nep-pbe New Economics Papers
on Public Economics
Issue of 2019‒07‒15
twelve papers chosen by
Thomas Andrén

  1. Work incentives and the cost of redistribution via tax-transfer reforms under constrained labor supply By Fischer, Benjamin; Jessen, Robin; Steiner, Viktor
  2. Malas Notches By Lockwood, Ben
  3. Implications of Increasing College Attainment for Aging in General Equilibrium By Juan Carlos Conesa; Timothy J. Kehoe; Vegard M. Nygaard; Gajendran Raveendranathan
  4. "Optimal Taxation of Couples' Incomes with Endogenous Bargaining Power" By Mizuki Konuma; Hikaru Ogawa; Yoshitomo Ogawa
  5. Testing preferences for basic income By Palermo Kuss, Ana Helena
  6. Ramsey Tax Competition with Real Exchange Rate Determination By Paul Gomme
  7. Dutch Shell Companies and International Tax Planning By Lejour, Arjan; Mohlmann, Jan; van't Riet, Maarten; Benschop, Thijs
  8. The bedroom tax By Gibbons, Stephen; Sánchez-Vidal, Maria; Silva, Olmo
  9. Bunching of Small Businesses at the Value-AddedTax Threshold in Japan: Lessons for the 2019 Tax Hike By Tsubasa Ichikawa; Menaka @Arudchelvan; Kazuki Onji
  10. "Tax Competition and Fiscal Sustainability" By Masayoshi Hayashi; Takafumi Suzuki
  11. The Affordable Care Act’s Effects on Patients, Providers and the Economy: What We’ve Learned So Far By Jonathan Gruber; Benjamin D. Sommers
  12. The Long-Term Effects of Childhood Exposure to the Earned Income Tax Credit on Health Outcomes By Braga, Breno; Blavin, Fredric; Gangopadhyaya, Anuj

  1. By: Fischer, Benjamin; Jessen, Robin; Steiner, Viktor
    Abstract: Using information on desired and actual hours of work, we formulate a discrete choice model of constrained labor supply. Using the German Socio-Economic Panel and the microsimulation model STSM, we find that hours and participation elasticities are substantially smaller than those in the conventional model. We evaluate two reforms for Germany. Both redistribute to the working poor. The first reform is financed through an increase in the effective marginal tax rate for welfare recipients, the second through an increase in taxes. The first reform is desirable with equal weights, the second if the social planner has substantial redistributive taste.
    Keywords: Tax-benefit systems,Household labor supply,Labor market constraints,Involuntary unemployment,Marginal cost of public funds
    JEL: J22 H21 D10
    Date: 2019
  2. By: Lockwood, Ben (CBT, CEPR and University of Warwick)
    Abstract: This paper shows that the sufficient statistic approach to the welfare properties of income (and other) taxes does not easily extend to tax systems with notches, because with notches, changes in bunching induced by changes in tax rates have a first-order effect on tax revenues. In an income tax setting, we show that the marginal excess burden (MEB) of a change in the top rate of tax is given by the Feldstein (1999) formula for the MEB of a proportional tax, plus a correction term. These correction terms cannot be calculated just from knowledge of the elasticity of taxable income and quantitatively, they can be large. An application to VAT is discussed; with a calibration to UK data, the MEB of the VAT is roughly three times what is would be if VAT was simply a proportional tax.
    Keywords: tax kink ; tax notch ; excess burden ; sufficient statistic
    JEL: H20 H21 H31
    Date: 2019
  3. 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.
    JEL: H20 H51 H55 I13 J11
    Date: 2019–06
  4. By: Mizuki Konuma (Musashi University); Hikaru Ogawa (Faculty of Economics, The University of Tokyo); Yoshitomo Ogawa (Kindai University)
    Abstract: This paper studies the optimal income taxation for a two-earner household where a couple bargains over private goods consumption and time allocation between market work and leisure. In the model, their bargaining power is endogenously determined by the income gap between male and female earners in the economy. The optimal tax expression obtained in this model shows that the optimal tax rule is characterized by two components: the price distortion consideration (Ramsey tax consideration) and the endogenous bargaining power consideration. Taking account of two household members with different productivity levels in the labor market, our numerical analysis demonstrates that the optimal tax rate for the household member with higher productivity, typically, the member with smaller wage elasticity, is lower if the required tax revenue is relatively small and the in fluence of gender income gap on the power balance of the couple is moderate. This result contrasts with the Ramsey tax rule.
    Date: 2018–10
  5. By: Palermo Kuss, Ana Helena
    Abstract: Inspired by Fröhlich and Oppenheimer (1990), an experimental survey in the lab was designed to find out if preferences for three different redistribution schemes differ under a veil of ignorance. The three schemes are a stylized version of the status quo German welfare state (A), a control scheme without income taxation and redistribution (B) and one in which a flat tax-financed basic income is paid to all (C). Furthermore, the study investigates whether the introduction of a basic income induces a decrease in the time allocation to paid and unpaid work. The results point to no significant difference in allocated working hours between A and C. Concerning preferences, access to information on implications of schemes and self-interest played a central role in their definition.
    Keywords: lab experiment,basic income,welfare state,Germany,time allocation,constitutional economics,labor supply
    JEL: C91 I38 J22
    Date: 2019
  6. By: Paul Gomme (Concordia University, CIREQ and CIRANO)
    Abstract: How should governments choose tax rates when they face competition from other jurisdictions? This questions is answered by solving for the Nash equilibrium of the game played between Ramsey planners in a two good, two country open economy macroeconomic model. It is shown, analytically, that the planers do not tax capital income in the long run. Short term results, obtained computationally, reveal that the government of the larger country manages the path of the real exchange rate in order to manipulates its smaller rival's choice of tax rates. Tax competition does not lead to a "race to the bottom."
    Keywords: Optimal fiscal policy; open economy macroeconomics; Ramsey taxation
    JEL: E32 E52 F41
    Date: 2019–07–02
  7. By: Lejour, Arjan (Tilburg University, Center For Economic Research); Mohlmann, Jan; van't Riet, Maarten; Benschop, Thijs
    Abstract: This paper uses the financial statements of special purpose entities (SPEs) for explaining the origin and destination of dividend, interest, and royalty flows passing the Netherlands. We find that Bermuda is the most important destination for royalty flows. These flows come from Ireland, Singapore and the United States. For dividend and interest payments the geographical pattern is more widespread. We find a substantial tax reduction for royalties by using Dutch SPEs compared to a direct flow between the origin and destination country. However, we cannot find such tax savings for dividends and interest with an approximation based on statutory tax rates. When controlling for country characteristics in our regression analysis we do find that tax differentials partially explain the geographical patterns of income flows diverted through the Netherlands. This is the case for the likelihood that a route is used, as well as for the size of the flows. This paper is one of the first using bilateral income flows as dependent variables instead of bilateral FDI stocks or flows.
    Keywords: corporate taxation; international tax planning; treaty shopping; bilateral dividend flows; bilateral interest flows; bilateral royalty flows
    JEL: G32 H25 H32
    Date: 2019
  8. By: Gibbons, Stephen; Sánchez-Vidal, Maria; Silva, Olmo
    Abstract: Housing subsidies for low income households are a central pillar of many welfare systems, but an expensive one. This paper investigates the consequences of an unusual policy aimed at reducing the cost of these subsidies by rationing tenants’ use of space. Specifically, we study a policy introduced by the UK Government in 2013, which substantially cut housing benefits for tenants deemed to have a ‘spare’ bedroom – based on specific criteria related to household composition. Our study is the first to evaluate the impacts of the policy on its target group using a strategy that compares the observed changes in behaviour of the treated households to those of a control group. The treatment and control groups are defined by the detail of the policy rules. We find that – as expected – the treated group loses housing benefits and overall income. Although the policy was not successful in encouraging residential moves (despite efforts to make mobility within the social sector easier), it did incentivise people who moved to downsize – suggesting some success in terms of one of the policy goals, namely reducing under-occupancy. The policy did not incentivise people to work more and we find no statistically significant effects on households’ food consumption or saving behaviour. The implication of our findings is that this type of policy has limited power to change housing consumption or employment in the short run. While it might reduce the costs of housing subsidies to the taxpayer, it does so by imposing a direct financial cost to social tenants unable or unwilling to downsize.
    Keywords: social housing; social rents; bedroom tax; housing benefits; ES/M010341/1
    JEL: H2 H55 R2 R21
    Date: 2018–12–15
  9. By: Tsubasa Ichikawa (Enterprise and Economy, @Hitotsubashi @University); Menaka @Arudchelvan (Enterprise and Economy, @Hitotsubashi @University); Kazuki Onji (Graduate School of Economics, Osaka University)
    Abstract: Weexamine the behavior of small firms near the exemption threshold under Japan fs value-addedtax(VAT). We employ Teikoku Data Bank fs large-scalefirm databaseand find visible bunching of firms just below the thresholdof 10 millionyen. To better understand the motive for bunching, we utilize the @2014 VAThikeas a quasi-experiment, since it increased the financial benefit of VAT exemption. Despite the increased financial incentive, the relative bunching mass remains unchanged, suggesting that the cost of complying with tax regulations motivates the bunchingbehavior. We also consider whether those bunching firms make real adjustments or conduct tax avoidance. We find indirect evidence favoring the tax-avoidance hypothesis. Our estimates suggest that the VAT threshold distorts the behavior of 57,000 firms, resulting in lost tax collection of 17 billion yen per annum. With Japan facing another round of VAThike in October 2019, our research provides additionalinsights to inform the forthcoming policy change.
    Keywords: Value-added tax, Bunching estimator, Tax avoidance
    JEL: H25 H26 H32
    Date: 2019–07
  10. By: Masayoshi Hayashi (Faculty of Economics, The University of Tokyo); Takafumi Suzuki (Graduate School of Economics, The University of Tokyo)
    Abstract: By constructing a two-country endogenous growth model with a debt-financing government, this study examines the relationship between the sustainability of public finance and increases in interregional factor mobility. To this end, it identifies the minimum tax rate that ensures fiscal sustainability in the tax competition environment and the effects of capital tax competition on fiscal sustainability. The main findings are as follows: (i) when countries are symmetric, increasing capital flows encourages accumulation of capital through tax reduction derived from tax competition and promotes economic growth through the expansion of Romer-type knowledge spillovers, resulting in increased fiscal sustainability in all countries; and (ii) when there are significant differences between countries in initial debt outstanding, tax competition might lower fiscal sustainability in a country that has a relatively large outstanding debt.
    Date: 2018–12
  11. By: Jonathan Gruber; Benjamin D. Sommers
    Abstract: As we approach the tenth anniversary of the passage of the Affordable Care Act, it is important to reflect on what has been learned about the impacts of this major reform. In this paper we review the literature on the impacts of the ACA on patients, providers and the economy. We find strong evidence that the ACA’s provisions have increased insurance coverage. There is also a clearly positive effect on access to and consumption of health care, with suggestive but more limited evidence on improved health outcomes. There is no evidence of significant reductions in provider access, changes in labor supply, or increased budgetary pressures on state governments, and the law’s total federal cost through 2018 has been less than predicted. We conclude by describing key policy implications and future areas for research.
    JEL: H3 H51 I13 I18
    Date: 2019–06
  12. By: Braga, Breno (Urban Institute); Blavin, Fredric (Urban Institute); Gangopadhyaya, Anuj (Urban Institute)
    Abstract: The Earned Income Tax Credit (EITC) is a central component of the U.S. safety net, benefiting about 27 million families. Using variation in the federal and state EITC, this paper evaluates the long-term impact of EITC exposure during childhood on the health of young adults. We find that an additional $100 in the average annual EITC exposure between ages 0 and 18 increases the likelihood of reporting very good or excellent health by 2.7 percentage points and decreases the likelihood of being obese by 1.0 percentage point between ages 22 and 27. Direct program transfers, increases in pre-tax family earnings, and increases in health insurance coverage are channels through which the EITC improves health.
    Keywords: children, health outcomes, EITC
    JEL: H24 I12 I14
    Date: 2019–06

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