present closed-form solutions for two popular financing policies. Our solutions reveal that the marginal tax rate is a function with an order greater than one.
    Date: 2015
  6. By: Dudar, Olena; Spengel, Christoph; Voget, Johannes
    Abstract: In 2013 the OECD introduced its Action Plan on base erosion and profit shifting (BEPS). One of the major concerns of this Plan is a strategic use of intangible assets as an instrument for profit shifting. The main purpose of this paper is to test whether multinational enterprises use intangibles as an important BEPS channel by empirically analysing the relationship between taxation and bilateral royalty flows. We employ the OECD data on 3,660 country-pairs for the time period of 1990-2012 and apply the Poisson pseudo-maximum likelihood estimator in a fixed-effects framework. The main results point to a negative impact of taxation on bilateral royalty flows. Moreover, we find that tax differentials, which represent a relative level of taxation in a recipient state compared to other potential royalty recipients, have a significant influence on royalty payments as well. For tax policy considerations, the paper provides various insights to the ongoing work on BEPS by the G20, the OECD, and the European Commission. For example, we find that such reform suggestions of the OECD Action Plan as an enforcement of the Nexus Approach, as well as an introduction of strict Controlled Foreign Company rules and transfer pricing regulations are likely to reduce international royalty flows.
    Keywords: royalty,intangible assets,tax planning,corporate taxation
    JEL: H25 F23 H26 H3
    Date: 2015
  7. By: Wang, Jinxian; Caminada, Koen; Goudswaard, Kees; Wang, Chen
    Abstract: Polarization is an interesting additional social indicator for analyzing income inequality and poverty across countries, as it captures the phenomenon of ‘clustering around extreme poles’. Rising income polarization can be harmful since it is closely linked to poverty, social exclusion, social tension and social unrest (Brzezinski, 2013). However, so far little literature has been devoted to the changes in income polarization across countries over time, especially within Europe. Moreover, not much is known about whether and to what extent market income and the tax-transfer system contribute to changes of polarization. This paper provides theoretical and empirical insights into a relatively new dimension of income distribution: polarization. Rising income polarization has been observed outside Europe, but within the EU, polarization is relatively unexplored. We therefore broaden the analysis using micro-data from EU-SILC to 28 EU countries and 3 non-EU countries over the period 2004-2012. The paper estimates income polarization and decomposes the estimated polarization by country clusters, and Europe-wide, using a decomposition technique we developed. The main conclusions are: (1) Income polarization is rather stable over the decade in European countries, and Europe-wide. It was rising among West-EU15 countries in the sub-period 2004-2008, but declining afterwards. The opposite development is witnessed for CEE New Member States. Despite the Great Recession we do not find a sizeable increase in income polarization. (2) The causes of changes in polarization between 2004 and 2012 vary to a large extent across countries – no general pattern is found, although polarization was upward driven by market income (mainly capital income), while tax-benefit systems were polarization-reducing.
    Keywords: income polarization, inequality, poverty, welfare state reform, EU-SILC
    JEL: H53 H55 I32
    Date: 2015–08–17
  8. By: Alex Young
    Abstract: Membership in the Russell 1000 and 2000 Indices is based on a ranking of market capitalization in May. Each index is separately value weighted such that firms just inside the Russell 2000 are comparable in size to firms just outside (i.e. at the bottom of the Russell 1000) but have much higher index weights. These features allow for the the annual reconstitution of these indices to be used as part of a regression discontinuity design to identify the effect of stock market indexing. Using this design, I investigate whether stock market indexing affects corporate tax avoidance. I find no evidence that firms just inside the Russell 2000 have significantly different effective tax rates than firms just outside.
    Date: 2015–09
  9. By: Sly, Nicholas (Federal Reserve Bank of Kansas City); Weber, Caroline
    Abstract: Using a 30-year panel of quarterly GDP fluctuations from of a broad set of countries, we demonstrate that the signing of a bilateral tax treaty increases the comovement of treaty partners' business cycles by 1/2 a standard deviation. This effect of fiscal policy is as large as the effect of trade linkages on comovement, and stronger than the effects of several other common financial and investment linkages. We also show that bilateral tax treaties increase comovement in shocks to nations’ GDP trends, demonstrating the permanent effects of coordination on fiscal policy rules. We estimate trend and business cycle components of nations' output series using an unobserved-components model in order to measure comovement between countries, and then estimate the impact of tax treaties using generalized estimating equations.
    Keywords: Bilateral Tax Treaties; Fiscal policy; GDP; Tax treaties
    JEL: E62 F42 H32 H87
    Date: 2015–08–01
  10. By: James Alm (Department of Economics, Tulane University); Kim M. Bloomquist (Office of Research, U.S. Internal Revenue Service); Michael McKee (Department of Economics, Appalachian State University)
    Abstract: An essential issue for laboratory experiments to inform policy debates is the "external validity" of the experimental results; that is, does behavior in the laboratory apply to behavior that occurs in the naturally occurring world? We examine this issue of external validity in the specific context of laboratory experiments on tax compliance, using two different types of evidence. We find that the behavioral patterns of subjects in the laboratory conform to that of individuals making a similar decision in naturally occurring settings. We also find that the behavioral responses of students are largely the same as non-students in identical experiments.
    Keywords: marriage, experimental methods, external validity, tax compliance
    JEL: H2 H26 C9
    Date: 2015–08
  11. By: James Alm (Department of Economics, Tulane University)
    Keywords: tax evasion, behavioral economics, experimental economics
    JEL: H2 H26 D03 C9
    Date: 2015–08
  12. By: Ernst&Young
    Abstract: The study analyses the legislative background to cross-border employee mobility from a tax perspective, and looks at how existing bilateral tax agreements can be made more effective, and how certain specialised cases such as Frontier Workers and Aircrew are addressed in the appropriate legislation and bilateral agreements
    Keywords: European Union, taxation, labour mobilities, tax evasion
    JEL: H25
    Date: 2014–04
  13. By: Arthur Grimes (Motu Economic and Public Policy Research); Marc Reinhardt (University of Auckland)
    Abstract: We extend the Easterlin Paradox (EP) literature in two key respects, testing whether inter-national as well as intra-national income comparisons matter for subjective wellbeing, and testing whether these effects differ by settlement-type as well as by country-type. We confirm the intra-national EP predictions (that subjective wellbeing is left unchanged by an equi-proportionate rise in all intra-country incomes) across four developed country settlement types ranging from rural areas to large cities. The EP result also holds for rural areas in transitional countries but not for larger settlement sizes in those countries. For all country-settlement types, we confirm the importance also of inter-national income comparisons in determining people’s subjective wellbeing. Again, however, the effect is less prominent in larger transitional country cities. We also show that once we control for personal characteristics and income-related factors, we cannot reject the presence of a spatial equilibrium in life satisfaction. Our results indicate that each individual government that wishes to raise the life satisfaction of its residents still needs to boost those residents’ incomes in order to raise their subjective wellbeing. However, at least amongst developed countries, this practice results in an international Prisoners Dilemma in which mean life satisfaction stays stable despite rising global incomes.
    Keywords: Income comparison, wellbeing, Easterlin Paradox, spatial equilibrium
    JEL: I31 H39 H24 R13
    Date: 2015–08
  14. By: David Amaglobeli; Nicolas End; Mariusz Jarmuzek; Geremia Palomba
    Abstract: This paper examines the risk factors associated with fiscal costs of systemic banking crises using cross-country data. We differentiate between immediate direct fiscal costs of government intervention (e.g., recapitalization and asset purchases) and overall fiscal costs of banking crises as proxied by changes in the public debt-to-GDP ratio. We find that both direct and overall fiscal costs of banking crises are high when countries enter the crisis with large banking sectors that rely on external funding, have leveraged non-financial private sectors, and use guarantees on bank liabilities during the crisis. The better quality of banking supervision and the higher coverage of deposit insurance help, however, alleviate the direct fiscal costs. We also identify a possible policy trade-off: costly short-term interventions are not necessarily associated with larger increases in public debt, supporting the thesis that immediate intervention may be actually cost-effective over time.
    Keywords: Banking crisis;Financial crisis;Contingent liabilities;fiscal costs, banking, banking crises, debt, public debt, bank, General,
    Date: 2015–07–20
  15. By: Jean-Pierre Dubé; Günter J. Hitsch; Peter E. Rossi
    Abstract: We measure the causal effects of income and wealth on the demand for private-label products. Prior research suggests that these effects are large and, in particular, that private-label demand rises during recessions. Our empirical analysis is based on a comprehensive household-level transactions database matched with price information from store-level scanner data and wealth data based on local house value indices. The Great Recession provides a key source of the variation in our data, with a large and geographically diverse impact on household incomes over time. We estimate income and wealth effects using “within” variation of income and wealth at the household level. Our estimates can be interpreted as income and wealth effects consistent with a consumer demand model based on utility maximization. We establish a precisely measured negative effect of income on private-label shares. The effect of wealth is negative but not precisely measured. However, the estimated effect sizes are small, in contrast with prior academic work and industry views. An examination of the possible supply-side response to the recession shows only small changes in the relative price of national-brand and private-label products. Our estimates also reveal a large positive trend in private-label shares that predates the Great Recession. We examine some possible factors underlying this trend, but find no evidence that this trend is systematically related to specific private-label quality tiers or to the overall rate of private-label versus national-brand product introductions.
    JEL: D1 D12 E21 E3 L0 L00 L1 L10 L11 L16
    Date: 2015–08
  16. By: Simone Cecchini (IPC-IG)
    Keywords: Social Transfers, Incentives, Disincentives, Labour Insertion, Income Generation
    Date: 2014–08
  17. By: Johannes Geyer; Thorben Korfhage
    Abstract: Germany introduced a new mandatory insurance for long-term care in 1995 as part of its social security system. It replaced a system based on meanstested social welfare. Benefits from the long-term care insurance are not means tested and depend on the required level of care. The insurance provides both benefits in kind and cash benefits. The new scheme improved the situation for households to organize informal care at home. This was one goal of the reform since policymakers view informal care as a cost-saving alternative to formal care. This view however neglects possible opportunity costs of reduced labor supply of carers. We exploit this reform as a quasi-experiment and examine its effect on the labor supply of caregivers who live in the same household as the care recipient. We find strong negative labor market effects for men but not for women. We conduct a series of robustness tests and find results to be stable.
    Keywords: Labor supply, long-term care, long-term care insurance, natural experiment, quasi-experiment
    JEL: J22 H31 I13
    Date: 2015
  18. By: Jayati Sarkar (Indira Gandhi Institute of Development Research); Subrata Sarkar (Indira Gandhi Institute of Development ResearchInstitute of Economic Growth)
    Abstract: Drawing on existing theoretical and empirical literature on the rationale behind Corporate Social Responsibility (CSR), this paper analyses the potential implications of mandated CSR under the recently enacted Companies Act, 2013 in India on firm incentives, likely responses of corporates that come under the ambit of the law, implications for resource availability and delivery of social goods, and the prospects and challenges of implementing mandated CSR. Insights into these issues are drawn by empirically examining the voluntary CSR behavior of a sample of 500 large companies listed on the Bombay Stock Exchange for the period 2003-2011 that predates the new regulation. The paper argues that notwithstanding the potential economic costs that may accompany mandated CSR, the provisions of the new Act are designed thoughtfully to balance the objectives of the corporation and its shareholders on the one hand and that of the society and its stakeholders on the other. However, addressing the challenges of implementation successfully would determine how far the objectives of the new regulations are met.
    Keywords: Corporate social responsibility, firm incentives, social welfare, efficiency, regulation, enforecment
    JEL: G38 H21 H53 L21
    Date: 2015–08
  19. By: Ek, Claes (Department of Economics, Lund University)
    Abstract: Observing that people who wish to engage in prosocial behavior are often presented with more than one means to the same end, we develop a theory in which agents may contribute to a single public good through a range of different activities. Our aim with this extension is twofold. First, we deliver positive results. Noting that effort on one activity has been argued to crowd out ("moral licensing") as well as in ("moral consistency") effort on other activities, we predict that for a large set of plausible cases, policy to facilitate one activity reduces effort on other activities. However, this negative spillover effect is incomplete in the sense that overall public-good production still increases. Second, we revisit prominent results from single-activity models in the published literature and show that they grow rather more ambiguous, or even fall apart, when they are extended to our multi-activity setting. This is not due to dimensionality per se, but to the fact that single-activity models implicitly assume that agents use narrow mental accounts to categorize activities. By contrast, our model imposes broad accounting.
    Keywords: public goods; prosocial behavior; moral licensing; self-image
    JEL: D03 D11 H41
    Date: 2015–08–27
  20. By: Matthew D. Adler; Paul Dolan; Georgios Kavetsos
    Abstract: A large literature documents the correlates and causes of subjective well-being, or happiness. But few studies have investigated whether people choose happiness. Is happiness all that people want from life, or are they willing to sacrifice it for other attributes, such as income and health? Tackling this question has largely been the preserve of philosophers. In this article, we find out just how much happiness matters to ordinary citizens. Our sample consists of nearly 13,000 members of the UK and US general populations. We ask them to choose between, and make judgments over, lives that are high (or low) in different types of happiness and low (or high) in income, physical health, family, career success, or education. We find that people by and large choose the life that is highest in happiness but health is by far the most important other concern, with considerable numbers of people choosing to be healthy rather than happy. We discuss some possible reasons for this preference
    Keywords: Happiness; subjective well-being; preferences
    JEL: D6 H00 I00 I31
    Date: 2015–08

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