nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒04‒23
fifteen papers chosen by
Thomas Andrén

  1. Intergenerational transfers, tax policies and public debt By Erwan MOUSSAULT
  2. The Horizontally s-shaped laffer curve By Fève, Patrick; Matheron, Julien; Sahuc, Jean-Guillaume
  3. Fiscal policy, inequality, and the poor in the developing world By Nora Lustig
  4. Distributional Impacts of Energy Taxes By William A. Pizer; Steven Sexton
  5. The taxation of extractive industries: Mining By James M. Otto
  6. Repatriation Taxes and Foreign Cash Holdings: The Impact of Anticipated Tax Policy By De Simone, Lisa; Piotroski, Joseph D.; Tomy, Rimmy E.
  7. Taxation of Swedish Firm Owners: The Great Reversal from the 1970s to the 2010s By Henrekson, Magnus
  8. The Long Reach of Education: Health, Wealth, and DI Participation By James M. Poterba; Steven F. Venti; David A. Wise
  9. Pension reforms in the EU since the early 2000's: achievements and challenges ahead By Carone, Giuseppe; Eckefeldt, Per; Giamboni, Luigi; Laine, Veli; Pamies, Stephanie
  10. THE TAX SYSTEM OF BELARUS By Kirill Shakhnov
  11. Capital taxation : principles , properties and optimal taxation issues By Céline Antonin; Vincent Touze
  12. Tax revenues in transition countries: Structural changes and their policy implications By Ismoil Khujamkulov
  13. Industrial Policies vs Public Goods under Uncertainty By Constantino Hevia; Norman Loayza; Claudia Meza-Cuadra
  14. Do Payroll Tax Breaks Stimulate Formality? Evidence from Colombia’s Reform By Adriana Kugler; Maurice Kugler; Luis Omar Herrera Prada
  15. Equality among Unequals By Mathieu Faure; Nicolas Gravel

  1. By: Erwan MOUSSAULT (Université de Cergy-Pontoise, THEMA)
    Abstract: This paper studies the impact of the tax system on intergenerational family transfers in an overlapping generation model of a closed economy, with endogenous human capital growth. We limit ourselves to simple tax structures with labor and inheritance taxes. When public debt is an available instrument for the government, we show that the fiscal policy used to achieve the long run optimal endogenous growth improves the individuals' consumption of the first generations. In this case, the government reduces the tax burden on labor, encourages human capital development and puts in place a redistributive policy. If the public debt is not available, the government does not pursue a redistributive policy, both tax rates implemented are higher and the long run human capital growth is greater as well. In all cases, the optimal inheritance tax rate is higher than the optimal tax rate on labor income.
    Keywords: family transfers, debt, altruism, growth, optimal taxation.
    JEL: D64 H21 H23 H63 I31
    Date: 2017
  2. By: Fève, Patrick; Matheron, Julien; Sahuc, Jean-Guillaume
    Abstract: In a neoclassical growth model with incomplete markets and heterogeneous, liquidity-constrained agents, the properties of the Laffer curve depend on whether debt or transfers are adjusted to balance the government budget constraint. The Laffer curve conditional on public debt is horizontally S-shaped. Two opposing forces explain this result. First, when government wealth increases, the fiscal burden declines, calling for lower tax rates. Second, because the interest rate decreases when government wealth increases, fiscal revenues may also decline, calling for higher taxes. For sufficiently negative government debt, the second force dominates, leading to the odd shape of the Laffer curve conditional on debt.
    Keywords: Laffer Curve, Incomplete Markets, Labor Supply, Public Debt.
    JEL: E00 E60
    Date: 2017–03
  3. By: Nora Lustig
    Abstract: Using comparable fiscal incidence analysis, this paper examines the impact of fiscal policy on inequality and poverty in 25 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 at the poor and direct taxes targeted at the rich. While fiscal policy always reduces inequality, this is not the case with poverty. Fiscal policy increases poverty in 4 countries using a US$1.25/day PPP poverty line, in 8 countries using a US$2.50/day line, and in 15 countries using a US$4/day line (over and above market income poverty). Net direct taxes are always equalizing and net indirect taxes are equalizing in 17 of the 25 countries. 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.
    Date: 2016
  4. By: William A. Pizer; Steven Sexton
    Abstract: Despite popularity among economists for their efficiency, energy pollution taxes enjoy less political support than standards-based regulation because of common perceptions that they burden the poor relative to the rich. However, the literature on pollution tax incidence and consumption surveys in Mexico, the United Kingdom, and the United States, suggest energy taxes need not be as regressive as often assumed. This paper demonstrates that the incidence of such taxes varies according to the energy commodities that are taxed, the physical, social and climatic characteristics of jurisdictions in which they are implemented, and how the revenue is used. It is also shown that the variation in household energy expenditure within income groups is greater than variation across income groups in many cases. These horizontal equity impacts are reviewed, as are their implications for policy making.
    JEL: H22 Q41 Q48
    Date: 2017–04
  5. By: James M. Otto
    Abstract: The taxation of the mining industry varies considerably from nation to nation. This paper reflects on the evolving use of various taxation approaches applied by governments to the mining sector. It includes a description of the principal tax types and investment tax incentives and briefly describes the main policy issues pertaining to mineral sector taxation. The author concludes that governments when devising mineral sector fiscal systems should carefully assess their fiscal options in a holistic approach that anticipates commodity price cycles, and that mining companies should anticipate fiscal system changes that reflect the evolution of the political economy in which they operate.
    Date: 2017
  6. By: De Simone, Lisa (Stanford University); Piotroski, Joseph D. (Stanford University); Tomy, Rimmy E. (University of Chicago)
    Abstract: We examine whether anticipation of Congress enacting a reduction in repatriation taxes affects the amount of cash U.S. multinational corporations (MNCs) hold overseas. Prior papers have focused on which U.S. MNCs repatriated foreign cash and how they deployed these funds following the repatriation tax holiday in 2004. We build on this literature and examine whether MNCs were willing to incur the costs of holding excess cash in response to anticipated but uncertain tax legislation. We find that U.S. MNCs most likely to benefit from this anticipated (yet not enacted) legislation began accumulating significant cash holdings once Congress initially proposed and began deliberating a second repatriation tax holiday. Further tests reveal that this cash accumulation was accompanied by two complementary activities designed to maximize expected tax benefits: tax-motivated income shifting and increases in permanently reinvested foreign earnings. The documentation of such preemptive behavior by corporations contributes to the literature on how firms respond to tax-induced incentives, provides a new explanation for the dramatic growth in cash holdings by U.S. MNCs over the last decade, and raises important questions about the long-run consequences of enacting temporary tax regulation.
    JEL: G30 G38 H25 M16
    Date: 2017–03
  7. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN))
    Abstract: By the late 1960s, real effective taxation of income from individual firm owner­ship in Sweden approached 100 percent. A series of tax reforms initiated in the late 1970s reversed this situation. This paper has a threefold purpose: (1) to elucidate the thinking behind the vision of creating a largely market-based system without wealthy capitalists and how that vision guided the design of the tax system; (2) to outline and evaluate the numerous changes in the tax code made since the late 1970s, the empirical and intellectual basis of these changes, and the implications of these changes for the taxation of individual firm ownership; and (3) to compare the size of the largest individual wealth holdings in the mid-1960s to their equivalents in the 2010s and discuss in what sense and to what extent the general public’s views have changed regarding sizeable individual income streams and wealth derived from business activity. Today, the tax code favors already wealthy individuals. By contrast, high labor income taxation combined with a high valuation of existing assets renders wealth accumulation difficult for persons with no initial wealth.
    Keywords: Owner-level taxation; Entrepreneurship; Institutions; Sweden; Tax policy
    JEL: H20 H32 L26 N44
    Date: 2017–04–07
  8. By: James M. Poterba; Steven F. Venti; David A. Wise
    Abstract: Education is strongly related to participation in the Social Security Disability Insurance (DI) program. To explore this relationship, we describe the correlation between education and DI participation, and then explore how four factors related to education – health, wealth, occupation, and employment – feature in this correlation. We label these four factors “pathway” variables. We find that a large component of the relationship between education and DI participation – more than one-third for men, and over two-thirds for women – can be attributed to the correlation of education with health, and of health with DI receipt. We use data from the Health and Retirement Study for the 1992-2012 period to explore the corresponding roles for each of the pathway variables, and also to study how changes over time in these variables, such as the widening gap between the health status of those with high and low educational attainment, have affected DI participation.
    JEL: H53 H55 I26
    Date: 2017–04
  9. By: Carone, Giuseppe; Eckefeldt, Per; Giamboni, Luigi; Laine, Veli; Pamies, Stephanie
    Abstract: Most EU Member States have carried out substantial pension reforms over the last decades in order to enhance fiscal sustainability, while maintaining adequate pension income. The intensity of pension reforms has been particularly strong since 2000. These reforms have been implemented through a wide range of measures that have substantially modified the pension system rules and parameters. One of the most important elements of pension reforms, aside of whether countries engaged or not in a systemic change, has been the introduction of mechanisms aimed at automatically adjusting (indexing) the key pension parameters (pension age, benefits, financing resources) to demographic pressure (e.g. changes in life expectancy, increase in the dependency ratio). Indeed, since the mid-1990's, half of the EU Member States have adopted either automatic balancing mechanisms, sustainability factors and / or automatic links between retirement age and life expectancy. All these pension reforms are projected to have a substantial impact on containing future pension expenditure trends. According to the latest long-term projections in the 2015 Ageing Report, public pension expenditure is projected to be close to 11% of GDP over the long run in the EU, almost the same as in 2013. However, the fiscal impact of ageing is still projected to be substantial in many EU countries, becoming apparent already over the course of the next two decades. This is also due to the very gradual phasing in of already legislated reforms, an issue that raises questions about the intergenerational fairness of the reforms and poses some doubt on the time-consistency of their implementation. Indeed, the sustainability-enhancing pension reforms legislated in a majority of EU countries will lead to a reduction of generosity of public pension schemes for future generations of retirees. But to make sure that these reforms will not have to face political and social resistance and risk of reversal in the moment they start to be implemented in full, other "flanking" policy measures are likely to be necessary: for example, reforms that boost retirement incomes by effectively extending working lives and employability of older workers (also through flexible working arrangements that allow people to keep working beyond current formal retirement age and to step down gradually from full-time to part-time to very part-time work) and provide other means of retirement incomes (e.g. private pensions) and appropriate social-safety nets to avoid that low-wage people follow back in poverty at old age.
    Keywords: Pensions, ageing population, public expenditure, debt, deficit, potential growth, structural reforms, retirement age, older workers, longevity risk.
    JEL: H52 H55 J1 J26
    Date: 2016–12–20
  10. By: Kirill Shakhnov
    Abstract: This paper provides a comprehensive analysis of taxation in Belarus. I compare the dynamics of the tax rates and the tax revenue in Belarus to the world averages and to other countries of the Eurasian Union. The paper studies the the harmonization of the rates within the union and the efficiency of tax collection. Finally, the two possible reforms of taxation in Belarus and its possible consequences are discussed: an increase of VAT; reintroduction of the progressive personal income tax.
    Keywords: Flat Tax, VAT, Efficiency, Eurasian Union
    JEL: H21 F62
    Date: 2016–10
  11. By: Céline Antonin (Observatoire français des conjonctures économiques); Vincent Touze (Observatoire français des conjonctures économiques)
    Abstract: This article addresses the issue of capital taxation relying on three levels of analysis. The first level deals with the multiple ways to tax capital (income or value, proportional or progressive taxation, and the temporality of the taxation) and presents some of France's particular features within a heterogeneous European context. The second area of investigation focuses on the main dynamic properties generated by capital taxation: the principle of equivalence with a tax on consumption; the issue of double taxation if it targets taxation of nominal income; neutrality of the uniform tax on the capital value; lastly, the risk of confiscatory taxation if there is a disjunction between taxation of the value and the income. The final level ofanalysis consists in assessing the debate on the optimal level of capital taxation drawing on the lessons in the literature. These discussions are organized into eight themes: (1) double taxation, (2) optimal growth, (3)property, (4) tax competition, (5) supervisory arguments, (6) measuring capital gains, (7) complexity and (8) fiscal stability
    Keywords: Taxation; Savings; Accumulation of capital
    JEL: D90 E21 H20
    Date: 2017–03
  12. By: Ismoil Khujamkulov
    Abstract: Changes in the tax structure and category of taxes clearly matter when it comes to initiating tax policies. This paper employs data from a sample of 33 transitional countries over the period 1991–2014. It finds that, in a particular transitional country, the higher the national income, the degree of openness, the share of the non-agricultural sector, the rate of population growth, the extent of urbanization, the density of population, the proportion of younger population, and the employment rate, the higher the ratio of taxes to GDP. Moreover, GDP per capita growth can bring about changes in the tax structure of a country. The findings also indicate that determining the causes of change in the composition of tax revenue during the course of economic development as indicated by GDP per capita growth is helpful in creating a more effective tax revenue mix in transition economies.Creation-Date: 2016
  13. By: Constantino Hevia (Universidad Torcuato di Tella); Norman Loayza (The World Bank); Claudia Meza-Cuadra (The World Bank)
    Abstract: This paper presents an analytical framework that captures the informational problems and trade-offs that policy makers face when choosing between public goods (e.g., infrastructure) and industrial policies (e.g., firm or sector-specific subsidies). After a discussion of the literature, we set up the model economy, consisting of a government and a set of heterogeneous firms. We first present the first-best allocation (under full information) of government resources among firms. We then introduce uncertainty by restricting information regarding firm productivity to be private to the firm. We develop an optimal contract (which replicates the first best) consisting of a tax-based mechanism that induces firms to reveal their true productivity. As this requires high government capacity, we consider other simpler policies. We conclude that providing public goods is likely to dominate industrial policies under most scenarios, especially when government capacity is low.
    Keywords: Industrial Policy, Public Goods, Uncertainty, Private Information, Firm Subsidies and Taxes
    JEL: H2 H4 O1 O2
    Date: 2017–04
  14. By: Adriana Kugler; Maurice Kugler; Luis Omar Herrera Prada
    Abstract: Alternative work arrangements have grown rapidly around the world. In Latin America, these alternative work arrangements have long been part of the labor market and have continued to grow. The informal sector grew rapidly in Latin America over the past few decades comprising up to half of the working population in many countries. Some attribute the growth in alternative work arrangements and informality to regulations and taxes, while others argue that it is precisely the lack of enforcement of regulations that allows unprotected employment arrangements to flourish. We examine whether reducing taxes associated with employment stimulates formal sector employment. We exploit the fact that the Tax Reform introduced in Colombia in 2012 affected only certain types of workers and not others. In particular, workers earning less than 10 minimum wages (MW) and self-employed workers with more than 2 employees experienced a reduction of payroll taxes of 13.5% between 2013 and 2014. We use the Colombian Household Surveys, Social Security records and the Monthly Manufacturing Sample to conduct difference-in-difference analyses of the reform. We find evidence of increased formal employment for the affected groups after the reform using all three datasets. We find that the probability of formal employment and the likelihood of transitioning into registered employment increased for the affected groups after the reform. We also find that the level and share of permanent employment relative to temp employment grew after the reform for those earnings less than 10 MW. The results are greatest for those in smaller firms and those earnings close to the MW.
    JEL: H2 J2 J24 J31
    Date: 2017–04
  15. By: Mathieu Faure (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille 2 - Université Paul Cézanne - Aix-Marseille 3 - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Nicolas Gravel (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille 2 - Université Paul Cézanne - Aix-Marseille 3 - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper establishes an equivalence between three incomplete rankings of distributions of income among agents that are vertically differentiated with respect to some other non-income characteristic (health, household size, etc.). The first ranking is that associated with the possibility of going from one distribution to the other by a finite sequence of income transfers from richer and more highly ranked agents to poorer and less highly ranked ones. The second ranking is the unanimity of all comparisons of two distributions made by a utilitarian planer who assumes that agents convert income into utility by the same function exhibiting a marginal utility of income that is decreasing with respect to both income and the source of vertical differentiation. The third ranking is the Bourguignon (1989) ordered poverty gap dominance criterion.
    Keywords: equalization,transfers,heterogenous agents,poverty gap,dominance,utilitarianism
    Date: 2017–01

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