nep-pbe New Economics Papers
on Public Economics
Issue of 2018‒07‒09
fifteen papers chosen by
Thomas Andrén

  1. International tax cooperation and sovereign debt crisis resolution: reforming global governance to ensure no one is left behind By José Antonio Alonso
  2. Financial Incentives and Earnings of Disability Insurance Recipients: Evidence from a Notch Design By Ruh, Philippe; Staubli, Stefan
  3. Effects of Institutional History and Leniency on Collusive Corruption and Tax Evasion By Johannes Buckenmaier; Eugen Dimant; Luigi Mittone
  4. Taxes and the Location of Targets By Arulampalam. Wiji; Devereux, Michael P; Liberini, Federica
  5. The Effects of Means-tested, Noncontributory Pensions on Poverty and Well-being: Evidence from the Chilean Pension Reforms By Italo López García; Andrés Otero
  6. Older Men’s Labor Force Participation in Belgium By Alain Jousten; Mathieu Lefebvre
  7. Labor Market and Distributional Effects of an Increase in the Retirement Age By Johannes Geyer; Peter Haan; Anna Hammerschmid; Michael Peters
  8. Fiscal Rules: Towards a New Paradigm for Fiscal Sustainability in Small States By Allan Wright; Kari Grenade; Ankie Scott-Joseph
  9. Uncertain altruism and non-linear long-term care policies By Canta, Chiara; Cremer, Helmuth
  10. Housing Taxation and Financial Intermediation By Hamed Ghiaie; Jean-François Rouillard
  11. Nonlinear household earnings dynamics, self-insurance, and welfare By Mariacristina De Nardi; Giulio Fella
  12. Fiscal disparity, institutions and asymmetric yardstick competition By Farah, Alfa
  13. The marginal cost of public funds in large welfare state countries By Geir H. M. Bjertnæs
  14. Has Fiscal Rule changed the Fiscal Marksmanship of Union Government? By Chakraborty, Lekha; Sinha, Darshy
  15. The Impact of Monetary and Tax Policy on Income Inequality in Japan By Taghizadeh-Hesary, Farhad; Yoshino, Naoyuki; Shimizu, Sayoko

  1. By: José Antonio Alonso
    Abstract: The paper focuses on two crucial issues that hinder the fiscal sovereignty of developing countries: the reduced level of international tax cooperation, and the lack of appropriate procedures for sovereign debt crisis resolution. The low level of international tax cooperation enables a ‘race to the bottom’ in tax rates among countries, tax avoidance through profit-shifting activities by companies and tax evasion by individuals and companies, based on the existence of non-cooperative jurisdictions. In the last five years, the international community has made some improvements in this field, but the situation remains far from satisfactory. On the other hand, the current procedure for sovereign debt resolution, through negotiations at the Paris Club with the support of the IMF, is not only unfair, but also inefficient. The paper explores alternatives in both fields. Appropriate responses to these international problems would have to show benefits in terms of efficiency and welfare at the global level, and establish fundamentals for countries to take full advantage of their resources, which is a necessary condition for funding policies that will not leave (or push) any nation or social sector behind.
    Keywords: tax system, international tax cooperation, tax avoidance, tax evasion, tax havens, external debt, restructuring debt, sovereign debt resolution
    JEL: E62 F34 F55 H63
    Date: 2018–05
  2. By: Ruh, Philippe; Staubli, Stefan
    Abstract: Most countries reduce Disability Insurance (DI) benefits for beneficiaries earning above a specified threshold. Such an earnings threshold generates a discontinuous increase in tax liability-a notch- and creates an incentive to keep earnings below the threshold. Exploiting such a notch in Austria, we provide transparent and credible identification of the effect of financial incentives on DI beneficiaries' earnings. Using rich administrative data, we document large and sharp bunching at the earnings threshold. However, the elasticity driving these responses is small. Our estimate suggests that relaxing the earnings threshold reduces fiscal cost only if program entry is very inelastic.
    Keywords: benefit notch; bunching; Disability insurance; Labor Supply
    JEL: H53 H55 J14 J21
    Date: 2018–06
  3. By: Johannes Buckenmaier (Department of Economics, University of Zurich); Eugen Dimant (University of Pennsylvania and Centre for Decision Research and Experimental Economics (CeDEx), University of Nottingham); Luigi Mittone (Cognitive and Experimental Economics Laboratory, University of Trento, Department of Economics)
    Abstract: We investigate the effects of an institutional mechanism that incentivizes taxpayers to blow the whistle on collusive corruption and tax compliance. We explore this through a formal leniency program. In our experiment, we nest collusive corruption within a tax evasion framework. We not only study the effect of the presence of such a mechanism on behavior, but also the dynamic effect caused by the introduction and the removal of leniency. We find that in the presence of a leniency mechanism, subjects collude and accept bribes less often while paying more taxes, but there is no increase in bribe offers. Our results show that the introduction of the opportunity to blow the whistle decreases the collusion and bribe acceptance rate, and increases the collected tax yield. It also does not encourage bribe offers. In contrast, the removal of the institutional mechanism does not induce negative effects, suggesting a positive spillover effect of leniency that persists even after the mechanism has been removed.
    Keywords: Collusive bribery, Institutions, Tax compliance, Leniency, Spillover
    Date: 2018–05
  4. By: Arulampalam. Wiji (Department of Economics,University of Warwick); Devereux, Michael P (Said Business School,Oxford University); Liberini, Federica (ETH Zurich)
    Abstract: We use firm-level data to investigate the impact of taxes on the international location of targets in M & A, allowing for heterogeneous responses by companies. The statutory tax rate in the target country is found to have a negative impact on the probability of an acquisition in that country. In addition, the estimated size of the effect is found to depend on whether (i) acquirer is a domestic or a multinational enterprise ; (ii) the acquisition is domestic or cross-border; and (iii) the acquirer's country has a worldwide or territorial tax system.
    Keywords: Multinational enterprises ; cross-border expansion ; target choice ; corporation income tax ; mixed logit
    JEL: G34 H25 H32 C25
    Date: 2018
  5. By: Italo López García (RAND Corporation); Andrés Otero (Chilean Pension Regulator)
    Abstract: Chile initiated in 1981 a privately managed, individual-account pension system that inspired similar reforms in many Latin American countries, and that has been considered as a possible model for Social Security in the United States. After 30 years in place, the Chilean pension system has been criticized for replicating existing inequalities in labor markets and increasing the risk of old-age poverty; for achieving lower levels of coverage; and for providing low pension benefits. Aiming at guaranteeing a minimum level of consumption upon retirement and increasing the incentives to contribute, in 2008 Chile reformed the Pension System, widening the welfare tier and improving the contributory tier through a means-testing scheme. This paper examines the impact of the 2008 Chilean pension on labor supply and well-being, using a version of the difference-in-difference estimator that assesses the effects of the reform through exogenous changes in pension wealth. Using longitudinal data from 2006 through 2012, and a sample of individuals that were not retired by the time of the implementation of the reforms, our preliminary estimates suggest that the pension reforms induced an increase in the probability of working formally, but at least among females, they reduced labor market participation. However, we find limited impacts of the reform on nonlabor outcomes. Besides some improvements in aggregate household expenditures and in measures of subjective well-being measures among males, we do not detect robust changes in health and well-being among individuals near retirement.
    Date: 2017–02
  6. By: Alain Jousten; Mathieu Lefebvre
    Abstract: The paper studies the labor market participation of older workers in Belgium over the last 3 decades. It outlines the changes to the institutional framework of relevance for labor market participation and employment. Drawing on data from the European Union Labour Force Survey (LFS) over the period 1983-2013, we provide evidence of the trends in participation in (early-) retirement routes. We also explore how the jobs occupied by older workers have changed over time, both in terms of their “quality” and the “quantity” of work involved. Part-time work is found to become more common, though with different attributes for men and women.
    JEL: H55 J11 J21 J26 I38
    Date: 2018–05
  7. By: Johannes Geyer; Peter Haan; Anna Hammerschmid; Michael Peters
    Abstract: We evaluate the labor market and distributional effects of an increase in the early retirement age (ERA) from 60 to 63 for women. We use a regression discontinuity design which exploits the immediate increase in the ERA between women born in 1951 and 1952. The analysis is based on the German micro census which includes about 370,000 households per year. We focus on heterogeneous labor market effects on the individual and on the household level and we study the distributional implications using net household income. In this respect we extend the previous literature which mainly studied employment effects on the individual level. Our results show sizable labor market effects which strongly differ by subgroups. We document larger employment effects for women who cannot rely on other income on the household level, e.g. women with a low income partner. The distributional analysis shows on average no significant effects on female or household income. This result holds as well for heterogeneous groups: Even for the most vulnerable groups, such as single women, women without higher education, or low partner income, we do not find significant reductions in income. One reason for this result is program substitution.
    Keywords: retirement age, pension reform, labor supply, early retirement, distributional effects, spillover effects, household
    JEL: J14 J18 J22 J26 H31
    Date: 2018
  8. By: Allan Wright; Kari Grenade; Ankie Scott-Joseph
    Abstract: This study contends that Caribbean countries cannot adequately surmount their fiscal and debt challenges in the absence of binding rules that are geared toward entrenching fiscal discipline, curbing fiscal procyclicality, and improving budget transparency and credibility. Distilling global lessons and taking due cognizance of Caribbean countries' idiosyncrasies, the paper explores key technical, operational and institutional issues in the design, implementation, and monitoring of fiscal rules that might be relevant for Caribbean countries that currently do not have legislated rules. Results from simulations carried out to determine welfare effects and the extent of volatility of key macroeconomic variables under various fiscal rules scenarios suggest that of the different types of simulated fiscal rules, expenditure rules perform best in terms of reducing macroeconomic volatility, and in that regard, appear to be the most welfare-enhancing. This is believed to be the first study to carry out such a simulation exercise for Caribbean countries. The findings of the study evince useful insights for policymakers on how to improve the design and conduct of fiscal policy for better fiscal and, by extension, development outcomes.
    Keywords: Fiscal rules, Public debt, Public Financial Management, Fiscal deficit, fiscal deficit, public debt, fiscal sustainability, fiscal policy
    JEL: H60 E62
    Date: 2017–02
  9. By: Canta, Chiara; Cremer, Helmuth
    Abstract: We study the design of public long-term care (LTC) insurance when the altruism of informal caregivers is uncertain. We consider non-linear policies where the LTC benefit depends on the level of informal care, which is assumed to be observable while children's altruism is not. The traditional topping up and opting out policies are special cases of ours. Both total and informal care should increase with the children's level of altruism. This obtains under full and asymmetric information. Social LTC, on the other hand, may be non-monotonic. Under asymmetric information, social LTC is lower than its full information level for the lowest level of altruism, while it is distorted upward for the higher level of altruism. This is explained by the need to provide incentives to highaltruism children. The implementing contract is always such that social care increases with formal care.
    Keywords: Long term care; uncertain altruism; private insurance; public insurance; topping up; opting out
    JEL: H2 H5
    Date: 2018–05
  10. By: Hamed Ghiaie (Département d'économique, Université de Cergy-Pontoise); Jean-François Rouillard (Département d'économique, Université de Sherbrooke)
    Abstract: Through the lens of a multi-agent dynamic general equilibrium model, we examine the effects of four permanent changes in housing taxes and deductions on macroeconomic aggregates and welfare. Our main result is that the presence of borrowing-constrained bankers dampen the negative consequences of housing taxation on output. The long-run tax multipliers found range from -1.02 to -0.6. The reduction in the deduction of mortgage interest payments delivers the lowest multiplier. We also implement revenue-neutral tax reforms and find that the repeal of mortgage deductibility is the only policy that generates gains in output.
    Keywords: Housing taxation, banking, dynamic general equilibrium.
    JEL: E62 G28 H24 R38
    Date: 2018–01
  11. By: Mariacristina De Nardi (UCL, Federal Reserve Bank of Chicago, IFS, CEPR, and NBER); Giulio Fella (Queen Mary University of London, CFM, and IFS)
    Abstract: Earnings dynamics are much richer than typically assumed in macro models with heterogeneous agents. This holds for individual-pre-tax and household-post-tax earnings and across administrative (Social Security Administration) and survey (Panel Study of Income Dynamics) data. We study the implications of two processes for household, post-tax earnings in a standard life-cycle model: a canonical earnings process (that includes a persistent and a transitory shock) and a rich earnings dynamics process (that allows for age-dependence of moments, non-normality, and nonlinearity in previous earnings and age). Allowing for richer earnings dynamics implies a substantially better t of the evolution of cross-sectional consumption inequality over the life cycle and of the individual-level degree of consumption insurance against persistent earnings shocks. Richer earnings dynamics also imply lower welfare costs of earnings risk, but, as the canonical earnings process, do not generate enough concentration at the upper tail of the wealth distribution.
    Keywords: Earnings risk, savings, consumption, inequality, life cycle
    JEL: D14 D31 E21 J31
    Date: 2018–06–15
  12. By: Farah, Alfa
    Abstract: Fiscal disparity leads to a yardstick bias, in that incumbents in fiscally-rich jurisdictions can provide more public goods, extract more rents and yet have a higher probability to be reelected. This study further emphasizes disparity among jurisdictions, not only in terms of fiscal resources but also of costs of rent appropriation. In a setting in which jurisdictions with a higher fiscal capacity have lower costs of rent appropriation whilst those with a lower fiscal capacity have higher costs of rent appropriation, the difference in costs of rent appropriation might moderate the bias caused by the fiscal disparity.
    Keywords: accountability,rent,fiscal capacity,institutions,yardstick competition
    JEL: H71 H72 H77 D72
    Date: 2018
  13. By: Geir H. M. Bjertnæs (Statistics Norway)
    Abstract: The marginal cost of public funds (MCF) is substantial in generous welfare state countries according to Kleven and Kreiner (2006). Their main estimate for the Danish economy exceeds 2 mainly because taxation distorts labor force participation. Adjustments in social transfers which alleviate such extensive margin distortions are however not considered. This study shows that MCF within a similar welfare state country, Norway, should be in the interval 1.06 - 1.16 when social transfers alleviate such distortions.
    Keywords: Marginal cost of public funds; Optimal income taxation; Social security transfers; tagging
    JEL: H21 H23 H41
    Date: 2018–06
  14. By: Chakraborty, Lekha (National Institute of Public Finance and Policy); Sinha, Darshy (National Institute of Public Finance and Policy)
    Abstract: We analyse the fiscal marksmanship of the macro-fiscal variables of Union Government ex-ante and ex-post to the formulation of fiscal rules in India. The fiscal marksmanship is the accuracy of budgetary forecasting. The fiscal rules have been legally mandated in India in the form of fiscal responsibility and budget management Act (FRBM Act) in 2003, with a criteria of fiscal-deficit to GDP threshold ratio of 3 per cent and gradual phasing out of revenue deficit. Using Theil’s inequality coefficient (U) based on the mean square prediction error, the paper estimates the magnitude of errors in the budgetary forecasts in India during the period ex-ante and ex-post to fiscal rules, and also decomposed the errors into biasedness, unequal variation and random components. The decomposition of errors is to analyze the source of error in both the regimes. Our results found that in both regimes, the proportion of error due to random variation has been significantly higher, which is beyond the control of the forecaster. In other words, the error due to bias of the policy maker in preparing the Union Budget has been negligible in the period ex-ante and ex-post to fiscal responsibility and budget management (FRBM) Act in India. This result has significant policy implications especially in the context of repeal of 2003 FRBM Act in India and the Union Government has announced clauses for a ‘New FRBM Act’ in India in the Finance Bill 2018.
    Keywords: : fiscal marksmanship ; budget forecast errors ; fiscal rules ; rational expectations
    JEL: C32 C53 E62 H50 H60
    Date: 2018–06
  15. By: Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute); Shimizu, Sayoko (Asian Development Bank Institute)
    Abstract: We assess the effects of the most recent monetary policy behavior of the Bank of Japan (BOJ), in particular, zero interest rate policy and negative interest rate policy, and the Japanese tax policy on income inequality during the first quarter (Q1) of 2002 to Q3 2017. The vector error correction model developed in this research shows that increase in money stock through quantitative easing and the quantitative and qualitative easing policies of the BOJ significantly increases income inequality. On the contrary, Japanese tax policy was effective in reducing income inequality. Variance decomposition results show that after 10 periods almost 87.15% of the forecast error variance of the inequality is accounted for by its own innovations and 3.76% of the forecast error variance can be explained by exogenous shocks to monetary policy shock—the money stock. The short-term interest rate also accounts for the increase in inequality by 0.47%. On the other hand, the total tax and real gross domestic product contributed in reducing the inequality measure, respectively, by 6.65% and 1.96% after 10 periods.
    Keywords: income inequality; monetary policy; tax policy; Japanese economy
    JEL: D63 E52 H24
    Date: 2018–04–27

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