nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒11‒19
29 papers chosen by
Thomas Andrén

  1. Welfare Analysis and Redistributive Policies By Bargain, Olivier
  2. Taxes and Economic Growth in OECD Countries: A Meta-Regression Analysis By Alinaghi, Nazila; Reed, W. Robert
  3. Optimal Income Taxation with Composition Effects By Laurence Jacquet; Etienne Lehmann
  4. The Distributional Impact of Fiscal Policy in Georgia By Cesar Cancho; Elena Bondarenko
  5. Taxation and Corporate Risk-Taking By Dominika Langenmayr; Rebecca Lester
  6. Civic capital and support for the welfare state By Cerqueti, Roy; Sabatini, Fabio; Ventura, Marco
  7. Who Benefits from Fiscal Redistribution in the Russian Federation? By Luis F. Lopez-Calva; Nora Lustig; Mikhail Matytsin; Daria Popova
  8. Tax loss offset restrictions and biased perception of risky investments By Mehrmann, Annika; Sureth-Sloane, Caren
  9. The case for NIT+FT in Europe. An empirical optimal taxation exercise By Islam, Nizamul; Colombino, Ugo
  10. VAT and Agriculture: Lessons from Europe By Sijbren Cnossen
  11. Who Bears the Economic Costs of Environmental Regulations? By Don Fullerton; Erich Muehlegger
  12. Tax Structure and Economic Growth: Do Differences in Income Level and Government Effectiveness Matter? By Halit Yanikkaya; Taner Turan
  13. Tax morale and the role of social norms and reciprocity: Evidence from a randomized survey experiment By Doerrenberg, Philipp; Peichl, Andreas
  14. Maybe "Honor Thy Father and Thy Mother": Uncertain Family Aid and the Design of Social Long Term Care Insurance By Chiara Canta; Helmuth Cremer; Firouz Gahvari
  15. Dynamic scoring of tax reforms in the European Union By Barrios, Salvador; Dolls, Mathias; Maftei, Anamaria; Peichl, Andreas; Riscado, Sara; Varga, Janos; Wittneben, Christian
  16. Tax Mimicking in Local Business Taxation: Quasi-experimental Evidence from Portugal By Mariana Lopes da Fonseca
  17. Taxation and the Multinational Firm By Peter Egger; Michael Stimmelmayr
  18. Procyclical endogenous taxation and aggregate instability By Mauro Bambi; Siritas Kettanurak
  19. Fiscal decentralization and government size across Europe By Makreshanska, Suzana; Petrevski, Goran
  20. Taxation, social protection, and governance decentralization By Gil S. Epstein; Ira N. Gang
  21. Will Corporate Tax Cuts Cause a Large Increase in Wages? By William R. Cline
  22. Rebalancing in China: a taxation approach By Damien Cubizol
  23. Democracy and taxation By Balamatsias, Pavlos
  24. Strength in diversity? Fiscal federalism among the fifty U.S. states By Teresa Garcia-Milà; Therese J. McGuire; Wallace E. Oates
  25. Tax incentives for research and development and their use in tax planning By Pfeiffer, Olena; Spengel, Christoph
  26. The Rise and Future of Progressive Redistribution By Peter H. Lindert
  27. Tax Morale and Policy Intervention By Nordblom, Katarina
  28. Public Finance in a Nutshell: A Cobb-Douglas Teaching Tool for General Equilibrium Tax Incidence and Excess Burden By Don Fullerton; Chi L. Ta
  29. The Effects of a Hybrid Negative Income Tax on Poverty and Inequality: a Microsimulation on the UK and Italy By Tromp, Alexander

  1. By: Bargain, Olivier
    Abstract: Applied welfare analyses of redistributive systems nowadays benefit from powerful tax benefit microsimulation programs combined with administrative data. Arguably, most of the distributional studies of that kind focus on social welfare defined as a function – typically inequality or poverty indices – of household equivalized income. In parallel, economic research has made considerable progress in the measurement of welfare along several dimensions. Distinct but related branches of the literature have attempted (i) to model different behaviour (in a way that matter for incidence and redistribution of tax benefit policies), (ii) to go beyond income, (iii) to better define and estimate equivalence scales, (iv) to open the household black box and measure welfare at the individual level. I suggest a general framework to critically review these streams of literatures and to discuss whether recent advances in each of these fields have been or could be readily operationalized in welfare analyses and policy simulations.
    Date: 2017–10–30
  2. By: Alinaghi, Nazila; Reed, W. Robert
    Abstract: This paper uses meta-analysis to evaluate the results of 42 studies and 641 individual estimates of the effect of taxes on economic growth in OECD countries. Our analysis addresses a number of difficult coding issues such as: implications of the government budget constraint for interpretations of tax effects; units of measurement for economic growth rates and tax rates; implications of equation specifications that measure short-run, medium-run, and long-run effects; length of time period (annual data versus multi-year periods); and other factors. Our main findings are: Estimates in the literature are characterized by significant (negative) publication bias. Controlling for publication bias, we find that increases in unproductive expenditures funded by distortionary taxes and/or deficits have a significant, negative effect on growth; while increases in non-distortionary taxes to fund productive expenditures and/or government surpluses have a significant, positive effect. The estimated differences in these policies indicate that there is scope for tax policy to have a meaningful impact on economic growth. Finally, we find weak evidence that taxes on labour are more growth retarding than other types of taxes, while the evidence regarding other types of taxes is mixed.
    Keywords: Meta-analysis, Taxes, Economic growth, OECD,
    Date: 2017
  3. By: Laurence Jacquet; Etienne Lehmann
    Abstract: We study the optimal nonlinear income tax problem with multidimensional individual characteristics on which taxes cannot be conditioned. We obtain an optimal tax formula that generalizes the standard one by averaging, with specific weights, the sufficient statistics of individuals who earn the same income. Our first main contribution consists in showing that multidimensional heterogeneity brings a new source of endogeneity to the sufficient statistics that we call composition effects. We highlight that composition effects may substantially affect optimal marginal tax rates. Our results put the stress on the need for empirical studies on sufficient statistics for different demographic groups e.g., according to gender, age, ethnicity. As a second main contribution, we show the equivalence between the tax perturbation and mechanism design approaches which bridges the gap between both methods that have, so far, been used separately in the literature.
    Keywords: optimal taxation, multidimensional screening problems, tax perturbation, allocation perturbation, sufficient statistics
    Date: 2017
  4. By: Cesar Cancho (Poverty & Equity Global Practice at the World Bank); Elena Bondarenko (Macroeconomics & Fiscal Management Global Practice at the World Bank)
    Abstract: This paper uses the 2013 Integrated Household Survey, collected by the Central Statistical Agency of Georgia (GeoStat), and data concerning government revenues and expenditures collected by the Ministry of Finance (MoF) along with other administrative agencies, and applies the CEQ methodology to analyze the progressivity of Georgia’s tax and transfer systems. The effects of a variety of policies are individually described, including personal income tax (PIT), value added tax (VAT) and excise tax. In addition, this paper assesses direct and in-kind transfers made by the Georgian government. The distributional effect of indirect subsidies, which are confined to the capital city, Tbilisi, are also considered, as well as the Agricultural Card program. The results show a stark difference between direct and indirect taxation. Direct taxes are progressive, and income tax is largely borne by high-income deciles. Meanwhile, the burden of indirect taxation is more evenly distributed, with the poor losing a higher percentage of income. Thus, the tax system is regressive. Overall, fiscal policy is progressive and equalizing, even before in-kind transfers for early education, and the Medical Insurance for the Poor (MIP), and Universal Health Care (UHC) programs are taken into account. The Targeted Social Assistance Program (TSA) and old-age pensions play a significantly pro-poor role. Fiscal incidence reduces poverty (under $2.50 USD’s per day) over 9 percentage points, the largest drop in poverty amongst the countries where CEQ analysis was performed. This paper concludes that excise taxes should be reassigned or eliminated to reduce regressivity, while PIT and the property tax could be broadened, which would expand the tax base.
    Keywords: fiscal incidence, taxation, social spending, inequality, poverty, Georgia
    JEL: H22 D31 I38
    Date: 2017–05
  5. By: Dominika Langenmayr; Rebecca Lester
    Abstract: We study whether the corporate tax system provides incentives for risky firm investment. We analytically and empirically show two main findings: first, risk-taking is positively related to the length of tax loss periods because the loss rules shift some risk to the government; and second, the tax rate has a positive effect on risk-taking for firms that expect to use losses, and a weak negative effect for those that cannot. Thus, the sign of the tax effect on risky investment hinges on firm-specific expectations of future loss recovery.
    Keywords: corporate taxation, risk-taking, net operating losses
    JEL: H25 H32 G32
    Date: 2017
  6. By: Cerqueti, Roy; Sabatini, Fabio; Ventura, Marco
    Abstract: We model how the interplay between tax surveillance institutions and civic capital shapes taxpayers' support for welfare state. We show that, when tax surveillance is tight, rational civic-minded individuals express greater support for welfare spending than uncivic ones. We provide empirical evidence of these preferences using data from Italy, a country that has long posed a puzzle for public economists for its limited civic capital and large welfare state.
    Keywords: welfare state,redistribution,tax surveillance,trust,civic capital,social capital
    Date: 2017
  7. By: Luis F. Lopez-Calva (World Bank); Nora Lustig (Stone Center for Latin American Studies, Department of Economics, Tulane University, Commitment to Equity Institute (CEQI).); Mikhail Matytsin (World Bank); Daria Popova (World Bank)
    Abstract: This paper shows that the system of taxes and transfers in Russia has a limited redistributive capacity vertically (among different income groups)—particularly when pensions are assumed to be deferred income—though it does achieve significant horizontal redistribution (among sociodemographic groups). The main results of the analysis, concern the Russian fiscal system’s limited redistributive effect,low effectiveness in poverty reduction, and relatively poor net financial impact on all demographic groups except pensioners. Firstly, benchmarking shows that the Russian system of direct taxes and transfers does not compare well with countries that achieve larger redistribution, in particular European Union countries. Secondly,net direct taxes (incorporated into disposable income) are always equalizing, but net indirect taxes (incorporated into consumable income) are unequalizing in both the benchmark and the sensitivity analysis scenarios. Thirdly, under the benchmark scenario, the net effect of the fiscal system is actually poverty increasing. Finally, it appears that all households of working-age people with and without children are net payers under the Russian fiscal system, while only pensioners’ households benefit from the fiscal redistribution in Russia under both scenarios. The main conclusion that emerges from this analysis is that there are both equity and efficiency reasons to review the tax and social spending structure. Such an exercise may require, however, a good understanding of the political economy of a potential reform.
    Keywords: fiscal policy, fiscal incidence, social spending, inequality, poverty, taxes, Russia
    JEL: H22 I38 D31
    Date: 2017–05
  8. By: Mehrmann, Annika; Sureth-Sloane, Caren
    Abstract: We investigate how tax loss offset restrictions affect an investor's evaluation of risky investments under bounded rationality. We analytically identify behavioral tax effects for different levels of loss offset restrictions, tax rate and prospect theoretical biases (loss aversion, probability weighting and reference dependence) and find tax loss offset restrictions significantly bias investor perception, even more heavily than the tax rate. If loss offset restrictions are rather generous, investors are very loss averse or assign a huge weight to loss probabilities, taxation is likely to increase the preference value of risky investments (behavioral tax paradox). Surprisingly, the identified significant perception biases of tax loss offset restrictions occur under both high and low tax rates and thus are relatively insensitive to tax rate changes. Finally, we identify huge differences in behavioral tax effects across countries indicating that tax loss offset restrictions crucially determine the perceived tax quality of a country for risky investments. Our analysis is relevant for policy makers discussing future tax reforms as well as for investors assessing risky investment opportunities.
    Keywords: asymmetric taxation,investment decisions,loss offset restrictions,perception bias,risktaking,tax effects,tax losses,prospect theory,behavioral taxation
    JEL: D81 D91 H21 H25
    Date: 2017
  9. By: Islam, Nizamul; Colombino, Ugo
    Abstract: The case for NIT+FT in Europe. An empirical optimal tWe present an exercise in empirical optimal taxation for European countries from three areas: Southern, Central and Northern Europe. For each country, we estimate a microeconometric model of labour supply for both couples and singles. A procedure that simulates the households’ choices under given tax-transfer rules is then embedded in a constrained optimization program in order to identify optimal rules under the public budget constraint. The optimality criterion is the class of Kolm’s social welfare function. The tax-transfer rules considered as candidates are members of a class that includes as special cases various versions of the Negative Income Tax: Conditional Basis Income, Unconditional Basic Income, In-Work Benefits and General Negative Income Tax, combined with a Flat Tax above the exemption level. The analysis show that the General Negative Income Tax strictly dominates the other rules, including the current ones. In most cases the Unconditional Basic Income policy is better than the Conditional Basic Income policy. Conditional Basic Income policy may lead to a significant reduction in labour supply and poverty-trap effects. In-Work-Benefit policy in most cases is strictly dominated by the General Negative Income Tax and Unconditional Basic Income.
    Keywords: Basic Income,Negative Income Tax,Optimal tax,Micro-simulation,Welfare
    JEL: H21 C18
    Date: 2017
  10. By: Sijbren Cnossen
    Abstract: Farmers are often exempted from VAT for administrative and political reasons. But this means that the VAT on their inputs cannot be ‘washed out’ through the tax deduction/credit mechanism. To compensate farmers for the uncompensated VAT on inputs, the EU has devised a flat-rate scheme that permits them to charge a presumptive rate (approximately equal to the effective VAT rate on sector-wide inputs) on their sales to taxable agro-processing firms. The flat-rate scheme is an arbitrary way of trying to achieve equal treatment. Full taxation, subject to the general threshold, appears to be the preferred choice.
    Keywords: VAT, agriculture, European union, flat-rate compensation scheme, reduced rates, incidence
    JEL: H22 H25
    Date: 2017
  11. By: Don Fullerton; Erich Muehlegger
    Abstract: Public economics has a well-developed literature on tax incidence – the ultimate burdens from tax policy. This literature is used here to describe not only the distributional effects of environmental taxes or subsidies but also the likely incidence of non-tax regulations, energy efficiency standards, or other environmental mandates. Recent papers find that mandates can be more regressive than carbon taxes. We also describe how the distributional effects of such policies can be altered by various market conditions such as limited factor mobility, trade exposure, evasion, corruption, or imperfect competition. Finally, we review data on carbon-intensity of production and exports around the world in order to describe implications for effects of possible carbon taxation on countries with different levels of income per capita.
    Keywords: distributional effects, carbon tax, environmental policy, incidence
    JEL: H22
    Date: 2017
  12. By: Halit Yanikkaya (Department of Economics, Gebze Technical University); Taner Turan (Department of Economics, Gebze Technical University)
    Abstract: We empirically examine the effects of both overall tax rate and changes in tax structure on growth by using data for more than 100 high, middle and lower income countries by employing the GMM estimation methods. We classify the countries by their income and their government effectiveness levels. We investigate whether the government effectiveness is important in affecting the nature of the relationship for non-OECD countries. Although there are some exceptions, our results don’t support the idea that overall tax rate or changes in tax structure have a significant effect on growth rate. We find that a shift from income to consumption and property taxes leads to a positive and significant effect on growth rate while holding overall tax burden constant. Our results also suggest that a shift from consumption and property taxes to income taxes has a positive effect on growth rate for low-income countries.
    Keywords: taxation, growth, tax structure, government effectiveness
    JEL: O23 O50
    Date: 2017–11–10
  13. By: Doerrenberg, Philipp; Peichl, Andreas
    Abstract: We present the first randomized survey experiment in the context of tax compliance to assess the role of social norms and reciprocity for intrinsic tax morale. We find that participants in a reciprocity treatment have significantly higher tax morale than those in a social-norm treatment. This suggests that a potential backfire effect of social norms is outweighed if the consequences of violating the social norm are made salient. We further document the anatomy of intrinsic motivations for tax compliance and present first evidence that previously found gender effects in tax morale are not driven by differences in risk preferences.
    Keywords: Tax compliance,Tax evasion,Intrinsic motivations,Tax morale,Social norms,Reciprocity
    JEL: H20 H32 H50 C93
    Date: 2017
  14. By: Chiara Canta; Helmuth Cremer; Firouz Gahvari
    Abstract: We study the role and design of private and public insurance programs when informal care is uncertain. Children’s degree of altruism is randomly distributed over some interval. Social insurance helps parents who receive a low level of care, but it comes at the cost of crowding out informal care. Crowding out occurs both at the intensive and the extensive margins. We consider three types of LTC policies: (i) a topping up (TU) scheme providing a transfer which is non exclusive and can be supplemented; (ii) an opting out (OO) scheme which is exclusive and cannot be topped up and (iii), a mixed policy combining these two schemes. TU will involve crowding out both at the intensive and the extensive margins, whereas OO will crowd out informal care solely at the extensive margin. However, OO is not necessarily the dominant policy as it may exacerbate crowding out at the extensive margin. The distortions of both policies can be mitigated by using an appropriately designed mixed policy.
    Keywords: long term care, uncertain altruism, private insurance, public insurance, topping up, opting out
    JEL: H20 H50
    Date: 2016
  15. By: Barrios, Salvador; Dolls, Mathias; Maftei, Anamaria; Peichl, Andreas; Riscado, Sara; Varga, Janos; Wittneben, Christian
    Abstract: In this paper, we present the first dynamic scoring exercise linking a multi†country microsimulation and DSGE models for all countries of the European Union. We illustrate our novel methodology analysing a hypothetical tax reform for Belgium. We then evaluate real tax reforms in Italy and Poland. Our approach takes into account the feedback effects resulting from adjustments in the labor market and the economy†wide reaction to the tax policy changes. Our results suggest that accounting for the behavioral reaction and macroeconomic feedback to tax policy changes enriches the tax reforms' analysis, by increasing the accuracy of the direct fiscal and distributional impact assessment provided by the microsimulation model for the tax reforms considered. Our results are in line with previous dynamic scoring exercises, showing that most tax reforms entail relatively smaller feedback effects in terms of the labor tax revenues for tax cuts benefiting workers, compared with the ones granted to firms.
    Date: 2017–10–30
  16. By: Mariana Lopes da Fonseca
    Abstract: I exploit an exogenous reform introducing a local business tax in Portugal to study tax mimicking among jurisdictions. The identification strategy relies on a quasi-experimental difference-in-differences methodology and heterogeneity in treatment intensity. Results show evidence of significant short-run tax mimicking that decreases over time. I study possible generating processes underlying the strategic interaction among municipalities and find significant evidence of electoral concerns. These electoral concerns are not met with electoral consequences at the local elections, which may be behind the diffusion of local business taxation in the long run.
    Keywords: tax mimicking, yardstick competition, local reform
    JEL: D72 H71 H77
    Date: 2017
  17. By: Peter Egger; Michael Stimmelmayr
    Abstract: This chapter provides a survey of issues which emerge with the taxation of multinational enterprises. It addresses tax rates which affect multinational firms directly and focuses on provisions and incentives which relate to the profits and investments of such firms directly. It survey positive as well as normative principles of such taxation and incentives, relates to tax-avoidance practices, and discusses their remedies.
    Keywords: taxation, foreign direct investment, multinational firms
    JEL: F21 F23 H25 H26
    Date: 2017
  18. By: Mauro Bambi; Siritas Kettanurak
    Abstract: The existing contributions on endogenous taxation, and balanced budget rules, suggest that countercyclical taxes should be avoided, because they may lead to aggregate instability (i.e. sunspot equilibria); on the other hand, procyclical taxes have always been praised for their stabilizing role. In this paper, we re-examine this issue in an endogenous growth model with productive government investment, and we prove that an economy with procyclical taxes, and a sufficiently large income effect, can still be characterized by i) global indeterminacy because two balanced growth paths may exist; ii) aggregate instability around the balanced growth path with the lowest growth rate. Finally, we show that this dynamics may emerge for reasonable choices of the parameters.
    Keywords: Endogenous growth, time-varying consumption tax, local and global indeterminacy.
    JEL: C62 E32 H20 O41
    Date: 2017–10
  19. By: Makreshanska, Suzana; Petrevski, Goran
    Abstract: The paper provides for an empirical study of the association between fiscal decentralization and government size on a panel of 28 European developed and former transition countries during 1991-2011, controlling for the effects of various demographic, institutional, and macroeconomic variables as well as for the effects of the Global Financial Crisis. The main findings from the empirical investigation are as follows: We provide evidence for non-negligible effects of expenditure decentralization on government size, especially in the former transition economies. However, when we employ the revenue decentralization as an explanatory variable we cannot provide support to the Leviathan hypothesis. We include two measures of the vertical fiscal imbalance and provide empirical support to the common-pool hypothesis only for the former transition countries. As for the effects of the control variables, our research results suggest that higher public debt leads to larger government, while trade openness is associated with smaller government size. Also, we find that the effects of population density and dependent population on government size differs between the developed and the former transition countries, while higher degree of urbanization reduces government size only in the developed countries sub-sample. Finally, we confirm that the Global Financial Crisis has strong effects on the level of government expenditure across Europe.
    Keywords: Fiscal decentralization; Government size; Leviathan hypothesis; Common-pool hypothesis; Panel data models; Fixed-effects estimator.
    JEL: C33 H50 H71 H77
    Date: 2016–12–02
  20. By: Gil S. Epstein (Bar-Ilan University); Ira N. Gang (Rutgers University)
    Abstract: Governments do not have perfect information regarding constituent priorities and needs. This lack of knowledge opens the door for groups to lobby in order to affect the government’s taxation levels. We examine the political economy of decentralized revenue-raising authority in light of social protection expenditures by constructing a theoretical model of hierarchical contests and comparing the implications of centralized with decentralized governance. Increasing information available to the government may generate additional expenditures by interest groups trying to affect government taxation decisions. We show the potential existence of a poverty trap as a result of decentralization in taxation decisions.
    Keywords: governance, decentraliation, economic-models-of-political-process, contests, rent-seeking
    JEL: H77 D72 H73
    Date: 2017–11–14
  21. By: William R. Cline (Peterson Institute for International Economics)
    Abstract: Proponents of lowering corporate taxes cite an estimate by the Trump administration’s Council of Economic Advisers (CEA) that cutting the corporate tax rate from 35 to 20 percent would raise average annual household income by $4,000 to $9,000, corresponding to an increase in wages ranging from 6 to 14 percent, respectively. The council’s conclusion is based on cross-country and cross-state statistical tests and are subject to weaknesses highlighted by Lawrence Summers and Jason Furman, among others. In contrast, Gregory Mankiw has pointed out that a simple aggregate production function approach could generate wage increases that substantially exceed the tax revenue loss. This Policy Brief examines the use of the production function approach and concludes that although Mankiw provides a useful reminder that a corporate tax cut could raise worker productivity and wages through its potential for providing more capital for labor to work with, the likely magnitudes of the gains are far smaller than the range claimed by the CEA.
    Date: 2017–11
  22. By: Damien Cubizol (Univ Lyon, CNRS, GATE L-SE UMR 5824, F-69130 Ecully, France)
    Abstract: The rebalancing of the Chinese economy is analyzed through a heterogeneous taxation of various types of firms. Based on a two-country dynamic general equilibrium model, the paper applies tax reforms to raise consumption, reduce some firms' overinvestment and maintain a high level of welfare. To rebalance consumption and investment, taxation may allow reallocating a part of the labor force to firms that are not overinvesting. Moreover, the correction of distortions in production factor costs (capital and labor) is necessary during certain reforms applied in the model; that is, on the one hand, higher credit costs for State-Owned Enterprises (SOEs) and, on the other hand, a catch-up of foreign firms' wages by domestic firms (public and private). In this model, firms' credit cost is a key channel because it impacts both firms' investment and household consumption (through returns on savings). These consumption and investment reforms bring welfare benefits to households, and the results are close to direct welfare maximization. In this framework, the rebalancing of the domestic demand does not require the readjustment of the external financial position because the aggregate savings rate remains high and the supply of domestic assets is reduced. Finally, another theoretical framework proposes a heterogeneous taxation of consumption across home and foreign goods to enhance consumption.
    Keywords: The Chinese economy, tax reforms, financial intermediation, consumption, investment, welfare, foreign assets
    JEL: F20 F30 H20 H30 P20 P30
    Date: 2017
  23. By: Balamatsias, Pavlos
    Abstract: In this paper we argue that democracies tend to positively affect the size and composition of tax revenues. Our argument is based on the hypothesis that democracies can increase direct taxation, such as income taxes and capital taxes, due to increased compliance of taxpayers and also because there is a diffusion of tax measures between neighboring democratic/autocratic countries. The main theoretical hypothesis is then tested on a dataset that consists of 74 countries over the period 1993-2012.Our main explanatory variable will be a dichotomous measure of democracy; but we alter our analysis from previous research by assuming that democracy or autocracy is not an exogenous variable. Instead we follow the theory of Huntington (1991) and the methodology of Acemoglu, Naidu, Restpero and Robinson (2014) about regional democratization waves. According to this theory, democratizations occur in regional waves; consequently diffusion of demand or discontent for a political system is easier to happen in neighboring countries due to socio-political and historical similarities. This measure shows us that demand or discontent for a given political system in a geographical area, can in turn influences the power of a country’s political regime and subsequently that regime’s effect on taxation. We then use a two stage least square (2SLS) fixed effects to test our hypothesis. The empirical findings suggest that regional waves of democratization have a positive and statistically significant correlation with democracy, and in turn democracy also has a positive effect on direct taxation as well as the ratio of direct to indirect taxation in the countries of our sample. This result remains the same when several robustness tests are used. Finally when examining the long-run effect of regional waves, we do not find any evidence of a significant relationship between regional waves of democratization and a country’s own regime; however democracy still has a positive effect on direct taxes and tax ratio.
    Keywords: Democracy, Political development, Regional democratization waves, Taxation
    JEL: H2 P16
    Date: 2016–02
  24. By: Teresa Garcia-Milà; Therese J. McGuire; Wallace E. Oates
    Abstract: Fiscal federalism in the United States has a distinctive structure that contrasts sharply with that in most other industrialized nations. Our purpose in this paper is to describe and explore the U.S. “brand” of fiscal federalism. We demonstrate that there is a striking amount of variety in the 50 state fiscal systems and that these differences have prevailed in the face of potentially disruptive forces. The variety we find stems in large part from states having meaningful fiscal autonomy, in particular, the authority to levy taxes. The result is likely higher societal welfare than would ensue without this autonomy.
    Keywords: Fiscal federalism, fifty U.S. states
    JEL: H70 H77
    Date: 2017–10
  25. By: Pfeiffer, Olena; Spengel, Christoph
    Abstract: This study provides a comprehensive analysis of various aspects of R&D tax incentives. It explains the economic justification behind the state support of research and development and summarizes its main types. In addition, it gives an overview of the existing R&D tax incentives in Europe and provides a thorough review of the empirical literature on the outcomes of fiscal incentives. Furthermore, the Devereux and Griffith model is used to determine the effective tax burden of multinational firms that reside in countries which implement R&D tax support and countries which do not. The model is developed further following Spengel and Elschner (2010) and Evers et al. (2015) to reflect a potential use of R&D tax incentives by multinational firms for tax planning. The hypothesis developed in the model is tested in an empirical estimation, where we employ the OECD data on international co-operation in patents. According to our main findings, there are at least two reasons why input-oriented R&D tax incentives, such as tax credits and tax super-deductions, constitute a more suitable instrument for fostering research and development than the output-oriented incentives, such as IP Boxes. First, there is robust evidence found in the empirical literature which shows the positive effect introducing input-oriented tax incentives has on a firm's innovative activity, whereas studies on output-oriented tax incentives are not able to support this argument. Secondly, according to our theoretical and empirical analyses, output-oriented R&D tax incentives may be used by multinationals for tax planning as opposed to their intended use of fostering research and development.
    Keywords: research and development,R&D,tax planning,corporate taxation
    JEL: H25 F23 H26 H3
    Date: 2017
  26. By: Peter H. Lindert (University of California–Davis)
    Abstract: Starting from today’s collection of estimates of fiscal distribution within each of 53 countries, we can begin mapping a history of how redistribution has evolved historically, and to project some influences on its trends in the next few decades. There appears to have been a global shift toward progressive redistribution over the last hundred years in all prosperous countries. The retreats toward regressive redistribution have been rare and have been reversed. As a corollary, the rise in income inequality since the 1970s owes nothing to any retreat from progressive government spending. Adding the effects of rising subsidy for public education on the later inequality of adult earning power strongly suggests that a fuller, longer-run measure of fiscal incidence would reveal a history of still greater shift toward progressivity, most notably in Japan, Korea, andTaiwan. The key determinant of progressivity in the decades ahead is population aging, not inequality itself or immigration backlash.
    JEL: H22 H23 H24 N30
    Date: 2017–10
  27. By: Nordblom, Katarina (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper deals with tax morale and how norms may evolve over time. The special focus is on buying black-market services. I apply mechanisms from social psychology to explain how personal norms may evolve due to one's own past behavior through self-signaling and due to conformity based on social interactions. These changes over time result in multiple equilibria, so that the economy can develop stronger social norms and less evasion over time, or weaker norms and more evasion in the long run. An economy on a trajectory toward the “bad” equilibrium may be permanently pushed onto a trajectory toward the “good” equilibrium by means of a suffciently strong temporary policy. Observations from a recent tax reform in Sweden strongly support the theory and suggest that other policies than enforcement may indeed be a powerful tool in inuencing both behavior and attitudes.
    Keywords: Social norms; Endogenous norms; Tax evasion; Self-signaling; Normative conformity.
    JEL: D91 H26
    Date: 2017–11
  28. By: Don Fullerton; Chi L. Ta
    Abstract: To help first- or second-year graduate students in economics apply their theoretical training, this paper shows how to solve a simple and intuitive computable general equilibrium (CGE) model using a calculator. Because this simplified Harberger model uses Cobb Douglas functional forms for utility and production, one can solve for all input and output prices and quantities with no taxes and then solve for exact measures of output with a large tax change (not using derivatives). We then show how to solve simultaneously for capital and labor prices (incidence on the sources side of income), for both output prices (incidence on the uses side), for exact measures of overall welfare loss such as the equivalent variation, for excess burden and marginal excess burden, and for the effects on revenue in the form of a Laffer Curve.
    Keywords: computable general equilibrium, economic efficiency, distribution of burdens, sources side, uses side, equivalent variation
    JEL: A20 C63 C68 D04 D58 H21 H22 H23 H24 H25
    Date: 2016
  29. By: Tromp, Alexander
    Abstract: This paper aims to propose a social protection system that "decommodifies" labour and fulfills the properties of a Social Protection Floor satisfying revenue-neutrality. To this end, firstly, a Universal Basic Income (UBI) scheme is explored. Secondly, the UBI is transformed into a Negative Income Tax (NIT) scheme, providing universal protection instead of universal benefits. Finally, the NIT is modified into a Hybrid NIT (HNIT), being a mixture of NIT and a classic social assistance scheme. It features a 100% withdrawal rate, consequently allowing for a higher guaranteed minimum income level than would be possible with either an NIT or UBI. A static microsimulation, using the EUROMOD model, is conducted on the HNIT scheme, implementing two scenarios. One scenario establishes what the maximum levels of entitlements could be, assuming revenue-neutrality and current marginal tax levels. The other scenario assumes more generous entitlements and computes which tax rates would be necessary to pay for such a scheme. The models are applied to both Italy and the United Kingdom. The results are interpreted in terms of poverty and inequality statistics while closely looking into the assumptions of the microsimulation models. In the first scenario a modest level of guaranteed minimum income is feasible, decreasing both poverty and inequality decidedly compared to current levels. This effect is even stronger in the second scenario, however, it results in unrealistically high tax rates, especially for Italy. The impact on poverty and inequality of the HNIT scheme is markedly higher for Italy in both scenarios suggesting that the United Kingdom has currently a social protection system in place that redistributes more efficiently than Italy.
    Date: 2017–10–30

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