nep-pbe New Economics Papers
on Public Economics
Issue of 2016‒05‒14
seventeen papers chosen by
Thomas Andrén

  1. Partial tax harmonization through infrastructure coordination By Sanz Córdoba, Patrícia; Theilen, Bernd, 1965-
  2. The Contribution of Fiscal Decentralization to Regional Inequality: Empirical Results for South African Municipalities By Hammed Amusa and Ramos Mabugu
  3. Wealth Concentration, Income Distribution, and Alternatives for the USA By Lance Taylor; Özlem Ömer; Armon Rezai
  4. Effective Marginal Tax Rates for Low- and Moderate-Income Workers in 2016 By Congressional Budget Office
  5. Why Corporate Taxation Means Source Taxation - A Response to the OECD’s Actions against Base Erosion and Profit Shifting By Luzius Cavelti; Christian Jaag; Tobias Rohner
  6. Do tax incentives for research increase firm innovation? An RD Design for R&D By Elias Einiö; Dechezleprêtre; - Martin Antoine; - Nguyen Ralf; - Van Reenen Kieu-Trang; John
  7. How Uncertain Are Economic Policies? Evidence from a survey on Japanese firms By MORIKAWA Masayuki
  8. Income Effects in Labor Supply: Evidence from Child-Related Tax Benefits By Philippe Wingender; Sara LaLumia
  9. A Choice Experiment on Tax: Are Income and Consumption Taxes Equivalent? By Hirofumi Kurokawa; Tomoharu Mori; Fumio Ohtake
  10. The Taxing Deed of Globalization By Egger, Peter; Nigai, Sergey; Strecker, Nora
  11. Updated Budget Projections: 2016 to 2026 By Congressional Budget Office
  12. State and federal fuel taxes: The road ahead for U.S. infrastructure funding By Dumortier, Jerome; Zhang, Fengxiu; Marron, John
  13. An Analysis of the President’s 2017 Budget By Congressional Budget Office
  14. Family Tax Policy in a Model with Endogenous Fertility à la Barro-Becker By Lucia Granelli
  15. The Limited Macroeconomic Effects of Unemployment Benefit Extensions By Gabriel Chodorow-Reich; Loukas Karabarbounis
  16. Social Security Policy Options, 2015 By Congressional Budget Office
  17. Approaches to Making Federal Highway Spending More Productive By Congressional Budget Office

  1. By: Sanz Córdoba, Patrícia; Theilen, Bernd, 1965-
    Abstract: In this article we analyze the role that infrastructure coordination plays to in achieving partial tax harmonization in a coalition of asymmetric jurisdictions. We find that infrastructure coordination with di¤erent investment levels can facilitate partial tax harmonization between asymmetric jurisdictions when asymmetries are not too large. Furthermore, agreeing on a common investment level can be even more e¤ective in facilitating partial tax harmonization between asymmetric jurisdictions. Our results explain the harmonization of corporate tax rates observed in the EU between 1995 and 2006 where there was simultaneous convergence of public infrastructure investments facilitated via EU structural funds. Keywords: Partial Tax Harmonization; Infrastructure Coordination JEL Classification Numbers: F15, F38, H20, H87
    Keywords: Integració econòmica, Política fiscal, Finances internacionals, Impostos, 336 - Finances. Banca. Moneda. Borsa,
    Date: 2016
  2. By: Hammed Amusa and Ramos Mabugu
    Abstract: Over the past two decades, many African countries have carried out reforms aimed at decentralizing the political, administrative and fiscal structures of the public sector. The need to transform the structure of governance is informed by the view that decentralization increases the overall efficiency and responsiveness of the public sector in providing services, an outcome that enhances economic development and contributes to a reduction in regional disparities. Using panel data for South Africa’s 234 municipalities over the period 2003–2012, we test whether the decentralization of some fiscal powers to municipalities acts as a commitment tool that motivates local authorities to implement policies that reduce inter–regional inequality. The results of the empirical analysis provide evidence of a statistically significant relationship between fiscal decentralization and inequality in the context of South Africa’s local government sphere, with the specific nature of the relationship contingent on how fiscal decentralization is measured. In the case of revenue based measures of fiscal decentralization, the results support the hypothesis that the commitment device of fiscal decentralization provides incentives that decrease inter–municipal inequality. On the other hand, expenditure based fiscal decentralization contribute to increased inter–municipal disparities.
    Keywords: Decentralization, inequality, Intergovernmental fiscal relations
    JEL: H73 H77 O18 R11 R12
    Date: 2016
  3. By: Lance Taylor (New School for Social Research); Özlem Ömer (New School for Social Research); Armon Rezai (Vienna University of Economics)
    Abstract: US household wealth concentration is not likely to decline in response to fiscal interventions alone. Creation of an independent public wealth fund could lead to greater equality. Similarly, once-off tax/transfer packages or wage increases will not reduce income inequality significantly; on-going wage increases in excess of productivity growth would be needed. These results come from the accounting in a simulation model based on national income and financial data. The theory behind the model borrows from ideas that originated in Cambridge UK (especially from Luigi Pasinetti and Richard Goodwin).
    Keywords: Wealth distribution, income distribution, Cambridge theory.
    JEL: D31 D33 D58 B50
  4. By: Congressional Budget Office
    Abstract: In 2016, low- and moderate-income workers will face an effective marginal tax rate of 31 percent, on average. Federal individual income and payroll taxes will be the main contributors.
    JEL: H20 H24 I38
    Date: 2015–11–19
  5. By: Luzius Cavelti; Christian Jaag; Tobias Rohner
    Abstract: It is widespread practice around the world that corporate entities pay taxes to the country where they are formally registered and to the country in whose territory they have a permanent establishment. While the former is generally known as the ‘country-of-residence’ the latter is usually referred to as the ‘country-of-source’. This article questions separate taxation based on this distinction between the country-of-residence and the country-of-source. It argues for a departure from the traditional international allocation of the right to tax corporate income and suggests that a corporate entity should instead pay income tax exclusively to the countries in which it has relevant business activities. Moreover, in examining the question of where business activities of multinational corporations effectively take place, this article describes criteria for determining source countries. Furthermore, it offers a method for formulary apportionment of corporate income between those countries in which a given multinational corporation generates income. The article argues that source taxation of corporate income would be coherent with the economic nature of corporate income taxation. Source taxation of corporate income would also make the arbitrary concept of corporate residence irrelevant, and it would allow the outdated legal concept of permanent establishment to be abolished. This article takes an interdisciplinary approach to argue from both legal and economic perspectives. It adds to the body of literature that discusses how countries should tax corporate entities doing business across national borders. It also contributes to the ongoing debate about the OECD’s recent controversial efforts to prevent corporations shifting profits between countries to minimize their exposure to national tax systems (base erosion and profit sharing, or BEPS).
    Keywords: Corporate Taxation, BEPS
    JEL: L43 L51
    Date: 2016–04
  6. By: Elias Einiö; Dechezleprêtre; - Martin Antoine; - Nguyen Ralf; - Van Reenen Kieu-Trang; John
    Abstract: We present the first evidence showing causal impact of research and development (R&D) tax incentives on innovation outcomes. We exploit a change in the asset-based size thresholds for eligibility for R&D tax subsidies and implement a Regression Discontinuity Design using administrative tax data on the population of UK firms. There are statistically and economically significant effects of the tax change on both R&D and patenting, with no evidence of a decline in the quality of innovation. R&D tax price elasticities are large at about 2.6, probably because the treated group is from a sub-population subject to financial constraints. There does not appear to be pre-policy manipulation of assets around the thresholds that could undermine our design, but firms do adjust assets to take advantage of the subsidy post-policy. We estimate that over 2006-11 business R&D would be around 10% lower in the absence of the tax relief scheme.
    Keywords: R&D, patents, tax, innovation, Regression Discontinuity design
    JEL: H32 O31 H23 O32 H25
    Date: 2016–04–13
  7. By: MORIKAWA Masayuki
    Abstract: This study, using data from an original survey covering both public and private firms in Japan, presents evidence on uncertainties over economic policies, their effects on managerial decisions, and firms' evaluations of the government's numerical targets related to economic policies. This study is an extension of Morikawa (2013), but the survey greatly expands its coverage including private firms and adds new questionnaires. The results indicate that Japanese firms perceive uncertainty over the future course of certain economic policies, such as the social security system, tax policy, fiscal expenditures, and international trade policy. Policy uncertainties have substantial effects on managerial decisions, especially on equipment investment and hiring of regular employees. Medium- to long-term numerical targets related to the government's economic policies are generally perceived to be difficult to achieve.
    Date: 2016–04
  8. By: Philippe Wingender; Sara LaLumia
    Abstract: A parent whose child is born in December can claim child-related tax benefits when she files her tax return a few months later. Parents of children born in January must wait more than a year before they can receive child-related tax benefits. As a result, families with December births have higher after-tax income in the first year of a child's life than otherwise similar families with January births. This paper estimates the corresponding income effect on maternal labor supply, testing whether mothers who give birth in December work and earn less in the months following birth. We use data from the American Community Survey, the Survey of Income and Program Participation, and the 2000 Decennial Census. We find that December mothers have a lower probability of working, particularly in the third month after a child's birth. Earnings data from the SIPP indicate that an additional dollar of child-related tax benefits reduces annual maternal earnings in the year following a child's birth by approximately one dollar.
    Date: 2016–05
  9. By: Hirofumi Kurokawa; Tomoharu Mori; Fumio Ohtake
    Abstract: We test the equivalence of income and consumption taxes through a choice experiment. Under a given set of income and consumption parameters, subjects were asked to choose among an income tax of 20%, a consumption tax of 25% (which is an equivalent tax burden), a consumption tax of 22%, and a consumption tax of 20%. Our results showed that subjects prefer income tax to consumption tax when the nominal consumption tax rate is higher than the nominal income tax rate. However, subjects tend to prefer consumption tax to income tax when the nominal tax rates are identical. Our result, that subjects prefer income tax to consumption tax despite a higher tax burden, implies the consumption tax miscalculation bias. The consumption tax miscalculation bias is one where subjects miscalculate the amount of consumption tax as if it is declared by tax inclusive, as in the case of income tax, despite consumption tax being tax exclusive. If the income tax burden is equivalent to the consumption tax burden, subjects prefer income tax. This result implies that income and consumption taxes are not equivalent due to the consumption tax miscalculation bias.
    Date: 2016–03
  10. By: Egger, Peter; Nigai, Sergey; Strecker, Nora
    Abstract: We examine the effects of globalization on the size and composition of tax revenues, worker-specific tax burdens, and effective average labor income tax rates using a unique international database on income tax calculators. We find that due to increasing mobility of firms and high-income workers, globalization led governments in OECD countries to seek tax revenues from alternative sources, specifically from employee-borne taxes paid by relatively less mobile middle-income workers. In 1994-2007, they experienced a globalization-induced rise in their personal income tax rate of around 1.5, whereas the top 1% of workers faced a reduction of approximately 1.5 percentage points.
    Keywords: Globalization; Income taxes; International Trade; migration; Tax progressivity
    JEL: F1 F6 H2 H3
    Date: 2016–05
  11. By: Congressional Budget Office
    Abstract: CBO estimates a $534 billion deficit for fiscal year 2016, about $100 billion more than last year’s deficit, but about $10 billion less than the agency estimated earlier this year. If current laws generally remained unchanged, deficits would increase in most years over the next decade, rising from 2.9 percent to 4.9 percent of gross domestic product, because government spending—particularly for Social Security, Medicare, and interest payments on the federal debt—is projected to outstrip revenue growth.
    JEL: H20 H50 H51 H55 H60 H61 H62 H63 H68
    Date: 2016–03–24
  12. By: Dumortier, Jerome; Zhang, Fengxiu; Marron, John
    Abstract: Taxes on gasoline and diesel are the primary sources of transportation funding at the state and federal level. Due to inflation and improved fuel efficiency, these taxes are increasingly inadequate to maintain the transportation system. In most states and at the federal level, the real fuel tax rates decrease because they are fixed at a cents-per-gallon amount rather than indexed to inflation. In this paper, we provide a forecast on state and federal tax revenue based on different fuel taxation policies such as indexing to inflation, imposing a sales tax on gasoline and diesel, or using a mileage fee on vehicles. We compare how those taxation policies perform compared to the policies states use currently under different macroeconomic conditions relating to the price of oil, economic growth, and vehicle miles traveled. The baselines projections indicate that between 2015 and 2040, fuel tax revenue will decrease 52.2%-54.9% in states that do not index taxes to inflation and 22.6%-22.9% that do currently index to inflation. Switching to a mileage fee increases revenue between 15.6%-26.9% in 2040 compared to 2015. Indexing fuel taxes to inflation in addition to imposing a states' sales tax increases revenue significantly but suffers from a continuous decline in the long-run due to increased fuel efficiency. Our results indicate that although a mileage fee is politically and technologically difficult to achieve, it avoids a declining tax revenue in the long-run.
    Keywords: gasoline taxes, diesel taxes, VMT fee, simulation, motor fuel tax revenue, Public Economics, Resource /Energy Economics and Policy,
    Date: 2016–04–02
  13. By: Congressional Budget Office
    Abstract: CBO and the staff of the Joint Committee on Taxation (JCT) estimate that under the President’s proposals, the federal budget deficit would decline in 2017 and 2018. After that, however, outlays would rise more quickly than revenues, so deficits would grow. CBO and JCT project that, between 2017 and 2026, the President’s budget would result in deficits averaging about 3 percent of GDP and totaling $6.9 trillion, $2.4 trillion less than the deficits in CBO’s current-law baseline.
    JEL: H20 H30 H50 H51 H55 H60 H61 H62 H63 H68
    Date: 2016–03–29
  14. By: Lucia Granelli (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper assesses quantitatively the effect of family fiscal policies on fertility, labour supply and parental childcare using a general equilibrium model with dynastic households. The introduction of time allocation decisions in the original Barro-Becker framework allows to reconcile the conclusion of the micro-econometric literature on pro-nativist fiscal policies, where such policies have a small effect on fertility, and the theoretical macroeconomic literature, where fertility is deemed to be elastic with respect to macroeconomic shocks. The use of indirect inference for calibrating the elasticity of fertility to fiscal subsidies enables the model to reproduce what observed in US data over the period 1905-2005.
    Date: 2016–04–16
  15. By: Gabriel Chodorow-Reich; Loukas Karabarbounis
    Abstract: By how much does an extension of unemployment benefits affect macroeconomic outcomes such as unemployment? Answering this question is challenging because U.S. law extends benefits for states experiencing high unemployment. We use data revisions to decompose the variation in the duration of benefits into the part coming from actual differences in economic conditions and the part coming from measurement error in the real-time data used to determine benefit extensions. Using only the variation coming from measurement error, we find that benefit extensions have a limited influence on state-level macroeconomic outcomes. We use our estimates to quantify the effects of the increase in the duration of benefits during the Great Recession and find that they increased the unemployment rate by at most 0.3 percentage point.
    JEL: E24 E62 J64 J65
    Date: 2016–04
  16. By: Congressional Budget Office
    Abstract: CBO analyzes 36 policy options commonly proposed by policymakers and analysts. Most of them would improve Social Security’s long-term finances, but only a few would significantly postpone the combined trust funds’ exhaustion date.
    JEL: H55 H60 H68 J26
    Date: 2015–12–15
  17. By: Congressional Budget Office
    Abstract: Federal spending on highways does not correspond very well with how the roads are used. CBO examines three approaches lawmakers could consider to make highway spending more productive.
    JEL: H41 H54 H76 R41 R42 R48
    Date: 2016–02–11

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