nep-pbe New Economics Papers
on Public Economics
Issue of 2019‒07‒08
fourteen papers chosen by
Thomas Andrén

  1. Implications of Increasing College Attainment for Aging in General Equilibrium By Juan Carlos Conesa; Timothy J. Kehoe; Vegard M. Nygaard; Gajendran Raveendranathan
  2. In-work benefits across Europe By Laun, Lisa
  3. Does the Early Retirement Policy Really Benefit Women? By Hyun Lee; Kai Zhao; Fei Zou
  4. Transfer taxes and household mobility: distortion on the housing or labor market? By Hilber, Christian A. L.; Lyytikäinen, Teemu
  5. Cheating the Government: Does Taxpayer Perception Matter? By Jeong-Dae Lee
  6. Business tax policy under default risk By Nicola Comincioli; Sergio Vergalli; Paolo Panteghini
  7. Capital Income Taxation and Aggregate Instability By Kevin X.D. Huang; Qinglai Meng; Jianpo Xue
  8. The Dynamic Effects of Tax Audits By Advani, Arun; Elming, William; Shaw, Jonathan
  9. The introduction of social pensions and elderly mortality: Evidence 1870-1939 By Jäger, Philipp
  10. Water Taxes and Consumer Behavior in France By Simon Porcher
  11. Term Length and Public Finances: The Case of U.S. Governors By Klarin, Jonas
  12. Do Tax Incentives Affect Business Location and Economic Development? Evidence from State Film Incentives By Patrick Button
  13. Optimal human capital policies under the endogenous choice of educational types By OBARA, Takuya
  14. Public acceptance and willingness to pay cost-effective taxes on red meat and road traffic in Norway By Knut Einar Rosendahl; Ingvild Vestre Sem; Henrik Lindhjem; Kristine Grimsrud

  1. By: Juan Carlos Conesa; Timothy J. Kehoe; Vegard M. Nygaard; Gajendran Raveendranathan
    Abstract: We develop and calibrate an overlapping generations general equilibrium model of the U.S. economy with heterogeneous consumers who face idiosyncratic earnings and health risk to study the implications of exogenous trends in increasing college attainment, decreasing fertility, and increasing longevity between 2005 and 2100. While all three trends contribute to a higher old age dependency ratio, increasing college attainment has different macroeconomic implications because it increases labor productivity. Decreasing fertility and increasing longevity require the government to increase the average labor tax rate from 32.0 to 44.4 percent. Increasing college attainment lowers the required tax increase by 10.1 percentage points. The required tax increase is higher under general equilibrium than in a small open economy with a constant interest rate because the reduction in the interest rate lowers capital income tax revenues.
    Keywords: college attainment, aging, health care, taxation, general equilibrium
    JEL: H20 H51 H55 I13 J11
    Date: 2019–06
  2. By: Laun, Lisa (IFAU - Institute for Evaluation of Labour Market and Education Policy)
    Abstract: In-work benefits, often in the form of earned income tax credits (EITCs), have become increasingly popular over the last decades. Early versions of in-work benefits in the US, the UK and Ireland, primarily motivated as a poverty alleviation measure, have been followed by a large expansion of in-work benefits in other European countries, stressing employment goals rather than redistributive concerns. This review describes the in-work benefit schemes in a selection of countries across Europe and summarizes the evidence of these schemes. The selected countries are France, the Netherlands, Germany, Belgium, Denmark, Finland and Sweden.
    Keywords: Earned income tax credit; EITC; Europe; tax and benefit system
    JEL: H24 I38
    Date: 2019–06–17
  3. By: Hyun Lee (University of Connecticut); Kai Zhao (University of Connecticut); Fei Zou (University of Connecticut)
    Abstract: China’s mandatory retirement policy requires most female workers to retire five years earlier than their male counterparts. The conventional wisdom behind this policy is that it benefits women by relieving them from work earlier and providing them with more years of public pension benefits than men. However, is the early retirement policy really welfare-improving for women? In this paper, we quantitatively evaluate the welfare consequence of China’s gender-specific mandatory retirement policy using a calibrated Overlapping-Generation model with heterogeneous agents and incomplete markets. We find that the early mandatory retirement reduces welfare for women. An important reason behind this welfare result is that China’s public pension benefits are only partially indexed to growth, and therefore women who retire earlier also benefit less from economic growth than men. Our quantitative results suggest that equalizing the retirement age across gender can generate a welfare gain for both men and women.
    Keywords: Social Security, China, Mandatary Retirement, Gender
    JEL: E20 E60 H30
    Date: 2019–07
  4. By: Hilber, Christian A. L.; Lyytikäinen, Teemu
    Abstract: We estimate the effect of the UK Stamp Duty Land Tax (SDLT) – a transfer tax on the purchase price of property or land – on different types of household mobility using micro data. Exploiting a discontinuity in the tax schedule, we isolate the impact of the tax from other determinants of mobility. We compare homeowners with self-assessed house values on either sides of a cut-off value where the tax rate jumps from 1 to 3 percent. We find that a higher SDLT has a strong negative impact on housing-related and short distance moves but does not adversely affect job-induced or long distance mobility. Overall, our results suggest that transfer taxes may mainly distort housing rather than labor markets.
    Keywords: transfer taxes; stamp duty; transaction costs; homeownership; household mobility
    JEL: R14 J01
    Date: 2017–09–01
  5. By: Jeong-Dae Lee (Macroeconomic Policy and Financing for Development Division, UNESCAP)
    Abstract: Do people cheat because they can get away with it or because they feel that the rules are unfair? I examine this question in the context of tax evasion. Specifically, I incorporate taxpayer perception into a widely used consumption-based method for estimating income tax evasion. Compared to the standard method which distinguishes taxpayers only by their occupational or income type as a way of measuring their “ability” to misreport income, the refined method introduces taxpayers who may be “able but unwilling” to cheat because they feel fairly treated with respect to public services and compared to other taxpayers. Applied to a longitudinal data for Korea (2007-2015), the standard method yields a uniform tax evasion rate of 13 per cent, but the refined method provides a range of 7 to 25 per cent based on taxpayer perception. This implies that strategies for improving tax compliance must be tailored to different motivations for tax evasion.
    Keywords: Tax evasion, tax compliance, tax morale, taxpayer perception, third-party reporting, Engel curve
    JEL: H26
    Date: 2019–07
  6. By: Nicola Comincioli; Sergio Vergalli; Paolo Panteghini
    Abstract: In this article we use a stochastic model with one representative firm to study business tax policy under default risk. We will show that, for a given tax rate, the government has an incentive to reduce (increase) financial instability and default costs if its objective function is welfare (tax revenue).
    Keywords: capital structure, default risk, business taxation and welfare
    JEL: H25 G33 G38
    Date: 2019
  7. By: Kevin X.D. Huang (Vanderbilt University); Qinglai Meng (Oregon State University); Jianpo Xue (Renmin University of China)
    Abstract: This paper overturns the conventional wisdom that reliance on capital tax rate adjustment to ensure fiscal sustainability is immune to extrinsic uncertainty. The interaction of capital taxation and endogenous capital utilization generates fiscal increasing returns and factor share redistribution to induce sunspots expectations. Capital depreciation allowance debilitates this mechanism to preempt policy induced instability while achieving budget objective. Self-fulfilling fluctuations can occur in real-world economies, unless their depreciation allowances are sufficiently higher or income tax rates lower than the current levels. This adds a short-run motivation to the long-run approach to capital taxation and the supply-side view of fiscal policy reforms.
    Keywords: Capital income taxation, Depreciation allowance, Endogenous utilization, Fiscal increasing returns, Self-fulfilling prophecies
    JEL: E6 E3
    Date: 2019–03–27
  8. By: Advani, Arun (University of Warwick ; the Institute for Fiscal Studies (IFS) ; the Tax Administration Research Center (TARC) ; and the Centre for Competitive Advantage in the Global Economy (CAGE)); Elming, William (IFS and TARC at the time of involvement in this work); Shaw, Jonathan (Financial Conduct Authority)
    Abstract: Understanding causes of and solutions to non-compliance is important for a tax authority. In this paper we study how and why audits affect reported tax in the years after audit – the dynamic effect – for individual income taxpayers. We exploit data from a random audit program covering more than 53,000 income tax self assessment returns in the UK, combined with data on the population of tax filers between 1999 and 2012. We first document that there is substantial non-compliance in this population. One in three filers underreports the tax owed. Third party information on an income source does not predict whether a taxpayer is non-compliant on that income source, though it does predict the extent of underreporting. Using the random nature of the audits, we provide evidence of dynamic effects. Audits raise reported tax liabilities for at least five years after audit, implying an additional yield 1.5 times the direct revenue raised from the audit. The magnitude of the impact falls over time, and this decline is faster for less autocorrelated income sources. Taking an event study approach, we further show that the change in reporting behaviour comes only from those found to have made errors in their tax report. Finally, using an extension of the Allingham-Sandmo (1972) model, we show that these results are best explained by audits providing the tax authority with information, which then constrains taxpayers’ ability to misreport.
    Keywords: tax audits ; tax revenue ; tax reporting decisions ; income tax ; self assessment ; HMRC
    JEL: D04 H26 H83
    Date: 2019
  9. By: Jäger, Philipp
    Abstract: The strong association between income and mortality raises the question whether more generous social security systems could improve poor people's health outcomes. Thus, in this paper, I analyze whether a major social security innovation, the introduction of social pensions targeted at poor elderly people in the late 19th-early 20th century, has reduced mortality rates of senior citizens. Therefore, I use a cross-country dataset spanning from 1870 to 1939 consisting of 13 countries of which 9 eventually implemented social pensions before World War II. Applying a difference-in-difference-in-difference as well as a regression discontinuity design, I find no evidence for a decline in elderly mortality due to the introduction of social pensions. Based on aggregate census data, I argue that social pensions have reduced elderly labor supply. The reduction is much smaller than social pension recipiency rates, though. These findings suggest that social pensions have raised elderly incomes which, however, did not translate into lower mortality.
    Keywords: pension,social security,elderly mortality
    JEL: H55 I18
    Date: 2019
  10. By: Simon Porcher (IAE - Institut d'Administration des Entreprises)
    Abstract: Water taxes are employed to correct externalities associated with water pollution or resource scarcity and to raise government revenue. In this paper, using a dataset on more than 4,000 French municipalities, we directly examine how water taxes affect consumer behavior as distinct from tax-exclusive water prices. Our analysis shows that a 10-cent tax increase reduces water consumption by 0.26 percent, similarly to a 10-cent increase in the tax-exclusive water price. The responsiveness of consumers to tax and tax-exclusive price is important because it gives information about consumers' sensitivity to policy interventions versus market prices.
    Keywords: Externalities,Water Utilities
    Date: 2019–06–03
  11. By: Klarin, Jonas (Department of Economics)
    Abstract: This paper studies how a politician’s term length affects public finances. I test whether the gradual increase fromtwo- to four-year terms for American governors affects state finances using a rich state-year panel stretching back almost a century. The results show that adopting four-year terms decreases annual expendituresand revenues by 6 %. The effect of the reform is present immediately after voters approve the ballot measure, when the last two-year-term governor is still in office, which suggests that the mechanism at work is stronger re-election incentives for the incumbent. The effect is larger among electorally ’at risk’ governors. Democratic governors respond to longer terms by increasing public employment instead of decreasing expenditures.
    Keywords: Term Length; U.S. Governors; Political Agency; Elections
    JEL: D72 H11 H70 P16
    Date: 2019–05–08
  12. By: Patrick Button
    Abstract: I estimate the impacts of recently-popular U.S. state film incentives on filming location, film industry employment, wages, and establishments, and spillover impacts on related industries. I compile a detailed database of incentives, matching this with TV series and feature film data from the Internet Movie Database (IMDb) and Studio System, and establishment and employment data from the Quarterly Census of Employment and Wages and Country Business Patterns. I compare these outcomes in states before and after they adopt incentives, relative to similar states that did not adopt incentives over the same time period (a panel difference-in-differences). I find that TV series filming increases by 6.3 to 55.4% (at most 1.50 additional TV series) after incentive adoption. However, there is no meaningful effect on feature films, and employment, wages, and establishments in the film industry and in related industries. These results show that the ability for tax incentives to affect business location decisions and economic development is mixed, suggesting that even with aggressive incentives, and "footloose" filming, incentives can have little impact.
    JEL: H25 H71 L82 R38 Z11
    Date: 2019–06
  13. By: OBARA, Takuya
    Abstract: This study examines optimal human capital policies under non-linear labor and capital income taxes in the presence of consumption value of education in a two-period setting. We show that when individuals can choose educational types differing by the relative importance of consumption value and production value, education subsidies for low-type individuals should not equal an efficient level that offsets distortions induced by non-linear taxes on labor and capital income. Our findings imply that education policy does not restore efficiency, or the Diamond-Mirrlees production efficiency theorem fails. Moreover, capital income taxation is optimal, which means that the Atkinson-Stiglitz theorem breaks down.
    Keywords: Human capital, Education subsidies, Labor income taxation, Capital income taxation, Consumption value of education
    JEL: H2 H5 I2 J2
    Date: 2018–06
  14. By: Knut Einar Rosendahl; Ingvild Vestre Sem; Henrik Lindhjem; Kristine Grimsrud (Statistics Norway)
    Abstract: The Norwegian high-level Green Tax Commission proposes inter alia cost-effective taxes on red meat and increased toll charges on road traffic to reduce greenhouse gas emissions and local air pollution, respectively. Implementation requires support by the public, but the acceptance of such taxes is not known. We have conducted a national survey of the public's acceptance of the two taxes. The survey instrument showed dynamically the reduction in emissions/pollution for each tax level. Despite survey information about the purpose of the taxes, only 25 percent, on average, were in favour of their introduction, the rest did not know, had zero willingness to pay, or opposed the tax. In this respect, preferences for the two taxes are similar. However, on average people are willing to pay approximately 90 percent of the optimal tax for red meat, but only about 25-35 percent of toll charges on road traffic depending on fuel type. Earmarking the tax revenue for environmentally friendly technology increased acceptable tax level, but only for red meat. Earmarking tax revenues for reduced income tax did not increase the acceptable tax level.
    Keywords: Environmental taxes; red meat; road traffic; acceptance; willingness to pay
    JEL: H23 H31 Q51 Q53 Q54
    Date: 2019–06

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