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on Public Economics |
| By: | Salvador Barrios (European Commission - JRC); Bent Greve (Roskilde University); M. Azhar Hussain (Roskilde University); Alari Paulus (University of Essex); Fidel Picos (European Commission - JRC); Sara Riscado (European Commission - JRC) |
| Abstract: | In the European context where fiscal consolidation is required in many countries, tax non-compliance behaviour becomes a very relevant issue for governments and policy makers. In this paper, we aim at contributing to the assessment of tax non-compliance, by estimating individual measures of tax evasion, focusing on employment earnings for two countries, Denmark and Estonia. Additionally, we simulate two different scenarios – a "true world" where some individuals underreport their income to the tax authorities and a "perfect world" where everyone reports truthfully their incomes – in the European microsimulation model EUROMOD, allowing us to obtain the fiscal and distributional effects of taking into account evaded employment income. Furthermore, the Estonian country case allows us to illustrate the importance of linking survey and administrative data not only to accurately estimate tax evasion, but also to correct survey income amounts for measurement error. Preliminary findings indicate that taking into account non-reported incomes has non-negligible fiscal and distributional effects when these are taken into account to compute tax liabilities and benefits, even in a country where estimated non-reported income represent a low percentage of earnings, such as Denmark. |
| Keywords: | Tax evasion, microsimulation |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:201705&r=pbe |
| By: | Francesca Greselin (Department of Statistics and Quantitative Methods, University of Milan-Bicocca, Italy); Simone Pellegrino (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Achille Vernizzi (Department of Economics, Management and Quantitative Methods, University of Milan, Italy) |
| Abstract: | In this paper we introduce a new methodology to study the degree of progression as well as the redistributive and re-ranking effects of a personal income tax system by employing and extending the new inequality curve (and index) proposed by Michele Zenga. Given an income distribution, the Zenga curve compares the economic conditions of two exhaustive groups of population obtained by dividing the overall population at all possible percentiles, from the bottom to the top observed income. Since the recent literature underlines that the Zenga curve shows features that are different from the standard approach based on the Lorenz curves, we show the potentialities of the new curve when studying the effects exerted by a personal income tax. This new methodology is compared to the classical one by a stylized example and by developing an application to Italian personal income tax data. |
| Keywords: | Personal Income Tax, Gini Index, Microsimulation Models, Reynolds-Smolensky Index, Kakwani index, Zenga Index. |
| JEL: | H23 H24 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:tur:wpapnw:046&r=pbe |
| By: | Zareh Asatryan; Andreas Peichl |
| Abstract: | Using panel data on the full population of corporate tax returns from Armenia, we study behavioral responses of firms to three size-dependent regulations. We find: i) a strong response to an accounting notch where IFRS becomes mandatory; ii) a moderate response to an administrative notch below which the frequency of filing taxes declines; and iii) no response to the VAT registration threshold notch. Exploiting tax audits, we provide evidence suggesting that income under-reporting drives the bunching response of firms. Additional evidence suggests that firms respond to audits by compensating additional reported income by a 0.90 dollar increase in deductions. |
| Keywords: | small and medium enterprises, size-dependent regulation, value added tax, tax administration, tax accounting, tax evasion |
| JEL: | H25 H26 O12 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6754&r=pbe |
| By: | Lukas Menkhoff; Jakob Miethe |
| Abstract: | We use newly released bilateral locational banking statistics of the Bank for International Settlements to show the full circle of international tax evasion via tax havens. Surprisingly, white-washed money from tax havens is also withdrawn from banks in non-havens if an information treaty is signed between both countries. There are time lags and other economically plausible structures in these reactions. Interestingly, the effect of additional information-uponrequest treaties seems to fade out over time. By contrast, new treaties based on automatic information exchange again show bite; this puzzling evidence is best explained by dirty money changing its packaging. |
| Keywords: | Tax evasion, international capital flows, international information exchange treaties, bank deposits |
| JEL: | H26 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1711&r=pbe |
| By: | Giovanna Nicodano (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Luca Regis (Department of Economics and Statistics, University of Siena, Italy) |
| Abstract: | This paper determines the optimal ownership share held by a unit into a second unit, when both face a tax-bankruptcy trade-off. Full ownership is optimal when the first unit has positive debt, because dividends help avoid its default. Positive debt is, in turn, optimal when its corporate tax rate exceeds a threshold; and/or Thin Capitalization Rules place an upper limit on the debt level in the second unit, and/or the Volcker Rule bans bailout transfers to the second unit. Full ownership is no longer optimal only if there is a tax on intercorporate dividend. This theory rationalizes observations on multinationals, financial conglomerates and family groups. |
| Keywords: | Ownership, Leverage, Taxes, Thin Capitalization, groups, multinationals. |
| JEL: | G32 H32 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:tur:wpapnw:045&r=pbe |
| By: | Rao, M. Govinda (National Institute of Public Finance and Policy) |
| Abstract: | India has witnessed impressive growth performance since the market based reforms were introduced in 1991. However, its regional spread has been uneven. Considering the fact that over 63 per cent of the population lives in economically lagging states and they have over 67 per cent of children in the age group 0-14 demographic dividends can be realised only when a system of intergovernmental transfers is designed to offset their fiscal disabilities. The present paper analyses the design and implementation of general and specific purpose transfers in India. While the general purpose transfers are given to enable the States to provide comparable levels of services at comparable tax rates. However, given the large differences in the revenue capacities of the states with the richest large state having five times the per capita income of the lowest, it is politically infeasible to offset the differences in revenue capacities completely. Therefore, the specific purpose which are meant to ensure minimum standards of meritorious services with high degree of externalities are extremely important. However, the analysis shows that there are too many specific purpose transfers, they are poorly targeted and inclusion of multiple objectives in each of the specific purpose transfers makes the compliance by the States difficult. The objective of inclusive development requires that the transfer system should be reformed. |
| Keywords: | : Government Expenditures on health ; Government expenditures on education ; State and local budget and expenditures ; Intergovernmental relations |
| JEL: | H51 H52 H72 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:17/218&r=pbe |
| By: | Rao, M. Govinda (National Institute of Public Finance and Policy) |
| Abstract: | The paper analyses important issues in Indian public finance in the context of the India’s economic development. Given the predominance of working population and with children in the age group 0-14 constituting over 40 per cent of the population, government finance has a critical role not only in protecting life and property but also in creating physical infrastructure to expand economic activities to generate employment opportunities and in providing social infrastructure to empower them to get productively employed. The analysis public spending, however, shows that spending on education and healthcare is woefully inadequate and expenditures on interest payments, subsidies and transfers have crowded out spending on physical and social infrastructures. The reasons for the above phenomenon have to be found in the low levels of taxation apart from lopsided priorities. Based on the 98 country average behaviour, the paper shows that the tax–GDP ratio in the country is lower by 2-3 percentage points for its level of per capita GDP. The reasons for the low tax ratio have to be found in the exemption to agricultural incomes, widespread tax preferences due to multiple objectives loaded into tax policy, tax abuse by multinationals and poor tax administration. The low tax collections are also the reasons for the persistence of large deficits and debt. Despite passing the FRBM Act to follow the rule based fiscal policy, containing the government deficits and debt has continued to be a major challenge and the targets are diluted, new concepts created and repeatedly postponed. The paper argues that there is a strong case for creating a fiscal council by amending the FRBM Act and it is should be appointed by the Parliament and should be reporting to it as recommended by the Fourteenth Finance Commission. This is in contrast to the Fiscal Review Committee’s recommendation according to which the Fiscal council should be appointed by the Finance Ministry and should report to it. |
| Keywords: | Taxation and subsidies General |
| JEL: | H20 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:17/219&r=pbe |
| By: | Sébastien Houde; Joseph E. Aldy |
| Abstract: | The behavioral responses to taxes and subsidies are often subject to various behavioral biases and transaction costs—what we define as “microfrictions.” We develop a theoretical framework to show how these microfrictions—and their heterogeneity across the population and policy instruments—affect the design of Pigouvian policies. Standard Pigouvian pricing still holds with transaction costs, but requires adjustment with behavioral biases. We use transaction-level data from the US appliance market to estimate the heterogeneous behavioral responses to an array of energy fiscal policies and to quantify microfrictions. We then assess optimal fiscal policies and find that it is rarely optimal to couple a Pigouvian tax on energy with an investment subsidy in this context. We also find that energy labels—intended to increase the salience of energy information—can interact in perverse ways with both taxes and subsidies. |
| JEL: | H31 Q4 Q48 Q58 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24103&r=pbe |
| By: | Michio Naoi (Faculty of Economics, Keio University); Hideo Akabayashi (Faculty of Economics, Keio University); Ryosuke Nakamura (Faculty of Economics, Fukuoka University); Kayo Nozaki (Faculty of Humanities and Social Sciences); Shinpei Sano (Faculty of Law, Politics and Economics, Chiba University); Wataru Senoh (Faculty of Law, Politics and Economics, Chiba University); Chizuru Shikishima (Faculty of Liberal Arts, Teikyo University) |
| Abstract: | We examine the causal effects of family income on child outcomes and households'educational spending using panel data of children matched to their parents. Our identification strategy relies on the largely exogenous, discontinuous changes in the Child Allowance Policy in Japan that occurred between 2010 and 2012. We examine whether an exogenous variation in family income due to policy changes in the payment schedule has any causal effects on children's cognitive outcomes and households' educational spending. Our ordinary least squares (OLS) and first-differenced (FD) results show that, in most cases, family income is positively correlated with children's cognitive outcomes and family's educational investment. Our FD ins trumental variable (FD-IV) results, using exogenous changes in child allowance payments as an instrument, show that family income does not have any causal impacts on child outcomes in the short run. This suggests that the positive income effects on cognitive outcomes in OLS and FD models are not causal effects. In comparison, we find some evidence of positive income effects on households' educational spending. To examine the heterogeneous effects, we estimate FD-IV regressions for various population subgroups: those divided by parental education, income levels, children's age, and gender. We find that family income does not have statistically significant impacts on children's cognitive ability, whereas it has significant positive impacts on educational spending for high-income families and girls. |
| Keywords: | Child allowance, Family income, Educational spending, Cognitive outcome |
| JEL: | H24 H31 I21 I28 I38 |
| Date: | 2017–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2017-026&r=pbe |
| By: | Nicolas Afflatet |
| Abstract: | Population ageing is one of the major long-term challenges industrialized countries face. Forecasts predict that public debt is going to rise sharply for most countries due to population ageing. However, until now there has been little research on how population ageing already affects public debt. Based on a panel data analysis for 18 European countries it is shown that there is only little empirical evidence for an impact until 2015. This does certainly not mean that it will not have an effect on public debt in the future. Governments are well-advised to benefit from the breathing space the still moderate total dependency ratio offers to adapt their social security systems. |
| Keywords: | Population ageing, public debt, social security systems, demographic dividend |
| JEL: | E62 H63 J11 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1615&r=pbe |
| By: | Damien Cubizol (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique) |
| 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. Abstract The rebalancing of the Chinese economy is analyzed through a heterogeneous taxation of various |
| Keywords: | The Chinese economy,tax reforms,financial intermediation,consumption,investment,welfare,foreign assets |
| Date: | 2017–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01632818&r=pbe |
| By: | Niels Johannesen; Tim Stolper |
| Abstract: | We document that the first leak of customer information from a tax haven bank caused a sudden flight of deposits from tax havens and a sharp decrease in the market value of banks known to be assisting with tax evasion. The loss of market value was largest for the banks most strongly involved in tax evasion and zero for banks with no known ties to tax evasion. Subsequent leaks had qualitatively similar although smaller effects. Our findings suggest that whistleblowing in tax haven banks deters offshore tax evaders by increasing the perceived risk of committing and assisting with tax evasion. |
| Keywords: | whistleblowing, economic crime, tax evasion, tax havens |
| JEL: | G21 H26 K42 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6784&r=pbe |
| By: | Sören Blomquist; Whitney K. Newey |
| Abstract: | Saez (2010) introduced an influential estimator that has become known as the bunching estimator. Using this method one can get an estimate of the taxable income elasticity from the bunching pattern around a kink point. The bunching estimator has become popular, with a large number of papers applying the method. In this paper, we show that the bunching estimator cannot identify the taxable income elasticity when the functional form of the distribution of preference heterogeneity is unknown. We find that an observed distribution of taxable income around a kink point in a budget set can be consistent with any taxable income elasticity if the distribution of heterogeneity is unrestricted. If one is willing to assume restrictions on the heterogeneity density some information about the taxable income elasticity can be obtained. We give bounds on the taxable income elasticity based on monotonicity of the heterogeneity density and apply these bounds to the data in Saez (2010). We also consider identification from budget set variation. We find that kinks alone are still not informative even when budget sets vary. However, if the taxable income specification is restricted to be of the parametric isoelastic form assumed in Saez (2010) the taxable income elasticity can be well identified from variation among linear segments of budget sets. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6736&r=pbe |
| By: | Grechyna, Daryna |
| Abstract: | Political polarization combined with political turnover have been shown to amplify economic fluctuations (Azzimonti and Talbert, 2014). This paper analyzes a fiscal policy institution capable of reducing the volatility caused by these political frictions. We introduce the distinction between mandatory and discretionary public spending in a political model of optimal fiscal policy. We show that different legislative nature of these components of government spending leads to a divergent impact of mandatory and discretionary spending on politically-driven macroeconomic volatility. Increasing the fraction of mandatory spending in total government spending reduces the volatility; increasing the fraction of discretionary spending has the opposite effect. The presence of the legislative requirements behind the changes in mandatory public spending can explain simultaneous rise in political polarization and decline in the U.S output volatility after the 1980s. |
| Keywords: | business cycles; optimal fiscal policy; mandatory and discretionary public spending; macroeconomic volatility; political economy; political polarization. |
| JEL: | E62 H11 H30 H40 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:83452&r=pbe |
| By: | Alfredo Marvão Pereira (Department of Economics, The College of William and Mary, Williamsburg VA 23187); Rui Manuel Pereira (Department of Economics, The College of William and Mary, Williamsburg VA 23187) |
| Abstract: | This article determines the budgetary, economic, distributional and environmental impact of permanently increasing the value-added tax on electricity in Portugal. The analysis is carried out in the context of a new multi-sector and multi-household dynamic general equilibrium model. Simulation results suggest that a permanent increase from 6% to 23% in the statutory VAT on electricity improves the public budget as well as the environment, but both gains have detrimental economic and distributional effects. As the economy in Portugal begins to recover in the aftermath of the Great Financial Crisis, and the public budgetary situation becomes less constraining, pressure is mounting for this VAT increase on electricity to be reversed. This mixed bag of results is an important element for the debate. Reverting to a tax of 6% on electricity is desirable, as it would improve economic performance and have positive distributional effects. The question, then, is how to compensate for the loss of tax revenue and, at the same time, protect the environment. To offset the adverse budgetary and environmental effects of a lower VAT, we propose to increase the tax on petroleum products. This proves to be a dominant strategy from all relevant perspectives – economic, distributional, and environmental. |
| Keywords: | Value-Added Tax on Electricity, Tax on Petroleum Products, Macroeconomic Effects, Distributional Effects, Environmental Effects, Portugal |
| JEL: | C68 E62 H23 Q43 Q48 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0090&r=pbe |
| By: | Joan Costa-i-Font; Ada Ferrer-i-Carbonell |
| Abstract: | Uniform health care delivered by a mainstream public insurer - such as the National Health Service (NHS), seldom satisfies heterogeneous demands for care, and some unsatisfied share of the population either use private health care, or purchase private insurance (PHI). One potential mechanism to partially satisfy heterogeneous preferences for health care, and discourage the use of private health care, is regional health care decentralisation. We find robust estimates suggesting that the development of regional health services shifted both perceptions of, and preferences for, using the NHS, making it more likely individuals would use public health care and, consequently, reducing the uptake of PHI. These results are heterogeneous by income, education, and age groups; and are robust to placebo and other robustness and falsification checks. |
| Keywords: | National Health Service (NHS), political decentralization, use of private health care, private health insurance, health system satisfaction, demand for private health care |
| JEL: | H70 I18 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6779&r=pbe |
| By: | DI SERIO, Mario (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy); FRAGETTA, Matteo (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy); GASTEIGER, Emanuel (Freie Universität Berlin, Department of Economics) |
| Abstract: | We estimate state-dependent government spending multipliers for the United States. We use an Interacted Vector Autoregression (IVAR) model to capture the time-varying monetary policy characteristics including the recent zero interest rate lower bound (ZLB) state. We identify government spending shocks by sign restrictions and use a government spending growth forecast series to account for the effects of anticipated fiscal policy. In our baseline specification we find that government spending multipliers range from 3.4 to 3.7 at the ZLB. Away from the ZLB, multipliers range from 1.5 to 2.7. Next, we address the limited information problem typically inherent in VARs by the help of a Factor-Augmented IVAR (FAIVAR). We find that multipliers are lower in this case, ranging from 2.0 to 2.1 at the ZLB and between 1.5 and 1.8 away from it. Thus, in both specifications we find that multipliers are higher, when the interest rate is lower. Our results are consistent with recent theories that predict larger multipliers at the ZLB. |
| Keywords: | Interacted VAR; Fiscal Policy; Government Spending; Zero Interest Rate Lower Bound |
| JEL: | C32 E21 E32 E52 E62 H50 |
| Date: | 2017–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:sal:celpdp:0150&r=pbe |