nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒10‒08
sixteen papers chosen by
Thomas Andrén

  1. Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach By Kroft, Kory; Kucko, Kavan; Lehmann, Etienne; Schmieder, Johannes
  2. The value of progressivity: Evidence from survey experiments By Benoît Tarroux
  3. Welfare Cost of the Real Estate Transfer Tax By Büttner, Thiess
  4. Optimal Paternalistic Health and Human Capital Policies By Marcelo Arbex; Enlinson Mattos
  5. Intensive and Extensive Margins of Response to Taxation: Evidence from the 2009 Polish Reform By Zawisza, Tomasz
  6. Do Local Governments Tax Homeowner Communities Differently? By Fuess, Roland; Lerbs, Oliver
  7. Do savings increase in response to salient information about retirement and expected pensions? By Stichnoth, Holger; Dolls, Mathias; Dörrenberg, Philipp; Peichl, Andreas
  8. Ensuring Fiscal Sustainability in Japan in the Context of a Shrinking and Ageing Population By Randall S. Jones; Kohei Fukawa
  9. Public Private Competition By Klumpp, Tilman; Su, Xuejuan
  10. One vs. Two Instruments for Redistribution: The Case of Public Utility Pricing By Radulescu, Doina; Feger, Fabian
  11. Taxes and Market Hours -- the Role of Gender and Skill By Duval-Hernandez, Robert; Fang, Lei; Ngai, Liwa Rachel
  12. Tax shocks with high and low uncertainty By Bertolotti, Fabio; Marcellino, Massimiliano
  13. Introducing Risk Adjustment and Free Health Plan Choice in Employer-Based Health Insurance: Evidence from Germany By Pilny, Adam; Wübker, Ansgar; Ziebarth, Nicolas R.
  14. Reluctant to Reform? A Note on Risk-Loving Politicians and Bureaucrats By Tobias Thomas; Moritz Heß; Gert G. Wagner
  15. Does Government Quality Spending can reduce Poverty? A Case in East Java Province By Candra Fajri Ananda
  16. "Modeling the Effect of Healthcare Expenditure and Education Expenditure on Labour Productivity: A Study on OIC Countries" By Abdul Azeez Oluwanisola Abdul Wahab

  1. By: Kroft, Kory; Kucko, Kavan; Lehmann, Etienne; Schmieder, Johannes
    Abstract: We derive a sufficient statistics optimal income tax formula in a general model that incorporates unemployment and endogenous wages, to study the shape of the tax and transfer system at the bottom of the income distribution. The sufficient statistics are the macro employment response to taxation and the micro and macro participation responses. We estimate these statistics using policy variation from the U.S. tax and transfer system. Our results suggest that the optimal tax more closely resembles a Negative Income Tax than an Earned Income Tax Credit relative to the case where unemployment and wage responses are not taken into account.
    Date: 2017–09
  2. By: Benoît Tarroux (Université de Rennes 1, CREM UMR CNRS 6211, France)
    Abstract: The aim of this paper is to investigate how people value tax progressivity. More precisely, I study the potential trade-off between improvement of the final income distribution and progressivity of the tax schedule. To do this, I designed survey experiments, in which respondents are asked to rank different taxation-redistribution schemes in different informational frames: (1) when only information about final incomes is provided; (2) when information about average tax rates is also available; and (3) when respondents are also provided with information about pre-tax incomes and tax liabilities. The instability of ranking between (1) and (2) or (3) indicates whether or not they value progressive taxation per se. The results indicate that subjects have a strong preference for tax progressivity, that is, they accept to worsen the final income distribution in exchange for tax progressivity.
    Keywords: Tax progressivity, Optimal taxation, Survey experiment
    JEL: D63 H21 C9
    Date: 2017–09
  3. By: Büttner, Thiess
    Abstract: This paper considers the welfare implications of a tax on real estate transfers. A theoretical analysis shows how the discouragement of mutually beneficial transactions as well as tax- sheltering activities give rise to a welfare loss that can be estimated using the empirical elasticity of the tax base. In the absence of tax planning and tax capitalization effects, the elasticity of the tax base is determined by the hazard rate to deter transactions at the margin. With tax planning, the elasticity of the tax base is also driven by the "technology" of tax sheltering. The paper also shows how tax capitalization effects can be accounted for in the welfare analysis. Empirical evidence on the deadweight loss is obtained from the analysis of real estate transfer taxes in Germany. After a constitutional reform has granted the German states the right to set the local rate of the real estate transfer tax, over the last ten years many states have made use of this discretion and have increased the tax rate - some of them repeatedly. Based on the empirical estimate of the revenue effect of these tax increases and of tax capitalization effects, the paper shows that the German experience points to a substantial welfare cost of real estate transfer taxation.
    Keywords: Real estate transfer tax,Marginal cost of funds,Tax rate elasticity of the tax base,Tax avoidance,Tax Capitalization
    JEL: H20 H26 R38
    Date: 2017
  4. By: Marcelo Arbex (Department of Economics, University of Windsor); Enlinson Mattos (São Paulo School of Economics, Getulio Vargas Foundation)
    Abstract: We study optimal human and health linear policies when there is a paternalistic motive to overcome present bias problems of agents with heterogeneous cognitive skills. The paternalistic intervention is meant to reward individuals for physical capital accumulation and the combined effect of health and human capital on future earnings. Our results highlight a novel effect of paternalistic policies due to the interaction between present-biased preferences and cognitive skills. We show that a single policy on the agent's earnings captures all the corrections that would be required if the planner were to implement other policy instruments, for instance, subsidies targeting human and health capital separately or current biased decisions. A numerical exercise illustrates that this policy package is the most effective, requiring lower tax revenues to correct for present bias and agents misperception of their own cognitive skills problems. We analyze the relevance of agent's cognitive skills and present-biased preferences for the determination of first-best and constrained first-best optimal policies.t technologies. Welfare is higher if consumer auditing is the only tax enforcement policy.
    Keywords: Paternalism; Optimal Taxation; Education; Health.
    JEL: D61 D91 H21 I18 I28
    Date: 2017–09
  5. By: Zawisza, Tomasz
    Abstract: In this paper we examine two crucial questions regarding the design of the optimal tax system, exploiting the 2009 Polish tax reforms. Firstly, we estimate the degree of substitution between the employment and self-employment tax bases on the extensive margin. In particular, we quantify the impact of changes in the differential in rates of taxation between the two tax bases on the propensity of taxpayers to declare any positive level of employment or self-employment income. Secondly, we contribute to the literature on elasticities of taxable income by providing estimates which are robust to changes in year-to-year income dynamics. We do this by exploiting variation in marginal tax rates around the 2009 reforms which occurs independently of an individual’s position in the income distribution as a result of joint reporting with a spouse. The baseline estimates of the intensive-margin elasticities are 0.23 for the employed and 0.66 for the self-employed. The estimates jointly make possible a decomposition of responses to the tax reform of declared income into the intensive and extensive-margins, with the contribution of the extensive margin found to be around 7 percent of the total.
    Date: 2017–09–26
  6. By: Fuess, Roland; Lerbs, Oliver
    Abstract: This paper investigates whether and how strongly the share of homeowners in a community affects residential property taxation by local governments. Different from renters, homeowners bear the full property tax burden irrespective of local market conditions, and the tax is more salient to them. \Homeowner communities" may hence oppose high property taxes in order to protect their housing wealth. Using granular spatial data from a complete housing inventory in the 2011 German Census and historical war damages as a source of exogenous variation in local homeownership, we provide empirical evidence that otherwise identical jurisdictions charge significantly lower property taxes when the share of homeowners in their population is higher. This result is invariant to local market conditions, which suggests tax salience as the key mechanism behind this effect. We find positive spatial dependence in tax multipliers, indicative of property tax mimicking by local governments.
    Keywords: Homeownership, public financing, residential property tax, spatial tax mimicking, yardstick competition
    JEL: D72 H20 H31 H71 R31
    Date: 2017–09
  7. By: Stichnoth, Holger; Dolls, Mathias; Dörrenberg, Philipp; Peichl, Andreas
    Abstract: How can retirement savings be increased? We explore a unique policy change in the context of the German pension system to study this question. In 2004, pension authorities started to send out annual letters providing information about the pension system and expected pension payments. Using German tax return data, we exploit two discontinuities in the age cutoffs of receiving such a letter to study their effects on private retirement savings.
    JEL: H55 H24 J26 D14
    Date: 2017
  8. By: Randall S. Jones (OECD); Kohei Fukawa (OECD)
    Abstract: With gross government debt of 219% of GDP in 2016, Japan’s fiscal situation is in uncharted territory and puts the economy at risk. In addition to raising productivity and growth, Japan needs a more detailed and credible fiscal consolidation path, including specific revenue increases and measures to control spending to restore fiscal sustainability. Spending pressures associated with rapid population ageing make reforms to contain social expenditures a priority. Local governments need to be part of the effort to contain public spending in the context of a shrinking population. Much of the consolidation, though, will have to be on the revenue side, primarily through hikes in the consumption tax rate toward the OECD average and a broadening of the personal income tax base. Fiscal consolidation should be accompanied by measures to promote inclusive growth through the tax and benefit system, in particular by introducing an earned income tax credit to assist the working poor, hiking the tax on capital income and broadening the base of the inheritance tax. This Working Paper relates to the 2017 OECD Economic Survey of Japan ( y-japan.htm)
    Keywords: Abenomics, consumption tax, debt dynamics, EITC, fiscal consolidation, fiscal management strategy, fiscal policy, fiscal sustainability, healthcare, independent fiscal councils, inequality, long-term care, pensions, poverty, public debt, social security
    JEL: H2 H5 H6 H7
    Date: 2017–10–04
  9. By: Klumpp, Tilman (University of Alberta, Department of Economics); Su, Xuejuan (University of Alberta, Department of Economics)
    Abstract: We examine competition between a private and a public provider in markets for "merit goods" such as education, healthcare, housing, recreation, or culture. The private firm provides a high-price/high-quality variety of the good and serves richer individuals, while the public firm provides a low-price/low-quality variety and serves poorer individuals. We derive the private competitor's best response to changes in the public firm's price and quality level. This enables us to examine the distributional effects of government policies aimed at making publicly provided goods more affordable or increase their quality, and of changes to the government budget constraint that make publicly provided goods more expensive or decrease their quality. Our results have implications for the financing of the public supply of such goods, and for whether additional resources, if available, should be spent on reducing the price or enhancing the quality of publicly provided goods.
    Keywords: Mixed duopoly; quality differentiation; public provision of private goods; private responses to public policy; crowding-out/in; funding of public services
    JEL: D21 D43 H11 H42 H44 I00 L38
    Date: 2017–09–26
  10. By: Radulescu, Doina; Feger, Fabian
    Abstract: We use data on 180,000 households in the Swiss Canton of Bern and the years 2008-2013 to analyse whether one instrument (the income tax) vs. two instruments (income tax and public utility pricing) are adequate for income redistribution. The results of our structural estimation show that under certai assumptions there is a role for redistribution through public good pricing markups and hence with two instruments being adequate for redistribution.
    JEL: D12 D31 H21 H22 H24 L51 L94 L98
    Date: 2017
  11. By: Duval-Hernandez, Robert; Fang, Lei; Ngai, Liwa Rachel
    Abstract: Cross-country differences of market hours in 17 OECD countries are mainly due to the hours of women, especially low-skilled women. This paper develops a model to account for the gender-skill differences in market hours across countries. The model explains a substantial fraction of the differences in hours by taxes, which reduce market hours in favor of leisure and home production, and by subsidized care, which frees (mostly) women from home care in favor of their market hours. Low-skilled women are more responsive to policy because of their low market returns and their comparative advantage in home activities.
    Keywords: Cross-country Differences in Market Hours; Home Production; Subsidies on Family Care
    JEL: E24 E62 J22
    Date: 2017–09
  12. By: Bertolotti, Fabio; Marcellino, Massimiliano
    Abstract: We assess whether the effects of fiscal policy depend on the extent of uncertainty in the economy. Specifically, focusing on tax shocks, identified by the narrative series by Romer and Romer (2010), and various measures of uncertainty, we use a Threshold VAR model to allow for dependence of the effects of the tax shocks both on the level of uncertainty and on the sign of the shock. Our two main empirical results are that the economy responds more positively to tax cuts during periods of low uncertainty, while, in response to tax increases, monetary policy contributes significantly in making the reaction of the economy neutral during more uncertain times. We also show that existing theoretical models can explain, to a good extent, this empirical evidence.
    Date: 2017–09
  13. By: Pilny, Adam; Wübker, Ansgar; Ziebarth, Nicolas R.
    Abstract: To equalize differences in health plan premiums due to differences in risk pools, German legislature introduced a simple Risk Adjustment Scheme (RAS) based on age, gender and disability status in 1994. In addition, effective 1996, consumers gained the freedom to choose among hundreds of existing health plans, across employers and state-borders. This paper (a) estimates RAS pass-through rates on premiums, financial reserves, and expenditures and assesses the overall impact on market price dispersion. Moreover, it (b) characterizes health plan switchers and their annual and cumulative switching rates over time. Our main findings are based on representative enrollee panel data linked to administrative RAS and health plan data. We show that sickness funds with bad risk pools and high pre-RAS premiums lowered their total premiums by 42 cents per additional euro allocated by the RAS. Consequently, post-RAS, health plan prices converged but not fully. Because switchers are more likely to be white collar, young and healthy, the new consumer choice resulted in more risk segregation and the amount of money redistributed by the RAS increased over time.
    Keywords: employer-based health insurance,free health plan choice,risk adjustment,health plan switching,adverse selection,German sickness funds,SOEP
    JEL: D12 H51 I11 I13 I18
    Date: 2017
  14. By: Tobias Thomas; Moritz Heß; Gert G. Wagner
    Abstract: As from a political economy perspective, politicians often fail to implement structural reforms, we investigate if the resistance to reform is based on the differences in the risk preferences of voters, politicians, and bureaucrats. Based on the empirical results of a survey of the population in Germany, 175 members of the Federal German Parliament (Bundestag), and 106 officials (“bureaucrats”) from German ministries, this is not the case. Since both politicians and bureaucrats have a higher risk appetite than the general population, their risk preferences cannot be seen as an explanation for the resistance to structural reform. Hence, it must be caused by other reasons. These can be for instance – as public choice scholars argue – interventions by veto players, wars of attrition by powerful interest groups, or reform logjams initiated. However, another point of view could be that modern democracies are doing better than many believe. During times of populist campaigns, the election process can put forth candidates with very high risk appetites, but the constitutions of democracies turn out to be rather smart if hazardous actions and measures by political rookies and gamblers are inhibited by checks and balances.
    Keywords: Political reforms, political decision-making, principal agent-theory, risk aversion, German, SOEP
    JEL: D71 D78 H11 H70 P16 Z13
    Date: 2017
  15. By: Candra Fajri Ananda (Faculty of Economics and Business, Brawijaya University, Indonesia Author-2-Name: Moh. Khusaini Author-2-Workplace-Name: Faculty of Economics and Business, Brawijaya University, Indonesia Author-3-Name: Atu Bagus Wiguna Author-3-Workplace-Name: Faculty of Economics and Business, Brawijaya University, Indonesia)
    Abstract: "Objective – The poverty issue in East Java Province is an interesting research object. This phenomenon has retrieved in every fiscal year, although the intergovernmental transfer funds increase significantly annually. In the decentralization era, a region has been authorized to identify its problem and provide solutions based on their initiatives and preferences. The local government through their budget should focus on their problem solving, i.e. poverty alleviation. Utilizing panel regression, we found that government spending on education and health can reduce poverty rate. Methodology/Technique – OLS (Ordinary Least Squared) model was utilized to answer the objective of the study, that is, to see how the effect of government spending in various sectors on poverty alleviation. Findings – Using the panel regression model, this study found that government spending on education has a negative impact on poverty rate in the East Java Province. The impact on this variable appears to be statistically significant. Novelty – This study showed that central and local government should synchronize their proposed programs, reducing overlapped programs, to pursue a higher efficiency of budget management."
    Keywords: Quality Spending, Budget Deficit/Surplus, Poverty Alleviation.
    JEL: H72 I31 I32
    Date: 2017–01–13
  16. By: Abdul Azeez Oluwanisola Abdul Wahab (Faculty of Economics and Muamalat, Universiti Sains Islam, Malaysia Author-2-Name: Zurina Kefeli Author-2-Workplace-Name: Faculty of Economics and Muamalat, Universiti Sains Islam, Malaysia)
    Abstract: "Objective – The possibility of healthcare expenditure and education expenditure are becoming a thought-provoking issue for numerous governments globally, in spite of the fact that healthcare is unique and vital rudiments of well-being. On the other hand, education is the strength and spinal column of ground-breaking thoughts. Nevertheless, with an ageing population and ballooning protracted health difficulties, the preservation of the quality of life demands improved healthcare and education expenditure on the part of government. However, this study scrutinizes the effect of healthcare expenditure and education expenditure on labour productivity using Organization of Islamic Cooperation (OIC) countries as a case study. Methodology/Technique – The research utilized pooled-panel data method with data from 1990 to 2015. Findings – The result of the findings shows that there is the statistical significant relationship between healthcare expenditure, education expenditure and labour productivity in OIC countries. Novelty – Research suggests that healthcare and education is a mechanism to stimulate the productivity of labour in OIC countries."
    Keywords: Education Expenditure; Healthcare Expenditure; Labour Productivity; OIC Countries.
    JEL: H51 H52 J24
    Date: 2017–03–23

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