nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒03‒19
twenty-two papers chosen by
Thomas Andrén

  1. Measuring income redistribution: beyond the proportionality standard By Urban, Ivica
  2. International Comparisons of Corporate Income Tax Rates By Congressional Budget Office
  3. Rising Income Inequality and Living Standards in OECD Countries: How Does the Middle Fare? By Stefan Thewissen; Lane Kenworthy; Brian Nolan; Max Roser; Timothy Smeeding
  4. Taxing high-income earners: tax avoidance and mobility By Alejandro Esteller; Amedeo Piolatto; Matthew D. Rablen
  5. The Macroeconomic Effects of Income and Consumption Tax Changes By Anh D.M.Nguyen; Luisanna Onnis; Raffaele Rossi
  6. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly" By Takanori Adachi; Michal Fabinger
  7. Differential Taxation and Occupational Choice By Gomes, Renato; Lozachmeur, Jean-Marie; Pavan, Alessandro
  8. The political economy of peripheral tax reform : the Spanish fiscal transition By Torregrosa Hetland, Sara
  9. The Taxing Deed of Globalization By Peter Egger; Sergey Nigai; Nora Strecker
  10. Closing the gender gap in pensions. A microsimulation analysis of the Norwegian NDC pension system By Elin Halvorsen; Axel West Pedersen
  11. Tax Evasion, Corruption and tax Loopholes By Seidel, André; Marjit, Sugata
  12. Company Stock Reactions to the 2016 Election Shock: Trump, Taxes and Trade By Alexander F. Wagner; Richard J. Zeckhauser; Alexandre Ziegler
  13. How to Use One Instrument to Identify Two Elasticities By Gavrilova, Evelina; Zoutman, Floris T.; Hopland, Arnt O.
  14. Fiscal Multipliers in the 21st Century By Pedro Brinca; Hans A. Holter; Per Krusell; Laurence Malafry
  15. Pareto Weights in Practice: A Quantitative Analysis across 32 OECD Countries By Bo Hyun Chang; Youngsung Chang; Sun-Bin Kim
  16. Optimal Tax Administration By Michael Keen; Joel Slemrod
  17. The Negative Income Tax Experiment in New Jersey: General Discussion By David Kershaw
  18. Becoming an Entrepreneur - The Role of Profit Taxes By Berger, Melissa; Misch, Florian; Voget, Johannes
  19. The Impact of Public Expenditures on Economic Growth in Two Very Different Countries: A comparative Analysis of Armenia and Spain By Gohar Samvel Sedrakyan; Laura Varela-Candamio
  20. The Gary Experiment in Welfare Reform By Kenneth Kehrer Stanley Stephenson; Jr.
  21. How Buoyant is the Tax System? New Evidence from a Large Heterogeneous Panel By Paolo Dudine; João Tovar Jalles
  22. Social Insurance and Retirement: A Cross-Country Perspective By Tobias Laun; Johanna Wallenius

  1. By: Urban, Ivica
    Abstract: Traditional analyses of redistributive effects of the tax-benefit system are rooted in the concepts of relative income inequality and proportionality. This observation also applies to decompositions proposed by Kakwani (1977, 1984) and Lambert (1985) that reveal the vertical and horizontal effects of tax-benefit instruments. This paper generalises those decompositions within the frameworks of the alternative inequality concepts suggested by Ebert (2004) and Bosmans et al. (2014). As expected, the results of the empirical analysis indicate that for different views of inequality, different taxes and benefits play significantly different roles in reducing inequality.
    Date: 2017–03–08
  2. By: Congressional Budget Office
    Abstract: In this report, CBO examines corporate tax rates—the statutory rates, as well as average and effective marginal rates—and the factors that affect them for the United States and other G20 countries. In 2012, the U.S. top statutory corporate tax rate was 39.1 percent with state taxes included, making it the highest in the G20. The average and effective corporate tax rates in the United States were lower—at 29 percent (third in the G20) and 19 percent (fourth in the G20), respectively.
    JEL: F23 H20 H25
    Date: 2017–03–08
  3. By: Stefan Thewissen; Lane Kenworthy; Brian Nolan; Max Roser; Timothy Smeeding
    Abstract: This paper uses data from the key comparative sources available for the rich countries to examine how both real median incomes and income inequality have evolved from around 1980 through the Great Recession. There are striking differences across OECD countries in average real median income growth. Some increase in overall inequality has been common, but with wide variation in extent and timing. Top (pretax) income shares have generally been rising, but not always consistently with overall inequality from household surveys. A significant negative association between changes in Gini and median income is found across countries over time, and a significant negative relationship with changes in top shares only when controlling for economic growth. Economic growth and inequality trends together leave much of the variation in median incomes unaccounted for, so direct measures of how these incomes are evolving need to be central to monitoring progress towards inclusive growth.
    Date: 2015–12
  4. By: Alejandro Esteller (Universitat de Barcelona & IEB); Amedeo Piolatto (Universitat de Barcelona & IEB); Matthew D. Rablen (University of Sheeld)
    Abstract: The taxation of high-income earners is of importance to every country and is the subject of a considerable amount of recent academic research. Such high-income earners contribute substantial amounts of tax and generate significant positive spillovers, but are also highly mobile: a 1% increase in the top marginal income tax rate increases out-migrations by around 1.5 to 3%. We review research into taxation of high-income earners to provide a synthesis of existing theoretical and empirical understanding. We offer various avenues for potential future theoretical and empirical research.
    Keywords: High-income earners, mobility, tax avoidance
    JEL: H26 H31 K34 K42
    Date: 2017
  5. By: Anh D.M.Nguyen (Applied Macroeconomic Research Division, Economics Department, Bank of Lithuania); Luisanna Onnis (Department of Economics, University of Sheffield); Raffaele Rossi (Department of Economics, University of Manchester)
    Abstract: Do consumption and income tax changes affect the economy differently? We answer this question by estimating structural VARs, where we proxy the latent tax shocks with a newly constructed narrative account of income and consumption tax liability changes in the United Kingdom. We find that income tax shocks have large short run effects on GDP, private consumption and investment. The implied income tax present-value multiplier is around 2.7. The effects of consumption tax cuts are modest and not statistically different from zero on GDP and investment and only marginally expansionary on private consumption. These results indicate that i) it is crucial to distinguish between direct and indirect taxation when studying the transmission mechanism of fiscal policy, and ii) consistent with conventional public finance theories, consumption taxes are less distortive than income taxes.
    Keywords: fiscal policy, narrative account, consumption taxation, income taxation, Proxy-SVAR
    JEL: E62 H24 H25 H31
    Date: 2017–02
  6. By: Takanori Adachi (School of Economics, Nagoya University,); 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.
    Date: 2017–02
  7. By: Gomes, Renato; Lozachmeur, Jean-Marie; Pavan, Alessandro
    Abstract: We develop a framework to study optimal sector-specific taxation, where each agent chooses an occupation by comparing her skill differential with the tax burden differential across sectors. Because skills are not perfectly transferable, the Diamond-Mirrlees theorem (according to which the second-best entails production efficiency) fails: social welfare can be increased by inducing some agents to join the sector in which their productivity is not the highest. At the optimum, income taxes balance the marginal losses from inter-sector migration with the marginal gains from tailoring tax schedules to the distribution of productivities in each sector (“tagging”). A calibrated model indicates that sector-specific taxation generates substantive welfare gains when skill transferability decreases with income, as it enables the government to increase average taxes on high earners with large wage premia.
    Keywords: income taxation, occupational choice, sales taxes, sector-specific taxation, production efficiency
    JEL: C72 D62
    Date: 2017–03
  8. By: Torregrosa Hetland, Sara (Department of Economic History, Lund University)
    Abstract: The Spanish fiscal system underwent profound reforms between 1977 and 1986, in close connection to the transition from dictatorship to democracy. These were meant to bring the country towards the welfare state model of its European neighbours. Some practical results in terms of progressivity and redistribution, however, were not outstanding, and inequality did not significantly decrease after democratization. In recent times, the system has shown its incapacity to sustain European-level welfare services. Can a historical analysis help us understand the constraints faced by this young welfare state in the periphery? This paper looks at two factors in the political economy of tax reform: social preferences and the decision-making institutions. Perhaps the general citizen – or the decisive voter – was not very keen on redistribution. Alternatively, the new political system might not have translated effectively the public stances onto policies. Furthermore, at this time of the transition, international developments were changing the emphasis from equity to efficiency in tax system design, and increasing capital mobility provided an enhanced capacity to escape from taxation.
    Keywords: redistribution; tax reform; public policy; democratization; distributive preferences;
    JEL: D72 D78 H20 N44
    Date: 2017–03–13
  9. By: Peter Egger; Sergey Nigai; Nora Strecker
    Abstract: We examine the effects of globalization on the size and composition of tax revenues, worker-specific tax burdens, and effective average labor income tax rates using a unique international database on income tax calculators. We find that due to increasing mobility of firms and high-income workers, globalization led governments in OECD countries to seek tax revenues from alternative sources, specifically from employee-borne taxes paid by relatively less mobile middle-income workers. In 1994-2007, they experienced a globalization-induced rise in their personal income tax rate of around 1.5, whereas the top 1% of workers faced a reduction of approximately 1.5 percentage points.
    Keywords: Globalization, Income taxes, Tax progressivity, International trade, Migration
    JEL: F1 F6 H2 H3
    Date: 2016–04
  10. By: Elin Halvorsen; Axel West Pedersen (Statistics Norway)
    Abstract: In this paper we use an advanced micro-simulation model to study the distributional effects of the reformed Norwegian pension system with a particular focus on gender equality. The reformed Norwegian system is based on the NDC-formula with fixed contribution/accrual rates over the active life-phase and with accumulated pension wealth being transformed into an annuity upon retirement. A number of redistributive components are built into the system that makes it deviate from complete actuarial fairness: a unisex annuity divisor, a ceiling on annual earnings, generous child credits, a possibility for widows/widowers to inherit pension rights from a deceased spouse, a targeted guarantee pensions with higher benefit rates to single pensioners compared to married/cohabitating pensioners, and finally the tax system that is particularly progressive in its treatment of pensioners and pension income. Taking complete actuarial fairness as the point of departure, we conduct a stepwise analysis to investigate how these different components of the National Insurance pension system impact on the gender gap in pensions and on inequality in the distribution of pension income within a cohort of pensioners.
    Keywords: Pensions; Gender gap; Inequality; Micro simulation
    JEL: D31 E47 H55
    Date: 2017–01
  11. By: Seidel, André; Marjit, Sugata
    Abstract: This paper addresses tax loopholes that allow firms to exploit borderline cases between legal tax avoidance and illegal tax evasion. In general, tax loopholes are detrimental for a revenue-maximizing government. This may change in the presence of corruption in the tax administration. Tax loopholes may serve as a separating mechanism that helps governments maximize revenues and curb corruption, which may explain why developing countries only gradually close loopholes in their tax codes.
    JEL: H26 D73 D82
    Date: 2016
  12. By: Alexander F. Wagner (University of Zurich, Centre for Economic Policy Research (CEPR), European Corporate Governance Institute (ECGI), and Swiss Finance Institute); Richard J. Zeckhauser (Harvard University and National Bureau of Economic Research (NBER)); Alexandre Ziegler (University of Zurich)
    Abstract: Donald Trump’s election was a significant surprise. The reaction of company stock prices to the election reflects shifts in investor expectations about economic growth, taxes, and trade policy. High-beta stocks outperformed, presumably due to strengthened growth expectations. Expectations of significant corporate tax cuts boosted high-tax firms, but hurt firms with significant net operating loss carryforward balances. Investors currently perceive the climate to be more favorable for domestically-oriented companies than those with substantial foreign involvement. Markets incorporated expectations on growth and tax policy into stock prices relatively quickly; they took more time to digest the consequences of shifts in trade policy.
    Keywords: Stock returns, event study, corporate taxes, trade policy, corporate interest payments, post-news drift, election surprise
    JEL: G12 G14 H25 O24
    Date: 2017–02
  13. By: Gavrilova, Evelina (Dept. of Business and Management Science, Norwegian School of Economics); Zoutman, Floris T. (Dept. of Business and Management Science, Norwegian School of Economics); Hopland, Arnt O. (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: We show that an insight from taxation theory allows identification of both the supply and demand elasticities with only one instrument. Ramsey (1928) and subsequent models of taxation assume that a tax levied on the demand side only affects demand through the price after taxation. Econometrically, we show that this assumption functions as an additional exclusion restriction. Under the Ramsey Exclusion Restriction (RER) a tax reform can serve to simultaneously identify elasticities of supply and demand. We develop a TSLS estimator for both elasticities, a test to assess instrument strength and a test for the RER. Our result extends to a supply-demand system with J goods, and a setting with supply-side or non-linear taxes. Further, we show that key results in the sufficient statistics literature rely on the RER. One example is Harberger’s formula for the excess burden of a tax. We apply our method to the Norwegian labor market.
    Keywords: Tax Reform; Instrumental Variable; Supply and Demand Elasticities; Tax Incidence; Payroll Taxation
    JEL: C36 H22 H31 H32 J22 J23
    Date: 2017–02–27
  14. By: Pedro Brinca; Hans A. Holter; Per Krusell; Laurence Malafry
    Abstract: The recent experience of a Great Recession has brought the effectiveness of fiscal policy back into focus. Fiscal multipliers do, however, vary greatly over time and place. Running VARs for a large number of countries, we document a strong correlation between wealth inequality and the magnitude of fiscal multipliers. To explain this finding, we develop a life-cycle, overlapping generations economy with uninsurable labor market risk. We calibrate our model to match key characteristics of a number of OECD economies, including the distribution of wages and wealth, social security, taxes and debt and study the effects of changing policies and various forms of inequality on the fiscal multiplier. We find that the fiscal multiplier is highly sensitive to the fraction of the population who face binding credit constraints and also negatively related to the average wealth level in the economy. This explains the correlation between wealth inequality and fiscal multipliers.
    Keywords: Fiscal Multipliers, Wealth Inequality, Government Spending, Taxation
    JEL: E21 E62 H50
    Date: 2015–09
  15. By: Bo Hyun Chang; Youngsung Chang; Sun-Bin Kim
    Abstract: We develop a quantitative heterogeneous-agents general equilibrium model that reproduces the income inequalities of 32 countries in the Organization for Economic Co-operation and Development. Using this model, we compute the optimal income tax rate for each country under the equal-weight utilitarian social welfare function. We simulate the voting outcome for the utilitarian optimal tax reform for each country. Finally, we uncover the Pareto weights in the social welfare functions of each country that justify the current redistribution policy.
    Keywords: Income Inequality, Optimal Tax, Pareto Weights, Political Economy, Redistribution
    Date: 2016–02
  16. 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. Its key contribution is the development of 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.
    Keywords: Tax administration;Optimal taxation;Tax elasticity;Tax rates;Tax administration, tax compliance, optimal taxation
    Date: 2017–01–20
  17. By: David Kershaw
    Abstract: The Negative Income Tax Experiment in New Jersey: General Discussion
    Keywords: Negative Income Tax, National basic income, Graduated work incentive, Graduated tax
    JEL: J I
  18. By: Berger, Melissa; Misch, Florian; Voget, Johannes
    Abstract: In this paper we study the effects of profit taxation on the creation of new firms using a unique data set covering all firms created in Germany since 2000 irrespective of whether they are German or foreign owned. We exploit the fact that each municipality in Germany is able to independently set the rate of local profit taxation, whereas all tax-base related regulation is identical across municipalities. Our analyzes show that firms react to some incentives induced by profit taxes, but to a small extent and depending on the legal status of the firm.
    JEL: H25 H71 D22
    Date: 2016
  19. By: Gohar Samvel Sedrakyan (Department of Economics, International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University); Laura Varela-Candamio (Dpt. Economic Analysis and Business Administration, University of A Coruna. Jean Monnet Group on Competition and Development (C+D) and RIFDE)
    Abstract: There is considerable controversy in the economic literature concerning whether particular government expenditures have an impact on economic growth. This study analyzes the macroeconomic magnitude of government expenditures in Armenia and Spain and evaluates whether there exists a causal relationship between government expenditures and economic growth and vice versa (Keynesian hypothesis and Wagner’s Law). The study employs VAR tests to analyze annual data for the years 1996-2014. Furthermore, by utilizing Granger causality tests, the study reveals whether the government expenditures are a significant factor in economic growth in short-term perspective. Finally, IRF and FEVD tests are applied to estimate the effect of a change in particular government expenditures on GDP for twelve year time horizon. This study validates the hypothesis that some public expenditures by the Armenian and Spanish public sectors positively contribute to the growth of their economies, while social protection is negatively related to GDP.
    Date: 2017–02
  20. By: Kenneth Kehrer Stanley Stephenson; Jr.
    Abstract: Describes a welfare reform experiment conducted in Gary, Indiana, between 1971 and 1974 as well as results on participants’ work incentives and family well-being.
    Keywords: Negative Income Tax, National basic income, Graduated work incentive, Graduated tax
    JEL: J I
  21. By: Paolo Dudine; João Tovar Jalles
    Abstract: In this paper we provide short- and long-run tax buoyancy estimates for 107 countries (distributed between advanced, emerging and low-income) for the period 1980–2014. By means of Fully-Modified OLS and (Pooled) Mean Group estimators, we find that: i) for advanced economies both long-run and short-run buoyancies are not different from one; ii) long run tax buoyancy exceeds one in the case of CIT for advanced economies, PIT and SSC in emerging markets, and TGS for low income countries, iii) in advanced countries (emerging market economies) CIT (CIT and TGS) buoyancy is larger during contractions than during times of economic expansions; iv) both trade openness and human capital increase buoyancy while inflation and output volatility decrease it.
    Keywords: Tax systems;Tax revenues;Tax elasticity;Business cycles;Developed countries;Emerging markets;Low-income developing countries;Panel analysis;Time series;tax elasticity, recession, error correction model, pooled mean group, short vs long run, fiscal sustainability
    Date: 2017–01–19
  22. By: Tobias Laun; Johanna Wallenius
    Abstract: We study the role of old-age pensions, disability insurance and healthcare in accounting for the differing labor supply patterns of older individuals across countries. We develop a life cycle model of labor supply and health with heterogeneous agents. In our framework, people choose when to stop working and when/if to apply for disability and pension benefits. We find that the incentives faced by older workers differ hugely across countries. In fact, based solely on differences in social insurance programs, the model predicts even more cross-country variation in the employment rates of people aged 55-69 than we observe in the data.
    Keywords: Life cycle, Retirement, Disability insurance, Health
    JEL: E24 J22 J26
    Date: 2016–06

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