nep-pbe New Economics Papers
on Public Economics
Issue of 2016‒01‒18
sixteen papers chosen by
Thomas Andrén

  1. Redistribution Through Charity, and Optimal Taxation when People are Concerned with Social Status By Thomas Aronsson; Olof Johansson-Stenman; Ronald Wendner
  2. From urban core to wealthy towns: nonschool fiscal disparities across Connecticut municipalities By Zhao, Bo
  3. Provision of Household Public Goods and the Household Income Distribution By Hisahiro Naito
  4. Representation without taxation, taxation without consent; the legacy of Spanish colonialism in America By Irigoin, Alejandra
  5. Aging, Taxes and Pensions in Switzerland By Keuschnigg, Christian
  6. Capital shares and income inequality: Evidence from the long run By Erik Bengtsson; Daniel Waldenstršm
  7. Optimal Mirrleesian Taxation in Non-competitive Labor Markets By Costa, Carlos da; Maestri, Lucas
  8. Fiscal Policy and Economic Growth - the Crisis Aftermath By Ivan Todorov
  9. Consumption taxes and taste heterogeneity By Stéphane Gauthier; Fanny Henriet
  10. Natural amenities, neighborhood dynamics, and persistence in the spatial distribution of income By Lee, Sanghoon; Lin, Jeffrey
  11. Can subsidized housing help address homelessness in New England? By Clifford, Robert; Jackson, Osborne
  12. Value-Addes Tax and Shadow Economy : the Role of Input-Output Linkages (revision of CentER Discussion Paper 2013-036) By Hoseini, Mohammad
  13. Financial Effects of Fiscal Transparency: A Critique By Anton Gerunov
  14. Effects of income and the cost of children on fertility. Quasi-experimental evidence from Norway By Taryn Ann Galloway; Rannveig Kaldager Hart
  15. Measurement of inequality of opportunity based on counterfactuals By Dirk Van de gaer; Xavier Ramos
  16. A Class of Association Sensitive Multidimensional Welfare Indices By Suman Seth

  1. By: Thomas Aronsson (Umea University); Olof Johansson-Stenman (University of Gothenburg); Ronald Wendner (University of Graz)
    Abstract: This paper deals with tax policy responses to charitable giving based on a model of optimal redistributive income taxation. The major contribution is the simultaneous treatment of (i) warm-glow and stigma effects of charitable donations; (ii) that the warm glow of giving and stigma of receiving charity may to some extent depend on relative comparisons; and (iii) that people are also concerned with their relative consumption more generally. Whether charity should be taxed or supported turns out to largely depend on the relative strengths of the warm glow of giving and the stigma of receiving charity, respectively, and on the positional externalities caused by charitable donations. In addition, imposing stigma on the mimicker (via a relaxation of the self-selection constraint) strengthens the case for subsidizing charity. We also consider a case where the government is unable to target the charitable giving through a direct tax instrument, and examine how the optimal marginal income tax structure is adjusted in response to charitable giving.
    Keywords: Conspicuous consumption; conspicuous charitable giving; optimal income taxation; warm glow; stigma
    JEL: D03 D62 H21 H23
    Date: 2016–01
  2. By: Zhao, Bo (Federal Reserve Bank of Boston)
    Abstract: Fiscal disparities occur when economic resources and public service needs are unevenly distributed across localities. There are two equity concerns associated with fiscal disparities. First, as Yinger (1986) shows, it is not considered fair to require two otherwise-identical households to pay a different amount of taxes for the same level of public services simply because they live in different towns. Second, fiscal disparities render some towns at a disadvantage in economic competition (Downes and Pogue 1992). These towns must impose a higher tax rate and/or provide a lower level of public services, making them less attractive to private businesses and residents. Using a cost-capacity gap framework and a newly assembled dataset of local financial records, this paper is the first study to quantify nonschool fiscal disparities across Connecticut municipalities. Municipal gap is defined as the difference between municipal cost and municipal capacity. A positive gap indicates greater need (measured by the cost to fund the common nonschool services) than capacity, while a negative gap indicates more capacity than need.
    Keywords: fiscal disparities; municipal gap; municipal cost; revenue-raising capacity; property tax; state grants
    JEL: H20 H70 H71 H72 H73 H77 H83
    Date: 2015–08–01
  3. By: Hisahiro Naito
    Abstract: Several theoretical models have been proposed to explain household behavior, such as the unitary model, non-cooperative model, and cooperative model. These three models make different predictions about the provision of household public goods. By using both the Japanese tax reforms conducted in the 1990s as a quasi-natural experiment and Japanese panel data on household expenditure, I study how the within-household income distribution affects household public goods and discuss which model is most relevant. I find that the neutrality of the effect of the income distribution on household public goods does not hold, which shows the failure of the unitary model. I also find evidence that the non-cooperative model does not hold either. Finally, I argue that the observed data are consistent with the cooperative bargaining model.
    Date: 2015–12
  4. By: Irigoin, Alejandra
    Abstract: The article examines Spain’s colonial legacy in the long run development of Spanish America. It surveys the fiscal and constitutional outcomes of independence and assesses the relative fiscal and trade burden imposed by colonialism. Constitutional asymmetries between revenue collecting and spending agents constrained de facto governments’ power to tax. Inherent disparities embedded in colonial fiscal system worsened with vaguely defined representation for subjects and territories and troubled their aggregation into a modern representative polity. Governments with limited fiscal capacity failed to deliver public goods and to equitably distribute costs and benefits of independence. Growing indirect taxes, debt and money creation allowed them to transfer the fiscal burden to other constituents or future generations. Taxpayers realised the asymmetry between private contributions and public goods and hence favoured a low but regressive taxation. Comparisons with trajectories in the metropolis and the US are offered to qualify the legacy. Forthcoming in: Revista de Historia Económica - Journal of Iberian and Latin American Economic History
    Keywords: colonial legacies; taxation and representation; debt and monetary policy; institutions and long run development; Spain, Spanish America, USA
    JEL: E63 N10 N20 N40
    Date: 2015–12–15
  5. By: Keuschnigg, Christian
    Abstract: The gains in life expectancy are expected to double the dependency ratio and increase population by 10% in Switzerland until 2050. To quantify the effects on pensions, taxes and social contributions, we use an overlapping generations model with five margins of labor supply: labor market participation, hours worked, job search, retirement, and on-the-job training. A passive fiscal strategy would be very costly. A comprehensive reform, including an increase in the effective retirement age to 68 years, may limit the tax increases to 4 percentage points of value added tax and reduce the decline of per capita income to less than 6%.
    Keywords: Aging, pensions, taxation, labor market effects, growth
    JEL: D58 D91 H55 J26 J64
    Date: 2016–01
  6. By: Erik Bengtsson (Lund University); Daniel Waldenstršm (Uppsala University)
    Abstract: This paper investigates the relationship between the capital share in national income and personal income inequality over the long run. Using a new historical cross-country database on capital shares in 19 countries and data from the World Wealth and Income Database, we find strong long-run links between the aggregate role of capital in the economy and the size distribution of income. Over time, this dependence varies; it was strong both before the Second World War and in the early interwar era, but has grown to its highest levels in the period since 1980. The correlation is particularly strong in Anglo-Saxon and Nordic countries, in the very top of the distribution and when we only consider top capital incomes. Replacing top income shares with a broader measure of inequality (Gini coefficient), the positive relationship remains but becomes somewhat weaker.
    Keywords: Wage share, Top incomes, Inequality, Wealth, Economic history
    JEL: D30 N30
    Date: 2016–01
  7. By: Costa, Carlos da; Maestri, Lucas
    Abstract: We study optimal labor income taxation in non-competitive labor markets. Firms offer screening contracts to workers who have private information about their productivity. A planner endowed with a Paretian social welfare function tries to induce allocations that maximize its objective. We provide necessary and sufficient conditions for implementation of constrained efficient allocations using tax schedules. All allocations that are implementable by a tax schedule display negative marginal tax rates for almost all workers. Not all allocations that are implementable in a competitive setting are implementable in this noncompetitive environment.
    Date: 2015–12
  8. By: Ivan Todorov (Market regulation department of Communications Regulation Commission)
    Abstract: The purpose of this study is to analyze the effectiveness of government spending and net taxes in Bulgaria for the period after the recent crisis. An empirical evaluation is based on two approaches. First, the ARDL analysis based on the Index of industrial production monthly data shows that the long term multiplier effects are valued 1.35 for spending, and close to 0.7 for net taxes. Second, using SVAR robust check based on GDP data the estimated values of the first-year multipliers are respectively 0.5 and 0.2 while the cumulative impact effect reaches up to 0.8 and 0.4.
    Keywords: Fiscal Policy, Economic Growth, Fiscal multipliers, SVAR, ADRL
    JEL: C32 E62
    Date: 2015–10
  9. By: Stéphane Gauthier (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); Fanny Henriet (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)
    Abstract: We study optimal commodity taxes in the presence of non-linear income taxes when agents differ in skills and tastes for consumption. We show that commodity taxes are partly determined by a many-person Ramsey rule when there is taste heterogeneity within income classes. The usual role of consumption taxes in relaxing incentive constraints explains the remaining part of these taxes when there is taste heterogeneity between income classes. We quantify the importance of these two components on Canadian microdata using a new method to identify empirically the binding incentive constraints. Incentives matter but tax exemptions are mostly justified by Ramsey considerations.
    Keywords: taste heterogeneity, commodity taxes, income taxation, empirical tests for asymmetric information, social weights
    Date: 2016–01–07
  10. By: Lee, Sanghoon (University of British Columbia); Lin, Jeffrey (Federal Reserve Bank of Philadelphia)
    Abstract: We present theory and evidence highlighting the role of natural amenities in neighborhood dynamics, suburbanization, and variation across cities in the persistence of the spatial distribution of income. Our model generates three predictions that we confirm using a novel database of consistent-boundary neighborhoods in U.S. metropolitan areas, 1880{2010, and spatial data for natural features such as coastlines and hills. First, persistent natural amenities anchor neighborhoods to high incomes over time. Second, naturally heterogeneous cities exhibit persistent spatial distributions of income. Third, downtown neighborhoods in coastal cities were less susceptible to the widespread decentralization of income in the mid-20th century and increased in income more quickly after 1980.
    Keywords: Suburbanization; Gentrification; Locational fundamentals; Multiple equilibria
    JEL: N90 O18 R23
    Date: 2015–12–15
  11. By: Clifford, Robert (Federal Reserve Bank of Boston); Jackson, Osborne (Federal Reserve Bank of Boston)
    Abstract: This report examines the scope of homelessness in New England and the potential role of subsidized housing in alleviating homelessness in the region. The report finds that the number of sheltered homeless families in Massachusetts and Vermont is on the rise, driving an increase in measured homelessness in New England. The authors consider three theories for the cause of the increase: the interaction of national market forces and area-specific shelter policies, area-specific market forces, and challenges in accurately measuring the homeless population. The research also explores the extent to which increased affordable housing can decrease neighborhood homelessness in moderately poor areas, focusing on the Low-Income Housing Tax Credit (LIHTC) as a source of subsidized housing. The authors find that local increases in subsidized housing are likely to reduce neighborhood homelessness, especially in New England.
    Date: 2015–12–01
  12. By: Hoseini, Mohammad (Tilburg University, Center For Economic Research)
    Abstract: Under the VAT, formal traders report their purchases to the administration for a<br/>deduction in their VAT bill. This paper models this third-party reporting feature of the VAT in an input-output economy and quantifies it among different activities using a forward linkages index. The administration can reduce the size of shadow economy by reallocating visiting audits to backwardly linked activities and cross-checking VAT payments with input credit claims in forwardly linked activities. Empirical evidence from Indian service sector justifies the assumptions and suggests a significant increase in the tax compliance of forwardly linked activities following VAT adoption in 2003.
    Keywords: Value-added tax; Informality; Tax enforcement; Linkage analysis
    JEL: H26
    Date: 2015
  13. By: Anton Gerunov (Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski)
    Abstract: This paper investigates the effects of budget transparency on fiscal performance. It fits a panel regression model on data from the Open Budget Index through its five rounds (OBI 2006-OBI 2015) and investigates the effect of openness on budget balance, primary balance and government debt across a sample of 57 countries. We seek to validate the proposed positive effect of fiscal transparency on objective performance indicators. Main results show that the link between openness and budget balance is relatively weak, while the effect of OBI on debt is more robust. This effect is also differentiated, with the lowest and highest-income countries benefitting most from openness.
    Keywords: budget, transparency, fiscal openness, deficit, debt
    JEL: H61 H62
    Date: 2016–01
  14. By: Taryn Ann Galloway; Rannveig Kaldager Hart (Statistics Norway)
    Abstract: The relationship between income, cost of childrearing and fertility is of considerable political and theoretical interest. We utilize exogenous variation in family income and the direct cost of children to estimate causal effects on fertility. The variation comes from a regional child benefit and tax reform implemented in the northern municipalities of the Norwegian county Troms. The southern municipalities of the same county constitute a plausible and empirically similar control group. Individual-level multivariate analysis suggests that a reduced direct cost of children increases fertility, mainly among unmarried women in their early 20s. We find little evidence of income effects on fertility. Our results are robust to a variety of specifications, including a standard difference-indifference setup, and regional trend modeling. The findings indicate that lowering the direct cost of a child would shift childbearing to lower ages in Norway. However, a lower price of children is also likely to induce a shift towards non-union childbearing or childbearing in less stable unions.
    Keywords: Fertility; Quasi experiment; Income effect; Public policy; Difference-in-difference
    JEL: J13 J12 J18 H23
    Date: 2015–11
  15. By: Dirk Van de gaer (Department of Social Economics, Ghent University, Belgium); Xavier Ramos (Depart Econ Aplicada, Universitat Autonoma de Barcelona, Spain)
    Abstract: The theoretical literature on inequality of opportunity formulates basic properties that measures of inequality of opportunity should have. Standard methods for the measurement of inequality of opportunity require the construction of counterfactual outcome distributions through statistical methods. We show that, when standard parametric procedures are used to construct the counterfactuals, the specification used determines whether the resulting measures of inequality of opportunity satisfy the basic properties.
    Keywords: Counterfactuals, inequality measurement, opportunities.
    Date: 2015–12
  16. By: Suman Seth
    Abstract: The last few decades have seen increased theoretical and empirical interest in multidimensional measures of welfare. This paper develops a two-parameter class of welfare indices that is sensitive to two distinct forms of inter-personal inequality in the multidimensional framework. The first form of inequality pertains to the spread of each dimensional achievement across the population, as would be reflected in the multidimensional version of the usual Lorenz criterion. The second one regards association or correlation across dimensions, reflecting the key observation that inter-dimensional association may alter evaluation of individual as well as overall inequality. Most existing multi-dimensional welfare indices are, however, either completely insensitive to inter-personal inequality or are only sensitive to the first. The class of indices developed in this paper is sensitive to both forms of multidimensional inequality. An axiomatic characterization of the class is provided, and it is shown that other multidimensional indices, such as the ones developed by Bourguignon (1999) and Foster, Lopez-Calva, and Székely (2005), are sub-classes of this new broader class. Finally, essential statistical tests are constructed to verify the reliability of the evaluations generated by the indices. Creation-Date: 2009-04

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