nep-pbe New Economics Papers
on Public Economics
Issue of 2019‒09‒09
twelve papers chosen by
Thomas Andrén

  1. On the Political Economy of Redistribution and Public Good Provision By Stefano Barbieri; Koray Caglayan
  2. Labor Supply, Taxation and the Use of the Tax Revenues - A Real-Effort Experiment in Canada, France, and Germany By Claudia Keser; David Masclet; Claude Montmarquette
  3. Taxation and the Superrich By Florian Scheuer; Joel Slemrod
  4. Taking stock of the functioning of the EU fiscal rules and options for reform By Kamps, Christophe; Leiner-Killinger, Nadine
  5. The Flat Tax: What Degree of Simplification Does It Imply? By Luigi Bernardi
  6. What if dividends were tax-exempt? Evidence from a natural experiment By Isakov, Dusan; Pérignon, Christophe; Weisskopf, Jean-Philippe
  7. Do Value-Added Taxes Affect International Trade Flows? Evidence from 30 Years of Tax Reforms By Youssef Benzarti; Alisa Tazhitdinova
  8. Did the ACA Medicaid Expansion Save Lives? By Borgschulte, Mark; Vogler, Jacob
  9. Disentangling tax evasion from inefficiency in firms tax declaration: an integrated approach By Giancarlo Ferrara; Arianna Campagna; Vincenzo Atella
  10. Budgetary Outcomes Under Alternative Assumptions About Fiscal Policy By Congressional Budget Office
  11. Fiscal challenges and inclusive growth in ageing societies By Dorothée Rouzet; Aida Caldera Sánchez; Theodore Renault; Oliver Roehn
  12. Tax or Green Nudge? An Experimental Analysis of Pesticide Policies in Germany By Buchholz, Matthias; Mußhoff, Oliver; Peth, Denise

  1. By: Stefano Barbieri (Stone Center for Latin American Studies, Department of Economics, Tulane University); Koray Caglayan (Department of Economics, Tulane University)
    Abstract: We analyze the public provision of public goods and income redistribution in a median voter framework. We review existing related frameworks, devoting special attention to their implications for applied analysis. Motivated by empirical regularities discovered in the analysis of CEQ data linking the percentage of “net receivers” to the levels of public good provision, we present an extension of the classic framework of taxation and public good provision that departs from the assumption of a simple proportional tax in favor of a flat tax with exemption. Adjusting the exemption level, we capture tax schemes that are restricted to generating different numbers of net receivers. We then let voters decide on the tax rate and the quantity of public good provided. We find that, in a standard framework, the public good level can increase or decrease in the proportion of “net receivers,” according to the relationship that exists between the income of the decisive voter and average income in the population conditional on income being larger than the exemption. This suggests that, to account for the richness of comparative statics we observe, the framework used should encompass additional considerations such as turnout and the presence of substitutes for government provided public goods.
    Keywords: public good provision, income distribution, median voter, flat tax, exemption levels
    JEL: H21 D31 D72
    Date: 2019–03
  2. By: Claudia Keser; David Masclet; Claude Montmarquette
    Abstract: Is the labor supply of individuals influenced by their perception of how their income taxes will reflow to them or be wasted in administrative expenditures? We examine this issue experimentally by comparing three different treatments of a real-effort game that vary in the degree of redistribution. At one extreme, the Leviathan scenario, where no tax revenue is redistributed to the taxpayers, is compared to the situation where public expenditures are direct transfer payments. In-between, we investigate a situation where tax revenue is used to finance a public good that provides neither direct nor immediate monetary benefits to the taxpayers. We ran this experiment in three different countries, Canada, France, and Germany, to test whether there may exist any country differences in attitude toward taxation and redistribution. We find that effort is significantly higher in the redistribution treatment than the Leviathan treatment. Tax revenue is the highest in the redistribution treatment, followed by the global public good and the Leviathan treatment. On average, the effort is higher in France than in Canada and Germany.
    Keywords: Real-effort experiment,Taxation,Redistribution,Labor supply,Laffer curve,
    JEL: D31 H23 H53
    Date: 2019–08–28
  3. By: Florian Scheuer; Joel Slemrod
    Abstract: This paper addresses the modern optimal tax progressivity literature, which clarifies the key role of the behavioral response to taxation and accounts for the incomes of the superrich being qualitatively different than others. Some may be “superstars,” for whom small differences in talent are magnified into much larger earnings differences, while others may work in winner-take-all markets, such that their effort to climb the ladder of success reduces the returns to others. We stress that pivotal tax-rate elasticities are not structural parameters, and will be smaller the broader and less plastic is the tax base and the more effective is the enforcement of tax evasion. For this reason, normative analysis of tax rates should be accompanied by attention to the tax base, with special attention to capital gains, which comprise a large fraction of the taxable income of the superrich.
    JEL: H2 H21 H26
    Date: 2019–08
  4. By: Kamps, Christophe; Leiner-Killinger, Nadine
    Abstract: This paper reviews developments in fiscal rules in the European Union (EU) from the entering into force of the Treaty on European Union (the “Maastricht Treaty”), which laid the foundations for the euro, until today. It seems safe to say that fiscal positions in the EU and the euro area are now more favourable than they would have been in the absence of the Maastricht Treaty and the Stability and Growth Pact (SGP). However, the aggregate picture masks significant cross-country heterogeneity, with less progress where it would be needed most. Furthermore, the design of the rules has not always followed economic logic and has often been the product of political constraints, giving rise to some flaws in the framework from the outset. Repeated attempts to adjust the fiscal framework to a multitude of circumstances over the past 25 years have made it overly complex and incoherent. The paper concludes that, in its current shape, the SGP is an insufficient disciplining device in economic good times, with the consequence that there are no fiscal buffers, particularly in high-debt countries, to support growth in economic troughs. This, together with the absence of a central fiscal stabilisation instrument, puts the burden of stabilisation mostly on the single monetary policy. The paper also reviews reform options on how to render the fiscal framework more effective in bringing about sounder public finances and avoiding the procyclicality observed over the past two decades. JEL Classification: H11, H50, H6
    Keywords: Economic and Monetary Union (EMU), fiscal rules, Stability and Growth Pact (SGP)
    Date: 2019–08
  5. By: Luigi Bernardi (Università di Pavia)
    Abstract: According to its creators, the principal purpose of the original Flat Tax (FT: HALL AND RABUSHKA, 1985-1995) was to simplify the graduated PIT. This claim was broadly accepted, and the debate has since focused on other aspects of the proposal (single rate, redistribution effects, the tax treatment of corporations, and so on). The aim of this paper is therefore simply to analyse the simplification effects of the Flat Tax (FT). We shall be examining the criticisms made by the FT’s supporters in regard to the complications of a standard graduated PIT, the alleged simplifications ascribed to the introduction of the FT, and the robustness of such claims. We conclude that several reservations may be raised with regard to the claimed simplification that would result from the introduction of a FT. Such reservations, together with other weaknesses of the FT, may help explain why to date its diffusion has been limited to a small, specific group of countries (mainly former communist countries in Eastern Europe).
    Keywords: Personal Income Tax, Flat Tax, simplification
    JEL: H20 H24 H70
    Date: 2019–09
  6. By: Isakov, Dusan; Pérignon, Christophe; Weisskopf, Jean-Philippe
    Abstract: We study the effect of dividend taxes on the payout and investment policy of listed firms and discuss their implications for agency problems. To do so, we exploit a unique setting in Switzerland where some, but not all, firms were suddenly able to pay tax-exempted dividends to their shareholders following the corporate tax reform of 2011. Using a difference-in-differences specification, we show that treated firms increased their payout by around 30% compared to control firms after the tax cut. Differently, treated firms did not concurrently or subsequently increase investment. We show that the tax-inelasticity of investment was due to a significant drop in retained earnings ̶ as the rise in dividends was not compensated by an equally-sized reduction in share repurchases. Furthermore, treated firms did not raise more equity than control firms. Lastly, we show that an unintended consequence of cutting dividend taxes is to mitigate the agency problems that arise between insiders and minority shareholders.
    Keywords: corporate taxes; dividends; payouts; investment; agency problems.
    JEL: G35 G38 H25 K34
    Date: 2019–02–19
  7. By: Youssef Benzarti; Alisa Tazhitdinova
    Abstract: This paper uses all Value Added Tax (VAT) changes across all EU Member States from 1988 to 2016 to estimate the effect of VATs on trade flows. We find small elasticities of trade flows with respect to VATs, in spite of some of the VAT changes being substantial. We estimate substantially smaller responses of trade flows to VATs compared to the responses of trade flows to tariffs estimated in the trade literature. This finding holds across different time periods, countries and types of reforms. Our results imply that VATs are unlikely to distort trade flows.
    JEL: F1 F14 H2 H25
    Date: 2019–08
  8. By: Borgschulte, Mark (University of Illinois at Urbana-Champaign); Vogler, Jacob (University of Illinois at Urbana-Champaign)
    Abstract: We estimate the effect of the Affordable Care Act Medicaid expansion on county-level mortality in the first four years following expansion. We find a reduction in all-cause mortality in ages 20 to 64 equaling 11.36 deaths per 100,000 individuals, a 3.6 percent decrease. This estimate is largely driven by reductions in causes of death likely to be influenced by access to health care, and equates to one life saved per 310 newly covered individuals. A cost-benefit analysis shows that the improvement in welfare due to mortality responses may offset the entire net-of-transfers expenditure associated with the expansion.
    Keywords: health insurance, Medicaid, mortality, public health insurance, healthcare, Affordable Care Act
    JEL: H75 I13 I14 I18 I38
    Date: 2019–08
  9. By: Giancarlo Ferrara (SOSE - Soluzioni per il Sistema Economico S.p.A); Arianna Campagna (SOSE - Soluzioni per il Sistema Economico S.p.A); Vincenzo Atella (SOSE, CEIS & DEF University of Rome "Tor Vergata")
    Abstract: In this article we present a new methodology to support fiscal monitoring by the Italian Revenue Agency (IRA) with the aim of improving current taxpayers fiscal compliance and fighting tax evasion within small and medium enterprises. In fact, given the methodology behind the Sector Studies (Studi di Settore - SdS) system, there is room for firms to implement tax evasion strategies by simply adjusting revenues (and costs) toward an estimated average threshold (known ex-ante), the so called "presumptive" revenues, and achieving the fiscal "congruity" status. By estimating a production function through stochastic frontier analysis we avoid estimating the average threshold know ex-ante and can combine information on firm economic efficiency with those on fiscal congruity, thus being able to disentangle underreporting of revenues due to potential firm tax evasion behaviours from underreporting due to firm inefficiencies. We apply this framework to two samples of Italian firms belonging to two Sector Studies. Our results confirm the potentiality of the approach, although more work is needed before moving to a large scale implementation for policy purposes.
    Keywords: Compliance, Tax evasion, Fiscal monitoring, Production, Sector Studies, Efficiency.
    Date: 2019–09–06
  10. By: Congressional Budget Office
    Abstract: In this report, CBO provides additional information about how its most recent budget projections would change under alternative assumptions about future fiscal policies and estimates the possible budgetary outcomes.
    JEL: H50 H60 H68
    Date: 2019–08–29
  11. By: Dorothée Rouzet; Aida Caldera Sánchez; Theodore Renault; Oliver Roehn
    Abstract: This paper was prepared in support of Japan’s G20 Presidency. It takes stock of ongoing and projected population ageing across G20 economies and its far-reaching implications for economic growth, productivity, inequality within and between generations and the sustainability of public finances. Rising old-age dependency ratios will put the financing of adequate pensions, health and long-term care under high pressure. The paper provides recommendations on policy responses to address ageing-related challenges and highlights good practices. A comprehensive approach is needed, tailored to each country’s institutional and policy settings and social preferences, and may span many areas of public policy: improving the design of public pensions, incentivising private savings, enhancing the efficiency of health care provision, expanding the coverage of social security systems, promoting employability and skills of older workers, and striving for a better labour market inclusion of women, youth and migrants.
    Keywords: ageing, employment, fiscal sustainability, health, inequality, long-term care, pensions, skills
    JEL: E24 H51 H55 J11 J26
    Date: 2019–09–10
  12. By: Buchholz, Matthias; Mußhoff, Oliver; Peth, Denise
    Abstract: Pesticides are an important input in modern agriculture. However, intensive use of pesticides is also related to adverse effects on the environment and human health. While implementation of pesticide taxes with the intent to reduce pesticide applications has been widely discussed, green nudges are considered as innovative policy tools to foster environmental friendly behaviour. To date, little is known about the effects of these policy tools at the farm level. With this in mind, we use a business management game to investigate how a pesticide tax and a green nudge affect crop, tillage and pesticide decisions for a ‘virtual’ farm. Results from a sample of German agricultural students reveal that both policies are able to reduce the amount of pesticides applied. However, implementation of the pesticide tax also involves a substantial profit loss. Unlike in the green nudge treatment, participants under pesticide tax adjust their cropping and tillage strategies which could involve unintended ecological effects.
    Keywords: Environmental Economics and Policy, Farm Management
    Date: 2019–08–26

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