nep-pbe New Economics Papers
on Public Economics
Issue of 2018‒10‒15
eleven papers chosen by
Thomas Andrén

  1. Inheritance Taxation and Wealth Effects on the Labor Supply of Heirs By Fabian Kindermann; Lukas Mayr; Dominik Sachs
  2. How Do Firms Respond To Place-Based Tax Incentives? By Hyejin Ku; Uta Schönberg; Ragnhild C. Schreiner
  3. Robots, Trade, and Luddism: A Sufficient Statistic Approach to Optimal Technology Regulation By Arnaud Costinot; Iván Werning
  4. The Impact of the Philadelphia Beverage Tax on Purchases and Consumption by Adults and Children By John Cawley; David Frisvold; Anna Hill; David Jones
  5. Optimal income taxation with composition effects By Laurence Jacquet; Etienne Lehmann
  6. Majority Choice of Taxation and Redistribution in a Federation By Stephen Calabrese; Dennis Epple; Richard Romano
  7. The Evaluation of Fiscal Consolidation Strategies By Norbert Švarda
  8. The end of the flat tax experiment in Slovakia: An evaluation using behavioural microsimulation linked with a dynamic macroeconomic framework By Norbert Švarda
  9. Shaming for tax enforcement: Evidence from a new policy By Dwenger, Nadja; Treber, Lukas
  10. The Consequences of the TCJA's International Provisions: Lessons from Existing Research By Dhammika Dharmapala
  11. The Growing American Health Penalty: International Trends in the Employment of Older Workers with Poor Health By Baumberg Geiger, Ben; Böheim, René; Leoni, Thomas

  1. By: Fabian Kindermann; Lukas Mayr; Dominik Sachs
    Abstract: The taxation of bequests can have a positive impact on the labor supply of heirs through wealth effects. This leads to an increase in future labor income tax revenue on top of direct bequest tax revenue. We first show in a theoretical model that a simple back-of-the-envelope calculation, based on existing estimates for the reduction in earnings after wealth transfers, fails: the marginal propensity to earn out of unearned income is not a sufficient statistic for the calculation of this effect because (i) heirs anticipate the reduction in net bequests and adjust their labor supply already prior to inheriting, and (ii) when bequest receipt is stochastic, even those who ex post end up not inheriting anything respond ex ante to the implied change in their distribution of net bequests. We quantitatively elaborate the size of the overall revenue effect due to labor supply changes of heirs by using a state of the art life-cycle model that we calibrate to the German economy. Besides the joint distribution of income and inheritances, quasi-experimental evidence regarding the size of wealth effects on labor supply is a key target for this calibration. We find that for each Euro of bequest tax revenue the government mechanically generates, it obtains an additional 9 Cents of labor income tax revenue (in net present value) through higher labor supply of (non-)heirs.
    JEL: C68 H22 H31 J22
    Date: 2018–09
  2. By: Hyejin Ku; Uta Schönberg; Ragnhild C. Schreiner
    Abstract: In this paper, we evaluate the effects of payroll tax changes on firm behavior, by exploiting a unique policy setting in Norway, where a system of geographically differentiated payroll taxes was suddenly abolished due to an EU regulation. We find that firms are only partially able to shift the increased costs from higher payroll tax rates onto workers’ wages. Instead, firms respond to the tax increase primarily by reducing employment. The drop in employment following the tax reform is particularly pronounced in labor intensive firms—which experience a larger windfall loss due to the tax reform than non-labor intensive firms—and in multi-establishment firms—which respond to the payroll tax increase in part by reducing the number of establishments per firm. Overall, our findings point to liquidity effects whereby a sudden and largely unexpected payroll tax increase aggravates firms’ liquidity constraints, forcing them to cut employment to bring down costs.
    JEL: D22 H25 H32 J18 J23
    Date: 2018–09
  3. By: Arnaud Costinot; Iván Werning
    Abstract: Technological change, from the advent of robots to expanded trade opportunities, tends to create winners and losers. How should government policy respond? And how should the overall welfare impact of technological change on society be valued? We provide a general theory of optimal technology regulation in a second best world, with rich heterogeneity across households, linear taxes on the subset of firms affected by technological change, and a nonlinear tax on labor income. Our first results consist of three optimal tax formulas, with minimal structural assumptions, involving sufficient statistics that can be implemented using evidence on the distributional impact of new technologies, such as robots and trade. Our second result is a comparative static exercise illustrating that while distributional concerns create a rationale for non-zero taxes on robots and trade, the magnitude of these taxes may decrease as the process of automation and globalization deepens and inequality increases. Our final result shows that, despite limited tax instruments, technological progress is always welcome and valued in the same way as in a first best world.
    JEL: F11 F13 H0 H2 H21
    Date: 2018–09
  4. By: John Cawley; David Frisvold; Anna Hill; David Jones
    Abstract: In recent years, numerous U.S. cities have enacted taxes on sweetened beverages, but there is relatively little evidence about the effects of these taxes on purchases and consumption. In this paper, we examine the effects of the beverage tax of 1.5 cents per ounce that was implemented in Philadelphia starting January 1, 2017. We surveyed individuals in Philadelphia and nearby comparison communities before the tax and nearly one year after implementation of the tax about their purchases and consumption of beverages. We find that purchases of taxed beverages fell by 8.9 ounces per shopping trip in Philadelphia stores relative to comparison stores outside of the city and that Philadelphia residents increased purchases of taxed beverages outside of the city. The tax reduced adults’ frequency of regular soda consumption by 10.4 times per month, and there is some evidence of a slight reduction in adults’ overall sugar consumption from sweetened beverages, with larger reductions for African-American adults. The tax did not have a substantial effect on the frequency of adults’ consumption of other beverages. We generally do not find detectable effects of the tax on children’s consumption of beverages, although we find a substantial reduction in consumption of added sugars from sweetened beverages among children who had high pre-tax consumption levels.
    JEL: H2 H71 H75 I12 I18
    Date: 2018–09
  5. By: Laurence Jacquet (THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique); Etienne Lehmann (CRED - Centre de Recherches en Economie et Droit - UP2 - Université Panthéon-Assas, TEPP - Travail, Emploi et Politiques Publiques - UPEM - Université Paris-Est Marne-la-Vallée - CNRS - Centre National de la Recherche Scientifique)
    Date: 2018–09–21
  6. By: Stephen Calabrese; Dennis Epple; Richard Romano
    Abstract: We provide a model with a federal government and multiple local governments, the former with power to levy an income tax for redistribution, and the latter choosing a local income tax, property tax, lump-sum tax or subsidy, and a local public good. Policy is set by majority choice at each tier of government by households that differ by income and ability to move across communities. We provide sufficient conditions for existence of equilibrium and examine its properties. Central findings are federal income distribution, little local redistribution, and local preference for property taxation over income taxation to fund local public goods.
    JEL: H2 H7 H71
    Date: 2018–09
  7. By: Norbert Švarda
    Abstract: In this paper, we present a framework and perform an assessment of different fiscal consolidation strategies both on the revenue as well as on the expenditure sides of the budget in the context of Slovakia. The model we use for simulations is a behavioural general-equilibrium what_if model. We analyse the simulated impacts of consolidation strategies on growth and on fiscal balance (both in short- and long- term). The microsimulation approach allows us also to evaluate the distributional impacts. In addition, the approach permits to compare the statutory with the resulting tax incidence in the long-run. We simulate strategies based on taxing labour income, taxing consumption as well as cutting expenditures on social transfers. We document that corporate and labour taxes are more unfavourable to output growth, while consumption taxes belong to less damaging instruments for consolidation. We show that spending cuts may promote employment and are not detrimental to output growth.
    JEL: C63 H22 I38
    Date: 2018–10–04
  8. By: Norbert Švarda
    Abstract: The paper introduces a new way of linking microsimulation models with dynamic general equilibrium frameworks to obtain an evaluation of the impact of detailed tax and benefit measures on the aggregate economy. In the approach presented in this paper, income heterogeneity interacts with the macro-economy via aggregated individual labour supply decisions which influence, and are influenced by, the dynamic evolution of the real wage rate. The method involves a reduced-form representation of the information flow between the macroeconomic and microeconomic blocks. The practical usefulness of the approach is demonstrated by evaluating actual and hypothetical tax reforms that involve abandoning the flat tax system in Slovakia. A hypothetical move to a highly progressive tax structure is shown to generate some employment gains but is associated with a drop in aggregate income and tax revenue.
    Keywords: microsimulation, dynamic general equilibrium, unemployment, labour supply elasticity, tax reform, flat tax
    JEL: E24 H24 H31 J22
    Date: 2018–10–04
  9. By: Dwenger, Nadja; Treber, Lukas
    Abstract: Can public shaming increase tax compliance through social pressure? Many tax authorities make ample use of public shaming. However, empirical evidence from outside the laboratory on how a new shaming law affects overall compliance is lacking. We provide the first evidence from the field, exploiting comprehensive administrative tax data and the introduction of a novel naming-and-shaming policy in Slovenia in 2012. The policy aims to reduce outstanding tax debt among the self-employed and corporations. Our empirical strategy exploits the variation across taxpayers in ex ante exposure to the shaming policy. We find that taxpayers reduce their tax debt by 8.5% to avoid shaming, particularly in industries where reputational concerns are likely to be important. The publication of the first naming-and-shaming list further reduces tax debt among shamed taxpayers because of social learning. This effect, however, is marginal in terms of revenue and tapers off quickly.
    Keywords: compliance,tax debt,shaming,enforcement,social image concerns,penalty
    JEL: H26 D1 K34 K42 Z13
    Date: 2018
  10. By: Dhammika Dharmapala
    Abstract: This paper discusses the potential consequences of the international tax provisions of the recent Tax Cut and Jobs Act (TCJA), drawing on existing research. The TCJA’s dividend exemption provision is expected to eliminate distortions to the amount and timing of dividend repatriations. However, the efficiency gains from increased repatriations – which are primarily expected to increase shareholder payout – are likely to be modest. The paper uses the observed behavior of firms during the repatriation tax holiday implemented in 2005 to infer the relative magnitudes of the burdens created by the repatriation tax under the old (pre-TCJA) regime and by the TCJA’s new “Global Intangible Low-Taxed Income” (GILTI) tax. It concludes that the TCJA increases the tax burden on US residence for many, and perhaps most, US MNCs. The paper also argues that the GILTI and “Foreign-Derived Intangible Income” (FDII) provisions are likely to create substantial distortions to the ownership of assets, both in the US and around the world. Overall, the scholarly evidence implies that the international provisions of the TCJA can reasonably be expected to create potentially large efficiency losses.
    Keywords: international taxation, tax reform, tax cut and jobs act, GILTI, FDII
    JEL: H25
    Date: 2018
  11. By: Baumberg Geiger, Ben (University of Kent); Böheim, René (University of Linz); Leoni, Thomas (WIFO - Austrian Institute of Economic Research)
    Abstract: Many countries have reduced the generosity of disability benefits while making them more activating – yet few studies have examined how employment rates have subsequently changed. We present estimates of how the employment rates of older workers with poor health in 13 high-income countries changed between 2004-7 and 2012-15 using HRS/SHARE/ELSA data. We find that those in poor health in the USA have experienced a unique deterioration: they have not only seen a widening gap to the employment rates of those with good health, but their employment rates fell per se. We find only for Sweden (and possibly England) signs that the health employment gap shrank. We then examine possible explanations for the development in the USA: we find no evidence it links to labour market trends, but possible links to the USA's lack of disability benefit reform – which should be considered alongside the wider challenges of our findings for policymakers.
    Keywords: disability benefits, employment of older workers, health employment gap
    JEL: J14 J18 H55
    Date: 2018–08

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