nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒08‒27
fourteen papers chosen by
Thomas Andrén

  1. Optimal Taxation with Private Insurance By Yongsung Chang; Yena Park
  2. The effect of card payments on vat revenue in Greece By George Hondroyiannis; Dimitrios Papaoikonomou
  3. Corporate Taxation in the Open Economy without Pareto By Bawa, Siraj
  4. Effects of State-Level Earned Income Tax Credit Laws in the U.S. on Maternal Health Behaviors and Infant Health Outcomes By Sara Markowitz; Kelli A. Komro; Melvin D. Livingston; Otto Lenhart; Alexander C. Wagenaar
  5. More Giving of More Givers? The Effects of Tax Incentives on Charitable Donations in the UK By Almunia, Miguel; Lockwood, Ben; Scharf, Kimberley
  6. Social Security Contributions and the Business Cycle By Alexander Meyer-Gohde;
  7. Goods and Services Tax and Kerala Economy By Kumar, Dr.B.Pradeep; Ramya, Dr.R
  8. World changes in inequality: an overview of facts, causes, consequences and policies By François Bourguignon
  9. Top Earners: Cross-Country Facts By Alejandro Badel; Moira Daly; Mark Huggett; Martin Nybom
  10. The Health Benefits of a Targeted Cash Transfer:The UK Winter Fuel Payment By Crossley, T.F.; Zilio, F.;
  11. What Does (Formal) Health Insurance Do, and For Whom? By Amy Finkelstein; Neale Mahoney; Matthew J. Notowidigdo
  12. Does fiscal decentralization enhance citizens’ access to public services and reduce poverty? Evidence from a conflict setting By Tiangboho SANOGO
  13. Banks in Tax Havens: First Evidence based on Country-by-Country Reporting By Bouvatier, Vincent; Capelle-blancard, Gunther; Delatte, Anne-Laure
  14. Mobility Report Cards: The Role of Colleges in Intergenerational Mobility By Raj Chetty; John N. Friedman; Emmanuel Saez; Nicholas Turner; Danny Yagan

  1. By: Yongsung Chang (University of Rochester, Yonsei University); Yena Park (University of Rochester)
    Abstract: We derive a fully nonlinear optimal income tax schedule in the presence of a private insurance market. The optimal tax formula is expressed in terms of sufficient statistics?such as the Frisch elasticity of labor supply, social preferences, and hazard rates of the income distributions?as in the standard Mirrleesian taxation without private insurance (e.g., Saez (2001)). However, in the presence of a private market, the standard sufficient statistics are no longer sufficient. The optimal tax rate also depends on how private savings interact with public insurance? through substitution and crowding in/out. Based on our formula, we compute the optimal tax schedule using a quantitative general equilibrium model calibrated to reproduce the U.S. income distribution.
    Keywords: Optimal Taxation, Private Insurance, Crowding Out, Mirrelsian Tax
    JEL: H21 H23 D51
    Date: 2017–08
  2. By: George Hondroyiannis (Bank of Greece and Harokopio University); Dimitrios Papaoikonomou (Bank of Greece)
    Abstract: The effect of card payments on VAT revenue performance in Greece is investigated using quarterly observations on card transactions during 2002q1-2016q2. Time-varying-coefficient methods are employed, in order to study the role of increasing card payments after the imposition of cash restrictions in July 2015. We find that (i) a 1pp increase in the share of card payments in private consumption results in approximately 1% higher revenue through increased compliance; (ii) lowering the VAT rate can generate revenue gains; (iii) card transactions may facilitate tax buoyancy. It is argued that stronger incentives for using card payments in tax evading industries can help lock-in the recent strong revenue performance when cash restrictions are lifted.
    Keywords: VAT; card payments; time-varying-coefficients; Greece
    JEL: E62 H21 H25 H26 K34
    Date: 2017–05
  3. By: Bawa, Siraj
    Abstract: This paper studies how optimal corporate tax rates differ when firm productivities are drawn from a lognormal distribution instead of a Pareto, the literature standard, in a model of monopolistic competition. Recent literature has demonstrated that lognormal distributions are a better fit for firm productivities; I not only find that this result holds in developing economies, but that the distributional choice has significant implications for the properties of the optimal corporate tax rates. I show this using an enhanced Melitz model with heterogeneous sectors subject to a framework of corporate taxation. This tax framework consists of a single economy-wide statutory tax that is augmented by a set of sector-specific depreciation allowance rates which distort the effective tax rate by sector. I find that using the Pareto distribution mutes a transmission channel between the corporate tax instruments and the equilibrium variables which leads to qualitative different policy implications compared to those obtained under the lognormal distribution. Additionally, my model can reconcile recent empirical studies that come to seemingly conflicting conclusions about the effects of statutory tax rates on export dynamics. I do this by showing that the level of the sector-specific tax rate determines whether or not changing the statutory tax rate will increase the probability of firms engaging in exporting.
    Keywords: Corporate tax policy, Melitz-Pareto, asymmetric sectors, trade and taxation.
    JEL: F12 H25
    Date: 2017–06
  4. By: Sara Markowitz; Kelli A. Komro; Melvin D. Livingston; Otto Lenhart; Alexander C. Wagenaar
    Abstract: The purpose of this paper is to investigate the effects of state-level Earned Income Tax Credit (EITC) laws in the U.S. on maternal health behaviors and infant health outcomes. Using multi-state, multi-year difference-in-differences analyses, we estimated effects of state EITC generosity on maternal health behaviors, birth weight and gestation weeks. We find little difference in maternal health behaviors associated with state-level EITC. In contrast, results for key infant health outcomes of birth weight and gestation weeks show small improvements in states with EITCs, with larger effects seen among states with more generous EITCs. Our results provide evidence for important health benefits of state-level EITC policies.
    JEL: H0 I0
    Date: 2017–08
  5. By: Almunia, Miguel (University of Warwick); Lockwood, Ben (University of Warwick); Scharf, Kimberley (University of Birmingham)
    Abstract: This paper estimates the tax-price elasticity of giving using UK administrative tax return data, exploiting variation from a large tax reform. We estimate both the intensive and extensive-margin elasticity, using a novel instrumental variables strategy. Then, we derive new conditions to evaluate the welfare consequences of changes in the generosity of the subsidy to donations. We find a small intensive-margin elasticity of -0.2 and a substantial extensive-margin elasticity of -0.8, yielding a total elasticity of about -1. These estimates mask considerable heterogeneity: high-income individuals respond more on the intensive margin, while the extensive-margin response is stronger among low-income taxpayers.
    Keywords: JEL Classification: H24, H31, D64
    Date: 2017
  6. By: Alexander Meyer-Gohde;
    Abstract: This paper examines magnitudes and business cycle dynamics of social security contributions (SSC). In most OECD countries studied, we document a negative covariation of payroll tax burdens with GDP and GDP growth at business cycle and lower frequencies. We assess the overall magnitude of the distortion following Barro and Redlick (2011). For most countries, average marginal SSC tax rates exceed average rates, but the latter tracks the former tightly. Changes in average payroll tax burdens are mostly accounted for by changes in tax schedules rather than shifts in the earnings distribution over time. For many countries, SSC rates behave like estimated values of the “labor wedge” (Chari et al. 2007, Brinca et al., 2016).
    Keywords: business cycle, payroll tax, social security contributions, labor wedge
    JEL: E24 E32 J32 H55
    Date: 2017–08
  7. By: Kumar, Dr.B.Pradeep; Ramya, Dr.R
    Abstract: GST has become a reality in India. GST is a comprehensive tax regime which heralds not only the dawn of a new era in the tax realm of the country, but also it ushers in a ‘behavioural change’ in the transactions that happen in the economy. Many countries have embraced GST as an efficient and profitable indirect tax system. GST bestows many benefits on economies in the form increasing indirect tax proceeds and enhancing the efficiency in economic activities. This paper discusses the pros and cons of implementing GST in India with special emphasis on Kerala Economy.
    Keywords: GST Council, SGST, CGST, IGST, Anti-Profiteering Authority, Input Tax Credit (ITC), GST Net Work (GSTN), GST Compliance Rating, GST Suvidha Providers, Place of Supply, Location of Supply, E-Way Bills, SGDP, Services, Dichotomized Tax System, Fiscal Federalism, Finance Commissions
    JEL: H21 H26 H29
    Date: 2017–07–08
  8. By: François Bourguignon
    Abstract: This paper reviews various issues linked to the rise of inequality observed particularly in developed countries over the last quarter century. Various data on the time profile of inequality are examined, which do not always fit the common view that inequality is everywhere trending upwards. Overall, changes in inequality appear to be very country-specific. The same conclusion obtains when examining the causes of these changes. There is little doubt that common forces affected the distribution of income in most countries, but idiosyncratic factors have amplified their effects in some cases and offset them in others. Country-specificity also holds with regard to policies aimed at correcting inequality, even though globalisation imposes constraints on some key redistribution tools such as taxation and the regulation of financial markets. International coordination and, in particular, more transparency in cross-border financial operations are needed if governments are to recover some autonomy in these matters.
    Keywords: inequality, labour share, redistribution, globalisation, taxation
    JEL: D31 D33 H24
    Date: 2017–08
  9. By: Alejandro Badel (Bureau of Labor Statistics and Georgetown University); Moira Daly (Copenhagen Business School); Mark Huggett (Georgetown University); Martin Nybom (Stockholm University)
    Abstract: We provide a common set of life-cycle earnings statistics based on administrative data from the United States, Canada, Denmark and Sweden. We find three qualitative patterns, which are common across countries. First, top-earnings inequality increases over the working lifetime. Second, the extreme right tail of the earnings distribution becomes thicker with age over the working lifetime. Third, top lifetime earners exhibit dramatically higher earnings growth over their working lifetime. Models of top earners should account for these three patterns and, importantly, for how they quantitatively differ across countries.
    Keywords: Earnings, Inequality, top earners, top incomes
    JEL: D31 D91 H21 J31
    Date: 2017–08
  10. By: Crossley, T.F.; Zilio, F.;
    Abstract: Each year the UK records 25,000 or more excess winter deaths, primarily among the elderly. A key policy response is the “Winter Fuel Payment†(WFP), a labelled but unconditional cash transfer to older households. The WFP has been shown to raise fuel spending among eligible households. We examine the causal effect of the WFP on health outcomes, including self-reports of chest infection, measured hypertension and biomarkers of infection and inflammation. We find a robust and statistically significant six percentage point reduction in the incidence of high levels of serum fibrinogen. Reductions in other disease markers point to health benefits, but the estimated effects are not robustly statistically significant.
    Keywords: benefits; health; biomarkers; heating; regression discontinuity;
    JEL: H51 I12
    Date: 2017–08
  11. By: Amy Finkelstein; Neale Mahoney; Matthew J. Notowidigdo
    Abstract: Health insurance confers benefits to the previously uninsured, including improvements in health, reductions in out-of-pocket spending, and reduced medical debt. But because the nominally uninsured pay only a small share of their medical expenses, health insurance also provides substantial transfers to non-recipient parties who would otherwise bear the costs of providing uncompensated care to the uninsured. The prevalence of uncompensated care helps explain the limited take-up of heavily-subsidized public health insurance and the evidence that many recipients value formal health insurance at substantially less than the cost to insurers of providing that coverage. The distributional implications of public subsidies for health insurance depend critically on the ultimate economic incidence of the transfers they deliver to providers of uncompensated care.
    JEL: H22 H42 H51 I11 I13
    Date: 2017–08
  12. By: Tiangboho SANOGO
    Abstract: This paper investigates whether, and how, the devolution of revenue raising responsibilities to municipalities enhances access to public services and contributes to reducing poverty in Côte d’Ivoire. The analysis uses a local government’ revenue and expenditure dataset from 2001 to 2011 for 115 municipalities in 35 departments. An adjusted multidimensional poverty index and a headcount poverty index are calculated at the local level using the Household Living Standard Survey. The empirical analysis uses a grouped fixed effect approach, combined with a two-stage least squares methodology with panel corrected standard errors clustered by department, to address both time-varying heterogeneity and local revenue endogeneity. The results suggest that increased local revenue positively affects access to public services and reduces poverty. However, there is evidence that fiscal decentralization has a more robust effect on access to public service, than on poverty. This effect seems to work mainly through enhancing access to education more than access to health, water, and sanitation services. Contrary to existing literature, our results indicate that municipalities are more likely to improve access to public services in less ethnically diverse localities and in rural zones. The study provides evidence that the effect of the conflict experienced by the country has been limited statistically.
    Keywords: Fiscal decentralization, Local development, Multidimensional poverty, Local government revenue, Municipalities, Côte d’Ivoire.
    JEL: I32 H75 H71
    Date: 2017–08
  13. By: Bouvatier, Vincent; Capelle-blancard, Gunther; Delatte, Anne-Laure
    Abstract: Since the Great Financial Crisis, several scandals have exposed a pervasive light on banks' presence in tax havens. Taking advantage of a new database, this paper provides a quantitative assessment of the importance of tax havens in international banking activity. Using comprehensive individual country-by-country reporting from the largest banks in the European Union, we provide several new insights: 1) The average effect of being a tax haven is an extra presence of foreign affiliates by 168%; 2) For EU banks, the main tax havens are located within Europe: Luxembourg, Isle of Man and Guernsey rank at the top; 3) Attractive tax rates are not sufficient to drive extra activity; 4) But lenient regulatory environment attract extra commercial presence; 4) Banks avoid the most opaque countries with weak governance; 5) The tax savings for EU banks is estimated between Euro 1 billion and Euro 3.6 billion.
    Keywords: Tax evasion; International banking; Tax havens; Country-by-country reporting
    JEL: F23 G21 H22 H32
    Date: 2017–08
  14. By: Raj Chetty (Harvard University); John N. Friedman (Brown University); Emmanuel Saez (University of California, Berkeley); Nicholas Turner (US Treasury); Danny Yagan (University of California, Berkeley)
    Abstract: We characterize intergenerational income mobility at each college in the United States using data for over 30 million college students from 1999-2013. We document four results. First, access to colleges varies greatly by parent income. For example, children whose parents are in the top 1% of the income distribution are 77 times more likely to attend an Ivy League college than those whose parents are in the bottom income quintile. Second, children from low- and high-income families have similar earnings outcomes conditional on the college they attend, indicating that low-income students are not mismatched at selective colleges. Third, rates of upward mobility – the fraction of students who come from families in the bottom income quintile and reach the top quintile – differ substantially across colleges because low-income access varies significantly across colleges with similar earnings outcomes. Rates of bottom-to-top quintile mobility are highest at certain mid-tier public universities, such as the City University of New York and California State colleges. Rates of upper-tail (bottom quintile to top 1%) mobility are highest at elite colleges, such as Ivy League universities. Fourth, the fraction of students from low-income families did not change substantially between 2000-2011 at elite private colleges, but fell sharply at colleges with the highest rates of bottom-to-top-quintile mobility. Although our descriptive analysis does not identify colleges’ causal effects on students’ outcomes, the publicly available statistics constructed here highlight colleges that deserve further study as potential engines of upward mobility.
    Keywords: income mobility, college students, role of education
    JEL: J62 H75 I24
    Date: 2017–08

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