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on Public Economics |
| By: | Evers, Maria Theresia |
| Abstract: | The German Accounting Law Modernization Act (BilMoG) represents a change in paradigm with regard to the traditionally close relationship between financial and tax accounting in Germany. At the same time, requirements on the disclosure of deferred taxes were revised considerably. We make use of these new disclosure provisions to disaggregate firms deferred tax position and to analyze the components of temporary book-tax differences that add to the reporting gap in Germany. To this end, we apply a unique dataset of hand-collected information from individual financial statements for the fiscal year 2010. We find considerable differences between financial and tax accounting and observe that temporary book-tax differences are mainly associated with mandatory differences in accounting for provisions. The scope and quality of tax-related disclosures vary substantially and the overall disclosure quality is low. In order to identify the determinants of the heterogeneity of disclosure quality, we construct an index for voluntary and mandatory disclosure of deferred tax information and conduct multivariate analyses to explain firms disclosure decisions. We show that the recognition of deferred tax assets and liabilities on the face of the balance-sheet is sig-nificantly and positively related with disclosure quality in the notes to the financial statements. Further, our results suggest that larger firms are more likely to have high-quality tax disclosures and that high implementation costs could also explain the ob-served shortfalls in disclosure quality. Moreover, we find that different reporting incen-tives might apply if reporting on losses is assessed in isolation. We use these insights to derive implications for the discussion about whether and how to reform disclosure re-quirements under German GAAP |
| JEL: | H20 H25 M41 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113127&r=pbe |
| By: | von Schwerin, Axel |
| Abstract: | This paper explores to what extent governments consider the effective tax burden of their tax policies. More specifically, the paper asks whether governments set higher statutory tax rates, if the effective tax burden on business is reduced. To address this question, the paper exploits an odd institution in the German federal income tax code, which substantially changed the effective tax burden of the local business tax. A federal tax reform enacted in 2008 made a large part of the business tax deductible from the federal income tax. This paper provides evidence that this implicit subsidy has drastic effects on local tax effort. The empirical analysis exploits the fact the reform has created a quasi-experiment, as the tax burden is treated only below a certain threshold, thus creating a kink point in the public budget constraint. By now, more than 10% of German municipalities have set local tax rates identical to this threshold level, causing excess bunching within the tax rate distribution of more than 10,000 local governments. Using this phenomenon, I will be able to estimate the elasticity of the tax base. |
| JEL: | H71 H23 H25 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112955&r=pbe |
| By: | Holzmann, Carolin; von Schwerin, Axel |
| Abstract: | This paper provides empirical evidence for tax mimicking among unicipalities by exploiting a quasi-experiment in the German local fiscal equalization scheme. We show for the metropolitan area FrankfurtRheinMain that, besides neighborhood, the degree of economic integration of municipalities determines the interdependency among their tax policies. As the metropolitan area spreads across municipalities located in the two German federal states, Hesse and Rhineland-Palatinate, we can show that Rhineland-Palatine municipalities statistically significantly respond in their local tax rates to an exogenous change in the Hessian local fiscal equalization scheme. However, we find tax rate interdependency only for Rhineland-Palatine metropolitan municipalities which are arguably strongly economically integrated with Hessian metropolitan municipalities. The results suggest that regional economic integration is a key determinant for tax mimicking. |
| JEL: | H20 H71 H70 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112893&r=pbe |
| By: | Sachs, Dominik; Findeisen, Sebastian |
| Abstract: | We study optimal nonlinear taxation of labor income and linear taxation of capital income in a life-cycle framework with private information and idiosyncratic risk. We focus on simple history-independent tax instruments. We first analyze the welfare losses from this simplification as compared to optimal history-dependent policies. We find very small losses from restricting the complexity of savings wedges. Eliminating history dependence of labor wedges leads to larger welfare losses: moving from history dependence to age dependence yields approximately the same welfare losses as moving from age dependence to age independence and from nonlinear to linear income taxation. For optimal history- independent taxes, we provide a novel decomposition into a redistribution and an insurance component and a generalization of the top tax formula to dynamic environments. Capital taxation is desirable and yields sizable welfare gains, especially if labor income taxes are set below their optimal level. |
| JEL: | H21 H20 H23 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113099&r=pbe |
| By: | Baskaran, Thushyanthan |
| Abstract: | This paper uses the quasi-experiment of Germany's reunification to identify local tax mimicking by municipalities in Eastern-Germany. After reunification, East-German municipalities were allowed to independently set, for the first time in decades, local business and property tax rates. I explore whether the tax rates chosen by East-German border municipalities were influenced by the tax rates of adjacent West-German municipalities. To obtain causal estimates, I rely on instrumental variables regressions within the spatial lag framework, using West-German border municipalities' tax rates in 1989 as instruments for their post-reunification tax rates. The results suggest that East-German municipalities mimicked business tax rates immediately after reunification, but not in later years. I find no evidence of mimicking for property taxes. These results indicate that mimicking is not an important determinant of local tax policy. |
| JEL: | H71 H77 H20 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113088&r=pbe |
| By: | Habla, Wolfgang (Department of Economics, School of Business, Economics and Law, Göteborg University); Roeder, Kerstin (University of Augsburg) |
| Abstract: | In this paper, we acknowledge that the mitigation of and adaptation to climate change have differential fiscal impacts. Whereas mitigation typically raises fiscal revenues, adaptation is costly to the taxpayer and to a greater extent the more distortionary the tax system is. In an OLG model with majority voting, we analyze how the choices of mitigation and adaptation are distorted under a lump-sum and a distortionary income tax regime. We find that whenever emissions and adaptation exhibit stock characteristics, the levels of mitigation and adaptation are chosen inefficiently low in the political equilibrium under lump-sum taxation. By contrast, the political equilibrium may entail inefficiently high mitigation or inefficiently high adaptation (but not both simultaneously) if the tax system is distortionary. A calibration of our model to the German economy shows that both mitigation and adaptation can be expected to be inefficiently low in the political equilibrium. Furthermore, the standard assumption of a lump-sum tax system when analyzing mitigation and adaptation is found to underestimate the loss in utilitarian welfare relative to a distortionary tax system, although mitigation levels are generally higher under the latter regime. |
| Keywords: | Adaptation; Mitigation; Political Economy; Majority Voting; OLG; Environmental Taxes |
| JEL: | D72 D78 H21 H23 Q58 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0643&r=pbe |
| By: | Jochimsen, Beate Regina; Lehmann, Robert |
| Abstract: | Nowadays, a solid budget serves as an important quality signal for the electorate. Therefore, politicians might face an incentive to influence tax revenue forecasts which are widely regarded as a key element for budget setups. Looking at the time period from 1996 to 2012, we systematically analyze whether national tax revenue forecasts in 18 OECD countries are biased through political distortions. Based on several theoretical approaches drawn from the theories of political economy, we test four hypotheses using panel estimation techniques. We find strong support for partisan politics. Left governments seem to overestimate tax revenues more than right ones to satisfy their electorate with additional expenditure plans. Contrary to the theoretical prediction based on the common pool problem, we find that more fragmented governments and parliaments tend to produce more pessimistic tax revenue forecasts. One reason might be that at least one of the incumbents will stay in office and will be part of the next government, too. We do not find empirical evidence for political business cycles or an influence of the reelection probability on tax revenue forecasts at all. |
| JEL: | H11 H68 P16 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113089&r=pbe |
| By: | Erbe, Katharina |
| Abstract: | This study evaluates the tax planning behavior of married couples with regard to the allocation of tax schedules between spouses in the context of the German income tax splitting. The focus lies on the disparities between East and West German couples. The assumption is that the tax planning behavior of married couples in Germany depends on different reference points referring to the theory by Tversky and Kahneman (1991). The analysis utilizes administrative data from statistics on German income tax returns for the year 2004 (FAST 2004). The result of an alternative specific conditional logit estimation indicates that West German couples are substantially more likely to choose different tax schedules than East Germans (between 17.6 and 19.1 percentage points). West Germans are more likely to allocate the advantageous tax bracket to the husband instead of the wife. Further logit and OLS estimations as well as a Blinder-Oaxaca decomposition support these findings. The conclusion of this analysis is that tax planning behavior of married couples is influenced by the differences in the socialization of people, caused by the fact that before 1990, East Germany had different tax institutions and political regimes compared to West Germany. |
| JEL: | H24 H31 H20 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113155&r=pbe |
| By: | Gottlieb, Charles; Froemel, Maren |
| Abstract: | Transfers have recently become the most important fiscal policy tool of the U.S. Government. Moreover, within the transfer category, refundable tax credits have reached the same magnitude as unemployment insurance, yet little research documents the macroeconomic implications of tax credits. The existing literature on the effect of tax credits, abstract from behavioral responses to policy changes and are silent on potential general equilibrium effects. This paper fills this gap by addressing these two shortcomings of the existing literature, by modeling the Earned Income Tax Credits (EITC) in an infinite horizon economy with exogenously incomplete asset markets and heterogeneous agents. In particular, we assess the welfare effects of the EITC and analyze how effective targeted transfers are in alleviating distortions arising from incomplete financial markets, and contribute to the debate on labor supply responses to EITC. We also conduct two policy exercises. First, we evaluate the impact of a more generous targeted transfer program on welfare and aggregate outcomes, and thereby uncover the distributional properties of this fiscal policy tool. Secondly, we assess whether targeted transfers are a better policy tool than lump sum transfers and show that targeted transfers are indeed welfare enhancing as they achieve more redistribution at lower tax rates, but that they lead to a less efficient production at the aggregate level. |
| JEL: | B22 H23 H31 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113175&r=pbe |
| By: | Rincke, Johannes; Boyer, Pierre; Dwenger, Nadja |
| Abstract: | This paper studies how imposing norms on contribution behavior affects individuals' intrinsic motivation. We consider an urban area in Germany where the Catholic Church collects a local church levy as a charitable donation, despite the fact that the levy is legally a tax. In cooperation with the church, we design a natural randomized field experiment with letter treatments informing individuals that the church levy is in fact a tax. Guided by a simple theoretical model, we use baseline contribution behavior to measure individuals' intrinsic motivation and demonstrate that treatment effects differ strongly across motivational types. Among weakly intrinsically motivated individuals, communicating the existence of a legal norm results in a significant crowd-out of intrinsic motivation. In contrast, strongly intrinsically motivated individuals do not show any treatment response. We cross-validate our findings using alternative motivational measures derived from an extensive post-treatment survey. |
| JEL: | C93 D03 H26 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112951&r=pbe |
| By: | Braun, Julia; Weichenrieder, Alfons |
| Abstract: | Since the mid-1990s, countries offering tax systems that facilitate international tax avoidance and evasion have been facing growing political pressure to comply with the internationally agreed standards of exchange of tax information. Using data of German investments in tax havens, we find evidence that the conclusion of a bilateral tax information exchange agreement (TIEA) is associated with fewer operations in tax havens and the number of German affiliates has on average decreased by 46% compared to a control group. This suggests that firms invest in tax havens not only for their low tax rates but also for the secrecy they offer. |
| JEL: | F21 F23 H87 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113121&r=pbe |
| By: | Langenmayr, Dominika Irma |
| Abstract: | Many countries apply lower fines to tax evading individuals when they voluntarily disclose the tax evasion they committed. I model such voluntary disclosure mechanisms theoretically and show that while such mechanisms increase the incentive to evade taxes, they nevertheless increase tax revenues net of administrative costs. I then test the effects of voluntary disclosure in two separate empirical analyses. First, I confirm that voluntary disclosure mechanisms increase tax evasion, using the introduction of the 2009 offshore voluntary disclosure program in the U.S. for identification. Second, I quantify the tax revenues of voluntary disclosures by considering how some state-level governments in Germany bought whistle-blower data from foreign bank employees, thereby increasing the detection probability and the usage of voluntary disclosures. |
| JEL: | H26 K42 H24 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113101&r=pbe |
| By: | Fuest, Clemens (ZEW Mannheim); Peichl, Andreas (ZEW Mannheim); Siegloch, Sebastian (University of Mannheim) |
| Abstract: | This paper estimates the incidence of corporate taxes on wages using a 20-year panel of German municipalities. Administrative linked employer-employee data allows estimating heterogeneous worker and firm effects. We set up a general theoretical framework showing that corporate taxes can have a negative effect on wages in various labor market models. Using an event study design, we test the predictions of the theory. Our results indicate that workers bear about 40% of the total tax burden. Empirically, we confirm the importance of both labor market institutions and profit shifting possibilities for the incidence of corporate taxes on wages. |
| Keywords: | business tax, wage incidence, administrative data, local taxation |
| JEL: | H2 H7 J3 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9606&r=pbe |
| By: | Gadatsch, Niklas; Stähler, Nikolai; Weigert, Benjamin |
| Abstract: | In this paper, we assess the impact of major German structural reforms from 1999 to 2008 on key macroeconomic variables within a two-country monetary union DSGE model. By many, these reforms, especially the Hartz reforms on the labor market, are considered to be the root of thereafter observed imbalances in the Euro Area. We find that, in terms of German GDP, consumption, investment and (un)employment, the reforms were a clear success albeit the impact on the German current account was only minor. Most importantly, the rest of the Euro Area benefited from positive spillover effects. Hence, our analysis suggests that the reforms cannot be held responsible for the currently observed macroeconomic imbalances within the Euro Area. |
| JEL: | E62 E32 H20 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112960&r=pbe |
| By: | Burret, Heiko T.; Feld, Lars P. |
| Abstract: | Formal fiscal rules have been introduced in many countries throughout the world. While most studies focus on the intra-jurisdictional effects of fiscal rules, vertical effects on the finances of other levels of government have yet to be explored thoroughly. This paper investigates the influence of Swiss cantonal debt brakes on municipal finances during the years 1980-2011 by examining aggregated and disaggregated local data. A Difference-in-Differences estimation (twoway fixed effects) provides little evidence that budget constraints at the cantonal level affect average municipal finances and fiscal decentralization. |
| Keywords: | Fiscal Rule,Vertical Effect,Fiscal Shock,Decentralization,Sub-national Finances |
| JEL: | H60 H77 H74 H72 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:aluord:1601&r=pbe |
| By: | Riedel, Nadine; Böhm, Tobias; Karkinsky, Tom; Knoll, Bodo |
| Abstract: | This paper complements a small but growing literature on the effect of corporate taxes on R&D investment and patent holdings. We provide evidence that patent strategies are exploited as a device to shift income to low-tax countries. Using data on the population of corporate patent applications to the European Patent Office, we show that the location of R&D investment and patent ownership is geographically separated in a non-negligble number of cases. We find that countries which levy low patent income taxes attract ownership of foreign-invented patents, especially those patents that have a high earnings potential. Moreover, our results suggest that the probability for a patent to be owned by a party in a tax haven country significantly decreases if the inventor country has implemented controlled foreign company laws. |
| JEL: | H26 H25 H30 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112978&r=pbe |
| By: | Tanndal, Julia (Brown University); Waldenström, Daniel (Uppsala University) |
| Abstract: | This study estimates the impact of financial deregulation on top income shares. Using the novel econometric method of constructing synthetic control groups, we show that the "Big Bang"-deregulations in the United Kingdom in 1986 and Japan 1997-1999 increased the share of pre-tax incomes going to top earners by over 20 percent in the U.K. and over 10 percent in Japan. The effect is strongest in the top five percentiles in the U.K. whereas it is mainly driven by the lower part of the top decile in Japan. The findings are robust to placebo tests, alternative ways to construct synthetic controls and scrutiny of post-treatment trends. Higher earnings among financial sector employees appear to be an important mechanism behind this result. |
| Keywords: | income inequality, synthetic control method, institutions |
| JEL: | D31 G18 H24 J30 N20 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9684&r=pbe |
| By: | Reiter, Franz |
| Abstract: | Corporate tax rates around the world have considerably decreased in the last decades. While tax competition among countries has been widely accepted as the driving force of this trend, it has remained unclear which countries compete with whom. This paper focuses on country size as a determinant of tax competition. My empirical analysis yields two main results: First, the structure of tax competition is based on a country's size as large countries compete with other large countries and small countries compete with small ones. Second, there is a qualitative di erence as large countries compete worldwide with each other whereas small countries mainly orientate towards geographically close other small states. In an extension I show that tax competition between small countries is particularly strong in Europe. |
| JEL: | H25 H87 F23 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113189&r=pbe |
| By: | Büttner, Thiess; Erbe, Katharina; Grimm, Veronika |
| Abstract: | This paper explores whether tax planning by households is consistent with a minimization of the family tax burden or whether and to what extent altruism and concerns about the tax loss of individual household members matter. To this end, we take advantage of a specific feature of the German tax system which allows married couples to decide which of three different payroll tax regimes applies. Using a 10% random sample of the individual income tax files of all German tax payers, we find that a substantial fraction of all couples choose equal treatment of partners although a preferential tax treatment of the high income earner would yield a higher net family income. Our findings indicate that this result can be partly attributed to equity concerns. Tax planning is used not only to lower the overall tax burden but also to reduce the tax burden on the partner with the lower income. |
| JEL: | H24 H31 J22 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113011&r=pbe |
| By: | Bittschi, Benjamin; Borgloh, Sarah; Wigger, Berthold |
| Abstract: | Using German administrative income tax data we investigate economic consequences of an increasingly secular society for prosocial behavior. For this purpose, we establish initially a simple household model to formalize the relationship between religious giving in form of the German church tax and other tax deductible donations. We test the model hypotheses empirically and compare how income and the tax-price of giving differ as incentives to give between individuals leaving church and church members. While we find evidence for crowding in between religious giving and other donations for church members, we do not observe such a relation for church leavers. Moreover, donation behavior of church-leavers is much more responsive to tax incentives of charitable giving compared to church members. Moreover, we find that non-donors have a significantly increased probability of leaving church compared to donors. We trace this results back to the fact that non-donors are not able to compensate higher church taxes by reducing their donations. |
| JEL: | H24 H41 Z12 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113065&r=pbe |
| By: | Cremer, Helmuth (Toulouse School of Economics); Roeder, Kerstin (University of Augsburg) |
| Abstract: | This paper considers an economy where individuals differ in productivity and in risk. Rochet (1991) has shown that when private insurance markets offer full coverage at fair rates, social insurance is desirable if and only if risk and productivity are negatively correlated. This condition is usually shown to be satisfied for many health risks, but it appears to be violated for the old age dependency risk (mainly because longevity in turn is positively correlated with productivity). We examine the role of uniform and nonuniform social insurance to supplement a general income tax when neither public nor private insurers can observe individual risk and when it is positively correlated with wages. Consequently, a Rothschild and Stiglitz (1971) equilibrium emerges in the private insurance market and low-wage/low-risk individuals are not fully insured. We show that even when social insurance provided to the poor has a negative incentive effect, it also increases their otherwise insufficient insurance coverage. Social insurance to the rich produces exactly the opposite effects. Whichever of these effects dominates, some social insurance is always desirable. Finally, we introduce risk misperception which exacerbates the failure of private markets. The insurance term now reflects the combined failure brought about by adverse selection and misperception. Now the low-risk individuals are not only underinsured, but also pay a higher than fair rate. However, and rather surprisingly, it turns out that this does not necessarily strengthen the case for public insurance. |
| Keywords: | social insurance, optimal taxation, adverse selection, overconfidence, long-term care |
| JEL: | H21 H51 D82 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9651&r=pbe |
| By: | Löffler, Max; Siegloch, Sebastian |
| Abstract: | Although being heavily analyzed and discussed, there is neither a theoretical nor an empirical consensus on the incidence of the property tax in rental markets. In this paper, we suggest a novel theoretical approach by introducing property taxation into a Rosen-Roback type local labor market model. Besides the standard relative elasticity result, we find that the tax incidence depends on location preferences. The advantageous institutional setting of property taxation in Germany enables us to test our theoretical predictions and provide a clean estimate of the tax incidence using a non-parametric event study research design. Using a panel of roughly 540 communities over up to 20 years, we show that in the short run, the incidence is borne by landlords since housing supply is inelastic. As housing supply becomes more elastic over time, landlords are able to shift the burden onto tenants. After six years, net rents are on the pre-reform level, implying full shifting of the tax. |
| JEL: | H22 H71 R31 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112967&r=pbe |
| By: | Luna Bellani (Department of Economics, University of Konstanz, Germany); Michela Bia (Luxembourg Institute of Socio-economic Research, Luxembourg) |
| Abstract: | This paper examines the role of education as causal channel through which growing up poor affects the individual’s economic outcomes as an adult. We contribute to the literature on intergenerational transmission in two ways. First, we apply a potential outcomes approach to quantify the impact of experiencing poverty while growing up and we provide a sensitivity analysis on the unobserved parental ability. Second, we analyze the role of individual human capital accumulation as an intermediate variable and we provide a sensitivity analysis on further possible unobserved confounders. The analysis is based on the module on intergenerational transmission of 2011 of the EU-SILC data, where retrospective questions about parental characteristics (such as education, age, occupation) were asked. We find that, on average, over the 27 European countries considered, growing up poor leads to an increase of 4 percentage points in the risk of being poor and to a decrease of 5% in the adult equivalent income. Moreover, we find that experiencing poverty during childhood will more likely translate into an exclusion from secondary education (of 12 percentage points on average) and that education plays indeed a substantial role accounting for almost 35% of the total effect on adult income. |
| Keywords: | Poverty, Intergenerational transmission, Potential outcome, Causal mediation analysis, Education |
| JEL: | D31 I32 J62 |
| Date: | 2016–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1602&r=pbe |
| By: | de Mello, Luiz (OECD); Schotte, Simone (German Institute of Global and Area Studies (GIGA)); Tiongson, Erwin R. (Georgetown University); Winkler, Hernan (World Bank) |
| Abstract: | This paper looks at how individual preferences for the allocation of government spending change along the life cycle. Using the Life in Transition Survey II for 34 countries of Europe and Central Asia, we find that older individuals are less likely to support a rise in government outlays on education and more likely to support increases in spending on pensions. These results are very similar across countries, and they do not change when using alternative model specifications, estimation methods and data sources. Using repeated cross‐sections, we control for cohort effects and confirm our main results. Our findings are consistent with a body of literature arguing that conflict across generations over the allocation of public expenditures may intensify in ageing economies. |
| Keywords: | ageing, public spending, cohort effects |
| JEL: | H3 H5 J14 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9681&r=pbe |
| By: | Strehl, Wolfgang; Engler, Philipp |
| Abstract: | We analyse the welfare properties of progressive income taxes in a stylized DSGE model of a currency union calibrated to the Eurozone. When the central bank follows a standard Taylor rule and volatility originates solely in productivity shocks, we find that considerable welfare gains can be achieved by introducing a progressive income tax schedule. The reason is that the slightly lower average levels of consumption and greater volatility of hours are more than offset in their effects on welfare by a significant reduction in consumption volatility. However, at the aggregate level this result is not robust to the introduction of rule-of-thumb households, but we find a positive welfare effect for the latter type of households while intertemporally optimizing households lose. Furthermore, under an optimal monetary policy, welfare falls even in the absence of rule-of-thumb households. When demand shocks are considered, progressive taxes cannot improve welfare. Increasing tax progression above the Eurozone average is a "beggar-thyself" policy for all specifications. |
| JEL: | E62 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112823&r=pbe |
| By: | Kalamov, Zarko; Staal, Klaas |
| Abstract: | We look at a model where countries of di fferent size provide local public goods with positive spillovers. Matching grants can induce socially-e fficient expenditure levels, but countries can induce bailouts. We consider the characteristics of these bailouts in a subgame-perfect Nash equilibrium and how these characteristics are a ffected by the introduction of common bonds. Partial substitution of common for sovereign bonds has two implications. First, it lowers the average and marginal borrowing costs of countries, which may be eligible for bailouts. This eff ect leads to higher borrowing in these countries irrespective of their bailout expectations. Second, the lower borrowing costs mitigate the incentives of countries to induce a bailout and, therefore, constrain parameter set for which a soft budget constraint equilibrium exists. |
| JEL: | H40 H70 R10 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112979&r=pbe |
| By: | Hohberger, Stefan; Kraus, Lena |
| Abstract: | Large trade imbalances have emerged as major policy challenges for the euro area within the last decade. As fiscal policy is the major macroeconomic policy instrument left with the individual member countries of EMU, fiscal devaluation is a highly debated policy tool to mimic the effects of an external devaluation by implementing a budgetary-neutral tax shift from direct to indirect taxes. This paper uses a two-region two-sector DSGE model with nominal wage and price rigidities to analyse the welfare effects of fiscal devaluation understood as tax shift from social security contributions for employers to value-added tax in a small open economy in monetary union. This paper finds that fiscal devaluation can stabilise excessive trade balance fluctuations but implies welfare losses for the average household. The results are robust to several sensitivity checks. |
| JEL: | E62 F32 F41 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113193&r=pbe |
| By: | Hernæs, Øystein (Ragnar Frisch Centre for Economic Research); Markussen, Simen (Ragnar Frisch Centre for Economic Research); Røed, Knut (Ragnar Frisch Centre for Economic Research) |
| Abstract: | Based on administrative data, we analyze empirically the effects of stricter conditionality for social assistance receipt on welfare dependency and high school completion rates among Norwegian youths. Our evaluation strategy exploits a geographically differentiated implementation of conditionality. The causal effects are identified on the basis of larger-than-expected within-municipality changes in outcomes that not only coincide with the local timing of conditionality implementation, but do so in a way that correlates with individual ex ante predicted probabilities of becoming a social assistance claimant. We find that stricter conditionality significantly reduces welfare claims and increases high school completion rates. |
| Keywords: | social assistance, activation, conditionality, welfare reform, school dropout |
| JEL: | H55 I29 I38 J18 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9644&r=pbe |
| By: | Koch, Christian; Müller, Cornelius |
| Abstract: | Many countries grant exemption from legal prosecution under certain conditions, allowing for voluntary disclosures regarding tax evasion. It has been claimed that tax amnesties are most successful when they are accompanied by an increase in compliance efforts because amnesties then help tax evaders to adjust to the new circumstances. At the same time, time-limited amnesties are often repeated or in some countries even permanent amnesty laws exist. When tax amnesties are, however, anticipated, they can serve as an insurance against a rise in the detection probability, potentially leading to less and not more tax compliance. We test the relevance of this insurance effect in an experimental tax game and find that the overall tax compliance actually decreases by about 9 percent because of this effect. |
| JEL: | C91 H26 H24 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112991&r=pbe |
| By: | Keuschnigg, Christian; Davoine, Thomas |
| Abstract: | This paper considers the role of flexicurity when jobs must be reallocated from a declining, traditional sector to a skill intensive expanding sector. Workers initially decide whether to acquire qualifications for skill-intensive tasks or to accept a less demanding traditional job. Unemployment arises from job separation in the declining sector and difficulties in retraining for new employment in the expanding sector. The paper derives an optimal welfare policy which combines the design of the tax schedule with three pillars of `flexicurity'. The optimal policy includes (i) a progressive wage tax schedule; (ii) a wage subsidy to re-employed workers; (iii) unemployment insurance; (iv) moderate job protection; and (v) active labor market policy to facilitate job reallocation. |
| JEL: | H21 J64 J65 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113212&r=pbe |
| By: | Balke, Neele; Ravn, Morten |
| Abstract: | The financial crisis led to severe crises in much of Southern Europe that generated deep economic problems that still have not been resolved. Many of these economies (Greece, Italy, Spain and Portugal) witnessed not only large drops in aggregate activity but also rising levels of debt and falling debt prices which made financing of deficits very costly and triggered concerns about sovereign defaults. A large literature has considered environments in which large negative shocks can generate risk of default because sovereign governments lack commitment to debt. However, much of this literature either assumes that government has commitment to all other fiscal instruments or that these are exogenously determined. Therefore, it is unclear whether adjustments of other instruments - for example cuts in public spending or tax hikes - may not be preferable to default. Moreover, this literature typically does not allow for feedback from the fiscal instruments to the state of the economy beyond those triggered by punishment mechanisms in case of a sovereign default. Thus, these models are not useful for understanding richer questions regarding the adjustment of fiscal policy in crisis times. This paper takes a first step in addressing these issues. We study a small open economy model in which a benevolent government aims at maximizing social welfare but lacks commitment to all its fiscal instruments. The economy consists of a government, households, firms and foreign lenders. Households derive utility from consumption of private goods, leisure and from government provided public goods. They differ in their labor market status because of matching frictions. Some households work and earn labor income. The government imposes a payroll tax on these households. Other households are unemployed but choose search effort. Households cannot purchase unemployment insurance contracts but receive government financed unemployment transfers. Firms post vacancies to hire workers and there is free entry. There is an aggregate productivity shock and wages are determined by a non-cooperative Nash bargaining game between firms and households. The government chooses payroll taxes, unemployment benefits, government spending and may be able to smooth the budget by international borrowing and lending. International lenders are risk neutral and charge an interest rate which takes into account that governments may choose to default. If a government defaults it is excluded from international financial markets for a stochastic number of periods and it may suffer a loss of productivity whilst excluded from international lending. The government in this economy faces several trade-offs. It would like to insure households against unemployment risk and against wage risk which occurs due to productivity shocks. However, more generous unemployment insurance gives households less incentive to search for jobs and therefore produces higher unemployment and a smaller tax base. In order to smooth employed households against wage risk, the government would like to cut payroll taxes when productivity falls but this implies rising debt. The government also attempts to equalize the marginal utility of private and public consumption but cannot do so perfectly because of household heterogeneity. In this economy, falling productivity produces difficult choices since it puts a pressure on the government budget due to rising unemployment and a smaller tax base which produces an incentive for increasing government borrowing. However, rising debt levels may eventually impact on the price of debt because lenders perceive a risk of a sovereign default. For that reason, the government will eventually have to make a hard choice about whether to default on its debt which means it will have to balance its budget (and possibly suffer a drop in productivity), cut unemployment transfers which harms the unemployed, increase payroll taxes which harms the employed and produces higher unemployment, or cut government spending which lowers utility of households. We derive optimal fiscal policies in this environment by studying Markov perfect equilibria. The model is calibrated to emulate the conditions of a typical Southern European economy. We show that the time-consistent policies involve countercyclical payroll taxes, constant unemployment benefits, and mildly procyclical government spending in normal times when the risk of default is negligible. In crisis times, the government is willing to further distort the economy by providing less insurance against unemployment, increasing payroll taxes and cutting public goods provision to limit rising debt. However, once a default becomes inevitable, the government partially lifts such austerity measures since it ceases to be concerned about honouring its outstanding debt. |
| JEL: | E62 F34 J64 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113071&r=pbe |
| By: | Siegloch, Sebastian; Doerrenberg, Philipp; Peichl, Andreas |
| Abstract: | The elasticity of taxable income (ETI) is often interpreted as a sufficient statistic to assess the welfare costs of taxation. Building on the conceptual framework of Chetty (2009), we show that this assertion does no longer hold for tax systems with deduction possibilities if (i) deductions generate externalities and (ii) deductions are responsive to tax rate changes. While the first condition should arguably hold for almost any imaginable tax deduction, we provide a thorough empirical examination of the second condition. Relying on rich German panel data from administrative tax records, we exploit several tax reforms that were implemented in Germany between 2001 and 2008. Our baseline estimates indicate an overall ETI of 0.49 and an elasticity of deductions with respect to the net-of-tax rate of -2.80. Given that the majority of deductions in the German income tax system generate externalities, our non-zero deduction elasticity suggests that the ETI is not sufficient to calculate the welfare cost of taxation. |
| JEL: | H24 H31 H21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113076&r=pbe |
| By: | Schindler, Dirk Steffen; Hopland, Arnt Ove; Lisowsky, Petro; Mardan, Mohammed |
| Abstract: | This paper examines the flexibility of multinational firms to use income-shifting strategies within a tax year to react to operating losses. First, we develop an analytical model that considers how affiliate losses can be adjusted by using the transfer prices of tangible and intangible assets, as well as internal debt shifting, either by ex-post (i.e., by the end of the tax year) or ex-ante income shifting (i.e, before the current tax year). Our model predicts that, due to income shifting, multinational firms report lower profits when running profits, and lower losses when running losses, compared to domestic firms. It also suggests that under ex-post income shifting, loss affiliates have lower transfer prices and internal leverage than profitable affiliates, whereas under ex-ante income shifting, affiliates feature the same transfer prices and internal capital structure, regardless of making losses. Second, using data on direct transfer payments and internal debt of Norwegian affiliates, we find empirical evidence that, under losses, transfer pricing gives substantial flexibility to adjust income shifting ex post. In contrast, we do not find evidence for flexibility in the use of internal debt to shift income ex post. We contribute to the literature that neglecting the precautionary income-shifting behavior of potential loss affiliates underestimates the sensitivity of tax rates to transfer payments and to internal debt, whenever some ex-ante income shifting is present. |
| JEL: | H25 F23 H87 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112972&r=pbe |
| By: | Heinemann, Friedrich; Moessinger, Marc-Daniel; Yeter, Mustafa |
| Abstract: | Numerical fiscal rules are implemented to counterbalance the deficit bias in budgetary policy. Over the recent years, an increasing number of studies try to test the actual effectiveness of fiscal rules. This meta-analysis condenses the existing evidence from different regional and federal contexts. It explores the study characteristics which are associated with different findings. Based on a preliminary analysis and a still incomplete sample of primary studies, the results point to a consensus that fiscal rules indeed constrain fiscal policies. This result also appears to hold in light of the criticism that rules are the endogenous reflection of fiscal preferences: even studies with a comprehensive control for fiscal preferences do not lead to systematically weaker levels of statistical significance. |
| JEL: | H61 H74 H69 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112800&r=pbe |
| By: | Dolls, Mathias (ZEW Mannheim); Doorley, Karina (LISER (CEPS/INSTEAD)); Paulus, Alari (ISER, University of Essex); Schneider, Hilmar (LISER (CEPS/INSTEAD)); Siegloch, Sebastian (University of Mannheim); Sommer, Eric (IZA) |
| Abstract: | The effect of demographic change on the labor force and on fiscal revenues is topical in light of potential pension shortfalls. This paper evaluates the effect of demographic changes between 2010 and 2030 on labor force participation and government budgets in the EU-27. Our analysis involves the incorporation of population projections, and an explicit modeling of the supply and demand side of the labor market. Our approach overcomes a key shortcoming of most existing studies that focus only on labor supply when assessing the effects of policy reforms. Ignoring wage reactions greatly understates the increase in fiscal revenues, suggesting that fiscal strain from demographic change might be less severe than currently perceived. Finally, as a policy response to demographic change and worsening fiscal budgets, we simulate the increase in the statutory retirement age. Our policy simulations confirm that raising the statutory retirement age can balance fiscal budgets in the long run. |
| Keywords: | demographic change, fiscal effects, labor supply, labor demand, pension systems |
| JEL: | H68 J11 J21 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9618&r=pbe |
| By: | Strupler Leiser, Mirjam (University of Bern); Wolter, Stefan C. (University of Bern) |
| Abstract: | In this paper we assess the effectiveness of a social public procurement policy in Switzerland that gives firms that train apprentices a preferential treatment. We estimate the effectiveness of this social procurement policy on a firm's training participation, training intensity, and training quality using information from a representative and large firm survey. The results show that the policy increases the number of training firms, and does not affect training quality negatively. However, the effect is limited in size, as only small firms and firms operating in sectors where public procurement represents a large share of the business, are affected positively. |
| Keywords: | apprenticeship training, difference-in-differences, matching, public procurement policy, social public procurement |
| JEL: | H32 I28 J08 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9646&r=pbe |
| By: | Gathmann, Christina; Boyer, Pierre |
| Abstract: | We study the political determinants of policy experimentation during the US welfare reform. Among other changes, this reform shifted the autonomy to implement welfare policies from the federal government to the individual states. In line the predictions from a political agency model, we find that (i) governors with high initial reputation among voters experiment less with welfare policies; (ii) governors with lower reelection concerns experiment more; (iii) governors with little experience are more likely to revert an experiment, but are also more likely to stick to a policy experiment with high potential gains. Overall our findings suggest that reelection concerns play an important role for policy experimentation and reversals. |
| JEL: | I38 H11 D78 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112844&r=pbe |