nep-pbe New Economics Papers
on Public Economics
Issue of 2019‒02‒25
eleven papers chosen by
Thomas Andrén

  1. Salience of Inherited Wealth and the Support for Inheritance Taxation By Bastani, Spencer; Waldenström, Daniel
  2. Generational Bias and Tax Policy By Alan Krause
  3. Taxation and Self-Employment By Zsofia Barany
  4. Tax administration and compliance: evidence from medieval Paris By Slivinski, Al; Sussman, Nathan
  5. Union Debt Management By Equiza-Goni, J.; Faraglia, E.; Oikonomou, R.
  6. Impacts of Direct and Indirect Tax Reforms in Vietnam: A CGE Analysis By Bhattarai, Keshab; Nguyen, Dung T.K.; Nguyen, Chan V
  7. Optimal Social Insurance and Rising Labor Market Risk By Krebs, Tom; Scheffel, Martin
  8. Nudging businesses to pay their taxes By Sinning, Mathias; Fels, Katja M.
  9. Retirement Implications of a Low Wage Growth, Low Real Interest Rate Economy By Jason Scott; John B. Shoven; Sita Slavov; John G. Watson
  10. The Slippery Slope Framework: Extending the Analysis by Investigating Factors Affecting Trust and Power By Mardhiah Mardhiah; Riyana Miranti; Robert Tanton
  11. The fiscal lifetime cost of receiving refugees By Joakim Ruist

  1. By: Bastani, Spencer; Waldenström, Daniel
    Abstract: We study how attitudes to inheritance taxation are influenced by information about the role of inherited wealth in society. Using a randomized experiment in a register-linked Swedish survey, we find that informing individuals about the large aggregate importance of inherited wealth and its link to inequality of opportunity significantly increases the support for inheritance taxation. The effect is almost uniform across socio-economic groups and survives a battery of robustness tests. Changes in the perceived economic importance of inherited wealth and altered views on whether luck matters most for economic success appear to be the main driving factors behind the treatment effect. Our findings suggest that the low salience of inherited wealth could be one explanation behind the relatively marginalized role of inheritance taxation in developed economies.
    Keywords: Capital taxation; Equality of Opportunity; randomized experiment; tax attitudes
    JEL: D31 H20 H31
    Date: 2019–01
  2. By: Alan Krause
    Abstract: We examine the nonlinear taxation of labour income and savings when the government places more weight on the welfare of the elderly than of young people. Our analysis is motivated by the observation that the elderly are more likely to vote. Compared to optimal taxation under a utilitarian social welfare function, we show that savings are subsidised, and young low-skill workers face a higher marginal labour tax rate. We also show that the lifetime utility of low-skill individuals is reduced, and that of high-skill individuals is increased, relative to optimal taxation under utilitarianism. An extension of the model to include generation-specific public spending is also considered.
    Keywords: generational policy; nonlinear taxation.
    JEL: H21 H42
    Date: 2019–02
  3. By: Zsofia Barany (Département d'économie)
    Abstract: In this paper I study the relation between self-employment and the tax rates on wages and on self-employment income. Using variation in the statutory tax rates across countries, industries, and occupations, I find that while the share of self-employed is strongly positively correlated with the tax rate on wage income, it is weakly negatively correlated with the tax rate on self-employed income. The asymmetry between the effects of the tax rates suggests that those who choose self-employment partly do so in order to evade taxes. This extensive margin of adjustment – between employment and self-employment – should be taken into account when considering the effects of tax rates on labor income, on taxable income and on welfare.
    Keywords: Tax-rates; Self-employment; Tax evasion
    Date: 2018–05
  4. By: Slivinski, Al; Sussman, Nathan
    Abstract: We analyze the Parisian taille of the late 13th century - a taxation mechanism used to finance periodic major expenditures by the French Crown, including wars. Our major finding is that this system was remarkably successful along a number of dimensions, in an environment without the administrative structures used by contemporary governments. The taille's essential features were; an agreement between the king and city government to collect a fixed amount of revenue, and a collection process that made use of information about taxpayers held by their fellow artisans and/or neighbors. We show that it collected considerable sums without social unrest, with high levels of compliance, and administrative costs that were low even by modern standards. We also argue that its success may have lessons for improved tax collection and compliance in contemporary less-developed economies.
    Keywords: compliance; evasion; Fairness; institutions; middle ages; Paris; taxation
    JEL: H2 H21 H26 N13 N43
    Date: 2019–02
  5. By: Equiza-Goni, J.; Faraglia, E.; Oikonomou, R.
    Abstract: We study the role of government debt maturity in currency unions to identify whether debt management can help governments hedge their budgets against spending shocks. We first use a novel and detailed dataset of debt portfolios of five Euro Area countries to run a battery of VARs, estimating the responses of holding period returns to fiscal shocks. We find that government portfolios, which in our sample comprise mainly of nominal assets, have not been effective in absorbing idiosyncratic fiscal risks, whereas they have been very effective in absorbing aggregate risks. To shed light on this finding, as well as to investigate what types of debt are optimal in a currency area in the presence of both aggregate and idiosyncratic shocks, we setup a formal model of optimal debt management with two countries, benevolent governments and distortionary taxes. Our key finding is that governments should focus on issuing inflation indexed long term debt since this allows them to take full advantage of fiscal hedging. When we look at the data we find a stark increase in the issuance of real long term debt since the beginning of the Euro in many of the countries in our sample, which our model explains as an optimal response of governments to the introduction of the common currency.
    Keywords: Debt Management, Fiscal Policy, Government Debt, Maturity Structure, Tax Smoothing
    JEL: E43 E62 H63
    Date: 2019–02–11
  6. By: Bhattarai, Keshab; Nguyen, Dung T.K.; Nguyen, Chan V
    Abstract: The study applies a multi-sector multi-household static general equilibrium tax model to assess economy-wide impacts of taxes in Vietnam. It examines two tax reform scenarios based on the tax reform plan proposed by the Vietnam Ministry of Finance. The first scenario is increasing 20% from the current Value-Added Tax (VAT) rate. The second scenario relates to setting a competitive Corporate Income Tax (CIT) rate to the lowest rate in ASEAN countries. In general correction of current tax distortions will have positive impacts on labour supply, utility, consumption, output and welfare of households as they reallocate resources from more to less productive sectors of the economy. The CGE model allows to find the impacts on microeconomic and macroeconomic variables including employments, output, prices and capital stock as well as on welfare of households of an increase in the standard VAT rate from 10 to 12% and reduction in the CIT rate from 20 to 17% as considered by the current government. This study contributes to the literature on the CGE model for Vietnam economy, it is also a small step towards finding the optimal tax structure in Vietnam.
    Keywords: Tax reform; general equilibrium; tax analysis; Vietnam
    JEL: C68 D58 E62 H3
    Date: 2018–10–31
  7. By: Krebs, Tom (University of Mannheim); Scheffel, Martin (University of Cologne)
    Abstract: This paper analyzes the optimal response of the social insurance system to a rise in labor market risk. To this end, we develop a tractable macroeconomic model with risk-free physical capital, risky human capital (labor market risk) and unobservable effort choice affecting the distribution of human capital shocks (moral hazard). We show that constrained optimal allocations are simple in the sense that they can be found by solving a static social planner problem. We further show that constrained optimal allocations are the equilibrium allocations of a market economy in which the government uses taxes and transfers that are linear in household wealth/income. We use the tractability result to show that an increase in labor market (human capital) risk increases social welfare if the government adjusts the tax-and-transfer system optimally. Finally, we provide a quantitative analysis of the secular rise in job displacement risk in the US and find that the welfare cost of not adjusting the social insurance system optimally can be substantial.
    Keywords: labor market risk, social insurance, moral hazard
    JEL: E21 H21 J24
    Date: 2019–01
  8. By: Sinning, Mathias; Fels, Katja M.
    Abstract: Tax noncompliance harms both social cohesion and public welfare. In the US alone, tax underpayment averaged $39 billion per year from 2008 to 2010. How can tax authorities collect outstanding payments more efficiently? Novel research by RWI in cooperation with the Australian National University provides new insights: based on three natural field experiments, the researchers show that a simplified language and reminders increase tax compliance by corporate taxpayers. Early reminders are especially attractive from a tax collector's perspective.
    Date: 2019
  9. By: Jason Scott; John B. Shoven; Sita Slavov; John G. Watson
    Abstract: We examine the implications of persistent low real interest rates and wage growth rates on individuals nearing retirement. We begin by reviewing the concept of r star – the long-term real, safe interest rate that is neither expansionary nor contractionary – and presenting recent estimates suggesting that this value has declined. We then examine the implications of low returns and low wage growth for individuals currently aged 45 and 55. We find that low returns and low wage growth have substantial welfare effects, with compensating variations that are often in the hundreds of thousands of dollars. Low returns increase optimal Social Security claiming ages and the marginal benefit of working longer, while low wage growth decreases the marginal benefit of working longer. Low economy-wide wage growth has a much larger welfare effect than low individual wage growth due to wage indexation of the initial benefit and the progressivity of the Social Security benefit formula. When individual wage growth alone is low, wage indexation is unchanged, and the progressivity of the benefit formula provides insurance. When economy-wide wage growth is low, wage indexation is less generous and there is no insurance benefit from progressivity as average wages fall along with individual wages.
    JEL: D14 H55 J26
    Date: 2019–02
  10. By: Mardhiah Mardhiah; Riyana Miranti; Robert Tanton
    Abstract: Many empirical studies have been conducted to test the Slippery Slope Framework (SSF) assumptions. Yet, only a few studies focus their attention on tax compliance factors associated with trust and power. Therefore, this study is dedicated to fully exploring these factors. The results show that most factors had a significant influence on trust and power. The results also confirm that trust leads to voluntary compliance and voluntary compliance in turn positively affects overall tax compliance. However, the study fails to find evidence of the relationship of power with enforced compliance, although enforced compliance is found to negatively affect overall tax compliance.
    Keywords: trust, power, tax compliance, voluntary compliance, enforced compliance
    JEL: H26
    Date: 2019
  11. By: Joakim Ruist (University of Gothenburg)
    Abstract: This study estimates the fiscal consequences of receiving refugees, over the refugees’ lifetime. It uses data from Sweden in 2015, and the calculations account for refugees’ age, years since immigration, and country of origin. The estimated average annual fiscal net contribution over the lifetime of the average refugee (58 years) ranges from –12 per cent of GDP per capita for refugees from the countries of origin for which labor market performance has historically been the strongest, to –22 per cent for those for which it has been the weakest. The estimates imply that if the European Union received all refugees currently in Asia and Africa, the implied average annual fiscal cost over the same time span would be at most 0.6 per cent of GDP.
    Keywords: refugees; immigration; public finances
    JEL: F22 H20 H50 J61
    Date: 2019–02

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