nep-pbe New Economics Papers
on Public Economics
Issue of 2016‒06‒14
thirteen papers chosen by
Thomas Andrén

  1. The golden rule of public investment – a necessary and sufficient reform of the EU fiscal framework? By Achim Truger
  2. Effective Marginal Tax Rates for Low- and Moderate-Income Workers in 2016 By Congressional Budget Office
  3. An International Comparative Study of Financing Healthcare: The Case of Eight Developed Countries in 1990s- 2000s By Kazuaki Sato; Yui Ohtsu; Shintaro Kurachi; Leo Shimamura; Yasuto Dobashi
  4. Effects of fiscal policy shocks in an open economy : evidence from Canada By Tsoungui Belinga,Vincent De Paul
  5. Corporate Taxation, Leverage, and Macroeconomic Stability By Franziska Bremus; Jeremias Huber
  6. Analysis of the long term effects of a company tax cut By Michael Kouparitsas; Dinar Prihardini; Alexander Beames
  7. Optimal Income Taxation with a Stationarity Constraint in a Dynamic Stochastic Economy By Berliant, Marcus; Fujishima, Shota
  8. EU corporate tax vs Stacked taxation By Florence LACHET-TOUYA
  9. Directions of Perfection of the Russian Tax Legislation on Topical Issues of Taxation of Income from Transactions with Financial Instruments By Malinina, Tatiana; Gromov, Vladimir
  10. Political Economics of Fiscal Consolidations and External Sovereign Accidents By Carolina Achury; Christos Koulovatianos; John Tsoukalas
  11. Who Wins? Evaluating the Impact of UK Public Sector Pension Scheme Reforms By Danzer, Alexander M.; Dolton, Peter; Rosazza Bondibene, Chiara
  12. Can a concern for status reconcile diverse social welfare programs? By Stark, Oded; Jakubek, Marcin
  13. The Economic Incidence of Social Security Contributions: A Discontinuity Approach with Linked Employer-Employee Data By Kai-Uwe Müller; Michael Neumann

  1. By: Achim Truger
    Abstract: It is by now a widely shared insight that fiscal policy needs to be re-strengthened as a macroeconomic policy instrument within European macroeconomic policies: Recent experiences with austerity policies, new research regarding the size of the fiscal multiplier and the fact that monetary policy is obviously overstrained have led to this conclusion. As a consequence, increases in public investment are particularly necessary. Against this background this contribution discusses and proposes the introduction of the traditional public finance golden rule into the EU/Eurozone fiscal framework (Stability and growth pact (SGP), Fiscal Compact (FC)). Such a rule would exempt public (net) investment suitably defined from the relevant deficit targets of both the preventive and the corrective arm of the SGP as well as the FC. That way, fiscal policy would be upgraded and receive larger room for manoeuvre and public investment as a particularly growth enhancing public expenditure category would be strengthened. Different definitions are discussed and a pragmatic definition based on the national accounts with some modifications is proposed. The standard reservations against a golden rule are critically assessed, but mostly discarded. However, the potential limits of the golden rule are examined by way of pragmatic multiplier-based macroeconomic assessments: Would a golden rule have prevented the austerity crisis since 2010? Would other expenditure categories - particularly spending on social policy - have necessarily suffered? Would a golden rule leave sufficient fiscal leeway for expansionary fiscal policy in the current situation? The results are encouraging, yet they show, that the golden rule alone would not be sufficient to stabilise the Euro area economies.
    Keywords: Golden rule, public investment, fiscal policy austerity, Euro area
    JEL: E22 E61 E62 E65 H54 H62
    Date: 2016
  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: Kazuaki Sato (Faculty of Economics, Keio University); Yui Ohtsu (National Institute of Population and Social Security Research); Shintaro Kurachi (Graduate School of Economics, Keio University); Leo Shimamura (Faculty of Economics, Keio University); Yasuto Dobashi (Institute of Contemporary British History, King's College London)
    Abstract: This paper explores the relationship between healthcare expenditures and fiscal structures by conducting an international comparison. The difference between a social insurance scheme and a taxation scheme has long been recognized to be a major influence on fiscal resources for medical policies, but it cannot help fully explain the ease of finance. Authors present a comparative analysis of the trend of healthcare expenditures and fiscal structures in the period from 1990 to 2010 in eight countries, namely, Japan, the Netherlands, and France on the one hand (which adopted a social insurance scheme), the U.K., Sweden, Denmark, and Norway on the other (which adopted a taxation scheme). This paper found that healthcare expenditures has increased in centralized countries that have an authority to set insurance premiums or tax rates regardless of population aging.
    Keywords: healthcare expenditure, social insurance scheme, taxation scheme, financial structure, international comparison
    JEL: H51 I13 H77
    Date: 2016–03–30
  4. By: Tsoungui Belinga,Vincent De Paul
    Abstract: What is the impact of fiscal policy shocks on key macroeconomic variables in Canada? This question triggered renewed interest in the aftermath of the 2008-09 Great Recession. Indeed, as in many advanced economies, fiscal policy in Canada following the recession started with an expansionary phase to boost domestic demand. It progressed to an adjustment phase to reduce public debt and ensure long-term fiscal sustainability and sustained growth. This paper analyzes the effects of fiscal policy shocks on the Canadian economy, building on the sign-restrictions-VAR approach. Unlike previous studies, this paper explicitly accounts for spillovers from the U.S., Canada's main trading partner, and for oil price fluctuations. The findings show that the size and sign of the spending and tax revenue multipliers depend on whether the analysis controls for the exogenous factors. The tax-cut multiplier varies between 0.2 and 0.5, while the spending multiplier ranges between 0.2 and 1.1; the spending multiplier tends to be larger than the tax-cut multiplier over the past two decades.
    Keywords: Debt Markets,Taxation&Subsidies,Economic Theory&Research,Emerging Markets,Urban Economics
    Date: 2016–04–27
  5. By: Franziska Bremus; Jeremias Huber
    Abstract: A key challenge for economic policy today is to make the financial system more resilient. The literature finds that high indebtedness (or: leverage), both in the financial and in the real sectors, is a danger to macroeconomic stability and growth. Moreover, the design of the corporate tax system is an important determinant of leverage: in many countries interest paid on debt is tax-deductible while the return on equity is not, such that tax systems incentivize debt-type financing and, hence,leveraging. This article summarizes the debate about the implications of corporate taxation for leverage and economic stability. Proposals for addressing the debt bias of taxation are also presented.
    Date: 2016
  6. By: Michael Kouparitsas (Treasury, Government of Australia); Dinar Prihardini (Treasury, Government of Australia); Alexander Beames (Treasury, Government of Australia)
    Abstract: For a small open economy, such as Australia, its living standards (per capita income) are determined by the level of its terms of trade, labour productivity, labour force participation and population. Australia’s terms of trade, labour force participation and population growth are expected to be flat or declining in the foreseeable future which implies any improvement in Australia’s living standards must be driven by a higher level of labour productivity. This paper shows that a company income tax cut can do that, even after allowing for increases in other taxes or cutting government spending to recover lost revenue, by lowering the before tax cost of capital. This encourages investment, which in turn increases the capital stock and labour productivity. Analysis presented here also suggests the long-term benefits accrue to workers and households via permanently higher after-tax real wages and consumption.
    Keywords: optimal taxation, company tax, tax reform, policy simulation
    JEL: H21 H25 H30 E27
    Date: 2016–05
  7. By: Berliant, Marcus; Fujishima, Shota
    Abstract: We consider the optimal nonlinear income taxation problem in a dynamic, stochastic environment when the government cannot change the tax rule as uncertainty resolves. Due to such a stationarity constraint, our taxation problem is reduced to a static one over an expanded type space that incorporates type evolution. We strengthen the argument in the static model that the zero top marginal tax rate result is of little practical importance because it only applies to the top of the expanded type space. If the maximal type increases over time, the person with top ability in any period but the last has a positive marginal tax rate.
    Keywords: Optimal income taxation; New dynamic public finance
    JEL: H21
    Date: 2016–05–26
  8. By: Florence LACHET-TOUYA
    Abstract: When same authorities belonging to a same level of government derive their receipts from a mobile tax base, a competition mechanism takes place among them that triggers externalities. Likewise, when different layers of decision-makers exert their taxing power upon a common base, the choices made by one tier affect the receipts that the other governments can collect. Generally speaking, the decisions made by one government affect the tax revenue that can be collected by the decisionmakers belonging to the same tier of government or by stacked jurisdictions : externalities arise, the existence and the magnitude of which are closely related to the nature of the tax, to the mobility of the base and to the distribution of tax competence among decisionmakers. This paper proposes a model where both horizontal and vertical interactions take place. Uncertainty concerning the base, that is, the amount of capital likely to be invested, is introduced and a generalization of taxation schemes is provided in order to assess the robustness of traditional analyses results in a more general and realistic scheme. The analysis led envisages two possible schemes of European corporate taxation. On the one hand, we consider a setting consisting in having a corporate tax set at the European level only, the receipts of which are distributed among member states. On the other hand, we introduce the addition of a European tax upon national corporate taxes and we simultaneously take into account horizontal and vertical externalities. We distinguish according the nature of the objective function that each kind of government may display. We can show that the fi?rst scheme should be preferred, both from a taxation degree and a public investment point of view.
    Keywords: anticipations, inference, perfect foresight, rational expectations, financial markets, asymmetric information, arbitrage
    JEL: D72 D82 H23 H30 H32 H71 H77
    Date: 2016–05
  9. By: Malinina, Tatiana (Russian Presidential Academy of National Economy and Public Administration (RANEPA), Gaidar Institute for Economic Policy); Gromov, Vladimir (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The paper concerns the current regulations and practice and presents proposals for improving it on the important issues of individual and corporate taxation of income from financial instruments in Russia.
    Keywords: regulations, Russia
    Date: 2016–04–05
  10. By: Carolina Achury; Christos Koulovatianos; John Tsoukalas
    Abstract: As the recent chain of EU sovereign crises has demonstrated, after an unexpected massive rise to the debt GDP ratio, several EU countries manage to proceed with scal consolida- tion quickly and e¤ectively, while other countries, notably Greece, proceed slowly, fuelling Graccidentand Grexitscenarios, even after generous rescue packages, involving debt haircuts and monitoring from o¢ cial bodies. Here we recursively formulate a game among rent-seeking groups and propose that high debt-GDP ratios lead to predictable miscoordina- tion among rent-seeking groups, unsustainable debt dynamics, and open the path to political accidents that foretell Graccidentscenarios. Our analysis and application helps in under- standing the politico-economic sustainability of sovereign rescues, emphasizing the need for scal targets and possible debt haircuts. We provide a calibrated example that quanti es the threshold debt-GDP ratio at 137%, remarkably close to the target set for private sector involvement in the case of Greece.
    Keywords: sovereign debt, rent seeking, international lending, tragedy of the commons, EU crisis, Grexit, Graccident
    JEL: H63 F34 F36 G01 E44 E43 D72
    Date: 2016–05
  11. By: Danzer, Alexander M. (Catholic University of Eichstätt-Ingolstadt); Dolton, Peter (University of Sussex); Rosazza Bondibene, Chiara (National Institute of Economic and Social Research (NIESR))
    Abstract: Radical changes have been implemented to pension schemes across the UK public sector from April 2015. This paper simulates how these changes will affect the lifetime pension and how the negotiated pension changes compare across six public sector schemes by level of education. Specifically, we simulate the occupation specific Defined Benefit (DB) pension wealth accumulated for a representative employee over the lifecycle by factoring in the recent changes to pension conditions. We find that less educated workers with low or moderate earnings in the NHS, Local Government and Civil Service schemes are the winners having secured an increase in the value of their pension of between 10-20%. Graduate workers with faster wage growth in the Civil Service, Teachers and Local Government schemes loose between 3% and 5%. This is in sharp contrast with the Police and Fire forces who have lost around 40% irrespective of their education.
    Keywords: pension reforms, public sector, defined benefit
    JEL: J32 H55 J45
    Date: 2016–05
  12. By: Stark, Oded; Jakubek, Marcin
    Abstract: Let there be two individuals: “rich,” and “poor.” Due to inefficiency of the income redistribution policy, if a social planner were to tax the rich in order to transfer to the poor, only a fraction of the taxed income would be given to the poor. Under such inefficiency and a standard utility specification, a Rawlsian social planner who seeks to maximize the utility of the worst-off individual will select a different allocation of incomes than a utilitarian social planner who seeks to maximize the sum of the individuals’ utilities. However, when individuals prefer not only to have more income but also not to have low status conceptualized as low relative income, and when this distaste is incorporated in the individuals’ utility functions with a weight that is greater than a specified critical level, then a utilitarian social planner will select the very same income distribution as a Rawlsian social planner.
    Keywords: Maximization of social welfare, Rawlsian social welfare function, Utilitarian social welfare function, Inefficient policy of income redistribution, Distaste for low status, Financial Economics, Food Security and Poverty, Public Economics, D31, D60, H21, I38,
    Date: 2016–04
  13. By: Kai-Uwe Müller; Michael Neumann
    Abstract: We estimate economic incidence of social security contributions (SSC) on the basis of cross-sectional earnings distributions. The approach exploits discontinuities in earnings distributions at kinks in the budget set which are informative about tax incidence. Contrary to most research on SSC incidence, it does not rely on policy reforms, panel data, or hours information. When the location of kinks does not change significantly, estimates represent equilibrium incidence and are less affected by short-run adjustment frictions than results based on policy reforms. We refine the framework proposed by Alvaredo and Saez (2007), discuss identifying assumptions and related problems in empirical applications. We also suggest parametric and non- parametric estimators. The approach is applied to earnings caps of SSC in Germany where the marginal SSC rate drops to zero. The linked employer-employee data used provide precise measures of gross and net earnings. Utilizing two separate earnings distributions improves identification in the presence of measurement error. We find substantial negative discontinuities at most earnings caps of SSC in the distribution of observed net earnings. Together with smooth gross earnings distributions around the caps this provides consistent empirical evidence that legal and economic incidence of SSC coincide.
    Keywords: Incidence, social security contributions, discontinuities, linked employer-employee data
    JEL: H22 J38 H55 J20
    Date: 2016

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