nep-pbe New Economics Papers
on Public Economics
Issue of 2018‒03‒05
eighteen papers chosen by
Thomas Andrén

  1. Linking Property Tax Revenue and Public Services By Prichard, Wilson
  2. Do Retirement Savings Increase in Response to Information About Retirement and Expected Pensions? By Mathias Dolls; Philipp Dörrenberg; Andreas Peichl; Holger Stichnoth
  3. Optimal taxes on capital in the OLG model with uninsurable idiosyncratic income risk By Krueger, Dirk; Ludwig, Alexander
  4. Welfare-improving Consumption Tax in the Presence of Wage Tax under Idiosyncratic Returns from Investment and Incomplete Markets By Hisahiro Naito
  5. An Application of Distribution-Neutral Fiscal Policy By Sanjeev Gupta; Sugata Marjit; Sandip Sarkar
  6. Does fiscal oversight matter? By Christofzik, Désirée I.; Kessing, Sebastian
  7. Heard it Through the Grapevine: Direct and Network Effects of a Tax Enforcement Field Experiment By William C. Boning; John Guyton; Ronald H. Hodge, II; Joel Slemrod; Ugo Troiano
  8. Macroeconomic Implications of Changes in Social Security Rules By Bagis, Bilal
  9. Social Dominance By Ludger Schuknecht; Holger Zemanek
  10. Is high-skilled migration harmful to tax systems' progressivity? By Laurent Simula; Alain Trannoy
  11. Evaluation of the Finnish Income Disregard Reform By Palviainen Heikki
  12. Intergenerational Spillovers in Disability Insurance By Gordon B. Dahl; Anne (A.C.) Gielen
  13. Tax and Gender in Developing Countries: What are the Issues? By Joshi, Anuradha
  14. Strengthening IT Systems for Property Tax Reform By Prichard, Wilson; Fish, Paul
  15. A Theory of Social Finance By Simon Cornée; Marc Jegers; Ariane Szafarz
  16. Tax corruption and private sector development in Vietnam By Nguyen, Ngoc Anh; Doan, Quang Hung; Tran-Nam, Binh
  17. Valuation for Property Tax Purposes By Zebong, Nyah; Fish, Paul; Prichard, Wilson
  18. Marriage, Labor Supply and the Dynamics of the Social Safety Net By Low, L.; Meghir, C.; Pistaferri, L.; Voena, A.

  1. By: Prichard, Wilson
    Abstract: In practical terms most property tax reforms are, first and foremost, efforts to increase tax revenue. But the ultimate goal of tax reform is, of course, broader: expanding tax revenue in order to finance the provision of valuable publicly-provided goods and services. Tax reform is only socially desirable if tax revenue is, in fact, translated into improved public outcomes. Otherwise taxation amounts to little more than the extraction of revenue from taxpayers. Tax reformers are correspondingly faced with a simple question: is the revenue from tax reform actually likely to be translated into publicly-provided goods and services? Perhaps more importantly, could property tax reform programmes be designed explicitly to increase the likelihood that revenue will be translated into valued publicly-provided goods and services? Rather than only raising more revenue, tax reformers may have the power to proactively shape the quality of public spending.
    Keywords: Governance,
    Date: 2017
  2. By: Mathias Dolls; Philipp Dörrenberg; Andreas Peichl; Holger Stichnoth
    Abstract: How can retirement savings be increased? We explore a unique policy change in the context of the German pension system to study this question. As of 2005 (with a phase-in period between 2002-04), the German pension administration started to send out annual letters providing detailed and comprehensible information about the pension system and individual expected public pension payments. This reform did not change the level of pensions, but only provided information to individuals about their expected pension payments. Using German tax return data, we exploit an age discontinuity to identify the effect of these letters on the behavior of individuals. We find an increase in tax-deductible private retirement savings and provide evidence that this is not due to a crowding-out of other forms of savings. We also show that labor earnings, i.e. the most direct way to increase public pensions, increase after receiving the letter.
    Keywords: pensions, savings, information letters, earnings
    JEL: H55 H24 D14
    Date: 2018
  3. By: Krueger, Dirk; Ludwig, Alexander
    Abstract: We characterize the optimal linear tax on capital in an Overlapping Generations model with two period lived households facing uninsurable idiosyncratic labor income risk. The Ramsey government internalizes the general equilibrium feedback of private precautionary saving. For logarithmic utility our full analytical solution of the Ramsey problem shows that the optimal aggregate saving rate is independent of income risk. The optimal time-invariant tax on capital is increasing in income risk. Its sign depends on the extent of risk and on the Pareto weight of future generations. If the Ramsey tax rate that maximizes steady state utility is positive, then implementing this tax rate permanently generates a Pareto-improving transition even if the initial equilibrium is dynamically efficient. We generalize our results to Epstein-Zin-Weil utility and show that the optimal steady state saving rate is increasing in income risk if and only if the intertemporal elasticity of substitution is smaller than 1.
    Keywords: Idiosyncratic Risk,Taxation of Capital,Overlapping Generations,Precautionary Saving,Pecuniary Externality
    JEL: H21 H31 E21
    Date: 2018
  4. By: Hisahiro Naito
    Abstract: In a standard multi-period model, consumption tax and wage tax are equivalent. I show that when a capital market is incomplete---in the sense that the rates of return from risky investments are idiosyncratic and there is no insurance for such idiosyncratic risk---the introduction of consumption tax in the presence of wage tax improves welfare. This holds true even in the presence of optimal or non-optimal capital income taxes. In the general equilibrium model, the optimal level of consumption tax is determined to balance the benefits of the risk-sharing effect and asset accumulation effect and the costs of postponing government revenue to later periods.
    Date: 2018–02
  5. By: Sanjeev Gupta; Sugata Marjit; Sandip Sarkar
    Abstract: Distribution neutral fiscal policy refers to a structure of taxes and transfers that keep the income distribution unchanged even after positive or negative shocks to an economy. This is referred to as a Strong Pareto Superior (SPS) allocation which improves the standard Pareto criterion by keeping the degree of inequality, but not the absolute level of income intact. We apply this methodology to India to compute SPS tax rates and determine their proximity to actual tax rates. Limited available data on income and expenditure shows that the official policies so far are close to desired benchmark level. Our methodological contribution will be enriched further with more detailed income tax and transfer data.
    Date: 2018–01–24
  6. By: Christofzik, Désirée I.; Kessing, Sebastian
    Abstract: A gradually introduced reform of local government accounting made it temporarily possible for municipalities in the German state of North Rhine-Westphalia to avoid the effective control of their budget by the authorities in charge of overseeing local government budgets and enforcing the existing fiscal rules. Using this withdrawal of effective fiscal oversight, we identify the effects of fiscal restraints and their enforcement on fiscal outcomes. We find that the withdrawal of oversight has a significant and sizable effect on per capita debt of local governments that were previously constrained by fiscal oversight. Fiscal restraints are important, and oversight and enforcement are key requirements for their success.
    Keywords: fiscal oversight,fiscal rules,local government debt
    JEL: H72 H74 R50
    Date: 2018
  7. By: William C. Boning; John Guyton; Ronald H. Hodge, II; Joel Slemrod; Ugo Troiano
    Abstract: Tax enforcement may affect both the behavior of those directly treated and of some taxpayers not directly treated but linked via a network to those who are treated. A large-scale randomized field experiment enables us to examine both the direct and network effects of letters and in-person visits on withheld income and payroll tax remittances by at-risk firms. Visited firms remit substantially more tax. Their tax preparers’ other clients also remit slightly more tax, while their subsidiaries remit slightly less. Letters have a much smaller direct effect and no network effects, yet may improve compliance at lower cost.
    JEL: C93 H26 L14
    Date: 2018–02
  8. By: Bagis, Bilal
    Abstract: The Turkish social insurance system has been feverishly debated for years, particularly through its burden on the economy. The most recent reform is an attempt to neutralize the deterioration within the social security system and its effects on the economy. After the recent reform, ‘the way that retirement benefits are calculated’ is changed unfavorably for workers and the minimum age for retirement is increased. In particular, for an agent with 25 years of social security tax payments, the replacement rate is down from 65 percent to 50 percent. On the other hand, retirement age is up from 60 to 65. The aim of this paper is to investigate the macroeconomic effects of these changes using an OLG model. The author’s findings indicate that labor supply, output and capital stock increase when changes above are applied to the benchmark economy calibrated to the Turkish economy data in 2005. A critical change with the current reform is that the marginal benefit of working has become uniform over ages. In a simulation exercise, the marginal retirement benefit in the benchmark economy is changed to be uniform over ages while keeping the size of social security system unchanged. As a result, the benefit of retiring at a later period increases. However, uniform distribution of the marginal benefits itself decreases both the capital stock and output of the economy. Increasing the retirement age has positive effects on the economy since agents obtain retirement benefits for fewer years and at an older age.
    Keywords: Social Security Reform, Retirement Age, Replacement Rate, Macroeconomics.
    JEL: D1 E2 H2 H5 J1 J2
    Date: 2017–02
  9. By: Ludger Schuknecht; Holger Zemanek
    Abstract: Based on the observation of an unabated trend towards higher social spending ratios in advanced countries, the study analyzes the risk of “social dominance”, where social expenditures dominate fiscal policy, and undermine growth and fiscal sustainability. We scrutinize this risk by analyzing drivers of social expenditures and their interaction with other fiscal variables. Results show, that social expenditure expansion is largely ageing driven, it crowds out other primary expenditures and there is evidence of unsustainability.These findings and the accelerating trend of population ageing and particularly high political costs to reforming social expenditure suggest significant and rising risks of “social dominance”.
    Keywords: fiscal policy,social expenditures,political economy,crowding out,fiscal sustainability
    JEL: E62 H30 H55
    Date: 2018–02
  10. By: Laurent Simula (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 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Alain Trannoy (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales)
    Keywords: tax competition,top income earners,migration
    Date: 2018
  11. By: Palviainen Heikki (Faculty of Management, University of Tampere)
    Abstract: In 2002, the Finnish government introduced an earnings disregard reform aimed at improving the incentives of low-income individuals who receive last-resort social assistance. The aim of the reform was to decrease unemployment by providing social assistance clients better incentives to receive at least temporary or part-time work. This paper evaluates the employment effects of the reform using a quasi-experimental design. After a behavioral adjustment period, there are positive results for females, single-person households and individuals with earnings. No effects on the extensive margin imply that a behavioural response requires some attachment to the labour market. No transition from social assistance to longer-term employment is observed.
    Keywords: Difference-in-differences matching, making work pay, earnings disregard, welfare
    JEL: C93 H53 I38 J68
    Date: 2018–02
  12. By: Gordon B. Dahl (UCSD); Anne (A.C.) Gielen (IZA)
    Abstract: Does participation in a social assistance program by parents have spillovers on their children's own participation, future labor market attachment, and human capital investments? While intergenerational concerns have figured prominently in policy debates for decades, causal evidence is scarce due to nonrandom participation and data limitations. In this paper we exploit a 1993 policy reform in the Netherlands which tightened disability insurance (DI) criteria for existing claimants, and use rich panel data to link parents to children's long-run outcomes. The key to our regression discontinuity design is that the reform applied to younger cohorts, while older cohorts were exempted from the new rules. We find that children of parents who were pushed out of DI or had their benefits reduced are 11% less likely to participate in DI themselves, do not alter their use of other government safety net programs, and earn 2% more in the labor market as adults. The combination of reduced government transfers and increased tax revenue results in a fiscal gain of 5,900 euros per treated parent due to child spillovers by 2014. Moreover, children of treated parents complete an extra 0.12 years of schooling on average, an investment consistent with an anticipated future with less reliance on DI. Our findings have important implications for the evaluation of this and other policy reforms: ignoring parent-to-child spillovers understates the long-run cost savings of the Dutch reform by between 21 and 40% in present discounted value terms.
    Keywords: Peer effects; disability insurance; intergenerational links
    JEL: I38 H53 J62
    Date: 2018–01–30
  13. By: Joshi, Anuradha
    Abstract: This ICTD Summary Brief is the sixth in our six special research synthesis pieces, produced at the end of the ICTD's first five-year funding period in Spring 2016. This brief explains what we have learned about gender and taxation and looks at: why taxation is relevant for gender; where gender is relevant in taxation; bias in tax structures; amongst other themes.
    Keywords: Development Policy, Gender, Taxation,
    Date: 2017
  14. By: Prichard, Wilson; Fish, Paul
    Abstract: The introduction of improved IT systems has long been hailed as a powerful – potentially transformative – tool for strengthening local property taxes. Yet in practice this promise has rarely been achieved on a sustainable basis in Africa, despite significant investment. The challenge lies in understanding why new IT systems have failed to deliver promised benefits, and in devising more effective systems and strategies moving forward.
    Keywords: Governance,
    Date: 2017
  15. By: Simon Cornée; Marc Jegers; Ariane Szafarz
    Abstract: Myriad different types of institutions are involved in social finance. This paper attempts to make sense of the diverse ways of operationalizing the delivery of funds by social financial institutions (SFIs). It explores the continuum of feasible SFIs, which range from foundations offering pure grants to social banks supplying soft loans. The in-between category includes “quasi-foundations” granting loans that require partial repayment only. In our model, the SFIs face information asymmetries and trade off costly social screening against social contributions, under the budget constraint that depends on the generosity of their funders. We characterize the SFIs’ optimal strategy and suggest that quasi-foundations can be efficient vehicles for social finance, especially when social screening costs are relatively low.
    Keywords: Social Finance; Philanthropy; Foundations; Social Banks
    JEL: G21 D63 G24 H25
    Date: 2018–02–12
  16. By: Nguyen, Ngoc Anh; Doan, Quang Hung; Tran-Nam, Binh
    Abstract: This article aims to examine the impact of tax corruption on private sector development in Vietnam. It is motivated by two separate but related considerations. First, despite the seriousness of the phenomenon of corruption, there is a paucity of rigorous empirical research of corruption, particularly tax corruption, in Vietnam. Secondly, ineffective control of corruption is viewed as a cause of Vietnam’s recent total factor productivity (TFP) slowdown or its poor industrial policy, both of which may hamper Vietnam’s progress as a low middle-income country. Without some understanding on the impact of tax corruption on the economy, it may not be possible to devise the most effective anti-corruption policy and measures. After a brief literature review that focuses on tax corruption, various conceptual issues relating to tax corruption are discussed and clarified. The extent of petty tax corruption in Vietnam is then discussed, followed by a review of findings and implications of recent studies on how tax corruption impacts on private sector development in Vietnam. Despite perceptions and evidence of widespread petty tax corruption, Vietnam ranks very highly both in terms of tax collection and tax effort.Not unexpectedly, the impact of tax corruption is mixed in the sense that empirical evidence lends credence to both 'sanding the wheels' and 'greasing the wheels' hypotheses. Finally, some broad policy recommendations for combating tax corruption are offered.
    Keywords: tax corruption, unofficial/informal payments, private sector, Vietnam
    JEL: H20 H26 H29
    Date: 2017–12
  17. By: Zebong, Nyah; Fish, Paul; Prichard, Wilson
    Abstract: Improving processes for valuing properties lies at the heart of efforts to improve the overall effectiveness of property taxation. Effective property taxation is impossible without efficient property valuation. In practice, however, valuation rolls across most of Africa are incomplete and severely out-of-date, thus dramatically reducing potential property tax yield. This is, at least in part, a function of history: many of the valuation models being used on the continent do not reflect best practices and local learning, but are inherited vestiges of colonial systems that no longer respond adequately to local needs. The need to modernise is urgent, but progress has been slow. Effective reform needs to consider two broad questions: (i) the extent to which market value or physical attributes of the property should be the basis for valuation; and (ii) which organ of government should be responsible for valuation, and how should it be organised? Answers to these questions may vary across countries. There is, however, growing agreement that the central need in most countries is to simplify existing valuation processes, to better align them with the realities of undeveloped local property markets and constrained administrative capacity.
    Keywords: Economic Development, Governance,
    Date: 2017
  18. By: Low, L.; Meghir, C.; Pistaferri, L.; Voena, A.
    Abstract: The 1996 PRWORA reform introduced time limits on the receipt of welfare in the United States. We use variation by state and across demographic groups to provide reduced form evidence showing that such limits led to a fall in welfare claims (partly due to \banking" benefits for future use), a rise in employment, and a decline in divorce rates. We then specify and estimate a life-cycle model of marriage, labor supply and divorce under limited commitment to better understand the mechanisms behind these behavioral responses, carry out counterfactual analysis with longer run impacts and evaluate the welfare effects of the program. Based on the model, which reproduces the reduced form estimates, we show that among low educated women, instead of relying on TANF, single mothers work more, more mothers remain married, some move to relying only on food stamps and, in ex-ante welfare terms, women are worse off.
    Keywords: time limits, welfare reform, life-cycle, marriage and divorce
    JEL: D91 H53 J12 J21
    Date: 2018–02–22

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