nep-pbe New Economics Papers
on Public Economics
Issue of 2018‒10‒01
twenty papers chosen by
Thomas Andrén

  1. Higher taxes on less elastic goods? Evidence from German municipalities By Blesse, Sebastian; Doerrenberg, Philipp; Rauch, Anna
  2. Optimal taxation under different concepts of justness By Jessen, Robin; Metzing, Maria; Rostam-Afschar, Davud
  3. Public expenditure costs of carers leaving employment in England, 2015/2016 By Pickard, Linda; King, Derek; Brimblecombe, Nicola; Knapp, Martin
  4. Optimal Taxation of Inheritance and Retirement Savings By Yena Park
  5. If France continues this strategy, taxes will destroy domestic investment and economic growth By Bakari, Sayef
  6. Royalty Taxation under Tax Competition and Profit Shifting By Steffen Juranek; Dirk Schindler; Andrea Schneider
  7. Minimum Wages and Retirement By Borgschulte, Mark; Cho, Heepyung
  8. Labor tax reductions in Europe: The role of property taxation By Bielecki, Marcin; Stähler, Nikolai
  9. Fiscal rules for sub-central governments: Design and impact By Douglas Sutherland; Robert Price; Isabelle Joumard
  10. Cross-border tax evasion after the common reporting standard: Game over? By Casi, Elisa; Spengel, Christoph; Stage, Barbara
  11. The best indexation of public pensions: the point system By Andras Simonovits
  12. The Impact of Carbon Tax on Food Prices and Consumption in Canada By Wu, T.; Thomassin, P.J.
  13. The spending power of sub-central governments: A pilot study By Steffen Bach; Hansjörg Blöchliger; Dominik Wallau
  14. CBO's New Framework for Analyzing the Effects of Means-Tested Transfers and Federal Taxes on the Distribution of Income: Working Paper 2017-09 By Congressional Budget Office
  15. Poverty among the elderly: The role of public pension systems By JACQUES Philippe,; LEROUX Marie-Louise,; STEVANOVIC Dalibor,
  16. The Impact of the Philadelphia Beverage Tax on Prices and Product Availability By John Cawley; David Frisvold; Anna Hill; David Jones
  17. Generating employment, raising incomes and addressing poverty in Greece By Tim Bulman; Mauro Pisu
  18. Dynamic Corrective Taxes with Time-Varying Salience By Ben Gilbert; Joshua S. Graff Zivin
  19. Long-term Changes in Married Couples' Labor Supply and Taxes: Evidence from the US and Europe Since the 1980s By Alexander Bick; Bettina Brüggemann; Nicola Fuchs-Schündeln; Hannah Paule-Paludkiewicz
  20. Fiscal multipliers of central, state and local government and of the social security funds in Germany: Evidence of a SVAR By Hollmayr, Josef; Kuckuck, Jan

  1. By: Blesse, Sebastian; Doerrenberg, Philipp; Rauch, Anna
    Abstract: German municipalities have substantial autonomy in setting taxes on two distinct tax bases: business profits and property values. We use this setting and a two-step approach to explore whether implemented tax policy is consistent with the seminal inverse-elasticity rule. First, we estimate the tax elasticity of the two tax bases using event-study and generalized differences-in-differences methods based on the universe of municipalities in 1995-2010. Second, we compare the ratio of the observed tax rates for the two tax bases to the ratio of their estimated elasticities. We find that property is not very responsive to variation in tax rates, whereas business profits respond significantly. While this would suggest that property should be taxed at a higher rate, the data show that this not the case: most municipalities impose relatively higher rates on business profits. This suggests that municipality-level taxation in Germany is inconsistent with the inverse-elasticity rule. We provide suggestive evidence that this finding is explained by politician's imprecise expectations about revenue elasticities as well as re-election concerns.
    Keywords: Inverse-elasticity rule,Property taxes,Business taxes,Municipality-level taxation,Elasticity of Corporate Taxable Income
    JEL: H2 H3 H7 R5
    Date: 2018
  2. By: Jessen, Robin; Metzing, Maria; Rostam-Afschar, Davud
    Abstract: A common assumption in the optimal taxation literature is that the social planner maximizes a welfarist social welfare function with weights decreasing with income. However, high transfer withdrawal rates in many countries imply very low weights for the working poor in practice. We extend the optimal taxation framework by Saez (2002) to allow for alternatives to welfarism. We calculate weights of a social planner's function as implied by the German tax and transfer system based on the concepts of welfarism, minimum absolute and minimum relative sacrifice. We find that the minimum absolute sacrifice principle is in line with social weights that decline with net income.
    Keywords: justness,optimal taxation,income redistribution,equal sacrifice,inequality,subjective preferences
    JEL: D63 D60 H21 H23 I38
    Date: 2018
  3. By: Pickard, Linda; King, Derek; Brimblecombe, Nicola; Knapp, Martin
    Abstract: In the context of global population ageing, the reconciliation of employment and unpaid caring is becoming an important social issue. The estimation of the public expenditure costs of carers leaving employment is a valuable measure that is of considerable interest to policy-makers. In 2012, the Personal Social Services Research Unit estimated that the public expenditure costs of unpaid carers leaving employment in England were approximately £1.3 billion a year, based on the costs of Carer’s Allowance and lost tax revenues on forgone incomes. However, this figure was known to be an underestimate partly because it did not include other key benefits that carers who have given up work to care may receive. This paper presents a new estimate of the public expenditure costs of carers leaving employment. Key sources of information are the 2009/10 Survey of Carers in Households, 2011 Census and 2015/2016 costs data. As well as Carer’s Allowance, the estimate also now includes the costs of other benefits that carers leaving work may receive, namely, Income Support and Housing Benefit. The results show that the estimated numbers of carers who have left employment because of caring have increased from approximately 315,000 to 345,000. Due mainly to the inclusion of a wider range of benefits, the public expenditure costs of carers leaving employment in England are now estimated at £2.9 billion a year. The new estimate comprises £1.7 billion in social security benefits paid to people who have left their jobs because of unpaid caring, plus another £1.2 billion in taxes forgone on this group’s lost earnings. The paper concludes that, if there was greater public investment in social care, such as ‘replacement care’ to support carers in employment, and fewer carers then left employment, public spending on benefits would be lower and revenues from taxation would be higher.
    Keywords: working carers; employment; informal care; welfare benefits; economics of social care; England.
    JEL: R14 J01
    Date: 2017–09–14
  4. By: Yena Park (University of Rochester)
    Abstract: We study how to jointly design the optimal tax system on the inherited wealth and the retirement savings in an economy where the motives for the retirement savings and the bequests are overlapping. If the retirement savings can serve for both a precautionary saving against the uncertain life cycle and a bequest to the children, the optimal tax system should consider the interaction of the two functions. When the parents are heterogeneous in their earning ability, mortality, and altruism, the correlation of these characteristics and the planner's preferences for redistribution are the key determinant of the sign and shape of the tax system.
    Date: 2018
  5. By: Bakari, Sayef
    Abstract: The aim of this article is to study empirically the nexus between tax revenue, domestic investment and economic growth in France, since it's never been done before. In addition, there were many problems and repercussions that criticized France's tax policy and its danger to the economic structure, which encourages us to do this research. To attempt this objective, annual data for the period 1972 - 2016 was tested by using correlation analysis and estimation based on vector error correction model. Our results suggest that in the long run there is a negative relationship between tax revenue, domestic investment and economic growth. It is seen that the strategy tax policy of France is not safe for domestic investment and economic growth. For this reason, immediate intervention should be encouraged to carry out the necessary measures before the situation becomes more disastrous.
    Keywords: Tax revenue, Domestic investment, Economic Growth, France
    JEL: E62 H21 O47 O52
    Date: 2018–07
  6. By: Steffen Juranek; Dirk Schindler; Andrea Schneider
    Abstract: The increasing use of intellectual property as a means to shift profits to low-tax jurisdictions or jurisdictions with so-called ‘patent boxes’ is a major challenge for the corporate tax base of medium- and high-tax countries. Extending a standard tax competition model for capital-enhancing technology, royalty payments, and profit shifting, this paper suggests a simple fix: It is optimal to set a withholding tax on (intra-firm) royalty payments equal to the corporate tax rate and deny any deductibility of royalties. As the tax applies to the full payment, the problem of identifying the arm’s-length component in a digital economy (OECD BEPS Action 1) does not apply. Most importantly, the denial of royalty deductions is the Pareto-efficient solution under coordination and the unilaterally optimal policy under competition for mobile capital. In the latter case, a weakened thin capitalization rule is a crucial part of the policy package in order to avoid negative investment effects. Our results question the ban of royalty taxes in double tax treaties and the EU Interest and Royalty Directive.
    Keywords: source tax on royalties, tax competition, multinationals, profit shifting
    JEL: H25 F23
    Date: 2018
  7. By: Borgschulte, Mark (University of Illinois at Urbana-Champaign); Cho, Heepyung (University of Illinois at Urbana-Champaign)
    Abstract: We study the effect of the minimum wage on the employment outcomes and Social Security claiming of older US workers from 1983 to 2016. The probability of work at or near the minimum wage increases substantially near retirement, and previous researchers and policies suggest that older workers may be particularly vulnerable to any disemployment effects of the minimum wage. We find no evidence that the minimum wage causes earlier retirements. Instead, our estimates suggest that higher minimum wages increase earnings and may have small positive effects on the labor supply of workers in the key ages of 62 to 70. Consistent with increased earnings and delayed retirement, higher minimum wages decrease the number of Social Security beneficiaries and amount of benefits disbursed. The minimum wage appears to increase financial resources for workers near retirement.
    Keywords: minimum wage, retirement, social security claiming
    JEL: H55 J26 J38 J42
    Date: 2018–08
  8. By: Bielecki, Marcin; Stähler, Nikolai
    Abstract: We use a New Keynesian DSGE model with search frictions on the housing market to evaluate how financing a labor tax reduction by higher property taxation affects the real economy and welfare. Search on the housing market enables us to explicitly model stocks and flows, which is necessary to differentiate between recurrent property taxes (levied on stocks) and property transaction taxes (levied to flows). We find that using recurrent property taxation as financing instrument outperforms other instruments although all policy measures increase aggregate economy-wide welfare. Our simulations suggest that using property transaction taxation as financing instrument is the least favorable measure.
    Keywords: Search Frictions in Housing Markets,Property Taxation,Tax Reform,General Equilibrium
    JEL: E51 E6 R31 K34
    Date: 2018
  9. By: Douglas Sutherland (OECD); Robert Price (OECD); Isabelle Joumard (OECD)
    Abstract: Against a background of mounting demands for spending on services provided by sub-central governments, this paper examines how fiscal rules can help to ensure that pressure on resources is minimised and available resources are used efficiently. Drawing on questionnaire responses and other sources, this paper gives a detailed picture of fiscal rules for sub-central governments in place among a number of OECD countries. The paper examines the rationales for using fiscal rules, the various impacts fiscal rules can have, the factors making for effective implementation and the interactions between the various types of rule. It then constructs a number of synthetic sub-indicators designed to assess the extent to which sub-central government fiscal frameworks exhibit favourable characteristics for the achievement of fiscal objectives. It concludes with the construction of a composite indicator based on the combined impacts in the different areas of fiscal policy.
    Keywords: fiscal discipline, fiscal rules, indicators, Sub-central government
    JEL: C43 D78 H71 H72 H74 H81
    Date: 2018–09–26
  10. By: Casi, Elisa; Spengel, Christoph; Stage, Barbara
    Abstract: Back in 2013, the Automatic Exchange of Information (AEOI) was endorsed as the prevailing universal solution to fight cross-border tax evasion. In this regard, the OECD launched a global standard for the AEOI, the Common Reporting Standard (CRS). Currently, around 100 jurisdictions have committed to implement it into respective national laws by 2018. In this study, we analyze the impact of the CRS on cross-border tax evasion using a difference-in-difference research design. By considering a period of four years (2014-2017), results suggest that the CRS induced a reduction of 14% in cross-border deposits parked in offshore locations for tax evasion purposes. Moreover, such wealth and related income has not been repatriated but rather a new location to avoid domestic tax obligations has emerged. More specifically, upon the CRS implementation at domestic level, the United States (U.S.), i.e. the only major economy in the world, which so far did not commit to the CRS, seems to emerge as a potentially attractive location for cross-border tax evasion.
    Keywords: Tax Evasion,Automatic Exchange of Information,Offshore Locations,Cross-Border Deposits
    JEL: F42 G21 H26 H31
    Date: 2018
  11. By: Andras Simonovits (Institute of Economics Centre for Economic and Regional Studies, Hungarian Academy of Sciences also Mathematical Institute of Budapest University of Technology)
    Abstract: We reconsider the problem of indexation of public pensions, emphasizing that similar contribution paths should imply similar benefit paths. This robustness criterion is only satisfied by full wage indexing, which in turn requires the politically unpopular reduction of the accrual rates. To minimize the redistribution from low-earning short-lived citizens to high-earning long-lived ones, progressive benefits should be introduced.
    Keywords: public pensions, indexation, fairness
    JEL: D10 H55
    Date: 2018–08
  12. By: Wu, T.; Thomassin, P.J.
    Abstract: This study analyzed the impact of a carbon tax on food prices and consumption patterns in Canada. The findings suggest that a carbon tax has negative impacts on both food prices and food consumption patterns in Canada. The magnitude of the impact depends on whether agriculture sectors are exempt from the carbon tax. When these sectors are exempt, the negative impacts of a carbon tax on food prices and food consumption patterns are small. A multi-regional price model was constructed to analyze the impact of the carbon tax by region. Specifically, this study compared the changes in food prices and food consumption patterns among different provinces in Canada. The results showed that food prices in Quebec are the most affected, followed by Alberta. In addition, there was no evidence that the impact of a carbon tax on the food consumption patterns would vary by income group. These results shed light on the impact of carbon taxes on food security and affordability in Canada.
    Keywords: Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, International Development
    Date: 2018–07
  13. By: Steffen Bach (OECD); Hansjörg Blöchliger (OECD); Dominik Wallau (OECD)
    Abstract: This pilot study presents indicators that assess sub-central government (SCG) spending power by policy area. Traditional indicators – such as the share of SCG in total government spending – are often misleading as they underestimate the impact of central government regulation on sub-central spending patterns. In order to gauge true spending power, a set of institutional indicators is established, based on a detailed assessment of institutional, regulatory and administrative control central government exerts over various SCG policy areas. Results tend to confirm the limited discretion of SCGs over their own budget. Education in particular – the main SCG budget item in most countries – is strongly shaped by central government regulation. Federal countries tend to grant more spending power to SCGs than unitary countries.
    Keywords: fiscal discipline, fiscal rules, indicators, Sub-central government
    JEL: C43 D78 H71 H72 H74 H81
    Date: 2018–09–26
  14. By: Congressional Budget Office
    Abstract: This paper describes CBO’s new framework for analyzing the distribution of household income and how means-tested transfers and federal taxes affect that distribution. The new framework will use a new measure of income—income before transfers and taxes—to rank households and calculate average means-tested transfer rates and average federal tax rates.
    JEL: C81 D31 H20 H50 I38
    Date: 2017–12–05
  15. By: JACQUES Philippe, (Analysis Group, Montréal); LEROUX Marie-Louise, (Université du Québec à Montréal); STEVANOVIC Dalibor, (Université du Québec à Montréal)
    Abstract: The objective of this paper is to measure the impact of first-pillar public pensions spending on the prevalence of poverty among the elderly. Using data from 27 European countries from 1995 to 2014, we estimate the elasticity of the poverty rate among individuals aged over 65 years to per capita public pension spending. We show the existence of a nonlinear relationship between these two variables. The elasticity is negative and statistically different from 0 only beyond a level of spending of 685€ per capita. At the average value of 2,819€, it is estimated that the elasticity is about -1.45. This nonlinear relation is robust to the treatment of possible endogeneity and to different robustness checks like the variation of the poverty line, and the inclusion of country-specific differences in public pension plans.
    Keywords: ageing, poveorty, income inequalities, public pension systems, panel data
    JEL: H55 I32 I38
    Date: 2018–08–31
  16. By: John Cawley; David Frisvold; Anna Hill; David Jones
    Abstract: In recent years, numerous cities in the U.S. have enacted taxes on beverages to promote health and raise revenue. This paper examines the impact of Philadelphia’s beverage tax, enacted in 2017, on the prices and availability of taxed beverages and untaxed beverages that may be substitutes for consumers. Using original data we collected in late 2016 and again one year later, we estimate a difference-in-differences regression of the change over time in beverage prices and product availability in stores in Philadelphia relative to stores in nearby counties. We find that, on average, distributors and retailers fully pass the tax through to consumers, but the there is heterogeneity in the pass-through rate among stores. Pass-through is greater among stores in higher-poverty neighborhoods, stores located farther from untaxed stores outside Philadelphia, stores that are independent as opposed to part of national chains, and for individual servings than for larger sizes. We also find a reduction in the availability of taxed beverages and an increase in the availability of untaxed beverages, particularly bottled water, in Philadelphia stores.
    JEL: H22 I18
    Date: 2018–09
  17. By: Tim Bulman; Mauro Pisu
    Abstract: Employment is pivotal to strengthening Greece’s economic recovery, increasing social welfare and redressing poverty. Jobs are returning, making inroads into high unemployment, but their wages and skill levels are lower than many that were lost during the crisis. Greece’s hiring is benefiting from more flexible arrangements. Legislative amendments can maintain this flexibility, ensure wages align with productivity and better protect individuals from labour market risks. Ensuring that workers possess skills that match employers’ needs will sustain employment and productivity growth. Improving the education system is a long-term mission and involves raising its pedagogical strength and orientation towards professional needs. A social welfare system dominated by pensions has not been able to prevent a steep hike in poverty among children and the young, risking long-term harm to well-being. Pursuing recent steps towards a better targeted social protection, accompanied by support programmes for jobseekers, will provide a reliable safety net and reduce poverty. This Working Paper relates to the 2018 OECD Economic Survey of Greece. ( c-survey-greece.htm).
    Keywords: Childcare, compensation and labour costs, consumption, demand and supply of labour, education, employment, government expenditures and welfare programs, labour markets, poverty, simulation modelling, social security, unemployment, wages, welfare programmes, well-being
    JEL: C63 E21 E24 H52 H53 H55 I2 I3 J13 J2 J3 J63 J68
    Date: 2018–09–17
  18. By: Ben Gilbert; Joshua S. Graff Zivin
    Abstract: The intermittency of payment for many goods creates a disconnect between paying and consuming such that the marginal price is not always salient when consumption decisions are made. This paper derives optimal dynamic corrective taxes when there are externalities as well as internalities from inattention and persistence in consumption across periods. Our optimal taxes address dynamic inefficiencies that are not captured in static models of inattention. We also characterize a second-best constant tax and the excess burden associated with time-invariant tax rates. We then calibrate the model to U.S. residential electricity consumption.
    JEL: D03 D11 D62 D91 H21 H23 L97 Q40 Q41 Q50
    Date: 2018–09
  19. By: Alexander Bick; Bettina Brüggemann; Nicola Fuchs-Schündeln; Hannah Paule-Paludkiewicz
    Abstract: We document the time-series of employment rates and hours worked per employed by married couples in the US and seven European countries (Belgium, France, Germany, Italy, the Netherlands, Portugal, and the UK) from the early 1980s through 2016. Relying on a model of joint household labor supply decisions, we quantitatively analyze the role of non-linear labor income taxes for explaining the evolution of hours worked of married couples over time, using as inputs the full country- and year-specific statutory labor income tax codes. We further evaluate the role of consumption taxes, gender and educational wage premia, and the educational composition. The model is quite successful in replicating the time series behavior of hours worked per employed married woman, with labor income taxes being the key driving force. It does however capture only part of the secular increase in married women’s employment rates in the 1980s and early 1990s, suggesting an important role for factors not considered in this paper. We will make the non-linear tax codes used as an input into the analysis available as a user-friendly and easily integrable set of Matlab codes.
    JEL: E24 H24 J22
    Date: 2018–09
  20. By: Hollmayr, Josef; Kuckuck, Jan
    Abstract: By applying a Structural Vector Autoregressive (SVAR) approach this paper estimates the effects of fiscal policy shocks of different government sub-sectors on aggregate GDP in Germany. From a general government perspective, the results show that besides investment, it is particularly changes in social contributions that yield significant output effects. The GDP response to fiscal policy shocks of the various government sub-sectors turns out to be very heterogeneous. Investment expenditures at all public authorities (central, state and local) trigger positive and statistically significant output effects at least on impact. By contrast, it is only government consumption at state government level and monetary benefits at state government and social security level that induce statistically significant and positive effects on economic activity. Overall, the disaggregated results suggest that besides investment, it is chiefly expenditure with a large share of personnel-related outlays that can have positive effects on aggregate output.
    Keywords: Fiscal Policy,Multipliers,VAR,Disaggregated Government Levels and Instruments
    JEL: H71 H5 H30
    Date: 2018

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