nep-pbe New Economics Papers
on Public Economics
Issue of 2019‒08‒26
twelve papers chosen by
Thomas Andrén

  1. Tax Administration vs. Tax Rates: Evidence from Corporate Taxation in Indonesia By M. Chatib Basri; Mayara Felix; Rema Hanna; Benjamin A. Olken
  2. Pecuniary and Non-Pecuniary Motivations for Tax Compliance: Evidence from Pakistan By Joel Slemrod; Obeid Ur Rehman; Mazhar Waseem
  3. Does Tax-Benefit Linkage Matter for the Incidence of Social Security Contributions? By Bozio, Antoine; Breda, Thomas; Grenet, Julien
  4. The Elasticity of Taxable Income in Spain: 1999-2014 By Almunia, Miguel; Lopez-Rodriguez, David
  5. The Welfare Costs of Tiebout Sorting with True Public Goods By Kuhlmey, Florian; Hintermann, Beat
  6. The Norwegian Pension Reform in 2011: The Long Term Impact on Take-up of Pension and Labor Supply By Erik Hernæs; Steinar Strøm; Tao Zhang
  7. Information, Asymmetric Incentives, or Withholding? Understanding the Self-Enforcement of Value-Added Tax By Mazhar Waseem
  8. The media coverage of wealth and inheritance taxation in Germany By Hendrik Theine
  9. Pareto-Efficient Tax Deductions By Koehne, Sebastian; Sachs, Dominik
  10. Medicaid Coverage across the Income Distribution under the Affordable Care Act By Charles J. Courtemanche; James Marton; Aaron Yelowitz
  11. Correct Me If You Can - Optimal Non-Linear Taxation of Internalities By Andreas Gerster; Michael Kramm
  12. The Opportunities and Limitations of Monopsony Power in Healthcare: Evidence from the United States and Canada By Jillian Chown; David Dranove; Craig Garthwaite; Jordan Keener

  1. By: M. Chatib Basri; Mayara Felix; Rema Hanna; Benjamin A. Olken
    Abstract: Developing countries collect a far lower share of GDP in taxes than richer countries. This paper asks whether changes in tax administration and tax rates can nevertheless raise substantial additional revenue – and if so, which approach is most effective. We study corporate taxation in Indonesia, where the government implemented two reforms that differentially affected firms. First, we show that increasing tax administration intensity by moving the top firms in each region into “Medium-Sized Taxpayer Offices,” with much higher staff-to-taxpayer ratios, more than doubled tax revenue from affected firms over six years, with increasing impacts over time. Second, using non-linear changes to the corporate income tax schedule, we estimate an elasticity of taxable income of 0.59, which implies that the revenue-maximizing rate is almost double the current rate. The increased revenue from improvements in tax administration is equivalent to raising the marginal corporate tax rate on affected firms by about 23 percentage points. We suggest one reason improved tax administration was so effective was that it flattened the relationship between firm size and enforcement, removing the additional “enforcement tax” on large firms. On net, our results suggest that improving tax administration can have significant returns for developing country governments.
    JEL: H25 H26 O23
    Date: 2019–08
  2. By: Joel Slemrod; Obeid Ur Rehman; Mazhar Waseem
    Abstract: We examine two Pakistani programs to explore the role of deterrence as well as social and psychological factors in the tax compliance behavior of agents. In the first of these programs, the government began revealing income tax paid by every taxpayer in the country. The second program publicly recognizes and rewards the top 100 tax paying corporations, partnerships, self-employed individuals, and wage-earners. We find that both public disclosure and social recognition of top taxpayers caused a substantial increase in tax payments. We explore the drivers of this behavior, including the shift of social norms toward compliance.
    Keywords: tax evasion, income tax, social norms
    JEL: H24 H25 H26
    Date: 2019
  3. By: Bozio, Antoine (Paris School of Economics); Breda, Thomas (Paris School of Economics); Grenet, Julien (Paris School of Economics)
    Abstract: We study the earnings responses to three large increases in employer Social Security contributions (SSCs) in France. We find evidence of full pass-through to workers in the case of a strong and salient relationship between contributions and expected benefits. By contrast, we find limited pass-through of employer SSCs to wages for reforms that increased SSCs with no tax-benefit linkage. Together with a meta-analysis of the literature, we interpret these results as evidence that tax-benefit linkage and its salience matter for incidence, a claim long made by the literature but not backed by direct empirical evidence to date.
    Keywords: tax incidence, payroll tax, social security contributions, tax-benefit linkage
    JEL: H22 H55
    Date: 2019–07
  4. By: Almunia, Miguel; Lopez-Rodriguez, David
    Abstract: We study how taxable income responds to changes in marginal tax rates, using as a main source of identifying variation three large reforms to the Spanish personal income tax implemented in the period 1999-2014. The most reliable estimates of the elasticity of taxable income (ETI) with respect to the net-of-tax rate for this period are between 0.45 and 0.64. The ETI is about three times larger for self-employed taxpayers than for employees, and larger for business income than for labor and capital income. The elasticity of broad income (EBI) is smaller, between 0.10 and 0.24, while the elasticity of some tax deductions such as the one for private pension contributions exceeds one. Our estimates are similar across a variety of estimation methods and sample restrictions, and also robust to potential biases created by mean reversion and heterogeneous income trends.
    Keywords: Elasticity of taxable income; ETI; mean reversion; Personal income tax; Spain; tax deductions
    JEL: D63 H24 H31
    Date: 2019–07
  5. By: Kuhlmey, Florian (University of Basel); Hintermann, Beat (University of Basel)
    Abstract: We develop a model of Tiebout sorting based on decentralized income taxation, which allows for spillovers and imperfect rivalry in consumption of the publicly provided good. We identify three sources of welfare loss from decentralization: Imperfect redistribution, inter-jurisdictional free-riding, and inecient residential choice. Whereas the welfare loss from imperfect redistribution decreases and that from free-riding rises unambiguously as the publicly provided good becomes more pure, the welfare loss from the inecient residential choice depends non-monotonically on spillovers and rivalry. The equilibrium can be characterized by relative crowding of either the rich or the poor municipality. Our results imply that the characteristics of the publicly provided good are an important determinant for the welfare costs of decentralization.
    Keywords: Public goods; Tiebout; local income taxation; fiscal federalism; decentralization; free-riding
    JEL: H21 H23 H41 H77 R13 R23 R50 Q58
    Date: 2018–12–06
  6. By: Erik Hernæs; Steinar Strøm; Tao Zhang
    Abstract: We investigate the impact on pension take-up and labour supply of a broad Norwegian pension reform. Focussing on the long term impact, we use a structural discrete choice model estimated on data for first groups to become eligible for the new pension, accounting for the opportunity cost of retiring early. A majority of the individuals combine take-up of pension with working. This is particular the case for individuals with lower education. The estimated model explains observed behaviour rather precisely, in particular for those who retire entirely and for all choices made by individuals with higher education. The estimated model is applied in an out of sample prediction for the cohort born in 1950. Again, the model predicts rather accurately the fraction that retires entirely and the choices made by the higher educated. Two policy simulations, an increase in longevity and tax on pension income equal to tax on labour income, implies lower take up of pensions and more people working. The response to the longevity adjustment compensates less than half of the reduction of the annual pension level in the adjustment, which is designed to mimic the increase in the longevity over the next 20 years.
    Keywords: pension reform, labor supply
    JEL: D10 H55 J26
    Date: 2019
  7. By: Mazhar Waseem
    Abstract: During the period 1996-2000, the coverage of VAT in Pakistan rose by twenty times in terms of the number of firms in the tax net and by ten times in terms of the volume of transactions subject to it. This paper leverages this staggered introduction of VAT in the country to estimate its enforcement spillovers. Focusing on firms already in the tax net, I explore if their tax compliance improves as VAT gets extended to their trading partners. Using differential responses to upward and downward extension of the tax, I characterize the mechanisms underlying the self-enforcement response.
    Keywords: VAT, tax evasion, informality
    JEL: H25 H26 O17
    Date: 2019
  8. By: Hendrik Theine (Vienna University of Economics and Business)
    Abstract: Based on the political economy of the media perspective, this paper explores the media coverage of wealth and inheritance taxation over the early 21st century (2000 to 2018) based on a large-scale corpus of seven German daily and weekly newspapers. Germany is a useful case study, being one of the most unequal countries in the Eurozone area in terms of wealth inequality. Drawing on text mining methods and corpus linguistics, it shows that wealth and inheritance taxation is a relatively infrequent topic over the entire period, with the exception of a few intense months of increased reporting. On the occasions that the media do report on the topic of wealth and inheritance taxation, it is mainly covered in terms of a political debate. This debate centres on the politics of a possible reform process and the connected difficulties of finding compromise between different actors, rather than focussing on the potential economic impact. Furthermore, this paper explores the power of agents (both on the organisational and individual level) as the primary definers of social reality. It shows that market-liberal and conservative organisations and economists dominate the news over social-democratic and left-wing ones. Overall, the findings indicate a hostile news coverage concerning the introduction of wealth taxation and the increase of inheritance tax.
    Keywords: wealth taxation, economic inequality, media coverage of redistribution policies, critical discourse analysis, political economy of the media
    JEL: D63 E62 H29 L82
    Date: 2019–08
  9. By: Koehne, Sebastian; Sachs, Dominik
    Abstract: We analyze Pareto-e�cient tax deduction rules for work-related expenses (e.g. housekeeping services, child care or elderly care). Pareto e�ciency dictates a tight rule for how the rate of deductibility should vary with income and expenditures. An immediate implication is a recipe for designing Pareto-improving tax reforms. We apply our theory to housekeeping services in the U.S.: Introducing deduction rules such that between 55% (low expenses) and 85% (high expenses) of housekeeping services can be marginally deducted from taxable income yields a Pareto improvement if combined with a slight increase in marginal tax rates. Nobody is made worse-o� and tax revenue increases by 20 Dollars per capita.
    Keywords: optimal taxation; Pareto-Improving Tax Reform; Tax Deduction
    JEL: D82 H21
    Date: 2019–07
  10. By: Charles J. Courtemanche; James Marton; Aaron Yelowitz
    Abstract: This paper examines trends in Medicaid enrollment across the income distribution after the ACA’s Medicaid expansion. Using data from the American Community Survey between 2012 and 2017, we compare Medicaid coverage over time in 9 states that expanded Medicaid in 2014 with no previous expansion for able-bodied, working-age adults with 12 states that had not expanded Medicaid by 2019 and also had no previous expansion for such adults. A difference-in-differences model is used to formalize this comparison. Similar to many previous studies, we find that Medicaid coverage increased dramatically for income-eligible adults under 138% of the federal poverty level (FPL). In addition, we show that Medicaid participation increased by 3.0 percentage points for those with incomes above 138% of the FPL from a pre-ACA baseline of 2.7% among this group. While we cannot say with certainty why these individuals were able to participate in Medicaid, we offer several potential explanations that should be the subject of future work. For example, it is possible that the ACA Medicaid expansions were administered differently at the state or local level than federal rules would require, similarly to differences between effective tax rates and statutory tax rates in many transfer programs.
    JEL: H51 I13
    Date: 2019–08
  11. By: Andreas Gerster; Michael Kramm
    Abstract: A growing literature has shown that behavioral biases influence consumer choices. Such so-called internalities are ubiquitous in many settings, including energy efficiency investments and the consumption of sin goods, such as cigarettes and sugar. In this paper, we use a mechanism design approach to characterize the optimal non-linear tax (or subsidy) for correcting behaviorally biased consumers. We demonstrate that market choices are informative about consumers’ bias, which can be exploited for benevolent price discrimination via a non-linear tax schedule. We derive that such “internality revelation” depends on two sufficient statistics: the correlation between valuations and biases, as well as the signal-to-noise ratio of the bias. Furthermore, we find that there must be a minimum alignment of preferences among the designer and the consumer to ensure internality tax implementability. We contrast our results with the insights from standard non-linear income taxation and discuss that the optimal corrective tax schedule is typically convex. In addition, we apply our findings to the light bulb market and determine the optimal non-linear subsidy for energy efficiency.
    Keywords: optimal commodity taxation, non-linear taxation, behavioral economics, public economics, internalities, environmental economics
    JEL: H21 D82 D04 Q58
    Date: 2019
  12. By: Jillian Chown; David Dranove; Craig Garthwaite; Jordan Keener
    Abstract: Perhaps more than any other sector of the economy, healthcare depends on government resources. As a result, many healthcare systems rely on the use of government monopsony power to decrease spending. The United States is a notable exception, where prices in large portions of the healthcare sector are set without government involvement. In this paper we examine the economic implications of a greater use of monopsony power in the United States. We present a model of monopsony power and test its predictions using price differences between the United States and Canada – a country that represents an example of a “Medicare for All” style system. Overall, we find that wage differences for medical providers across the two countries are primarily driven by the broader labor market while price difference for prescription drugs are more directly the result of buyer power. We discuss theoretical reasons why a Canadian monopsonist may be more willing to exploit its buyer power over prescription drugs rather than provider wages and why a U.S. monopsonist might not be willing to do the same
    JEL: H0 H4 I0 I1
    Date: 2019–07

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