nep-pbe New Economics Papers
on Public Economics
Issue of 2018‒11‒26
seventeen papers chosen by
Thomas Andrén

  1. Suddenly Married: Joint Taxation And The Labor Supply Of Same-Sex Married Couples After U.S. v. Windsor By Elliott Isaac
  2. Inheritance Taxation and Wealth Effects on the Labor Supply of Heirs By Fabian Kindermann; Lukas Mayr; Dominik Sachs
  3. How do Inheritances Shape Wealth Inequality? Theory and Evidence from Sweden By Nekoei, Arash; Seim, David
  4. Income taxation of couples, spouses' labor supplies and the gender wage gap By Cremer, Helmuth; Roeder, Kerstin
  5. Taxation and Innovation in the 20th Century By Akcigit, Ufuk; Grigsby, John; Nicholas, Tom; Stantcheva, Stefanie
  6. Marriage, Divorce, and Tax and Transfer Policy By Elliott Isaac
  7. The Rise of Private Foundations as Owners of Swedish Industry: The Role of Tax Incentives 1862–2018 By Johansson, Dan; Stenkula, Mikael; Wykman, Niklas
  8. Size and distributional pattern of pension-related tax expenditures in European countries By Salvador Barrios; Flavia Coda Moscarola; Francesco Figari; Luca Gandullia
  9. A Steeper slope: the Laffer Tax Curve in Developing and Emerging Economies By Zouhair Aït Benhamou
  10. Long-term Changes in Married Couples' Labor Supply and Taxes: Evidence from the US and Europe Since the 1980s By Bick, Alexander; Brüggemann, Bettina; Fuchs-Schündeln, Nicola; Paule-Paludkiewicz, Hannah
  11. Border Tax Adjustments and Tariff-Tax Reforms with Consumption Pollution By Nikos Tsakiris; Panos Hatzipanayotou; Michael S. Michael
  12. Shaming for Tax Enforcement: Evidence from a New Policy By Dwenger, Nadja; Treber, Lukas
  13. Accountability and taxation: Experimental evidence By Hoem Sjursen, Ingrid
  14. Corporate Structural Change for Tax Avoidance: British Multinational Enterprises and International Double Taxation between the First and Second World Wars By Ryo Izawa
  15. What happens when the income tax increases? By Cerqua, Augusto; ,
  16. Economic incentives, disability insurance and labor supply By Hjellset Alne, Ragnar
  17. A real option approach to responsible tax behavior By Van de Vijver, Anne; Cassimon, Danny; Engelen, Peter-Jan

  1. By: Elliott Isaac (Tulane University)
    Abstract: Joint taxation can exacerbate the deadweight loss of taxation due to labor supply responses, but evidence is scarce. I estimate the efficiency costs and labor supply effects of joint taxation in the United States by leveraging tax variation created by federal same-sex marriage recognition following the 2013 United States v. Windsor Supreme Court ruling. I find moderate hours responses among primary earners and larger labor force participation responses among secondary earners. My findings suggest that joint taxation is less efficient and generates less tax revenue than individual taxation, and that lowering tax rates for secondary earners could improve efficiency.
    Keywords: taxation, labor supply, same-sex marriage, sufficient statistics
    JEL: J22 H24 H21 D10
    Date: 2018–11
  2. 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.
    Keywords: bequest, taxation, life-cycle, labor-supply, dynamic scoring
    JEL: C68 D91 H22 H31 J22
    Date: 2018
  3. By: Nekoei, Arash; Seim, David
    Abstract: A recent literature has found that inheritances reduce relative measures of wealth inequality. Theoretically, we show that this surprising finding stems from high intergenerational wealth mobility or low inheritance inequality. Empirically, we show that this finding is only true in the short run using Swedish administrative data and exploiting randomness in the timing of death. The inheritance effect on wealth inequality is reversed within a decade due to less wealthy heirs depleting their inherited wealth in contrast to more affluent heirs. Investigating mechanisms behind this depletion, we find that inheritances generate a roughly constant increase in annual non-labor income. 60% of this increase is allocated to consumption of goods (half of which consists of car consumption) in the first years, compared to 80% in later years. The remaining labor supply responses reflect a considerable albeit declining inheritance labor-supply elasticity. In a second quasi-experimental design, we demonstrate that large windfall inheritances due to a inheritance tax repeal were sustained over time. Our findings suggest that inheritance taxation increases short-run wealth inequality but reduces it in the long run solely through taxation of very large inheritances.
    Date: 2018–09
  4. By: Cremer, Helmuth; Roeder, Kerstin
    Abstract: We study the taxation of couples when female wages do not reflect their true productivity. We show that the expression for the marginal tax rates of the male spouses is the same as in a Mirrleesian world where wages reflect true productivities. Marginal taxes for the female spouses are reduced because of a Pigouvian correction. Consequently, the wage discrimination pleads for a lower marginal tax on the female spouse. Furthermore, the distortion of a couples' tradeoff between male and female labor supply is the same as in a Mirrleesian world without a gender wage gap. It only depends on true productivities and not on wages. In other words, the tax system completely neutralizes the extra distortion introduced by the wedge between the female spouse's wage and her true productivity.
    Keywords: Couples' income taxation; gender wage gap; Household Labor Supply; optimal income taxation
    JEL: D10 H21 H31 J16 J22
    Date: 2018–09
  5. By: Akcigit, Ufuk; Grigsby, John; Nicholas, Tom; Stantcheva, Stefanie
    Abstract: This paper studies the effect of corporate and personal taxes on innovation in the United States over the twentieth century. We use three new datasets: a panel of the universe of inventors who patent since 1920; a dataset of the employment, location and patents of firms active in R&D since 1921; and a historical state-level corporate tax database since 1900, which we link to an existing database on state-level personal income taxes. Our analysis focuses on the impact of taxes on individual inventors and firms (the micro level) and on states over time (the macro level). We propose several identification strategies, all of which yield consistent results: i) OLS with fixed effects, including inventor and state-times-year fixed effects, which make use of differences between tax brackets within a state-year cell and which absorb heterogeneity and contemporaneous changes in economic conditions; ii) an instrumental variable approach, which predicts changes in an individual or firm's total tax rate with changes in the federal tax rate only; iii) event studies, synthetic cohort case studies, and a border county strategy, which exploits tax variation across neighboring counties in different states. We find that taxes matter for innovation: higher personal and corporate income taxes negatively affect the quantity and quality of inventive activity and shift its location at the macro and micro levels. At the macro level, cross-state spillovers or business-stealing from one state to another are important, but do not account for all of the effect. Agglomeration effects from local innovation clusters tend to weaken responsiveness to taxation. Corporate inventors respond more strongly to taxes than their non-corporate counterparts.
    Keywords: business taxation; Corporate taxation; firms; Income taxes; Innovation; inventors; R&D tax credits; state taxation
    JEL: H24 H25 H31 J61 O31 O32 O33
    Date: 2018–09
  6. By: Elliott Isaac (Tulane University)
    Abstract: I use variation from the 1990s in the Earned Income Tax Credit and welfare reform to estimate the effects on marrying and divorcing. I examine flows into and out of marriage, use test scores to predict who is most likely to be affected by the policy changes, and employ a flexible functional form to estimate heterogeneous effects. I find that low-earning single parents are more likely to marry due to the EITC expansion and lower welfare generosity, while mid-earning married parents are less likely to divorce and high-earning married parents are more likely to divorce due to the EITC expansion.
    Keywords: taxation, marriage, divorce, EITC, TANF, AFDC
    JEL: J12 H24 H53 D10
    Date: 2018–11
  7. By: Johansson, Dan (Örebro University School of Business); Stenkula, Mikael (Research Institute of Industrial Economics (IFN)); Wykman, Niklas (Örebro University School of Business)
    Abstract: The tax system has at times favoured firm control through private foundations, which has been argued to inhibit high-impact entrepreneurship and economic growth. However, research has been hampered due to a lack of systematic historical tax data. The purpose of this study is threefold. First, we describe the evolution of tax rules for private foundations in Sweden between 1862 and 2018. Second, we calculate the marginal effective tax rate on capital income. Third, we examine the incentives to use private foundations as a means for corporate control by comparing the taxation of private foundations and of high-impact entrepreneurs. Tax incentives help explain why economically significant private foundations were founded between World War I and the 1960s.
    Keywords: family firms; foundations; high-impact entrepreneurship; owner; taxation
    JEL: H20 K34 L26 N44
    Date: 2018–11–12
  8. By: Salvador Barrios (European Commission - JRC); Flavia Coda Moscarola (Centre for Research on Pensions and Welfare Policies (CeRP) Collegio Carlo Alberto, Università degli Studi di Torino); Francesco Figari (Università degli Studi dell'Insubria, ISER University of Essex and CeRP); Luca Gandullia (Dipartimento di Scienze Politiche (DISPO), Università degli Studi di Genova)
    Abstract: Policy discussions on pension systems generally focus on their sustainability and design, including retirement age, income reference and contributory period while relative little attention is devoted to the tax treatment of pension contributions and pension benefits. However, tax expenditures – defined as deviations from an agreed benchmark tax system – are widely used in the EU Member States and little is known on their redistributive or fiscal impact. This paper quantifies the fiscal and distributional impact of tax expenditures related to public and private contributory pension schemes, affecting both contributions and pension benefits, in 28 European countries using EUROMOD, the EU-wide microsimulation model. We find that pension-related tax expenditures can have a sizeable revenue impact and strong effects on inequality and poverty. Moreover tax expenditures tend to be progressive at two levels. First, among elderly, favoring lower income pensioners, mainly through a favorable treatment of pension incomes. Second, among working-age individuals, through partial or no deduction of pension contributions, draining resources from those at the top of the income distribution.
    Keywords: EUROMOD, pensions, tax expenditures, inequality, taxation, fairness, life cycle
    Date: 2018–11
  9. By: Zouhair Aït Benhamou
    Abstract: In comparing the tax burden between developed and developing economies, we argue that the Laffer curve is sensitive to two factors, namely the size of underground economic activities and tax collection costs. The baseline model exhibits counter-intuitive results for developing and emerging economies. Insofar as we find that they are able to extract higher tax rates and revenues in comparison with developed countries. The differences are due to the values computed for structural parameters and steady-state variables. However, when the share of underground activities is taken into account, the Laffer curve is pushed downward, while tax collection costs shift the peak rate to the left.
    Keywords: Laffer curve, Taxes, Tax burden, Underground economy, tax collection cost, calibration, estimation, GMM, SMM
    JEL: H21 H26 H30 E32 E37
    Date: 2018
  10. By: Bick, Alexander; Brüggemann, Bettina; Fuchs-Schündeln, Nicola; Paule-Paludkiewicz, Hannah
    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.
    Keywords: hours worked; taxation; Two-Earner Households
    JEL: E24 H24 J22
    Date: 2018–09
  11. By: Nikos Tsakiris; Panos Hatzipanayotou; Michael S. Michael
    Abstract: We develop a model of a small open economy, where pollution per unit of consumption between domestically produced and imported quantities of the same good differs. We show that the first-best policy combination calls for consumption taxes on all polluting goods, and Border Tax Adjustment (BTA) measures, i.e., tariffs or import subsidies. We identify conditions under which well known tariff-tax reform policies for developing economies, such as a consumer-price-neutral piecemeal reform of a trade and a consumption tax, and a consumer-price-neutral reform of all trade and consumption taxes improve welfare. We also evaluate whether a consumer-price-neutral reform of a tariff and a consumption tax is superior to a reform of a tariff alone.
    Keywords: Consumption generated Pollution; Optimal Taxation; Border Tax Adjustments; Trade and Consumption Tax Reforms
    JEL: F13 F18 H20 H21
    Date: 2018–11
  12. 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; enforcement; penalty; shaming; social image concerns; tax debt
    JEL: D1 H26 K34 K42 Z13
    Date: 2018–09
  13. By: Hoem Sjursen, Ingrid (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: The Rentier State Hypothesis states that taxation promotes government accountability. The argument is that citizens demand more accountability for spending of tax revenue than for spending of windfall revenue (e.g., natural resource revenue). This paper presents evidence from a between-subject experiment that tests the effect of taxation on demand for accountability and the underlying mechanisms explaining this effect. The design focuses on two main features that distinguish tax from windfall revenue: Tax revenue is produced by citizens' work and has been in their possession before being collected as tax. These features are theorized to increase the salience of fairness considerations in public service provision, and this increased salience of fairness is in turn hypothesized to increase demand for accountability. The main finding is that taxation causes a higher demand for accountability when both features of taxation are present. This result is evidence in support of the Rentier State Hypothesis.
    Keywords: Taxation; experiment; fairness; behavioral economics; accountability
    JEL: C91 D63 D90 H27
    Date: 2018–11–21
  14. By: Ryo Izawa (Faculty of Economics, Shiga University)
    Abstract: This study demonstrates the actual impact of international double taxation on management of British multinational enterprises between the First and Second World Wars. In particular, it focused on tracing the process by which tax-minimisation strategy affected corporate-level strategy. In three cases examined using corporate archival sources, the companies reorganised their corporate legal structure for tax avoidance. Yet the effects on their management were not uniform. (1). The corporate structural change for tax avoidance of Rio Tinto and Silica Gel Corporation did not alter the extant corporate strategy. (2). Tax strategy of Imperial Continental Gas Association entailed changing extant corporate strategy. (3). The legal structure of Unilever gradually and unintentionally influenced the extant corporate strategy. These heterogeneous responses of the firms imply that the institutional pressure of a tax law does not always lead to organisational isomorphism and can affect the corporate-level strategy over time.
    Keywords: international taxation, international business history, institutional theory, international tax system, British multinational enterprises
    Date: 2018–11
  15. By: Cerqua, Augusto; ,
    Abstract: This paper exploits a sudden income tax rate increase in a large Italian region to examine whether this induced taxpayers to change their tax-related behavior. By using a spatial regression discontinuity design and a detailed dataset at the municipality level, we find a sizable and persistent decrease in declared income only for the self-employed and entrepreneurs.
    Keywords: Income tax; tax evasion; spatial regression discontinuity design
    JEL: C21 H26 J21
    Date: 2018–11–05
  16. By: Hjellset Alne, Ragnar (University of Bergen, Department of Economics)
    Abstract: Using a difference-in-difference model on full population data, I estimate the labor market response to a 2015 Norwegian disability insurance (DI) reform. The reform introduced an incentive program to encourage DI beneficiaries to increase their labor supply, and I find that the program significantly increased the average working hours and modestly affected the labor market participation of DI beneficiaries. There is significant heterogeneity in the estimated effects; young beneficiaries respond positively along the extensive and the intensive labor supply margins. The analysis accentuates the importance of analyzing both labor supply margins when evaluating the effects of DI reforms.
    Keywords: Disability insurance reform; labor supply; economic incentives; difference-in-difference; labor economics
    JEL: D60 H53 I38 J08 J22
    Date: 2018–06–14
  17. By: Van de Vijver, Anne; Cassimon, Danny; Engelen, Peter-Jan
    Abstract: Recent investigative journalism such as the Paradise Papers suggests that aggressive tax planning is still present today. The initiatives of the OECD and of the EU authorities against aggressive tax planning in general, and the BEPS initiative in particular, still lack effectiveness. We analyze the fight against aggressive corporate tax planning from a Real Option Theory perspective, in order to find an explanation for the difficult shift of companies’ aggressive tax planning strategies to more responsible tax behavior. Moreover, we suggest additional public policy interventions against aggressive tax planning based on Real Option Theory insights.
    Keywords: real option theory; tax avoidance; BEPS; aggressive tax planning; CSR; real options; taxation
    Date: 2018–11

This nep-pbe issue is ©2018 by Thomas Andrén. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.