nep-pbe New Economics Papers
on Public Economics
Issue of 2018‒07‒16
seventeen papers chosen by
Thomas Andrén

  1. Structural Labour Supply Models and Microsimulation By Aaberge, Rolf; Colombino, Ugo
  2. Domestic Revenue Mobilisation: A new database on tax levels and structures in 80 countries By Emmanuelle Modica; Sabine Laudage; Michelle Harding
  3. Costa Rica: Restoring fiscal sustainability and setting the basis for a more growth-friendly and inclusive fiscal policy By Sónia Araújo; Stéphanie Guichard
  4. Tax Competition in Developed, Emerging and Developing Regions - Same Same but Different? By Mohammed Mardan; Michael Stimmelmayr
  5. Voluntary disclosure schemes for offshore tax evasion By Matthew D. Rablen; Matthew Gould
  6. How Should A Government Finance for Pension Benefit? By Yasuoka, Masaya
  7. Production efficiency and profit taxation By Stéphane Gauthier; Guy Laroque
  8. Growth-indexed Bonds and Debt Distribution: Theoretical Benefits and Practical Limits By Julien Acalin
  9. Estimation of Tax and Social Insurance Burden on Households: Verification of the Validity and Assessment of Actual Status By Taro Ohno; Takahiro Kodama
  10. Unintended technology-bias in corporate income taxation: The case of electricity generation in the low-carbon transition By Luisa Dressler; Tibor Hanappi; Kurt van Dender
  11. Internal Organization in a Public Theory of the Firm: Toward a Coase-Oates Federalism Nexus By Garzarelli, Giampaolo
  12. Child Care, Parental Labor Supply and Tax Revenue By Eckhoff Andresen, Martin; Havnes, Tarjei
  13. Fiscal decentralization in the EU: Common patterns through a club convergence analysis. By Francisco A. Blanco; Francisco J. Delgado; Maria J. Presno
  14. The determinants of local police spending By Rowena Crawford; Richard Disney; Polly Simpson
  15. To shorten or to lengthen?: Public debt management in the low interest rate environment By Alessandro Maravalle; Łukasz Rawdanowicz
  16. Demography and Provisions for Retirement: The Pension Composition, an Equilibrium Approach By Bernard (B.M.S.) van Praag; J. Peter Hop
  17. Marriage, labour supply and the dynamics of the social safety net By Hamish Low; Costas Meghir; Luigi Pistaferri; Alessandra Voena

  1. By: Aaberge, Rolf (Statistics Norway); Colombino, Ugo (University of Turin)
    Abstract: The purpose of the paper is to provide a discussion of the various approaches for accounting for labour supply responses in microsimulation models. The paper focuses attention on two methodologies for modelling labour supply: the discrete choice model and the random utility – random opportunities model. The paper then describes approaches to utilising these models for policy simulation in terms of producing and interpreting simulation outcomes, outlining an extensive literature of policy analyses utilising these approach. Labour supply models are not only central for analyzing behavioural labour supply responses but also for identifying optimal tax-benefit systems, given some of the challenges of the theoretical approach. Combining labour supply results with individual and social welfare functions enables the social evaluation of policy simulations. Combining welfare functions and labour supply functions, the paper discusses how to model socially optimal income taxation.
    Keywords: behavioural microsimulation, labour supply, discrete choice, tax reforms
    JEL: C50 D10 D31 H21 H24 H31 J20
    Date: 2018–05
  2. By: Emmanuelle Modica; Sabine Laudage; Michelle Harding
    Abstract: Domestic resource mobilisation is critical to fund government services and to support development. Taxes are a critical domestic revenue source that can also impact other social or economic outcomes. Understanding differences in the level and structure of tax revenues is therefore foundational to discussions of domestic resource mobilisation and of tax reform.This paper presents evidence on the level and structure of tax revenues in 80 countries, drawing on the new Global Revenue Statistics Database. It compares tax-to-GDP ratios and tax structures across countries, regions and over time. Links between tax-to-GDP ratios, GDP per capita and tax structures are assessed in a correlation analysis. The new database provides invaluable insights for researchers and fiscal policy analysts and offers a high level of comparability and reliability.
    Keywords: Addis Tax Initiative, comparable, Domestic Revenue Mobilisation, global database, revenue statistics, SDG17, tax levels, tax revenues, tax structures, tax-to-GDP ratios
    Date: 2018–06–28
  3. By: Sónia Araújo; Stéphanie Guichard
    Abstract: Consecutive years of primary deficits have led to mounting public debt of almost 50% of GDP, one of the fastest increases in Latin America over the last decade. Government attempts to restore fiscal health have been undermined by a gridlocked Congress. While only minor reforms have been enacted to contain spending, efforts to curb tax evasion and increase the efficiency of the tax administration are commendable. However, increases in tax revenue have been unable to match mandated increases in spending. As a consequence, sovereign debt ratings have declined to below investment level, and the negative outlook on Costa Rica’s debt signals increasing financing costs. Against this backdrop, the risk of a fiscal crisis is increasing, particularly as global financial conditions become less favourable and debt structure has shifted towards increased reliance on floating rates and dollar-denominated bonds. Enacting a three year fiscal consolidation programme of one percentage point of GDP each year, will enable debt to stabilise at current levels by 2032. The current draft bill to strengthen public finances – Ley de Fortalecimiento de las Finanzas Públicas – proposes a comprehensive fiscal reform package, with measures on both the revenue and the spending side, as well as a fiscal rule. It needs to be complemented with additional measures to contain revenue earmarking. In addition, reducing excessive fragmentation of the public sector would allow the Ministry of Finance to regain control of the budget. There is also room to reduce expenditure on remuneration of public sector workers, one of the fastest growing expenditure items and a source of income inequality. The proposed fiscal rule should be strengthened, including introducing a multi-year expenditure framework and a fiscal council. Debt management should be modernised by stepping up communication with markets and reducing the number of benchmark securities. Over time, improving social spending efficiency and quality as well as modifying the tax structure away from social security contributions and enlarging the tax base would allow for a much stronger contribution of fiscal policy to growth and equity.
    Keywords: Costa Rica, debt sustainability analysis, fiscal framework, fiscal policy, fiscal vulnerability, government spending, revenue earmarking, taxation
    JEL: H10 H11 H50 H51 H52 H53 H60 H61 H62 H63 H68
    Date: 2018–07–04
  4. By: Mohammed Mardan; Michael Stimmelmayr
    Abstract: This paper analyzes tax competition between countries which differ in their country-specific risk. We show that the outcome of asymmetric tax competition crucially depends on the ability of multinational firms to shift profits. With high costs of profit shifting, higher-risk countries set lower tax rates than lower-risk countries whereas the opposite is true if the costs of profit shifting are low. The results provide an explanation for the patterns observed in the corporate income tax policies across countries and regions differing in their level of development. Moreover, for intermediate costs of profit shifting, we show that also a country’s absolute risk level affects countries’ tax rate setting. These results carry important implication for the empirical tax competition literature.
    Keywords: tax competition, country risk, developing countries, asymmetric countries
    JEL: H25 O23 F23
    Date: 2018
  5. By: Matthew D. Rablen (Institute for Fiscal Studies and Sheffield University); Matthew Gould (Institute for Fiscal Studies)
    Abstract: Tax authorities worldwide are implementing voluntary disclosure schemes to recover tax on offshore investments. Such schemes are typically designed retrospectively following the bulk acquisition of information on offshore holdings, such as the recent ?Paradise? and ?Panama? papers. They offer an opportunity for affected taxpayers to make a voluntary disclosure, with reduced fine rates for truthful disclosure. We characterize the taxpayer/tax authority game with and without a scheme and show that a scheme increases net expected tax revenue, decreases illegal offshore investment, increases onshore investment, and could either increase or decrease total offshore investment (legal plus illegal).
    Keywords: voluntary disclosure, offshore tax evasion, tax amnesty, third-party information
    JEL: H26 D85
    Date: 2018–03–05
  6. By: Yasuoka, Masaya
    Abstract: Based on Ono (2010), this short note presents consideration of the consumption tax and examines how tax reform to maintain the neutrality of pension benefit affects income growth rate and the employment rate. A decrease in the contribution rate of workers with an increase in consumption tax raises employment, but the effect on income growth is ambiguous. A decrease in the contribution rate of firms with an increase in consumption tax decreases the employment and facilitates income growth.
    Keywords: Aging society, Elderly care services, Tax system, Endogenous growth
    JEL: H21 H51 J14
    Date: 2018–06–20
  7. By: Stéphane Gauthier (Institute for Fiscal Studies); Guy Laroque (Institute for Fiscal Studies)
    Abstract: Consider a simple general equilibrium economy with one representative consumer, a single competitive ?rm and the government. Suppose that the government has to ?nance public expenditures using linear consumption taxes and/or a lump-sum tax on pro?ts redistributed to the consumer. We show that, if the tax rate on pro?ts cannot exceed 100 percent, one cannot improve upon the second-best optimum of an economy with constant returns to scale by using a less e?cient pro?t-generating decreasing returns to scale technology.
    Keywords: optimal taxation, taxation of pro?ts, production e?ciency
    Date: 2018–04–10
  8. By: Julien Acalin (Johns Hopkins University)
    Abstract: Sovereign state-contingent bonds, in particular growth-indexed bonds (GIBs), have rarely been issued in practice despite their theoretical benefits. This paper provides support for this apparent sovereign noncontingency puzzle by deriving the impact of GIBs on the upper tail of the distribution of the public debt-to-GDP ratio. Although this impact varies importantly across countries and indexation formulas, empirical estimates show there is almost no reduction in the upper tail of the distribution under the realistic assumption that GIBs only represent 20 percent of the stock of debt. Moreover, a sustained premium of 100 basis points would actually increase the upper tail of the distribution for most countries.
    Keywords: Growth-indexed bonds, State-contingent bonds, Debt sustainability, Monte Carlo simulations
    JEL: E62 F34 H63
    Date: 2018–07
  9. By: Taro Ohno (Faculty of Economics and Law, Shinshu University); Takahiro Kodama (Policy Research Institute, Ministry of Finance)
    Abstract: In recent years, household micro data has been streamlined in Japan. Based on this environmental development, the number of analyses using household micro data (questionnaire information) has increased in the fields of taxation and social securities. With the regard to taxes and social insurance premiums for each household account in these analyses, there are two cases: (1) using burdens reported in the questionnaire (Reported Value), and (2) using burdens calculated by applying information, such as family unit, income, etc. reported in the questionnaire to the actual system (Imputed Value). We used household micro data from the National Survey of Family Income and Expenditure (NSFIE) in 2009 by the Ministry of Internal Affairs and Communications, and estimated the imputed values of tax and social insurance burdens (such as income tax, residence tax, consumption tax, pension insurance premium, health insurance premium, long-term care insurance premium and employment insurance premium) on households. On that basis, we verify the validity of imputed value by comparing it with reported value, and assess the actual status of fiscal burden on household. The NSFIE is pointed out that the reported values of income tax and social insurance premium are underestimated by the effect of seasonality. Therefore, for verifying the validity of imputed value, we need to focus on the case of residence tax that is less affected by seasonality. And, it was found that the mean disparity between the reported and imputed values was zero and the dispersion was approximately 3% to income. For the implication of the examination, the imputed value has almost no bias in relation to tallied macro values, and it results in an estimated value with almost no error. Therefore, its accuracy can be used sufficiently for the assessment of policies. The underestimation of reported value may result from the possibility that tax and social premium burdens related to bonuses out of survey period are not reflected completely in the statistics. From the result of examination, such a hypothesis was supported. In addition, the total fiscal burden on household including taxes and social insurance premiums is progressive both in all samples and in each age bracket. The social insurance premiums and consumption tax have effects to reduce the progressivity. In particular, these are shown up strongly in the elderly generation. Therefore, the progressivity of fiscal burden is smaller in the elderly generation, which implies that intra-generational redistributive effect is weaker in the elderly.
    Keywords: tax, social insurance premium, imputed value, reported value
    JEL: C15 H24
    Date: 2017–01
  10. By: Luisa Dressler; Tibor Hanappi; Kurt van Dender
    Abstract: This paper shows that corporate tax provisions can lead to different effective tax rates (ETRs) if there is a capital cost-intensive and a variable cost-intensive way of producing the same output. It develops a framework for analysing sources of the difference in ETRs and adapts existing models to compare forward-looking ETRs for low-carbon and high-carbon electricity generation technologies, considering tax provisions for cost recovery in 36 countries. It finds that standard tax systems are technology neutral when investments are debt-financed because the deductibility of interest payments compensates for the fact that capital allowances are based on nominal (rather than real) capital costs. Under equity finance, ETRs are higher for investments in capital-cost-intensive technologies as the cost of equity finance is often not deductible. Since low-carbon electricity generation tends to be relatively capital-intensive, this result represents a form of unintentional misalignment of the corporate tax system with decarbonisation objectives,.
    Keywords: corporate taxation, cost structure, electricity generation, low-carbon transition, technology choice
    JEL: G11 H25 O14 Q48
    Date: 2018–07–19
  11. By: Garzarelli, Giampaolo
    Abstract: This paper anatomizes how the theory of internal organization of the firm relates to that of internal organization of government. This broad issue is approached by narrowing matters down to a specific type of internal organization of government: fiscal federalism. The paper introduces elements for a public theory of the firm by theoretically combining organizational and federalist insights – Ronald Coase with Wallace Oates. It shows how there are vertical and horizontal transaction cost problems in both the ex ante moment of decentralized public sector organizational design and the ex post moment of organizational adaptation. These problems embed normative and positive considerations that previous organizational theories of federalism fail to consider, and that earlier theories of federalism to some extent acknowledge but fail to develop organizationally. A subsidiary point that emerges is that more effort should be directed to exploring the ex ante moment in explicit organizational design terms. To try to jump start the explorative effort, the paper also alludes to one promising set of design principles: modularity.
    Keywords: Coase-Oates nexus; Comparative institutional analysis; Ex ante and ex post fiscal federalism; Intergovernmental transaction costs; Modular near-decomposition.
    JEL: H11 H44 H7 L9
    Date: 2018–05–09
  12. By: Eckhoff Andresen, Martin (Statistics Norway); Havnes, Tarjei (University of Oslo)
    Abstract: We study the impact of child care for toddlers on the labor supply of mothers and fathers in Norway. For identification, we exploit the staggered expansion across municipalities following a large reform from 2002. Our IV-estimates indicate that child care use causes an increase in the labor supply of mothers. Results suggest that cohabiting mothers move towards full time employment, while single mothers move to part time. Meanwhile, we find no impact for fathers or grandparents. We also find an increase in the taxes paid from cohabiting mothers, lending some support to the argument that parts of the cost of child care is offset by increased taxes.
    Keywords: child care, female labor supply, tax revenue, instrumental variables
    JEL: H24 H52 J13 J22
    Date: 2018–05
  13. By: Francisco A. Blanco; Francisco J. Delgado; Maria J. Presno
    Abstract: We study the degree of convergence in fiscal decentralization in the European Union in the period 1995–2015 analysing non-central expenditure and revenue as percentages of GDP and of the total expenditure or revenue. The sigma convergence analysis shows only a smooth convergence in the non-central revenue with regard to GDP, with significant divergences in the other indicators, especially after the beginning of the Great Recession. However, the club convergence approach indicates some clustering, with three clubs in the GDP perspective and four to five in the total approach. We also analyse the gap between the expenditure and the revenue as a proxy of fiscal responsibility, with sigma divergence for the entire sample, and now with three and two clubs respectively, with Denmark as the divergent country. These results show how European countries are quite heterogeneous in their views of fiscal federalism and decentralization.
    Keywords: decentralization, European Union, convergence
    JEL: H77
    Date: 2018–07
  14. By: Rowena Crawford (Institute for Fiscal Studies and Institute for Fiscal Studies); Richard Disney (Institute for Fiscal Studies and University of Sussex); Polly Simpson (Institute for Fiscal Studies and Institute for Fiscal Studies)
    Abstract: Since 1995, police forces in England and Wales have obtained the right to raise revenues locally to supplement central government grants in order to fund their activities. The extent to which they have used these local revenue-raising powers varies signi cantly across area and time. We seek to explain this variation in locally raised police revenues over the 2000s, unpicking the role of local differences in preferences, central government funding, the production of public safety given police inputs, and certain political economy features of the local decision making process. We find that around three-quarters of the variation in local revenues per capita can be explained by differences in incomes, prices and preferences. We also examine whether changes in service provision by other agencies spillover into the local demand for policing by affecting the local tax price of police activities.
    Keywords: Police funding, Fiscal federalism, Local tax price
    JEL: H41 H71
    Date: 2018–03–05
  15. By: Alessandro Maravalle; Łukasz Rawdanowicz
    Abstract: With still large government debt and interest payments in many OECD countries, actively adjusting debt maturity can help to minimise debt servicing costs. Temporarily lengthening the maturity of new debt issuance may lower debt servicing costs in the longer term and reduce rollover risks if interest rates increase gradually over a prolonged period and to a high level. However, if market interest rates increase fast and stay high, shortening debt maturity would be financially more beneficial though at the cost of higher rollover risks. Illustrative scenarios considered in this paper show that adjusting debt maturity may take several years before producing fiscal savings. They are likely to be moderate at best for most G7 countries, ranging from less than 0.1% to ⅓ per cent of GDP per year on average, with the exception of Italy where they could be significantly higher. In countries where debt maturity management has small fiscal effects, lengthening the debt maturity may still be pursued to reduce rollover risks.
    Keywords: public debt management, term premia, yield curve
    JEL: H63
    Date: 2018–07–04
  16. By: Bernard (B.M.S.) van Praag (University of Amsterdam); J. Peter Hop
    Abstract: Pensions may be provided for in a modern society by several methods, viz., voluntary individual savings, mandatory fully funded occupational pension systems, and mandatory social security financed by pay-as-you-go. The specific mixture of the three systems we will call the pension composition. We assume that individual workers decide about their own individual savings, that the fully funded occupational system is decided upon by the age cohort of the median worker and that social security is decided upon by the median voter. For a given demography and interest rate the joint result of those decisions is a Pareto- equilibrium. Nowadays most of capital supply stems from individual and institutionalised pension savings. For ease of exposition we will assume that individual and collective pension savings are the only source of capital supply. When capital supply equals demand from industry there is equilibrium on the capital market with a corresponding equilibrium interest rate. In this paper we assume a demography with hundred age brackets and we investigate how changes in the birth and survival rates affect the pension composition and the capital market equilibrium. Our conclusion is that the demographic effects are considerable not only for the resulting pension composition, but also for macro-economic variables as the wage rate, the interest rate and the capital-income ratio. It follows that the pension composition in general and social security in particular is determined by the demography and cannot be used as long-term political instrument. We find that this is relevant for the present century, where birth and mortality rates in most western countries are steeply declining.
    Keywords: demography; funded pensions; unfunded pensions; social security; interest rate; overlapping generations; individual savings
    JEL: H55 H75 J1 J26
    Date: 2018–06–21
  17. By: Hamish Low (Institute for Fiscal Studies and Trinity College, Cambridge); Costas Meghir (Institute for Fiscal Studies and Yale University); Luigi Pistaferri (Institute for Fiscal Studies and Stanford University); Alessandra Voena (Institute for Fiscal Studies and University of Chicago)
    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" benefi ts 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: 2018–02–19

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