nep-pbe New Economics Papers
on Public Economics
Issue of 2020‒04‒06
twelve papers chosen by
Thomas Andrén

  1. Gini and Optimal Income Taxation by Rank By Laurent Simula; Alain Trannoy
  2. How do Taxpayers Respond to Public Disclosure and Social Recognition Programs? Evidence from Pakistan By Joel Slemrod; Obeid Ur Rehman; Mazhar Waseem
  3. Was Falling Inequality in All Latin American Countries a Data-Driven Illusion? Income Distribution and Mobility Patterns in Uruguay 2009-2016 By Burdín, Gabriel; De Rosa, Mauricio; Vigorito, Andrea; Vilá, Joan
  4. The Mainstream Notion of ‘Deadweight Loss of Taxation’ Is Based on Too Stringent (Misleading) Assumptions By Cristian Sepulveda
  5. Taxation and Global Spillovers in the Digital Advertising Market. Theory and Evidence from Facebook By Andrea Lassmann; Federica Liberini; Antonio Russo; Ángel Cuevas; Rubén Cuevas
  6. Do Public Program Benefits Crowd Out Private Transfers in Developing Countries? A Critical Review of Recent Evidence By Nikolov, Plamen; Bonci, Matthew
  7. What drives consumption tax revenues?: Disentangling policy and macroeconomic drivers By Hannah Simon; Michelle Harding
  8. Lifestyle Taxes in the Presence of Profit Shifting By Rosella Levaggi; Carmen Marchiori; Paolo Panteghini
  9. Public Pensions and Low Income Dynamics in Canada By Mayssun El-Attar; Raquel Fonseca
  10. Social transfers and labor supply: Long run rvidence from South Africa By Kacker, Kanishka
  11. Progressive Taxation as an Automatic Stabilizer under Nominal Wage Rigidity and Preference Shocks By Miroslav Gabrovski; Jang-Ting Guo
  12. Automation, stagnation, and the implications of a robot tax By Gasteiger, Emanuel; Prettner, Klaus

  1. By: Laurent Simula; Alain Trannoy
    Abstract: We solve the non-linear income tax program for a rank-dependent social welfare function à la Yaari, expressing the trade-off between size and inequality using the Gini or related families of positional indices. The key idea is that when agents optimize and absent bunching, ranks in the actual and optimal allocations become an invariant dimension. This allows us to obtain optimal marginal tax rates as a function of ranks, and numerically illustrate the relationship between ranks and taxes. For singles without children, the actual US tax schedule seems to indicate a distaste for differences in the upper part of the distribution.
    Keywords: Gini, optimal taxation, income taxation, ranks
    JEL: D63 D82 H21
    Date: 2020
  2. By: Joel Slemrod; Obeid Ur Rehman; Mazhar Waseem
    Abstract: We examine two Pakistani programs to see if the public disclosure of tax information and social recognition of top taxpayers promote tax compliance. Pakistan began revealing income tax paid by every taxpayer in the country from 2012. Simultaneously, another program began recognizing and rewarding the top 100 tax paying corporations, partnerships, self-employed individuals, and wage-earners. We find that both programs induced strong compliance responses. The public disclosure caused on average a 9 log-points increase in the tax paid by individuals exposed to the program. The increase was even larger for the social recognition program, around 17 log-points. Our results suggest that such programs can be important policy levers to mobilize resources, especially in weak-enforcement-capacity economies.
    Keywords: tax evasion, income tax, social norms
    JEL: H24 H25 H26
    Date: 2020
  3. By: Burdín, Gabriel (Leeds University Business School); De Rosa, Mauricio (Universidad de la República, Uruguay); Vigorito, Andrea (Universidad de la República, Uruguay); Vilá, Joan (Universidad de la República, Uruguay)
    Abstract: To contribute to the debate on the recent inequality fall in Latin America, we provide evidence on the primary income distribution in Uruguay for 2009-2016 and assess mobility patterns. Comparing household surveys micro-data and a unique array of matched personal-firm income tax records, we find that trends are sensitive to the data source and inequality measure. Gini and Theil indices decreased, with a milder fall in tax records than in household surveys. Whereas in tax records synthetic indices fell within the bottom 99% offsetting increased concentration at the top, in household surveys the largest reduction occurred at the top. In turn, tax records estimates of top 1% income shares remained steady at around 15%, but decreased in household surveys throughout the whole period. Moreover, top income positions were stable, with average persistence rates at the top 1% close to 80%. Meanwhile, the equalizing effect of income mobility was very modest.
    Keywords: top incomes, income inequality, mobility, personal income taxation, tax records, Uruguay
    JEL: D31 H24 O54
    Date: 2020–03
  4. By: Cristian Sepulveda (Farmingdale State College, SUNY, USA)
    Abstract: Mainstream optimal tax theory considers the lump-sum tax as the only efficient or non-distortionary tax instrument, and as such, the only tax instrument that is never associated with a deadweight loss. This paper challenges this notion, which is shown to depend on the assumption that public expenditure has no effect on taxpayers’ budget constraints. When this assumption is relaxed, the combined use of labor income and lump-sum taxes may allow taxpayers to reach greater levels of welfare than the use of a lump-sum tax alone. In that case, the labor income tax would be part of the (first best) welfare maximization solution and its effect on the relative price of leisure would therefore correspond to a price correction, not a distortion.
    Date: 2020–03
  5. By: Andrea Lassmann; Federica Liberini; Antonio Russo; Ángel Cuevas; Rubén Cuevas
    Abstract: We study the effects of taxation on the international online advertising market, using data on Facebook ad prices, Facebook users product preferences and international trade. Our data encompass a de facto increase in the platform’s corporate tax rate in several countries. We show that, due to international trade linkages, tax changes produce global spillovers. Yet, advertisers experience higher prices in countries that directly face the tax increases compared to advertisers in countries that do not. This result is consistent with a theoretical model, which shows that the platform reduces the supply of ads to advertisers from countries where taxation increases.
    Keywords: tax incidence, online advertising, Facebook
    JEL: H22 H25 F23
    Date: 2020
  6. By: Nikolov, Plamen; Bonci, Matthew
    Abstract: Precipitated by rapid globalization, rising inequality, population growth, and longevity gains, social protection programs have been on the rise in low- and middle-income countries (LMICs) in the last three decades. However, the introduction of public benefits could displace informal mechanisms for riskprotection, which are especially prevalent in LMICs. If the displacement of private transfers is considerably large, the expansion of social protection programs could even lead to social welfare loss. In this paper, we critically survey the recent empirical literature on crowd-out effects in response to public policies, specifically in the context of LMICs. We review and synthesize patterns from the behavioral response to various types of social protection programs. Furthermore, we specifically examine for heterogeneous treatment effects by important socioeconomic characteristics. We conclude by drawing on lessons from our synthesis of studies. If poverty reduction objectives are considered, along with careful program targeting that accounts for potential crowd-out effects, there may well be a net social gain.
    Keywords: life cycle,retirement,social protection,developing countries,crowdout effect,inter vivos transfers
    JEL: D64 H31 H55 J14 J22 J26 O15 O16 R2
    Date: 2020
  7. By: Hannah Simon; Michelle Harding
    Abstract: This paper decomposes consumption tax revenues in OECD countries into the implicit tax rate (ITR) and consumption relative to GDP, to identify how economic downturns affect consumption tax revenues. It further considers the impact of changes in VAT efficiency and VAT rates on ITRs. The analysis finds that the observed stability in consumption tax revenues results from offsetting changes in the ITRs and in consumption as a share of GDP, arising from both macroeconomic changes and intentional policy changes. During the economic crisis in 2007-2009, lasting changes in consumption patterns, notably increases in government spending and in private consumption of necessity goods, adversely affected the efficiency of VAT systems. These changes have not since been reversed, suggesting that consumption tax revenues are now less robust to economic shocks. Broadening the VAT base and narrowing the scope of reduced rates can help to stabilise consumption tax revenues during economic downturns.
    Keywords: Consumption Taxes, Economic crisis, Implicit Tax Rates, Macroeconomic changes, Tax Revenue Stability, Tax Revenues, Value-Added Tax, VAT efficiency
    JEL: H24 H29
    Date: 2020–04–02
  8. By: Rosella Levaggi; Carmen Marchiori; Paolo Panteghini
    Abstract: Non-communicable diseases (NCDs) cause about 71% of all deaths globally and a considerable increase in health care costs. To tackle this problem, several Governments have designed “sin taxes”, i.e, extra payments related to the quantity of unhealthy contents of specific goods. However, unhealthy food and soda drinks are often produced by multinational companies for which also profit shifting is a serious issue. The international dimension of these markets may have a dramatic impact on the actual implementation of sin taxes. This article contributes to the literature by analysing the effectiveness of sin taxes levied on a good produced by a multinational company. Our analysis shows that a trade off between profit shifting and lifestyle taxes may exist. In general, the First Best sin tax cannot be levied if Governments are also interested in corporate tax revenue. This is a quite interesting policy issue: countries that today benefit from profit shifting may find it harder to impose significant lifestyle taxes. We also provide some insights about the effects that the international effort to fight profit shifting may have on lifestyle taxes.
    Keywords: optimal lifestyle tax, multinational industry, profit shifting, health care costs, tax competition
    JEL: H21 H32 D11 D62 I18
    Date: 2020
  9. By: Mayssun El-Attar; Raquel Fonseca
    Abstract: This paper focuses on individuals over 50 and shows that considering persistence and low income dynamics is essential to understanding poverty. We use administrative data for Canada from the Longitudinal and International Study of Adults (LISA). The paper shows that poverty for seniors is highly persistent and strongly depends on lifetime earnings. We show that beginning to receive a public pension implies a higher probability of exit from poverty. Public pensions thereby help to explain the lower overall incidence of poverty among the elderly. These results are confirmed in a dynamic probit model, which allows to control for individuals’ unobserved heterogeneity and state dependence. While public pensions do not eliminate poverty among older adults, they help to alleviate it by reducing persistence and increasing exit for those who are most at risk.
    Keywords: low-income, elderly, poverty dynamics, Canadian public pensions.
    JEL: H55 J26 I32
    Date: 2020
  10. By: Kacker, Kanishka
    Abstract: How do large social transfers affect labor supply? This study analyses the South African pension program to answer this question. I exploit a major demand shock - the South African recession that began in 2008 - in a regression discontinuity design to �nd prime aged adult labor supply falls in response to pension arrival in the household only during the recession for sectors and types of workers affected by the recession. Post-recession, these workers witness an increase in demand and respond by increasing supply. Pension payments consequently have small and statistically insignificant effects on labor supply, a result that contrasts starkly with all existing studies. I argue these results stem from the combination of two forces. When labor demand is weak, the opportunity cost of leisure falls and workers demand more leisure. If a household member draws a pension, with leisure being a normal good, leisure demand increases further.
    Keywords: Pension, Labor Supply, Panel Data, NIDS
    JEL: H23 H55 I38 J22 O15
    Date: 2019–11
  11. By: Miroslav Gabrovski (University of Hawaii at Manoa); Jang-Ting Guo (Department of Economics, University of California Riverside)
    Abstract: Previous research has shown that in the context of a prototypical New Keynesian model, more progressive income taxation may lead to higher volatilities of hours worked and total output in response to a monetary disturbance. We analytically show that this business-cycle destabilization result is overturned within an otherwise identical macroeconomy subject to impulses to the household's utility formulation. Under a continuously or linearly progressive fiscal policy rule, an increase in the tax progressivity will always raise the degree of equilibrium nominal-wage rigidity, and thus serve as an automatic stabilizer that mitigates cyclical fluctuations driven by preference shocks. Our analysis illustrates that whether a more progressive tax schedule (de)stabilizes the business cycle depends crucially on the underlying driving source.
    Keywords: Progressive Income Taxation, Automatic Stabilizer, Nominal Wage Rigidity, Preference Shocks.
    JEL: E12 E32 E62
    Date: 2020–03
  12. By: Gasteiger, Emanuel; Prettner, Klaus
    Abstract: We assess the long-run growth effects of automation in the overlapping generations framework. Although automation implies constant returns to capital and, thus, an AK production side of the economy, positive long-run growth does not emerge. The reason is that automation suppresses wage income, which is the only source of investment in the overlapping generations model. Our result stands in sharp contrast to the representative agent setting with automation, where sustained long-run growth is possible even without technological progress. Our analysis therefore provides a cautionary tale that the underlying modeling structure of saving/investment decisions matters for the derived economic impact of automation. In addition, we show that a robot tax has the potential to raise per capita output and welfare at the steady state. However, it cannot induce a takeoff toward positive long-run growth.
    Keywords: Automation,robot taxes,stagnation,economic growth,fiscal policy
    JEL: O33 O41 E60
    Date: 2020

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