nep-pbe New Economics Papers
on Public Economics
Issue of 2015‒12‒12
twelve papers chosen by
Thomas Andrén

  1. Tax policy in Latin America: Assessment and guidelines for a second generation of reforms By Gómez Sabaini, Juan Carlos; Morán, Dalmiro
  2. Parking Taxes as a Second Best Congestion Pricing Mechanism By Riley Wilson; Sebastián J. Miller
  3. Fiscal policy in Brazil: from counter-cyclical response to crisis By HOLLAND, Márcio
  4. Optimal Taxation under Regional Inequality By Kessing, Sebastian G.; Lipatov, Vilen; Zoubek, J. Malte
  5. Tax Incentives and Job Creation in the Tourism Industry of Brazil By Grégoire Garsous; David Corderi; Mercedes Velasco
  6. Income inequality in Latin America. Recent decline and prospects for its further reduction By Cornia, Giovanni Andrea
  7. Financial Repression and Laffer Curves By Kanat S. Isakov; Sergey E. Pekarski
  8. Don't Blame the Messenger: A Field Experiment on Delivery Methods for Increasing Tax Compliance By Daniel Ortega; Carlos Scartascini
  9. The Impact of the Tobin Tax in a Heterogeneous Agent Model of the Foreign Exchange Market By Jiri Kukacka; Filip Stanek
  10. Who do you blame in local finance? An analysis of municipal financing in Italy By Massimo Bordignon; Veronica Grembi; Santino Piazza
  11. Foreign direct investment and welfare By De Groot, Olaf
  12. Fertility and PAYG Pensions in an Overlapping Generations Model with Endogenous Retirement By Chen, Hung-Ju

  1. By: Gómez Sabaini, Juan Carlos; Morán, Dalmiro (Comisión Económica para América Latina y el Caribe (CEPAL) United Nations)
    Abstract: In recent years, the countries of Latin America have introduced a series of reforms aimed at strengthening and modernizing their tax systems. While the reforms are part of an ongoing process carried over from earlier periods, the objectives pursued place a renewed emphasis on distribution issues, in clear contrast with the spirit of the tax reforms implemented in the region in the 1980s and 1990s. This paper identifies the stylized facts that have characterized Latin American tax systems over the past two decades. Although there is a lot of heterogeneity among countries, the tax burden has increased in almost all cases, and the tax structure has, on average, become more concentrated on the value added tax and the income tax. Nevertheless, certain structural weaknesses have been maintained over time, such as the bias in favour of indirect taxation and the low weight of personal income taxes, which determines the low redistributive impact of taxation at the regional level. Moreover, the high degree of informality, the high level of tax expenditures (or concessions) and the unacceptable levels of tax evasion hinder the consolidation of tax systems based on sufficiency, equity, and efficiency. As the objectives of tax policy expand beyond the merely fiscal, as has been the case in some recent experiences, it is becoming increasingly important to establish new guidelines for tax reform in the countries of the region.
    Date: 2014–06
  2. By: Riley Wilson; Sebastián J. Miller
    Abstract: Growing vehicle use and congestion externalities have led many to consider alternative congestion pricing mechanisms, as road pricing often has high infrastructural costs and faces public opposition. This paper explores the role of parking taxation in reducing congestion by considering a natural experiment created by the progressive January 1, 2012 Chicago parking tax increase. Exploiting differences in vehicle use across income groups, it is estimated that the approximately $2 a day parking tax increase led to a 4-6 percent reduction in total vehicle trips in high-income areas, with the largest response seen on roads more heavily used by commuters. Also found are corresponding increases in use of public transit and a 3. 1 percent aggregate reduction in vehicle trips. It is concluded that parking taxes can help mitigate congestion externalities, although they are no more than about half as effective as more efficient congestion tolls.
    Keywords: Taxation, Income, Consumption & Saving, Wages, Development Banks, Congestion, Second-best pricing, Traffic, Parking, Parking tax, Parking demand, IDB-WP-614
    Date: 2015–10
  3. By: HOLLAND, Márcio
    Abstract: The main goal of this article is to identify the dynamic effects of fiscal policy on output in Brazil from 1997 to 2014, and, more specifically, to estimate those effects when the output falls below its potential level. To do so, we estimate VAR (vector autoregressive) models to generate impulse-response functions and causality/endogeneity tests. Our most remarkable results indicate the following channel of economic policy in Brazil: to foster output, government spending increases causing increases in both tax rates and revenue and the short-term interest rate. A fiscal stimulus via spending seems efficient for economic performance as well as monetary policy; however, the latter operates pro-cyclically in the way we defined here, while the former is predominantly countercyclical. As the monetary shock had a negative effect on GDP growth and GDP growth responded positively to the fiscal shock, it seems that the economic policy has given poise to growth with one hand and taken it with the other one. The monetary policy is only reacting to the fiscal stimuli. We were not able to find any statistically significant response of the output to tax changes, but vice versa seems work in the Brazilian case.
    Date: 2015–11–27
  4. By: Kessing, Sebastian G. (University of Siegen and CESifo); Lipatov, Vilen (Compass Lexecon Brussels and CESifo); Zoubek, J. Malte (University of Siegen)
    Abstract: Combining an intensive labor supply margin with an extensive, productivity-enhancing migration margin, we determine how regional inequality and labor mobility shape optimal redistribution. We propose the use of delayed optimal-control techniques to obtain optimal tax formulae with location-dependent productivity and two-dimensional heterogeneity. Our baseline simulations using the productivity differences between large metropolitan and other regions in the US indicate that productivity-increasing internal migration can constitute a quantitatively important constraint on redis-tribution. Allowing for regionally di¤erentiated taxation with location-dependent productivity, we find that marginal tax rates in high (low) productivity regions should be corrected downwards (upwards) relative to a no-migration benchmark.
    Keywords: Optimal taxation, redistribution, regional inequality, migration, multidimensional screening, delayed optimal control JEL Classification: H11, J45, R12
    Date: 2015
  5. By: Grégoire Garsous; David Corderi; Mercedes Velasco
    Abstract: In recent decades, a significant number of developing countries have implemented fiscal incentives programs for the tourism industry as part of their regional development policies. The main objective of these programs is to increase local investment and employment, as tourism activities are labor intensive. Little evidence is available, however, to assess the effect of these policies on job creation. This paper analyzes a fiscal incentives program that the Brazilian federal government introduced in 2002 to develop the tourism industry in the undeveloped region of Northeast Brazil. It provides evidence that income tax credits had a significant positive effect on job creation. We find that local employment in the tourism industry was on average 34 percent higher in those municipalities that benefited from the program.
    Keywords: Tourism, Tax incentives, Taxation, Fiscal Policy, Investment, Labor markets
    Date: 2015–11
  6. By: Cornia, Giovanni Andrea (Comisión Económica para América Latina y el Caribe (CEPAL) United Nations)
    Abstract: The paper reviews the extent of the income inequality decline which has taken place in Latin America over 2002-2010 which reduced the regional Gini index to the level of the early 1980s. The paper then focuses on the factors which may explain such decline. These include a drop in the skill premium following an expansion of secondary education, the adoption of a new development model by a growing number of progressive governments which adopted prudent but more equitable macroeconomic, tax, social assistance and labor policies. For the region as a whole, gains in terms of trade, remittances, FDI and world growth played an important but not determinant role though their impact was perceptible in countries where such shocks were sizeable. Finally, the paper reviews the changes in inequality during the difficult years 2009-2012 and discusses whether and how the recent decline can be sustained over the next decade in the context of sluggish world growth.
    Date: 2014–07
  7. By: Kanat S. Isakov (National Research University Higher School of Economics); Sergey E. Pekarski (National Research University Higher School of Economics)
    Abstract: This paper uses a simple calibrated general equilibrium model to evaluate the revenue from financial repression and its impact on Laffer curves for consumption, capital and labor taxes. By imposing a requirement for households to hold public debt with a below-market rate of return the government distorts optimal household allocation and raises extra revenues. Tighter financial repression shifts Laffer curves for labor and consumption down, but increases revenue from capital income taxation. Total budget revenue increases, which allow financing more public goods and can be welfare-improving
    Keywords: financial repression; tax distortions; Laffer curve.
    JEL: E62 G28 H21 H24 H31 H63
    Date: 2015
  8. By: Daniel Ortega; Carlos Scartascini
    Abstract: There is an ample literature on the determinants of tax compliance. Several field experiments have evaluated the effect and comparative relevance of sending deterrence and moral suasion messages to taxpayers. The effect of different delivery mechanisms, however, has not been evaluated so far. This study conducts a field experiment in Colombia that varies the way the National Tax Agency contacts taxpayers on payments due for income, value added, and wealth taxes. More than 20,000 taxpayers were randomly assigned to a control or one of three delivery mechanisms (letter, email, and personal visit by a tax inspector). Results indicate large and highly significant effects, as well as sizable differences across delivery methods. A personal visit by a tax inspector is more effective than a physical letter or an email, conditional on delivery, but email tends to reach its target more often. Improving the quality of taxpayer contact information can significantly improve the collection of delinquencies.
    Keywords: Taxation, Development Banks, Tax evasion, Tax compliance, Tax compliance, Field experiments, Delivery methods, Optimal enforcement strategies, Public policy, IDB-WP-627
    Date: 2015–11
  9. By: Jiri Kukacka (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Pod Vodarenskou Vezi 4, 182 00, Prague, Czech Republic); Filip Stanek (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)
    Abstract: We explore possible effects of a Tobin tax on exchange rate dynamics in a heterogeneous agent model. To assess the impact of the Tobin tax in this framework, we extend the model of De Grauwe and Grimaldi (2006) by including transaction costs and perform numerical simulations. Motivated by the importance of the market microstructure, we choose to model the market as being cleared by a Walrasian auctioneer. This setting could more closely resemble the two-layered structure of foreign exchanges at daily frequency than a price impact function, which is often adopted in similar studies. We find that the Tobin tax can deliver a moderate reduction of return volatility and kurtosis. In addition, simulations indicate that the Tobin tax reduces the degree of mispricing in the time series, which is primarily achieved by eliminating long-lasting deviations from the fundamental value.
    Keywords: Tobin Tax, Foreign Exchange Market, Agent Based Modeling, Walrasian Auctioneer
    JEL: C63 D84 F31 G18
    Date: 2015–11
  10. By: Massimo Bordignon (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Veronica Grembi; Santino Piazza
    Abstract: In a political agency model, we study the effect of introducing a less transparent tax tool for the financing of local governments. We show that lower quality politicians would use more the less transparent tax tool to enhance their probability of re-election. This prediction is tested by studying a reform that in 1999 allowed Italian municipalities to partially substitute a more accountable source of tax revenue (the property tax) with a less transparent one (a surcharge on the personal income tax of residents). Using a Difference in Difference approach, we show that in line with theory, Mayors at their first term in power adopted a higher surcharge on the personal income tax and reduced the property tax rate significantly more than Mayors in their final term..
    Keywords: Fiscal federalism, Tax transparency, Agency Model, Property tax.
    JEL: H71 H77 D78
    Date: 2015–12
  11. By: De Groot, Olaf (Comisión Económica para América Latina y el Caribe (CEPAL) United Nations)
    Abstract: This paper addresses the question of how Foreign Direct Investment (FDI) affects different measures of economic welfare. It fits in an existing stream of research looking at the relationship between FDI and economic growth, but it introduces two variations. First, we explore what the differences are between Fixed Effects (FE) panel data estimations and Generalized Method of Moments (GMM) estimations. Second, we explore different aspects of economic welfare, and thus go beyond the simple measure of GDP growth. The other variables we consider are household consumption, inequality and the Human Development Index (HDI). The conclusions are striking. For GDP and household consumption growth, FDI does not have any significant impact. In all different types of estimations and despite different control variables, FDI continues not to have any impact whatsoever. On inequality, on the other hand, we find that there is a significant positive impact of FDI. This confirms some of the literature that argues that any benefits of FDI are not equally distributed, but rather are obtained by the relatively well-off. On HDI, FDI has a consistent and significant negative effect. While the channel for this is not immediately clear, we theorize that this is potentially the result of policy choices made by governments.
    Date: 2014–03
  12. By: Chen, Hung-Ju
    Abstract: This paper develops an overlapping generations model with endogenous retirement to examine the effect of fertility on long-run pay-as-you-go (PAYG) pensions. We find that pensions may not necessarily increase with the fertility rate. An increase in the fertility rate will raise pensions if the output elasticity of capital and the tax rate are sufficiently low, but such a change will reduce pensions if the fertility rate is sufficiently high. Our results also indicate that raising the fertility rate is more likely to reduce pensions in developing countries than in developed countries, while such a change tends to raise pensions for countries in which the costs of raising children are low.
    Keywords: Fertility; Retirement; OLG, PAYG pensions.
    JEL: H55 J13 J26
    Date: 2015–11–23

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