nep-pbe New Economics Papers
on Public Economics
Issue of 2018‒07‒23
fifteen papers chosen by
Thomas Andrén

  1. How do taxable income responses to marginal tax rates differ by sex, marital status and age? Evidence from Spanish dual income tax By Díaz-Caro, Carlos; Onrubia Fernández, Jorge
  2. Corporate Effective Tax Rates: Model Description and Results from 36 OECD and Non-OECD Countries By Tibor Hanappi
  3. High-frequency Spending Responses to the Earned Income Tax Credit By Aditya Aladangady; Shifrah Aron-Dine; David B. Cashin; Wendy E. Dunn; Laura Feiveson; Paul Lengermann; Katherine Richard; Claudia R. Sahm
  4. Financing Corporate Tax Cuts with Shareholder Taxes By Alexis Anagnostopoulos; Orhan Erem Atesagaoglu; Eva Carceles-Poveda
  5. An empirical investigation on the drivers of income redistribution across OECD countries By Orsetta Causa; Anna Vindics; Oguzhan Akgun
  6. The Impact of Local Income Inequality on Public Goods and Taxation: Evidence from French Municipalities By Brice Fabre
  7. Uncertain altruism and non-linear long-term care policies By Canta, Chiara; Cremer, Helmuth
  8. Estimating the Impacts of Payroll Taxes: Evidence from Canadian Employer-Employee Tax Data By Deslauriers, Jonathan; Dostie, Benoit; Gagné, Robert; Paré, Jonathan
  9. The bedroom tax By Gibbons, Stephen; Sánchez-Vidal, Maria; Silva, Olmo
  10. Nothing is Certain Except Death and Taxes : The Lack of Policy Uncertainty from Expiring "Temporary" Taxes By Andrew C. Chang
  11. Keeping Up with or Running Away from the Joneses: the Barro Model Revisited. By Thi Kim Cuong Pham
  12. Less cheating? The effects of prefilled forms on compliance behavior By Fochmann, Martin; Müller, Nadja; Overesch, Michael
  13. The Effectiveness of Sin Food Taxes: Evidence from Mexico By Arturo Aguilar; Emilio Gutierrez; Enrique Seira
  14. Behavioral responses to subsidies in risky investment decisions and the effectiveness of tax credits and grants By Ackermann, Hagen; Fochmann, Martin; Temme, Rebecca
  15. The Incidence of Soft-Drink Taxes on Consumer Prices and Welfare: Evidence from the French " Soda Tax" By Fabrice Etilé; Sebastien Lecocq; Christine Boizot-Szantai

  1. By: Díaz-Caro, Carlos; Onrubia Fernández, Jorge
    Abstract: The aim of this paper is to analyze how Spanish taxpayers have responded to the introduction of the dual personal income tax model in 2007. The authors estimate the elasticity of taxable income (ETI) with respect to the marginal net tax rate for different groups of taxpayers by sex, marital status and age, separating the substitution effect from the income effect. For the empirical analysis, they use microdata from the Spanish personal income tax return panel disseminated by the Spanish Institute of Fiscal Studies. The main results show that the 2007 tax reform resulted in a range of elasticity values from 0.41 to 0.43, while the estimated income effect yields a negative value of -0.18. The results for the different taxpayer groups are as follows: the removal of retired people from the sample significantly reduces the ETI; elasticity is higher for women than for men; single people have a considerably higher elasticity than married taxpayers; and the ETI decreases with age. Additionally, the authors find that the marginal cost of public funds increased after the reform, and the top marginal tax rate is above optimal.
    Keywords: elasticity of taxable income (ETI),tax reforms,dual income tax,marginal cost of public funds,optimal tax rates
    JEL: H21 H24 H31
    Date: 2018
  2. By: Tibor Hanappi
    Abstract: Variations in the definition of the corporate tax base across countries can have significant impacts on tax liabilities associated with a given investment. An accurate assessment of the effects of corporate tax systems on investment thus needs to build on a consistent methodological framework covering not only statutory tax rates (STRs) but also many provisions affecting the base such as, e.g., fiscal depreciation. The new OECD model described in this paper provides such a framework; building on the theoretical model developed by Devereux and Griffith (1999, 2003) it presents forward-looking effective tax rates (ETRs) for 36 OECD and Selected Partner Economies taking into account a wide range of corporate tax provisions. Empirical results confirm that corporate tax bases vary considerably across countries and asset categories; since tax bases are typically narrower in countries with higher STRs, ETRs tend to be less dispersed across countries than STRs.
    Keywords: corporate tax base, corporate taxation, investment decisions, tax competition
    JEL: H25 H32
    Date: 2018–07–19
  3. By: Aditya Aladangady; Shifrah Aron-Dine; David B. Cashin; Wendy E. Dunn; Laura Feiveson; Paul Lengermann; Katherine Richard; Claudia R. Sahm
    Abstract: Many households face large, high-frequency changes in income and have limited financial buffers to smooth their consumption through this income volatility. However, few studies have quantified spending responses to such timing shifts in income due to a lack of high-frequency spending data. We use a new dataset of anonymized daily, state-level spending to study a two-week delay in federal tax refunds with an earned income tax credit (EITC) in 2017.
    Date: 2018–06–21
  4. By: Alexis Anagnostopoulos; Orhan Erem Atesagaoglu; Eva Carceles-Poveda
    Abstract: We study the aggregate and distributional consequences of replacing corporate proÖt taxes with shareholder taxes, namely, taxes on dividends and capital gains, in a setting with incomplete markets and heterogeneity at both the household and the firm level. The reform yields distributional gains with a large majority of households benefiting. Moreover, if dividend and capital gains are taxed at the same rate, the reform is also efficiency-enhancing and the implied optimal corporate income tax rate is zero. In contrast, an asymmetric tax treatment of dividend and capital gains induces a trade-off between efficiency and distributional concerns that is optimally resolved at a positive optimal corporate tax rate, implying double taxation.
    Date: 2018
  5. By: Orsetta Causa; Anna Vindics; Oguzhan Akgun
    Abstract: This paper provides an empirical investigation on the drivers of tax and transfer income redistribution to working-age households across the OECD over the last two decades, in a context where it has been declining in the vast majority of countries. The analytical approach is based on a reduced-form model of income redistribution which is estimated through cross-country-time series regressions. The baseline model builds on the political economy literature of income redistribution and includes a set of non-policy drivers such as labour market and socio-demographic conditions as well as measures of globalisation and technological change. The baseline model is augmented with major direct policy drivers of income redistribution covering tax revenue and social spending as well as a selection of tax and transfer policy parameters. Changes in the size of the tax and transfer systems likely to have contributed to the decline in income redistribution include the decline in social spending on cash support for working-age population and the diminishing role of personal income taxes in reducing inequality under the effect of increasing trade openness. Changes in specific tax and transfer policy instruments and parameters likely to have contributed to the decline in income redistribution include a flattening of the tax schedule in the upper-part of the wage distribution, a decline in the generosity and duration of unemployment-related transfers, including cuts to social assistance, and pension and early retirement reforms to encourage longer working life.
    Keywords: income inequality, progressivity, redistribution, taxes, transfers
    JEL: D31 H23 H53 I38
    Date: 2018–07–18
  6. By: Brice Fabre (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper brings new evidence on the impact of income inequality on public decisions. Using a new panel database on French municipalities' accounts, and on households' income distribution at the local level, I estimate the impact of income distribution on municipal policy. This paper is the first to investigate this issue by simultaneously using a high number of comparable observations and identifying deciles of the income distribution which matter. After controlling for municipal fixed effects and for the dynamics of municipal incumbents' decisions, I find no impact of income inequality on operating spending, but a strong positive impact on municipal infrastructures. Evidence suggests that an increase in income inequality by 1% leads on average to an increase in the value of municipal infrastructures between 0.06% and 0.18%. Importantly, I find that this result is driven by variations in bottom and top deciles. There is clear evidence that additive public facilities associated to more inequality are due to higher tax rates. When poorest individuals get poorer, or when richest ones get richer, municipal incumbents decide to increase the amount of infrastructures by increasing local taxation. These results suggest that what matter in public decisions are the extreme parts of voters' income distribution, and that lower bottom incomes and higher top ones both lead to a higher size of government.
    Keywords: Income Inequality,Public Goods,Taxation,Local Governments
    Date: 2018–03
  7. 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 high-altruism children. The implementing contract is always such that social care increases with formal care.
    Keywords: long term care; opting out; private insurance; public insurance; topping up; uncertain altruism
    JEL: H2 H5
    Date: 2018–06
  8. By: Deslauriers, Jonathan (HEC Montreal); Dostie, Benoit (HEC Montreal); Gagné, Robert (HEC Montreal); Paré, Jonathan (HEC Montreal)
    Abstract: In this paper, we use linked employer-employee administrative tax data from Canada to estimate the impact of payroll taxes on a variety of firms and workers outcomes. At the firm level, we use geographic and time variations in tax rates to identify the effect of payroll taxes on wage growth at the worker level. For one province, we exploit a clean overtime change in the payroll tax rate to estimate its impact on the firm's level of employment, average wage and productivity, with difference-in-differences models, taking into account firm-level unobserved heterogeneity. Additionally, taking advantage of the nature of linked data, we estimate wage equations with both fixed worker and firm fixed effects. We find no impact on employment, productivity and profits, but significant impacts on wages, implying that payroll taxes are passed almost entirely to workers in the form of lower wages.
    Keywords: payroll taxes, wages, productivity, employment, linked employer-employee data
    JEL: E62 J21 L25
    Date: 2018–06
  9. By: Gibbons, Stephen; Sánchez-Vidal, Maria; Silva, Olmo
    Abstract: Housing subsidies for low income households are a central pillar of many welfare systems, but an expensive one. This paper investigates the consequences of an unusual policy aimed at reducing the burden of these subsidies by rationing tenants’ use of space. Specifically, we study a policy introduced by the UK Government in 2013 which substantially cut housing benefits for tenants deemed to have a ‘spare’ bedroom – based on specific criteria related to household composition. Our study is the first to evaluate the impacts of the policy on its target group considering a range of outcomes. To do so, we use a difference-in-difference methodology that compares the observed behaviour of the treated households relative to a control group determined from the details of the policy rules. We find that – as expected – the treated group experienced losses to housing benefit and overall income. Although the policy was not successful in encouraging residential moves, it did incentivise people who moved to downsize – suggesting some success in terms of one of the policy goals, namely reducing ‘underoccupancy’ in the long run. We find no statistically significant effects on households’ food consumption, savings or employment outcomes, despite the associated income reductions. Finally, we find some evidence of a reduction in self-reported satisfaction though this effect is not precisely estimated.
    Keywords: social housing; social rents; bedroom tax; housing benefits
    JEL: H2 H55 R21
    Date: 2018–04–01
  10. By: Andrew C. Chang
    Abstract: What is the policy uncertainty surrounding expiring taxes? How uncertain are the approvals of routine extensions of temporary tax policies? To answer these questions, I use event studies to measure cumulative abnormal returns (CARs) for firms that claimed the U.S. research and development (R&D) tax credit from 1996-2015. In 1996, the U.S. R&D tax credit was statutorily temporary but was routinely extended ten times until 2015, when it was made permanent. I take the event dates as both when these ten extensions of the R&D tax credit were introduced into committee and when the extensions were signed by the U.S. president into law. On average, I find no statistically significant CARs on these dates, which suggests that the market anticipated these extensions to become law. My results support the fact that a routine extension of a temporary tax policy is not a generator of policy uncertainty and, therefore, that a routine extension of temporary tax policy is not a fiscal shock.
    Keywords: Cumulative abnormal returns ; Excess returns ; Event study ; Fiscal policy ; R&D ; Research and Development ; Sunset provision ; Tax extension ; Temporary tax ; Uncertainty shocks ; User cost of capital
    JEL: E62 G12 G14 G17 H25 H39 K34 O31
    Date: 2018–06–22
  11. By: Thi Kim Cuong Pham
    Abstract: This paper reexamines the Barro growth model in a context of individualpreferences with consumption externality. Agents care about both consumption and social status, which is determined by their relative consumption in society. The results underline the individuals' preferences for status as a key role in explaining long term growth and welfare. In particular, a higher growth rate may correspond to a lower social welfare if increment in growth is explained by status-seeking a companied by the keeping up with the Joneses. Furthermore, we discuss two public financing systems from the viewpoint of growth and welfare.If lump-sum tax always implies a higher growth rate, income tax may perform better in terms of welfare when government size becomes sufficiently large.
    Keywords: Income tax, lump-sum tax, keeping up with the Joneses, public spending, running away from the Joneses, status-seeking.
    JEL: D90 H20 H54 O41
    Date: 2018
  12. By: Fochmann, Martin; Müller, Nadja; Overesch, Michael
    Abstract: As a consequence of the digital transformation, individuals are often confronted with prefilled forms or prefilled data entry masks. In situations where cheating and lying are of concern, prefilling and defaults might reduce dishonest behavior. In a controlled experiment, we investigate how correctly and incorrectly prefilled forms influence compliance behavior. We frame our experiment as filing the annual income tax return. We show that correct prefilling enhances compliance. However, in cases of incorrect prefilling, we observe asymmetric effects. If prefilled income is lower than true income, we find no positive compliance effect, and compliance is on the same level as with blank forms. If prefilled income is higher than true income, prefilling still has a positive effect on compliance. In that case, compliance is on the same level as with correctly prefilled forms and higher than with blank forms. Our study contributes to the literature on cheating and lying by showing that prefilled forms and defaults affect compliance by changing the moral costs of dishonest behavior.
    Keywords: Dishonesty,Defaults,Prefilled Forms,Tax Compliance,Behavioral Economics
    JEL: C91 D14 H26
    Date: 2018
  13. By: Arturo Aguilar; Emilio Gutierrez; Enrique Seira
    Abstract: We measure the effects of two federal taxes in Mexico aimed at reducing obesity by taxing sugary drinks (SDs) and high caloric foods (HCFs). We use a weekly scanner panel dataset with more than 58,721 product barcodes. We find 6 percent lower SD consumption but no decrease in HCFs consumption. We find substantial substitution towards non-taxed goods, smaller unit sizes, and in the case of HCFs to higher calorie per gram foods. Overall, sugar consumption decreased 2 percent, saturated fat and cholesterol increased 2 and 6 percent, but total calories remained unchanged. Available evidence shows no effect on BMI.
    Keywords: Obesity, Sin Taxes, High Caloric Foods
    JEL: H20 I18 H31
    Date: 2018–07–12
  14. By: Ackermann, Hagen; Fochmann, Martin; Temme, Rebecca
    Abstract: We provide evidence that subsidy types that are identical in monetary terms differ in their behavioral responses and consequently in their effectiveness. In particular, we observe that investments into a subsidized asset are higher under tax credit than under grant. Both subsidy types are essentially very similar, only the mechanism of the subsidy application is different. In case of a grant, an individual gains an amount of money. In case of a tax credit, no money is received directly, but the tax to be paid is decreased by the amount of the tax credit. Our results indicate that these mechanisms have a substantial impact on the effectiveness of subsidies. Applying our findings, governments can "nudge" the investors to support desired investment decisions by using a certain subsidy type. Particularly, our results suggest that when policymakers are indifferent froma budget perspective between providing a subsidy as a grant or as a tax credit, they should implement a tax credit.
    Keywords: behavioral taxation,subsidy,risk-taking behavior,prospect theory
    JEL: C91 D14 H24
    Date: 2018
  15. By: Fabrice Etilé (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, ALISS - Alimentation et sciences sociales - INRA - Institut National de la Recherche Agronomique); Sebastien Lecocq (ALISS - Alimentation et sciences sociales - INRA - Institut National de la Recherche Agronomique); Christine Boizot-Szantai (ALISS - Alimentation et sciences sociales - INRA - Institut National de la Recherche Agronomique)
    Abstract: The behavioural impact and acceptability of soft-drink taxes depend crucially on their incidence on consumer prices and welfare across socio-economic groups and markets. We use KantarWorldpanel homescan data to analyse the incidence of the 2012 French soda tax on Exact Price Indices (EPI) measuring consumer welfare from the availability and consumption of Sugar-Sweetened Beverages (SSB) and Non-Calorically Sweetened Beverages (NCSB) at a local geographical level. The soda tax has had significant, similar but small impacts on the EPI of SSB and NCSB (+4%), corresponding to an aggregate pass-through of about 40%. Tax incidence was slightly higher for low-income and high-consuming households. Retailers set higher pass-throughs in low-income, less-competitive and smaller markets. They did not change their product assortments. The lack of horizontal competition in low-income markets had a sizeable effect on tax regressivity. Finally, the negative income gradient in tax incidence was offset by a positive gradient in expected health benefits.
    Keywords: Market structure,Tax incidence,Soft drink,Exact price index,Regressivity
    Date: 2018–06

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