nep-pbe New Economics Papers
on Public Economics
Issue of 2020‒04‒27
twelve papers chosen by
Thomas Andrén

  1. Income Taxation and Dual Job Labour Supply By Choe, Chung; Oaxaca, Ronald L.; Renna, Francesco
  2. Unemployment-Insurance Taxes and Labor Demand: Quasi-Experimental Evidence from Administrative Data By Johnston, Andrew C.
  3. Do Public Program Benefits Crowd Out Private Transfers in Developing Countries? An Overview of Evidence from Social Protection Policies By Nikolov, Plamen; Bonci, Matthew
  4. Are Government Bonds Net Wealth or a Liability? ---Optimal Debt and Taxes in an OLG Model with Uninsurable Income Risk By YiLi Chien; Yi Wen; HsinJung Wu
  5. The Impact of Benefit Generosity on Workers’ Compensation Claims: Evidence and Implications By Marika Cabral; Marcus Dillender
  6. Presence and Persistence of Poverty in U.S. Tax Data By Jeff Larrimore; Jacob Mortenson; David Splinter
  7. Indexing public pensions in progress to wages or prices By Andras Simonovits
  8. Taxing Earnings from the Platform Economy: An EU Digital Single Window for Income Data? By Lehdonvirta, Vili; Ogembo, Daisy
  9. Changes in State Unemployment Insurance Rules during the COVID-19 Outbreak in the U.S. By Zoe Xie
  10. Government Consumption, Government Debt and Economic Growth By Shahrzad Ghourchian; Hakan Yilmazkuday
  11. Optimal Second-Best Taxation When Individuals Have Social Preferences By Aronsson, Thomas; Johansson-Stenman, Olof
  12. Environmental taxation: Pigouvian or Leviathan? By Isabelle Cadoret; Emma Galli; Fabio Padovano

  1. By: Choe, Chung (Hanyang University); Oaxaca, Ronald L. (University of Arizona); Renna, Francesco (University of Akron)
    Abstract: This paper examines the effects of increasing marginal tax rates on labour supply in a setting in which workers may hold two jobs and may be constrained in their weekly hours on their main jobs. A panel data, multi-equation labour supply model is estimated with correction for tax system endogeneity and multi-sample selection in a correlated random effects framework. Data come from the British Household Panel Survey. The effects of counterfactual increases in marginal tax rates are obtained from Gauss-Seidel simulations of labour supply embedded in a tax system with allowances, tax credits, and child benefits. Labour supply to the main job is reduced by increased marginal tax rates while labour supply to the second job is increased. On net total labour supply is reduced. These effects diminish with increased marginal tax rates. In addition there are labour force withdrawal effects as well as transitions from dual job holding to unitary job holding in response to increased marginal tax rates.
    Keywords: dual job, labour supply, taxation, simulation
    JEL: J01 J22 H24
    Date: 2020–03
  2. By: Johnston, Andrew C. (University of California, Merced)
    Abstract: To finance unemployment insurance, states raise payroll tax rates on employers who engage in layoffs. Tax rates are, therefore, highest for firms after downturns, potentially hampering labor-market recovery. Using full-population, administrative records from Florida, I estimate the effect of these tax increases on firm behavior leveraging a regression kink design in the tax schedule. Tax hikes reduce hiring and employment substantially, with no effect on layoffs or wages. The results imply unanticipated costs of the financing regime which reduce the optimal benefit by a quarter and account for twelve percent of the unemployment in the wake of the Great Recession.
    Keywords: unemployment insurance, payroll taxes, recession
    JEL: D22 H22 H25 H71 J23 J32 J38 J65
    Date: 2020–04
  3. By: Nikolov, Plamen (State University of New York); Bonci, Matthew (University of Pennsylvania)
    Abstract: Precipitated by rapid globalization, rising inequality, population growth, and longevity gains, social protection programs have been on the rise in developing countries in the last three decades. However, the introduction of public benefits could displace informal mechanisms for risk-protection, which are especially prevalent in developing countries. In this paper, we critically survey the recent empirical literature on crowd-out effects in response to public policies, specifically in the context of developing countries. 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.
    Keywords: life cycle, social protection, pension, inter vivos transfers, middle-income and low-income countries, developing countries, crowd-out effect
    JEL: D64 H31 H55 J14 J22 J26 O15 O16 R2
    Date: 2020–04
  4. By: YiLi Chien; Yi Wen; HsinJung Wu
    Abstract: The rapidly growing national debt in the U.S. since the 1970s has alarmed and intrigued the academic world. Consequently, the concept of dynamic (in)efficiency in an overlapping generations (OLG) world and the importance of the heterogeneous-agents and incomplete markets (HAIM) hypothesis to justify a high debt-to-GDP ratio have been extensively studied. Two important consensus emerge from this literature: (i) The optimal quantity of public debt is positive—due to insufficient private liquidity to support private saving and investment (see, e.g., Barro (1974), Woodford (1990), and Aiyagari and McGrattan (1998)); (ii) the optimal capital tax is positive—because of precautionary saving and the consequent failure of the modified golden rule (see, e.g., Aiyagari (1995)). But these two consensus views are seldom derived jointly in the same model, so the dynamic relationship between optimal debt and optimal taxation remains unclear in HAIM models, especially considering that the optimal quantity of debt must be judged by the golden-rule saving rate and any debt must be financed by future taxes. We use a primal Ramsey approach to analytically characterize optimal debt and tax policy in an OLG-HAIM model. We show that since precautionary saving and oversaving are not necessarily the same thing, they have different policy implications—the Ramsey planner opts to issue bonds to crowd out private savings if and only if a competitive equilibrium is dynamically inefficient regardless of precautionary savings. In other words, optimal debt can be negative even if households cannot insure themselves against idiosyncratic risk under borrowing constraints. The sign and magnitude of the optimal quantity of debt in turn dictate the sign and magnitude of optimal taxes as well as the priority order of tax tools such as a labor tax vs. a capital tax.
    Keywords: Role of Public Debt; Optimal Fiscal Policy; Ramsey Problem; Overlapping Generation; Incomplete Markets
    JEL: E13 E62 H21 H30
    Date: 2020–04–08
  5. By: Marika Cabral; Marcus Dillender
    Abstract: Optimal insurance benefit design requires understanding how coverage generosity impacts individual behavior and insured costs. Using unique comprehensive administrative data from Texas, we leverage a sharp increase in the maximum weekly wage replacement benefit in a difference-in-differences research design to identify the impact of workers' compensation wage replacement benefit generosity on individual behavior and program costs. We find that increasing the generosity of wage replacement benefits does not impact the number of claims but has a large impact on claimant behavior, leading to longer income benefit durations and increased medical spending. Our estimates indicate that behavioral responses to increased benefit generosity raised insured costs nearly 1.5 times as much as the mechanical effect on insured costs from the benefit increase. Drawing on these estimates along with an estimate of the consumption drop experienced by injured workers, we calibrate a model to estimate the marginal welfare impact of increasing the generosity of workers' compensation wage replacement benefits. This calibration suggests that increasing benefit generosity would not improve welfare, with much of the projected welfare loss attributable to the impact of income benefit generosity on medical spending.
    JEL: H00 I1 J01
    Date: 2020–04
  6. By: Jeff Larrimore; Jacob Mortenson; David Splinter
    Abstract: This paper presents new estimates of the level and persistence of poverty among U.S. households since the Great Recession. We build annual household data files using U.S. income tax filings between 2007 and 2018. These data allow us to track individuals over time and measure how tax policies affect poverty trends. Using an after-tax household income measure, we estimate that while roughly 1 in 10 people are in poverty in any given year, over 4 in 10 people spent at least one year in poverty between 2007 and 2018. This implies substantial mobility in and out of poverty—for example, 41 percent of those in poverty in 2007 were out of poverty in the following year. Others spend multiple years in poverty or escape poverty only to fall back into it. Of those in poverty in 2007, one-third were in poverty for at least half of the years through 2018.
    JEL: D31 H20 I32
    Date: 2020–04
  7. By: Andras Simonovits (Centre for Economic and Regional Studies)
    Abstract: Initial public pensions are indexed to the economy-wide average wages, but pensions in progress are indexed to prices, average wages or their combinations––varying across countries and periods. We create a simple overlapping cohorts framework to study the properties of indexing pensions in progress––emphasizing a neglected issue: close wage paths should imply close benefit paths even at real wage shocks. This robustness criterion of an equitable pension system is only satisfied by wage indexing, which in turn requires the adjustment of the accrual rate. To minimize the redistribution from low-earning short-lived citizens to high-earning long-lived ones, progression should be introduced.
    Keywords: public pensions, indexation, horizontal equity, pensions in progress
    JEL: D10 H55
    Date: 2020–04
  8. By: Lehdonvirta, Vili; Ogembo, Daisy
    Abstract: Income earned through gig platforms, letting platforms, and other digital intermediaries presents new challenges for taxation. This article evaluates the efforts of three European Union Member States – Denmark, Estonia, and France – to obtain data on platform users’ earnings directly from platform companies, including Uber, Airbnb, and domestic platforms. The authors furthermore assess the viability of scaling up the national initiatives into an EU-level “Digital Single Window” that would facilitate the automated reporting of income data by platforms, and the forwarding of that data to national tax and social security agencies for taxation and collection according to national rules. Acknowledgements: The authors gratefully acknowledge Dr Max Uebe, Ms Carola Bouton, Mr Istvan Vanyolos, and other European Commission experts who contributed valuable suggestions, the expert interviewees listed at the end of the article for being generous with their information and insights, and Professor Judith Freedman for her support and advice throughout the project. This research has received financial support from the European Union Programme for Employment and Social Innovation “EaSI” (2014-2020). For further information please consult: The information contained in this publication does not necessarily reflect the official position of the European Commission.
    Date: 2020–04–15
  9. By: Zoe Xie
    Abstract: The COVID-19 pandemic led to an unprecedented expansion in unemployment insurance (UI) eligibility across states. While more than forty states had modified UI rules by the end of March, not all states responded in the same way. In this article, I summarize the changes to state UI rules in response to the crisis and explore factors that have contributed to the variation in states’ responses.
    Keywords: Fiscal policy; COVID-19; Unemployment insurance
    JEL: H72 J65
    Date: 2020–04–14
  10. By: Shahrzad Ghourchian (Oklahoma City University); Hakan Yilmazkuday (Department of Economics, Florida International University)
    Abstract: This paper compares the effects of government consumption and government debt on economic growth by using data from 83 countries, including both developed and developing markets, over the period between 1960 and 2014. Linear regressions reveal that the negative effects of government consumption are relatively higher than the negative effects of government debt. A nonlinear investigation further suggests that the restrictions on government expenditure to prevent negative growth are shown to be more important for countries with lower trade openness, lower inflation, or higher financial depth, whereas the restrictions on government debt are shown to be more important for countries with higher trade openness, lower inflation or higher financial depth.
    Keywords: Government Consumption, Government Debt, Economic Growth, Thresholds, Cross-Country Analysis
    JEL: H50 H63 O23 O47
    Date: 2020–02
  11. By: Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, University of Gothenburg)
    Abstract: Models where people derive well-being from motives other than material self-interest – including those rooted in status concerns – are surprisingly scarce in the study of optimal redistributive taxation. In fact, despite extensive evidence from experimental research, other-regarding behavior driven by prosocial preferences is more or less absent in this literature. The purpose of the present paper is to start filling this gap by analyzing the implications of prosocial preferences related to equality and efficiency for optimal income taxation. In doing so, we take a broad perspective by examining three well-known models of social preferences developed by Fehr and Schmidt (1999), Bolton and Ockenfels (2000), and Charness and Rabin (2002), respectively. Our contribution is to analyze the implications of these three social preference models for optimal redistributive income taxation based on a discrete version of the Mirrleesian (1971) framework of optimal nonlinear income taxation. We find that social preferences may have a considerable impact on the structure of marginal income taxation, and that interactions between externality correction and redistributive aspects of taxation are likely to play an important role for the optimal tax structure.
    Keywords: Optimal Taxation; Redistribution; Social Preferences; Inequality Aversion
    JEL: D62 D90 H21 H23
    Date: 2020–04–16
  12. By: Isabelle Cadoret (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique); Emma Galli (Università degli Studi di Roma "La Sapienza" [Rome]); Fabio Padovano (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper empirically examines which type of fiscal levies are environmental taxes, by analyzing how governments actually use them. The theoretical literature is polarized between two alternative interpretations of environmental taxes: the Pigouvian and the Leviathan hypotheses, each leading to alternative testable hypotheses. We test them on a sample where the analysts' discretionary evaluations are minimal, the EU-28 countries that committed themselves to correcting a negative environmental externality, the greenhouse gas emissions, by 2020. The estimates lend support to the strict Pigouvian hypothesis, while the Leviathan hypothesis appears less consistent with the data.
    Keywords: Arellano–Bond GMM,GHG reduction,Leviathan government,Pigouvian taxation,Environmental taxes
    Date: 2020

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