nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒12‒11
twenty papers chosen by
Thomas Andrén

  1. Pension Schemes, Taxation and Stakeholder Wealth: The USS Rule Changes By Emmanouil Platanakis; Charles Sutcliffe;
  2. Fiscal Consolidation Programs and Income Inequality By Brinca, Pedro; Ferreira, Miguel; Franco, Francesco; Holter, Hans; Malafry, Laurence
  3. The value of progressivity: Evidence from survey experiments By Benoît Tarroux
  4. National Fiscal Stimulus Packages And Consolidation Strategies In A Monetary Union By Christoph Bierbrauer
  5. Local income tax competition with progressive taxes and a fiscal equalization scheme By Florian Kuhlmey
  6. Civic capital and support for the welfare state By Roy Cerqueti; Fabio Sabatini; Marco Ventura
  7. Analyzing tax reforms using the Swedish Labour Income Microsimulation Model By Lundberg, Jacob
  8. Intra-household Labour Income Responses to Changes in Tax Rates Among Older Workers By Messacar, Derek
  9. The distribution of taxable income and fiscal benefits in Spain: New evidence from personal income tax returns (2002-2011) By David Haugh
  10. Income vs. property tax competition: A normative comparison By Florian Kuhlmey
  11. The Double Dividend of Relative Auditing – Theory and Experiments on Corporate Tax Enforcement By Ralph-C. Bayer
  12. Heterogeneous Workers and Federal Income Taxes in a Spatial Equilibrium By Colas, Mark; Hutchinson, Kevin
  13. The Benefits and Costs of Donor Advised Funds By James Andreoni
  14. Literature review on taxation, entrepreneurship and collaborative economy By Dondena; CASE; IEB; PWC
  15. Abolishing the Wealth Tax. A Case Study for Germany By Alena Bachleitner
  16. Fairness and the unselfish demand for redistribution by taxpayers and welfare recipients By Fabio Sabatini; Marco Ventura; Eiji Yamamura; Luca Zamparelli
  17. European Monetary Union reform preferences of French and German parliamentarians By Blesse, Sebastian; Boyer, Pierre C.; Heinemann, Friedrich; Janeba, Eckhard; Raj, Anasuya
  18. 'Till Debt Do Us Part': Financial Implications of the Divorce of the Irish Free State from the UK, 1922-6 By FitzGerald, John; Kenny, Seán
  19. Wealthier, Happier and More Self-Sufficient: When Anti-Poverty Programs Improve Economic and Subjective Wellbeing at a Reduced Cost to Taxpayers By Titus J. Galama; Robson Morgan; Juan E. Saavedra
  20. Economic Crises and Globalisation as Drivers of Pension Privatisation: an Empirical Analysis By Markus Leibrecht; Joelle H. Fiong;

  1. By: Emmanouil Platanakis (School of Management, University of Bath); Charles Sutcliffe (ICMA Centre, Henley Business School, University of Reading,);
    Abstract: Although tax relief on pensions is a controversial area of government expenditure, this is the first study of the tax effects of a real world defined benefit pension scheme - the Universities Superannuation Scheme (USS). First, we estimate the tax and national insurance contribution (NIC) effects of the rule changes in 2011 on the gross and net wealth of the sponsor, government, and 16 age cohorts of members, deferred pensioners and pensioners. Second, we measure the size of the twelve income tax and NIC payments and reliefs for members and the sponsor, both before and after the rule changes. We find the total subsidy split is roughly: 40% income tax subsidy; 30% members’ NIC subsidy; and 30% sponsor NIC subsidy. However government proposals for reform have concentrated exclusively on the income tax relief, neglecting the substantially larger NIC relief, possibly because they have overestimated the size of the income tax relief.
    Keywords: Pension schemes, Taxation, Subsidy, National Insurance Contributions, Universities Superannuation Scheme, Redistribution, Rule changes
    JEL: G22 H20 J32
    Date: 2017–09
  2. By: Brinca, Pedro (Center for Economics and Finance); Ferreira, Miguel (Nova School of Business and Economics); Franco, Francesco (Nova School of Business and Economics); Holter, Hans (Department of Economics); Malafry, Laurence (Dept. of Economics, Stockholm University)
    Abstract: Following the Great Recession, many European countries implemented fiscal consolidation policies aimed at reducing government debt. Using three independent data sources and three different empirical approaches, we document a strong positive relationship between higher income inequality and stronger recessive impacts of fiscal consolidation programs across time and place. To explain this finding, we develop a life-cycle, overlapping generations economy with uninsurable labor market risk. We calibrate our model to match key characteristics of a number of European economies, including the distribution of wages and wealth, social security, taxes and debt, and study the effects of fiscal consolidation programs. We find that higher income risk induces precautionary savings behavior, which decreases the proportion of credit-constrained agents in the economy. Credit-constrained agents have less elastic labor supply responses to fiscal consolidation achieved through either tax hikes or public spending cuts, and this explains the relationship between income inequality and the impact of fiscal consolidation programs. Our model produces a cross-country correlation between inequality and the fiscal consolidation multipliers, which is quite similar to that in the data.
    Keywords: Fiscal Consolidation; Income Inequality; Fiscal Multipliers; Public Debt; Income Risk
    JEL: E21 E62 H31 H50
    Date: 2017–11–27
  3. 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 treatments differing in terms of information availability: (1) when only information about final incomes is provided; (2) when information about average tax rates is also available. Using a within-subject design, the instability of ranking between (1) and (2) indicates whether or not they value tax progressivity. The main result is that respondents have a strong preference for tax progressivity, that is, they accept to worsen the final income distribution in exchange for tax progressivity. This finding is robust to two experimental variations: First, the mere fact of providing a new information can not account for this finding; Second, providing information pieces about pre-tax incomes and tax liabilities does not affect the preference for progressive taxation.
    Keywords: Tax progressivity, Optimal taxation, Survey experiment
    JEL: D63 H21 C9
    Date: 2017–11
  4. By: Christoph Bierbrauer (Hochschule Darmstadt)
    Abstract: We present a two-country New Open Economy Macroeconomics model of a currency union featuring an overlapping generations structure of the Blanchard (1985)-Yaari (1965) type as well as monopolistic frictions and staggered adjustment in the goods and labor market. We allow for public investment and distortionary taxation. We study the effects of fiscal policy measures such as public spending, tax cuts targeted to households and public investment as suggested by the European Commission (2008). In particular, we explore the effects of fiscal policy as a function of the financing decision of the implementing government. We find that the impact of fiscal measures on national variables as well as the spillovers depend on the assumed degree of household myopia and again, the financing decision of the government. However, the introduction of a complex fiscal sector which enables the government to choose between alternative financing schemes is an important determinant of the effects of fiscal expansions on key macroeconomic variables such as, output and consumptions. Thus, modeling a complex fiscal sector on both sides of the budgets is crucial for the results and therefore the effectiveness of fiscal stimulus packages.
    Keywords: Overlapping generations; New open economy macroeconomics; Public Debt; Decentralized fiscal policy; Monetary union
    JEL: E62 F33 F41 H31 H50 H63
    Date: 2017–11–22
  5. By: Florian Kuhlmey (University of Basel)
    Abstract: This paper develops a model of local income tax competition with a progressive tax scheme and a built-in scal equalization scheme. Both aspects are central to policy makers: The progressivity for equity reasons, and the scal equalization to prevent a race to the bottom and to limit the degree of segregation of households according to income. The model is calibrated to the metropolitan area of Zurich (Switzerland), and policy evaluations reveal that a progressive tax scheme as the basis for local tax competition causes strong segregating forces that can only to some extent be compensated by the scal equalization scheme.
    Keywords: Tax competition; income taxation; fiscal equalization; progressive taxation; segregation.
    JEL: H3 H7 R1 R2
    Date: 2017
  6. By: Roy Cerqueti (Department of Economics and Law Ð University of Macerata); Fabio Sabatini (University of Rome - La Sapienza); Marco Ventura (ISTAT, Italian National Institute of Statistics, Methodological and Data Quality Division)
    Abstract: We model how the interplay between tax surveillance institutions and civic capital shapes taxpayersÕ 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
    JEL: H10 H53 D63 D69 Z1
    Date: 2017–12
  7. By: Lundberg, Jacob (Department of Economics)
    Abstract: Labour income taxation is a central policy topic because labour income makes up the majority of national income and most taxes are in the end taxes on labour. In order to quantify how behavioural responses of labour income earners affect tax revenue, the Swedish Labour Income Microsimulation Model (SLIMM) is constructed and used to evaluate tax reforms. The model simulates taxable income responses, participation responses and income effects. Elasticities are calibrated to match midpoints of estimates found in the quasiexperimental literature. SLIMM is solidly microfounded and uses administrative register data. The model is used to analyze changes to the earned income tax credit (EITC), municipal income taxes and the central government income tax paid by high-income earners. The simulations indicate that the EITC has increased employment by 128,000 and has a degree of self-financing of 21 percent. Almost half of the revenue increase from higher municipal tax rates would disappear due to behavioural responses. Tax cuts for the richest fifth of working Swedes are completely self-financing.
    Keywords: income taxation; behavioural responses; dynamic scoring; microsimulation; tax reform
    JEL: H21 H24
    Date: 2017–11–07
  8. By: Messacar, Derek
    Abstract: Despite a large literature estimating the effects of income taxation on the labour decisions of young and middle-aged workers, little is known about the extent to which older workers respond to changes in their income taxes. This paper explores this unresolved empirical issue, using longitudinal administrative data on more than one million individuals from Canada and exploiting a recent tax reform in the empirical identification strategy that explicitly targeted older couples. The findings offer new insight into the ?black box? of intra-household labour supply and inform the optimal designs of income tax and retirement income systems.
    Keywords: Household, family and personal income, Income, pensions, spending and wealth, Labour, Personal and household taxation, Wages, salaries and other earnings
    Date: 2017–11–23
  9. By: David Haugh
    Abstract: The personal tax system has a large influence on incentives to work, save and invest and hence growth. At the same time it is a key policy lever for income redistribution. This paper analyses how income distribution patterns changed in Spain before and after the crisis using the personal income tax samples constructed by the Spanish Institute of Fiscal Studies for the period 2002 to 2011. We find that the top and bottom of the income distribution gained the most from the boom period, and the bottom suffered proportionally more in the subsequent bust. Although Spain's average personal tax rates were above the OECD average, personal tax revenue as a share was below the OECD average. One reason for this is substantial fiscal benefits that significantly reduce total tax received by the government. We examine the distribution of the tax burden, and especially how income deciles benefit from the different fiscal benefits, namely tax exemptions, reductions and tax credits. This reveals that Spain's personal income tax system is progressive, especially for labour income, but far less so for capital income. Some fiscal benefits, notably the tax credit on maternity, are highly progressive. Other fiscal benefits, mainly exemptions and reductions, are regressive. These include the exemptions on renting and on the interest from investing in dwellings and the reduction for contributions to personal pension plans.
    Keywords: capital income, Income taxes, labour income, tax expenditures, tax rates
    JEL: D31 H23 H24
    Date: 2017–12–12
  10. By: Florian Kuhlmey (University of Basel)
    Abstract: Income and property taxation are among the most prevalent policy instruments to nance local expenditure in countries with a high degree of decentralization. However, little is known about their relative eciency and redistributive properties. This paper compares both tax instruments within the same framework and investigates their relative attractiveness to nance local expenditure. It further allows for inter-municipal spillovers and rivalry in the consumption of the publicly provided good. The analytical model identi es the di erent ineciencies in both tax regimes which include intra- and inter-municipal free-riding. In a numerical illustration, the model is solved for the resulting equilibria. This allows to quantify the gross welfare loss from decentralization and also reveals a decomposition of the welfare loss into its components.
    Keywords: Tax competition; normative analysis; income taxation; property taxation; segregation; decentralization; welfare decomposition.
    JEL: H3 H7 R1 R2
    Date: 2017
  11. By: Ralph-C. Bayer (School of Economics, University of Adelaide)
    Abstract: Recent papers have shown that theoretically tax authorities can not only reduce tax evasion but also boost output in oligopolies by conditioning the audit effort spent on a firm on all firms' tax returns in an industry. In this paper we revisit these results and extend the class of relative audit rules with this property by including discontinuous rules. Field experiments testing the theory predictions would require randomizing audit rules across many otherwise identical industries and are therefore impractical. Instead we conduct laboratory tests of the theoretical mechanisms of a variety of rules. We find that both dividends of relative auditing, i.e. less evasion and higher output, materialize in the laboratory. The behavioral mechanism generating the higher output differs somewhat from the one propagated by theory though.
    Keywords: corporate-tax evasion, relative audit rules, experimental tests
    JEL: H26 D43 K4
    Date: 2017–11
  12. By: Colas, Mark (Federal Reserve Bank of Minneapolis); Hutchinson, Kevin (eBay Inc.)
    Abstract: This paper studies the incidence and efficiency of a progressive income tax in a spatial equilibrium. We use US census data to estimate an empirical spatial equilibrium with heterogeneous workers, landowners, and firms. The US income tax shifts skilled workers out of high-productivity cities, leading to a deadweight loss of 2% of tax revenue. Flattening the tax schedule significantly increases welfare inequality between skilled and unskilled workers and does not increase overall worker welfare, as the efficiency gains are captured by landowners. This suggests that progressive income taxes reduce welfare inequality without reducing total worker welfare.
    Keywords: Tax incidence; Worker heterogeneity; Local labor markets
    JEL: H22 J31 R13
    Date: 2017–11–14
  13. By: James Andreoni
    Abstract: Donor Advised Funds (DAFs) are now a major source of charitable donations in the US, responsible for 1 in 10 dollars donated to charity in 2015. In 2016, Fidelity Charitable, whose only mission is to provide DAFS, became the largest charity in the US. Paradoxically, most people have never heard of DAFs or Fidelity Charitable. This leads us to ask, who uses DAFs and why, what is the impact of government tax policy toward DAFs, and could the extra fiscal cost of subsidizing DAFs be balanced out by an extra public gain of new charity resulting from tax policy toward DAFs?
    JEL: H2 H24 H26 H3
    Date: 2017–10
  14. By: Dondena; CASE; IEB; PWC
    Abstract: This study provides a comprehensive review of the theoretical and empirical economic literature on tax and entrepreneurship, taking also into account a number of open, tax-related questions raised by the changing nature of entrepreneurship, symbolised by the growing importance of the collaborative economy
    Keywords: taxation, innovation, digital, entrepreneurship, collaborative economy
    JEL: H24 H25 L86 O32 O33
    Date: 2017–11
  15. By: Alena Bachleitner
    Abstract: Since the 1990ies several countries abolished the wealth tax, but surprisingly few scholars investigated the effects empirically. Motivated by the theoretical literature, this study estimates the effect of the abolition of the net wealth tax in Germany in 1997 on the household saving rate. The use of the Synthetic Control Method allows using variables on aggregate level instead of microeconometric panel data, to estimate the effect of abolishing the net wealth tax. As a result, the analysis shows that the abolition of the net wealth tax had a clear positive effect on the German household saving rate. After three years, the saving rate was found to be about 3 percentage points higher than it would have been without the measure. Robustness checks support the results. These findings suggest that empirically the substitution effect dominated.
    Keywords: Wealth Tax, Abolition of Wealth Tax, Germany, Synthetic Control Method
    Date: 2017–12–05
  16. By: Fabio Sabatini; Marco Ventura; Eiji Yamamura; Luca Zamparelli
    Abstract: We illustrate how the desire to live in a fair society that rewards individual effort and hard work triggers an unselfish though rational demand for redistribution. This leads the well off to prefer higher taxes and the poor to reject extreme progressivity. We then provide evidence of these behaviors using a nationally representative survey from Italy. Our empirical analysis confirms that a stronger aversion to unfair distributive outcomes is associated with a higher support for redistribution by individuals with high income and to a lower demand for redistribution by those with low income.
    Keywords: Fairness, income distribution, inequalities, taxation, welfare, redistribution, free-riding, civic capital, social capital.
    JEL: H10 H53 D63 D69 Z1
    Date: 2017–11–14
  17. By: Blesse, Sebastian; Boyer, Pierre C.; Heinemann, Friedrich; Janeba, Eckhard; Raj, Anasuya
    Abstract: This study analyzes results from an original survey of members of the French and German parliaments (Assemblée Nationale, Sénat and Bundestag) on economic policies and institutions of the Eurozone. We find that French politicians are significantly more supportive of Eurobonds, a European unemployment insurance scheme, and an active monetary policy by the ECB than German politicians. At the same time, there are significant differences along party lines, which are often quantitatively more important than differences in nationality. Left-leaning members of parliaments are in favor of new policy instruments at the European or Eurozone level, but are skeptical about the fiscal constraints of the Fiscal Compact. There is widespread consensus across parties and countries that more investment at national levels is warranted.
    Keywords: EMU reforms,policy preferences,elite survey,members of national parliament,comparative politics
    JEL: E60 E62 F15 H60
    Date: 2017
  18. By: FitzGerald, John (Trinity College, Dublin); Kenny, Seán (Department of Economic History, Lund University)
    Abstract: In this paper, we discuss the unresolved apportionment of national debt when Ireland exited the UK in 1922. Using archival sources and contemporary accounts, we estimate that the British claim on Ireland in 1925 amounted to between 80 and 100 per cent of GNP at a time when the political stability of Ireland was already fragile. We describe the process of how this contingent liability, arising from the Anglo-Irish Treaty of 1921, was ultimately waived in a Financial Agreement in 1925 at the expense of an unchanged border with Northern Ireland. The Irish government also sought, but failed, to secure protection against discrimination for Catholics in Northern Ireland as part of the agreement. While for the Irish Government, this settlement may have represented a political failure, the economic outcome of the agreement transformed the economic position of the new Irish State from one of potential insolvency into one of viability.
    Keywords: contingent liability; public debt; secession; independence; Ireland; United Kingdom; Financial Agreement; political economy; border
    JEL: E62 F50 H60 H77 N00
    Date: 2017–12–01
  19. By: Titus J. Galama; Robson Morgan; Juan E. Saavedra
    Abstract: We document how an anti-poverty program improves economic and subjective wellbeing, and self-sufficiency. Familias en Accion Urbano, a conditional cash transfer program implemented at scale in the country of Colombia, uses a means-test cutoff score selection rule that provides exogenous variation in program participation. We reproduce the score assignment rule in a nationally representative living standards household survey that measures multiple dimensions of economic and evaluative wellbeing. Three years into the program, beneficiary households at the margin report greater income, consumption and formal employment participation for both the household head and partner. Household income increased by ten times the amount of the government transfer, likely because of gains in formal employment. Beneficiary households at the margin also report greater overall satisfaction with life, greater happiness and greater satisfaction with food. These results support the hypothesis that among households with basic unmet needs, policies that have a permanent impact on income and consumption may also have a lasting impact on subjective wellbeing and self-sufficiency. Moreover, relatively small subsidies, further offset by additional government tax receipt, may generate substantial benefits to poor families at a reduced cost to taxpayers.
    JEL: H53 I30 I32 I38 O38 O54
    Date: 2017–11
  20. By: Markus Leibrecht (Henley Business School, Malaysia Campus); Joelle H. Fiong (Nanyang Business School, Nanyang Technological University);
    Abstract: Pension systems are core institutional arrangements that are expected to be stable and reliable over consecutive generations. Nevertheless, reforms in pension provision intensified over the past decades, with several countries opting for privatisation of their pension system. We ask which factors lead governments to privatise pension systems and focus on economic crises and different facets of increased global pressures. We conduct duration analyses on a cross-section of nearly 100 economies among which 28 privatise their pension system between 1981 and 2012. Consistent with the crisis-begets-reform hypothesis, we find that severe economic crises speed up reform implementation. Likewise, high growth in economic and political globalisation is conducive for pension privatisation. These findings are robust to a variety of alternations in the empirical methodology.
    Keywords: economic crisis, pension reform, globalisation, duration analysis, privatisation
    JEL: H11 H12 H55 P11
    Date: 2017–08

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