nep-pbe New Economics Papers
on Public Economics
Issue of 2019‒12‒09
seventeen papers chosen by
Thomas Andrén

  1. Multi-tier tax competition on Gasoline By Marie-Laure BREUILLÉ; Emmanuelle TAUGOURDEAU
  2. Fiscal federalism and income inequality: An empirical analysis for Switzerland By Feld, Lars P.; Frey, Christian; Schaltegger, Christoph A.; Schmid, Lukas A.
  3. Twenty years of tax autonomy across levels of government: Measurement and applications By Sean Dougherty; Michelle Harding; Andrew Reschovsky
  4. Investment Expensing, Investment and Public Finances By Määttänen, Niku
  5. Ring-fencing digital corporations: Investor reaction to the European Commission's digital tax proposals By Klein, Daniel; Ludwig, Christopher A.; Spengel, Christoph
  6. Decentralized leadership in a federation with competition for mobile firms: Does economic integration matter? By Thierry MADIÈS; Emmanuelle TAUGOURDEAU
  7. How Does the Public Spending Affect Technical Efficiency? Some Evidence from 15 European Countries By Sabrina Auci; Laura Castellucci; Manuela Coromaldi
  8. Ethnicity and tax filing behavior By Bastani, Spencer; Giebe, Thomas; Miao, Chizheng
  9. Do Sugar Taxes affect the right consumers? By Valerio Serse
  10. Long-term responses to car-tax policies: distributional effects and reduced carbon emissions By Pyddoke, Roger; Swärdh, Jan-Erik; Algers, Staffan; Habibi, Shiva; Sedehi Zadeh, Noor
  11. Shrinking the Tax Gap: Approaches and Revenue Potential By Natasha Sarin; Lawrence H. Summers
  12. The Earned Income Tax Credit and Infant Health Revisited By Daniel L. Dench; Theodore J. Joyce
  13. The Lock-In Effect and the Corporate Payout Puzzle By Chris Mitchell
  14. Multinational Corporations and Tax Havens: Evidence from Country-by-Country Reporting By Javier Garcia-Bernardo; Petr Jansky; Thomas Torslov
  15. How Do Low-Income Enrollees in the Affordable Care Act Marketplaces Respond to Cost-Sharing? By Lavetti, Kurt; DeLeire, Thomas; Ziebarth, Nicolas R.
  16. Great powers in global tax governance: a comparison of the US role in the CRS and BEPS By Lips, Wouter
  17. Oligopoly and the need for special fiscal intervention By Giuseppe Vitaletti

  1. By: Marie-Laure BREUILLÉ (CESAER, INRA.); Emmanuelle TAUGOURDEAU (CREST, University of Paris-Saclay, ENS Paris-Saclay.)
    Abstract: This paper analyzes the fiscal interactions arising from gasoline taxation in a federation. We adopt a general theoretical model for studying simultaneous vertical and horizontal tax competition by i) introducing a specific monetary cost of refueling ii) assuming that the price of gasoline is affected by either excise taxes (regional and federal) and the VAT rate, ii) considering elastic demand for gasoline. We show that at the symmetric equilibrium, horizontal taxes are strategic complements but vertical taxes are strategic may be substitutes. Moreover, horizontal excise taxes are strategic substitutes with VAT whereas the result is unclear for the reaction between regional and federal excise taxes. Finally, we show that the tax reaction functions and thus the equilibria crucially differ according to the pattern of decision-making (social planner, Nash or defederalized leadership).
    Keywords: Fiscal Federalism, Gasoline Taxation, Horizontal and Vertical Tax Interactions.
    JEL: E62 H7 Q48
    Date: 2019–11–19
  2. By: Feld, Lars P.; Frey, Christian; Schaltegger, Christoph A.; Schmid, Lukas A.
    Abstract: This paper analyzes the impact of fiscal federalism on income inequality and redistribution. Economic theory delivers contradicting arguments such that empirical evidence is needed to shed light on the relationship. To obtain such evidence, we rely on the ideal institutional setting of federalism in Switzerland. According to our findings, decentralization actually reduces income concentration if jurisdictional fragmentation is limited. We provide evidence that it is crucial to consider the interdependence of decentralization and fragmentation, since the inequality decreasing effect of fiscal decentralization is counteracted by the interaction with jurisdictional fragmentation. Interestingly, it is not redistribution via progressive taxes that drive our results. Instead, we find significant effects in pre-tax income.
    Keywords: Federalism,Decentralization,Inequality,Income Concentration,Top Incomes,Redistribution,Switzerland
    JEL: D31 H23 H77
    Date: 2019
  3. By: Sean Dougherty; Michelle Harding; Andrew Reschovsky
    Abstract: The Network on Fiscal Relations has been assessing the degree of sub-central government tax autonomy in OECD countries for almost two decades. This paper provides an in-depth description of the methodology used to characterise tax autonomy. After summarizing the wide-spread use of the tax autonomy results by researchers addressing a range of policy issues, the paper highlights recent trends in sub-central government revenues and presents the results of the latest survey of tax autonomy, completed in 2017. Using the OECD’s tax autonomy methodology, the paper for the first time assesses local government tax autonomy in the 50 US states. The analysis reveals that US local governments have somewhat more tax autonomy than local governments in the average OECD country. The paper includes suggestions for further refinements of the tax autonomy methodology.
    Keywords: fiscal decentralisation, local taxation, property tax design, sub-national governments, tax autonomy
    JEL: H20 H71
    Date: 2019–12–04
  4. By: Määttänen, Niku
    Abstract: Abstract At present, businesses in Finland can deduct the cost of many investment goods from taxable income only gradually over several years. Higher expensing limits would allow them to deduct investments costs faster, while full expensing would allow them to deduct the cost of investment goods in full in the year they are purchased. In this report, I explain how investment expensing rules affect the profitability of investment and the neutrality of the corporate taxation and discuss how higher expensing limits or a move to full expensing would likely affect investment and public finances in Finland. The current relatively low corporate tax rate, low interest rates, and the special tax treatment of dividends from non-listed companies reduce the likely impact of higher expensing limits on aggregate investment. However, the risks to public finances would be small as well. From the point of view of tax neutrality, a permanent move to full expensing should be combined with the elimination of interest deduction for investment loans.
    Keywords: Capital expensing, Investment, Corporate taxation
    JEL: H25
    Date: 2019–12–02
  5. By: Klein, Daniel; Ludwig, Christopher A.; Spengel, Christoph
    Abstract: We study the effect of digital tax measures on firm value. By employing an event study methodology, we analyze investor reaction to the European Commission's proposals on the taxation of digital corporations. Examining the stock returns of potentially affected corporations surrounding the draft directives' release, we find a significant abnormal capital market reaction of -0.692 percentage points. The investor reaction is more pronounced for firms that engage more actively in tax avoidance, have a higher profit shifting potential, and for those with higher exposure to the EU. The market value of digital and innovative corporations decreased by at least 52 billion euro in excess of the regular market movement during the event window. Overall, our study reveals that expectations about ringfencing digital tax measures impact firm values.
    Keywords: digital taxation,corporate tax,digital economy,event study
    JEL: H25 H26 K34 G14
    Date: 2019
  6. By: Thierry MADIÈS (Université de Fribourg); Emmanuelle TAUGOURDEAU (CREST, University of Paris-Saclay, ENS Paris-Saclay.)
    Abstract: Our paper presents a model of decentralized leadership with fiscal equalization and imperfect economic integration. The degree of trade integration (reflected by trade costs) turns out to have ane effect on both the state tax rates and the ex-post vertical equalization transfers. Our main results are the following: Ex post vertical transfers are welfare deteriorating for low levels of trade integration while they are welfare improving compared to tax competition when trade integration is high enough. However, when public goods are highly valued by the citizens of the federation, ex post transfers are always welfare enhancing.
    Keywords: Tax competition, Trade Integration, Decentralized Leadership.
    JEL: H7 H2 R3 R5
    Date: 2019–11–19
  7. By: Sabrina Auci (University of Palermo); Laura Castellucci (University of Rome "Tor Vergata"); Manuela Coromaldi (University of Rome “Niccolò Cusano")
    Abstract: The relationship between government size and economic growth has been widely debated. Departing from this issue, we provide an empirical analysis of the impact of government size on technical efficiency. The aim of this paper is to estimate by using a True Random Effect model the impact of public sector’s size and of public expenditure components on 15 European countries’ technical efficiency from 1996 to 2011. Using the total public expenditure as a proxy for the government size we estimate simultaneously national optimal production function and technical efficiency model by controlling for income distribution and institutional quality. Our main findings show that the effect of public sector’s size on efficiency is positive while the type of public expenditures may have both positive and negative impact. In more details, results suggest that social protection, cultural, and health expenditures have a positive effect on technical efficiency, while others have a negative impact. More controversial is the impact of education expenditure, even if a positive effect on efficiency prevails when controlling for heteroscedasticity.
    Keywords: Stochastic frontier production function, technical efficiency, government spending,European countries
    JEL: C33 H10 H50
    Date: 2019–12–02
  8. By: Bastani, Spencer; Giebe, Thomas; Miao, Chizheng
    Abstract: We analyze differences in tax filing between natives and immigrants, focusing on two empirical examples. First, we study deductions for costs associated with traveling between home and work allowed in the Swedish tax code. Using the total population of commuters within Sweden's largest commuting zone, we find that newly arrived immigrants file substantially less than natives, immigrants with a longer stay behave more like natives, and immigrants with the longest stay file the most, even more than natives. Second, we analyze bunching behavior among the self-employed at a large salient kink point of the Swedish income tax schedule. We find much less bunching among immigrants, even after a long time in the host country, and the largest differences relative to natives in residential areas with a high immigrant concentration. Our findings have implications for the equity and efficiency of the tax system and the spatial patterns of residential and occupational choices for different ethnic groups.
    Keywords: deductions, tax filing, bunching, immigrants, natives, integration
    JEL: D31 H21 H24 H26 J22 J61 R23
    Date: 2019–11–06
  9. By: Valerio Serse
    Abstract: Sugar taxes are often considered as a possible tool to tackle excessive sugar consumption. This paper estimates a dynamic multinomial Logit model of cola demand on a novel supermarket scanner dataset in order to study preference heterogeneity and state dependence in product choice. The model estimates allow evaluating the effectiveness of taxation in reducing demand for sugary colas across different consumer types. The results show that a sugar tax would be less effective among the targeted population of heavy sugar consumers. This policy, however, would be more effective among low-income households. Tax policy simulations show that a specific tax on sugar should be preferred to an ad-valorem tax on sugary colas on both corrective and equity grounds. This is because ad-valorem taxes can lead low-income households and heavy sugar consumers to substitute from expensive to cheaper sugary brands. Lastly, because households exhibit state dependence in cola choice, sugar taxes would be more effective in reducing sugar consumption in the long-run.
    JEL: D12 H31 I18 Q18
    Date: 2019–12–02
  10. By: Pyddoke, Roger (Research Programme in Transport Economics); Swärdh, Jan-Erik (Research Programme in Transport Economics); Algers, Staffan (TP mod AB); Habibi, Shiva (Chalmers University of Technology); Sedehi Zadeh, Noor (Research Programme in Transport Economics)
    Abstract: We analyze the long-term effects on the car fleet and welfare distribution of three car-related policy instruments intended to reduce CO2 emissions: increased fossil-fuel taxes, an intensified bonus-malus system for new cars, and increased mandated biofuel blending. The effects on the car fleet are analyzed in terms of energy source, weight, and CO2 emissions. Distributional effects are analyzed in terms of income and geographical residence areas. The increased fuel taxes reduce CO2 emissions by 36%, mainly through less driving of fossil-fuel cars. The intensified bonus-malus system for new cars reduces CO2 emissions by 5%. Both these policies shift the car fleet toward increased shares of electric vehicles and increased average weight. Increased mandated biofuel blending has no estimated effect on the car fleet unless prices increase differently from in the reference scenario. The two first policy instruments are weakly progressive to slightly regressive over most of the income distribution, but barely regressive if the highest income group is also included. The fraction of each population group incurring substantial welfare losses is higher the lower the income group. In the geographical dimension, for all policies the rural areas bear the largest burden, small cities the second largest burden, and large cities the smallest burden. The burden in the long term versus the short term is lower for high-income earners and urban residents.
    Keywords: Distributional effects; Equity; Fuel tax; Feebate; Bonus; Malus; Mandated biofuel blend; Car choice
    JEL: D63 H23 R48
    Date: 2019–11–26
  11. By: Natasha Sarin; Lawrence H. Summers
    Abstract: Between 2020 and 2029, the IRS will fail to collect nearly $7.5 trillion of taxes it is due. It is not possible to calculate with precision how much of this “tax gap” could be collected. This paper offers a naïve approach. The analysis suggests that with feasible changes in policy, the IRS could aspire to shrink the tax gap by around 15 percent in the next decade—generating over $1 trillion in additional revenue by performing more audits (especially of high-income earners), increasing information reporting requirements, and investing in information technology. These investments will increase efficiency and are likely to be very progressive.
    JEL: H0 H2 H26
    Date: 2019–11
  12. By: Daniel L. Dench; Theodore J. Joyce
    Abstract: Hoynes, Miller and Simon (2015), henceforth HMS, report that the national expansion of the Earned Income Tax Credit (EITC) is associated with decreases in low birth weight. We question their findings. HMS’s difference-in-differences estimates are unidentified in some comparisons, while failed placebo tests undermine others. Their effects lack a plausible mechanism as the association between the EITC and prenatal smoking also fails placebo tests. We contend that the waning of the crack epidemic is a possible confound, but we show that any number of policies directed at poor women also eliminate the effect of the EITC when aggregated to the national level. Identifying small, causal effects of a national policy at a single point in time is exceedingly challenging.
    JEL: H24 I38 J13
    Date: 2019–11
  13. By: Chris Mitchell
    Abstract: Taxes on capital gains are deferred until realization, whereas dividend taxes are levied upon accrual. This often makes dividends tax-disadvantaged relative to share repurchases, which leads to the payout puzzle: why do firms pay dividends? This paper develops a model of corporate payout policy to demonstrate that tax deferment can also provide a partial solution to the payout puzzle: if shareholders demand repurchase premiums when selling equity back to a firm - as compensation for accelerated realizations - then dividend payments can become tax-efficient. This mechanism is appealing because it jointly explains a number of payout regularities without appealing to asymmetric information, incomplete contracting, repurchase constraints, and/or shareholder irrationality.
    Date: 2019–12
  14. By: Javier Garcia-Bernardo (University of Amsterdam, Faculty of Social and Behavioural Sciences, Spui 21, 1012 WX Amsterdam, The Netherlands); Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic); Thomas Torslov (Faculty of Social Sciences, Oster Farimagsgade 5, DK-1353 Copenhagen K, Denmark)
    Abstract: A growing body of economics literature shows that multinational corporations (MNCs) shift their profits to tax havens. We contribute to this evidence by comparing a range of available data sets focusing on US MNCs, including country-by-country reporting data which has been released in December 2018 for the first time. With each of the datasets, we analyse the effective tax rates that US MNCs face in each country and the amount of profits they report. Using country-by-country reporting data, we have been able to establish that lower effective corporate tax rates are associated with higher levels of reported profits when compared with different indicators of real economic activity. This corresponds to the notion that MNCs often shift profits to countries with low effective tax rates – without also shifting substantive economic activity. Consequently, we identify the most important tax havens for US MNCs as countries with both low effective tax rates and high profits misaligned with economic activity.
    Keywords: Effective tax rate, profit shifting, tax haven, country-by-country reporting, multinational enterprise, foreign direct investment, tax competition
    JEL: C81 F21 F23 H25 H26
    Date: 2019–10
  15. By: Lavetti, Kurt (Ohio State University); DeLeire, Thomas (Georgetown University); Ziebarth, Nicolas R. (Cornell University)
    Abstract: The ACA requires insurers to provide cost-sharing reductions (CSRs) to low-income consumers on the marketplaces. We link 2013-2015 All-Payer Claims Data to 2004-2013 administrative hospital discharge data from Utah and exploit policy-driven differences in the value of CSRs that are solely determined by income. We find that enrollees with lower cost sharing have higher levels of health care spending, controlling for past health care use. We estimate the demand elasticity of total health care spending to be -0.10, but find larger elasticities for emergency room care, lifestyle drugs, and low-value care. We also find positive cross-price elasticities between outpatient and inpatient care.
    Keywords: demand elasticities, health insurance, moral hazard, ACA, marketplaces, AV-variants, low-value care, lifestyle drugs, value-based CSRs, Utah
    JEL: H24 H41 H43 H51 I11 I18 J32 J33 J68
    Date: 2019–10
  16. By: Lips, Wouter
    Abstract: The G20 and the OECD recently claimed two successes in global tax governance: adopting automatic exchange of banking information in 2014, and the 2015 BEPS project on taxation of multinational companies. While the former signifies an essential step forward in reducing tax evasion, the BEPS outcomes were criticized for merely patching up flawed taxation principles based on the arms’-length standard. The emergence of global automatic exchange of information is often ascribed to the US who unilaterally enforced its own FATCA automatic information-exchange standard, while no comparable action happened during BEPS. This article investigates the US position on the BEPS outcomes and if a similar unilateral action would have led to more far-reaching cooperation concerning BEPS. By examining the distributional consequences of cooperation in both processes, we conclude that US power in tax governance in both issues is more limited than generally assumed and insufficient to explain global cooperation.
    Date: 2018–05–06
  17. By: Giuseppe Vitaletti (Università di Viterbo)
    Abstract: Oligopoly is an interesting subject for fiscal interventions. It is characterized by internationalization and by incomes larger than under competitiveness. Internationalization necessities that the rules which govern this kind of market should be not national, the single state being not being able to dominate the levy. An income greater than in competitiveness requires that such a part of income is subject to taxation at a greater rate than the average. This favours internationalization, since a very limited part of the fiscal system is affected. The implication should be that the normal fiscal system should be strictly national, as was the case of Italy until 1973 . This is the opposite of what is happening. In fact now direct company taxation, being based on the income produced, is basically national, whereas personal taxation, which is based on distributed incomes, is necessarily international (its base being worldwide by definition). This paper examines in particular why incomes from oligopoly are generally greater than in competitiveness. The result is intimately related to increasing returns, which regard in particular the industrial segment of the economy, now representing less than one third of total production. Here principally commercial and the administrative expenses increase much less than production. This in the end implies almost a monopolistic comportment.
    Keywords: oligopoly, possibility of entering the market, international fiscal intervention, nationality of normal levies
    JEL: H42 H44
    Date: 2019–11

This nep-pbe issue is ©2019 by Thomas Andrén. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.