nep-pbe New Economics Papers
on Public Economics
Issue of 2019‒01‒21
fourteen papers chosen by
Thomas Andrén

  1. Do country risk factors attenuate the effect of taxes on corporate risk-taking? By Osswald, Benjamin; Sureth, Caren
  2. Optimal Paternalistic Savings Policies By Moser, Christian; Olea de Souza e Silva, Pedro
  3. Social Security Reforms and the Changing Retirement Behavior in Sweden By Mårten Palme; Lisa Laun
  4. Fiscal Federalism and Income Inequality: An Empirical Analysis for Switzerland By Lars P. Feld; Christian Frey; Christoph A. Schaltegger; Lukas A. Schmid
  5. What Happened to CIT Collection? Solving the Rates-Eveneues Puzzle By Gaetan Nicodeme; Antonella Caiumi; Ina Majewski
  6. Pareto-Improving Structural Reforms By Saint-Paul, Gilles
  7. Corporate tax planning and firms' information environment By Osswald, Benjamin
  8. Effects of the Austrian Income Tax Reform 2015/2016 on Private Consumption: Survey Findings By Ralf Kronberger; Christoph Schmid
  9. Learning from the "Best": The Impact of Tax-Benefit Systems in Africa By Bargain, Olivier; Jara Tamayo, Holguer Xavier; Kwenda, Prudence; Ntuli, Miracle
  10. Welfare effects of an in-kind transfer program: evidence from Mexico By Federico Tagliati
  11. Do We Need a Wealth Tax? / ¿Debe existir un impuesto sobre el patrimonio? / Hi ha d’haver un impost sobre el patrimoni? By José María Durán-Cabré; Robin Boadway; Pierre Pestieau; Mariona Mas Montserrat
  12. The Evolution of Social Security in Jordan’s Labor Market: A Critical Comparison Between Pre- and Post- 2010 Social Security Reform By Ibrahim Al Hawarin; Irène Selwaness
  13. The Kingdom of the Netherlands-Aruba; Technical Assistance Report-Towards a Sustainable Tax System By International Monetary Fund
  14. The European Social Pillar: A Threat to Welfare and Prosperity? By Karlson , Nils; Wennerberg, Felinda

  1. By: Osswald, Benjamin; Sureth, Caren
    Abstract: This study examines whether country-specific risk attenuates the association between tax policies and corporate risk-taking. We define country-specific risk (political and fiscal budget risk) as taxpayer's risk that tax refunds on losses cannot be paid due to the institutional environment or fiscal reasons. We exploit a cross-country panel with 234 changes in corporate tax rates and 49 changes in loss offset rules. We investigate whether government risk-sharing via loss offset rules and tax rates affects risk-taking conditional on country risk. We also examine whether tax rate changes, that scale the risk-sharing effect, influence the propensity to conduct risky projects in different country-level risk environments. Our results suggest that country-level risk fully attenuates the previously documented association between tax policies and corporate risk-taking. It attenuates both the effectiveness of loss offset rules and tax rate changes on corporate risk-taking. While changes in tax policy are attractive to policymakers because alternative instruments to encourage risk-taking cannot as easily be adjusted, we provide significant evidence that country risk considerably limits policymakers' ability to induce firm risk-taking via changes in tax policies.
    Keywords: corporate risk-taking,country risk,cross-country study,fiscal risk,risky investments
    JEL: H25 H32 G32
    Date: 2018
  2. By: Moser, Christian (Federal Reserve Bank of Minneapolis); Olea de Souza e Silva, Pedro (Uber Technologies)
    Abstract: We study optimal savings policies when there is a dual concern about undersaving for retirement and income inequality. Agents differ in present bias and earnings ability, both unobservable to a planner with paternalistic and redistributive motives. We characterize the solution to this two-dimensional screening problem and provide a decentralization using realistic policy instruments: mandatory savings at low incomes but a choice between subsidized savings vehicles at high incomes—resembling Social Security, 401(k), and IRA accounts in the US. Offering more savings choice at higher incomes facilitates redistribution. To solve large-scale versions of this problem numerically, we propose a general, computationally stable, and efficient active-set algorithm. Relative to the current US retirement system, we find significant welfare gains from increasing mandatory savings and limiting savings choice at low incomes.
    Keywords: Optimal taxation; Multidimensional screening; Present bias; Preference heterogeneity; Paternalism; Retirement; Savings; Social Security; Active-set algorithm
    JEL: E62 H21 H55
    Date: 2019–01–10
  3. By: Mårten Palme; Lisa Laun
    Abstract: We show how the economic incentives to remain in the labor force induced by Sweden’s public old-age pension system and disability insurance program have changed between 1980 and 2015. Based on earnings histories for different hypothetical individuals corresponding to groups by gender and educational attainments we calculate the following measures: the replacement rate (RR), the social security wealth (SSW), the accrual in the social security wealth from working one additional year as well as the implicit tax rate on working longer (ITAX). We then investigate to what extent the observed changes in these measures concur with changes in employment rates among older workers.
    JEL: J14 J21 J22 J26
    Date: 2018–12
  4. By: Lars P. Feld; Christian Frey; Christoph A. Schaltegger; Lukas A. Schmid
    Abstract: This paper analyzes the impact of fiscal federalism on income inequality and redistribution. Theoretically contradicting arguments ask for empirical evidence to obtain a better knowledge of this relationship. We rely on the institutional setting in Switzerland to study the issue empirically. According to our findings tax decentralization tends to reduce concentration in pre- and after-tax income without additional redistribution via progressive taxes. It is, however, crucial to consider the interdependence of decentralization and fragmentation as inequality decreasing effects of decentralization are counteracted by its interaction with fragmentation.
    Keywords: federalism, decentralization, inequality, income concentration, top incomes, redistribution, Switzerland
    JEL: D31 H23 H77
    Date: 2018
  5. By: Gaetan Nicodeme; Antonella Caiumi; Ina Majewski
    Abstract: Despite sharp reductions in corporate income tax (CIT) rates worldwide, CIT revenues have not fallen dramatically in the last two decades. This paper investigates the recent developments in CIT in the European Union, by taking a closer look at the potential driving forces behind this puzzle. Using a unique dataset of national sectoral accounts, we decompose the CIT revenue to GDP ratio for the EU and find that while the decrease in the statutory rates has driven down tax collection, the effect was more than offset by a broadening of the taxable base and a slight increase in the size of the corporate sector. However, this result holds for the period 1995-2015 but not for the last decade where base broadening has not been able to match further cuts in rates.
    Keywords: corporate tax, implicit tax rate, tax reforms, incorporation, European Union
    JEL: E62 H25 O52
    Date: 2018
  6. By: Saint-Paul, Gilles (Paris School of Economics)
    Abstract: Economists recommend to partly redistribute gains to losers from a structural reform, which in many cases may be required for making the reform politically viable. However, taxation is distortionary. Then, it is unclear that compensatory transfers can support a Pareto-improving reform. This paper provides sufficient conditions for this to occur, despite tax distortions. I consider an economy where workers have sector-specific skills and some sectors are regulated by a price floor. Transfers have to be financed by proportional taxation on firm's revenues or, equivalently, labor income. Labor supply is elastic to net post-tax real wages, and hence reduced by taxation. In a setting where preferences are isoelastic, deregulation is implementable in a Pareto- improving way through compensatory lump-sum transfers, despite that these are financed by distortionary taxes. In a more general setting, there always exist Pareto-improving reforms but they may involved tightening regulation for some goods. I provide sufficient conditions for deregulation, i.e. a general reduction in price floors, to be Pareto-improving. They imply that demand cross-price elasticities should not be too large and that the reform should not be too unbalanced. Finally, I consider counter-examples where some people earn rents associated with informational or institutional frictions. In such situations, Pareto improvements are unlikely. If losers have veto power, the reform may only be supported by a minority of people. Broadening reform scope is especially useful to raise its political support when its impact is uneven across consumers.
    Keywords: structural reform, deregulation, price controls, Pareto optimality, rent seeking, taxation, compensatory transfers
    JEL: E64 H21 P11
    Date: 2018–11
  7. By: Osswald, Benjamin
    Abstract: This study examines whether internal information quality (IIQ) is associated with firms' external information quality (EIQ) and whether tax planning moderates this association. Based on the argument that higher internal information quality allows managers to convey higher quality information to market participants, I hypothesize and find a positive association between IIQ and EIQ. I then examine if tax planning, which prior literature shows affects external information quality due to proprietary costs of disclosure, attenuates this association. I find that the association between IIQ and EIQ is fully attenuated for firms with a high level of tax planning. A structural equation model that allows different elements of IIQ to covary and robustness tests corroborate my findings. Overall, my results imply that increased IIQ spills over to EIQ because managers convey higher quality internal information to market participants. However, proprietary costs resulting from a high level of tax planning appear to moderate this effect.
    Keywords: external information quality,information asymmetry,information environment,internal information quality,tax avoidance,tax planning
    JEL: G30 H26 M41
    Date: 2018
  8. By: Ralf Kronberger (Austrian Federal Economic Chamber, Financial, Fiscal and Trade Policy Department); Christoph Schmid (Austrian Federal Economic Chamber, Financial, Fiscal and Trade Policy Department)
    Abstract: We use survey findings to analyse the effects of the Austrian income tax reform 2015/2016 on private consumption differentiated by income classes. Using survey data, we also estimate the corresponding average marginal propensities to consume and compare them to applied average marginal propensities to consume in economic models used to analyse the previous two income tax reforms in Austria. The estimated average marginal propensity to consume amounts to approximately 0.46, whereby in tendency increasing from the lowest income class (0.42-0.43) to the highest income class (0.48-0.50). Our estimated average marginal propensity to consume across all income classes basically corresponds to those used in economic models to evaluate the income tax reform 2015/2016. However, our estimated marginal propensities to consume by income classes fundamentally differ from those used in the economic models.
    Keywords: income tax reform, private consumption response, marginal propensity to consume, survey methodology
    JEL: E62 H24 H31
    Date: 2018–12
  9. By: Bargain, Olivier (University of Bordeaux); Jara Tamayo, Holguer Xavier (University of Essex); Kwenda, Prudence (Wits University); Ntuli, Miracle (Wits University)
    Abstract: Redistributive systems in Africa are still in their infancy but are constantly expanding in order to finance increasing public spending. This paper aims at characterizing the redistributive potential of six African countries: Ghana, Zambia, Mozambique, Tanzania, Ethiopia and South Africa. These countries show contrasted situations in terms of income distribution. We assess the role of tax-benefit systems to explain these differences. Using newly developed tax-benefit microsimulations for all six countries, we produce counterfactual simulations whereby the system of the most (least) redistributive country is applied to the population of all other countries. In this way, we can decompose the total country difference in income distribution between the contribution of tax-benefit policies versus the contribution of other factors (market income distributions, demographics, etc.). This analysis contributes to the recent literature on the redistributive role of socio-fiscal policies in developing countries and highlights the role of microsimulation techniques to characterize how different African countries can learn from each other to improve social protection and reduce inequality.
    Keywords: tax-benefit policy, microsimulation, inequality, poverty, Africa
    JEL: H23 H53 I32
    Date: 2018–12
  10. By: Federico Tagliati (Banco de España)
    Abstract: This paper shows how a theory-consistent demand system can be used to quantify recipient welfare under in-kind and cash transfers. Since welfare under an in-kind subsidy depends on the extent to which the transfer is extra-marginal, I compute the shadow prices at which a recipient would be as well off as with the in-kind transfer. Shadow prices are then used to compute the distribution of the willingness to pay for in-kind benefits among beneficiaries. As an application of this approach, I study the welfare effects of a governmental program which randomly transferred either a food basket or cash to poor households in rural Mexico. Results suggest that on average a recipient values the in-kind transfer at 80 percent of its face value. Despite the welfare loss, the in-kind transfer is more cost-efficient than cash. This is due to the fact that the food basket was significantly more expensive at the retail level than at the procurement level, which implies that a cash transfer of the same cost to the government could only buy a fraction of the food basket in recipient’s local markets. Because the food basket is mainly formed of normal goods, I also find that the willingness to pay is larger among recipients at the top of the income distribution, suggesting a regressive effect of the in-kind transfer.
    Keywords: in-kind transfers, cash transfers, demand system, welfare
    JEL: D61 H23 H43 I38
    Date: 2018–12
  11. By: José María Durán-Cabré (Institut d’Economia de Barcelona (IEB) / Universitat de Barcelona); Robin Boadway (Queen’s University); Pierre Pestieau (University of Liège); Mariona Mas Montserrat (Institut d’Economia de Barcelona (IEB) / Universitat de Barcelona)
    Date: 2017
  12. By: Ibrahim Al Hawarin (Al-Hussein Bin Talal University); Irène Selwaness
    Abstract: Jordan has undergone a profound social security reform since 2010, primarily aiming to ensure the financial sustainability of the system over time. The reform measures mainly included increasing the age of early retirement and the minimum contributions required to claim it, increasing employee and employer monthly contributions, covering even micro firms (with at least one employee), and allowing the self-employed and inactive housewives to voluntarily participate. Using data from the 2010 and 2016 Jordan Labor Market Panel Survey (JLMPS), this paper examines the dynamics of Jordanian workers’ access to social security before and after the 2010 reform and the coverage incidence across different firm sizes and workers’ characteristics. The paper also explores the time it takes to acquire social security coverage on the labor market before and after the reform. Moreover, trends in early retirement incidence among middle-aged male workers are examined. Our findings show that the overall incidence of social insurance coverage appears to slightly increase in 2016, for private sector wage workers, irregular wage workers, and non-wage workers (employers and self-employed). Workers starting in the public sector were the most likely to acquire social insurance coverage at the start of their jobs, followed by the private wage workers inside establishment. Both men and women who started their first job after the 2010 reform experienced a decline in their proportion of acquiring social insurance coverage upon their job start. Moreover, the average incidence of early retirement slightly declined among men while still being highly prevalent around ages 40-46.
    Date: 2018–04–26
  13. By: International Monetary Fund
    Abstract: Over the last decade, Aruba has faced three recessions resulting in a public debt of approximately 90 percent of GDP. Its current budget deficit needs to be reduced and Aruba should close a fiscal gap of 1.5-2 percent of GDP over the next two to three years to return to a sustainable path. Earlier this year, the authorities have introduced a crisis package, mainly by increasing the turnover taxes. This temporary tax measure should be replaced by a tax reform that will modernize and simplify the current system. The new tax system should not only raise more revenue, but also shift the tax burden away from income and profits toward consumption. The current system is not well equipped to make these changes. In replacing the crisis levy, the Government sees an opportunity to streamline the current tax system, modernize it, and make it more sustainable for the future needs of Aruba.
    Date: 2018–12–18
  14. By: Karlson , Nils (The Ratio Institute); Wennerberg, Felinda (The Ratio Institute)
    Abstract: In November 2017, the European Union proclaimed its fourth pillar, The European Pillar of Social Rights., to promote a “truly pan-European” labour market. A large number of specific social rights are endorsed. This paper investigates the potential short- and long-term consequences of the social pillar on the welfare and prosperity of Europe. Moreover, we discuss its potential effects on the legitimacy of the European Union. Our conclusions indicate that rather than to “support and complement” the social and labour market policies of the Member States, the European Union is likely to replace these policies with the “better” goals of the Union in an effort to fully implement the principles established in the social pillar. The principle of subsidiarity in this case promotes centralisations. There are strong reasons to believe that increased centralisation to EU-level in these areas will reduce preference satisfaction, weaken accountability and decrease efficiency and innovation. In the long run the social pillar therefore is likely to be a threat to welfare and prosperity in Europe, and as a consequence, cause damage to the legitimacy of the European Union.
    Keywords: Nils Karlson; Felinda Wennerberg; European Integration; Social policy; Labour policy; Subsidiarity; Legitimacy; Prosperity
    JEL: F15 H53 I38 J58
    Date: 2018–11–19

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