nep-pbe New Economics Papers
on Public Economics
Issue of 2016‒09‒04
seventeen papers chosen by
Thomas Andrén

  1. Transitional Dynamics and Long-run Optimal Taxation Under Incomplete Markets By Acikgoz, Omer
  2. Democracy, redistribution and optimal tax structures By Santanu Gupta; Raghbendra Jha
  3. Consumer Spending and Fiscal Consolidation: Evidence from a Housing Tax Experiment By Surico, P.; Trezzi, R.
  4. Human Capital, Public Debt, and Economic Growth: A Political Economy Analysis By Tetsuo Ono; Yuki Uchida
  5. The effect of foreign institutional ownership on corporate tax avoidance: international evidence By Hasan, Iftekhar; Kim, Incheol; Teng, Haimeng; Wu, Qiang
  6. Well-Being, Poverty and Labor Income Taxation: Theory and Application to Europe and the U.S. By Maniquet, François; Neumann, Dirk
  7. A Conditional Revenue Curse? Progressive Taxation and Resource Rents in Developing Countries By Kodjovi Mawulikplimi Eklou
  8. Has Tax-Preferred Retirement Saving Offset Rising Wealth Concentration? By Sebastian Devlin-Foltz; Alice M. Henriques; John Sabelhaus
  9. Relative Tax Rates, Proximity and Cigarette Tax Noncompliance: Evidence from a National Sample of Littered Cigarette Packs By Shu Wang; David Merriman; Frank J. Chaloupka
  10. Estimating the Value of Public Insurance Using Complementary Private Insurance By Marika Cabral; Mark R. Cullen
  11. Public Debt and Private Firm Funding: Evidence from Chinese Cities By Yi Huang; Marco Pagano; Ug Panizza; Tano Santos
  12. Financing poverty eradication By Anis Chowdhury
  13. What is the Contribution of Intra-household Inequality to Overall Income Inequality? Evidence from Global Data, 1973-2013 By Deepak Malghan; Hema Swaminathan
  14. Targeting Tax Relief at Youth Employment By Webb, Matthew D.; Warman, Casey; Sweetman, Arthur
  15. The Effects of the Early Retirement Age on Retirement Decisions By Dayanand S. Manoli; Andrea Weber
  16. The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation By Johannes F. Schmieder; Till von Wachter
  17. Dividend taxation of non-listed companies, resource allocation and productivity By Määttänen, Niku; Ropponen, Olli

  1. By: Acikgoz, Omer
    Abstract: Aiyagari (1995) showed that long-run optimal fiscal policy features a positive tax rate on capital income in Bewley-type economies with heterogeneous agents and incomplete markets. However, determining the magnitude of the optimal capital income tax rate was considered to be prohibitively difficult due to the need to compute the optimal tax rates along the transition path. Contrary to this view, this paper shows that in this class of models, long-run optimal fiscal policy and the corresponding allocation can be studied independently of the initial conditions and the transition path. Numerical methods based on this finding are used on a Ramsey model calibrated to the U.S. economy. I find that the observed average capital income tax rate in the U.S. is too high, the average labor income tax rate and the debt-to-GDP ratio are too low, compared to the long-run optimal levels. The implications of these findings for existing literature on the optimal quantity of debt and constrained efficiency are also adressed.
    Keywords: Optimal Taxation, Ramsey Problem, Incomplete Markets, Heterogeneous Agents
    JEL: E2 E21 E25 E6 E62 H3 H6
    Date: 2015–06
  2. By: Santanu Gupta; Raghbendra Jha
    Abstract: In a probabilistic voting model with three jurisdictions and residents with different incomes, we analyze inefficiencies in local public good allocation that emerge from trying to satisfy the median voter. The median voter and the rich may gain but the poor lose out. We analyze a uniform tax rate and progressive two and three bracket tax structures. If the government extracts part of tax revenues as political rents and maximizes expected payoff there is a possibility of taxing away all private income with no allocation of public good, if electoral uncertainty is high, especially when the government is risk neutral.
    Keywords: median voter, local public good, income redistribution
    JEL: H11 H50
    Date: 2016
  3. By: Surico, P.; Trezzi, R.
    Abstract: A major change of the property tax system in 2011 generated significant variation in the amount of housing taxes paid by Italian households. Using new questions added to the Survey on Household Income and Wealth (SHIW), we exploit this variation to provide an unprecedented analysis of the effects of property taxes on consumer spending. A tax on the main dwelling leads to large expenditure cuts among households with mortgage debt and low liquid wealth but generates only small revenues for the government. In contrast, higher tax rates on other residential properties reduce private savings and yield large tax revenues.
    Keywords: Fiscal consolidation, marginal propensity to spend, mortgage debt, residential property taxes
    JEL: E21 E62 H31
    Date: 2016–08–24
  4. By: Tetsuo Ono (Graduate School of Economics, Osaka University); Yuki Uchida (Graduate School of Economics, Osaka University)
    Abstract: This study considers public education policy and its impact on growth and wel- fare across generations. In particular, the study compares two scal perspectives| tax nance and debt nance|and shows that in a competitive equilibrium context, the growth and utility in the debt- nance case could be higher than those in the tax- nance case in the long run. However, the opposite occurs when the policy is shaped by politics. When the degree of parents' altruism is low, they choose debt nance in their voting, despite its long-run worse performance because a current generation can pass the cost of debt repayment to future generations.
    Keywords: Economic growth, Human capital, Public debt, Political equilib- rium
    JEL: D70 E24 H63
    Date: 2016–01
  5. By: Hasan, Iftekhar; Kim, Incheol; Teng, Haimeng; Wu, Qiang
    Abstract: This study examines whether foreign institutional investors (FIIs) help explain variation in corporate tax avoidance and whether mechanisms such as tax morality, investment horizon, and corporate governance underlie the relation between FIIs and tax avoidance. We find robust evidence that FIIs are negatively associated with corporate tax avoidance. Moreover, this negative association is dominated by FIIs from countries with high tax morality, FIIs with long-term investment horizons, and FIIs from countries with high corporate governance quality. We conclude that FIIs play an active role in shaping corporate tax avoidance policy.
    Keywords: tax avoidance, foreign institutional ownership, tax morale, investment horizon, corporate governance
    JEL: G23 G32 H26 M41
    Date: 2016–08–23
  6. By: Maniquet, François (CORE, Université catholique de Louvain); Neumann, Dirk (Université catholique de Louvain)
    Abstract: In a model in which agents differ in wages and preferences over labor time-consumption bundles, we study labor income tax schemes that alleviate poverty. To avoid conflict with individual well-being, we require redistribution to take place between agents on both sides of the poverty line provided they have the same labor time. This requirement is combined with efficiency and robustness properties. Maximizing the resulting social preferences under incentive compatibility constraints yields the following evaluation criterion: tax schemes should minimize the labor time required to reach the poverty line. We apply this criterion to European countries and the US.
    Keywords: well-being, poverty, labor income taxation
    JEL: D63 H21 I32
    Date: 2016–08
  7. By: Kodjovi Mawulikplimi Eklou (Département d'économique, Université de Sherbrooke)
    Abstract: One of the main obstacles to the sustainability of governments’ revenues in developing countries is the dependency on the rent generated by nonrenewable natural resources. Resource-rich countries have weak incentives to design and maintain efficient tax systems. I consider a theoretical model where the government of a resource-rich country, has to decide whether to undertake a costly investment in its ability to collect taxes and I incorporate progressive income tax. The model predicts that a resource-rich country has more incentives to invest in its ability to collect tax revenues, the more progressive is the tax schedule because expected returns to that investment may be higher. I test this prediction, named the conditional revenue curse hypothesis, in a sample of 57 developing countries over the period 1981-2005. In order to deal with the endogeneity of natural resources, I construct a country-specific natural resource price index and use its growth rate as an instrument for natural resource rent windfalls. I find that an increase in resource rent windfalls of $1 reduces domestic tax revenues by $0.25. Moreover, at a progressivity level of 0.05 (a tax schedule such that an increase in gross income by 1% yields an increase in the average tax rate by 0.0005% point), an increase in resource rent windfalls of $1 reduces domestic tax revenues by only $0.14. Following a resource windfall, countries with a high level of progressivity collect more tax revenues than their counterparts with a low level of progressivity.
    Keywords: Natural resources, Revenue curse, Fiscal capacity, Progressive taxation, Developing countries.
    Date: 2016–07
  8. By: Sebastian Devlin-Foltz; Alice M. Henriques; John Sabelhaus
    Abstract: FEDS Notes Print{{p}}July 29, 2016{{p}}Has Tax-Preferred Retirement Saving Offset Rising Wealth Concentration?{{p}}Sebastian Devlin-Foltz, Alice M. Henriques, and John E. Sabelhaus{{p}}The share of wealth owned by top wealth-holders in the U.S. has been rising over the past few decades, though there is some debate{{p}}about exactly how concentrated wealth is, and how fast those top wealth shares are rising (Saez and Zucman 2014; Bricker, et al.{{p}}2016). One reason for varying estimates is that different types of wealth dominate at various points in the wealth distribution. For{{p}}example, changes in house values and mortgage borrowing play a key role in determining wealth changes in the middle of the wealth{{p}}distribution, and corporate equities and directly-held businesses disproportionately affect the very top.1 Retirement wealth lies{{p}}somewhere in between those other types of assets, being less concentrated than directly-held businesses and corporate equities, but{{p}}more concentrated than widely-held balance sheet components such as housing and durable goods.2{{p}}Understanding the role that retirement wealth plays in rising wealth inequality requires comprehensively measuring and then distributing{{p}}retirement assets. The triennial Survey of Consumer Finances (SCF) is well-suited for this task as it covers a long time period, includes{{p}}households headed by all age groups, and combines careful measurement of work-related pensions, personal retirement accounts, and{{p}}earnings histories with other relevant demographic, income, and balance sheet information. Defined contribution (DC) and Individual{{p}}Retirement Account (IRA) assets are measured directly in the survey. Defined benefit (DB) payments received by current beneficiaries{{p}}are also collected; the asset value of those claims can be estimated by discounting survival-weighted income streams. The expected{{p}}value of DB payments (for families holding claims to but not yet receiving DB payments) can be estimated using employment history and{{p}}other relevant SCF data elements.3{{p}}Figure 1 documents the recent trend in retirement plan participation away from traditional DB plans into primarily DC plans. The share of{{p}}working-age households with only DC plans rose from 27 percent in 1989 to 43 percent in 2013, while the share with any DB coverage{{p}}fell from 50 percent to 30 percent over the same period. We now analyze how this shift in retirement plan types interacts with the{{p}}growing prominence of retirement wealth within household wealth to affect trends in overall wealth distribution.{{p}}Figure 1. Aggregate Retirement Plan Participation, Working-Age Households{{p}}(Percent Share){{p}} Source: Author's tabulations of the Survey of Consumer Finances. See Devlin-Foltz, Henriques, and Sabelhaus (2016) for details.{{p}}Accessible version{{p}}Effect on Overall Wealth Concentration{{p}}Analyzing the net effect of retirement wealth on overall trends in wealth inequality requires some perspective on the concentration of{{p}}retirement and non-retirement wealth.4 The share of total wealth (including the distributed DB wealth) held by the top 1 percent of{{p}}families (sorted by total wealth) rose 6 percentage points between 1989 and 2013, from 26 percent to 32 percent (figure 2, solid line).{{p}}The share of total wealth held by the top 25 percent of wealth holders rose 5 percentage points, from 83 percent in 1989 to 88 percent in{{p}}2013 (figure 3, solid line). There are various ways in which retirement wealth can affect overall wealth concentration, but the data{{p}}generally suggest the effect has been generally in the direction of mitigating wealth concentration at the very top, with a partial offset{{p}}because of the broad shift from DB to DC plans in the workplace.5{{p}}Figure 2. Share of Wealth, Top 1 Percent{{p}} FRB: FEDS Notes: Has Tax-Preferred Retirement Saving Offset Rising Wealth Concentr... Page 1 of 4{{p}} 7/29/2016{{p}} Source: Author's tabulations of the Survey of Consumer Finances. See Devlin-Foltz, Henriques, and Sabelhaus (2016) for details.{{p}}Accessible version{{p}}Figure 3. Share of Wealth, Top 25 Percent{{p}} Source: Author's tabulations of the Survey of Consumer Finances. See Devlin-Foltz, Henriques, and Sabelhaus (2016) for details.{{p}}Accessible version{{p}}The first thing to note is that retirement wealth is much less concentrated than other forms of wealth.6 The share of total non-retirement{{p}}wealth held by the top 1 percent of families (sorted by total non-retirement wealth) rose 10 percentage points between 1989 and 2013,{{p}}from 31 percent to 41 percent (figure 2, dotted line) and the share of total non-retirement wealth owned by the top 25 percent rose 7{{p}}percentage points, from 85 percent in 1989 to 92 percent in 2013 (figure 3, dotted line). Thus, retirement wealth is less concentrated{{p}}than non-retirement wealth at the very top, but the concentrations are much more similar for the top 25 percent.{{p}}The second observation is that retirement wealth is offsetting rising wealth concentration over time, because retirement assets are{{p}}growing faster than non-retirement assets. In 1989, retirement wealth accounted for about 20 percent of household net worth, and that{{p}}has risen to about 30 percent as of 2013.7 Given that retirement wealth is increasing relative to non-retirement wealth, and retirement{{p}}wealth is less concentrated than non-retirement wealth, the direct effect is that the tax-preferred retirement system helped to offset rising{{p}}wealth concentration at the very top. The top 1 percent of wealth holders own approximately 7 to 8 percent of retirement wealth in all{{p}}years, but they own about 31 percent of non-retirement wealth in 1989 and 41 percent of non-retirement wealth by 2013. Whether one{{p}}weights by the starting or ending shares of wealth owned by the top 1 percent, the effect of changing wealth composition is certainly{{p}}noticeable, offsetting 2 to 3 percentage points of the 10 percentage point increase in non-retirement wealth concentration.{{p}}Retirement wealth also mitigated rising wealth concentration for the top 25 percent of wealth holders, though the effect is much more{{p}}modest, because retirement and non-retirement wealth shares are similar. The top 25 percent of wealth holders (sorted by total wealth){{p}}own roughly 82 percent of all DC wealth, and about 80 percent of DB wealth. These values are below the non-retirement wealth shares{{p}}(92%) for the top 25 percent, but much less dramatically so than for the top 1 percent. Thus, the increase in retirement wealth on the{{p}}household balance sheet did less to offset the increasing wealth share of the top 25 percent.{{p}}Working in the other direction, DC wealth is more concentrated than DB wealth, and thus the shift from DB to DC increased wealth{{p}}concentration (the shares of DB and DC assets held by the top 1 percent and top 25 percent of wealth holders have remained relatively{{p}} FRB: FEDS Notes: Has Tax-Preferred Retirement Saving Offset Rising Wealth Concentr... Page 2 of 4{{p}} 7/29/2016{{p}}stable over time). Measures of concentration using only DC assets and non-retirement wealth (basically the published SCF wealth{{p}}estimates, the dashed lines in figures 1 and 2) are between the total wealth and non-retirement wealth concentration lines, as DC assets{{p}}are more concentrated than DB assets.{{p}}The differentials in concentration of DB and DC wealth leads to the following counterfactual calculations meant to address the question{{p}}of whether the shift from DB to DC contributes to rising overall wealth concentration. The top 1 percent owns about 5 percent of DB{{p}}wealth and about 15 percent of DC wealth, and the trends over time in those shares may be slightly positive, but they are second order.{{p}}Holding the share of wealth accounted for by retirement wealth constant at the 1989 value (20 percent), differences in DC and DB{{p}}concentration suggest that the increase in the DC share of retirement assets (from 30 percent in 1989 to 50 percent in 2013, figure 2){{p}}increased wealth concentration at the top by about 0.4 percentage points (the 10 percentage point differential in DB versus DC{{p}}concentration * 20 percentage point shift in composition from DB to DC * 20 percent retirement asset share in 1989). Weighting instead{{p}}by the 2013 retirement wealth share (30 percent) would increase that to 0.6 percentage points, but either way the effect is modest{{p}}relative to the overall 6 percentage point increase in the overall top 1 percent wealth share, or the 10 percentage point increase in the{{p}}non-retirement wealth share. The results are qualitatively similar for the top 25 percent wealth group, with the shift from DB to DC{{p}}accounting for as much as 1 percentage point of the 5 percentage point increase in the top 25 percent total wealth share.{{p}}Conclusions{{p}}Retirement wealth is less concentrated than non-retirement wealth in the U.S., and the observation that total wealth concentration is{{p}}rising more slowly than non-retirement wealth concentration is consistent with the growth of retirement wealth relative to overall{{p}}household sector net worth in recent decades. Said differently, on net, employer-sponsored pensions and other tax-preferred savings{{p}}have offset some of the rapidly rising wealth inequality in other parts of the household balance sheet. The shift from DB to DC coverage,{{p}}and the associated shift in the distribution of wealth because of differences in DB versus DC wealth concentration among top wealth{{p}}holders, has partially offset the equalizing effect of rising retirement wealth.{{p}}References{{p}}Bricker, Jesse, Alice Henriques, Jacob Krimmel and John Sabelhaus. 2016. "Measuring Income and Wealth At the Top Using{{p}}Administrative and Survey Data," Brookings Papers on Economic Activity, 2016:1. (Forthcoming){{p}}Devlin-Foltz, Sebastian, Alice Henriques, and John Sabelhaus. 2016. "Is the U.S. Retirement System Contributing to Rising Wealth{{p}}Inequality?" Russell Sage Journal of the Social Sciences (Forthcoming).{{p}}Killewald, Alexandra, and Brielle Bryan. 2016. "Does Your Home Make You Wealthy?" Russell Sage Journal of the Social Sciences{{p}}(Forthcoming).{{p}}Looney, Adam, and Kevin B. Moore. 2016. "Changes in the After-Tax Distribution of Wealth in the US: Has Income Tax Policy Increased{{p}}Wealth Inequality?" Fiscal Studies, 37(1): 77-104. (March){{p}}Saez, Emmanuel, and Gabriel Zucman. 2016. "Wealth Inequality in the United States since 1913: Evidence from Capitalized Income{{p}}Tax Data," Quarterly Journal of Economics 131 (2): 519-578.{{p}}Wolff, Edward N. 2016. "Household Wealth Trends in the United States, 1962-2013: What Happened over the Great Recession?"{{p}}Russell Sage Journal of the Social Sciences (Forthcoming).{{p}}1. Killewald and Bryan (2016) show that homeownership is a positive contributor to wealth accumulation in the middle of the wealth distribution, even after{{p}}controlling for selection effects, though there is some heterogeneity in the effects of homeownership by race, with the returns to home-owning for white families{{p}}more than double that for African American families. Return to text{{p}}2. In this note, we focus only on private wealth held by households, either directly or indirectly through future private pension claims. We do not include future{{p}}benefits from Social Security. For discussion of the interaction between Social Security and private retirement wealth, see Devlin-Foltz, Henriques, and{{p}}Sabelhaus (2016). Return to text{{p}}3. For more information on methodology see Devlin-Foltz, Henriques and Sabelhaus (2016). Return to text{{p}}4. In addition to thinking about the concentration of retirement and non-retirement wealth, it is also important to note that structural changes in retirement plans{{p}}themselves may impact the levels of wealth inside and outside accounts. For example, the shift from DB to DC may have led some to shift liquid assets from{{p}}after-tax holdings to retirement accounts. Or, as Wolff (2016) notes, there was an increase in household leverage in recent decades, and for some we may{{p}}observe the increase debt (like mortgages) in the non-retirement accounts while the financial assets (implicitly) funded by that debt are in retirement accounts.{{p}}Return to text{{p}}5. Looney and Moore (2016) discuss how the before-tax nature of retirement wealth affects overall estimated wealth concentration. Retirement account{{p}}withdrawals are generally taxed at higher rates for higher-wealth families, so estimated wealth concentration is lower on an after-tax basis, though the effect is{{p}}relatively modest. Return to text{{p}}6. This is at least in part mechanical, because of binding caps on tax-preferred savings (both DB and DC) in the top wealth groups. Return to text{{p}}7. See Devlin-Foltz, Henriques and Sabelhaus (2016). Return to text{{p}}Please cite this note as:{{p}}Devlin-Foltz, Sebastian, Alice M. Henriques, and John E. Sabelhaus (2016). "Has Tax-Preferred Retirement Saving Offset Rising Wealth{{p}}Concentration?," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, July 29, 2016,{{p}}{{p}} Disclaimer: FEDS Notes are articles in which Board economists offer their own views and present analysis on a range of topics in{{p}}economics and finance. These articles are shorter and less technically oriented than FEDS Working Papers.{{p}} FRB: FEDS Notes: Has Tax-Preferred Retirement Saving Offset Rising Wealth Concentr... Page 3 of 4{{p}} 7/29/2016{{p}}Accessibility Contact Us Disclaimer Website Policies FOIA PDF Reader{{p}}Last update: July 29, 2016{{p}}Home | Economic Research & Data{{p}} FRB: FEDS Notes: Has Tax-Preferred Retirement Saving Offset Rising Wealth Concentr... Page 4 of 4{{p}} 7/29/2016
    Date: 2016–07–29
  9. By: Shu Wang; David Merriman; Frank J. Chaloupka
    Abstract: We analyze data about cigarette tax compliance from the first national scale littered cigarette packs collection. We code each pack based on whether an appropriate tax had been paid at the location where it was found. Noncompliance across our 132 sample communities ranges from zero to one hundred percent with an appropriately weighted mean of 21 percent. We provide evidence that noncompliance is due to both cross-border shopping and cigarette trafficking. OLS and binomial logit regressions demonstrate that the financial incentive for non-compliance is the most important explanatory variable and has a statistically and quantitatively significant impact on noncompliance.
    JEL: H26 I12
    Date: 2016–08
  10. By: Marika Cabral; Mark R. Cullen
    Abstract: The welfare associated with public insurance is often difficult to quantify. Relative to private insurance, a fundamental difficulty is that public insurance is typically compulsory, so the demand for coverage is unobserved and thus cannot be used to analyze welfare. However, in many public insurance settings, individuals can purchase private insurance to supplement their public coverage. In this paper, we outline an approach to use data and variation from private complementary insurance to quantify welfare associated with several counterfactuals related to compulsory public insurance. Using administrative data from one large firm on employee long-term disability insurance, we then apply this approach empirically to quantify the value of disability insurance among this population. We use premium variation among the employer-provided disability policies to quantify the surplus that would be generated by increasing the replacement rate of disability insurance for our sample population---a counterfactual that is within the set of insurance contracts observed in this setting. In addition, we estimate a lower bound on the surplus generated by public disability insurance in this context. Our findings suggest that public disability insurance generates substantial surplus for this population, and there may be gains to increasing the generosity of coverage in this context.
    JEL: H0 H53 I38 J68
    Date: 2016–08
  11. By: Yi Huang (The Graduate Institute, Geneva); Marco Pagano (Università di Napoli Federico II, CSEF, EIEF, CEPR and ECGI); Ug Panizza (The Graduate Institute, Geneva); Tano Santos
    Abstract: In China, local public debt issuance between 2006 and 2013 crowded out investment by private manufacturing firms by tightening their funding constraints, while it did not affect state-owned and foreign firms. Using novel data for local public debt issuance, we establish this result in three ways. First, local public debt is inversely correlated with the city-level investment ratio of domestic private manufacturing firms. Instrumental variable regressions indicate that this link is causal. Second, local public debt has a larger negative effect on investment by private firms in industries more dependent on external funding. Finally, in cities with high government debt, firm-level investment is more sensitive to internal funding, also when this sensitivity is estimated jointly with the firm’s likelihood of being credit-constrained. Altogether, these results suggest that, by curtailing private investment, the massive public debt issuance associated with the post-2008 fiscal stimulus sapped long-term growth prospects in China.
    Keywords: Investment, Local public debt, Crowding out, Credit constraints, China
    JEL: E22 H63 H74 L60 O16
    Date: 2016–07–30
  12. By: Anis Chowdhury
    Abstract: This paper provides a review of various sources of finance for poverty reduction. Some salient findings are: declining significance of aid, especially for middle-income countries; aid remains a major source of finance for LDCs; improved government revenue efforts in most developing countries. The paper also highlights revenue losses through trade liberalization, corporate tax concessions and through illicit flows of funds, and provides empirical evidence to debunk negative views about counter-cyclical macroeconomic policies. Some key recommendations are: countries should examine the costs and benefits of corporate tax concessions and the equity impact of indirect taxations, such as value added tax; strengthen tax administration; enhance tax progressivity; international and regional tax cooperation; fulfilling aid commitment and ensuring additionality of aid while dealing with humanitarian crises and climate change.
    Keywords: poverty, vulnerability; aid (ODA); tax revenue; social protection; counter-cyclical policies
    JEL: E5 E6 F35 H2 H6 I3 O23
    Date: 2016
  13. By: Deepak Malghan; Hema Swaminathan
    Abstract: Intra-household inequality continues to remain a neglected corner despite renewed focus on income and wealth inequality. Using the LIS micro data, we present evidence that this neglect is equivalent to ignoring up to a third of total inequality. For a wide range of countries and over four decades, we show that at least 30 per cent of total inequality is attributable to inequality within the household. Using a simple normative measure of inequality, we comment on the welfare implications of these trends.
    Date: 2016–08
  14. By: Webb, Matthew D. (Carleton University); Warman, Casey (Dalhousie University); Sweetman, Arthur (McMaster University)
    Abstract: Canada's Youth Hires program was a targeted employment subsidy that rebated employment insurance premiums to employers with net increases in insurable earnings for youth aged 18-24. Using a difference-in-differences approach, in each of two datasets statistically and economically significant employment impacts are observed. Most of the evidence suggests that the 2-2.4 weeks of increased employment resulted from an aggregate reduction in those not in the labour force, with at most a modest change in the unemployment rate. Many estimated effects are larger for males than females. Notably, strong evidence of displacement (substitution away from slightly older non-subsidized workers) is not observed. However, there may be a small reduction in full-time schooling for the targeted group.
    Keywords: youth unemployment, displacement, unemployment insurance, unemployment, targeted tax policy
    JEL: J23 J65 J68
    Date: 2016–08
  15. By: Dayanand S. Manoli; Andrea Weber
    Abstract: We present quasi-experimental evidence on the effects of increasing the Early Retirement Age (ERA) on older workers' retirement decisions. The analysis is based on social security reforms in Austria in 2000 and 2004, and administrative data allows us to distinguish between pension claims and job exits. Using a Regression Kink Design, we estimate that, within a birth cohort, a 1.0-year increase in the ERA leads to a 0.4-year increase in the average job exiting age and a 0.5-year increase in the average pension claiming age. When the ERA increases, many older workers remain in their jobs longer.
    JEL: H55 J21 J26
    Date: 2016–08
  16. By: Johannes F. Schmieder; Till von Wachter
    Abstract: The Great Recession has renewed interest in Unemployment Insurance (UI) programs around the world. At the same time, there have been important advances in both theory and measurement of UI. In this paper, we first use the theory to present a unified treatment of the welfare effects of UI benefit levels and durations and derive convenient expressions of the disincentive effect of UI. We then discuss recent estimates of the effect of UI benefit levels and durations on labor supply based, to a large extent, on high-quality research designs and administrative data. We relate these estimates directly to the sufficient statistics identified by the model. We also discuss several active and open areas of research on UI. These include the effect of UI on aggregate labor market outcomes, the effect of UI on job outcomes, the long-term effects of UI, the effects of UI under non-standard behavioral assumptions, and the interactions of UI with other programs. While our review of the new experimental estimates confirms the range of negative labor supply effects of the previous literature, we show based on the model that these estimates are imperfect proxies for the actual disincentive effects. We also isolate several important areas in need for additional research, including estimates of the social value of UI as well as the effects of UI in less-developed countries.
    JEL: H21 H53 J64 J65 J68
    Date: 2016–08
  17. By: Määttänen, Niku; Ropponen, Olli
    Abstract: Abstract We consider the taxation of non-listed companies and their owners in Finland. We analyse how the current highly non-linear dividend taxation influences the allocation of labour and capital across different firms, average labour productivity and the equilibrium wage level. To this end, we use a general equilibrium model of firm investment where firms may have different production technologies. We find that the current tax system is likely to distort resource allocation compared to linear dividend taxation. This works to lower the average labour productivity as well as the general wage level.
    Keywords: Dividend taxation, non-listed companies, productivity
    JEL: D92 G35 H24
    Date: 2016–08–26

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