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on Public Economics |
| By: | Kroft, Kory (University of Toronto); Kucko, Kavan (Boston University); Lehmann, Etienne (CRED, Université Panthéon Assas Paris 2); Schmieder, Johannes F. (Boston University) |
| Abstract: | We derive a sufficient statistics optimal tax formula in a general model that incorporates unemployment and endogenous wages, to study the shape of the tax and transfer system at the bottom of the distribution. The sufficient statistics are the macro employment response to taxation and the micro and macro participation responses. We estimate these statistics using policy variation from the U.S. tax and transfer system. Our results suggest that the optimal tax more closely resembles a Negative Income Tax than an Earned Income Tax Credit relative to the case where unemployment and wage responses are not taken into account. |
| Keywords: | optimal income taxation, labor supply, labor demand |
| JEL: | H21 J22 J23 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9719&r=pbe |
| By: | Raffaele Lagravinese; Paolo Liberati; Agnese Sacchi |
| Abstract: | This paper investigates the short- and long-run responses of tax bases used by sub-central governments with regard to regional GDP. The methodology is applied to the two main taxes levied by the Italian regions over the period 2001-2012, the surtax on the personal income tax (RPIT) and the regional tax on productive activities (RTPA). Our results suggest that both tax bases do not exhibit long-run potential growth and that they are pro-cyclical. Furthermore, this pro-cyclicality is higher in the case of RTPA and during recession periods in all regions. The results cast some doubts on the adequacy of these two bases to provide an adequate financing source to provide health and other regional public services, normally highly demanded during business cycle contractions. |
| Keywords: | Income elasticity, Regional tax bases, Error correction model, Italy |
| JEL: | H24 H25 H77 R50 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:gov:wpregi:1601&r=pbe |
| By: | Richard Dutu |
| Abstract: | Despite having low government spending, Switzerland scores highly in various public policy outcomes, including health, education and transportation. But, as the population grows and ages, efficiency of public spending will have to rise to maintain low tax rates. Given its high returns, the provision of early childhood education and care should be boosted, especially for children from disadvantaged socio-economic backgrounds, including those from immigrant families. Cantons should avoid oversupplying baccalaureates, thereby lowering university dropout rates. Policies will also need to adapt to structural changes in the labour market, by boosting the supply and attractiveness of fields of study that are facing high demand on the labour market, and by further clarifying study streams across tertiary education. Health-care efficiency could be raised by further developing managed-care networks. Enforcing systematic data collection for the quality of care would also help patients and providers make better informed choices. Generic drugs’ prices are too high due to a poorly designed price-fixing mechanism. Transportation suffers from congestion that could be reduced by implementing peak-load pricing on roads and trains. But efficiency in public spending is also about allocating public funds optimally. Switzerland’s rapidly rising social security entitlements and its fiscal equalisation system constrain public spending and risk crowding out important expenditures. Fast-rising social security entitlements could be addressed via indexing the retirement age to life expectancy. Fiscal equalisation weakens tax-raising incentives for some cantons; this could be addressed by allowing them to keep a larger part of their increased revenues. Efficiency in allocating public expenditure could also be raised by increasing the share of public spending allocated by tender and harmonising procurement regulations across all levels of government. This Working Paper relates to the 2015 OECD Economic Review of Switzerland (http://www.oecd.org/eco/surveys/economic-survey-switzerland.htm) Accroître l'Efficience des Dépenses Publiques en Suisse Malgré un volume de dépenses publiques faible, la Suisse obtient de très bons résultats dans de nombreux domaines de la politique publique, dont la santé, l’éducation et le transport. Toutefois, compte tenu de la croissance démographique et du vieillissement de la population, l’efficience des dépenses publiques devra être renforcée pour conserver des taux d’imposition bas. Compte tenu de ses effets très positifs, l’offre de structures d’éducation et d’accueil des jeunes enfants devrait être accrue, notamment pour les enfants issus de milieux socio-économiques défavorisés, comme les enfants d’immigrés. Les cantons devraient éviter une situation d’excès de bacheliers, afin de réduire les taux de décrochage universitaire. Les politiques devront aussi s’adapter aux changements structurels sur le marché du travail en améliorant l’offre et l’attractivité des domaines d’études qui suscitent une forte demande sur le marché de l’emploi, et en simplifiant encore les filières dans l’enseignement supérieur. Dans la santé, le développement des réseaux de soins intégrés pourrait renforcer l’efficience. Le recueil systématique de données sur la qualité des soins aiderait aussi patients et prestataires à faire des choix mieux informés. Les prix des médicaments génériques sont trop élevés en raison d’un mécanisme de fixation des prix mal conçu. Dans les transports, la congestion pourrait être réduite en adoptant une tarification de période de pointe sur les routes et les rails. Mais l’efficience des dépenses publiques a aussi trait à la répartition optimale des deniers publics. Les droits à prestations de sécurité sociale qui augmentent rapidement en Suisse et le système de péréquation budgétaire contraignent les dépenses publiques et risquent de supplanter des catégories de dépenses importantes. L’indexation de l’âge de la retraite sur l’espérance de vie pourrait permettre de faire face à l’augmentation rapide des droits à prestations de sécurité sociale. La péréquation budgétaire incite moins certains cantons à collecter les impôts. Pour remédier à cette situation, ils pourraient être autorisés à conserver une part plus importante de leurs recettes supplémentaires. La répartition des dépenses publiques pourrait aussi devenir plus efficiente en augmentant le pourcentage des marchés publics alloués par appels d’offres et en harmonisant les procédures de passation de marché à tous les niveaux de l’administration. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Suisse 2015 (http://www.oecd.org/fr/eco/etudes/etude -economique-suisse.htm). |
| Keywords: | education, health care, public spending, fiscal equalisation, efficiency, dépense publique, santé, efficience, éducation |
| JEL: | H11 H51 H52 H55 H57 H77 |
| Date: | 2016–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1280-en&r=pbe |
| By: | Feld, Lars P.; Ruf, Martin; Schreiber, Ulrich; Todtenhaupt, Maximilian; Voget, Johannes |
| Abstract: | Taxing capital gains is an important obstacle to the efficient allocation of resources because it imposes a transaction cost on the vendor which locks in appreciated assets by raising the vendor's reservation price in prospective transactions. For M&As, this effect has been intensively studied with regard to shareholder taxation, whereas empirical evidence on the effect of capital gains taxes paid by corporations is scarce. This paper analyzes how corporate level taxation of capital gains affects inter-corporate M&As. Studying several substantial tax reforms in a panel of 30 countries for the period of 2002-2013, we identify a significant lock-in effect. Results from estimating a Poisson pseudo-maximum-likelihood (PPML) model suggest that a one percentage point decrease in the corporate capital gains tax rate would raise both the number and the total deal value of acquisitions by about 1.1% per year. We use this result to estimate an efficiency loss resulting from corporate capital gains taxation of 3-06 bn USD per year in the United States. |
| Keywords: | corporate taxation,M&A,capital gains tax,lock-in effect |
| JEL: | H25 G34 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:16007&r=pbe |
| By: | Blomquist, S.; Simula, L. |
| Abstract: | Most theoretical work on how to calculate the marginal deadweight loss has been done for linear taxes and for variations in linear budget constraints. This is quite surprising since most income tax systems are nonlinear, generating nonlinear budget constraints. Instead of developing the proper procedure to calculate the marginal deadweight loss for variations in nonlinear income taxes a common procedure has been to linearize the nonlinear budget constraint and apply methods that are correct for variations in a linear income tax. Such a procedure leads to incorrect results. The main purpose of this paper is to show how to correctly calculate the marginal deadweight loss when the income tax is nonlinear. A second purpose is to evaluate the bias in results that obtains when a linearization procedure is used. Our main theoretical result is that the overall curvature of the tax system plays the same role as the curvature of indifference curves for the size of the marginal deadweight loss. Using numerical simulations calibrated on US data, we show that common linearization procedures may lead to substantial overestimation of the marginal deadweight loss. |
| Keywords: | MARGINAL DEADWEIGHT LOSS;TAXABLE INCOME;NONLINEAR BUDGET CONSTRAINT |
| JEL: | H21 H24 H31 D61 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:gbl:wpaper:2016-02&r=pbe |
| By: | Barbara Annicchiarico (University of Rome "Tor Vergata"); Claudio Cesaroni (DEF, Università di Roma "Tor Vergata") |
| Abstract: | This paper studies the effects of several tax reforms in an economy in which taxes are partially evaded by means of undeclared work. To this purpose, we consider a two-sector dynamic general equilibrium model calibrated to Italy which explicitly accounts for underground production. We construct various tax reform scenarios, such as deductibility of labor costs from business tax, ex-ante budget-neutral tax shifts from direct to indirect taxes, and various tax cuts financed by decreases of government spending. We find the following results. First, neglecting the existence of the underground sector may lead to severely miscalculate the macroeconomic impact effects of tax reforms, especially in the short run, where policy interventions produce direct and indirect effects on the markup. Second, partial deductibility of labor costs from the business tax base proves to be highly expansionary and highly detrimental to the size of the underground sector. Third, the dimension of the underground sector is permanently and considerably reduced by changes in the tax mix that diminish the labor tax wedge. Finally, all the considered tax reforms take the public-debt-to-output ratio toward a prolonged downward path. |
| Keywords: | Dynamic General Equilibrium Model, Underground Economy, Tax Reforms, Italy |
| JEL: | E62 O41 O52 |
| Date: | 2016–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:366&r=pbe |
| By: | Sandhya Garg (Indira Gandhi Institute of Development Research) |
| Abstract: | India, a quasi federal structure specifies the provisions of federal transfers to subnational governments to cushion their inadequate expenditure capacity. Observing this provision of federal transfers and large disparities in real per capita expenditure, the present study explores evidence of convergence in total real per capita expenditure and its three categories: education, health and development expenditure across Indian states. Results show that there exists conditional convergence in all expenditure categories. Federal transfers are helping to equalize the level of per capita expenditure across sub national governments. It is important to note that, not all types of federal transfers have equal impact on expenditure growth due to their varying distribution criteria. Formula transfers, devolved based on a composite formula, seem to be expenditure augmenting more than discretionary components of the federal transfers. The former category also ensures faster convergence as compared to the latter. Literature on strategic interaction among different jurisdiction indicates that public expenditure in one jurisdiction is not independent of public expenditure of neighbouring jurisdictions. Using the spatial econometrics approach, this study analyses such spillover effect in public expenditure. Econometric estimates suggest significant spatial spillovers which extend beyond the borders of state and effect expenditure growth in other states. Results are robust to various model specifications. |
| Keywords: | India, public expenditure, convergence, federal transfers, spatial econometrics, political economy |
| JEL: | C23 H72 H77 R12 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2015-028&r=pbe |
| By: | Irem Guceri (Oxford University Centre for Business Taxation) |
| Abstract: | This paper evaluates the effect of R&D tax incentives in a quasi-experimental setting. I identify the impact by exploiting a reform in UK policy which increased the SME threshold from 250 to 500 employees. First, I provide evidence that tax incentives help to increase R&D spending at the company level, and the effect translates to a user cost elasticity of -1.18. Second, R&D generated through the reform may be attributable to an increase in the number of R&D employees. I use R&D survey data for which the companies do not have an incentive to relabel their ordinary spending as R&D. |
| Keywords: | R&D, tax credits, difference-in-differences |
| JEL: | H25 O30 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:btx:wpaper:1602&r=pbe |
| By: | Elinder, Mikael (Uppsala Center for Fiscal Studies); Erixson, Oscar (Uppsala Center for Fiscal Studies); Waldenström, Daniel (Uppsala Center for Fiscal Studies) |
| Abstract: | This study estimates the effect of inheriting wealth on inequality and mobility in the wealth distribution. Using new population-wide register data on inheritances in Sweden, we find that inheritances reduce inequality and increase mobility among heirs. Richer heirs indeed inherit larger amounts, but less affluent heirs receive substantially larger inheritances relative to their pre-inheritance wealth than do richer heirs. The Swedish inheritance tax had a small overall impact but appears to have mitigated the equalizing effect of inheritances. We also investigate the potentially confounding role of pre-inheritance gifts and behavioral responses to expectations about future inheritances, but neither of them change the main finding that inheritances reduce wealth inequality. |
| Keywords: | bequest; estate; net worth; inheritance taxation; wealth distribution |
| JEL: | D63 E21 H24 |
| Date: | 2015–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uufswp:2015_003&r=pbe |
| By: | Christian A. L. Hilber; Teemu Lyytikainen |
| Abstract: | We estimate the effect of the UK Stamp Duty Land Tax (SDLT) – a transfer tax on the purchase price of property or land – on different types of household mobility using micro data. Exploiting a discontinuity in the tax schedule, we isolate the impact of the tax from other determinants of mobility. We compare homeowners with self-assessed house values on either sides of a cut-off value where the tax rate jumps from 1 to 3 percent. We find that a higher SDLT has a strong negative impact on housing-related and short distance moves but does not adversely affect job-induced or long distance mobility. our results suggest that transfer taxes may mainly distort housing rather than labor markets. |
| Keywords: | transfer taxes; stamp duty; transaction costs; homeownership; household mobility |
| JEL: | D23 H21 H27 J61 R21 R31 R38 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:65022&r=pbe |
| By: | Fuest, Clemens; Peichl, Andreas; Siegloch, Sebastian |
| 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: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:16003&r=pbe |
| By: | Baskaran, Tushyanthan; Feld, Lars P.; Schnellenbach, Jan |
| Abstract: | The theoretical literature on fiscal federalism has identified several channels through which government decentralization could affect economic growth. Much of the literature focuses on the efficiency aspects of a decentralized provision of public services, but decentralization may also increase growth by raising the ability of the political system to innovate and carry out reforms. In contrast, some authors argue that decentralization increases corruption and government inefficiency, and thus may diminish growth. Given this theoretical ambiguity, several studies have attempted to identify the effect of decentralization on economic growth empirically over the last two decades. We review and conduct a meta-analysis of this empirical literature. Based on our analysis, we point out open questions and discuss possible ways to answer them. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:aluord:1602&r=pbe |
| By: | Tanndal, Julia; Waldenström, Daniel |
| 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; institutions; synthetic control group |
| JEL: | D31 G28 H24 J30 N20 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11094&r=pbe |
| By: | Engström, Per (Uppsala Center for Fiscal Studies); Hagen, Johannes (Uppsala Center for Fiscal Studies) |
| Abstract: | The consumption based method to estimate underreporting among self-employed, introduced by Pissarides andWeber (1989), is one of the workhorses in the empirical literature on tax evasion/avoidance. We show that failure to account for transitory income fluctuations in current income may overestimate the degree of underreporting by around 40 percent. Previous studies typically use instrumental variable methods to address the issue. In contrast, our access to registry based longitudinal income measures allows a direct approach based on more permanent income measures. This also allows us to evaluate the performance of a list of instruments widely used in the previous literature. Our analysis shows that capital income is the most suitable instrument in our application, while education and housing related measures do not seem to satisfy the exclusion restrictions. |
| Keywords: | Income underreporting; tax evasion; self-employment; Engel curves; permanent income |
| JEL: | D12 H24 H25 H26 |
| Date: | 2015–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uufswp:2015_002&r=pbe |
| By: | Yongzheng Liu (Renmin University of China) |
| Abstract: | This paper explores how government preferences a ect the choices of capital tax rates in the presence of tax competition. We develop a model in which governments, di erentiating in their preferences for economic development and regional equality, compete for mobile capital over corporation taxes. The key prediction of the model, borne out in data from OECD countries over the years 1990-2007, is that countries emphasizing more on economic development tend to choose lower level of corporate income tax rates than the counterparts that stressing more on regional equality. Our result contributes to the tax competition literature by advancing a new element, heterogeneous government preferences, as another potential source of asymmetric tax policy responses that is widely observed across countries. |
| Keywords: | Tax competition; heterogeneous government preferences; asymmetric tax rates |
| Date: | 2014–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1428&r=pbe |
| By: | Tuomas Kosonen; Jarkko Harju; Skans Nordström; Oskar |
| Abstract: | Studying very detailed micro data collected around two different VAT reforms in Europe, we show that tax incidence is heavily dependent on the characteristics of the price-setting firms. The reforms generated bimodal price-change distributions; nearly all independent restaurants left prices unchanged whereas a substantial fraction of restaurants belonging to chains chose a complete pass-through. These differences cannot be explained by location, initial prices or other market-segment indicators. Instead, differences appear to arise because independent restaurants aim for (very) crude price ranges rather than fine-tuned optimized prices, whereas chains use more elaborate, coordinated pricing strategies. |
| Keywords: | firm types, VAT incidence, price setting, restaurants |
| JEL: | H22 H32 E31 |
| Date: | 2015–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:fer:wpaper:70&r=pbe |
| By: | Carole Bonnet; Dominique Meurs; Benoît Rapoport |
| Abstract: | While the average gender gap in pensions is quite well documented, gender differences in the distribution of pensions have rarely been explored. We show in this paper that pension dispersion is very similar for men and women within the French pension system of a given sector (public or private). However, the determinants of these gender inequalities are not the same. Using a regression-based decomposition of the Gini coefficient, we find that pension dispersion is mainly due to dispersion of the reference wage. Gender differences are less marked among civil servants. For women, pension dispersion is also due to dispersion in contribution periods. We also decompose the Gini coefficient by source of income to measure the impact of institutional rules on the extent of pension inequality. Unexpectedly, we find that the impact of pension minima is limited, although slightly larger for civil servants than for private sector employees. |
| Keywords: | Pension, Private and Public sector, Gender gap, Gini coefficient, Decomposition. |
| JEL: | J14 J16 H55 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2016-8&r=pbe |
| By: | Mostafa Shahee (Department of Policy Studies, Queen’s University, Kingston, Ontario, Canada); Glenn P. Jenkins (Queen’s University, Canada and Eastern Mediterranean University, North Cyprus) |
| Abstract: | This article examines empirically the relationship between the severities of the recessions experienced by countries and their income distributions. The analysis is carried out for 36 countries over a period of 40 years. The empirical evidence from this paper suggests that a greater degree of income inequality increases the cumulative loss of GDP inflicted by recessions. The increase cost emerges from both a longer duration and a deeper amplitude for the contractionary phase of the business cycle. |
| Keywords: | Recession, income inequality, business cycle, income loss |
| JEL: | E25 E32 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:qed:dpaper:285&r=pbe |
| By: | Kevin J. Lansing (Federal Reserve Bank of San Francisco, and Norges Bank); Agnieszka Markiewicz (Erasmus University Rotterdam) |
| Abstract: | This paper develops a general-equilibrium model of skill-biased technological change that approximates the observed shifts in the shares of wage and non-wage income going to the top decile of U.S. households since 1980. Under realistic assumptions, we find that all agents can benefit from the technology change, provided that the observed rise in redistributive transfers over this period is taken into account. We show that the increase in capital’s share of total income and the presence of capital-entrepreneurial skill complementarity are two key features that help support the wages of ordinary workers as the new technology diffuses. |
| Keywords: | Income Inequality, Skill-biased Technological Change, Capital-skill |
| JEL: | E32 E44 H23 O33 |
| Date: | 2012–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20120114&r=pbe |
| By: | Manjhi, Ganesh; Keswani Mehra, Meeta |
| Abstract: | Using the method of optimal control, when an incumbent politician derives utility from voting support and dis-utility from budgetary deficit, the equilibrium time paths of both voting support and budgetary deficit are characterized in a finite time horizon under complete information. The incumbent politician may be an opportunist, in that she/ he is interested in garnering votes for herself/ himself, and manipulates budgetary deficit to achieve this, or else she/ he may be partisan, that is, characterized by heterogenous preferences, reflecting preferences for specific economic policies. The citizen-voters vote for the opportunist as well as the partisan incumbent. However, they reject the same when there is a sufficiently strong anti-incumbency in the opportunist case. The level of voting support obtained in case of both opportunist and partisan is found to be positive and rising over time, but running the budgetary deficit will be costlier for the economy in the former case than the latter. That is, per unit votes garnered by raising the budgetary deficit as compared to the benchmark deficit are lower when the incumbent is an opportunistic than when she/ he is partisan. |
| Keywords: | Opportunist Incumbent; Partisan Incumbent, Citizen Voters, Budgetary Deficit, Political Economy, Political Budget Cycles; Fiscal Policy; Anti-incumebency |
| JEL: | E3 E6 H3 H7 |
| Date: | 2015–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:68791&r=pbe |