nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒08‒13
seventeen papers chosen by
Thomas Andrén

  1. Business Taxation and Wages: Redistribution and Asymmetric Effects By Thomas K. Bauer; Tanja Kasten; Lars-H. R. Siemers
  2. Tax competition and the political economy of public employment: a model for Austria By Christl, Michael; Köppl-Turyna, Monika
  3. How costly are public sector inefficiencies? A theoretical framework for rationalising fiscal consolidations By Onrubia Fernández, Jorge; Sánchez, Antonio Jesús
  4. Social Insurance and Health By Ziebarth, Nicolas R.
  5. Effective marginal and average tax rates in the 2017 Italian tax-benefit system for individuals and household By Fernando Di Nicola; Melisso Boschi; Giorgio Mongelli
  6. The Structure of State Corporate Taxation and its Impact on State Tax Revenues and Economic Activity By Juan Carlos Suárez Serrato; Owen M. Zidar
  7. Behavioral Responses and Welfare Reform: Evidence from a Randomized Experiment By Hartley, Robert Paul; Lamarche, Carlos
  8. Actuarial neutrality and financial incentives for early retirement in the Austrian pension system By Christl, Michael; Kucsera, Dénes
  9. 'Fair' Welfare Comparisons with Heterogeneous Tastes: Subjective versus Revealed Preferences By Akay, Alpaslan; Bargain, Olivier; Jara, Xavier
  10. Business Taxation and Wages: Redistribution and Asymmetric Effects By Thomas K. Bauer; Tanja Kasten; Lars-H. R. Siemers
  11. Global Inspection Games (GIG) in the laboratory By Sanchez Villalba, Miguel
  12. Public Investment and Golden Rule of Public Finance in an Overlapping Generations Model By Akira Kamiguchi; Toshiki Tamai
  13. How political systems and social welfare policies affect well-being: A literature review By Robert MacCulloch
  14. Dividend taxation in an infinite-horizon general equilibrium model By Pham, Ngoc-Sang
  15. Demand-side economics in times of high debt: The case of the European Union By Köppl-Turyna, Monika; Lorenz, Hanno
  16. Are Taxes Credits Effective in Developing Countries? The Recent Uruguayan Experience By Rius, Andrés; Carrasco, Paula; Carbajal, Fedora; Cazulo, Paola; Llambí, Cecilia
  17. Spatially Heterogeneous Effects of a Public Works Program By Merfeld, Joshua D

  1. By: Thomas K. Bauer (Ruhr-University Bochum and RWI Essen); Tanja Kasten (Deutsche Rentenversicherung Bund); Lars-H. R. Siemers (Siegen University)
    Abstract: Empirical evidence on the degree of business-tax shifting is rare. It remains open to which extent the tax burden is shifted, whether there are differences for tax increases and decreases, or whether there exists some treatment heterogeneity. Using a large administrative panel data set, we exploit the regional variation of the German business-income taxation and find that 65% to at most 93% is shifted to labour through real wage adjustments. We find that business taxation increases wage inequality significantly. Workers in a weak labour-market position bear the highest part of business taxation. The incidence effect of tax reliefs is significantly higher than that of tax increases. Therefore, reducing business taxes might, surprisingly, effectively reduce inequality.
    Keywords: tax incidence, profit taxation, wages, inequality, asymmetric effects
    JEL: H22 H25 H32 J31 J38
    Date: 2017
  2. By: Christl, Michael; Köppl-Turyna, Monika
    Abstract: In this work we simulate the effects of tax autonomy of the Austrian states on the levels of public employment in each state. We show that depending on the strength of the public sector lobby, tax autonomy would require reduction of employment in the public sector between 25% and 35% of the current level. We also show that tax autonomy increases welfare levels by 1% to 1.5%, that is that the positive change in the disposable income of the workers more than offsets the welfare loss resulting from lower public goods‘ provision. Finally, we show that reduction of public employment is welfare-superior to an alternative scenario, in which employment levels are held constant but the wage levels in the public sector need to be adjusted.
    Keywords: Tax competition,Lobbying,Probabilistic voting,Austria
    JEL: D72 H71 H77
    Date: 2017
  3. By: Onrubia Fernández, Jorge; Sánchez, Antonio Jesús
    Abstract: Fiscal adjustments consisting of spending cuts or tax increases are generally presented as the unavoidable way for achieving public finance sustainability in the long term. However, this view of fiscal consolidation processes is limited as it leaves out other aspects related to public sector performance which are relevant not only from the macroeconomic but also from the microeconomic perspective. This paper models Public Sector Performance (PSP) by proposing a theoretical framework that integrates the conventional methodology for measuring its productive efficiency and the monetary assessment of social welfare changes linked to public policy reforms. Two equivalent measures of social welfare change generated by improving (or worsening) productive efficiency are deduced using duality theory. The first is obtained from the cost function, while the second arises directly from the production function. The results reveal that taking advantage of budgetary savings obtained from this approach constitutes a valuable tool for designing welfareenhancing fiscal consolidation packages, meanwhile promoting sound fiscal balances and growth prospects over the long term.
    Keywords: public sector efficiency,technical efficiency,allocative efficiency,social welfare changes
    JEL: D24 D60 D61 H40 H50
    Date: 2017
  4. By: Ziebarth, Nicolas R. (Cornell University)
    Abstract: This chapter reviews the existing empirical evidence on how social insurance affects health. Social insurance encompasses programs primarily designed to insure against health risks, such as health insurance, sick leave insurance, accident insurance, long-term care insurance and disability insurance; and programs that insure against other risks, such as unemployment insurance, pension insurance and country-specific social insurance. These insurance systems exist in almost all developed countries around the world. This chapter discusses the state-of-the art evidence on each of these social insurance systems, briefly reviews the empirical methods for identifying causal effects, and examines possible limitations to these methods. The findings reveal robust and rich evidence on first-stage behavioral responses ("moral hazard") to changes in insurance coverage. Surprisingly, evidence on how changes in coverage impact beneficiaries' health is scant and inconclusive. This lack of identified causal health effects is directly related to limitations on how human health is typically measured, limitations on the empirical approaches and a paucity of administrative panel data spanning long-time horizons. Future research must be conducted to fill these gaps. Of particular importance is evidence on how these social insurance systems interact and affect human health over the lifecycle and in the long-run.
    Keywords: social insurance, health, causal effects, microeconometrics, reduced-form methods, structural methods
    JEL: H1 H5 I1 J2
    Date: 2017–07
  5. By: Fernando Di Nicola (MEF, Department of Finance); Melisso Boschi (Senate of the Republic of Italy, Budget Committee Secretariat); Giorgio Mongelli (MEF, Department of Finance)
    Abstract: The personal income tax influences, through marginal and average tax rates, income redistribution, labour supply, and tax evasion. In this paper we present, for the main taxpayer types and income levels the statutory and implicit tax rates generated by the Italian personal income tax-benefit system components (social contributions, personal income tax, income type deductions, family-related deductions, family allowance, local surtaxes, and the "80 euro monthly bonus") along with the effective marginal tax rates deriving from their interaction. These tax rates are computed both for hypothetical taxpayer types (employee, retiree, selfemployed with and without dependent family members) and using a microsimulation model with a representative sample. The results show that the Italian tax-benefit system generates a broad range of effective marginal tax rates, with positive and negative values, determining, in some cases, also a "poverty trap" (that is a marginal tax rate higher than 100 percent). The marginal and average tax rates are also sometimes decreasing with growing taxable income, while at a low level of income we have such high tax rates that a disincentive for labour supply may result. With this evidence, a correction of the Italian tax-benefit system appears desirable both to preserve a more efficient income redistribution as well as labour supply incentives.
    Keywords: Personal income tax, effective marginal tax rates, average tax rates, income redistribution, labour supply
    JEL: H21 H24 H31
    Date: 2017–08
  6. By: Juan Carlos Suárez Serrato; Owen M. Zidar
    Abstract: This paper documents facts about the state corporate tax structure — tax rates, base rules, and credits — and investigates its consequences for state tax revenue and economic activity. We present three main findings. First, tax base rules and credits explain more of the variation in the state corporate tax revenue than tax rates do. Second, although states typically do not offset tax rate changes with base and credit changes, the effects of tax rate changes on tax revenue and economic activity depend on the breadth of the base. Third, as states have narrowed their tax bases, the relationship between tax rates and tax revenues has diminished. Overall, changes in state tax bases have made the state corporate tax system more favorable for corporations and are reducing the extent to which tax rate increases raise corporate tax revenue.
    JEL: H2 H25 H71 R5
    Date: 2017–08
  7. By: Hartley, Robert Paul (Columbia University); Lamarche, Carlos (University of Kentucky)
    Abstract: Recent studies have used a distributional analysis of welfare reform experiments suggesting that some individuals reduce hours in order to opt into welfare, an example of behavioral-induced participation. Using data on Connecticut's Jobs First experiment, we find no evidence of behavioral-induced participation at the highest conditional quantiles of earnings. We offer a simple explanation for this: women assigned to Jobs First incur welfare participation costs to labor supply at higher earnings where the control group is welfare ineligible. Moreover, as expected, behavioral components and costs of program participation do not seem to play a differential role at other conditional quantiles where both groups are eligible to participate. Our findings show that a welfare program imposes an estimated cost up to 10 percent of quarterly earnings, and these costs can be heterogeneous throughout the conditional earnings distribution. The evidence is obtained by employing a semi-parametric panel quantile estimator for a model that allows women to vary arbitrarily in preferences and costs of participating in welfare programs.
    Keywords: welfare reform, quantile regression, panel data, program participation
    JEL: J22 I38 C21 C33
    Date: 2017–07
  8. By: Christl, Michael; Kucsera, Dénes
    Abstract: This paper studies actuarial neutrality in the Austrian pension system. It is often argued that actuarial neutrality constitutes an incentive for people to retire. We show that there are almost no financial incentives within the Austrian pension corridor when we use the traditional definition of actuarial neutrality. Taking taxation into account, our results suggest that financial incentives for early retirement stem mainly from the Austrian tax system and not from the pension system itself.
    Keywords: Actuarial neutrality,early retirement,pension system,Austria
    JEL: J26 H55
    Date: 2016
  9. By: Akay, Alpaslan (University of Gothenburg); Bargain, Olivier (Aix-Marseille University); Jara, Xavier (KU Leuven)
    Abstract: Multidimensional welfare analysis has recently been revived by money-metric measures based on explicit fairness principles and the respect of individual preferences. To operationalize this approach, preference heterogeneity can be inferred from the observation of individual choices (revealed preferences) or from self-declared satisfaction following these choices (subjective well-being). We question whether using one or the other method makes a difference for welfare analysis based on income-leisure preferences. We estimate ordinal preferences that are either consistent with actual labor supply decisions or with income- leisure satisfaction. For different ethical priors regarding work preferences, we compare the welfare rankings obtained with both methods. The correlation in welfare ranks is high in general and very high for the 60% of the population whose actual choices coincide with subjective well-being maximization. For the rest, most of the discrepancies seem to be explained by labor market constraints among the low skilled and underemployment among low-educated single mothers. Importantly from a Rawlsian perspective, the identification of the worst o¤ depends on ethical views regarding responsibility for work preferences and the extent to which actual choices are constrained on the labor market.
    Keywords: fair allocation, money metric, decision utility, experienced utility, labor supply, subjective well-being
    JEL: C35 C90 D60 D63 D71 H24 H31 J22
    Date: 2017–07
  10. By: Thomas K. Bauer; Tanja Kasten; Lars-H. R. Siemers
    Keywords: tax incidence, profit taxation, wages, inequality, asymmetric effects
    JEL: H22 H25 H32 J31 J38
    Date: 2017
  11. By: Sanchez Villalba, Miguel
    Abstract: Sanchez Villalba (2015) claims inspection games can be modelled as global games when agents face common shocks. For the tax evasion game -his leading example- he prescribes that the tax agency should audit each individual taxpayer with a probability that is a non-decreasing function of every other taxpayer's declarations ("relative auditing strategy"). This paper uses experimental data to test the predictions of the model and finds supporting evidence for the hypothesis that the relative auditing strategy is superior to the alternative "cut-off" one. It also finds that data fit the qualitative predictions of the global game model, regarding both participants' decisions and the experiment's comparative statics.
    Keywords: Global Games, Experimental Economics, Tax Evasion, Rationality, Information, Beliefs
    JEL: C7 C91 D8 H26
    Date: 2017–08
  12. By: Akira Kamiguchi (School of Economics, Hokusei Gakuen University); Toshiki Tamai (Graduate School of Economics, Nagoya University)
    Abstract: This paper develops an overlapping generations model with debt-financed public investment. The model assumes that the government is subject to the golden rule of public finance and that households are Yaari-Blanchard type. It is shown that the growth-maximizing and utility-maximizing tax rates do not satisfy the Barro tax rule, which is equal to the output elasticity of public capital. Furthermore, we show that both tax rates positively depend on longevity, with an aging population increasing debt per GDP. This result captures a tendency of increasing debt per GDP under population aging in the real world.
    Keywords: Public capital, Golden rule of public finance, Economic growth
    JEL: H54 H60 O40
    Date: 2017–04
  13. By: Robert MacCulloch (University of Auckland)
    Abstract: This chapter focusses on the question of how formal institutions, like those governing the level of freedom, the regulatory state, political parties and the generosity of the welfare state, affect self-reported well-being. The evidence suggests, for example, that more freedom, as well as government structures which encourage civic engagement, participation and trust, have positive effects. Many studies, however, use cross-sectional data with small sample sizes, often due to institutions being measured at the country level with limited variation over time. As a consequence, further work is needed to test robustness. Stronger results hold with respect to particular types of welfare state institutions, like unemployment benefits, which are subject to quite frequent changes within nations. Increases in unemployment benefits are associated with higher levels of well-being for all workers, probably due to greater income security. However, doubt still persists as to their overall impact, due to the extent to which well-being is adversely affected by the higher taxes needed to support a more generous welfare state.
    Keywords: Wellbeing, government structures, welfare state, unemployment benefits
    Date: 2017–08
  14. By: Pham, Ngoc-Sang
    Abstract: We consider an infinite-horizon general equilibrium model with heterogeneous agents and financial market imperfections. We investigate the role of dividend taxation on economic growth and asset price. The optimal dividend taxation is also studied.
    Keywords: Intertemporal equilibrium, recession, growth, R&D, dividend taxation, asset price bubbles.
    JEL: C62 D31 D91 E44 G10
    Date: 2017–08–03
  15. By: Köppl-Turyna, Monika; Lorenz, Hanno
    Abstract: We analyze the effectiveness of an increase in government consumption for stimulating growth for diverse levels of public debt in the European Union. We conclude, that growth rate can be stimulated in the short run by an increase in government consumption but only at low levels of public debt. Moreover, we find that an increase in intermediate consumption is more effective than an increase in compensation of public employees in stimulating output growth.
    Keywords: growth,fiscal stimulus,government consumption,public debt
    JEL: E62 H30 H50 H63
    Date: 2016
  16. By: Rius, Andrés; Carrasco, Paula; Carbajal, Fedora; Cazulo, Paola; Llambí, Cecilia
    Abstract: Investment promotion through tax incentives has been a key component of the growth strategies pursued in Uruguay by the last three administrations. A new regime was established, regulated by the Executive Decree 455, which caused the main channel for subsidizing investment to undergo a major overhaul. This regime immediately generated a battery of researchable questions about its effectiveness and efficiency. Using a big dataset, first put together for this study from firm-level administrative records kept by the tax collection and pensions institutes between 2005 and 2011, we test the hypotheses of significant and positive effects of obtaining a tax credit through the new regime on investment and employment outcomes. A matched differences-in-differences strategy confirms that the promotion regime introduced in 2008 had a statistically significant effect on the firms’ rate of investment (around 11%); while effects on employment growth rate are more ambiguous. These findings are buttressed by several robustness tests. Further probing uncovers heterogeneity along the promotion timeline, with the greatest effect on the rate of investment occurring in the projects’ first year.
    Keywords: Finanzas públicas, Investigación socioeconómica,
    Date: 2017
  17. By: Merfeld, Joshua D
    Abstract: Most research on labor market effects of the Mahatma Gandhi National Rural Employment Guarantee Scheme focuses on outcomes at the district level. This paper shows that such a focus masks substantial spatial heterogeneity: treated villages located near untreated areas see smaller increases in casual wages than treated villages located farther from untreated areas. I argue that worker mobility, rather than spatial differences in implementation or program leakages, drives this spatial heterogeneity. I also present evidence that the effects of the program on private-sector employment display similar intra-district heterogeneity. Finally, by exploiting the difference in wage changes over space, I show that a large portion of consumption increases are driven by wage increases, not program employment. Overall, these results suggest that a district-level focus underestimates the true effect of the program on wages and also support the argument that increasing rural wages is an effective poverty-fighting tool in developing countries.
    Keywords: India; Public Works; Labor; Wages; Spillovers
    JEL: D50 H53 I38 J38
    Date: 2017

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