nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒02‒26
twenty-six papers chosen by
Thomas Andrén

  1. Behavioral Responses to Wealth Transfer Taxation: Bunching Evidence from Germany By Glogowsky, Ulrich
  2. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly" By Takanori Adachi; Muhammad Michal Fabinger
  3. Household bargaining, spouses' consumption patterns and the design of commodity taxes By Cremer, Helmuth; Lozachmeur, Jean-Marie; Roeder, Kerstin
  4. Higher Tax for Top Earners By Jim Jin; Felix FitzRoy
  5. Redistributive Innovation Policy, Inequality and Efficiency By Parantap Basu; Yoseph Getachew
  6. Taxpayer’s dilemma: how can ‘fiscal contracts’ work in developing countries? By Pamela Lenton; Mike Masiye; Paul Mosley
  7. Maybe "Honor thy Father and thy Mother": Uncertain Family Aid and the Design of Social Long Term Care Insurance By Canta, Chiara; Cremer, Helmuth; Gahvari, Firouz
  8. Shifting the Burden of Corporate Taxes – Heterogeneity in Direct Wage Incidence By aus dem Moore, Nils
  9. Lower Tax For Minimum Wage Earners By Jim Jin; Felix FitzRoy
  10. The Importance of Deductions in Response to the Personal Income Tax: Bunching Evidence from Germany By Schächtele, Simeon
  11. How Taxes and Required Returns Drove Commercial Real Estate Valuations over the Past Four Decades By Duca, John V.; Hendershott, Patric H.; Ling, David C.
  12. Aiyagari Meets Ramsey: Optimal Capital Taxation with Incomplete Markets By Chen, Yunmin; Chien, YiLi; Yang, C.C.
  13. Implementing Tax Coordination and Harmonization through Voluntary Commitment By Grégoire ROTA-GRAZIOSI
  14. What Have We Learned About International Tax Disputes? By Picciotto, Sol
  15. Do Tax Changes Affect Credit Markets and Financial Frictions? Evidence from Credit Spreads By Winter, Christoph; Kraus, Beatrice
  16. Lifetime income inequality with taxation and public benefits By Kemptner, Daniel; Haan, Peter; Prowse, Victoria
  17. Fiscal policy and the cycle in Latin America: The role of financing conditions and fiscal rules By Enrique Alberola; Iván Kataryniuk; Ángel Melguizo; René Orozco
  18. Strengthening Enforcement in Unemployment Insurance. A Natural Experiment By Schiprowski, Amelie; Arni, Patrick
  19. How taxes impact the choice between an annuity and the lump sum at retirement By Bütler, Monika; Ramsden, Alma
  20. Obstacles to Increasing Tax Revenues in Low Income Countries By Moore, Mick
  21. Local public goods as perfect substitutes -- centralization vs. decentralization By Maier, Carl
  22. Does raising the retirement age increase older workers' activity? The case of the 2010 french pension reform By Y. DUBOIS; M. KOUBI
  23. Private wealth and retirement in France By T. BLANCHET; Y. DUBOIS; A. MARINO; M. ROGER
  24. Determinants of Governmental Redistribution: Income Distribution, Development Levels, and the Role of Perceptions By Köllner, Sebastian; Gründler, Klaus
  25. Company Stock Reactions to the 2016 Election Shock: Trump, Taxes and Trade By Alexander Wagner; Richard J. Zeckhauser; Alexandre Ziegler
  26. From the Lab to the Field: a Review of Tax Experiments By Mascagni, Giulia

  1. By: Glogowsky, Ulrich
    Abstract: Increasing inequality in recent decades has triggered a heated debate on whether wealth transfer taxation is an appropriate countermeasure to the perpetuation of inequality. A major factor in making progress in this discussion is understanding how taxpayers respond to incentives generated by wealth transfer taxes. Using administrative tax records from Germany, this paper investigates behavioral responses to a very large transfer tax kink in the inheritance and inter vivos gift tax schedule. We find sharp bunching of taxable inheritances and even larger bunching of taxable inter vivos gifts. However, because the kink is large, the underlying taxable inheritance and gift elasticities are moderate and amount up to 0.11. In line with the notion of accidental bequest models, further evidence suggests that the amount of wealth bequeathed is uncertain. This may explain the small size of the inheritance elasticities. Based on the results, the present paper lends strong support to the hypothesis that wealth transfers are relatively inelastic along the intensive margin in the short term.
    JEL: H20 H21 H30
    Date: 2016
  2. By: Takanori Adachi (School of Economics, Nagoya University,); Muhammad Michal Fabinger (Faculty of Economics, University of Tokyo)
    Abstract: This paper studies welfare consequences of unit and ad valorem taxes in oligopoly with general demand, non-constant marginal costs, and a generalized type of competition. We present formulas providing connections between marginal cost of public funds, tax incidence, unit tax pass-through, ad valorem tax pass-through, and other economic quantities of interest. We show that there exists a simple, empirically relevant set of sufficient statistics for the marginal cost of public funds, namely the pass-through and the industry demand elasticity. Specializing to the case of price or quantity competition, we show how marginal cost of public funds and pass-through may be expressed using elasticities and curvatures of demand and inverse demand. These results apply also to symmetric oligopoly with multi-product firms. Finally, we present a generalization with the tax revenue function specified as a general function parametrized by a vector of tax parameters. We define multi- dimensional generalizations of pass-through and show that they are crucial for evaluating welfare changes in response to changes in taxation.
  3. By: Cremer, Helmuth; Lozachmeur, Jean-Marie; Roeder, Kerstin
    Abstract: We study the role and structure of commodity taxes when consumption and labor supplies are determined through a bargaining procedure between spouses, and where an optimal income tax is also available. We focus on the question whether there should be differences in tax treatment between "female"and "male" products. When weights (as well as wages) differ across couples, the heterogeneity is multidimensional and the Atkinson and Stiglitz theorem does not apply. In addition, when the social welfare function is individual-based, spouses'social weights may differ from their weights within the couples. This brings about Pigouvian considerations which in themselves may justify commodity taxes. We show that the expressions for the tax rates include Pigouvian and incentive terms. Their roles are most apparent in the case where some goods are consumed exclusively by one of the spouses. Supposing, for instance, that the female spouse has the lower bargaining weight, we ?nd conditions under which the Pigouvian term calls for a subsidization of the "female good", and a taxation of the "male good"?. The incentive term depends on the distribution of bargaining weights across couples. For instance, for the exclusive consumption case, when the weight of the female spouse increases with wages, the female good tends to be consumed in larger proportion by more productive couples. Consequently, the incentive term makes it a candidate for taxation. In this case the Pigouvian term is mitigated.
    Keywords: Couples' taxation, household bargaining, optimal commodity taxation
    JEL: D10 H21 H31
    Date: 2017–02
  4. By: Jim Jin; Felix FitzRoy
    Abstract: The literature can justify increasing and decreasing marginal taxes (IMT & DMT) on top income under different social objectives and income distributions. Even if DMT are optimal, they are often politically infeasible. Then a flat tax seems to be a constrained optimal solution. We show however that, if we want to maximize the utility of a poor majority any flat tax can be inferior to some IMT. We provide a sufficient condition for (two-band) IMT to dominate any flat tax and further generalize this result to allow different welfare weights, declining elasticity of labour supply and more tax bands.
    Keywords: flat tax, increasing marginal taxes, income redistribution
    JEL: D30 D60 H20
    Date: 2017–02–16
  5. By: Parantap Basu (Durham University, Durham University Business School); Yoseph Getachew (Department of Economics, University of Pretoria, 0028, Pretoria, South Africa)
    Abstract: Using a heterogenous-agent growth model with in-house R&D and incomplete capital markets, we examine the efficiency and distributional e¤ects of alternative public R&D policies that target high-tech and low-tech sectors. We nd that such policies have important implication for efficiency, inequality and social mobility. A regressive public R&D investment nanced by income tax could boost growth and welfare via a positive e¤ect on individual savings and e¤ort. However, it could also discourage them via its effect on the efficiency inequality trade off. The relationship between public R&D spending and welfare is therefore hump shaped admitting an optimal degree of regressivity in public R&D spending. A case for optimal progressive public R&D investment, however, can be made with a properly designed R&D policy that combines consumption tax and investment subsidy policies.
    Date: 2017–02
  6. By: Pamela Lenton (Department of Economics, University of Sheffield); Mike Masiye (Department of Economics, University of Sheffield); Paul Mosley (Department of Economics, University of Sheffield)
    Abstract: The theoretical literature around effective tax systems, which are a preconditionof an effective state and therefore of development, has coalesced around the idea of a‘fiscal social contract’, in which beneficial expenditures are delivered to taxpayers in returnfor their tax payments, rather than a coercive relationship existing between them and thegovernment. However, these ideas about governance have with few exceptions not beenincorporated into empirical analyses of tax yield and how to increase it. In this paper, weattempt to fill this gap. Our starting-point is the model of the (fundamentally) democratic social contract proposedby Rousseau 250 years ago, which suggests that increased democracy will be good for manystate-building functions including fiscal mobilisation. We develop this idea by means of aprisoner’s dilemma model, which shows that a ‘fiscal contract’ between taxpayers and thegovernment (in the sense of a top left-hand corner, ‘win-win’ solution of the prisoner’sdilemma) will be most likely to emerge not only as a result of greater democraticaccountability, but also if taxpayers feel that they are getting good value from, and are wellinformed about, government expenditures in exchange for their tax payments. This modelis then estimated empirically against a sample of 62 developing countries between 1980-2008 (with the share of human capital expenditures in public expenditure used as anindicator of the value which taxpayers derive from that expenditure), backed by two casestudies of Ghana and Zambia. Our results, both from econometric analysis and the casestudies, suggest that increasing levels of democratic accountability and the quality of publicexpenditure are correlated, and causally connected, with increasing tax/GDP ratios, and thatin countries where competitiveness is blunted by high levels of rent-seeking, the tax ratiowill be less buoyant. Also, the process by which fiscal contracts are constructed isimportant. The government needs to send the taxpayer an effective signal, or bona-fide,illustrating the benefits to be derived from paying their tax bills. Illustrations of effectivebona-fides are provided.
    Keywords: fiscal policy, tax ratios, fiscal contracts, bona-fides, democracy
    JEL: D72 D78 E62 O23
    Date: 2017–01
  7. By: Canta, Chiara (Norwegian School of Economics); Cremer, Helmuth (Toulouse School of Economics); Gahvari, Firouz (University of Illinois at Urbana-Champaign)
    Abstract: We study the role and design of private and public insurance programs when informal care is uncertain. Children's degree of altruism is randomly distributed over some interval. 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 three types of LTC policies: (i) a topping up (TU) scheme providing a transfer which is non exclusive and can be supplemented; (ii) an opting out (OO) scheme which is exclusive and cannot be topped up and (iii), a mixed policy combining these two schemes. TU will involve crowding out both at the intensive and the extensive margins, whereas OO will crowd out informal care solely at the extensive margin. However, OO is not necessarily the dominant policy as it may exacerbate crowding out at the extensive margin. 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: 2016–12
  8. By: aus dem Moore, Nils
    Abstract: We contribute to the empirical literature on the effective incidence of corporate income taxation. We focus on the so-called direct incidence via the wage bargaining process. Building on the innovative framework of Arulampalam, Devereux and Maffini (2012), we analyze the importance of various dimensions of heterogeneity at the firm-level. In particular, we investigate the distinct effects of (i) firm size, (ii) level of profitability, and (iii) competition intensity across (iv) different economic sectors. Furthermore, we investigate the relative importance of the surrounding institutional setting. To this end, a firm-level within-country approach is pursued separately for two different economies, namely France and the United Kingdom, which can be regarded as polar cases with respect to the relevant features of the wage-setting process. However, in many respects, we find surprisingly similar results for both countries. Thereby, this paper also adds to the literature by providing new insights on the degree to which results from previous single-country studies can possibly be generalized.
    JEL: H22 H25 J31
    Date: 2016
  9. By: Jim Jin; Felix FitzRoy
    Abstract: We show that minimum wage earners should pay a lower tax than high earners. Though intuitive, this idea is not supported by the existing literature. The optimal maximin tax curve and two-band taxes are usually decreasing. Since decreasing marginal taxes would be unpopular, by continuity a flat tax seems to be superior to increasing marginal taxes and should be a second best solution. However, using a simple utility function and a general income distribution, we find that lowering the marginal tax for minimum wage earners not only dominates the optimal flat tax under maximin, but also make everyone better off.
    Keywords: flat tax, income redistribution, maximin, Pareto improvement
    JEL: H20 D60
    Date: 2017–02–16
  10. By: Schächtele, Simeon
    Abstract: For its promise to summarize all necessary information to calculate efficiency losses from taxation (Feldstein, 1999), the elasticity of taxable income (ETI) has become one of the most widely studied parameters in public economics. More recently, Chetty (2009) and others have pointed out the limits of the sufficiency property of the ETI and reemphasized the importance of separating the behavioral margins along which taxpayers react. Using German tax administration data from 2007, this paper documents bunching patterns that are consistent with deduction behavior playing a key role in response to the personal income tax. Because the set of available deductions and the strength of enforcing their proper use are policy choices, this result cautions against construing the ETI as a structural parameter that determines optimal tax rates independently of non-tax rate policy instruments. For reference, I also report estimates for the local ETI at the personal allowance threshold from applying Saez' (2010) bunching estimator.
    JEL: H24 H26 H21
    Date: 2016
  11. By: Duca, John V. (Federal Reserve Bank of Dallas); Hendershott, Patric H. (University of Aberdeen); Ling, David C. (University of Florida)
    Abstract: We document the evolution of U.S. tax law regarding commercial real estate (CRE) since 1975, noting changes in income and capital gains tax rates and tax depreciation methods. The most prominent changes were the 1981 and 1986 Tax Acts, but numerous significant changes occurred in the last dozen years. We then compute the present value of tax depreciation per dollar of acquisition price and an effective tax rate for CRE. We explain the quarterly variation in CRE capitalization rates using an error correction framework and find that the long run estimates are statistically significant in the way theory would suggest. Moreover, the required financial asset return and the tax depreciation variable temporally predict (“cause”) capitalization rates in the long run, but not vice versa.
    JEL: G12 H20 H30 R30
    Date: 2017–01–27
  12. By: Chen, Yunmin (Institute of Economics, Academia Sinica); Chien, YiLi (Federal Reserve Bank of St. Louis); Yang, C.C. (Institute of Economics, Academia Sinica)
    Abstract: What is the prescription of Ramsey capital taxes for Aiyagari’s (1994) incomplete-markets economy in steady state? Departing from the endogenous setting in Aiyagari (1995), this paper answers the question by assuming an exogenous stream of government purchases as in the canonical Ramsey problem. The departure makes the planner’s Euler equation involve the whole distribution of agents’ consumption, which is absent in Aiyagari (1995). Imposing the “measurability condition” to account for the incompleteness of markets, we are able to apply the primal approach to analytically solving for the Ramsey problem of the Aiyagari (1994) economy. It is shown that capital should be taxed in steady state to implement the modified golden rule; though this result may not hold for economies with other frictions. We also address transitional dynamics, showing that capital should be taxed all the time during transition if the elasticity of intertemporal substitution is not elastic.
    Keywords: Capital taxation; Ramsey problem; Heterogeneous Agents; Incomplete markets
    JEL: C61 E22 E62 H21 H30
    Date: 2017–02–13
  13. By: Grégoire ROTA-GRAZIOSI (Ferdi)
    Abstract: Pareto-improving tax coordination, and even tax harmonization, are Nash implementable between sovereign countries without any supranational tax authorities. Following Schelling’s approach, we consider voluntary commitment, which constrains countries’ respective tax rate choices. We develop a commitment game where countries choose their strategy sets in preliminary stages and play consistently during the final one. We determine the set of tax rates, which are implementable by commitment. This allows countries to reach Pareto-improving equilibriums. We also establish that complete tax harmonization may emerge as the subgame perfect Nash equilibrium of the commitment game as long as the asymmetry between countries remains limited. Our analysis contributes to the rationale of tax ranges and, more broadly, of non binding but self-enforcing commitments (not equivalent to cheap talk) in the context of tax competition.
    Keywords: Tax competition, tax coordination, commitment
    JEL: H30 C72
    Date: 2016–12
  14. By: Picciotto, Sol
    Abstract: This Briefing summarises ICTD Working Paper 55, which examines the Mutual Agreement Procedure (MAP) for tax authorities to resolve their differences over the interpretation of tax treaties. It surveys available evidence on reasons for the increase in such conflicts, and analyses proposals for improving the MAP, especially mandatory binding arbitration. Despite the shift to arbitration in the past decade among Organisation for Economic Cooperation and Development (OECD) states, there has been a continued rise in conflicts and in the time taken to resolve them. It seems inappropriate, especially for developing countries, to deal with these important issues through international procedures cloaked in total secrecy. A better approach would be to aim to minimise conflicts by developing clear and simple rules for apportioning the income of integrated transnational corporations (TNCs), and agreeing interpretations of tax treaty provisions that can be made public. Greater transparency is the best way to provide the clarity and predictability that business needs, and to reassure the public that decisions on international taxation are fair.
    Keywords: Development Policy, Economic Development, Governance,
    Date: 2016
  15. By: Winter, Christoph; Kraus, Beatrice
    Abstract: In this paper, we empirically document a link between tax changes and financial market conditions. Using the Romer and Romer (2010) narrative record of exogenous federal tax liability changes for the US, we show that an increase in taxes leads to higher risk premia for corporate bonds issued by financial and non-financial firms. Consistent with recent theories of intermediary asset pricing, we demonstrate that risk premia are driven by intermediaries' balance sheet conditions, which -- according to our results -- are in turn affected by tax changes. Two tax acts are particularly relevant for the transmission of taxes to financial market conditions, namely the Tax Reform Act of 1986 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. Interestingly, none of these two tax acts specifically targeted the financial sector. Therefore, an important implication of our results is that any tax change can potentially spill over to financial market conditions, with the associated consequences for real economic activity.
    JEL: E44 E62 G12
    Date: 2016
  16. By: Kemptner, Daniel; Haan, Peter; Prowse, Victoria
    Abstract: In this paper, we show how taxation, unemployment insurance, welfare, disability benefits and public pensions affect the inequality of lifetime income. Using results from a dynamic life-cycle model estimated using German panel data, we show that taxation and public benefits combined reduce the inequality of lifetime income, measured by the Gini coefficient, by 22\%. Pensions only slightly reduce inequality in lifetime income. Welfare benefits, meanwhile, make persistent transfers to individuals at the bottom of the distribution of lifetime income and, therefore, are highly effective at reducing the inequality of lifetime income. Welfare benefits and disability benefits have increasingly progressive effects on lifetime income as the persistence of employment shocks increases, suggesting that these program are particularly important for targeting lifetime inequality when labor market frictions are high.
    JEL: D63 D91 H23
    Date: 2016
  17. By: Enrique Alberola; Iván Kataryniuk; Ángel Melguizo; René Orozco
    Abstract: A stronger macroeconomic position when the financial crisis erupted allowed Latin American economies to mitigate its impact through fiscal expansions, reversing the characteristic procyclical behaviour of fiscal policy. At the same time, in the last two decades fiscal rules have been extensively adopted in the region. This paper analyses the stabilising role of discretionary fiscal policy over time, and the role of fiscal financing conditions and fiscal rules in this evolution in a sample of eight Latin American economies. The analysis shows three main results: i) fiscal policies became countercyclical during the crisis, but they have turned procyclical again in recent years; ii) financing conditions are confirmed to be a key driver of the fiscal stance, but their relevance has recently diminished; and iii) fiscal rules are associated with a more stabilising role for fiscal policy.
    Keywords: financing conditions, fiscal rules, procyclical fiscal policy
    JEL: G12 H3
    Date: 2017–02–23
  18. By: Schiprowski, Amelie; Arni, Patrick
    Abstract: Imposing benefit cuts to job seekers who do not comply with rules and requirements has become a commonly used enforcement device in unemployment insurance (UI) systems. This paper provides first estimates of how non-compliant job seekers react when confronted with a stricter enforcement regime. We exploit an administrative reform which induced a sharp and unanticipated increase in the probability of receiving a benefit cut in response to the failure of documenting job search effort. Our difference-in-difference framework uses as a control group job seekers with other types of non-compliances, whose enforcement rules stayed constant. We find that the probability of job finding within the three months following non-compliance detection increases by 5 p.p. in reaction to the reform. This effect is however purely driven by exits to unstable jobs. Increased enforcement strictness thus appears to pressure job seekers into accepting job matches of lower quality. Estimating the effects on post-unemployment earnings is work in progress.
    JEL: J65 J64 J58
    Date: 2016
  19. By: Bütler, Monika; Ramsden, Alma
    Abstract: We analyze the role of taxation in individual annuitization decisions in an environment that shows large di?erences in relative taxation between the one-o? lump sum payment and the life-long annuity. For each individual whose retirement choice is recorded in an administrative dataset from a large Swiss pension fund we impute taxes for both options. We show that taxes can explain a signi?cant part of the variation in annuity rates. Exploiting kinks in the tax schedule we also ?nd evidence for tax optimization strategies by individuals. Our ?ndings suggest that individuals react strongly to tax incentives when making retirement choices.
    Keywords: Annuity Puzzle, Taxation, Occupational Pension
    JEL: D81 D91 H24 J26
    Date: 2017–01
  20. By: Moore, Mick
    Abstract: This ICTD Research in Brief is a two-page summary of ICTD Working Paper 15, by Mick Moore. This series is aimed at policy makers, tax administrators, fellow researchers and anyone else who is big on interest and short on time. We hope you enjoy it. This joint ICTD/UNRISD/SDC paper asks why governments of low-income countries do not raise more tax revenue, and explores options for increasing it.
    Keywords: Development Policy, Economic Development, Governance,
    Date: 2016
  21. By: Maier, Carl
    Abstract: The main message of recent evaluations of decentralization efforts around the world is that these efforts were unable to generate the beneficial effects they were thought to induce. This finding constitutes a contrast to the rich body of literature on centralization and decentralization which was itself one driving factor of these efforts of decentralization. By arguing that (local) public goods can be viewed as perfect substitutes, this paper provides an explanation for these recent empirical findings and helps to reintegrate them into the theoretical literature on the subject. The main finding of this paper is that centralized and decentralized structures can induce identical provision levels of public goods. This ambivalence is generated by the interaction between electorates and representatives. Whereas both of these actors behave differently in the two scenarios, the overall outcomes are identical due to the leveling effects of strategic delegation. This finding is robust with respect to the assumption of a multistage government.
    JEL: H41 H77 C72
    Date: 2016
  22. By: Y. DUBOIS (Insee); M. KOUBI (Insee)
    Abstract: We examine the consequences on older workers activity of the 2010 French pension reform that increased the legal age of retirement from 60 to 62 years. Globally, the activity rate of workers affected by the reform is by 19 to 22 percentage points higher than that of workers of the same age but belonging to generations not affected by the reform. This result is consistent with an ex-ante evaluation using the microsimulation model Destinie managed by the Insee. Moreover, microsimulation allows to first quantify and then sweep out possible interactions between the reform on ages and the other ongoing reforms: the increase in the qualifying period for full pension on the one hand and the so-called long careers reform on the other hand, which allows people with sufficient years of service to retire earlier than the legal age with full pension. The declining number of pensioners at ages affected by the reform results in a higher employment rate for older workers, but also raises unemployment and, to a lesser extent, inactivity (other than retirement).
    Keywords: Retirement age ; Policy reform; Labor supply; Older workers
    JEL: J14 J21 J26 H55
    Date: 2016
  23. By: T. BLANCHET (Ensae-PSE); Y. DUBOIS (Insee); A. MARINO (Insee); M. ROGER (CES Université Paris 1 Panthéon Sorbonne,Banque de France)
    Abstract: This document relies on the 2009-2010 French wealth survey (enquête Patrimoine) and the dynamic microsimulation model Destinie to reevaluate substitution effects between pension entitlements and private savings for French Households. Savings behavior is modeled after Gale (1998). Our results highlight the existence of a substitution effect between household savings and their pension. The magnitude of these effects is sensitive to the discount rate of agents. An increase in public pensions leads to a decrease in complementary pension products and real estate investment. It is this latter effect that dominates.
    Keywords: Wealth, Social Security, Pensions, Life Cycle
    JEL: D31 D91 H55
    Date: 2016
  24. By: Köllner, Sebastian; Gründler, Klaus
    Abstract: We empirically investigate the relationship between income inequality and redistribution, accounting for the shape of the income distribution, different development levels, and subjective perceptions. Cross-national inequality datasets that have become available only recently allow for the assessment of the link for various sample compositions and several model specifications. Our results confirm the Meltzer-Richard hypothesis, but suggest that the relation between market inequality and redistribution is even stronger when using perceived inequality measures. The findings emphasize a decisive role of the middle class, though also approving a negative impact of top incomes. The Meltzer-Richard effect is less pronounced in developing economies with less sophisticated political rights, illustrating that it is the political channel through which higher inequality translates into more redistribution.
    JEL: C23 D31 H11
    Date: 2016
  25. By: Alexander Wagner; Richard J. Zeckhauser; Alexandre Ziegler
    Abstract: The election of Donald J. Trump as the 45th President of the United States of America on 11/8/2016 came as a surprise. Markets responded swiftly and decisively. This note investigates both the initial stock market reaction to the election, and the longer-term reaction through the end of 2016. We find that the individual stock price reactions to the election – that is, the market’s vote – reflect investor expectations on economic growth, taxes, and trade policy. Heavy industry and banking were relative winners, whereas healthcare, medical equipment, pharmaceuticals, textiles, and apparel were among the relative losers. High-beta stocks and companies with a hitherto high tax burden benefited from the election. Although internationally-oriented companies may profit under some plans of the new administration, several other arguments suggest a more favorable climate for domestically-oriented companies. Investors have found the domestic-favoring arguments to be stronger. While investors incorporated the expected consequences of the election for US growth and tax policy into prices relatively quickly, it took them more time to digest the consequences of shifts in trade policy on firms’ prospects.
    JEL: G12 G14 H25 O24
    Date: 2017–02
  26. By: Mascagni, Giulia
    Abstract: Tax experiments have been gaining momentum in recent years, although this literature dates back several decades. With new developments in methods and data availability, tax experiments have gradually moved away from lab settings and towards the field. This movement from the lab to the field has happened against the background of the ‘credibility revolution’ in applied economics, which has seen more rigorous methods applied to policy relevant questions, and of the availability to researchers of administrative data from tax returns. These developments have allowed significant advances in the experimental literature on tax compliance. This paper reviews this literature, giving particular attention to field experiments using administrative data, but putting them in the broader context of the compliance literature. A particular effort is made to take a global perspective, in a literature that is only recently seeing the emergence of evidence from Africa, Latin America and Asia.
    Keywords: Governance,
    Date: 2016

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