nep-pbe New Economics Papers
on Public Economics
Issue of 2018‒11‒05
thirteen papers chosen by
Thomas Andrén

  1. Fiscal Sustainability in Japan: What to tackle? By Selahattin İMROHOROĞLU; KITAO Sagiri; YAMADA Tomoaki
  2. The Effect of Pension Subsidies on Retirement Timing of Older Women: Evidence from a Regression Kink Design By Ye, Han
  3. Audit State Dependent Taxpayer Compliance: Theory and Evidence from Colombia By James Alm; James C. Cox; Vjollca Sadiraj
  4. Overcoming Wealth Inequality by Capital Taxes that Finance Public Investment By Linus Mattauch; David Klenert; Joseph E. Stiglitz; Ottmar Edenhofer
  5. The vertical and horizontal distributive effects of energy taxes By Thomas Douenne
  6. Fiscal Equalization as a Driver of Tax Increases: Empirical Evidence from Germany By Thiess Büttner; Manuela Krause
  7. Assessing the impact of tax administration reforms in Sub-Saharan Africa By Mavungu, Marina Ngoma; Krsic, Nikolina
  8. Taxes, Transfers and Income Distribution in Chile: Incorporating Undistributed Profits By Bernardo Candia; Eduardo Engel
  9. Labor Market Effects of the Affordable Care Act: Evidence from a Tax Notch By Kavan Kucko; Kevin Rinz; Benjamin Solow
  10. The distributive impact of income taxes in Brazil By Rodrigo Cardoso Fernandes; Bernardo Campolina; Fernando Gaiger Silveira
  11. The Antipoverty Impact of the EITC: Comparing Simulated EITC Benefits in the CPS ASEC and NBER TAXSIM to Administrative Tax Records By Maggie R. Jones
  12. A multi†country analysis of austerity policies in the European Union By Oscar Bajo-Rubio; Antonio G. Gómez-Plana
  13. Do government activities determine electricity consumption in Ghana? An empirical investigation By ASUAMAH YEBOAH, SAMUEL

  1. By: Selahattin İMROHOROĞLU; KITAO Sagiri; YAMADA Tomoaki
    Abstract: Japan leads all advanced economies in terms of aging and has the highest debt to gross domestic product (GDP) ratio. The public pension, medical and long-term care (LTC) expenditures are projected to far outpace revenues and create significant fiscal burdens. In this paper, we develop a detailed overlapping generations model that incorporates the social insurance programs in detail, use most recent estimates from Japanese micro data and government demographic projections to discipline the earnings and labor supply profiles of heterogeneous agents and their cohort shares, and simulate future paths of fiscal and macroeconomic indicators. Our numerical results suggest that absent any change in current policies, Japan will continue to run large pension, public health, LTC, and basic deficits and the debt to GDP ratio will continue to reach unprecedented highs, with interest payments on the debt becoming increasingly larger. Although no single policy tool can address fiscal consolidation, a combination of policies is found to achieve sustainability: raise the retirement age to 67, cut pensions by 10%, raise copays of health and LTC insurances to 20%, find policies to propel female employment and earnings to the levels of their male counterparts, and increase the consumption tax rate to 15%. Under these changes, the debt to output ratio in 2050 would be lower than that in 2020.
    Date: 2018–09
  2. By: Ye, Han (University of Mannheim)
    Abstract: This paper provides a clear and transparent setting to study the effect of additional pension benefits on women's retirement decision. Using administrative pension insurance records from Germany, I examine the impact of a pension subsidy program to low pay workers, implemented in 1992. The subsidies have a kinked relationship with the recipients' average pension contribution, which led to sharply different slopes of benefits for similar women to the left and to the right of the kink point. Using a regression kink design, I find that 100 euros additional monthly pension benefits induce female recipients to claim pension earlier by about 10 months. The hazard rate to claim a pension at age 60 increases by 17%. A back-of-the-envelope calculation suggests the ratio of behavioral cost to mechanical cost of this subsidy program is 0.3, which is smaller than other anti-poverty programs such as extending unemployment benefits and progressive taxation. I find that the phasing out of this subsidy program can account for one third of the increase in women's age of claiming pension over the past decade.
    Keywords: pension subsidy, pension generosity, retirement, regression kink design
    JEL: H55 J18 J21 J26
    Date: 2018–09
  3. By: James Alm; James C. Cox; Vjollca Sadiraj
    Abstract: Colombian tax reforms have been enacted with no estimates of taxpayer compliance responses to policy innovations. We report the results from the first tax compliance experiment run in Colombia. Our data analysis follows from an original dynamic theoretical model of individual compliance choice that is fully consistent with our experimental design and that should have useful applications to other tax compliance experiments. The model distinguishes between compliance conditional on no previous audits and compliance conditional on previous audits one and two periods earlier, which allows us to discriminate between the implications of naïve and static behavior versus sophisticated and forward-looking behavior in our subsequent empirical analysis. Our estimation results indicate that taxpayer reporting increases with an increase in the audit rate and an increase in the fine rate; we find no significant effects of the tax rate on compliance. We also find that compliance depends upon the use of tax payments; that is, taxpayer reporting is greater when aggregate tax payments are donated to a charity.
    Keywords: Tax evasion, experimental economics
    JEL: H26 C91
    Date: 2018–10
  4. By: Linus Mattauch; David Klenert; Joseph E. Stiglitz; Ottmar Edenhofer
    Abstract: Wealth inequality is rising in rich countries. Capital taxation used simply to finance redistribution may not be able to counteract this trend, but can increased public investment financed by higher capital taxes? We examine how such a policy affects the distribution of wealth in a setting with distinct wealth groups: dynastic savers and life-cycle savers. Our main finding is that public investment financed through capital taxes always decreases wealth inequality when the elasticity of substitution between capital and labor is moderately high. Indeed, for all elasticities of substitution greater than a threshold value, at high enough capital tax rates, dynastic savers disappear in the long run. Below these rates, both types of households co-exist in equilibrium with life-cycle savers gaining from the higher capital tax rates. These results are robust with respect to the different roles of public investment in production. We calibrate our model to OECD economies and find the threshold elasticity to be 0.82.
    JEL: D31 E21 H31 H41 H54
    Date: 2018–10
  5. By: Thomas Douenne (Paris School of Economics)
    Abstract: This paper proposes a micro-simulation assessment of the distributional impacts of the French carbon tax. It shows that the policy is regressive, but could be made progressive by redistributing the revenue through a flat-recycling. However, it would still generate large horizontal distributive effects and harm an important share of low-income households. The determinants of the tax incidence are characterized precisely, and alternative targeted transfers are simulated on this basis. The paper shows that given the importance of unobserved heterogeneity in the determinants of energy consumption, horizontal distributive effects are much more difficult to tackle than vertical ones.
    Keywords: Energy taxes, Distributional effects, Demand-System, Micro-simulation
    JEL: D12 H23 I32
    Date: 2018–09
  6. By: Thiess Büttner; Manuela Krause
    Abstract: This paper exploits a recent devolution of tax setting powers in the German federation to study the effects of fiscal equalization on subnational governments’ tax policy. Based on an analysis of the system of fiscal equalization transfers, we argue that the redistribution of revenues provides incentives for states to raise rather than to lower their tax rates. The empirical analysis exploits differences in fiscal redistribution among the states and over time. Using a comprehensive simulation model, the paper computes the tax-policy incentives faced by each state over the years and explores their empirical effects on tax policy. The results support significant and substantial effects. Facing full equalization a state is predicted to set the tax rate from the real estate transfer tax about 1.3 percentage points higher than without. Our analysis also shows that the incentive to raise tax rates is proliferated by the equalization system because the states’ decisions to raise their tax rates have intensified fiscal redistribution over time.
    Keywords: fiscal equalization, tax autonomy, real estate transfer tax
    JEL: H77 H24 R38
    Date: 2018
  7. By: Mavungu, Marina Ngoma; Krsic, Nikolina
    Abstract: This proposal investigates the impact of adopting tax reforms such as the Value Added Tax (VAT), the Large Taxpayers Unit (LTU), and the Semi-Autonomous Revenue Agency (SARA) on tax revenue performance revenues in Sub-Saharan Africa. Despite the increasing adoption of these reforms, the literature on tax reforms effectiveness in Sub-Saharan is controversial. This proposal adds to the debate by using an Ordinary Least Square Fixed effect model controlling for countries and years fixed effects as well as a set of relevant covariates. We use a panel dataset of 46 countries from 1980 to 2013 and show that, in contrast to existing findings, there is no robust evidence that the three tax reforms increased tax collection performance in Sub-Saharan Africa. We find that controlling for time fixed effects and relevant covariates removes the statistical significance of all the tax reforms. Therefore, we conclude that there is little statistical robustness to support a significance of these reforms on tax collection in Sub-Saharan Africa.
    Keywords: Tax reforms, Tax collection performance, Ordinary Least Square Fixed effect model, Sub-Saharan Africa, VAT, LUT, SARA.
    JEL: H20 N47 O23
    Date: 2017–05
  8. By: Bernardo Candia (Universidad de Chile); Eduardo Engel (Universidad de Chile)
    Abstract: This paper seeks to measure the distributive impact of fiscal interventions in Chile, applying the “Commitment to Equity†(CEQ) methodology, a standardized fiscal incidence analysis. As a methodological innovation, we incorporated income accrued and not received by Chilean taxpayers through their companies and corporations into the distribution of pre-fiscal income. We find that the difference between the distribution of accrued and received income turns out to be important, around 6 Gini percentage points for each main concept of income. In addition, when moving from the distribution of market income to the distribution of final income (after taxes and transfers) the distribution of income improves by 7 Gini percentage points. To assign the improvement in the distribution of income between the different fiscal interventions, we apply the Shapley value and it is observed that half of the improvement in the distribution of income is due to transfers in education, while direct taxes only explain 20% of the reduction of the Gini coefficient. Finally, based on the simulation of the impact of the 2014 tax reform carried out by the World Bank, we estimate that the reform would produce an additional reduction of 2.4 Gini percentage points when going from market income to final income.
    Keywords: Fiscal incidence, inequality, poverty, undistributed profits, taxes, transfers, Chile
    JEL: D31 H22
    Date: 2018–09
  9. By: Kavan Kucko; Kevin Rinz; Benjamin Solow
    Abstract: States that declined to raise their Medicaid income eligibility cutoffs to 138 percent of the federal poverty level (FPL) under the Affordable Care Act (ACA) created a "coverage gap'' between their existing, often much lower Medicaid eligibility cutoffs and the FPL, the lowest level of income at which the ACA provides refundable, advanceable "premium tax credits'' to subsidize the purchase of private insurance. Lacking access to any form of subsidized health insurance, residents of those states with income in that range face a strong incentive, in the form of a large, discrete increase in post-tax income (i.e. an upward notch) at the FPL, to increase their earnings and obtain the premium tax credit. We investigate the extent to which they respond to that incentive. Using the universe of tax returns, we document excess mass, or bunching, in the income distribution surrounding this notch. Consistent with Saez (2010), we find that bunching occurs only among filers with self-employment income. Specifically, filers without children and married filers with three or fewer children exhibit significant bunching. Analysis of tax data linked to labor supply measures from the American Community Survey, however, suggests that this bunching likely reflects a change in reported income rather than a change in true labor supply. We find no evidence that wage and salary workers adjust their labor supply in response to increased availability of directly purchased health insurance.
    Date: 2017–07
  10. By: Rodrigo Cardoso Fernandes (IPC-IG); Bernardo Campolina (IPC-IG); Fernando Gaiger Silveira (IPC-IG)
    Abstract: "Income inequality has been one of Brazil's most significant socioeconomic characteristics throughout its history. Although there has been a significant reduction since the end of the 1990s, its persistence and magnitude are still internationally notorious. This One Pager seeks to synthesise the results of a study relating Brazilian inequality with its tax system, whose regressive nature must be overcome to enable a more egalitarian society. The Brazilian tax system places undue emphasis on indirect taxes?which comprise over 51 per cent of its gross tax burden. The countrys insistence on taxes on goods and services (indirect taxes)?to the detriment of taxes on income and property (direct taxes)?undermines the real application of the principle of contributive capacity, resulting in a regressive system whereby families with less income proportionally finance a larger share of the State". (...)
    Keywords: Distributive, impact, income, taxes, Brazil
    Date: 2018–07
  11. By: Maggie R. Jones
    Abstract: This work examines whether the availability of tax refund anticipation products (either in the form of a loan or a temporary bank account) is associated with higher non-compliance rates for the Earned Income Tax Credit (EITC). Refund anticipation products are offered by tax preparers as a way for taxpayers to receive a refund faster or to have the tax preparation fee paid from the refund (or both). These products are, on average, costly for taxpayers compared with the average value of a refund, and they are often marketed to low-income taxpayers who may be liquidity constrained or unbanked. Both tax preparers and taxpayers have perverse incentives to use these products, and the temptation of a large refund (for the taxpayer) and added fees and interest (for the tax preparer) may induce erroneous claiming of credits. The paper examines the association between refund anticipation product use and the overpayment of EITC using tax records and survey data linked at the individual level. For taxpayers in the Current Population Survey Annual and Social Economic Supplement, EITC eligibility is estimated based on household characteristics and combined survey and administrative income information; the data include EITC credit receipt, the use of paid tax preparation or online filing, and the receipt of a refund anticipation product. Both the incorrect payment of EITC and the value of EITC overpayment are associated with preparer use, and to a lesser extent with the use of online filing, when compared with paper filing. Incorrect payment is exacerbated for preparer and online filing when a refund anticipation product is purchased. Finally, an exogenous price shock to the tax preparation industry occurred in 2010. This allows for separately identifying a “preparer effect” on EITC noncompliance. The rate of incorrect payment and the dollar value of overpayment increased in the tax year of the shock for those using a preparer and buying a product.
    Date: 2017–12
  12. By: Oscar Bajo-Rubio (Universidad de Castilla-La Mancha); Antonio G. Gómez-Plana (Universidad Pública de Navarra)
    Abstract: In this paper, we analyse the global effects, i.e., the effects on the world economy, from the austerity policies implemented in the European Union (EU) over the last years. Specifically, we simulate the effects of three alternative policies aimed to get a fall of one percentage point in the EU’s government deficit to GDP ratio, through a decrease in the level of public spending, and increases in consumption and in labour taxes. We examine their effects on the main macroeconomic variables of seven regions of the world economy, i.e., the EU, the US, Japan, China, Asia†Pacific, Latin America and Rest of the World. The empirical methodology makes use of a computable general equilibrium (CGE) model, through an extension of the Global Trade Analysis Project (GTAP) model. The three policy measures led to contractionary effects on the EU’s levels of activity, which were accompanied with changes in income distribution, always detrimental to labour. The effects on the rest of the world, however, were mostly negligible.
    Keywords: Computable general equilibrium, Austerity policies, Global economy, European Union
    JEL: C68 H62 H20 H50
    Date: 2018–03
    Abstract: The paper investigates the long-run relationship between government activities and electricity consumption using annual data collected from world development indicator for a period of 1971 to 2011 in Ghana. The paper adopts the autoregressive distributed lag model of co integration for the estimation. The estimation reveals both short run and long-run relationships between government expenditure and electricity consumption. The findings suggest that government activities explain electricity consumption in Ghana for the period under discussion, and could be considered as a policy variable in the management of electricity consumption.
    Keywords: Government expenditures; Electricity consumption; Co-integration; Short run; long run.
    JEL: H50 H72
    Date: 2018–08–19

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