nep-pbe New Economics Papers
on Public Economics
Issue of 2020‒05‒11
fourteen papers chosen by
Thomas Andrén

  1. Optimal Taxation in an Endogenous Fertility Model with Non-Cooperative Couples By Takuya Obara; Yoshitomo Ogawa
  2. Overclaimed Refunds, Undeclared Sales, and Invoice Mills: Nature and Extent of Noncompliance in a Value-Added Tax By Mazhar Waseem
  3. Redistribution within the tax-benefit system in Austria By Christl, Michael; Köppl-Turyna, Monika; Lorenz, Hanno; Kucsera, Dénes
  4. The welfare effects of persuasion and taxation: Theory and evidence from the field By Rodemeier, Matthias; Löschel, Andreas
  5. The government spending multiplier at the zero lower bound: Evidence from the United States By Di Serio, Mario; Fragetta, Matteo; Gasteiger, Emanuel
  6. Income Shifting and Organizational Form Choice : Evidence from Europe By Lejour, Arjan; Massenz, Gabriella
  7. Pension incentives and labor supply: Evidence from the introduction of universal old-age assistance in the UK By Giesecke, Matthias; Jäger, Philipp
  8. Long-term outlook for the German statutory pension system By Schön, Matthias
  9. Development of approaches to tax regulation competition between the subjects of the Russian Federation By Gromov, Vladimir (Громов, Владимир); Milogolov, Nikolay (Милоголов, Николай); Korytin, Andrey (Корытин, Андрей); Kostrykina, Natalia (Кострыкина, Наталья); Zakharenkova, Elena (Захаренкова, Елена)
  10. Corporate Taxes and Retail Prices By Scott R. Baker; Stephen Teng Sun; Constantine Yannelis
  11. Reforming Tax and Welfare: Social Justice and Recovery after the Pandemic By FitzRoy, Felix; Jin, Jim
  12. Does the US Tax Code Favor Automation? By Daron Acemoglu; Andrea Manera; Pascual Restrepo
  13. Tax News Shocks and Consumption By Lorenz Kueng
  14. Modeling R&D spillovers to productivity. The effects of tax policy By Thomas von Brasch; Ådne Cappelen; Håvard Hungnes; Terje Skjerpen

  1. By: Takuya Obara (Faculty of Economics, Tohoku Gakuin University); Yoshitomo Ogawa (School of Economics, Kwansei Gakuin University)
    Abstract: This study examines the optimal tax structure in an endogenous fertility model with non-cooperative couples. In the model, both the quality and number of children are sub- optimal because of the non-cooperative behavior of couples. Moreover, we consider the external e?ects of children on society and center-based childcare services. In such a uni- fied model, we characterize the formulae for optimal income tax rates, child tax/subsidy rates, and tax/subsidy rates on center-based childcare services. We find that income taxation, but not a child subsidy, corrects the suboptimal low fertility rate caused by the non-cooperative behavior of couples. To alleviate the deadweight loss from income taxation, a child tax is useful. The child tax (subsidy) becomes optimal if the required tax revenue is larger (smaller) than the external e?ects. The subsidy for external child- care services corrects the external e?ect of children, not the non-cooperative behavior. These results are reinforced by the numerical analysis.
    Keywords: Non-Cooperative Couple, Endogenous Fertility, Optimal Income Tax, Opti- mal Child Tax/Subsidy
    JEL: H21 J13 J16
    Date: 2020–05
  2. By: Mazhar Waseem
    Abstract: I leverage a Pakistani tax reform that cuts the tax rate on the supply chains of five major industries of the country from 15% to 0% to cast light on the extent of, and mechanisms driving, VAT noncompliance in a representative emerging economy. I find that firms overclaim refunds by 22% and underreport domestic B2C sales by 43.5%. Together, this implies an evasion rate of 77% in the treated industries and 38% in the population. I explore the role of three mechanisms (1) the destination principle, (2) the last-mile problem, and (3) invoice mills in driving this noncompliance.
    Keywords: VAT, tax evasion, firm behavior
    JEL: H25 H26 H32
    Date: 2020
  3. By: Christl, Michael; Köppl-Turyna, Monika; Lorenz, Hanno; Kucsera, Dénes
    Abstract: The aim of this study is to analyze redistribution within the Austrian tax-benefit system. In this work we take a comprehensive view and include not only direct taxation and cash benefits, but also indirect taxes and in-kind transfers. We look at two kinds of redistribution: between the households belonging to different income groups, and between generations, taking the life-cycle perspective. Our analysis shows that indirect taxes, as known from the previous literature, have a regressive effect on the tax-benefit system. On the contrary, in-kind benefit seem to have a progressive effect. To analyse the impact of both, we extend our income concept by both, indirect taxes and in-kind benefits. If we look on the distributional impact, we find that the inequality-enhancing effect of indirect taxes is more than off-set by the inequality-reducing effect of in-kind benefits. The Gini coefficient increases form 0.24 to 0.26 due to indirect taxes, but when adding in-kind ben- efits, the Gini coefficient is reduced to 0.23. The overall effect of both, indirect taxes and in-kind benefits is progressive.
    Keywords: tax-benefit model,EUROMOD,welfare state,Austria,in-kind benefits
    JEL: I38 H24 D31
    Date: 2020
  4. By: Rodemeier, Matthias; Löschel, Andreas
    Abstract: How much information should governments reveal to consumers if consumption choices have uninternalized consequences to society? How does an alternative tax policy compare to information disclosure? We develop a price theoretic model of information design that allows empiricists to identify the welfare effects of any arbitrary information policy. Based on this model, we run a natural field experiment in cooperation with a large European appliance retailer and randomize information regarding the financial benefits of energy-efficient household lighting among more than 640,000 subjects. We find that full information disclosure strongly decreases demand for energy efficiency, while partial information disclosure increases demand. More information reduces social welfare because the increase in consumer surplus is outweighed by the rise in environmental externalities. By randomizing product prices, we identify the optimal tax vector as an alternative policy and show that sizable taxes on energy-inefficient products yield larger welfare gains than any information policy. We also document an important policy interaction: information provision dramatically reduces attention to pecuniary incentives and thereby limits the effectiveness of taxes.
    Keywords: persuasion,optimal taxation,internality taxes,field experiments,energy efficiency,behavioral public economics
    JEL: D61 D83 H21 Q41 Q48
    Date: 2020
  5. By: Di Serio, Mario; Fragetta, Matteo; Gasteiger, Emanuel
    Abstract: We estimate state-dependent government spending multipliers for the United States. We use a Factor-Augmented Interacted Vector Autoregression (FAIVAR) model. This allows us to capture the time-varying monetary policy characteristics including the recent zero interest rate lower bound (ZLB) state, to account for the state of the business cycle, and to address the limited information problem typically inherent in VARs. We identify government spending shocks by sign restrictions and use a government spending growth forecast series to account for the effects of anticipated fiscal policy. In our baseline specification, we find that government spending multipliers in a recession range from 3:56 to 3:79 at the ZLB. Away from the ZLB, multipliers in recessions range from 2:31 to 3:05. Several robustness analyses confirm that multipliers are higher, when the interest rate is lower and that multipliers in recessions exceed multipliers in expansions. Our results are consistent with theories that predict larger multipliers at the ZLB.
    Keywords: Interacted VAR,Fiscal Policy,Government Spending,Zero Interest Rate Lower Bound
    JEL: C32 E21 E32 E52 E62 H50
    Date: 2020
  6. By: Lejour, Arjan (Tilburg University, Center For Economic Research); Massenz, Gabriella (Tilburg University, Center For Economic Research)
    Keywords: income shifting; corporate income tax; personal income tax; incorporation
    JEL: H25 L26
    Date: 2020
  7. By: Giesecke, Matthias; Jäger, Philipp
    Abstract: We study the labor supply effects and welfare implications of introducing a universal means-tested old-age assistance program in times of very limited social protection. We take advantage of a unique historical reform: The Old-Age Pension Act (OPA) of 1908, which, for the first time, provided pensions to older people in the UK. Using recently released full-count census data covering the entire population, we exploit variation at the newly created age-based eligibility threshold. Our results show a considerable and abrupt decline in labor force participation of 6.0 percentage points (13%) when older workers reach the eligibility age of 70. This sudden drop only occurs at the age cutoff and only after the OPA was implemented. Despite the considerable labor supply decline, the overall efficiency loss from the OPA was limited and most likely outweighed by equity gains.
    Keywords: Old-age assistance,labor supply,retirement,regression discontinuity design,equity-efficiency trade-off
    JEL: D61 H21 H55 J14 J22 J26
    Date: 2020
  8. By: Schön, Matthias
    Abstract: This paper presents long term projections of the German pension system that are based on a general equilibrium model with overlapping generations (OLG). This framework takes into account the two way feedback of both micro and macroeconomic relationships, meaning that households, for example, react to changes in the statutory pension system, such as the retirement age or the replacement rate. Changes in households' behaviour, in turn, impact on macroeconomic developments and public finances. One approach to parametrically reform the pension system would be linking (indexing) the retirement age systematically to increasing life expectancy. The model shows that the resulting increase in employment would also bolster social security contributions and taxes. Moreover, with a rising retirement age and the associated longer periods of work, pension entitlements would increase.
    Keywords: Demographic Change,Pension System,OLG Models
    JEL: E27 E62 H55 J11 J26
    Date: 2020
  9. By: Gromov, Vladimir (Громов, Владимир) (The Russian Presidential Academy of National Economy and Public Administration); Milogolov, Nikolay (Милоголов, Николай) (The Russian Presidential Academy of National Economy and Public Administration); Korytin, Andrey (Корытин, Андрей) (The Russian Presidential Academy of National Economy and Public Administration); Kostrykina, Natalia (Кострыкина, Наталья) (The Russian Presidential Academy of National Economy and Public Administration); Zakharenkova, Elena (Захаренкова, Елена) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The work is devoted to the analysis of the internal tax competition in the Russian Federation. The paper studies the evolution of this phenomenon, starting from the transition of the Russian Federation to a market economy to the present. The authors conclude that in the most regions with a significant policy of providing tax benefits for corporate income tax, such benefits are provided not as a result of the internal tax competition mechanism, but for other reasons.
    Date: 2020–03
  10. By: Scott R. Baker; Stephen Teng Sun; Constantine Yannelis
    Abstract: We study the impact of corporate taxes on barcode-level product prices using linked survey and administrative data. Our empirical strategy exploits the dichotomy between the location of production and the location of sales, providing estimates free from confounding demand shocks. We find significant effects of corporate taxes on prices with a net-of-tax elasticity of 0.17. The effects are larger for lower-price items and products purchased by low-income households and weaker for high-leverage firms. Approximately 31% of corporate tax incidence falls on consumers, suggesting that models used by policymakers significantly underestimate the incidence of corporate taxes on consumers.
    JEL: G38 H22 H25
    Date: 2020–04
  11. By: FitzRoy, Felix (University of St. Andrews); Jin, Jim (University of St. Andrews)
    Abstract: Capital income subsidies, and reliance on indirect consumption taxes have created an increasingly regressive overall tax system in the UK, US and elsewhere, with proportionately much greater impact on the poor than on the rich, and welfare cuts under ten years of austerity have had the largest impact on the most vulnerable and poorest, now magnified by the Covid-19 pandemic. We show how a progressive wealth tax combined with a uniform, linear tax on all incomes and a modest basic income, with no exemptions or reliefs and no indirect taxes except excise taxes such as fuel duties, could be highly progressive overall, as well as much fairer and simpler than the present system. Such reform would render the economy much more resilient, and potentially devastating economic consequences of the pandemic could be mitigated by an emergency basic income and suspension of rental payments.
    Keywords: COVID-19, tax, welfare, policy, pandemic
    JEL: H2 I3
    Date: 2020–05
  12. By: Daron Acemoglu; Andrea Manera; Pascual Restrepo
    Abstract: We argue that the US tax system is biased against labor and in favor of capital and has become more so in recent years. As a consequence, it has promoted inefficiently high levels of automation. Moving from the US tax system in the 2010s to optimal taxation of capital and labor would raise employment by 4.02% and the labor share by 0.78 percentage points, and restore the optimal level of automation. If moving to optimal taxes is infeasible, more modest reforms can still increase employment by 1.14–1.96%, but in this case efficiency can be increased by imposing an additional automation tax to reduce the equilibrium level of automation. This is because marginal automated tasks do not bring much productivity gains but displace workers, reducing employment below its socially optimal level. We additionally show that reducing labor taxes or combining lower capital taxes with automation taxes can increase employment much more than the uniform reductions in capital taxes enacted between 2000 and 2018.
    JEL: J23 J24
    Date: 2020–04
  13. By: Lorenz Kueng (University of Lugano - Faculty of Economics; Swiss Finance Institute; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Northwestern University - Kellogg School of Management)
    Abstract: How predictable are personal income tax rates in the U.S., and does household spending respond to news about future taxes even before the rates change? To answer these questions, this paper uses novel historical high-frequency data of tax-exempt municipal bonds and develops a model of the term structure of municipal yield spreads to taxable bonds as a function of future top income tax rates and a risk premium. Testing the model using the presidential elections of 1980, 1992 and 2000 shows that financial markets forecast future tax reforms remarkably well in both the short and long run. Combining these market-based tax expectations or "tax news shocks'' with data from the Consumer Expenditure Survey shows strong evidence of anticipation effects to future tax changes among higher-income consumers, well before the tax rates change. Consumer spending changes about one-for-one with changes in expected lifetime tax liabilities. These findings imply that ignoring anticipation effects can substantially bias estimates of the total effect of a tax change.
    Keywords: expected taxes, municipal yields, household consumption
    JEL: E21 G12 H31
    Date: 2020–04
  14. By: Thomas von Brasch; Ådne Cappelen; Håvard Hungnes; Terje Skjerpen (Statistics Norway)
    Abstract: We study the role of R&D spillovers when modelling total factor productivity (TFP) by industry. Using Norwegian industry level data, we find that for many industries there are significant spillovers from both domestic sources and from technological change at the international frontier. International spillovers contributed with 38 per cent to the total growth in TFP from 1982 to 2018 while domestic channels contributed with 44 per cent. The remaining 18 per cent is due to interaction effects. We include these channels into a large-scale econometric model of the Norwegian economy to study how R&D policies can promote economic growth. We find that current R&D policies in the form of generous tax deductions have increased growth in productivity and income in the Norwegian economy. The simulation results lend some support to the view that there are fiscal policy instruments that may have very large multipliers, even in the case of a fully financed policy change.
    Keywords: R&D spillovers; total factor productivity; innovation policies
    JEL: C32 C51 D24 E17 O32
    Date: 2020–04

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