nep-pbe New Economics Papers
on Public Economics
Issue of 2016‒03‒29
seventeen papers chosen by
Thomas Andrén

  1. Discontent with taxes and the timing of taxation : experimental evidence By Radu Vranceanu; Angela Sutan; Delphine Dubart
  2. How to Reform the Property Tax: Lessons from around the World By Enid Slack and Richard M. Bird
  3. Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions By Benjamin B. Lockwood; Matthew C. Weinzierl
  4. Corporate taxation and location of intangible assets: Patents vs. trademarks By Dudar, Olena; Voget, Johannes
  5. Transfer pricing manipulation, tax penalty cost and the impact of foreign profit taxation By Rathke, Alex A. T.
  6. The Optimal Threshold for GST on Imported Goods By John Creedy
  7. Public debt and economic growth: Economic systems matter By Ahlborn, Markus; Schweickert, Rainer
  8. What Has Been Happening to UK Income Inequality Since the Mid-1990s? Answers from Reconciled and Combined Household Survey and Tax Return Data By Richard V. Burkhauser; Nicolas Hérault; Stephen P. Jenkins; Roger Wilkins
  9. Efficient Child Care Subsidies By Christine Ho; Nicola Pavoni
  10. Optimal fiscal policy with labor selection By Chugh, Sanjay K.; Lechthaler, Wolfgang; Merkl, Christian
  11. The Effect of Disability Insurance Payments on Beneficiaries’ Earnings By Alexander Gelber; Timothy Moore; Alexander Strand
  12. Who benefits from public housing? By Eerola, Essi; Saarimaa, Tuukka
  13. The Welfare Effects of Attracting Foreign Direct Investment in the Presence of Unemployment By Yoshitomo Ogawa; Yoshiyasu Ono
  14. Public expenditure in time of crisis: are Italian policymakers choosing the right mix? By Maria Jennifer Grisorio; Francesco Prota
  15. Pensions, Education, and Growth: A Positive Analysis By Tetsuo Ono; Yuki Uchida
  16. Seniority wages and the role of firms in retirement By Frimmel W.; Horvath T.; Schnalzenberger M.; Winter-Ebmer R.
  17. Decentralization and poverty reduction in Bolivia: Challenges and opportunities By Lykke E. Andersen; Luis Carlos Jemio

  1. By: Radu Vranceanu (Thema, Université de Cergy-Pontoise - THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique, ESSEC - ESSEC Business School - Essec Business School - Economics Department - Essec Business School); Angela Sutan (GESC Dijon - Groupe Ecole Supérieure de Commerce Dijon - Bourgogne); Delphine Dubart (ESSEC Business School - Essec Business School)
    Abstract: This paper reports results from a linear sanction cost variant of the power-to-take game, with implications for tax policies. We compare a pay-as-you-earn (PAYE) system with an ex-post taxation system in which payroll taxes are collected at the end of the fiscal year. Dissatisfaction with taxation, as proxied by the sanction in the power-to-take game, is significantly higher in an ex-post taxation system compared with the PAYE system. However, in anticipation of the higher sanction, the "tax authority" will not apply lower taxes in the former system. Communication does not decrease dissatisfaction in a significant manner, and it is not used extensively by participants.
    Keywords: Power-to-take game,Experiments, Tax systems, Dissatisfaction with taxes
    Date: 2016–01–25
  2. By: Enid Slack and Richard M. Bird (University of Toronto)
    Abstract: Property taxes are generally considered by economists to be good taxes, and many countries are being advised to increase and improve their property taxes. In practice, however, property tax reforms have often proved to be difficult to carry out successfully. This paper discusses why property taxes are particularly challenging to reform and suggests several ways in which efforts to reform this tax may become more successful in the future.
    Keywords: property tax, tax reform, local finance, political economy
    JEL: H24 H25 H71 D78
    Date: 2015–08
  3. By: Benjamin B. Lockwood; Matthew C. Weinzierl
    Abstract: Calculating the welfare implications of changes to economic policy or shocks requires economists to decide on a normative criterion. One approach is to elicit the relevant moral criteria from real-world policy choices, converting a normative decision into a positive inference, as in the recent surge of "inverse-optimum" research. We find that capitalizing on the potential of this approach is not as straightforward as we might hope. We perform the inverse-optimum inference on U.S. tax policy from 1979 through 2010 and argue that the results either undermine the normative relevance of the approach or challenge conventional assumptions upon which economists routinely rely when performing welfare evaluations.
    JEL: D63 E32 H21
    Date: 2016–01
  4. By: Dudar, Olena; Voget, Johannes
    Abstract: Numerous empirical studies have analysed the influence of corporate taxation on the location of intangible assets within a company group. However, the previous literature has rather focused on studying the impact of taxation on patent location choices assuming that these assets represent the rest of intangibles as well. This paper complements previous studies by estimating and comparing the tax elasticities of two different types of intangibles - patents and trademarks. We employ data on European and US patent and trademark applications in the period of 1996-2012 and estimate a multinomial logit model that incorporates various observed and unobserved factors of the intangible's location choice. According to our main findings, trademarks are more sensitive to changes in taxation as compared to patents. This implies that firms use trademarks more eagerly for tax planning purposes than patents.
    Keywords: intangible assets,patent,trademark,tax planning,corporate taxation
    JEL: H25 F23 H26 H3
    Date: 2016
  5. By: Rathke, Alex A. T.
    Abstract: This paper analyzes the optimal level of transfer pricing manipulation when the expected tax penalty is a function of the tax enforcement and the market price parameter, and the multinational enterprise is subjected to distinct rules of foreign profit taxation. The application of the arm’s length principle implies the existence of a range of acceptable prices shaped by market, which influences the probability of tax penalization. It suggests that firms are able to manipulate transfer prices more freely if market price range is wide, or if its delimitations are difficult to determine. Home taxation of foreign profits can reduce income shifting incentive, depending on the portion of repatriation for tax purposes. We find that the limited tax credit rule tends to be a less efficient measure, nonetheless it is the most widely adopted rule by countries, so to spark the perspective of more powerful approaches for taxation of foreign profits.
    Keywords: income shifting,transfer pricing manipulation,foreign profit taxation,tax enforcement
    JEL: F23 H26
    Date: 2015–08–16
  6. By: John Creedy (The Treasury)
    Abstract: This paper examines the determination of the optimal threshold value for Goods and Services Tax (GST) for imported units arising from internet orders. The concept of an optimal threshold is wider than simply the maximisation of revenue net of administrative costs. At the optimal threshold, the marginal cost of funds from GST is equated to the ratio of the marginal value of public funds to their marginal social value, reflecting the value judgements of a decision maker. The marginal cost of funds allows both for compliance costs and the marginal excess burden arising from a small increase in the threshold. Illustrative numerical values are reported, showing the sensitivity to administrative costs, the demand elasticity and, importantly, value judgements.
    Keywords: Goods and Services Tax; Marginal cost of Funds; de minimis
    JEL: H20 H21
    Date: 2016–03
  7. By: Ahlborn, Markus; Schweickert, Rainer
    Abstract: Most studies on the relationship between public debt and economic growth implicitly assume homogeneous debt effects across their samples. We - in accordance with recent literature - challenge this view and state that there likely is a great deal of cross-country heterogeneity in that relationship. However, other than scholars assuming that all countries are different, we expect that clusters of countries differ. We identify three country clusters with distinct economic systems: Liberal (Anglo Saxon), Continental (Core EU members) and Nordic (Scandinavian). We argue that different degrees of fiscal uncertainty at comparable levels of public debt between those economic systems constitute a major source of heterogeneity in the debt-growth relationship. Our empirical evidence supports this assumption. Continental countries face more growth reducing public debt effects than especially Liberal countries. There, public debt apparently exerts neutral or even positive growth effects, while for Nordic countries a non-linear relationship is discovered, with negative debt effects kicking in at public debt values of around 60% of GDP.
    Keywords: public debt,economic growth,economic systems,fiscal policy,welfare state
    JEL: E62 P10 P51 H10
    Date: 2016
  8. By: Richard V. Burkhauser (Department of Policy Analysis and Management, Cornell University); Nicolas Hérault (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Stephen P. Jenkins (Department ofSocial Policy, London School of Economics); Roger Wilkins (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: Estimates of UK income inequality trends differ substantially according to whether estimates are based on household survey data (used for official statistics) or tax return data (used in the top incomes literature). We reconcile differences in variable definitions and combine survey and tax return data in order to take advantage of the much better coverage of top incomes in the latter, and provide improved estimates of UK inequality trends since the mid-1990s. We show there was a marked increase in income inequality in the early 2000s that survey-based estimates do not reveal, and our conclusions are robust to changes in the definitions of income, income-sharing unit, and summary inequality measure. In addition, our reconciled and combined data provide more comparable estimates of UK-US inequality trends than the top incomes literature to date. Classification-D31, C81
    Keywords: Inequality, income inequality, top income shares, HBAI, SPI, top incomes, tax return data, survey data
    Date: 2016–02
  9. By: Christine Ho; Nicola Pavoni
    Abstract: We study the design of child care subsidies in an optimal welfare and tax problem. The optimal subsidy schedule is qualitatively similar to the existing US scheme. Efficiency mandates a subsidy on formal child care costs for working mothers, with higher subsidies paid to lower income earners. The optimal subsidy is also kinked as a function of child care expenditure.To counterbalance the sliding scale pattern of the optimal subsidy rates, marginal labor income tax rates are set lower than the labor wedges, with the potential to generate negative marginal tax rates. We calibrate our model to features of the US labor market and focus on single mothers with children aged below 6. The optimal program provides stronger participation incentives compared to the US scheme. The intensive margin incentives provided by the efficient program are milder, with subsidy rates decreasing with income more steeply than those in the US. JEL: D82, H21, H24, J13 Keywords: optimal taxation, asymmetric information, child care subsidies.
    Date: 2016
  10. By: Chugh, Sanjay K.; Lechthaler, Wolfgang; Merkl, Christian
    Abstract: This paper characterizes long-run and short-run optimal fiscal policy in the labor selection framework. In a calibrated non-Ramsey decentralized equilibrium, labor market volatility is inefficient. Keeping fixed the structural parameters, the Ramsey government achieves efficient labor market volatility; doing so requires labor-income tax volatility that is orders of magnitude larger than the tax-smoothing results based on Walrasian labor markets, but a few times smaller than the results based on search and matching markets. We analytically characterize selection-modelconsistent wedges and inefficiencies in order to understand optimal tax volatility.
    Keywords: labor market frictions,hiring costs,efficiency,optimal taxation,labor wedge,zero intertemporal distortions
    JEL: E24 E32 E50 E62 E63 J20
    Date: 2016
  11. By: Alexander Gelber; Timothy Moore; Alexander Strand
    Abstract: A crucial issue in studying social insurance programs is whether they affect work decisions through income or substitution effects. We examine this in the context of U.S. Social Security Disability Insurance (DI), one of the largest social insurance programs in the U.S. The formula linking DI payments to past earnings has discontinuous changes in the marginal replacement rate that allow us to use a regression kink design to estimate the effect of payment size on earnings. Using Social Security Administration data on all new DI beneficiaries from 2001 to 2007, we document a robust income effect of DI payments on earnings. Our preferred estimate is that an increase in DI payments of one dollar causes an average decrease in beneficiaries’ earnings of twenty cents. This suggests that the income effect represents an important factor in driving DI-induced reductions in earnings.
    JEL: H31 I18 J14 J22
    Date: 2016–01
  12. By: Eerola, Essi; Saarimaa, Tuukka
    Abstract: ​This paper studies how much public housing generates rent savings for the tenants, how these savings are distributed among the tenants, and whether the tenants reside in better quality neighborhoods than similar low-income private rental tenants. Our rent savings estimates are based on a hedonic regression and detailed data on the private and public rental housing units from the city of Helsinki. We estimate that the total subsidy to public housing tenants is considerable and comparable in size to the housing allowance, the main tenant-based housing program. We also find that the subsidy is less targeted towards low-income households than the housing allowance. Regarding neighborhood quality, we find that public housing tenants live in lower quality neighborhoods than similar households living in private rental housing. This result suggests that public housing is not better than the housing allowance in delivering better neighborhood quality to low-income households.
    Keywords: hedonic regression, housing policy, public housing
    JEL: H22 R21 R23
    Date: 2015–12–17
  13. By: Yoshitomo Ogawa; Yoshiyasu Ono
    Abstract: We develop a 2×2×2 model with the following features: (1) one sector is perfectly competitive while the other is oligopolistic; (2) one country has unemployment while the other attains full employment; (3) oligopolists move internationally; and (4) the ownership of each oligopolist is internationally shared. The welfare effects of various tax-cum-subsidies are examined. If the oligopolistic sector is capital intensive, subsidizing the oligopolists' profits, inflows, production or employment is more likely to harm the country. The number of domestically based oligopolists, the volume of domestic demand for the oligopoly-produced commodity, and the country's ownership share of oligopolists also influence the effect.
    Date: 2016–02
  14. By: Maria Jennifer Grisorio; Francesco Prota
    Abstract: In the “austerity debate” a crucial issue is the composition of fiscal adjustment. This article provides empirical evidence on the relationship between economic crisis episodes and composition of public expenditure by examining the impact of economic crises on the share of different types of public spending in total public expenditure in the Italian regions. Our results suggest that fiscal consolidation strategies have not had growth-friendly composition.
    Keywords: Economic crisis, composition of government expenditure, panel data.
    JEL: C23 H12 H72
    Date: 2016–03
  15. By: Tetsuo Ono (Graduate School of Economics, Osaka University); Yuki Uchida (Graduate School of Economics, Osaka University)
    Abstract: This study presents an overlapping generations model to capture the nature of the competition between generations regarding two redistribution policies, public education and public pensions. From a political economy viewpoint, we investigate the effects of population aging on these policies and economic growth. We show that greater longevity results in a higher pension-to-GDP ratio. However, an increase in longevity produces an initial increase followed by a decrease in the public education- to-GDP ratio. This, in turn, results in a hump-shaped pattern of the growth rate.
    Keywords: economic growth; population aging; public education; public pen-sions
    JEL: D78 E24 H55
    Date: 2014–12
  16. By: Frimmel W.; Horvath T.; Schnalzenberger M.; Winter-Ebmer R. (ROA)
    Abstract: In general, retirement is seen as a pure labor supply phenomenon, but firms can have strong incentives to send expensive older workers into retirement. Based on the seniority wage model developed by Lazear 1979, we discuss steep seniority wage profiles as incentives for firms to dismiss older workers before retirement. Conditional on individual retirement incentives, e.g., social security wealth or health status, the steepness of the wage profile will have different incentives for workers as compared to firms when it comes to the retirement date. Using an instrumental variable approach to account for selection of workers in our firms and for reverse causality, we find that firms with higher labor costs for older workers are associated with lower job exit age.
    Keywords: Social Security and Public Pensions; Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination; Retirement; Retirement Policies; Wage Level and Structure; Wage Differentials;
    JEL: J14 J26 J31 H55
    Date: 2015
  17. By: Lykke E. Andersen (Institute for Advanced Development Studies); Luis Carlos Jemio (Institute for Advanced Development Studies)
    Abstract: This paper presents an analysis of the decentralization process that has been taking place in Bolivia over the last couple of decades. It starts with a review of the legal framework that determines the distribution of responsibilities and financial resources to the sub-national governments (9 departments and 339 municipalities), and continues with an analysis of the evolution and distribution of financing to these entities between 2001 and 2013. It then proceeds to describe the resulting progress in social indicators between 2001 and 2012 at the municipal level, and identifies the main remaining gaps in basic services by 2012. Finally, the paper offers an analysis of the factors that are most closely associated with progress in the main social indicator used by the Bolivian government – the Unsatisfied Basic Needs index. This provides the basis for a final section on recommendations for public investment in Bolivia.
    Keywords: Decentralization, poverty reduction, basic needs, Bolivia
    JEL: H70 H71 I38 O54 R11 R58

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