nep-pbe New Economics Papers
on Public Economics
Issue of 2020‒04‒20
twelve papers chosen by
Thomas Andrén

  1. Health Risk and the Welfare Effects of Social Security By Shantanu Bagchi; Juergen Jung
  2. Political Economy of Taxation, Debt Ceilings, and Growth By Uchida, Yuki; Ono, Tetsuo
  3. Externalities in International Tax Enforcement: Theory and Evidence By Thomas R. Tørsløv; Ludvig S. Wier; Gabriel Zucman
  4. Gender discriminatory taxes, fairness perception, and labor supply By Hundsdoerfer, Jochen; Matthaei, Eva Kristina
  5. The Political (In)Stability of Funded Pension Systems By Roel Beetsma; Oliwia Komada; Krzysztof Makarski; Joanna Tyrowicz
  6. Measuring intra-generational redistribution in PAYG pension schemes By Klos, Jonas; Krieger, Tim; Stöwhase, Sven
  7. Is Race to the bottom is modeled as Prisoner's dilemma? By Sokolovskyi, Dmytro
  8. Pension Reform in the Netherlands By Westerhout, Ed
  9. What lessons can be learned from capital income tax reforms? By Laurent Bach; Antoine Bozio; Brice Fabre; Arthur Guillouzouic; Claire Leroy; Clément Malgouyres
  10. Household responses to disability shocks: Spousal labor supply, caregiving, and disability insurance By Lee, Siha
  11. The effectiveness of the Employment Tax Incentive By Bojosi Morule; Konstantin Makrelov
  12. Pareto-Improving Carbon-Risk Taxation By Laurence J. Kotlikoff; Felix Kubler; Andrey Polbin; Simon Scheidegger

  1. By: Shantanu Bagchi (Department of Economics, Towson University); Juergen Jung (Department of Economics, Towson University)
    Abstract: We examine the welfare effects of Social Security in a general equilibrium environment with realistic labor income, mortality, and health risks. We construct an overlapping generations model with rational-expectations households facing idiosyncratic health risk, profit maximizing firms, incomplete insurance markets, and a government that provides pensions and health insurance. We calibrate this model to the U.S. economy and perform two sets of computational experiments: (i) modifying the progressivity of the Social Security's benefit-earnings rule, and (ii) cutting Social Security's payroll tax. We find that both experiments have a larger effect on overall welfare in the presence of health risk, because health risk increases the importance of short-term consumption smoothing, both within work-life and retirement. Increased progressivity allows households to better smooth old-age consumption risk, and the payroll tax cut increases disposable income and allows better self-insurance against early-life health risk. We also find that labor supply is an important self-insurance tool in the presence of health risk, as increasing Social Security's progressivity has a smaller effect on overall welfare and cutting the payroll tax has a larger effect on overall welfare when labor supply is fixed. Finally, low-income households experience larger welfare gains both from increasing Social Security's progressivity and cutting the payroll tax, because of their relatively low ability to self-insure against health risk in general.
    Keywords: Health risk, Social Security, benefit-earnings rule, consumption smoothing, general equilibrium.
    JEL: E62 E21 H31 H55 I14
    Date: 2020–04
  2. By: Uchida, Yuki; Ono, Tetsuo
    Abstract: This study presents voting on policies including labor and capital income taxes and public debt in an overlapping-generations model with physical and human capital accumulation, and it then analyzes the effects of a debt ceiling on a government's policy formation and its impact on growth and welfare. The debt ceiling induces the government to shift the tax burdens from the older to younger generations, but stimulates physical capital accumulation and may increase public education expenditure, resulting in a higher growth rate. Alternatively, the debt ceiling is measured from the viewpoint of a benevolent planner; lowering the debt ceiling (i.e., tightening fiscal discipline) makes it possible for the government to approach the planner's allocation in an aging society.
    Keywords: Debt ceiling; Probabilistic voting, Public debt, Economic growth, Overlapping generations
    JEL: D70 E24 H63
    Date: 2020–03–31
  3. By: Thomas R. Tørsløv; Ludvig S. Wier; Gabriel Zucman
    Abstract: We show that the fiscal authorities of high-tax countries can lack the incentives to combat profit shifting to tax havens. Instead, they have incentives to focus their enforcement efforts on relocating profits booked by multinationals in other high-tax countries, crowding out the enforcement on transactions that shift profits to tax havens, and reducing the global tax payments of multinational companies. This incentive problem can help explain why profit shifting to low-tax countries persists despite its tax revenue cost for high-tax countries. The predictions of our model are motivated and supported by the analysis of two new datasets: the universe of transfer price corrections conducted by the Danish tax authority, and new cross-country data on international tax enforcement. Both of these datasets shows that that tax authorities in high-tax countries focus their transfer pricing enforcement effort on correcting transactions with other high-tax countries rather than transactions involving tax havens.
    JEL: H25 H26 H87
    Date: 2020–03
  4. By: Hundsdoerfer, Jochen; Matthaei, Eva Kristina
    Abstract: In this paper, we examine the gender specific impact of discriminatory taxation on fairness perception and individual labor supply decisions. Using the controlled environment of an experimental laboratory, we manipulate both distributional as well as procedural justice of taxation between subjects. We violate distributional fairness through the random application of tax rates, while procedural justice is broken by levying discriminatory tax rates based on taxpayer gender. For both inequality in outcome as well as discrimination, we find strong differences in reactions between male and female participants. Male participants perceived gender discriminatory taxation as unfair in and of itself. Female participants perceived random taxation as well as gender discriminatory taxation to be unfair, as long as they ended up with the higher tax rate. The perceived fairness strongly drove (did not affect) male (female) participants' labor supply. Taken both subgroups together, while mere outcome inequality did not influence labor supply decisions significantly, we find evidence of a negative effect of gender-based discrimination on labor supply.
    Keywords: Tax,labor supply,distributional justice,procedural justice,discrimination
    Date: 2020
  5. By: Roel Beetsma; Oliwia Komada; Krzysztof Makarski; Joanna Tyrowicz
    Abstract: We analyze the political stability of capital funded social security. In particular, using a stylized theoretical framework we study the mechanisms behind governments capturing pension assets in order to lower current taxes. This is followed by an analysis of the analogous mechanisms in a fully-edged overlapping generations model with intra-cohort heterogeneity. Funding is efficient in a Kaldor-Hicks sense. Individuals vote on capturing the accumulated pension assets and replacing the funded pension pillar with a pay-as-you-go scheme. We show that even if capturing assets reduces welfare in the long run, it always has sufficient political support from those alive at the moment of the vote.
    Keywords: funded pensions, asset capture, majority voting, welfare
    JEL: H55 D72 E17 E27
    Date: 2020
  6. By: Klos, Jonas; Krieger, Tim; Stöwhase, Sven
    Abstract: In this paper, we propose a novel index for measuring intra-generational redistribution in pay-as-you-go pension schemes. Our index solely requires information on contributions and pension benefits of retirees, enabling us to measure intra-generational redistribution isolated from possible inter-generational redistribution. We use contribution records of approx. 100,000 German individuals, who progressed into retirement in 2007-2015, to measure the level of intra-generational redistribution in the German statutory pension scheme (GRV). A recent reform of childcare benefit provision, which became effective in 2014, confirms the predictions of our index. The reform introduced additional benefits for a subgroup of substantial size of German mothers, due to which the index value for women, but not for men jumps up. Our findings suggests that GRV fulfils the ideal of a Bismarckian pension system without intra-generational redistribution for men, while women benefit from intra-generational redistribution.
    Keywords: PAYG pension systems,intra-generational redistribution,Beveridge vs. Bismarck,index,microdata,Germany
    JEL: H55 D31 C55
    Date: 2020
  7. By: Sokolovskyi, Dmytro
    Abstract: The subject of this study is the modeling of Race to the bottom to verify, is really Race to the bottom is a kind of Prisoner’s dilemma. The importance of this issue is explained by the following: if Race to the bottom is a kind of Prisoner’s dilemma, achieving equilibrium tax competition two or more economies leads to deterioration of their economic results As a result, governments have to weaken social, environmental, labor standards and norms. At the same time, many statistical studies of real economies do not discover the above consequence of the tax competition, so it is concluded that there is no Race to the bottom. On the other hand, if Race to the bottom is not a kind of PD then that there is no deterioration in standards during the tax competition does not mean that there is no Race to the bottom. Using a game-theoretic model we consider 3 objective functions for government behavior: the investment volume, the budget revenue, and their combination. For each function, there were calculated conditions under which Race to the bottom is a kind of Prisoner’s dilemma. Introduced a concept of tax-investment equilibrium, as a situation in which all economies are equal for the investor. For the tax-investment equilibrium, there were calculated sufficient conditions under which Race to the bottom is a kind of Prisoner’s dilemma.
    Keywords: Race to the bottom; Prisoner’s dilemma; tax competition; government behavior; corporate tax rate; game theory; tax-investment equilibrium
    JEL: C72 E62 H30
    Date: 2020–04–01
  8. By: Westerhout, Ed (Tilburg University, Center For Economic Research)
    Abstract: During the last decade, the Dutch have debated intensively reforming their second-pillar pension scheme. Meanwhile, ten years turned out to be a too short period for pension funds to bring their funding ratios to sound levels, due to among others the worldwide decline of interest rates. Currently, the Dutch government and the social partners have come up with a quite concrete reform plan. The plan includes three main points: i) make the move towards actuarially fair pension accruals, ii) strengthen the link between benefit levels and capital market rates of return and iii) introduce the option to take up part of accrued pension wealth at retirement. This paper reviews and interprets the plan for pension reform.
    Keywords: Pension reform; uniformity pricing; funding ratio; interest rate; indexation
    JEL: H55 G29
    Date: 2020
  9. By: Laurent Bach (ESSEC Business School - Essec Business School, IPP - Institut des politiques publiques); Antoine Bozio (IPP - Institut des politiques publiques, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Brice Fabre (PSE - Paris School of Economics, IPP - Institut des politiques publiques, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Arthur Guillouzouic (IPP - Institut des politiques publiques); Claire Leroy (IPP - Institut des politiques publiques); Clément Malgouyres (IPP - Institut des politiques publiques)
    Abstract: The abolition of the flat-rate withholding tax (prélèvement forfaitaire libératoire – PFL) in 2013 and the introduction of the unique flat tax (prélèvement forfaitaire unique – PFU) in 2018 are two important – and contrary – capital income tax reforms. The first aimed to "restore tax justice" while the second aimed to "promote private investment". Using the tax data of households and companies, we evaluate the impact of the 2013 reform and present preliminary findings regarding the impact of the 2018 reform. We find raising capital income taxes to have a strong negative impact on dividends received by households, and no impact on other types of income (pay, capital gains and other capital income). Using company data, we identify the mechanism explaining this decrease in dividends received: companies directly controlled by natural persons residing in France reduced or stopped the distribution of dividends between 2013 and 2017. We observe an increase in the financial assets held by these companies, an increase in equity capital and a decrease in net result, but not effect on investment. The implications of these findings are major: the 2013 reform led to a net loss in tax receipts but had no negative impact on investment. Based on data from commercial court registries, there was a 15.3% increase in dividends paid in 2018, attributable to the unique flat tax reform. This increase in the distribution of dividends, parallel to the decrease in 2013, will lead to greater tax receipts than initially anticipated. However, in light of the effects of the 2013 reform, it appears unlikely that this reform will have a positive effect on private investment.
    Date: 2019–10
  10. By: Lee, Siha
    Abstract: This paper examines married women's time allocation to market hours and spousal care in the event of their husbands' disability and its implications for evaluating the insurance value of the Social Security Disability Insurance (SSDI) program. First, I find that while spousal labor supply responses to husbands' disability are small, wives spend a sizable amount of time in spousal care after their husbands become disabled. Motivated by these facts, I develop a dynamic model of married households that incorporates husbands' disability status, wives' time allocation choices, health state dependent utility, and the institutional features of SSDI. Counterfactual experiments indicate that caregiving needs substantially attenuate spousal labor supply responses and increase the insurance value of SSDI relative to its costs. Furthermore, policy
    Keywords: disability,social security,spousal labor supply,caregiving
    JEL: D13 H53 H55 I38 J22
    Date: 2020
  11. By: Bojosi Morule; Konstantin Makrelov
    Date: 2019–09–09
  12. By: Laurence J. Kotlikoff; Felix Kubler; Andrey Polbin; Simon Scheidegger
    Abstract: Anthropogenic climate change produces two conceptually distinct negative economic externalities. The first is an expected path of climate damage. The second, which is this paper's focus, is an expected path of economic risk. To isolate the climate-risk problem, we consider mean-zero, symmetric shocks in our 12-period, overlapping generations model. These shocks impact dirty energy usage (carbon emissions), the relationship between carbon concentration and temperature, and the connection between temperature and damages. Our model exhibits a de minimis climate problem absent its shocks. But due to non-linearities, symmetric shocks deliver negatively skewed impacts, including the potential for climate disasters. As we show, Pareto-improving carbon taxation can dramatically lower climate risk, in general, and disaster risk, in particular. The associated climate-risk tax, which is focused exclusively on limiting climate risk, can be as large or larger than the carbon average-damage tax, which is focused exclusively on limiting average damage.
    JEL: F0 F20 H0 H2 H3 J20
    Date: 2020–04

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