nep-pbe New Economics Papers
on Public Economics
Issue of 2016‒10‒09
sixteen papers chosen by
Thomas Andrén

  1. Globalization, Inequality and Welfare By Antràs, Pol; de Gortari, Alonso; Itskhoki, Oleg
  2. Investor taxation, firm heterogeneity and capital structure choice By Haring, Magdalena; Niemann, Rainer; Rünger, Silke
  3. A unified framework for optimal taxation with undiversifiable risk By Catarina Reis; Vasia Panousi
  4. Inequality Aversion and Marginal Income Taxation By Aronsson, Thomas; Johansson-Stenman, Olof
  5. Many-Person Ramsey Rule and Nonlinear Income Taxation By Stéphane Gauthier; Fanny Henriet
  6. What is the Price Elasticity of Charitable Giving? Toward a Reconciliation of Disparate Estimates By Daniel Hungerman; Mark Ottoni-Wilhelm
  7. Optimal income taxation with a stationarity constraint in a dynamic stochastic economy By Berliant, Marcus; Fujishima, Shota
  8. Effects of Labor Reallocation on Productivity and Inequality: Insights from Studies on Transition By Tyrowicz, Joanna; Van der Velde, Lucas; Svejnar, Jan
  9. Public finances and inflation: the case of Spain By Pablo Hernández de Cos; Samuel Hurtado; Francisco Martí; Javier J. Pérez
  10. Does Public Competition Crowd Out Private Investment? Evidence from Municipal Provision of Internet Access By Kyle Wilson;
  11. On the measurement of long-run income inequality. Empirical evidence from Norway, 1875-2013 By Rolf Aaberge; Anthony B Atkinson; Jørgen Modalsli
  12. Regulation versus Taxation By Hirte, Georg; Rhee, Hyok-Joo
  13. The effect of economic crisis on regional income inequality in Italy By Chiara Mussida; Maria Laura Parisi
  14. Women at work: the impact of welfare and fiscal policies in a dynamic labor supply model By Maria Rosaria Marino; Marzia Romanelli; Martino Tasso
  15. The Effect of Changing Financial Incentives on Repartnering By Fisher, Hayley; Zhu, Anna
  16. Fiscal Policy, Inequality and the Poor in the Developing World By Nora Lustig

  1. By: Antràs, Pol; de Gortari, Alonso; Itskhoki, Oleg
    Abstract: This paper studies the welfare implications of trade opening in a world in which trade raises aggregate income but also increases income inequality, and in which redistribution needs to occur via a distortionary income tax-transfer system. We provide tools to characterize and quantify the effects of trade opening on the distribution of disposable income (after redistribution). We propose two adjustments to standard measures of the welfare gains from trade: a 'welfarist' correction inspired by the Atkinson (1970) index of inequality, and a 'costly-redistribution' correction capturing the efficiency costs associated with the behavioral responses of agents to trade-induced shifts across marginal tax rates. We calibrate our model to the United States over the period 1979-2007 using data on the distribution of adjusted gross income in public samples of IRS tax returns, as well as CBO information on the tax liabilities and transfers received by agents at different percentiles of the U.S. income distribution. Our quantitative results suggest that both corrections are nonnegligible: trade-induced increases in inequality of disposable income erode about 20% of the gains from trade, while the gains from trade would be about 15% larger if redistribution was carried out via non-distortionary means.
    Keywords: costly redistribution; Globalization; inequality; social welfare; trade integration
    JEL: D3 D6 F1 F6 H2
    Date: 2016–09
  2. By: Haring, Magdalena; Niemann, Rainer; Rünger, Silke
    Abstract: In this paper we analyze the effect of investor level taxes, firm-specific ownership structure and firm-specific payout policy on firms' capital structure choice. Our analysis is based on data for 10,983 firms from 13 Central and Eastern European (CEE) countries over the time period 2002-2012. Our results show a significant impact of the net tax benefit of debt on the debt ratio of firms. Ignoring firm heterogeneity, an increase in the net tax benefit of debt by 10 percentage points leads to an increase in the debt ratio of 2.49 percentage points. Taking into account investor-level taxation and firm heterogenity, an increase in the net tax benefit of debt of 10 percentage points leads to an increase in the debt ratio of only 1.27 percentage points, if the firm's largest individual domestic owner has more than 50% of the shares. If all individual domestic owners together have more than 50% of the shares, an increase in the net tax benefit of debt of 10 percentage points leads to a negligible increase in the debt ratio of 0.05 percentage points.
    JEL: G32 H24 H25 H32
    Date: 2016
  3. By: Catarina Reis (Universidade Católica Portuguesa); Vasia Panousi (Board of Governors of the Federal Reserv)
    Abstract: This paper considers a model of linear capital taxation for an economy where capital and labor income are subject to idiosyncratic uninsurable risk. To keep the model tractable, we assume that investment decisions are made before uncertainty is realized, so that the realization of the capital income shock only affects current consumption. In this setting, we find that the optimal capital tax is positive in the long run if there is only capital income risk. The reason for this is that the capital tax provides insurance against capital income risk. On the other hand, if there is only labor income risk the optimal capital tax is zero. The sign of the optimal tax is ambiguous if both types of risk are present and depends on the correlation between the two shocks.
    Date: 2016
  4. By: Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, University of Gothenburg, Sweden)
    Abstract: This paper deals with tax policy responses to inequality aversion by examining the first-best Pareto-efficient marginal tax structure when people are inequality averse. In doing so, we distinguish between four different and widely used models of inequality aversion. The results show that empirically and experimentally quantified degrees of inequality aversion have potentially very strong implications for Pareto-efficient marginal income taxation. It also turns out that the exact type of inequality aversion (self-centered vs. non-self-centered), and the measures of inequality used, matter a great deal. For example, based on simulation results mimicking the disposable income distribution in the US in 2013, the preferences suggested by Fehr and Schmidt (1999) imply monotonically increasing marginal income taxes, with large negative marginal tax rates for low-income individuals and large positive marginal tax rates for high-income individuals. In contrast, the often considered similar model by Bolton and Ockenfels (2000) implies close to zero marginal income tax rates for all.
    Keywords: Pareto-efficient taxation; Inequality aversion; Inequity aversion; Self-centered inequality aversion; Non-self-centered inequality aversion; Fehr and Schmidt preferences; Bolton and Ockenfels preferences
    JEL: D03 D62 H23
    Date: 2016–10–03
  5. By: Stéphane Gauthier (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Fanny Henriet (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: We provide a necessary condition for optimal commodity taxes when agents differ according to labor skill and consumption tastes and when the government can also use a general nonlinear tax on labor income. The discouragement index of commodities in shown to be the sum of (1) the distributive factors over the different income classes and (2) the excess demand of mimickers. The first component arises whenever there is taste heterogeneity within income classes. The second one arises whenever there is taste heterogeneity between income classes. In an empirical application from Canadian microdata we delineate groups of households with homogeneous tastes based on nonviolation of revealed preferences. Assuming that indirect taxes are set optimally, we identify the relevant incentive constraints and provide estimates for social values of the different groups. Redistribution from indirect taxes favors households living in rural Quebec.
    Keywords: taste heterogeneity,commodity taxes,income taxation,redistribution,empirical tests for asymmetric information,social weights
    Date: 2015–04
  6. By: Daniel Hungerman; Mark Ottoni-Wilhelm
    Abstract: There are independent literatures in economics considering tax-price and match-price incentives for giving. The match-price literature has produced well-identified small price elasticities, but scholars have widely questioned whether these estimates can inform tax policy. The tax-price literature in contrast has produced a large range of estimates. Here, we explore and compare these different incentives. First, we consider tax incentives for giving by focusing on a state-level tax credit that creates a convex kink. We use traditional, as well as more novel, kink methods to estimate the tax-price elasticity of giving. Second, a subgroup of donors in our data were temporarily offered a match for their gifts, creating an opportunity to compare tax-price and match-price effects for the same group of donors giving to the same organization at the same time. We find the tax-price elasticity is about -.2. The match-price elasticity is essentially the same. Our results thus suggest a small tax-price elasticity, close to the match-price elasticity, and close to match-price elasticity estimates in the experimental match-price literature. The implication is that in the giving environment we investigate the match-price elasticity is informative for tax policy.
    Date: 2016
  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: 2016–10–01
  8. By: Tyrowicz, Joanna (Warsaw University); Van der Velde, Lucas (Warsaw University); Svejnar, Jan (Columbia University)
    Abstract: From a theoretical perspective the link between the speed and scope of rapid labor reallocation and productivity growth or income inequality is ambiguous. Do reallocations with more flows tend to produce higher productivity growth? Does such a link appear at the expense of higher income inequality? We explore the rich evidence from earlier studies on worker flows in the period of massive and rapid labor reallocation, i.e. the economic transition from a centrally planned to a market-oriented economy in Central and Eastern Europe. We have collected over 450 estimates of job flows from the literature and used these inputs to estimate the short-run and long-run relationship between labor market flows, labor productivity and income inequality. We apply the tools typical for a meta-analysis to verify the empirical regularities between labor flows and productivity growth as well as income inequality. Our findings suggest only weak and short term links with productivity, driven predominantly by business cycles. However, data reveal a strong pattern for income inequality in the short-run - more churning during reallocation is associated with a level effect towards increased Gini indices.
    Keywords: transition, job creation, job destruction, worker flows, unemployment
    JEL: D21 D24 D92 G21
    Date: 2016–09
  9. By: Pablo Hernández de Cos (Banco de España); Samuel Hurtado (Banco de España); Francisco Martí (Banco de España); Javier J. Pérez (Banco de España)
    Abstract: We empirically explore the influence of inflation on fiscal variables in the short, medium and long run, for the case of the Spanish economy, in particular to draw policy lessons for the design of the ongoing process of rebalancing of fiscal accounts. We focus on this topic through the lenses of: (i) the government budget constraint, to assess the influence of inflation on changes in public debt; (ii) accounting decompositions of nominal revenue and expenditure items into their real and price parts; (iii) a large-scale macroeconometric model that contains a detailed fiscal policy block; and (iv) a long-run accounting model on pension expenditure
    Keywords: inflation, public finances, public debt, fiscal consolidation
    JEL: E31 E62 H6
    Date: 2016–09
  10. By: Kyle Wilson (University of Arizona, Department of Economics, McClelland Hall 401, PO Box 210108, Tucson, AZ 85721-0108);
    Abstract: Government investment in infrastructure may crowd out private investment that would have otherwise occurred. But, the threat of government intervention may also induce private firms to invest preemptively in infrastructure, in order to maintain their market position. This leaves the net effect of public competition on private investment unclear. This paper investigates the tension between these competing effects by providing evidence from the setting of internet service provision. Using household survey data and a novel data set of internet plan characteristics, I provide nationwide estimates of demand for internet technologies. I then use these results to estimate a dynamic oligopoly model of private and public internet service providers’ entry and technology adoption decisions, where private firms are driven by profits and municipalities by some (as yet) unknown combination of profits and consumer welfare. Finally, I simulate firms’ actions under a ban on public provision and find evidence that public competition partially, but not completely, crowds out private investment. Ultimately, I find that a ban on municipal provision in 30 states would result in a loss in consumer welfare of $1.11 billion over 20 years.
    Keywords: broadband, demand, dynamic, public, crowding out access
    JEL: L13 L21 L33 L96 H32 H44
    Date: 2016–10
  11. By: Rolf Aaberge; Anthony B Atkinson; Jørgen Modalsli (Statistics Norway)
    Abstract: In seeking to understand inequality today, a great deal can be learned from history. However, there are few countries for which the long-run development of income inequality has been charted. Many countries have records of incomes, taxes and social support. This paper presents a new methodology constructing income inequality indices from such tabular data. The methodology is applied to Norway, for which rich historical data sources exist covering the period 1875 to 2013. Taking careful account of the definition of income and population and the availability of micro data starting in 1967, an upper and lower bound for the pre-tax income Gini coefficient for core households is produced. Our findings cast doubt on the idea that Norway in the nineteenth century was an egalitarian society, supporting the view of de Tocqueville that the young United States exhibited less inequality than the states of Europe. We show that overall inequality of gross family incomes is lower today than a hundred years ago. At the same time, there has not been a consistent downward trend over time in inequality; rather, the fall in inequality took place in a series of episodes. Comparison to existing data for Denmark and the United States reveals remarkable commonalities, as well as distinct periods of difference. This supports the view that the evolution of income inequality is best studied, not in terms of an over-arching theory, but by studying episodes of rising and falling inequality, and the manifold forces in operation
    Keywords: income; inequality; distribution; Norway; long-run changes
    JEL: D31 D63 N33 N34
    Date: 2016–10
  12. By: Hirte, Georg; Rhee, Hyok-Joo
    Abstract: We examine the working mechanisms and efficiencies of zoning (regulation of floor area ratios and land-use types) and fiscal instruments (tolls, property taxes, and income transfer), and extend the instrument choice theory to include the congestion of road and nonroad infrastructure. We show that in the spatial model with heterogeneous households the standard first-best instruments do not work because they trigger distortion of spatial allocations. In addition, because of the household heterogeneity and real estate market distortions, zoning could be less efficient than, as efficient as, or more efficient than pricing instruments. However, when the zoning enacted deviates from the optimum, zoning not only becomes inferior to congestion charges but is also likely to reduce welfare. In addition, we provide a global platform that extends the instrument choice theory of pollution control to include various types of externalities and a wide range of discrete policy deviations for any reasons beyond cost–benefit uncertainties.
    Keywords: infrastructure congestion,zoning,road tolls,property tax,instrument choice,heterogeneity,Infrastruktur,Verkehrsstau,Zoning,Maut,Grundsteuer,Heterogenität
    JEL: H21 R52
    Date: 2016
  13. By: Chiara Mussida (DISCE, Università Cattolica); Maria Laura Parisi (Dipartimento di Economia e Management, Università degli Studi di Brescia)
    Abstract: This paper analyzes the determinants of unequal income distribution across macro-regions in Italy, and whether the latest economic crisis has had an effect on income inequality within or between regions. Inequality between individuals and between families appears greatest in the south, and the crisis has exacerbated this phenomenon. Econometric analyses by population groups and by nationality suggest that high educational attainment levels and larger households contribute to increasing the household income, whereas being female and foreign tend to reduce household income. The income distribution of foreign-born individuals tends to be more asymmetric, with heavier tails, compared to that of nationals.
    Keywords: regional income inequality, household income inequality, economic crisis
    JEL: D31 F22 O15 R23
    Date: 2016–07
  14. By: Maria Rosaria Marino (Italian Parliamentary Budget Office); Marzia Romanelli (Banca d'Italia); Martino Tasso (Banca d'Italia)
    Abstract: We build and estimate a structural dynamic life-cycle model of household labor supply, fertility, and consumption behavior. The model features several sources of heterogeneity in household members’ characteristics and it incorporates most of the fiscal rules that affect household net income. The parameters of the model are estimated using Italian longitudinal data for the period 2004-12 in order to investigate the causes of the relatively low labor supply by married women in this country. The model matches many characteristics of the data quite well. We use the estimated model to simulate a few counterfactual fiscal and welfare policies: some of them are effective in decreasing poverty rates while increasing labor supply.
    Keywords: household labor supply, savings and fertility choices, fiscal policies
    JEL: J22 H24 H31
    Date: 2016–09
  15. By: Fisher, Hayley (University of Sydney); Zhu, Anna (University of Melbourne)
    Abstract: This paper examines how a reduction in the financial resources available to lone parents affects repartnering. We exploit an Australian natural experiment that reduced the financial resources available to a subset of separating parents. Using biweekly administrative data capturing separations occurring among low and middle income couples, we show that the policy reform significantly increased the repartnering hazard for affected separating mothers, especially those with low labour force attachment. Reconciliation with the woman's prior partner drives this result. Complementary analysis of an annual panel survey demonstrates that repartnering impacts are also present over the five years post-separation and that the impact on repartnering hazards is increasing in the extent of financial loss and the urgency of the impact. Together, these results demonstrate that one way that lone mothers respond to a reduction in financial resources available at the time of relationship breakdown is by repartnering more quickly.
    Keywords: repartnering, lone parents, relationship breakdown
    JEL: J12 J18 H53
    Date: 2016–09
  16. By: Nora Lustig (Department of Economics, Tulane University)
    Abstract: Using comparable fiscal incidence analysis, this paper examines the impact of fiscal policy on inequality and poverty in twenty-five countries for around 2010. Success in fiscal redistribution is driven primarily by redistributive effort (share of social spending to GDP in each country) and the extent to which transfers/subsidies are targeted to the poor and direct taxes targeted to the rich. While fiscal policy always reduces inequality, this is not the case with poverty. Fiscal policy increases poverty in four countries using US$1.25/day PPP poverty line, in 8 countries using US$2.50/day line, and 15 countries using the US$4/day line (over and above market income poverty). While spending on pre-school and primary school is pro-poor (i.e., the per capita transfer declines with income) in almost all countries, pro-poor secondary school spending is less prevalent, and tertiary education spending tends to be progressive only in relative terms (i.e., equalizing but not pro-poor). Health spending is always equalizing except for Jordan.
    Keywords: Fiscal Incidence, Social Spending, Inequality, Poverty, Developing Countries.
    JEL: H22 H5 D31 I3
    Date: 2016–10

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