nep-pbe New Economics Papers
on Public Economics
Issue of 2018‒05‒21
fourteen papers chosen by
Thomas Andrén

  1. Income inequality, growth and elite taxation in Brazil: new evidence combining survey and fiscal data, 2001?2015 By Marc Morgan
  2. Capital Income Taxation, Economic Growth, and the Politics of Public Education By Tetsuo Ono; Yuki Uchida
  3. Optimal Taxation and Debt Management without Commitment By Davide Debortoli; Ricardo Nunes; Pierre Yared
  4. How Should Capital be Taxed? Theory and Evidence from Sweden By Spencer Bastani; Daniel Waldenström
  5. The Efficiency Consequences of Heterogeneous Behavioral Responses to Energy Fiscal Policies By Houde, Sebastien; Aldy, Joseph E.
  6. Tax on Large Fortunes: the recent international debate and the situation in Brazil By Pedro Carvalho Jr.; Luana Passos
  7. Redistribution via VAT and Cash Transfers: An Assessment in Four Low and Middle Income Countries By David Phillips; Ross Warwick; Maya Goldman; Karolina Goraus; Gabriela Inchauste; Tom Harris; Jon Jellema
  8. Choice and Competition in the Welfare State: Home Care as the Ideal Quasi-market By Bergman, Mats A.; Jordahl, Henrik; Lundberg, Sofia
  9. Inequality and Fiscal Redistribution in Mexico By John Scott; Enrique de la Rosa; Rodrigo Aranda
  10. The Impact of the Tax Cuts and Jobs Act on Local Home Values By Martin, Hal
  11. Does Public Debt Crowd Out Corporate Investment? International Evidence By Yi Huang; Ugo Panizza; Richard Varghese
  12. The Role of Government and Trust in the Market Economy By Nadja König; Ludger Schuknecht
  13. Tax Policy Towards the Oil Industry By Bobylev, Yuri; Rasenko, O.A.
  14. Destination-Based Business Cash Flow Taxes By Will Martin

  1. By: Marc Morgan (IPC-IG)
    Abstract: "This paper analyses the pre-tax inequality in the income that individuals actually receive in Brazil and the role of the personal income tax in regulating these incomes. We produce a new distributional series of fiscal income, consistently combining annual and nationally representative household survey data with detailed information on income tax declarations recently released by the Brazilian Federal Tax Office. Our results provide a sharp upward revision of the official estimates of inequality in Brazil but maintain the decreasing inequality trends, even though they are less pronounced than previously measured. The exceptionally large concentration of income at the top is noteworthy, as is its relative stability over time. The income share of the wealthiest 10 per cent of the population fell from 54.6 per cent to 53.0 per cent of pre-tax fiscal income between 2001 and 2015, while the share of the poorest 50 per cent of the population rose from 10.6 per cent to 12.6 per cent. Brazils squeezed middle 40 per cent of the distribution experienced a slight drop in its share, from 34.8 per cent to 34.4 per cent. Despite strong average income growth, the poorest 50 per cent only made moderate gains, which came at the expense of smaller shares for the middle and the top. Over the short to medium term, it is the level of average income of the bottom that matters more than its growth. We show that the role of the personal income tax in regulating incomes in Brazil is very limited, because the majority of the income of elites in Brazil is not subject to the tax. This explains the lower effective tax liability that is observed for upper income groups and illustrates that the personal income tax is not a progressive policy tool in Brazil, violating the principles of horizontal equity and vertical equity. This motivates the creation of a simplified and comprehensive personal income tax that would incorporate all income categories along a single or dual tax regime. (...)
    Keywords: Income, inequality, growth, elite, taxation, Brazil, new evidence, combining, survey, fiscal data, 2001, 2015
    Date: 2018–02
  2. By: Tetsuo Ono (Graduate School of Economics, Osaka University); Yuki Uchida (Faculty of Economics, Seikei University)
    Abstract: This study considers the politics of public education and its impacts on economic growth and welfare across generations. Public education is funded by taxing the labor income of the working generation and capital income of the retired. We employ probabilistic voting to demonstrate the politics of taxes and expenditure and show that aging results in a shift of the tax burden from the old to the young and a slowdown of economic growth. We then consider three alternative constraints that limit the choice of taxes and/or expenditure: a minimum level of public education expenditure, an upper limit of the capital income tax rate, and a combination of the two. These constraints all create a trade-off between current and future generations in terms of welfare.
    Keywords: Public education, Economic growth, Capital income tax, Political equilibrium
    JEL: D70 E24 H63
    Date: 2018–02
  3. By: Davide Debortoli; Ricardo Nunes; Pierre Yared
    Abstract: This paper considers optimal fiscal policy in a deterministic Lucas and Stokey (1983) economy in the absence of government commitment. In every period, the government chooses a labor income tax and issues any unconstrained maturity structure of debt as a function of its outstanding debt portfolio. We find that the solution under commitment cannot always be sustained through the appropriate choice of debt maturities, a result which contrasts with previous conclusions in the literature. This is because a government today cannot commit future governments to a particular side of the Laffer curve, even if it can commit them to future revenues. We find that the unique stable debt maturity structure under no commitment is flat, with the government owing the same amount of resources to the private sector at all future dates. We present examples in which the maturity structure converges to such a flat distribution over time. In cases where the commitment and no-commitment solutions do not coincide, debt converges to the natural debt limit.
    JEL: E62 H21 H63
    Date: 2018–04
  4. By: Spencer Bastani; Daniel Waldenström
    Abstract: This paper presents a comprehensive analysis of the role of capital taxation in advanced economies with a focus on the Swedish experience. We synthesize the existing theoretical literature, present facts about the capital stock and its distribution, review current capital tax practices and empirical findings regarding their effects on economic activity. The paper also examines the political feasibility of capital taxation by presenting results from a unique attitude survey targeted to a large representative sample of the Swedish population. Finally, we tie together our findings and discuss their implications for tax policy.
    Keywords: optimal taxation, capital taxation, wealth tax, inheritance tax, corporate tax, income equality, wealth inequality, political economy, preferences for redistribution
    JEL: D31 H21 H24
    Date: 2018
  5. By: Houde, Sebastien (University of Maryland); Aldy, Joseph E. (Harvard University)
    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 Q48 Q58
    Date: 2017–12
  6. By: Pedro Carvalho Jr. (IPC-IG); Luana Passos (IPC-IG)
    Abstract: "Many discussions have taken place in Brazil about legislation pertaining to subparagraph VII of article 153 of the 1988 Federal Constitution?the regulation, through a Complementary Law, of the Tax on Large Fortunes (Imposto sobre Grandes Fortunas?IGF). In the current scenario, with the country facing a second consecutive annual decrease in tax revenue, the subject of the implementation of the IGF is gaining some traction, with its proponents vehemently arguing that it can represent a balancing mechanism for a possible increase in the tax burden, so that this increased burden would not fall exclusively on the poorest population through indirect taxes. The economic crisis, together with the political crisis, has reactivated the debate on tax reform, especially regarding demands for a less regressive and more efficient system". (...)
    Keywords: Tax, Large Fortunes, recent, international, debate, situation, Brazil
    Date: 2018–03
  7. By: David Phillips (Institute of Fiscal Studies.); Ross Warwick (Institute of Fiscal Studies.); Maya Goldman (CEQ Institute); Karolina Goraus (Karolina Goraus, World Bank); Gabriela Inchauste (World Bank); Tom Harris (Institute of Fiscal Studies.); Jon Jellema (CEQ Institute)
    Abstract: As in high-income countries, reduced rates of vat and vat exemptions (“preferential vat rates†) are a common feature of indirect tax systems in lmics. Many of the goods and services that are granted preferential rates – such as foodstuffs and kerosene – seem likely to receive such treatment on the grounds that they provide a means for the government to indirectly target poorer households, for whom such expenditures may take up a large proportion of their total budget. We use microsimulation methods to estimate the impact of preferential vat rates in four lmic countries, considering their effect on revenues, poverty, inequality, and across the consumption distribution. We consider whether other policy tools might be better suited for the pursuit of distributional objectives by estimating the impact of existing cash transfer schemes and a hypothetical scenario where the revenue raised from broadening the vat base is used to fund a universal basic income (ubi) in each country. We find that although preferential vat rates reduce poverty, they are not well targeted towards poor households overall. Existing cash transfer schemes are better targeted but would not provide a suitable means of compensation for a broader vat base given issues related to coverage and targeting mechanisms. Despite being completely untargeted, a ubi funded by the revenue gains from a broader vat base would create large net gains for poor households and reduce inequality and most measures of extreme poverty in each of the countries studied – even if only 75% of the additional vat revenue was disbursed as ubi payments.
    Keywords: fiscal incidence, poverty, inequality, value-added tax reform, universal benefit, Ghana, Ethiopia, Zambia, Senegal
    JEL: D31 H22 H53 I38
    Date: 2018–03
  8. By: Bergman, Mats A. (Södertörn University); Jordahl, Henrik (Research Institute of Industrial Economics (IFN)); Lundberg, Sofia (Umeå University)
    Abstract: We study a reform by which a standardized model of choice and competition was introduced in tax-financed home care in a majority of Swedish municipalities. The market for home care is of particular interest since it is close to the ideal quasi-market. For identification, we exploit the different timing of reform implementation across municipalities. We find that the introduction of free choice and free entry in home care increased perceived quality by about one quarter of a standard deviation without affecting costs. Since satisfaction is unrelated to the private market share, the underlying mechanism seems to be new choice opportunities rather than competition or an advantage of private providers.
    Keywords: Choice; Competition; Privatization; Elderly care; New public management
    JEL: H42 H75 I11 L33
    Date: 2018–05–03
  9. By: John Scott (Centro de Investigacion y Docencia Economicas (CIDE)); Enrique de la Rosa (CEQ Institute); Rodrigo Aranda (Tulane University)
    Abstract: This paper uses income and expenditure surveys from 1992 to 2014 and public tax and spending accounts to estimate the redistributive impact of Mexico’s fiscal system over this period. It presents standard and marginal benefit incidence analysis for the principal public transfers (education, health, social security, direct cash transfers) in 1992-2014, and for the full fiscal system for 2008–14. The paper also estimates the effects of a major recent fiscal reform for the years 2015–18: the transition from large subsidies to taxes on petrol. The analysis shows a continuous improvement in the redistributive effects of the fiscal system through the 1990s and 2000s associated with an increase in social spending and in the progressivity of this spending over this period. This trend stagnated and reversed after 2008/2010, reflecting in part an interruption of the expansive and progressive trend of social transfers, but especially a sharp decline of net indirect subsidies.
    Keywords: fiscal incidence, taxation, social spending, inequality, poverty, Mexico
    JEL: D31 H22 H42 I38
    Date: 2017–11
  10. By: Martin, Hal (Federal Reserve Bank of Cleveland)
    Abstract: This paper simulates changes to neighborhood home prices resulting from reforms to tax preferences in the recently passed Tax Cuts and Jobs Act (TCJA). The simulation uses federal tax data summarized at a fine geography to impute homeowner rents at the zip code level across six income classes. Employing a user cost framework, I model rents as a function of prices under the old tax law and under the TCJA. While the average price impact of the TCJA is found to be −5.7 percent, local effects range from 0 to −23 percent across zip codes. Variation across income class is also large. Simulations by income class suggest that the most severe declines in price occur for upper middle-income households ($100,000–$200,000). The paper also simulates partial versions of the TCJA that omit different features of the law that affect housing preference. I find that the higher standard deductions in the new law are the largest driver of price declines.
    Keywords: mortgage interest deduction; housing subsidy; income tax;
    JEL: H24 H31 R21
    Date: 2018–05–11
  11. By: Yi Huang (IHEID, Graduate Institute of International and Development Studies); Ugo Panizza (IHEID, Graduate Institute of International and Development Studies, Geneva and CEPR); Richard Varghese (IHEID, Graduate Institute of International and Development Studies)
    Abstract: Using data for advanced and emerging economies, we show that there is a negative correlation between public debt and corporate investment. Industry-level regressions show that high levels of government debt are particularly damaging for industries that need more external ?financial resources. Firm-level regressions show that government debt increases the sensitivity of corporate investment to cash ?flow. These results indicate that the relationship between public debt and investment is likely to be causal and that public debt crowds out corporate investment by tightening credit constraints.
    Keywords: Investment, Public Debt, Crowding Out, Credit Constraints
    JEL: E22 E62 H63
    Date: 2018–05
  12. By: Nadja König; Ludger Schuknecht
    Abstract: This paper studies the role of governments and its link to trust. We argue that the public’s trust strongly depends on governments delivering on their core tasks in a market economy. In some economies, a neglect of core tasks can be observed and there seems to be some erosion, notably in terms of securing sound rules of the game in industrialised countries. We find very little correlation between government expenditure and trust but a strong correlation with delivering on core tasks. This leads us to conclude that it is not government spending per se that needs to increase to build trust, but rather better focused government activities.
    Keywords: role of government, public goods, trust in government, quality of public finances
    JEL: H11 H41 H50
    Date: 2018
  13. By: Bobylev, Yuri (Russian Presidential Academy of National Economy and Public Administration (RANEPA), Gaidar Institute for Economic Policy); Rasenko, O.A. (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The paper considers the state tax policy towards the oil industry of the Russian economy, analyzes possible measures of such a policy, including structural adjustment of the tax system and the introduction of a special tax on additional income. Various approaches to the construction of a tax on additional income have been analyzed, and an additional tax on profits with a progressive tax rate has been proposed as the most preferable form of this tax. The paper formulates recommendations aimed at increasing the effectiveness of the tax system and creating the necessary conditions for the development of the oil industry.
    Date: 2018–04
  14. By: Will Martin
    Abstract: Destination-based business cash-flow taxes have received a great deal of attention and are being widely considered as a replacement for traditional, origin-based, corporate taxes. These taxes combine the strong revenue-raising ability of a VAT with an enormously expensive tax deduction for wages. They would certainly be attractive to foreign investors by eliminating the burden of current corporate taxes. However, adopting them at the rates typically discussed would raise consumer prices dramatically. A more fundamental problem is that practical versions of such taxes would likely reduce net government revenues in countries adopting them.
    Date: 2018–04

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