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on Public Economics |
| By: | Matthew Weinzierl |
| Abstract: | U.S. survey respondents’ views on distributive justice are shown to differ in two specific, related ways from what is conventionally assumed in modern optimal tax research. A large share of respondents, and in some cases a large majority, resist the full equalization of inequality due to brute luck that standard analyses would recommend. Related, a similar share prefer a classical benefit-based logic for the assignment of taxes over the conventional logic of diminishing marginal social welfare. Moreover, these two views are linked: respondents who more strongly resist equalization are more likely to prefer the classical benefit-based principle. Together, these results suggest that a large share of the American public views the allocation of pre-tax incomes as relevant to optimal tax policy and—at least in part—justly deserved unless proven otherwise, judgments that are inconsistent with standard welfarist objectives. |
| JEL: | D63 H21 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22462&r=pbe |
| By: | Michael Keen; Joel Slemrod |
| Abstract: | This paper sets out a framework for analyzing optimal interventions by a tax administration, one that parallels and can be closely integrated with established frameworks for thinking about optimal tax policy. At its heart is a summary measure of the impact of administrative interventions—the “enforcement elasticity of tax revenue”—that is a sufficient statistic for the behavioral response to such interventions, much as the elasticity of taxable income serves as a sufficient statistic for the response to tax rates. Amongst the applications are characterizations of the optimal balance between policy and administrative measures, and of the optimal compliance gap. |
| JEL: | H21 H26 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22408&r=pbe |
| By: | Patrice Pierreti (CREA, Université du Luxembourg); Giuseppe Pulina (CREA, Université du Luxembourg); Skerdilajda Zanaj (CREA, Université du Luxembourg) |
| Abstract: | This paper contributes to the debate centring on the fight against aggressive tax avoidance practices through the release of international standards. We develop a model in which identical tax havens decide upon their compliance date while competing for onshore capital. The timing of these decisions depends on the effects of two opposing forces. One force is linked to the tax sensitivity of international capital and the other to the reaction of nearby potential capital. When the former force dominates, asynchronous compliance arises, which occurs even with identical tax havens and perfect information. However, when the latter force dominates, tax havens comply simultaneously. In any case, the loss of the tax base within the onshore region is minimized when compliance is simultaneous and occurs at the earliest possible date. Surprisingly, when the adoption of new standards does not severely reduce the potential supply of capital and onshore capital is sufficiently tax sensitive, the compliance of a lone tax haven does not decrease the loss of tax base relative to the non-compliance of all the havens. |
| Keywords: | Tax Havens, International standards, Compliance, Timing |
| JEL: | F21 F23 H23 H25 H26 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:16-07&r=pbe |
| By: | Lunsford, Kurt Graden (Federal Reserve Bank of Cleveland); Jentsch, Carsen (University of Mannheim) |
| Abstract: | Proxy structural vector autoregressions (SVARs) identify structural shocks in vector autoregressions (VARs) with external proxy variables that are correlated with the structural shocks of interest but uncorrelated with other structural shocks. We provide asymptotic theory for proxy SVARs when the VAR innovations and proxy variables are jointly α-mixing. We also prove the asymptotic validity of a residual-based moving block bootstrap (MBB) for inference on statistics that depend jointly on estimators for the VAR coefficients and for covariances of the VAR innovations and proxy variables. These statistics include structural impulse response functions (IRFs). Conversely, wild bootstraps are invalid, even when innovations and proxy variables are either independent and identically distributed or martingale difference sequences, and simulations show that their coverage rates for IRFs can be badly mis-sized. Using the MBB to re-estimate confidence intervals for the IRFs in Mertens and Ravn (2013), we show that inferences cannot be made about the effects of tax changes on output, labor, or investment. |
| Keywords: | fiscal policy; mixing; residual-based moving block bootstrap; structural vector autoregression; tax shocks; wild bootstrap; |
| JEL: | C15 C32 E62 H24 H25 H3 H31 |
| Date: | 2016–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1619&r=pbe |
| By: | Kathleen Mullen; Stefan Staubli |
| 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. |
| JEL: | H53 H55 J14 J22 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22419&r=pbe |
| By: | Gadenne, Lucie (University of Warwick) |
| Abstract: | Existing evidence suggests that extra grant revenues lead to little improvements in public services in developing countries - but would governments spend tax revenues di erently? This paper considers a program that invests in the tax capacity of Brazilian municipalities. Using variations in the timing of program uptake I nd that it raises local tax revenues and that the increase in taxes is used to improve both the quantity and quality of municipal education infrastructure. In contrast increases in grants over which municipalities have the same discretion as over taxes have no impact on any measure of local public infrastructure. These results suggest that the way governments are nanced matters: governments spend increases in tax revenues more towards expenditures that bene t citizens than increases in grant revenues. |
| Keywords: | JEL Classification: |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:289&r=pbe |
| By: | Antoine Dechezleprêtre; Elias Einiö; Ralf Martin; Kieu-Trang Nguyen; John Van Reenen |
| Abstract: | We present evidence of a causal impact of research and development (R&D) tax incentives on innovation. 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 (even when quality-adjusted). R&D tax price elasticities are large at about 2.6, probably because the treated group is from a sub-population of smaller firms and subject to financial constraints. There does not appear to be pre-policy manipulation of assets around the thresholds that could undermine our design. Over the 2006-11 period aggregate business R&D would be around 10% lower in the absence of the tax relief scheme. We also show that the R&D generated by the tax policy creates positive spillovers on the innovations of techno-logically related firms. |
| JEL: | O31 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22405&r=pbe |
| By: | Juan Carlos Suárez Serrato; Philippe Wingender |
| Abstract: | We propose a new source of cross-sectional variation that may identify causal impacts of government spending on the economy. We use the fact that a large number of federal spending programs depend on local population levels. Every ten years, the Census provides a count of local populations. Since a different method is used to estimate non-Census year populations, this change in methodology leads to variation in the allocation of billions of dollars in federal spending. Our baseline results follow a treatment-effects framework where we estimate the effect of a Census Shock on federal spending, income, and employment growth by re-weighting the data based on an estimated propensity score that depends on lagged economic outcomes and observed economic shocks. Our estimates imply a local income multiplier of government spending between 1.7 and 2, and a cost per job of $30,000 per year. A complementary IV estimation strategy yields similar estimates. We also explore the potential for spillover effects across neighboring counties but we do not find evidence of sizable spillovers. Finally, we test for heterogeneous effects of government spending and find that federal spending has larger impacts in low-growth areas. |
| JEL: | E62 H5 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22425&r=pbe |
| By: | Sullivan, Riley (Federal Reserve Bank of Boston); Fisher, Ronald C. (Michigan State University) |
| Abstract: | This report explores several hypotheses as to why state and local governments in New England have been spending less on capital investment than the national average, on a normalized basis. Census data show that state and local capital spending in all six New England states was well below the national average between 2000 and 2012, whether measured on a per capita basis, as a share of personal income, or as a share of state and local government spending. To explore why this is so, this report considers how capital spending has changed over time, how capital spending differs by state and across spending category, and the quality and quantity of capital stock in New England’s states. The report also considers the relationship between debt issuance and capital spending. The authors find that economic, social, and political characteristics used in previous research are insufficient to fully explain the observed normalized levels of state and local capital spending in the New England states relative to their rates in the national average of all U.S. states. The report does suggest that the relatively large role of state government in New England and government officials’ concerns about debt levels may have contributed to lower capital spending. |
| Date: | 2016–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbpr:2016_001&r=pbe |
| By: | Costa, Carlos Eugênio da; Lima, Lucas Alves Estevam de |
| Abstract: | Optimal tax theory in the Mirrlees’ (1971) tradition implicitly relies on the assumption that all agents are single or that couples may be treated as individuals, despite accumulating evidence against this view of household behavior. We consider an economy where agents may either be single or married, in which case choices result from Nash bargaining between spouses. In such an environment, tax schedules must play the double role of: i) defining households’ objective functions through their impact on threat points, and; ii) inducing the desired allocations as optimal choices for households given these objectives. We find that the taxation principle, which asserts that there is no loss in relying on tax schedules is not valid here: there are constrained efficient allocations which cannot be implemented via taxes. More sophisticated mechanisms expand the set of implementable allocations by: i) aligning the households’ and planner’s objectives; ii) manipulating taxable income elasticities, and; iii) freeing the design of singles’ tax schedules from its consequences on households’ objectives. |
| Date: | 2016–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:epgewp:781&r=pbe |
| By: | Alan Gustman; Thomas Steinmeier; Nahid Tabatabai |
| Abstract: | This paper compares Social Security means tests that would reduce benefits for recipients who fall in the top quarter of the income distribution with means tests aimed at those in the top quarter of the wealth distribution. Both means tests would reduce the average benefits for the affected groups by about $5,000. The analysis is based on data from the Health and Retirement Study and covers individuals aged 69 to 79 in 2010. About 14.5 percent of retirees in this age group are both in the top quarter of income recipients and in the top quarter of wealth holders. Another 10.5 percent are top quarter income recipients, but not top quarter wealth holders; with an additional 10.5 percent top quarter wealth holders, but not top quarter income recipients. We find that a means test of Social Security based on income has substantially different distributional effects from a means test based on wealth. Moreover, there are substantial differences when a Social Security means test based on income is evaluated in terms of its effects on individuals arrayed by their wealth rather than their income. Similarly, a means test based on wealth will be evaluated quite differently by policy makers who believe that income is the appropriate basis for a means test than by those who believe that means tests should be based on wealth. |
| JEL: | D04 D31 D63 H55 I3 J14 J18 J32 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22424&r=pbe |
| By: | Canta, Chiara; Cremer, Helmuth; Gahvari, Firouz |
| Abstract: | We study the role and design of private and public insurance programs when informal care is uncertain. Children's degree of altruism is represented by a parameter which is randomly distributed over some interval. The level of informal care on which dependent elderly can count is therefore random. Social insurance helps parents who receive a low level of care, but it comes at the cost of crowding out informal care. Crowding out occurs both at the intensive and the extensive margins. We consider two types of LTC policies. A topping up (TU ) scheme provides a transfer which is non exclusive and can be supplemented. An opting out (OO) scheme is exclusive and cannot be topped up. TU will involve crowding out both at the intensive and the extensive margins, whereas OO will crowd out solely at the extensive margin. However, OO is not necessarily the dominant policy as it may exacerbate crowding out at the extensive margin. Finally, we show that the distortions of both policies can be mitigated by using an appropriately designed mixed policy. |
| Keywords: | Long term care, uncertain altruism, private insurance, public insurance, topping up, opting out. |
| JEL: | H2 H5 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:30581&r=pbe |
| By: | Marco Battaglini; Salvatore Nunnari; Thomas R. Palfrey |
| Abstract: | This paper reports the results from a laboratory experiment designed to study political distortions in the accumulation of public debt. A legislature bargains over the levels of a public good and of district specific transfers in two periods. The legislature can issue or purchase risk-free bonds in the first period and the level of public debt creates a dynamic linkage across policymaking periods. In line with the theoretical predictions, we find that public policies are inefficient and efficiency is increasing in the size of the majority requirement, with higher investment in public goods and lower debt associated with larger majority requirements. Also in line with the theory, we find that debt is lower when the probability of a negative shock to the economy in the second period is higher, evidence that debt is used to smooth consumption. |
| JEL: | C92 H11 H41 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22406&r=pbe |
| By: | Corneo, Giacomo |
| Abstract: | This paper revisits the standard model of labor supply under two additional assumptions: consumption requires time and some limited amount of work is enjoyable. Whereas introducing each assumption without the other one does not produce novel insights, combining them together does if the wage rate is sufficiently high. For top earners, work has a positive marginal utility at the optimum and above a critical wage level it converts into a pure consumption good. Their labor-supply curve is first backward bending and then vertical. This can justify an optimal marginal tax rate on top incomes equal to 100 percent. Top earners in the vertical half-line of the labor-supply curve optimally refrain from spending their entire income. At the macroeconomic level, this can generate a lack of effective demand. With some qualifications, these findings carry over to models that incorporate savings and philanthropy. |
| Keywords: | Effective demand; Labor Supply; Optimal taxation of top labor incomes; Super-rich; Time allocation |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11424&r=pbe |
| By: | Alicia H. Munnell; Wenliang Hou; Anthony Webb; Yinji Li |
| Abstract: | Using data from the 1992, 1998, 2004, and 2010 waves of the Health and Retirement Study (HRS), this paper compares pension participation, pension wealth, projected retirement income, and replacement rates attributable to past service, by pension type for households ages 51-56. The analysis includes workers’ pension coverage during both current and past jobs. Defined contribution (DC) wealth is simply the current account balance. DC income is calculated by projecting current plan balances to retirement, assuming no further contributions, and assuming that households then annuitize. Defined benefit (DB) wealth and income are calculated by apportioning projected benefits to past and future service. |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:wp2016-3&r=pbe |
| By: | Evans, George W.; Honkapohja, Seppo; Mitra, Kaushik |
| Abstract: | Stagnation as the new norm and fiscal policy are examined in a New Keynesian model with adaptive learning determining expectations. We impose inflation and consumption lower bounds, which can be relevant when agents are pessimistic. The inflation target is locally stable under learning. Pessimistic initial expectations may sink the economy into steady-state stagnation with deflation. The deflation rate can be near zero for discount factors near one or if credit frictions are present. Following a severe pessimistic expectations shock a large temporary fiscal stimulus is needed to avoid or emerge from stagnation. A modest stimulus is sufficient if implemented early. |
| Keywords: | Adaptive Learning; Deflation; Expectations; Fiscal policy; New Keynesian Model; Output Multiplier; Stagnation |
| JEL: | D84 E21 E43 E62 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11428&r=pbe |
| By: | Andrew C. Johnston; Alexandre Mas |
| Abstract: | We examine how a 16-week cut in potential unemployment insurance (UI) duration in Missouri affected search behavior of UI recipients and the aggregate labor market. Using a regression discontinuity design (RDD), we estimate a marginal effect of maximum duration on UI and nonemployment spells of approximately 0.5 and 0.3 respectively. We use RDD estimates to simulate the unemployment rate assuming no market-level externalities. The simulated response closely approximates the estimated change in the unemployment rate following the benefit cut, suggesting that even in a period of high unemployment the labor market absorbed this influx of workers without crowding-out other jobseekers. |
| JEL: | E24 H0 J6 J64 J65 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22411&r=pbe |
| By: | Aysıt Tansel (Department of Economics, METU; Institute for the Study of Labor (IZA) Bonn, Germany; Economic Research Forum (ERF) Cairo, Egypt); Zeynel Abidin Özdemir (Department of Economics, Gazi University, Beşevler, 06500, Ankara, Turkey; Economic Research Form, Cairo, Egypt); Emre Aksoy (Department of Economics, Kırıkkale University, Kırıkkale, Turkey) |
| Abstract: | This article explores the long-run relationship between unemployment rate and labor force participation rate in Canada. The cointegration analysis vindicates the existence of a long-run relationship between these two variables. This finding leads us to doubt the pertinence of the unemployment invariance hypothesis for Canada. This is consistent with the empirical studies for Japan, Sweden and the United States, but contradicts the empirical studies for Australia, Romania and Turkey. There are contradictory studies for the United Kingdom. |
| Keywords: | Unemployment Invariance Hypothesis; Unemployment; Labor Force Participation; Cointegration; Canada |
| JEL: | E24 J64 J21 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:met:wpaper:1607&r=pbe |
| By: | Stephen J. Redding; David E. Weinstein |
| Abstract: | The measurement of price changes, economic welfare, and demand parameters is currently based on three disjoint approaches: macroeconomic models derived from time-invariant utility functions, microeconomic estimation based on time-varying utility (demand) systems, and actual price and real output data constructed using formulas that differ from either approach. The inconsistencies are so deep that the same assumptions that form the foundation of demand-system estimation can be used to prove that standard price indexes are incorrect, and the assumptions underlying standard exact and superlative price indexes invalidate demand-system estimation. In other words, we show that extant micro and macro welfare estimates are biased and inconsistent with each other as well as the data. We develop a unified approach that exactly rationalizes observed micro data on prices and expenditure shares while permitting exact aggregation and meaningful macro comparisons of welfare over time. Using barcode data for the U.S. consumer goods industry, we show that allowing for the entry and exit of products, changing preferences for individual goods, and a value for the elasticity of substitution estimated from the data yields substantially different conclusions for changes in the cost of living from standard index numbers. |
| JEL: | D11 D12 E01 E31 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22479&r=pbe |
| By: | Theresa Köhler |
| Abstract: | In general, poverty measures are estimated by applying income information. However, only using income data for calculating relative poverty might lead to an incomplete view. For example, a household can be under a poverty threshold even if a household member owns real estate or equity. In this thesis, at risk of income poverty in Germany is estimated. In order to get a more complete picture of at risk of poverty, a multidimensional approach is applied. Not only at risk of income poverty, also at risk of wealth poverty is measured. Moreover, households that are both at risk of income and wealth poor are analyzed. Furthermore, several poverty groups are identified: twice-poor which are households that are, at risk of income and wealth poverty; protected-poor, households that are at risk of income poverty but not at risk of wealth poverty; vulnerable-poor, households which are at risk of wealth poverty but not at risk of income poverty; non-poor, households which are either at risk of income poverty nor at risk of wealth poverty. Poverty profiles in Germany and their changes over time are analyzed for the years 2002, 2007 and 2012. In fact, it is investigated to which degree at risk of poverty rates differ in socio-economic characteristics. A logit regression is applied for each dimension and each wave for estimation. For robustness checks, 95 percent bootstrap confidence intervals are calculated for all results. Findings suggest that young age, region East Germany, single, lone parent, unemployment and low education are factors that condition the at risk of poverty rates. The definition of a certain rate influences the percentage of households that are affected by at risk of poverty, however, has a limited effect on poverty profiles. Poverty profiles have not changed over time but some factors such as unemployment and low education have significantly increased. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp857&r=pbe |
| By: | Stephen J. Redding; David E. Weinstein |
| Abstract: | The measurement of price changes, economic welfare, and demand parameters is currently based on three disjoint approaches: macroeconomic models derived from time-invariant utility functions, microeconomic estimation based on time-varying utility (demand) systems, and actual price and real output data constructed using formulas that differ from either approach. The inconsistencies are so deep that the same assumptions that form the foundation of demand-system estimation can be used to prove that standard price indexes are incorrect, and the assumptions underlying standard exact and superlative price indexes invalidate demand-system estimation. In other words, we show that extant micro and macro welfare estimates are biased and inconsistent with each other as well as the data. We develop a unified approach to demand and price measurement that exactly rationalizes observed micro data on prices and expenditure shares while permitting exact aggregation and meaningful macro comparisons of welfare over time. We show that all standard price indexes are special cases of our approach for particular values of the elasticity of substitution, constant preferences for each good, and a constant set of goods. In contrast to these standard index numbers, our approach allows us to compute changes in the cost of living that take into account both changes in the preferences for individual goods and the entry and exit of goods over time. Using barcode data for the U.S. consumer goods industry, we show that allowing for the entry and exit of products, changing preferences for individual goods, and a value for the elasticity of substitution estimated from the data yields substantially different conclusions for changes in the cost of living from standard index numbers. |
| Keywords: | elasticity of substitution, price index, consumer valuation bias, new goods, welfare |
| JEL: | D11 D12 E01 E31 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1445&r=pbe |