nep-pbe New Economics Papers
on Public Economics
Issue of 2016‒06‒04
fifteen papers chosen by
Thomas Andrén

  1. The optimal differentiated income taxation for groups categorized based on benefits from public goods By OBARA, Takuya
  2. Fiscal burden differentiation between European Union countries as a source of opportunism, moral hazard and unproductive entrepreneurship By Andrzej Pestkowski
  3. Democracy and redistribution By Santanu Gupta; Raghbendra Jha
  4. Optimal Taxation, Marriage, Home Production, and Family Labor Supply By Gayle, George-Levi; Shephard, Andrew
  5. Civic capital and support for the welfare state By Cerqueti, Roy; Sabatini, Fabio; Ventura, Marco
  6. State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data By Xavier Giroud; Joshua D. Rauh
  7. Shifting the Beveridge Curve; What Affects Labor Market Matching? By Elva Bova; João Tovar Jalles; Christina Kolerus
  8. The effects on consumer welfare of a corporate tax cut By Chris Murphy
  9. Fiscal Multipliers in the 21st century By Pedro brinca; Hans A. Holter; Per Krusell; Laurence Malafry
  10. Income Tax Credits to Assist Beginning Farmers and Ranchers: A Look at State-Level Policies By Williamson, James; Girardi, Anthony
  11. How CBO Estimates Automatic Stabilizers: Working Paper 2015-07 By Frank Russek; Kim Kowalewski
  12. Migrant Workers and the Welfare State By Andersen, Torben M.; Migali, Silvia
  13. Distributional and Welfare Impacts of Renewable Subsidies in Italy By Distante, Roberta; Verdolini, Elena; Tavoni, Massimo
  14. Dynamic Bargaining over Redistribution with Endogenous Distribution of Political Power By Saito, Yuta
  15. Employment Guarantee Schemes and Wages in India By Girish Bahal

  1. By: OBARA, Takuya
    Abstract: This paper examines optimal nonlinear income taxes under the provision of a public good when individuals differ in public goods preferences and earning abilities. We suppose two groups whose benefits from public goods are different, and we consider that the government implement the group-specific income tax schedules. Our main argument is that the government redistributive tastes and the correlation of public goods preferences and earning abilities are especially crucial in differentiating marginal income tax rates. In numerical simulations, we present how these factors affect the shape of the optimal differentiated marginal income tax rates in terms of some social welfare functions.
    Keywords: Extensive margin, Optimal nonlinear income taxation, Public goods, Tagging
    JEL: H20 H41
    Date: 2016–05–17
  2. By: Andrzej Pestkowski (Wroclaw University of Economics)
    Abstract: Free movement and freedom of establishment existing within the European Union institutions are the main factors which make European Union open for business activities. However, it should be noted that all EU countries have their own tax systems and fiscal policy. This, in turn, differentiates fiscal burden of government imposed onto its taxpayers in each Member State. These differences frequently distort the conditions of establishment. As every entrepreneur is willing to minimize costs, especially when their source are compulsory taxes, mass tax migration between Member States might be expected. Tax avoidance and tax evasion, being a form of tax migration, imply numerous economic, social and legal problems. The aim of this paper is to identify these problems along with their causes and effects in terms of fiscal burden differentiation between Member States. Descriptive, qualitative and quantitative analyses have been applied in order to explain the abovementioned phenomena. Additionally, the analyses have been accompanied by case studies.
    Keywords: fiscal burden; tax systems; opportunism; moral hazard; unproductive entrepreneurship
    JEL: E26 H26 K34 K42
    Date: 2016–05
  3. By: Santanu Gupta; Raghbendra Jha
    Abstract: In a probabilistic voting model with three jurisdictions with residents with different income levels, we demonstrate that it is always optimal to distribute tax revenues as public good to only the residents of richest and median income jurisdictions. In this context, we compare the overall welfare of all citizens in a one bracket Tax Structure where the poor contribute to tax and does not receive public goods, to that in a progressive Two bracket or a Three bracket Tax Structure where the poor face no taxes but neither do they receive any public goods. In a situation where the government extracts a part of the tax revenues as political rents and maximizes expected payoff rather than the probability of re-election, there is a possibility of complete extraction which implies taxing away all private income with no allocation of public good, if electoral uncertainty be high.
    Keywords: median voter, local public good, reservation utility
    JEL: H41 H72
    Date: 2016
  4. By: Gayle, George-Levi (Federal Reserve Bank of St. Louis); Shephard, Andrew (University of Pennsylvania)
    Abstract: This paper develops an empirical approach to optimal income taxation design within an equilibrium collective marriage market model with imperfectly transferable utility. Taxes distort labour supply and time allocation decisions, as well as marriage market outcomes, and the within household decision process. Using data from the American Community Survey and American Time Use Survey we structurally estimate our model and explore empirical design problems. We consider the optimal design problem when the planner is able to condition taxes on marital status, as in the U.S. tax code, but for married couples we allow for an arbitrary form of tax jointness. Our results suggest that the optimal tax system for married couples is characterized by negative jointness, although the welfare gains from this jointness are shown to be quite modest.
    JEL: C14 C71 D13 H21 J12 J22
    Date: 2016–05–23
  5. By: Cerqueti, Roy; Sabatini, Fabio; Ventura, Marco
    Abstract: We model the way the interplay between tax surveillance institutions and civic capital shapes taxpayers' support for welfare state. We show that, when tax surveillance is tight, rational civic-minded individuals express greater support for welfare spending than uncivic ones. We provide empirical evidence of these preferences using data from Italy, a country that has long posed a puzzle for public economists for its limited civic capital and large welfare state.
    Keywords: welfare state, redistribution, tax surveillance, social trust, civic capital, social capital
    JEL: D63 H10 H11 H5 H53 Z1 Z18
    Date: 2016–05–24
  6. By: Xavier Giroud; Joshua D. Rauh
    Abstract: Using Census microdata on multi-state firms, we estimate the impact of state taxes on business activity. For C corporations, employment and the number of establishments have corporate tax elasticities of .0.4, and do not vary with changes in personal tax rates. Pass-through entity activities show tax elasticities of -0.2 to -0.3 with respect to personal tax rates, and are invariant with respect to corporate tax rates. Reallocation of productive resources to other states drives around half the effect. Capital shows similar patterns but is 36% less elastic than labor. The responses are strongest for firms in tradable and footloose industries.
    Date: 2016–02
  7. By: Elva Bova; João Tovar Jalles; Christina Kolerus
    Abstract: This paper explores conditions and policies that could affect the matching between labor demand and supply. We identify shifts in the Beveridge curves for 12 OECD countries between 2000Q1 and 2013Q4 using three complementary methodologies and analyze the short-run determinants of these shifts by means of limited-dependent variable models. We find that labor force growth as well as employment protection legislation reduce the likelihood of an outward shift in the Beveridge curve,. Our findings also show that the matching process is more difficult the higher the share of employees with intermediate levels of education in the labor force and when long-term unemployment is more pronounced. Policies which could facilitate labor market matching include active labor market policies, such as incentives for start-up and job sharing programs. Passive labor market policies, such as unemployment benefits, as well as labor taxation render matching signficantly more difficult.
    Keywords: Labor markets;Labor supply;Labor demand;Unemployment;Labor market characteristics;Econometric models;Time series;vacancies, unemployment, employment protection legislation, cointegration, breaks, probit
    Date: 2016–04–12
  8. By: Chris Murphy
    Abstract: This paper analyses in two ways the effects of an Australian Government proposal to reduce the corporate tax rate from 30 to 25 per cent. Murphy (2016a) modelled the proposal for the Australian Treasury using CGETAX (Murphy, 2016b), a large-scale, long-run CGE model designed for tax policy analysis. The gain in the real wage is estimated at 1.0 per cent. Depending on how the company tax cut is funded, the net gain in annual consumer welfare is between $4.1 billion and $5.2 billion in 2015/16 terms and the associated gain in real GDP is from 0.7 to 0.9 per cent. This paper also uses a highly stylised version of CGETAX to provide a theoretical analysis of the proposed tax cut, applicable to advanced, open economies in general. Echoing CGETAX including by allowing for imperfect competition, the Stylised model shows an increase in the capital-labour ratio from the reduction in the cost of capital, an increase in the labour supply induced by a higher real wage when the tax cut is passed on from internationally mobile capital to labour, and a reduction in the incentive to shift profits to lower-taxed jurisdictions (de Mooij and Devereux (2009)). This paper also discusses the likely timing on the introduction of the tax cut and the economic responses to it.
    Keywords: computable general equilibrium models, oligopoly, corporate tax, Australia
    JEL: C68 D43 H25
    Date: 2016
  9. By: Pedro brinca (Nova School of Business and Economics, Universidade Nova de Lisboa, Portugal; Centro de Economia e Finanças, Universidade do Porto, Portugal; Robert Schuman Centre for Advanced Studies, European University Institute, Italy); Hans A. Holter (Department of Economics, University of Oslo, Norway); Per Krusell (Institute for International Economic Studies, Stockholm University, Sweden); Laurence Malafry (Department of Economics, Stockholm University, Sweden)
    Abstract: Fiscal multipliers appear to vary greatly overtime and space. Based on VARs for a large number of countries, we document a strong correlation between wealth inequality and the magnitude of fiscal multipliers. In an attempt to account for this finding, we develop a life-cycle, overlapping generations economy with uninsurable labor market risk. We calibrate our model to match key characteristics of a number of OECD economies, including the distribution of wages and wealth, social security, taxes, and government debt and study how a fiscal multiplier depends on various country characteristics. We find that the fiscal multiplier is highly sensitive to the fraction of the population who face binding credit constraints and also to the average wealth level in the economy. These findings together help us generate across-country pattern of multipliers that is quite similar to that in the data.
    Keywords: Fiscal multipliers, Wealth inequality, Government spending, Taxation
    JEL: E62 H21
    Date: 2015–09
  10. By: Williamson, James; Girardi, Anthony
    Keywords: Beginning Farmers and Ranchers, Income Tax Credit, Farm Finance, Agricultural Resource Management Survey, Agribusiness, Agricultural Finance, Financial Economics, Public Economics, Q1, Q14, H25, D24,
    Date: 2016–05–25
  11. By: Frank Russek; Kim Kowalewski
    Abstract: Federal receipts and outlays regularly respond to cyclical movements in the economy. When the economy is operating below its potential, personal income and other tax bases are depressed, causing revenues to be lower than if the economy was operating at its potential. At such times, outlays for unemployment insurance benefits and other types of transfer programs are elevated. By contrast, when the economy is operating above its potential, revenues are higher and transfer payments are lower than would be the case if the economy was operating at its potential. Those “automatic stabilizers” thus
    JEL: E62
    Date: 2015–11–19
  12. By: Andersen, Torben M. (Aarhus University); Migali, Silvia (Fern Universität Hagen)
    Abstract: There is wide concern that migration flows may undermine the financial viability of generous welfare arrangements. The discussion focuses on welfare arrangements as attractors of migrants, suggesting that the issue does not pertain to migrant workers. However, this overlooks how welfare arrangements affect return-migration in case of social events like job loss. Importantly, migrants are shown to be self-selected in a way affecting both migration and return-migration. Two migration regimes prevail. In one, with relatively low benefits, unemployed workers return, while in the other some stay. Importantly, the stay or return migration decision is more sensitive to welfare generosity than the migration decision.
    Keywords: migrant workers, return-migration, job-loss, unemployment benefits
    JEL: F22 J68 I31
    Date: 2016–05
  13. By: Distante, Roberta; Verdolini, Elena; Tavoni, Massimo
    Abstract: We empirically assess the distributional impacts and welfare effects of policies to incentivize renewable electricity production for the case of Italy. We use data from the Household Budget Survey between 2000 and 2010 to estimate a demand system in which energy goods' shares of expenditure are modelled using different empirical approaches. We show that the general Exact Affine Stone Index (EASI) demand system provides more robust estimates of price elasticities of each composite good than the commonly used Almost Ideal Demand System (AIDS). The estimated coefficients are used to perform a welfare analysis of the Italian renewable electricity production incentive policy. We show that different empirical approaches give rise to significantly different estimates of price elasticities and that methodological choices are the reasons for the very high elasticities of substitutions estimated using similar data by previous contributions. We find no evidence of regressivity of the incidence of the Italian renewable incentive scheme in the period under consideration. The renewable subsidies act as a middle-class tax, with the higher welfare losses experienced by households in the second to fourth quintiles of the expenditure distribution.
    Keywords: Energy Taxes, Consumer Demand System, Welfare Effects, Equity, Resource /Energy Economics and Policy, D12, H22, Q48,
    Date: 2016–05–26
  14. By: Saito, Yuta
    Abstract: This paper investigates a dynamic capital taxation (and redistribution) problem with an endogenous political power balance. It is shown that the current redistribution, which reduces the future inequality, decreases the future needs for redistribution if the bargaining power is (at least partly) endogenized.
    Keywords: Legislative bargaining; Wealth inequality; Redistribution; Capital taxation
    JEL: E60 E62 H20 H30
    Date: 2016
  15. By: Girish Bahal
    Abstract: Using a novel data-set of district-wise program expenditure, we estimate the impact of large employment schemes on agricultural wages in India. Depending on the underlying theoretical mechanism, private wages can either respond to contemporaneous fluctuations in program expenditure or be sensitive to the stock of expenditure incurred under such programs. We first find that although program expenditure varied substantially both across and within districts, every district was covered under employment guarantee during the 2001-2010 period. Next, we empirically contrast the “spot” versus the “stock” effect of employment schemes on wages. Identification of program impact is achieved by partialling out a host of district and year specific controls. Exploiting the fund allocation process of these schemes, we further check for potentially endogenous district-year fluctuations. We find a significant positive impact on wages through the stock effect. In contrast, we do not find an immediate jump in wages suggesting weak spot effects.
    Keywords: Public works, Workfare, NREGA, Public capital, Wages
    JEL: H53 I38 J31 J38
    Date: 2016–04–12

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