nep-pbe New Economics Papers
on Public Economics
Issue of 2020‒04‒13
twelve papers chosen by
Thomas Andrén

  1. Quantifying the Effect of Corporate Taxes on the Life Cycle of Firms By Neira, Julian; Singhania, Rish
  2. Synthesising good practices in fiscal federalism: Key recommendations from 15 years of country surveys By Kass Forman; Sean Dougherty; Hansjörg Blöchliger
  3. Universal basic income and skill-biased technological change By Coelho, José
  4. "Public Charge in the Time of Coronavirus" By Martha Tepepa
  5. Social Security Contributions Distribution and Economic Activity By José L. Torres
  6. The Spanish Personal Income Tax: Facts and Parametric Estimates By Esteban García-Miralles; Nezih Guner; Roberto Ramos
  7. Tariff Elimination versus Tax Avoidance: Free Trade Agreements and Transfer Pricing By Mukunoki, Hiroshi; Okoshi, Hirofumi
  8. Workplace Choice, Commuting Costs, and Wage Taxation in Urban and Adjacent Rural Regions By Batabyal, Amitrajeet; Nijkamp, Peter
  9. Revenue-Neutral Tax Reform in Vertically Related Markets By Kenji Fujiwara
  10. Tax Morale and Tax Resistance: Evidence from a Representative Japanese Population Survey By Tomomi Miyazaki; Masayuki Tamaoka; Ayu Tomita; Keigo Kameda; Akihiro Kawase; Katsuyoshi Nakazawa; Hiroyuki Ono; Naoko Yokoyama
  11. Benefits Cliffs and the Financial Incentives for Career Advancement: A Case Study of the Health Care Services Career Pathway By David E. Altig; Elias Ilin; Alexander Ruder; Ellyn Terry
  12. Employment Effects of Payroll Tax Subsidies By Collischon, Matthias; Cygan-Rehm, Kamila; Riphahn, Regina T.

  1. By: Neira, Julian; Singhania, Rish
    Abstract: How does corporate taxation affect the life cycle of firms? A change in profit-tax rates affects the life cycle of firms through wages and through firm selection. We quantify these effects by looking at the average size of young and mature US firms 30 years after the Reagan Tax Cuts. We disentangle the wage and the selection effects using a model of firm dynamics. We find that the wage effect of profit tax cuts is about six times stronger than the selection effect. A change in population growth affects average firm size by changing the composition of surviving firms. We find that the effect of declining population growth on average firm size is three times stronger for mature firms than for young firms.
    Keywords: Incidence; Corporate Taxation; Firm Lifecycle; Calibration
    JEL: E13 H22 H25 H32 L16 L26
    Date: 2020–03–19
  2. By: Kass Forman; Sean Dougherty; Hansjörg Blöchliger
    Abstract: The design of intergovernmental fiscal relations can help to ensure that tax and spending powers are assigned in a way to promote sustainable and inclusive economic growth. Decentralisation can enable sub-central governments to provide better public services for households and firms, while it can also make intergovernmental frameworks more complex, harming equity. The challenges of fiscal federalism are multi-faceted and involve difficult trade-offs. This synthesis paper consolidates much of the OECD’s work on fiscal federalism over the past 15 years, with a particular focus on OECD Economic Surveys. The paper identifies a range of good practices on the design of country policies and institutions related strengthening fiscal capacity delineating responsibilities across evels of government and improving intergovernmental co-ordination.
    Keywords: fiscal decentralisation, intergovernmental co-ordination, public service delivery, spending, taxation
    JEL: H71 H72 H75
    Date: 2020–04–14
  3. By: Coelho, José
    Abstract: In the last decades, income inequality has been on the rise in the U.S. The growing skill premium suggests the pivotal role of skill-biased technological change (SBTC) in promoting the observed increase in inequality levels. In this context, labor income tax structures have been central to the policy debate. I develop an overlapping generations model to perform a welfare evaluation of Universal basic income (UBI) tax structures and verify how these interact with SBTC. I find that an UBI system would have improved social welfare in 2010 when compared to the existing tax system and determine that this result is primarily motivated by SBTC.
    Keywords: Income Inequality, Skill Premium, Optimal Taxation, Universal Basic Income
    JEL: E24 E62 H21
    Date: 2020–01–06
  4. By: Martha Tepepa
    Abstract: The United States government recently passed legislation and stabilization packages to respond to the COVID-19 (i.e., coronavirus disease 2019) outbreak by providing paid sick leave, tax credits, and free virus testing; expanding food assistance and unemployment benefits; and increasing Medicaid funding. However, the response to the global pandemic might be hindered by the lassitude of the state and the administration's conception of social policy that leaves the most vulnerable unprotected. The administration's "zero tolerance" immigration campaign poses public health challenges, especially in the prevention of communicable diseases. In addition to the systemic obstacles noncitizens face in their access to healthcare, recent changes to immigration law that penalize recipients of some social services on grounds that they are a public charge will further restrict their access to treatment and hinder the fight against the pandemic.
    Keywords: Public Charge; Public Services; Coronavirus; COVID-19; Social Policy; State; Means Testing; Public Assistance; Welfare Policy; Free Rider
    JEL: H4 H55 H57 H75 H84 I38 O15 O51 Z18
  5. By: José L. Torres (Department of Economics, University of Málaga)
    Abstract: This paper studies the macroeconomic implications of the distribution of the social security tax between employees and employers using a general equilibrium framework. We calibrate a Dynamic General Equilibrium model for the average of OECD countries and find that increasing the share of social security contributions paid by employers has a positive effect on economic activity. Whereas raising the employer?s share increases the labor cost for ?firms and reduces the equilibrium gross wage, conversely, workers? net labor income increases, increasing employment and output. The response of the economy to the change in the distribution of social security contributions between employees and employers depends on how the total labor tax wedge changes, which is also affected by the labor income tax and the consumption tax, as distortionary effects from one tax are not independent from the other taxes driving wages? purchasing power.
    Keywords: Social Security Contributions; Employees Contributions; Employers Contributions; Dynamic General Equilibrium models
    JEL: E20 H20 H22 H55
    Date: 2020–01
  6. By: Esteban García-Miralles (University of Copenhagen); Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Roberto Ramos (Banco de España)
    Abstract: In this paper, we use administrative data on tax returns to characterize the distributions of before and after-tax income, tax liabilities, and tax credits in Spain for individuals and households. We use the most recent available data, 2015 for individuals and 2013 for households, but also discuss how the income distribution and taxes have changed since 2002. We also estimate effective tax functions that capture the underlying heterogeneity of the data in a parsimonious way. These parametric functions can be used to calculate after-tax incomes in surveys where this information is not directly available, and can also be used in quantitative work in macroeconomics and public finance.
    Keywords: Personal income tax, tax functions, income distribution.
    JEL: E62 H24 H31
    Date: 2019–03
  7. By: Mukunoki, Hiroshi; Okoshi, Hirofumi
    Abstract: prises (MNEs) manipulate their transfer prices to avoid a high corporate tax. ROO of a free trade agreement (FTA) require exporters to identify the origin of exports to be eligible for a preferential tariff rate. The results suggest that a value-added criterion of ROO restricts MNEs’ abusive transfer pricing. Interestingly, an FTA with ROO can induce MNEs to shift profits from a low-tax country to a high-tax country. Because ROO augment tax revenues inside FTA countries, they can transform a welfare-reducing FTA into a welfare-improving FTA.
    Keywords: Rules of origin; Free trade agreement; Transfer pricing
    JEL: F13 F15 F23 H26
    Date: 2020–04–06
  8. By: Batabyal, Amitrajeet; Nijkamp, Peter
    Abstract: We analyze the impact of wage taxation on the workplace choices of and the commuting costs borne by individuals in an aggregate economy consisting of an urban and an adjacent rural region. This economy is inhabited by a continuum of individuals who are uniformly distributed with a total mass of one. These individuals choose whether to work in the urban or in the rural region. The wage is higher (lower) in the urban (rural) region. Our analysis leads to three findings. First, assuming that individuals work in the region in which their after-tax wage net of commuting costs is the highest, we compute the equilibrium number of workers in each region. Second, supposing that the rural region’s median voter works in the urban region, we determine the Nash equilibrium in taxes and ask whether either of the two regions ought to tax or to subsidize the wage. Finally, assuming that the rural region’s median voter works in the rural region, we solve for the Nash equilibrium in taxes and show that optimality calls for the urban and the rural governments to subsidize the two wages.
    Keywords: Commuting Cost, Rural Region, Urban Region, Wage Taxation, Workplace Choice
    JEL: H30 R12 R49
    Date: 2019–08–26
  9. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University)
    Abstract: This paper examines the effects of a tax reform when final goods are produced in an oligopoly and intermediate goods are produced in monopolistic competition. In particular, we address the effect of a shift from upstream to downstream taxation that leaves government revenue unchanged. This tax reform raises the consumer and producer prices of final goods, lowers the demand price of intermediate goods, and has no effect on the producer price of intermediate goods. Finally, we find that welfare improves with this tax reform.
    Keywords: Final Goods, Intermediate Goods, Oligopoly, Monopolistic Competition, Tax Incidence, Welfare
    JEL: D43 H21 H22 L13
    Date: 2020–04
  10. By: Tomomi Miyazaki (Associate Professor,Graduate School of Economics, Kobe University); Masayuki Tamaoka (Professor,Graduate School of Economics, Kobe University); Ayu Tomita (Student,Graduate School of Economics, Kobe University); Keigo Kameda (Professor,School of Policy Studies,Kwansei Gakuin University); Akihiro Kawase (Professor,Faculty of Economics, Toyo University); Katsuyoshi Nakazawa (Professor,Faculty of Economics, Toyo University); Hiroyuki Ono (Professor,Faculty of Economics, Toyo University); Naoko Yokoyama (Professor,Faculty of Economics, Osaka Sangyo University)
    Date: 2020–02
  11. By: David E. Altig; Elias Ilin; Alexander Ruder; Ellyn Terry
    Abstract: Benefits cliffs, which occur when earnings gains are offset by the loss of public benefits, have long been recognized to create financial disincentives for low-income individuals to earn more income. In this paper, the authors develop a new methodology to study benefits cliffs in the context of career advancement. The authors illustrate the change in net financial resources for an individual pursuing the health care services career pathway from certified nursing assistant (CNA) to licensed practical nurse (LPN) to registered nurse (RN). Accounting for increases in taxes and the loss of public benefits, the authors show that a single mother with two children receiving maximum available public benefits can be financially worse off in the short and medium term when advancing from the entry-level CNA position. Over a lifetime, career advancement leads to large financial gains. The authors also calculate a large lifetime net public savings if the mother advances to the RN position. Finally, the authors illustrate two policy interventions: a childcare subsidy phaseout that is gradual rather than sudden, and an application of transitional public benefits with asset mapping of financial resources. The authors show how each of these interventions benefits a low-income parent seeking to advance up the economic ladder.
    Keywords: provision and effects of welfare programs; skills; human capital; effective marginal tax rates; benefits cliffs; workforce development
    JEL: I38 J08 J24
    Date: 2020–01–03
  12. By: Collischon, Matthias (University of Erlangen-Nuremberg); Cygan-Rehm, Kamila (University of Erlangen-Nuremberg); Riphahn, Regina T. (University of Erlangen-Nuremberg)
    Abstract: This paper exploits several reforms of wage subsidies in the framework of the German Minijob program to investigate substitution and complementarity relationships between subsidized and non-subsidized labor demand. We apply an instrumental variables approach and use administrative data on German establishments for the period 1999-2014. Particularly in small establishments (0-9 employees), subsidized Minijob employment comprises large shares of the work force, on average over 40 percent. For these establishments, robust evidence shows that increasing the subsidization of Minijob employment crowds out non-subsidized employment. Our results imply that Minijob employment in 2014 may have eliminated more than 0.5 million unsubsidized employment relationships just in small establishments. This represents an unintended and harmful consequence of the Minijob subsidy.
    Keywords: wage subsidy, Minijob, labor demand, substitution effect, crowding out effect, displacement effect, employment, payroll tax
    JEL: J21 J23 J38 C26
    Date: 2020–03

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