nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒12‒18
sixteen papers chosen by
Thomas Andrén

  1. A Collateral Tax Sanction: When Does it Mimic a Welfare-Improving Tag? By Yulia (Paramonova) Kuchumova
  2. Income inequality and fiscal redistribution in 47 LIS-countries, 1967-2014 By Koen Caminada; Jinxian Wang; Kees Goudswaard; Chen Wang
  3. Higher Taxes at the Top: The Role of Entrepreneurs By Bettina Brueggemann
  4. Taxation and self-employment By Zsófia L. Bárány
  5. Do the rich pay their taxes early? By Fischer, Andreas M; Zachmann, Lucca
  6. Inheritance Taxation: Redistribution and Predistribution By Frank A Cowell; Chang He; Dirk Van de gaer
  7. Patriotism and Taxation By Benny Geys; Kai A. Konrad
  8. Replacing Income Taxation with Consumption Taxation in Japan By Selahattin Imrohoroglu; Gary Hansen
  9. Tax refunds and income manipulation evidence from the EITC By Buhlmann, Florian; Elsner, Benjamin; Peichl, Andreas
  10. Fiscal Sustainability: Conceptual, Institutional, and Policy Issues By Marek Dabrowski
  11. Production Efficiency and Profit Taxation By Stéphane Gauthier; Guy Laroque
  12. Decentralization and Public Procurement Performance: New Evidence from Italy By Olga Chiappinelli
  13. Ramsey Taxation in the Global Economy By Chari, V. V.; Nicolini, Juan Pablo; Teles, Pedro
  14. Premature deaths, accidental bequests and fairness By Marc Fleurbaey; Marie-Louise Leroux; Pierre Pestieau; Grégory Ponthière; Stephane Zuberk
  15. Decentralization of health and education in developing countries: a quality-adjusted review of the empirical literature By Channa, Anila; Faguet, Jean-Paul
  16. Social harmonization and labor market performance in Europe By Katarzyna Mirecka; Izabela Styczyñska

  1. By: Yulia (Paramonova) Kuchumova (National Research University Higher School of Economics)
    Abstract: The suspension of a driver's license, the revocation of a passport or a professional license are used by the tax authorities as sanctions for failure to comply with tax obligations and are referred to as collateral tax sanctions. In this paper, I propose a new rationale for why it may be bene cial to use collateral tax sanctions for the purpose of tax enforcement. By affecting consumption and providing enforcement targeted to a group, collateral tax sanctions may allow the government to impose punishment correlated with an individual's earning potential. Such punishment also makes the effective tax rates correlated with an individuals' earning potential and therefore leads to a more effective redistribution of income. I show that the use of collateral tax sanctions could increase the CES social welfare function when the skill distribution of the targeted group rst-order stochastically dominates the skill distribution of the other group and the social welfare function is sufficiently concave.
    Keywords: collateral sanction, tax enforcement, ability, tag
    JEL: Z
    Date: 2017
  2. By: Koen Caminada; Jinxian Wang; Kees Goudswaard; Chen Wang
    Abstract: In most OECD countries the gap between rich and poor has widened over the past decades. This paper analyzes whether and to what extent taxes and social transfers have contributed to this trend. Has the redistributive power of different social programs changed over time? The paper contributes to the literature by disentangling several parts of fiscal redistribution in a comparative setting for the period 1967-2014. We use micro-data from the Luxembourg Income Study (LIS) to examine household primary income inequality and disposable income inequality, redistribution from transfers and income taxes, and the underlying social programs that drive the changes. We offer detailed information of fiscal redistribution in 47 countries for the period 1967-2014, employing data that have been computed from LIS. LIS data are detailed enough to allow us to measure both overall redistribution, and the partial effects of redistribution by several taxes or transfers. We elaborate on the work of Jesuit and Mahler (2004) and Wang et al (2012 and 2014), and we refine, update and extend the Fiscal Redistribution approach. LIS data allow us to decompose the trajectory of the Gini coefficient from primary to disposable income inequality in several parts (i.e. 9 different benefits and income taxes and social contributions). The update and extension of the Leiden LIS Budget Incidence Fiscal Redistribution Dataset on Income Inequality (LLBIFR Dataset on Income Inequality 2017) allows researchers and public policy analysts to compare fiscal redistribution across developed countries and middle income countries over the last five decades. Research may employ these data in addressing several important research issues. Among the most commonly addressed questions in the empirical literature on the welfare state concerns the sources of variance across countries and over time in the extent and nature of fiscal redistribution. Changes (in the generosity) of welfare states can be linked to changes in the fiscal redistribution. Best-practice among countries can be identified and analyzed in more detail. In exploring the causes and effects of welfare state redistribution in the developed world, the literature has increasingly moved towards more disaggregated measures of social policy, an enterprise in which the LLBIFR on Income Inequality 2017, with its detailed data on taxes and a large number of individual social benefits, offers a rich source of information, which may be used by scholars and policy analysts to study the effects of different social programs on economic well-being.
    Keywords: welfare states, social income transfers, inequality, Gini coefficient, LIS
    JEL: H53 H55 I32
    Date: 2017–11
  3. By: Bettina Brueggemann
    Abstract: This paper computes optimal top marginal tax rates in Bewley- Aiyagari type economies that include entrepreneurs. Consistent with the data,entrepreneurs are over-represented at the top of the income distribution and are thus disproportionately affected by an increase in the top marginal income tax rate. The statutory top marginal tax rate that maximizes welfare is 75 percent and revenue is maximized at 85 percent. While average welfare gains are positive, they are larger for entrepreneurs than for workers and the occupational gap in welfare gains widens with increasing income.
    Date: 2017–11–20
  4. By: Zsófia L. Bárány
    Abstract: In this paper I theoretically show that if the self-employed evade income taxes, then the choice of being self-employed is more sensitive to the tax rates on wages than to tax rates on income from self-employment. Using variation in the statutory tax rates across countries, industries, and occupations, I find evidence that supports the predictions of the model. This suggests that those who choose self-employment, partly do so to take advantage of the technology it offers in evading taxes. This extensive margin of adjustment – between employment and self-employment – should be taken into account when considering the effects of tax rates on labor income, on taxable income and on welfare.
    Date: 2017–11
  5. By: Fischer, Andreas M; Zachmann, Lucca
    Abstract: This paper examines the distributional effects of interest credits from early tax payments on average household income at the municipality level. The hypothesis that households from high-income municipalities pay their income taxes early is tested in a demand specification for interest credit for early tax payments. The empirical analysis considers regional data from 170 municipalities in the canton of Zurich from 2007 to 2013. The income elasticity of interest credit for early tax payments is estimated to be near unity for the top 5th percentile of average household income, whereas the same elasticity is below one-half for the lower 95th percentile and is statistically insignificant. The finding that high-income households pay their taxes early supports the view that the rich are not liquidity constrained. Early tax payments make the tax system more regressive for high-income households.
    Keywords: demand for interest credit on early tax payment; early tax payment
    JEL: D14 D30 E21 E41 H31
    Date: 2017–12
  6. By: Frank A Cowell; Chang He; Dirk Van de gaer
    Abstract: It is well known that taxes on the transfer of wealth typically raise very little revenue. However, this does not mean that they are ineffective as tools for redistribution. In this paper we show how important such taxes can be in the long-run distribution of wealth, reducing equilibrium inequality (the "predistribution" effect) by a much larger amount than what is apparent in terms of the immediate impact of the tax (the "redistribution" effect).
    Keywords: wealth distribution, inheritance, inheritance taxation
    JEL: D31 D63
    Date: 2017–12
  7. By: Benny Geys; Kai A. Konrad
    Abstract: The provision of public goods by any government generally requires a significant amount of financial resources. Yet, the inherent characteristics of public goods imply that individuals who refuse to contribute financially cannot easily be excluded from the benefits provided by public goods. This chapter explores how, and when, patriotism can increase private incentives to make contributions to the common good—and thereby mitigate the free-rider problem at the heart of public finances. We discuss this patriotism-taxation relation in times of war as well as peace, and evaluate whether patriotism might help to (partially) moderate the incentives to avoid or even evade taxes. Finally, we consider the role of two potential mechanisms – i.e., migration and identification – underlying the patriotism-taxation relation, and examine governments’ incentives to invest in instilling patriotic sentiments in the population for fiscal reasons.
    Keywords: Patriotism, fiscal policy, warm glow, migration, identification
    JEL: H26 H41
    Date: 2016–11
  8. By: Selahattin Imrohoroglu (University of Southern California); Gary Hansen (UCLA)
    Abstract: Over the past two decades, Japan has suffered from low economic growth and a large and growing debt to output ratio. Furthermore, this ratio is expected to continue to rise as Japan anticipates significant increases in future government expenditures due to an aging population. As a consequence of these problems, Japan has proposed and implemented decreases in the corporate income tax rate as well as increases in the consumption tax rate. In this paper we focus on the output and welfare effects of a reduction in income taxation in Japan along with increases in consumption taxation to stabilize the debt to output ratio. We consider various tax reforms using the model described in Hansen and Imrohoroglu (2016). Reducing or eliminating labor or capital income taxation, and replacing the lost revenues with higher consumption taxation, produces sizable increases in labor supply, investment and output. For example, while output is projected to be roughly constant between 2015 and 2020 in the benchmark equilibrium representing the status quo, under alternative policies considered it would be 7% to 14% higher by 2020.
    Date: 2017
  9. By: Buhlmann, Florian; Elsner, Benjamin; Peichl, Andreas
    Abstract: Welfare programs are important for reducing poverty but create incentives for recipients to maximize their income by either reducing labor supply or manipulating taxable income. In this paper, we quantify the extent of such behavioral responses for the Earned Income Tax Credit (EITC) in the US. We exploit that US states can set top-up rates, which means that, at a given point in time, workers with the same income receive different tax refunds in different states. Using event studies as well as a border pair design, we document that a raise in the state-EITC leads to more bunching of self-employed tax filers at the first kink point of the tax schedule. While we document a strong relationship up until the Great Recession in 2007, we find no effect thereafter. These findings point to important behavioral responses to what is the largest welfare program in the US.
    Date: 2017
  10. By: Marek Dabrowski
    Abstract: The chronic nature of sovereign debt crises has resulted in the growing interest of analysts in finding both their real causes and the mechanisms of cross-country transmission - the so-called contagion effect. In this paper, we will try to answer the frequently asked question: what is the “safe” level of public debt (i.e. what level helps to avoid the risk of sovereign default)? Simultaneously, we will address various conceptual, institutional, and statistical dilemmas related to the definition and measurement of public debt.
    Keywords: public debt, fiscal deficit, fiscal policy, public finance management, general government, fiscal rules
    JEL: E62 H62 H63 H81
    Date: 2016
  11. By: Stéphane Gauthier (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Guy Laroque (Sciences-Po - Département d'Economie, UCL - University College of London [London], Institute for Fiscal Studies)
    Abstract: Consider a simple general equilibrium economy with one representative consumer, a single competitive firm and the government. Suppose that the government has to finance public expenditures using linear consumption taxes and/or a lump-sum tax on profits redistributed to the consumer. This note shows that, if the tax rate on profits cannot exceed 100 percent, one cannot improve upon the second-best optimum of an economy with constant returns to scale by using a less efficient profit-generating decreasing returns to scale technology.
    Keywords: optimal taxation,taxation of profits,production efficiency
    Date: 2017–10
  12. By: Olga Chiappinelli
    Abstract: We exploit a new dataset based on EU procurement award notices to investigate the relationship between the degree of centralization of public procurement and its performance. We focus on the case of Italy, where all levels of government, along with a number of other public institutions, are involved in procurement and are subject to the same EU regulation. We find that i) municipalities and utilities, which currently award the largest shares of contracts, perform worse than all other institutional categories; and ii) decentralization implies lower performance only when it comes with weak competences of procurement officials. The evidence seems to suggests that a re-organization of the procurement system, both in terms of partial centralization and better professionalization of procurement officials, would help improve overall procurement performance.
    Keywords: Public Procurement, Decentralization, Procurement performance, Public works
    JEL: H11 H57 H71 H77
    Date: 2017
  13. By: Chari, V. V. (Federal Reserve Bank of Minneapolis); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis); Teles, Pedro (Banco de Portugal)
    Abstract: We study cooperative optimal Ramsey equilibria in the open economy addressing classic policy questions: Should restrictions be placed to free trade and capital mobility? Should capital income be taxed? Should goods be taxed based on origin or destination? What are desirable border adjustments? How can a Ramsey allocation be implemented with residence-based taxes on assets? We characterize optimal wedges and analyze alternative policy implementations.
    Keywords: Capital income tax; Free trade; Value-added taxes; Border adjustment; Origin- and destination-based taxation; Production efficiency
    JEL: E60 E61 E62
    Date: 2017–12–11
  14. By: Marc Fleurbaey (Princeton University); Marie-Louise Leroux (UQAM - Université du Québec à Montréal - UQAM - Université du Québec à Montréal); Pierre Pestieau (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain, PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Grégory Ponthière (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12 - UPEM - Université Paris-Est Marne-la-Vallée); Stephane Zuberk (PSE - Paris School of Economics)
    Abstract: While little agreement exists regarding the taxation of bequests in general, there is a widely held view that accidental bequests should be subject to a confi…scatory tax. We propose to reexamine the optimal taxation of accidental bequests in an economy where individuals care about what they leave to their offspring in case of premature death. We show that, whereas the conventional 100 % tax view holds under the standard utilitarian social welfare criterion, it does not hold under the ex post egalitarian criterion, which assigns a strong weight to the welfare of unlucky short-lived individuals. From an egalitarian perspective, it is optimal not to tax, but to subsidize accidental bequests. We examine the robustness of those results in a dynamic OLG model of wealth accumulation, and show that, whereas the sign of the optimal tax on accidental bequests depends on the form of the joy of giving motive, it remains true that the 100 % tax view does not hold under the ex post egalitarian criterion.
    Keywords: mortality,accidental bequests,optimal taxation,egalitarianism,OLG models
    Date: 2017–11
  15. By: Channa, Anila; Faguet, Jean-Paul
    Abstract: We review empirical evidence on the ability of decentralization to enhance preference matching and technical efficiency in the provision of health and education in developing countries. Many influential surveys have found that the empirical evidence of decentralization's effects on service delivery is weak, incomplete, and often contradictory. Our own unweighted reading of the literature concurs. However, when we organize quantitative evidence first by substantive theme, and then—crucially—by empirical quality and the credibility of its identification strategy, clear patterns emerge. Higher-quality evidence indicates that decentralization increases technical efficiency across a variety of public services, from student test scores to infant mortality rates. Decentralization also improves preference matching in education, and can do so in health under certain conditions, although there is less evidence for both. We discuss individual studies in some detail. Weighting by quality is especially important when quantitative evidence informs policy-making. Firmer conclusions will require an increased focus on research design, and a deeper examination into the prerequisites and mechanisms of successful reforms.
    Keywords: decentralization; school-based management; education; health; service delivery; developing countries; preference matching; technical efficiency
    JEL: H41 H75 H77 O1
    Date: 2016–08–01
  16. By: Katarzyna Mirecka; Izabela Styczyñska
    Abstract: The paper aims to assess the impact of selected elements of social harmonization on labor market performance in the European Union among two groups of workers—the total working population and the elderly. The aim is to examine whether upward changes in labor taxes affect employment, unemployment, and inactivity rates in the European Union.
    Keywords: employment of the elderly, minimum wage, social security contributions, labor tax, Social Europe
    JEL: J31 J32 C23 J38 J41 J61 H53 H55
    Date: 2017–04

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