nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒05‒21
fifteen papers chosen by
Thomas Andrén

  1. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly" By Takanori Adachi; Michal Fabinger
  2. Non-Tax Revenue in the European Union: A Source of Fiscal Risk? By Gilles Mourre; Adriana Reut
  3. The effects of Fiscal Consolidations: Theory and Evidence By Alesina, Alberto; Barbiero, Omar; Favero, Carlo A.; Giavazzi, Francesco; Paradisi, Matteo
  4. Pension Reforms in the EU since the Early 2000's: Achievements and Challenges Ahead By Giuseppe Carone; Per Eckefeldt; Luigi Giamboni; Veli Laine; Stéphanie Pamies Sumner
  5. Using Kinked Budget Sets to Estimate Extensive Margin Responses: Evidence from the Social Security Earnings Test By Alexander M. Gelber; Damon Jones; Daniel W. Sacks; Jae Song
  6. Tax policy: The fiscal revenue effects of international tax planning By Beznoska, Martin; Hentze, Tobias
  7. Growth Effects of Annuities and Government Transfers in Perpetual Youth Models By Miyoshi, Yoshiyuki; Toda, Alexis Akira
  8. Stock Option Taxation: A Missing Piece in European Innovation Policy? By Henrekson, Magnus; Sanandaji, Tino
  9. Decomposition of changes in the EU income distribution in 2007-2011 By Tasseva, Iva Valentinova; Paulus, Alari
  10. Innovations in Protecting the Old: Mostly Social Insurance and Some Assets By Teresa Ghilarducci
  11. The Effectiveness of Consumption Taxes and Transfers as Insurance against Idiosyncratic Risk By Tomoyuki Nakajima; Shuhei Takahashi
  12. Can They Do It All? Fiscal Space in Low-Income Countries By Anja Baum; Andrew Hodge; Aiko Mineshima; Marialuz Moreno Badia; Rene Tapsoba
  13. The Labor Consequences of Financializing Pensions By Teresa Ghilarducci, Amanda Novello
  14. Tax devaluation with endogenous margins By Pascal Belan; Clément Carbonnier; Martine Carré
  15. Collateral effects of a pension reform in France By Hélène Blake; Clémentine Garrouste

  1. By: Takanori Adachi (School of Economics, Nagoya University,); Michal Fabinger (Faculty of Economics, The 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. First, in the case of symmetric firms, 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 are expressed using elasticities and curvatures of demand and inverse demand. These results also apply to symmetric oligopoly with multi-product firms. Second, we present a generalization with the tax revenue function specified as a general function parameterized by a vector of tax parameters. We analyze multi-dimensional pass-through, generalizing the results of Weyl and Fabinger (2013), and show that it is crucial for evaluating welfare changes in response to changes in taxation. Finally, we generalize our results to the case of heterogeneous firms, as well as to the case of changes in both production costs and taxes.
    Date: 2017–03
  2. By: Gilles Mourre; Adriana Reut
    Abstract: This paper examines the characteristics of government non-tax revenue in the European Union. Nontax revenue includes a large number of diverse income sources, such as fees charged for the provision of public services, income from financial assets and government property, and EU funds. Receipts from sources other than taxes account for slightly more than one-tenth of total revenue, but the fiscal risk stemming from the volatility of non-tax revenue is three times higher than that from the volatility of tax revenue. We present measurements of volatility in non-tax receipts in the Member States that can help identify the uncertainty around annual projections of revenue. Panel data analysis is used to examine whether macroeconomic and fiscal variables can explain the differences in non-tax revenue among Members States. Government spending, tax receipts and the size of financial assets held by government are found to explain close to a third of the cross-sectional variation in non-tax revenue. Granger causality tests are used to examine the direction of causality across Member States between non-tax revenue, tax receipts, and government spending.
    JEL: E62 H27
    Date: 2017–02
  3. By: Alesina, Alberto; Barbiero, Omar; Favero, Carlo A.; Giavazzi, Francesco; Paradisi, Matteo
    Abstract: We investigate the macroeconomic effects of fiscal consolidations based upon government spending cuts, transfers cuts and tax hikes. We extend a narrative dataset of fiscal consolidations, finding details on over 3500 measures. Government spending and transfer cuts are much less harmful than tax hikes. Standard New Keynesian models match our results when fiscal shocks are persistent. Wealth effects on aggregate demand mitigates the impact of a persistent spending cut. Static distortions caused by persistent tax hikes cause larger shifts in aggregate supply under sticky prices. This channel explains different sizes of multipliers found in fiscal stimuli compared to consolidation plans.
    Keywords: fiscal consolidation plans; Fiscal multipliers
    JEL: E62
    Date: 2017–05
  4. By: Giuseppe Carone; Per Eckefeldt; Luigi Giamboni; Veli Laine; Stéphanie Pamies Sumner
    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 people fall into poverty in old age.
    JEL: H55 J26 J1
    Date: 2016–12
  5. By: Alexander M. Gelber; Damon Jones; Daniel W. Sacks; Jae Song
    Abstract: We develop a method for estimating the effect of a kinked budget set on workers' employment decisions, and we use it to estimate the impact of the Social Security Old-Age and Survivors Insurance (OASI) Annual Earnings Test (AET). The AET reduces OASI claimants' current OASI benefits in proportion to their earnings in excess of an exempt amount. Using a Regression Kink Design and Social Security Administration data, we document that the discontinuous change in the benefit reduction rate at the exempt amount causes a corresponding change in the employment rate. We develop conditions in a general setting under which we can use such patterns to estimate the elasticity of the employment rate with respect to the effective average net-of-tax rate. Our resulting elasticity point estimate for the AET is at least 0.49, suggesting that the AET reduces employment by more than one percentage point in the group we study.
    JEL: H24 H31 H55 J14 J22
    Date: 2017–04
  6. By: Beznoska, Martin; Hentze, Tobias
    Abstract: In the course of the 'Panama Papers' discussion, questions arise concerning the fiscal effects of international profit shifting and tax avoidance. A recent OECD study estimates the worldwide corporate tax losses to lie between 4 and 10 percent of the revenues. Applied to Germany, this would reflect between 3 and 7 billion Euro or maximum 1 percent of total tax revenues. However, the estimation underlies questionable assumptions and therefore severe uncertainties.
    Date: 2016
  7. By: Miyoshi, Yoshiyuki; Toda, Alexis Akira
    Abstract: We show that in overlapping generations endogenous growth models with uncertain lifetime, the introduction of government transfers always increases economic growth by crowding out the private annuity market and increasing accidental bequests. In particular, if the government imposes a flat-rate consumption tax (which is neutral to the consumption-saving margin), uses part of the tax revenue for unproductive purposes, and rebates the rest equally across agents as a lump-sum transfer, the economy grows faster and improves the welfare of future generations.
    Keywords: annuity, endogenous growth, overlapping generations, redistribution
    JEL: D58 E21 H20 H21 O41
    Date: 2016–05–16
  8. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Sanandaji, Tino (Institute for Economic and Business History Research (EHFF), Stockholm School of Economics)
    Abstract: Venture capital has become a dominant form of innovation finance, used by many high-tech startups. Europe lags the U.S. in both VC activity and the creation of successful startups, and has recently been surpassed by China. Few European countries have rates of VC activity commensurable to their deep finan­cial markets, strong legal institutions and high R&D spending. This paper points to the tax treatment of employee stock options as an important and neglected explanation. Innovative entrepreneurship is a complex activity that normally requires support structures and collaboration by actors providing financial and human capital to startups. As a response to high uncertainty and transaction costs, VC financiers developed a model where founders and key recruitments are compensated with stock options under complex contracts. While most countries tax stock options as labor earnings, the U.S. allow them to be taxed at a low capital gains tax rate. This has led to near universal use of stock options in U.S. VC deals, while this remains less common in Europe. There is a strong correlation between favorable tax treatment of employee stock options and VC activity. We discuss the interaction between tax policy and contract theory to show why employee stock options are a suitable solution to agency and incentive problems in this sector. A major advantage of this tax policy is that it narrowly targets entrepreneurial startups without requiring broad tax cuts.
    Keywords: Business taxation; Corporate governance; Entrepreneurship; Innovation; Institutions; Tax policy; Stock options; Venture capital
    JEL: H25 H30 K34 L26
    Date: 2017–05–12
  9. By: Tasseva, Iva Valentinova; Paulus, Alari
    Abstract: We summarise and decompose changes in the household disposable income distribution in 2007-2011 across 27 EU countries to study the impact of the Great Recession on household incomes and the key factors contributing to it. Using microsimulation techniques and applying the EU tax-benefit model EUROMOD in combination with EUSILC household micro-data, we separate direct (first-order) effects of tax-benefit policy on the income distribution from the effects of changes in household market incomes and characteristics. There is substantial variation in income dynamics between and within countries. We find that in most countries, changes in market income and population characteristics had a poverty- and inequality-increasing effect, while policies were more often poverty- and inequality-reducing. However, there is no clear country-level correlation between the two effects in this period.
    Date: 2017–05–10
  10. By: Teresa Ghilarducci (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: Currently, there is an ideological commitment to individual asset building and an emphasis on individual wealth for retirement and superannuation. However, this focus embeds fatal flaws in old age income support programs. As a result, access to government subsidies for retirement savings is varied and has generated new sources of inequality. This paper was submitted to the Initiative for Policy Dialogue at Columbia University for an edited volume on “Innovations in the Welfare State” edited by Joseph Stiglitz.
    Keywords: Social Security, Individual Assets, Retirement Policy
    JEL: H55 H2
    Date: 2017–05
  11. By: Tomoyuki Nakajima (Institute of Economic Research, Kyoto University); Shuhei Takahashi (Institute of Economic Research, Kyoto University)
    Abstract: We quantitatively evaluate the effectiveness of a consumption tax and transfer pro- gram as insurance against idiosyncratic earnings risk. Our framework is a heterogeneous- agent, incomplete-market model with idiosyncratic wage risk and indivisible labor. The model is calibrated to the U.S. economy. We find a weak insurance effect of the transfer program. Extending the transfer system from the current scale raises consumption un- certainty, which increases aggregate savings and reduces the interest rate. Furthermore, consumption inequality shows a small decrease.
    Keywords: Consumption taxes; Transfers; Risk sharing; Consumption inequality; Indivisible labor; Incomplete markets
    JEL: E62 D31 J22 C68
    Date: 2017–03
  12. By: Anja Baum; Andrew Hodge; Aiko Mineshima; Marialuz Moreno Badia; Rene Tapsoba
    Abstract: According to U.N. estimates, low-income countries will have to increase their annual public spending by up to 30 percent of GDP to achieve the Sustainable Development Goals (SDGs), raising the question of whether they can do it all. This paper develops a new metric of fiscal space in low-income countries that accounts for macroeconomic uncertainty, allowing us to assess whether those spending needs can be accommodated. Illustrative simulations based on this methodology imply that, even under benign conditions, the fiscal space available in lowincome countries is likely insufficient to undertake the spending needed to achieve the SDGs. Improving public investment efficiency and domestic revenue mobilization can somewhat narrow the gap but it will require major efforts relative to recent trends.
    Date: 2017–05–05
  13. By: Teresa Ghilarducci, Amanda Novello (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: Income in retirement has become increasingly based on individual financial assets rather than from Social Security. Using OECD data, the authors show that the instability of financialized retirement systems is related to workers staying in the labor force longer than before, as well as higher rates of old age poverty.
    Keywords: Pension Policy, Government Expenditure, Retirement, Individual Assets
    JEL: H55 H3 J2
    Date: 2017–05
  14. By: Pascal Belan (THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique); Clément Carbonnier (THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique); Martine Carré (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)
    Abstract: Several European countries have recently envisaged to implement fiscal policies that constitute alternatives to monetary devaluation in the context of a monetary union. Social value-added tax is one of these alternatives: it consists to shift fiscal revenue from payroll tax to value-added tax, with the objective to address simultaneously competitiveness and employment problems. We analyze the consequence of such a policy in a model of international trade with heterogeneous firm à la Melitz. We depart from the CES case for taking account of the way changes in the tax rates may mo dify competition between producers, their margins, and the way these changes are refefected in prices. We first show that social VAT is neutral for zero trade balances. Then, in a two-country model, we show that, after the introduction of the social VAT, intensive and extensive margins increase in the net importing country regardless of the country that implements the policy. Both margins decrease in the net exporting country. Considering non-CES utility functions, the effects of social VAT are attenuated (amplified) if love for variety increases (decreases) with quantities
    Keywords: Fiscal devaluation,social VAT,tax reform,international trade
    Date: 2017–04–28
  15. By: Hélène Blake (PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Clémentine Garrouste (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)
    Abstract: How does the retirement age affect the physical and mental health of seniors? We identify this effect based on the 1993 reform of the French pension system, which was heterogeneously introduced among the population. With each cohort, the French government gradually increased the incentive to work using two tools: the contribution period required for entitlement to a full pension and the number of reference earning years taken to calculate pensions. We use a unique database on health and employment in France in 1999 and 2005, when the cohorts affected by the reform started to retire. A difference-in-differences approach, with the control group comprising public sector employees (not concerned by the 1993 reform), finds that the people more affected by the reform, and hence with a stronger incentive to work, were those posting less of an improvement and even a deterioration in their health between 1999 and 2005. Subsequently, taking the reform as a tool to filter out the potential influence of health on employment choices, we show that retirement improves physical and social health. The more physically impacted are the low-educated individuals.
    Keywords: Health,Pension Reform,Retirement
    Date: 2017–04–03

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