nep-pbe New Economics Papers
on Public Economics
Issue of 2016‒05‒21
nineteen papers chosen by
Thomas Andrén

  1. The Impact of Taxes and Wasteful Government Spending on Giving By Sheremeta, Roman; Uler, Neslihan
  2. Effective Marginal Tax Rates for Low- and Moderate-Income Workers in 2016 By Congressional Budget Office
  3. What Determines Top Income Shares? The Role of the Interactions between Financial Integration and Tax Policy By Thibault Darcillon
  4. Dynamic Inconsistency, Falling Cost of Capital Relocation and Preferential Taxation of Foreign Capital By Kaushal Kishore
  5. Follow you, follow me: public investment under tax competition. By Jean Hindriks; Yukihiro Nishimura
  6. A proposal to revive the European Fiscal Framework By Grégory Claeys; Zsolt Darvas; Alvaro Leandro
  7. Corporate tax avoidance — the range of the problem and its effects on economy By Agata Iwasiuk
  8. Debt-dependent effects of fiscal expansions By Bi, Huixin; Shen, Wenyi; Yang, Shu-Chun
  9. A reform proposal of Family income tax deductions and of Family Benefits in Italy By Paolo Bosi
  10. Extrinsic and intrinsic motivations for tax compliance: evidence from a field experiment in Germany By Nadja Dwenger; Henrik Kleven; Imran Rasul; Johannes Rincke
  11. Quality of Public Finance and Economic Growth in the Czech Republic By Irena Szarowská
  12. Self-Concept Maintenance and Tax Evasion By Francesco Flaviano Russo
  13. Special Tax Treatment as Trade Policy: A Database on Export Processing and Special Economic Zones By Daniel Rais
  14. Designing Policies to Make Cars Greener: A Review of the Literature By Soren T. Anderson; James M. Sallee
  15. The antipoverty performance of universal and means-tested benefits with costly take-up By Alari Paulus
  16. Structural Reform in Germany By Tom Krebs; Martin Scheffel
  17. Does Endogenous Timing Matter in Implementing Partial Tax Harmonization? By Itaya, Jun-ichi; Yamaguchi, Chikara
  18. Social Security Policy Options, 2015 By Congressional Budget Office
  19. Participation Tax Rates in Finland, Earnedincome Tax Credit Investigated By Kotamäki Mauri

  1. By: Sheremeta, Roman; Uler, Neslihan
    Abstract: We examine the impact of taxes and wasteful government spending on charitable giving. In our model, the government collects a flat-rate tax on income net of donations and wastes part of the tax revenue before redistribution. The model provides theoretical predictions which we test in a framed field experiment. The results of the experiment show that the tax rate has a weak and insignificant effect on giving. The degree of waste, however, has a large, negative and significant effect on giving, with the relationship moderated by the curvature in the utility function.
    Keywords: giving, charity donations, tax, waste, redistribution, experiments
    JEL: C90 D64 H41
    Date: 2016–04–27
  2. 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
  3. By: Thibault Darcillon (Centre d'Economie de la Sorbonne)
    Abstract: This article aims at analyzing the role of the interactions between financial deregulation policies and changes in top tax marginal rates to explain the evolution in top income shares since the 1980s in most OECD countries. I argue that higher financial integration should have an increasing-effect on top income shares by resulting in lower marginal top tax rates. First, international financial integration has gradually contributed to increased tax competition by raising capital mobility. Second, financial integration also reflects higher bargaining power for top earners, pushing for a reduction in marginal top tax rates. Based on instrumental variables and simultaneous equations system regressions, I find strong evidence of my hypothesis: first, financial integration is negatively correlated with higher top marginal tax rates; second, this result seems to explain the negative relationship between marginal top tax rates and top income shares
    Keywords: Financial integration, top income shares; tax policy
    JEL: G1 I39 J63
    Date: 2016–04
  4. By: Kaushal Kishore (Department of Economics, University of Pretoria)
    Abstract: When capital is sunk after it is invested, a host government facing heterogeneous foreign investors who differ in their cost of capital relocation (which falls over time) has a strong incentive to wait in order to gain from relatively lower cost of capital relocation and offer preferential taxes over time in order to attract less eager investors. We ?nd that, if the government can commit to future tax rates, the tax revenue increases as the cost of relocation decreases. Moreover, under preferential taxation scheme the equilibrium tax revenue of the government is equal to what it can earn under full commitment. The tax revenue under non-preferential taxation scheme is lower compare to full commitment outcome when cost of capital relocation falls considerably over time but remains strictly positive. Under every taxation schemes considered in this paper, the equilibrium tax rate falls over time if cost of capital relocation falls considerably which offers another explanation for- ``why the tax rate falls over time in tax treaties?"
    Keywords: Dynamic inconsistency, Foreign direct investment, Falling cost of capital relocation, Non-preferential taxation
    JEL: F21 H21 H25 H87
    Date: 2016–04
  5. By: Jean Hindriks (CORE, Université Catholique de Louvain); Yukihiro Nishimura (Graduate School of Economics, Osaka University)
    Abstract: The mobility of capital and the presence of multinational firms able to shift profits to tax havens limit the ability of governments to tax capital income and domestic profit. Profit shifting leads to an estimated revenue loss for developing countries that is roughly three times greater than the amount they receive each year in foreign aid (DEVE 2014). In this policy brief, we report recent theoretical research on the interaction between the taxation of multinational corporations and public investment. In our setting, public investment increases the productivity of capital that in turn induces a comparative advantage in the tax-competition. We show that it is preferable for countries to commit first on public investment and then to set taxes.
    Date: 2015–03
  6. By: Grégory Claeys; Zsolt Darvas; Alvaro Leandro
    Abstract: Highlights • Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU’s fiscal framework in achieving its two main objectives - public debt sustainability and fiscal stabilisation. • In theory, the current EU fiscal rules, with cyclically adjusted targets, flexibility clauses and the option to enter an excessive deficit procedure, allow for large-scale fiscal stabilisation during a recession. However, implementation of the rules is hindered by the badly-measured structural balance indicator and incorrect forecasts,leading to erroneous policy recommendations. The large number of flexibility clauses makes the system opaque. • The current inefficient European fiscal framework should be replaced with a system based on rules that are more conducive to the two objectives, more transparent, easier to implement and which have a higher potential to be complied with. • The best option, re-designing the fiscal framework from scratch, is currently unrealistic. Therefore we propose to eliminate the structural balance rules and tointroduce a new public expenditure rule with debt-correction feedback, embodied in a multi-annual framework, which would also support the central bank’s inflation target. A European Fiscal Council could oversee the system.
    Date: 2016–03
  7. By: Agata Iwasiuk (Jagiellonian University)
    Abstract: The main aim of this study is to draw attention to the significant problem of tax avoidance by multinational corporations. In the times of globalization, tax competition among countries and development of modern technology transnational corporations can operate with complex financial transactions to reduce to the minimum the amount of tax or completely avoid taxation. Governments in many countries due to the dreinage of public finances are forced to take measures that will minimize the range of the problem. Losses are counted in billons and there's a growing tendency. Without taxes, which are the basis for state's budget and finance all public good and services, further development of country is impossible. It is necessary for all countries to cooperate in order to counteract tax avoidance and develope new systems of taxation of multinational corporations.
    Keywords: corporate tax avoidance; taxation; multinational corporations; globalization; tax havens; fiscal drainage
    JEL: F5 F6 G3 H2 H3
    Date: 2016–05
  8. By: Bi, Huixin (Federal Reserve Bank of Kansas City); Shen, Wenyi; Yang, Shu-Chun
    Abstract: Economists often postulate that fiscal expansions are less stimulative when government debt is high than when it is low. Empirical evidence, however, is ambiguous. Using a nonlinear neoclassical growth model, we show that the difference in government spending effects between high- and low-debt environments depends on the wealth effect on labor supply and on whether the government uses taxes or spending to retire debt. Because of interrelated state variables, structural VAR estimations conditioning on debt alone can fail to isolate debt-dependent effects. Also, uncertainty on when the government will conduct fiscal consolidations generates wide confidence bands for spending multipliers, further complicating efforts to estimate debt-dependent government spending effects.
    Keywords: Dependent fiscal policy effects; Fiscal multipliers; Fiscal uncertainty
    JEL: E62 H30 H60
    Date: 2016–03–01
  9. By: Paolo Bosi
    Abstract: In the Italian fiscal system the monetary transfers supporting families in their parental responsibilities are realized with two different tools: a tax expenditure (tax credits for dependent members of the family) and a family benefit delivered by INPS, the most important central public insurance institution. These instruments have been heavily criticized as for the weak target efficiency, distorted selectivity, lack of universality. This paper proposed a unification of these provisions on the expenditure side introducing a Child benefit which realizes selectivity using the recently reformed Indicator of the economic condition of household (Isee), flat till to 15 thousands Isee and then linearly declining till 25000 euro of Isee, of amount determined according an equivalence scale. The reform utilizes 14,3 billion of euro out of the 18,5 devoted to the present provisions. An accurate distributional analysis using the CAPP welfare microsimulation model shows many positive aspects of the proposal. The article concludes suggesting the opportunity of coordinate this reform with the introduction of a new provision against poverty.
    Keywords: Child benefits, Social assistance, poverty
    JEL: H53 I38
    Date: 2016–04
  10. By: Nadja Dwenger; Henrik Kleven; Imran Rasul; Johannes Rincke
    Abstract: We study extrinsic and intrinsic motivations for tax compliance in the context of a local church tax in Germany. This tax system has historically relied on zero deterrence so that any compliance at baseline is intrinsically motivated. Starting from this zero deterrence baseline, we implement a field experiment that incentivized compliance through deterrence or rewards. Using administrative records of taxes paid and true tax liabilities, we use these treatments to document that intrinsically motivated compliance is substantial, that a significant fraction of it may be driven by duty-to-comply preferences, and that there is no crowd-out between extrinsic and intrinsic motivations.
    Keywords: tax compliance; intrinsic motivation; extrinsic motivation; filed experiment
    JEL: C93 H26
    Date: 2016
  11. By: Irena Szarowská (Department of Finance and Accounting, School of Business Administration, Silesian University)
    Abstract: Quality of public finances belongs to a key policy challenge as its improvement should lead to a long-term economic growth. The aim of the paper is to investigate if the key channels and tools used by the public finance (structure of revenue system, size of the government and composition of expenditure, level and sustainability of fiscal position) affect economic growth in the Czech Republic in the period 1995-2013. The empirical model is based on the methodology of Barro and Sala-i-Martin (2003) and the model of Mankiw et al. (1992) which is adapted to the framework of this study. The results of dynamic regressions suggest that economic growth is affected by public finance variables only partly and traditional sources of economic growth (human capital or openness) play bigger role. Provided evidence shows that total tax burden as well as the structure of revenue system (especially implicit tax rates on labour and consumption) should be primarily used as tools for maintain macroeconomic objectives. On the contrary, changes in size and composition of expenditure, balance and debt report not statistically significant impact.
    Keywords: corporate income tax rates, global economy, tax competition, tax coordination and harmonization
    JEL: E62 H20 H50 C51
    Date: 2016–04–25
  12. By: Francesco Flaviano Russo (Università di Napoli Federico II and CSEF)
    Abstract: I analyze quasi-experimental data on tax evasion reports collected by the Italian webpage I find that a bigger number of reports per unit of irregular activity, which indicates a stronger tax morale, is negatively correlated with the median reported amount. I show that this evidence is consistent with a model of self-concept maintenance, where illegal actions are categorized more easily, in the sense that they are consistent with a positive self image of honesty, if they involve small amounts of money. The data suggest that a stronger individual and social attitude towards evasion makes this categorization more difficult, lowering the threshold below which evasion is acceptable. The result is tax evasion reports of smaller amount. I also propose a Montecarlo exercise to estimate this threshold and its dependence on tax morale.
    Keywords: Tax morale, Categorization, Attention to Standard.
    JEL: H26 K34
    Date: 2016–05–14
  13. By: Daniel Rais
    Abstract: Abstract Many countries treat income generated via exports favourably, especially when production takes places in special zones known as export processing zones (EPZs). EPZs can be defined as specific, geographically defined zones or areas that are subject to special administration and that generally offer tax incentives, such as duty†free imports when producing for export, exemption from other regulatory constraints linked to import for the domestic market, sometimes favourable treatment in terms of industrial regulation, and the streamlining of border clearing procedures. We describe a database of WTO Members that employ special economic zones as part of their industrial policy mix. This is based on WTO notification and monitoring through the WTO’s trade policy review mechanism (TPRM), supplemented with information from the ILO, World Bank, and primary sources. We also provide some rough analysis of the relationship between use of EPZs and the carbon intensity of exports, and relative levels of investment across countries with and without special zones.
    Date: 2015–07–31
  14. By: Soren T. Anderson; James M. Sallee
    Abstract: We review what is known about the economic efficiency of fuel taxes relative to efficiency standards aimed at mitigating environmental externalities from automobiles. We present a simplified model of car choice that allows us to emphasize the relationships between fuel economy, other car attributes, and miles traveled. We focus on greenhouse gas emissions, although we note how other environmental externalities affect our conclusions. Our main conclusion—that standards are substantially less efficient than a fuel tax—is already familiar. Less familiar are points we make about the relative importance of the rebound effect, on the effects of attribute-based policies, and the implications of behavioral biases. We point to areas where we believe future research can have the greatest contribution, including work on uncertainty, heterogeneity, and empirical work in low and middle-income countries.
    JEL: H23 Q48 Q54
    Date: 2016–05
  15. By: Alari Paulus
    Abstract: We assess the optimal design of transfers in the context of poverty alleviation and welfarist objectives. We extend the analytical framework of Creedy (1997) with costly benefit take-up - a common characteristics of means-tested schemes in par-ticular - to study how this affects the take-up of benefits and the optimal choice between means-tested and universal benefits. Numeric simulations reveal that take-up costs can increase social welfare and reduce poverty rates achieved with means-tested schemes by inducing people to increase their work effort. Universal benefits generally still outperform means-tested schemes on the basis of social welfare and poverty measures when these are adjusted for take-up costs.
    Keywords: optimal transfers, means-testing, take-up, poverty
    JEL: H21 H24 H31 I38
    Date: 2016–04
  16. By: Tom Krebs; Martin Scheffel
    Abstract: This paper provides a quantitative evaluation of the macroeconomic, distributional, and fiscal effects of three reform proposals for Germany: i) a reduction in the social security tax in the low-wage sector, ii) a publicly financed expansion of full-day child care and full-day schooling, and iii) the further deregulation of the professional services sector. The analysis is based on a macroeconomic model with physical capital, human capital, job search, and household heterogeneity. All three reforms have positive short-run and long-run effects on employment, wages, and output. The quantitative effects of the deregulation reform are relatively small due to the smal size of professional services in Germany. Policy reforms i) and ii) have substantial macroeconomic effects and positive distributional consequences. Ten years after implementation, reforms i) and ii) taken together increase employment by 1.6 percent, potential output by 1.5 percent, real hourly pre-tax wages in the low-wage sector by 3 percent, and real hourly pre-tax wages of women with children by 2.7 percent. The two reforms create fiscal deficits in the short run, but they also generate substantial fiscal surpluses in the long-run. They are fiscally efficient in the sense that the present value of short-term fiscal deficits and long-term surpluses is positive for any interest (discount) rate less than 9 percent.
    Keywords: Fiscal reforms;Germany;Payroll and social security taxes;Tax reforms;Primary education;Services sector;Econometric models;Structural reform, macroeconomic model, Germany, labor tax, professional services, child care, schooling
    Date: 2016–04–25
  17. By: Itaya, Jun-ichi; Yamaguchi, Chikara
    Abstract: The endogenous timing of moves is analyzed in a repeated game setting of capital tax competition, where a subgroup of countries implementing partial tax harmonization and outside countries choose whether to set capital taxes sequentially or simultaneously. It is shown that the simultaneous-move outcome prevails in every stage game of the infinitely repeated tax-competition game as its subgame-perfect Nash equilibrium (SPNE) if a taxunion consists of similar countries, whereas both the simultaneous-move and sequentialmove (Stackelberg) outcomes can be sustained as SPNEs when a tax-union consists of dissimilar countries. This is in sharp contrast with the finding of Ogawa (2013). In his two-stage game, when asymmetric countries in terms of productivity have opposite incentives towards the terms of trade in order to manipulate the price of capital in their favor, there exists only a simultaneous-move Nash equilibrium. This difference arises from the fact that infinite repetition is able to support a wider range of behavior that is not a Nash equilibrium of the one-shot stage game of the repeated tax-competition game, such as a Stackelberg follower’s strategy.
    Keywords: Tax competition, Tax harmonization, Endogenous timing, Repeated game,
    Date: 2015–06
  18. 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
  19. By: Kotamäki Mauri (Ministry of Finance)
    Abstract: Previous estimates on participation tax rates (PTRs) are reviewed and new, updated PTR estimates of the Finnish case are provided with 2013 data. The results indicate that there has been an increase in the average PTR in Finland after 2011. The sensitivity of PTR calculations is tested in order to understand the dynamics behind the results. This is something that is lacking in the earlier literature. The contribution of different parts of the social security system to the level of PTR is calculated. Furthermore, a recent reform, the increase of Earned-income Tax Credit (EITC), is evaluated in an ex-ante manner. It could be possible to utilize the underlined methodology when evaluating and designing policy reforms. First, the reform’s effect on average participation tax rate is calculated. Second, the obtained result with respect to average PTR is plugged into a search theoretic general equilibrium model, and an employment effect is estimated. Also a more traditional “partial equilibrium†effect is calculated. The EITC reform, that costs (in static terms) €450 million, lowers the average PTR by 1 pp., which is calculated to induce a 0.6-0.8 % increase in the number of employed using 0.25 elasticity of labor supply.
    Keywords: Participation tax rates; Earned-income Tax Credit; social security; general equilibrium modeling
    JEL: J20 J22 H20

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