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on Public Economics |
| By: | Harry Grubert (Office of Tax Analysis, The U.S. Department of the Treasury, Washington, DC, USA); Rosanne Altshuler (Department of Economics, Rutgers University, New Brunswick, NJ, USA) |
| Abstract: | We consider three plans for shifting the tax on corporate income to the personal level to achieve a significant reduction in the corporate tax rate. One plan eliminates the corporate tax and taxes dividends and the annual change in the value of publicly traded financial assets at ordinary rates. The second integrates corporate and shareholder taxes. The third lowers the corporate tax rate to 15 percent and taxes dividends and capital gains as ordinary income. To prevent large reductions in capital gains realizations and dividend payouts, an interest charge on taxes deferred during the holding period would be imposed when an asset is sold. We conclude that the third alternative is more robust than the other two. |
| Keywords: | tax reform, corporate income taxation, corporate tax integration |
| JEL: | H24 H25 H32 |
| Date: | 2016–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:201606&r=pbe |
| By: | Dreher, Axel; Gehring, Kai; Kotsogiannis, Christos; Marchesi, Silvia |
| Abstract: | This paper explores the role of information transmission and misaligned interests across levels of governments in explaining variation in the degree of decentralization across countries. We analyze two alternative policy-decision schemes - "decentralization" and "centralization" - within a two-sided incomplete information principal-agent framework. The quality of communication depends on the conflict of interests between the government levels and on which government level controls the degree of decentralization. We show that the extent of misaligned interests and the relative importance of local and central government knowledge affect the optimal choice of policydecision schemes. Our empirical analysis confirms that countries' choices depend on the relative importance of their private information. Importantly, results differ significantly between unitary and federal countries, in line with our theory. |
| Keywords: | Centralization; communication; delegation; Fiscal Decentralization; state and local government |
| JEL: | C23 D82 D83 H7 H77 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11344&r=pbe |
| By: | Brülhart, Marius; Gruber, Jonathan; Krapf, Matthias; Schmidheiny, Kurt |
| Abstract: | We study the effects of wealth taxation on reported wealth. Our analysis is based on data for Switzerland, which has the highest rate of annual wealth taxation in the developed world. While the wealth tax base is defined at the federal level, tax rates vary considerably across locations and over time. We use aggregate data on wealth holdings by canton and individual-level data for the canton of Bern. Our estimated behavioral elasticities substantially exceed those of the taxable income literature. We also find that taxpayers bunch below the tax threshold, that observed responses are driven by changes in wealth holdings rather than mobility, and that financial wealth is somewhat more responsive than non-financial wealth. |
| Keywords: | Behavioral Responses; Switzerland; Wealth Taxation |
| JEL: | H24 H31 H73 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11342&r=pbe |
| By: | Chen, Ping-ho; Chu, Angus C.; Chu, Hsun; Lai, Ching-Chong |
| Abstract: | In this note, we examine the effects of capital taxation on innovation and economic growth. We find that capital taxation has drastically different effects in the short run and in the long run. An increase in the capital income tax rate has both a consumption effect and a tax-shifting effect on the equilibrium growth rates of technology and output. In the long run, the tax-shifting effect dominates the consumption effect yielding an overall positive effect of capital taxation on steady-state economic growth. However, in the short run, the consumption effect becomes the dominant force causing an initial negative effect of capital taxation on the equilibrium growth rates. These contrasting effects of capital taxation at different time horizons may provide a plausible explanation for the mixed evidence in the empirical literature on capital taxation and economic growth. |
| Keywords: | Capital taxation; economic growth; R&D; transition dynamics |
| JEL: | H2 O3 O4 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:72211&r=pbe |
| By: | Alisdair McKay (Department of Economics Boston University); Ricardo Reis (Columbia University; Centre for Macroeconomics (CFM)) |
| Abstract: | Should the generosity of unemployment benefits and the progressivity of income taxes depend on the presence of business cycles? This paper proposes a tractable model where there is a role for social insurance against uninsurable shocks to income and unemployment, as well as ineficient business cycles driven by aggregate shocks through matching frictions and nominal rigidities. We derive an augmented Baily-Chetty formula showing that the optimal generosity and progressivity depend on a macroeconomic stabilization term. Using a series of analytical examples, we show that this term typically pushes for an increase in generosity and progressivity as long as slack is more responsive to social programs in recessions. A calibration to the U.S. economy shows that taking concerns for macroeconomic stabilization into account raises the optimal unemployment benefits replacement rate by 13 percentage points but has a negligible impact on the optimal progressivity of the income tax. More generally, the role of social insurance programs as automatic stabilizers affects their optimal design. |
| Keywords: | Counter-cuclical fiscal policy, Redistribution, Distortionary taxes |
| JEL: | E62 H21 H30 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1618&r=pbe |
| By: | Desmet, Klaus; Ortuño-Ortín, Ignacio; Weber, Shlomo |
| Abstract: | This paper advances the hypothesis that in societies that suffer from center-periphery tension it is harder to agree on public goods than on transfers. After micro-founding a new peripheral diversity index, it puts forth a simple theory in which the cost of public goods increases with peripheral diversity and tax compliance decreases with overall diversity. It then empirically explores the relation between public goods provision, transfers, peripheral diversity and overall diversity. Consistent with the theory, we find that higher levels of peripheral diversity are associated with less provision of public goods, but more transfers, whereas higher levels of overall diversity have a negative association with transfers. Public goods and transfers are therefore substitutes in their reaction to a change in peripheral diversity. |
| JEL: | H4 H5 Z10 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11348&r=pbe |
| By: | Maestas, Nicole; Mullen, Kathleen J.; Powell, David |
| Abstract: | Population aging is widely expected to have detrimental effects on aggregate economic growth. However, we have little empirical evidence about the actual existence or magnitude of such effects. In this paper, we exploit differential aging patterns at the state level in the United States between 1980 and 2010. Many states have already experienced high growth rates of the 60+ population, comparable to the predicted national growth rate over the next several decades. Furthermore, these differential growth rates occur partially for reasons unrelated to economic growth, providing a natural approach to isolate the impact of aging on growth. We predict the magnitude of population aging at the state-level given the state's age structure in an initial period and exploit this predictable differential growth to estimate the impact of population aging on Gross Domestic Product (GDP) growth, and its constituent parts, labor force and productivity growth. We estimate that a 10% increase in the fraction of the population ages 60+ decreases GDP per capita by 5.7%. We find that this reduction in economic growth caused by population aging is primarily due to a decrease in growth in the supply of labor. To a lesser extent, it is also due to a reduction in productivity growth. We present evidence of downward adjustment of earnings growth to reflect the reduction in productivity. |
| Keywords: | population aging, GDP growth, demographic transitions |
| JEL: | J11 J14 J23 J26 O47 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:ran:wpaper:1063&r=pbe |
| By: | Atalay, Kadir (University of Sydney); Barrett, Garry (University of Sydney) |
| Abstract: | Recent reforms to social security in many countries have sought to delay retirement. Given the family context in which retirement decisions are made, social security reforms have potentially important spill-over effects on the participation of spouses. This paper analyses the impact of women's pension incentives on the retirement decision of their husband. The 1993 Age Pension reform in Australia increased the eligibility age for Age Pension benefits for women. This reform caused an increase in participation of men married to women in the affected cohorts. The behavioral responses are due to wealth effects and preferences for shared leisure. |
| Keywords: | retirement, age pension, joint retirement, spousal effect |
| JEL: | D91 I38 J26 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10013&r=pbe |
| By: | Diniz, André |
| Abstract: | We use new data on cyclically adjusted primary balances for Latin America and the Caribbean to estimate e ects of scal consolidations on GDP and some of its components. Identi cation is conducted through a doubly-robust estimation procedure that controls for non-randomness in the "treatment assignment" by inverse probability weighting and impulse responses are generated by local projections. Results suggest output contraction by more than one percent on impact, with economy starting to recover from the second year on. Composition e ects indicate that revenue-based adjustments are way more contractionary than expenditure-based ones. Disentangling efects between demand components, we nd consumption being in general less responsive to consolidations than investment, although nonlinearities associated to initial levels of debt and taxation might play an important role. |
| Date: | 2016–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:eesptd:423&r=pbe |
| By: | Raju Huidrom (World Bank, Development Prospects Group); M. Ayhan Kose (World Bank, Development Prospects Group; Brookings Institution; CAMA; CEPR); Jamus J. Lim (World Bank, Development Prospects Group); Franziska L. Ohnsorge (World Bank, Development Prospects Group) |
| Abstract: | This paper analyzes the relationship between fiscal multipliers and fiscal positions of governments using an Interactive Panel Vector Auto Regression model and a large dataset of advanced and developing economies. Our methodology permits us to trace the endogenous relationship between fiscal multipliers and fiscal positions while maintaining enough degrees of freedom to draw sharp inferences. We report three major results. First, the fiscal multipliers depend on fiscal positions: the multipliers tend to be larger when fiscal positions are strong (i.e. when government debt and deficits are low) than weak. For instance, the long run multiplier can be as large as unity when fiscal position is strong, while it can be negative when the fiscal position is weak. Second, these effects are separate and distinct from the impact of the business cycle on the fiscal multiplier. Third, the state-dependent effects of the fiscal position on multipliers is attributable to two factors: an interest rate channel through which higher borrowing costs, due to investors’ increased perception of credit risks when stimulus is implemented from a weak initial fiscal position, crowd out private investment; and, a Ricardian channel through which households reduce consumption in anticipation of future fiscal adjustments. |
| Keywords: | Fiscal multipliers, fiscal position, state-dependency, Ricardian channel, interest rate channel, business cycle |
| JEL: | E62 H50 H60 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1605&r=pbe |
| By: | Oguzoglu, Umut (University of Manitoba); Polidano, Cain (Melbourne Institute of Applied Economic and Social Research); Vu, Ha (Deakin University) |
| Abstract: | Governments are responding to fiscal pressures associated with aging populations by increasing the eligibility age for publicly-funded retirement benefits. However, recent studies show large resulting increases in the receipt of alternative payments, which raises concern that welfare savings are offset by increased inflows into alternative payments. Using administrative data to examine the impacts of female eligibility age increases in Australia, we find little evidence of this. Instead, most of the increase in receipt is because the delay mechanically extends the receipt time of people already on alternative payments. The implication is that fiscal savings are not being jeopardized by opportunistic behaviour. |
| Keywords: | welfare substitution, retirement, aging population |
| JEL: | H53 J26 J01 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10014&r=pbe |
| By: | Huidrom, Raju; Kose, Ayhan; Lim, Jamus; Ohnsorge, Franziska |
| Abstract: | This paper analyzes the relationship between fiscal multipliers and fiscal positions of governments using an Interactive Panel Vector Auto Regression model and a large dataset of advanced and developing economies. Our methodology permits us to trace the endogenous relationship between fiscal multipliers and fiscal positions while maintaining enough degrees of freedom to draw sharp inferences. We report three major results. First, the fiscal multipliers depend on fiscal positions: the multipliers tend to be larger when fiscal positions are strong (i.e. when government debt and deficits are low) than weak. For instance, the long run multiplier can be as large as unity when fiscal position is strong, while it can be negative when the fiscal position is weak. Second, these effects are separate and distinct from the impact of the business cycle on the fiscal multiplier. Third, the state-dependent effects of the fiscal position on multipliers is attributable to two factors: an interest rate channel through which higher borrowing costs, due to investors' increased perception of credit risks when stimulus is implemented from a weak initial fiscal position, crowd out private investment; and, a Ricardian channel through which households reduce consumption in anticipation of future fiscal adjustments. |
| Keywords: | Fiscal multipliers; Fiscal position; State-dependency; Ricardian channel; Interest rate channel; Business cycle |
| JEL: | E62 H50 H60 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11346&r=pbe |
| By: | Mullen, Kathleen J.; Staubli, Stefan |
| Abstract: | A key component for estimating the optimal size and structure of disability insurance (DI) programs is the elasticity of DI claiming with respect to benefit generosity. Yet, in many countries, including the United States, all workers face identical benefit schedules, which are a function of one’s labor market history, making it difficult to separate the effect of the benefit level from the effect of unobserved preferences for work on individuals’ claiming decisions. To circumvent this problem, we exploit exogenous variation in DI benefits in Austria arising from several reforms to its DI and old age pension system in the 1990s and 2000s. We use comprehensive administrative social security records data on the universe of Austrian workers to compute benefit levels under six different regimes, allowing us to identify and precisely estimate the elasticity of DI claiming with respect to benefit generosity. We find that, over this time period, a one percent increase in potential DI benefits was associated with a 1.2 percent increase in DI claiming. |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:ran:wpaper:1132&r=pbe |
| By: | Liliana Harding (University of East Anglia); Mihai Mutascu (West University of Timisoara) |
| Abstract: | This paper analyses the effects of migration on per capita collected tax revenues. The panel data used includes 25 European Union (EU) countries and covers the period 1996-2010. The research contributes to the debate linking migration and tax, and finds evidence that net migration is a significant factor explaining tax revenues. In the case of EU countries, net migration accelerates to some extent the rise in collected tax, and strongly impacts on the level of tax revenues available per capita. |
| Keywords: | migration, tax payment, government revenue, European Union |
| JEL: | H20 F22 C23 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:uea:ueaeco:2016_08&r=pbe |
| By: | Vasilev, Aleksandar |
| Abstract: | This paper explores the problem of non-convex labor supply decisions in an economy with both private and public sector jobs. To this end, Hansen (1985) and Rogerson's (1988) indivisible-hours framework is extended to an environment featuring a double discrete labor choice. The novelty of the study is that the micro-founded representation obtained from explicit aggregation over homogeneous individuals features different disutility of labor across the two sectors, which is in line with the observed difference in average wage rates (OECD 2011). This theory-based utility function could be then utilized to study labor supply responses over the business cycle. |
| Keywords: | indivisible labor,public employment,aggregation,labor supply elasticity |
| JEL: | J22 J30 J45 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:142233&r=pbe |
| By: | Lilia Cavallari (Università degli studi Roma Tre); Simone Romano (Università degli studi Roma Tre) |
| Abstract: | This paper provides evidence in support of the hypothesis that fiscal policy is largely anticipated and its effects depend on expectations. Based on a 2-country Bayesian VAR model between major European economies, we find that an unanticipated fiscal stimulus leads to expectations of strong deficit reversals. This in turn depresses domestic and foreign activity. Foresight shocks, on the contrary, have positive effects on domestic activity. Differences in the responses to surprise and foresight shocks reflect the role of expectations. The evidence in our study is consistent with a regime where deficit reversals are mainly based on taxation alone. |
| Keywords: | fiscal policy, VAR model, fiscal spillovers, fiscal multiplier. |
| JEL: | E62 F45 H62 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:rcr:wpaper:02_16&r=pbe |
| By: | Frédéric Gannon (University of Le Havre-EDEHN); Florence Legros (ICN Business School & University Paris-Dauphine); Vincent Touzé (OFCE, Sciences Po) |
| Abstract: | We build a "smooth" automatic balance mechanism (S–ABM) which would result from an optimal tradeoff between increasing the receipts and reducing the pension expenditures. The S- ABM obtains from minimizing an intertemporal discounted quadratic loss function under an intertemporal budget balance constraint. The main advantage of our model of "optimal" adjustment is its ability to analyse various configurations in terms of automatic balance mechanisms (ABM) by controlling the adjustment pace. This S-ABM permits to identify two limit cases: the “flat Swedish-type ABM” and the “fiscal-cliff US- type ABM”. These cases are obtained by assuming very high adjustment costs on revenue (implying only pension benefit adjustment) and by choosing particular sequences of publicdiscount rates. We then apply this ABM to the case of the United States Social Security to evaluate the adjustments necessary to ensure financial solvency. These assessments are made under various assumptions about forecast time horizon, public discount factorand weighting of social costs associated with increased receipts or lower expenditures |
| Keywords: | Pensions scheme sustainability, automatic balance mechanisms, dynamic programming |
| JEL: | C61 H55 H68 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1616&r=pbe |
| By: | Hagen, Johannes (Department of economics, Uppsala university) |
| Abstract: | This essay estimates the causal effect of postponing retirement on a wide range of health outcomes using Swedish administrative data on cause-specific mortality, hospitalizations and drug prescriptions. Exogenous variation in retirement timing comes from a reform which raised the age at which broad categories of Swedish local government workers were entitled to retire with full pension benefits from 63 to 65. Instrumental variable estimation results show no evidence that postponing retirement impacts mortality or health care utilization. |
| Keywords: | Health; mortality; Health care; pension reform; retirement |
| JEL: | I18 J22 J26 |
| Date: | 2016–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ifauwp:2016_011&r=pbe |
| By: | Hisahiro Naito |
| Abstract: | This study analyzes the optimal shadow prices of inputs to the public sector in the presence of a non-linear income tax system in the standard two-factor Heckscher--Ohlin small open-economy model. In this model, there are two factors of production (unskilled labor and skilled labor) and two tradable goods (skilled labor- and unskilled labor-intensive goods). The two tradable goods are produced in the private sector by using two types of labor. A public good is produced by using the two types of tradable goods and the two types of labor. I show that the optimal shadow prices of the two types of labor in the public sector depend on whether there is a distortion in private production. On the other hand, the optimal shadow prices of tradable inputs do not depend on the presence of distortion in private production. In the second-best allocation, in which the incentive compatibility is binding, there should be distortion in the private sector. Thus, the optimal shadow prices of non-tradable factors of production depend on whether the economy is at the second-best equilibrium or not. On the other hand, the optimal shadow prices for tradable inputs are always equal to the international prices. Thus, for setting the optimal shadow prices in an open economy, it is important to distinguish whether the inputs are tradable goods or non-tradable factors and whether the economy is at the second-best equilibrium or not. |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:tsu:tewpjp:2016-003&r=pbe |
| By: | Étienne Farvaque; Florence Huart |
| Abstract: | The severity of the recent crisis has given rise to several proposals for the creation of a European unemployment insurance system. In this paper, we first explore the theoretical backgrounds of a common insurance system. We, then, analyze the main features of an EU-wide unemployment insurance, and explore its financial and political sustainability, under different scenarios, including a “US-equivalent” one. We finally highlight key issues with regard to implementation and potential undesirable effects. |
| Keywords: | intergovernmental transfers; fiscal union; fiscal federalism; European integration; unemployment insurance, |
| JEL: | F45 F36 H77 H87 E60 |
| Date: | 2016–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2016s-33&r=pbe |
| By: | TOMA, LOREDANA OANA |
| Abstract: | Until the last century, the business environment use a variety of tax engineers in order to distort the tax base. The starting point in calculating taxes are accounting information but in accounting, ethics standards are based on integrity, fairness and impartiality. Can be considered taxation the main factor of accounting truth distortion or the engine of creative accounting? In such cases the present paper provide a framework with which to evaluate these situations. This paper also presents a summary of the different study that analyses the history of ethics and morality in accounting and is based on account qualitative methods. |
| Keywords: | tax, accounting, ethics, morality |
| JEL: | D2 D21 M14 M41 |
| Date: | 2016–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:72168&r=pbe |
| By: | Vdovychenko Artem |
| Abstract: | This article analyzes fiscal policy reaction function with switching regimes for Ukraine. We demonstrate that the fiscal policy reaction function in Ukraine has a nonlinear nature. The analysis revealed that the fiscal policy of Ukraine has been in a passive regime for a long time and a switch to this mode took place in late 2006 with the beginning of rapid economic growth. By means of the LSTR models, it is shown that at high levels of debt and the GDP gap the fiscal policy switches to an active regime. However, such switching is rare and short, and therefore does not have an impact on the overall picture. We also found an asymmetry in the response of fiscal policy on the GDP gap depending on the phase of the economic cycle. In our opinion, this asymmetry is the main obstacle to switching the fiscal policy in active regime. |
| JEL: | E62 H62 H63 |
| Date: | 2016–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:eer:wpalle:16/07e&r=pbe |