nep-pbe New Economics Papers
on Public Economics
Issue of 2019‒08‒19
nine papers chosen by
Thomas Andrén

  1. Stated preferences for capital taxation - tax design, misinformation and the role of partisanship By Chirvi, Malte; Schneider, Cornelius
  2. Inferring Tax Compliance from Pass-through: Evidence from Airbnb Tax Enforcement Agreements By Andrew J. Bibler; Keith F. Teltser; Mark J. Tremblay
  3. Effects of Housing Transfer Taxes on Household Mobility By Essi Eerola; Oskari Harjunen; Teemu Lyytikäinen; Tuukka Saarimaa
  4. Fiscal justice in Brazil: taxation as an instrument for equality By Luana Passos
  5. The Effect of Fiscal Incentives on Business R&D By Bucci, Valeria
  6. Systematic Determinants of Pensions in Latin America By Ianina Rossi
  7. State and Local Taxes and High-Wage Employment By Sohani Fatehin; David L. Sjoquist
  8. Higher Tax and Less Work: An Optimal Response to Relative Income Concern By FitzRoy, Felix; Jin, Jim; Nolan, Michael A.
  9. Ordinal Tax To Sustain a Digital Economy By Nate Dwyer; Sandro Claudio Lera; Alex Sandy Pentland

  1. By: Chirvi, Malte; Schneider, Cornelius
    Abstract: Although theoretical research on optimal capital taxation suggest to incorporate public opinions, the empirical literature on preferences regarding capital taxation almost exclusively focusses on the emotionally loaded estate tax. This paper presents a more comprehensive investigation of preferences towards different, tangible instruments of capital taxation beyond the estate tax. In particular, we focus on the effects of tax-specific design features and personal as well as asset-related characteristics. For this, we conducted a factorial survey experiment with over 3,200 respondents on Amazon's Mechanical Turk (MTurk). By using different tax instruments as reference points for each other we strengthen the robustness of our findings. While our results confirm well-established findings of previous literature, we show that the specific design of tax instruments is indeed decisive for preferences over capital taxation. Whereas proposed effective tax rates of the estate tax and the one-time wealth tax show a significant progressivity, there is no clear pattern for both periodical taxes. Furthermore, preferences depend on the respondents' characteristics, especially their partisanship. Democrats clearly prefer concentrated over periodical capital taxes, Republicans' only articulated preference refers to the particular rejection of the estate tax. Remarkably, this opposition does not hold for a perfectly congruent one-time wealth tax. This result provides novel empirical evidence for drivers of the opposition towards the estate tax beyond mere misinformation discussed by previous literature: emotional charge potentially triggered by political framing.
    JEL: C90 D31 H21 H24
    Date: 2019
  2. By: Andrew J. Bibler; Keith F. Teltser; Mark J. Tremblay
    Abstract: Tax enforcement can be prohibitively costly when market transactions and participants are difficult to observe. Evasion among market participants may reduce tax revenue and provide certain types of suppliers an undue competitive advantage. Whether efforts to fully enforce taxes are worthwhile depends on the rate of compliance in the absence of such efforts. In this paper, we show that an upper bound on pre-enforcement tax compliance can be obtained using market data on pre- and post-enforcement periods. To do this, we estimate the pass-through of tax enforcement agreements between Airbnb and state and local governments, which achieve full compliance at the point of sale. Using data on Airbnb listings across a number of U.S. metropolitan areas, as well as variation in enforcement agreements across time, location, and tax rate, we estimate that taxes are paid on no more than 24 percent of Airbnb transactions prior to enforcement. We also find that demand is inelastic, which drives several key insights: the economic burden of taxation disproportionately falls on renters, excess burden is very small, and tax enforcement is not an effective policy lever for interest groups seeking to reduce local Airbnb activity.
    Keywords: evasion, short-term housing rentals, sharing economy, voluntary collection agreements, online sales and use taxes
    JEL: H20 H22 H26 L10
    Date: 2019
  3. By: Essi Eerola; Oskari Harjunen; Teemu Lyytikäinen; Tuukka Saarimaa
    Abstract: Housing transfer taxes are fiscally important in many countries despite evidence of substantial welfare losses found in several quasi-experimental studies. Research designs used in this prior literature are prone to attenuation bias due to spillovers from mobility or trading across control and treatment groups. We account for these spillovers by combining quasi-experimental empirical analysis with a one-sided housing market model where households act as both buyers and sellers. Using a Finnish tax reform and total population register data, we find that an increase in the transfer tax has a significant negative effect on household mobility. We calibrate our theoretical model to match the mobility rates in our data and our quasi-experimental estimate. In our setting, relying only on the quasi-experiment and ignoring the spillovers would lead to a 20% underestimation of the effect. We argue that the welfare costs of transfer taxes are larger than previously thought.
    Keywords: household mobility, spillover, transfer tax, welfare cost
    JEL: H21 R21 R23
    Date: 2019
  4. By: Luana Passos (IPC-IG)
    Abstract: "The debate around taxation in Brazil has long revolved around issues related to tax burden, efficiency, competitiveness and simplicity. Despite recent fiscal problems and a better understanding of the concentration of income and national wealth, the relevance of a progressive tax system as a tool to fight inequality still enjoys little space in mainstream media discussions. The traditional focus of the Brazilian debate on tax burden is due to the fact that the State absorbs a considerable proportion of gross domestic product (GDP)?approximately 32 per cent in 2016?as taxes. This sets Brazil apart from other countries with similar income levels: its tax burden is one of the highest in Latin America, even greater than in some developed countries, such as Spain and Canada". (...)
    Keywords: Fiscal justice, Brazil, taxation, instrument, equality
    Date: 2019–06
  5. By: Bucci, Valeria
    Abstract: This paper analyses the determinants of business R&D choices. In particular, it provides new empirical evidence on the effectiveness of fiscal policies aimed at driving companies to invest in R&D activity. By computing two very accurate proxies for firm-specific tax savings achievable when investing in R&D, and by exploiting exogenous changes in fiscal legislation in Italy, this study investigates if fiscal considerations affect companies’ choice to invest in R&D and how much to spend in such activity. The empirical analysis is based on an unbalanced panel data set composed of 163 Italian companies, covering the years 2004-2010. A two-step approach has been implemented, by combining a probit and a tobit estimation model. The results deliver strong empirical evidence that fiscal incentives significantly affect business R&D choices, by one side, increasing companies’ likelihood to invest in R&D, and, by the other, fostering companies’ R&D expenditure.
    Keywords: Innovation, R&D, Fiscal Incentives, Marginal Tax Savings
    JEL: H25 H32 O32 O38
    Date: 2019–04–18
  6. By: Ianina Rossi (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: In this paper I assess Latin American contributory pension schemes in terms of their role in replacing earnings after retirement. I look for key elements that can explain differences, resulting in useful policy recommendations. My analysis is based on microsimulations of work histories and pension rights in 10 Latin American countries according to current norms and controlled scenarios. I use response surface analysis to summarize the results, performing regression analysis to assess the impact of changes in control variables on the effective replacement rate (ERR). The effects of covariates at scenario level and at regime level are considered. Results show that individual choices and luck are very relevant in determining ERRs. I also find that some policy variables have a great impact. This is the case of the contribution rate. These findings are particularly relevant for the current discussion on pension reform and pension adequacy in Latin America.
    Keywords: contribution rate, pension, replacement rate, retirement, social security
    JEL: H55 J14 J26
    Date: 2018–11
  7. By: Sohani Fatehin (Dickinson College, USA); David L. Sjoquist (The Center for State and Local Finance, Georgia State University, USA)
    Abstract: Although the literature on the effect of taxation on economic growth is quite large, no research has been conducted that examines the differential effect of state and local taxes on the level and growth of jobs by skill level. We investigate whether interstate differences in state and local taxes have differential effects on employment by skill level and, in particular, whether low-skill and high-skill jobs could be less responsive to interstate differences in taxes than middle-skill jobs. Using a panel dataset of U.S. states for the period 1977–2012, we estimated several models of the level and share of employment. We find evidence that high-wage employment is positively and statistically significantly associated with taxes per capita, while middle-wage and low-wage employment is either negatively or not statistically significantly related to taxes per capita.
    Date: 2019–07
  8. By: FitzRoy, Felix (University of St. Andrews); Jin, Jim (University of St. Andrews); Nolan, Michael A. (University of Hull)
    Abstract: There is much evidence that relative income concern reduces subjective wellbeing and raises labour supply – 'keeping up with the Joneses' (KUJ), while increasing use of social media and growing inequality encourage comparison. Models with one or two agent –types generally miss the policy relevant dimension of labour force participation, so we include a distribution of wages with intensive and extensive margins of labour supply, both of which are increased by comparison. The optimal tax response increases with comparison, but, surprisingly, dominates the comparison effect and reduces individual labour supply, thus reversing KUJ, and maintains constant employment, independent of comparison.
    Keywords: income comparison, maxi-min, inequality, unemployment
    JEL: H24 D63
    Date: 2019–07
  9. By: Nate Dwyer; Sandro Claudio Lera; Alex Sandy Pentland
    Abstract: Recently, the French Senate approved a law that imposes a 3% tax on revenue generated from digital services by companies above a certain size. While there is a lot of political debate about economic consequences of this action, it is actually interesting to reverse the question: We consider the long-term implications of an economy with no such digital tax. More generally, we can think of digital services as a special case of products with low or zero cost of transportation. With basic economic models we show that a market with no transportation costs is prone to monopolization as minuscule, random differences in quality are rewarded disproportionally. We then propose a distance-based tax to counter-balance the tendencies of random centralisation. Unlike a tax that scales with physical (cardinal) distance, a ranked (ordinal) distance tax leverages the benefits of digitalization while maintaining a stable economy.
    Date: 2019–08

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