nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒06‒11
ten papers chosen by
Thomas Andrén

  1. Making income and property taxes more growth-friendly and redistributive in India By Isabelle Joumard; Alastair Thomas; Hermes Morgavi
  2. Disability Benefits, Consumption Insurance, and Household Labor Supply By David Autor; Andreas Ravndal Kostol; Magne Mogstad; Bradley Setzler
  3. Shifting priorities in EU tax policies By Sarah Godar; Achim Truger
  4. When and why do countries break their national fiscal rules? By Reuter, Wolf Heinrich
  5. Taxation trends in the European Union: 2016 edition By European Commission
  6. Beggar-Thy-Neighbour Tax Cuts: Mobility after a Local Income and Wealth Tax Reform in Switzerland By MARTINEZ Isabel
  7. Impact of public debt (un)sustainability on fiscal policy effectiveness in Croatia By Hrvoje Šimović
  8. Behavioral Insights and Business Taxation: Evidence from Two Randomized Controlled Trials By Biddle, Nicholas; Fels, Katja; Sinning, Mathias
  9. Tax Policies in the European Union: 2016 Survey By European Commission
  10. Stability and welfare effects of profit taxes within an evolutionary market interaction model By Schmitt, Noemi; Tuinstra, Jan; Westerhoff, Frank

  1. By: Isabelle Joumard (OECD); Alastair Thomas (OECD); Hermes Morgavi (OECD)
    Abstract: Tax reforms are crucial to promoting inclusive growth in India. The replacement of a myriad of consumption taxes by a Goods and Services Tax (GST) will boost India's competitiveness, investment, job creation and tax compliance. The potential to raise additional revenue from taxes on goods and services is however limited. In contrast, reforming income and property taxes should help to i) raise more revenue to finance much needed social and physical infrastructure while keeping public debt under control; ii) reduce inequality by increasing the redistributive effect of taxation; iii) promote productivity by reducing distortions in the allocation of resources which emanate from the corporate income tax; iv) boost job creation by eliminating the bias against labour-intensive activities; v) promote confidence, and thus investment, by improving clarity and certainty regarding tax rules and their application and vi) reinforce the ability of states and municipalities to provide key public infrastructure and services. This paper presents the main characteristics of the tax system as well as the rationale and options for reform.
    Keywords: base erosion and profit shifting, income tax, inheritance tax, tax administration, tax system
    JEL: H20 H24 H25 H26 H71
    Date: 2017–06–08
  2. By: David Autor; Andreas Ravndal Kostol; Magne Mogstad; Bradley Setzler
    Abstract: While a mature literature finds that Disability Insurance (DI) receipt discourages work, the welfare implications of these findings depend on two rarely studied economic quantities: the full cost of DI allowances to taxpayers, summing over DI transfer payments, benefit substitution to or from other transfer programs, and induced changes in tax receipts; and the value that individuals and families place on receiving benefits in the event of disability. We comprehensively assess these missing margins in the context of Norway's DI system, drawing on two strengths of the Norwegian environment. First, Norwegian register data allow us to characterize the household impacts and fiscal costs of disability receipt by linking employment, taxation, benefits receipt, and assets at the person and household level. Second, random assignment of DI applicants to Norwegian judges who differ systematically in their leniency allows us to recover the causal effects of DI allowance on individuals at the margin of program entry. Accounting for the total effect of DI allowances on both household labor supply and net payments across all public transfer programs substantially alters our picture of the consumption benefits and fiscal costs of disability receipt. While DI allowance causes a significant increase in household income and consumption on average, it has little impact on income or consumption of married applicants because spousal earnings responses (via the added worker effect) and benefit substitution entirely offset DI benefit payments among those who are allowed relative to those who are denied. To develop the welfare implications of these findings, we estimate a dynamic model of household behavior that translates employment, reapplication and savings decisions into revealed preferences for leisure and consumption. We find that household valuation of receipt of DI benefits is considerably greater for single and unmarried individuals than for married couples because spousal labor supply substantially buffers household income and consumption in the event of DI denial.
    JEL: H53 H55 I38 J22
    Date: 2017–06
  3. By: Sarah Godar; Achim Truger
    Abstract: Budgetary pressures and the debate on increasing inequality caused by the global financial and economic crisis have also revived public and scholarly interest in tax policies. While some international coordination attempts aim at a more effective enforcement of existing tax laws, a number of individual country reforms have also changed the national tax structures in EU member states. The study provides a summary of tax policy trends in the EU and gives a rough overview of tax reforms in the areas of income and corporate taxes, wealth-related taxes and consumption taxes since the 1980s with an emphasis on new developments since 2008. In some aspects, recent tax policy choices deviate from the trends of the last decades which were characterized by declining top tax rates and tax privileges for capital income. Still, one cannot speak of a progressive turn of tax policy in the EU. The tax burden increased also for low and middle income groups, in some cases in the form of surcharges on the income tax, but in the majority of member states in the form of increased consumption taxes. Equity considerations might have played a role in recent reforms, and a contribution by high income groups might have been regarded as unavoidable. However, governments have refrained from substantial redistributive reforms, the more so as top tax rate increases were temporary in many cases whereas VAT increases were not.
    Date: 2017
  4. By: Reuter, Wolf Heinrich
    Abstract: This paper identifies determinants of compliance with various types of national numerical fiscal rules. Based on 51 fiscal rules in 20 EU member states from 1995 to 2015, the analysis identifies determinants among specific rule characteristics and their fiscal frameworks, as well as their political, (socio-)economic and supranational environments. While the average compliance across all rules and countries is around 50%, compliance with rules constraining stock (rather than flow) variables, set out in coalitional agreements, as well as rules covering larger parts of general government finances is significantly higher. Furthermore, independent monitoring and enforcement bodies (issuing real-time alerts) turn out to be significantly associated with a higher probability of compliance. Several theories of the deficit bias of governments due to government fragmentation, decentralization and political budget cycles are also significant with regards to compliance with fiscal rules. However, neither the economic environment or business cycle, nor forecast errors (except for an unexpectedly higher primary balance) on average seem to play a significant role.
    Keywords: National Numerical Fiscal Rules,Compliance,Fiscal institutions,Deficit Bias
    JEL: E62 H60 H11
    Date: 2017
  5. By: European Commission
    Abstract: This report contains a detailed statistical and economic analysis of the tax systems of the Member States of the European Union, plus Iceland and Norway, which are Members of the European Economic Area. The data are presented within a unified statistical framework (the ESA95 harmonised system of national and regional accounts), which makes it possible to assess the heterogeneous national tax systems on a fully comparable basis.
    Keywords: European Union, taxation
    JEL: H23 H24 H25 H27 H71
    Date: 2016–12
  6. By: MARTINEZ Isabel
    Abstract: This paper analyzes mobility responses to a large, regressive local income tax cut benefiting the top 1% in the Swiss Canton of Obwalden in 2006. DiD estimations comparing Obwalden with neighboring cantons confirm that the reform was successful in increasing the share of rich taxpayers in the canton (+20-30%). Using individual tax data, I find a large elasticity of the inflow of rich taxpayers with respect to the average net-of-tax rate ranging from 3.2 to 6.5. DiD estimates of cantonal revenue, however, show that the tax cuts did not lead to an increase in cantonal tax revenue per capita. This is in line with a theoretical analysis suggesting Obwalden was not on the wrong side of the Laffer curve before the reform.
    Keywords: Mobility; Personal income tax; Tax competition; Local taxes; Regressive income tax
    JEL: H31
    Date: 2017–05
  7. By: Hrvoje Šimović (Faculty of Economics and Business, University of Zagreb)
    Abstract: This paper analyses the impact of public debt level and (un)sustainability on fiscal spending effectiveness in Croatia. Public debt sustainability is analyzed using standard indicators of fiscal vulnerability and fiscal stability, accompanied with identification of regime changes in the public debt trajectory. Public debt sustainability analysis is used to analyze trends and tendencies, as well as to indicate periods of fiscal unsustainability in Croatia in period from 2001 to 2015. Using switching regression and SVAR approach it is also empirically tested how public debt level affects the effectiveness of fiscal policy in Croatia in the same period. Results show a negative impact of recession on public debt sustainability and confirm the main thesis that public debt level significantly affects and reduces the effectiveness of fiscal policy in Croatia.
    Keywords: public debt, fiscal policy, Croatia
    JEL: H68 H50 E62
    Date: 2017–05–30
  8. By: Biddle, Nicholas (Australian National University); Fels, Katja (Ruhr University Bochum); Sinning, Mathias (Australian National University)
    Abstract: This paper presents the findings of two Randomized Controlled Trials (RCTs) that were conducted in collaboration with the Australian Taxation Office (ATO). The first trial tests the effect of changes to let-ters (timing, social norms, color, and provision of information about charitable donations) on response rates of businesses, the timing of payments and the amount of tax debt payments. The second trial consists of two parts. The first part aims to raise awareness of the relevance of tax debt payment by changing internal guidelines used by field auditors. The second part focuses on studying the effect of changing the phone script used by desk auditors to offer assistance with payment arrangements and simplifying a follow-up letter. The findings of the first trial indicate that none of the treatments had a significant effect on any of the outcome measures considered. In contrast, the results of the second trial indicate that changing the phone script of desk auditors and simplifying the follow-up letter re-duced the proportion of default assessments raised by the ATO significantly, suggesting that business-es are responsive to certain types of nudges.
    Keywords: tax compliance, business taxation, behavioral insights, nudging
    JEL: C93 H25 H26
    Date: 2017–05
  9. By: European Commission
    Abstract: This report aims to improve the transparency of the European Semester process by publishing in a clear and accessible format the main indicators used to examine Member States' tax policies, alongside information on recent tax reforms. It also sets out some reform options and examples to act as inspiration for Member States looking to improve the fairness and efficiency of their tax systems.
    Keywords: European Union, taxation
    JEL: H23 H24 H25 H27 H71
    Date: 2016–11
  10. By: Schmitt, Noemi; Tuinstra, Jan; Westerhoff, Frank
    Abstract: We develop a partial equilibrium model in which firms can locate in two separate regions. A firm's decision where to locate in a given period depends on the regions' relative profitability. If firms react strongly to the regions' relative profitability, their market switching behavior generates unstable dynamics. If the goal of policy makers is to stabilize these dynamics they can do so by introducing profit taxes that reduce the regions' relative profitability. While stability can already be obtained by imposing profit taxes in one of the two regions, total welfare is maximized if policy makers coordinate their tax setting behavior across regions. However, policy makers only interested in welfare in their own region may have the incentive to decrease their profit tax below this level, thereby attracting more firms and increasing tax revenues, at the cost of instability in both regions.
    Keywords: market interactions,evolutionary dynamics,profit taxes,policy coordination,welfare effects,stability analysis
    JEL: D83 E30 H20
    Date: 2017

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