nep-pbe New Economics Papers
on Public Economics
Issue of 2020‒09‒07
thirteen papers chosen by
Thomas Andrén

  1. The Distributional Impact of Recurrent Immovable Property Taxation in Greece By Andriopoulou, Eirini; Kanavitsa, Eleni; Leventi, Chrysa; Tsakloglou, Panos
  2. Positive Health Externalities of Mandating Paid Sick Leave By Pichler, Stefan; Wen, Katherine; Ziebarth, Nicolas R.
  3. Optimal Taxation with Endogenous Default under Incomplete Markets By Demian Pouzo; Ignacio Presno
  4. The impact of internet penetrationon corporate income tax filing in South Africa By Lediga, Collen
  5. Corporate taxes and high-quality entrepreneurship: evidence from a tax reform By Ana Venâncio; Victor Barros; Clara Raposo
  6. Dynamic Sales Tax Competition: Evidence from Panel Data at the Border By Melissa Gentry; Nadia Greenhalgh-Stanley; Shawn M. Rohlin; Jeffrey P. Thompson
  7. Do State Earned Income Tax Credits Increase Participation in the Federal EITC? By David Neumark; Katherine E. Williams
  8. Empowering consumers to reduce corporate tax avoidance: Theory and Experiments By Fatas, Enrique; Morales, Antonio J.; Sonntag, Axel
  9. Endogenous Timing in Tax Competition: The Effect of Asymmetric Information By Takaaki HAMADA
  10. Understanding Tax Policy: How Do People Reason? By Stefanie Stantcheva
  11. Market Behaviour Versus Tax Planning Responses to Changes in Marginal Income Tax Rates Among Older Couples By Messacar, Derek
  12. The Impact of Social Security on Pension Claiming and Retirement: Active vs. Passive Decisions By Rafael Lalive; Arvind Magesan; Stefan Staubli
  13. Vehicle Tax Design and Car Purchase Choices: A Case Study of Ireland By L. (Lisa B.) Ryan; Ivan Petrov

  1. By: Andriopoulou, Eirini (Hellenic Ministry of Finance); Kanavitsa, Eleni (Athens University of Economics and Business); Leventi, Chrysa (University of Essex); Tsakloglou, Panos (Athens University of Economics and Business)
    Abstract: During the last decade, Greece faced one of the most severe debt crises among developed countries, leading to Economic Adjustment Programs in order to avoid a disorderly default. Public expenditure was cut, tax rates were increased and new taxes were introduced aiming at restoring public finances. Prominent among the latter were recurrent property taxes that were playing a very minor role before the crisis. These taxes helped boosting public revenues but were hugely unpopular. The paper examines in detail their distributional impact and finds that they led to increases in inequality and (relative) poverty. The result is stronger in the case of inequality indices that are relatively more sensitive to changes close to the bottom of the distribution and poverty indices that are sensitive to the distribution of income among the poor.
    Keywords: property taxation, inequality, poverty, progressivity, Greece
    JEL: D31 H22
    Date: 2020–07
  2. By: Pichler, Stefan (ETH Zurich); Wen, Katherine (Cornell University); Ziebarth, Nicolas R. (Cornell University)
    Abstract: A growing economic literature studies the optimal design of social insurance systems and the empirical identification of welfare-relevant externalities. In this paper, we test whether mandating employee access to paid sick leave has reduced influenza-like-illness (ILI) transmission rates as well as pneumonia and influenza (P&I) mortality rates in the United States. Using uniquely compiled data from administrative sources at the state-week level from 2010 to 2018 along with difference-in-differences methods, we present quasi-experimental evidence that sick pay mandates have causally reduced doctor-certified ILI rates at the population level. On average, ILI rates fell by about 11 percent or 290 ILI cases per 100,000 patients per week in the first year.
    Keywords: sick pay mandates, population health, flu infection, negative externalities
    JEL: H23 H75 I12 I14 I18 J22 J38 J58
    Date: 2020–07
  3. By: Demian Pouzo; Ignacio Presno
    Abstract: How are the optimal tax and debt policies affected if the government has the option to default on its debt? We address this question from a normative perspective in an economy with noncontingent government debt, domestic default and labor taxes. On one hand, default prevents the government from incurring future tax distortions that would come along with the service of the debt. On the other hand, default risk gives rise to endogenous credit limits that hinder the government's ability to smooth taxes. We characterize the fiscal policy and show how the option to default alters the near-unit root component of taxes in the economy with risk-free borrowing. When we allow the government to default and calibrate the model to Spain, fiscal policies are more volatile, borrowing costs are higher, indebtness and welfare are both lower than in two alternatives economies, one with only risk-free debt available and the other with government's commitment to the default strategy.
    Keywords: Optimal taxation; Government debt; Incomplete markets; Default
    JEL: H30 H21 H63 D52 C60
    Date: 2020–08–20
  4. By: Lediga, Collen
    Abstract: Tax administrations around the world have introduced e-filing of tax returns due to its potential to improve tax return filing compliance. The introduction of this service for businesses in South Africa has not yielded the expected results. Drawing on tax administrative data on tax return filing and population census data, the study aims at determining whether internet access in the country, could have contributed to the less impact of the introduced administrative intervention. Accounting for specific characteristics of the areas in the country, and geoclassication (urban or rural area), we find that an increase in the fraction of household areas with internet access by 10 percentage points, raises the fraction of businesses that do submit a tax return by 1.86 percentage points. The results of the analysis highlights that the impact of the introduction of e-filing services for tax returns submission, is dependent on the internet coverage of the area.
    Keywords: corporate taxation,e-filing,less developed countries,tax administration
    JEL: H2 H7
    Date: 2020
  5. By: Ana Venâncio; Victor Barros; Clara Raposo
    Abstract: We examine the impact of corporate taxation on entrepreneurship, using a quasi-natural experiment, which substantially reduced the corporate tax rate for start-ups located in inland municipalities in Portugal. The combination of a high quality and universal firm level database for Portugal allows the detailed study of firm's behaviour. We use BPlim’s harmonized Central Balance Sheet panel for the period of 2006 to 2015 to evaluate the different behaviour of exporters and non-exporters in Portugal. We follow on the self-selection and learning-by-exporting literature, estimating several exporter productivity premiums. After finding solid evidence of a productivity advantage of exporters compared to non-exporters, which seems to emerge several years before firms start to export, we expand our study in order to explore the causality of the previous findings. Thus, we estimate a logit fixed effects model to assess the impact of several variables in the export propensity of a firm. We corroborate the self-selection theory, given the significance of labour productivity in probability of a firm exporting, as well, as significant effects of firm absolute size, relative market share, sector concentration and investment.
    Keywords: Firm entry; Job creation; Tax policy; Corporate taxes; High-quality entrepreneurship
    JEL: H24 H26 J24 L26 M13 H25
    Date: 2020–01
  6. By: Melissa Gentry; Nadia Greenhalgh-Stanley; Shawn M. Rohlin; Jeffrey P. Thompson
    Abstract: We examine both vertical and horizontal tax competition over time by studying the strategic response of county sales taxation to state sales taxes and to cross-border neighboring municipalities’ combined (state and county) taxes. Using county and state sales tax data from 2003 through 2009, we employ both static and dynamic panel analysis as well as an instrumental variables approach in combination with a border analysis. Our results confirm the presence of tax competition in the cross section, as previous studies have found. Results from the fixed-effects and dynamic panel analysis also indicate the presence of vertical competition, though quite small, as counties are consistently responsive to changes in their own state sales tax level across all models and specifications. However, the panel findings suggest little to no horizontal tax competition. Following Parchet (2019), we address additional concerns about endogeneity by instrumenting the neighboring-county sales tax rate with the state-level sales tax rate of the neighboring state. Results from instrumental variables analysis reinforce the presence of a small vertical tax competition between local and state sales tax policies. Interestingly, our results, like those of Parchet (2019), indicate that cross-border local sales tax rates act as strategic substitutes.
    Keywords: tax competition; sales taxation; border approach
    JEL: H2 H7
    Date: 2020–03–01
  7. By: David Neumark; Katherine E. Williams
    Abstract: In recent years, many states and some local governments implemented or expanded their own supplemental Earned Income Tax Credits (EITCs). The expansion of state EITCs may have stemmed in large part from wanting to provide a more generous program than the federal program, because state EITCs increase transfer payments to low-income recipients who qualify. However, state and local governments can also benefit from maximizing participation of their constituents in the federal EITC, and there are several reasons why state or local EITCs could increase participation in the federal EITC program. We find some evidence suggesting that state EITCs may increase federal EITC program participation among low-skilled single filers with children.
    JEL: H24 H71
    Date: 2020–07
  8. By: Fatas, Enrique (Center for Social Norms and Behavioral Dynamics, University of Pennsylvania and School of Management, Universidad ICESI); Morales, Antonio J. (School of Economics, University of Malaga); Sonntag, Axel (Institute for Advanced Studies Vienna and Vienna Center for Experimental Economics, University of Vienna)
    Abstract: We analyze corporate tax avoidance in a theoretical model and in a stylized experimental Bertrand setting in which symmetric firms and consumers sell and buy a homogeneous product, when human participants make decisions as firms and consumers. We investigate how market power and information disclosure of firms’ tax avoidance behavior impacts corporate tax avoidance and market competition. By imposing a tax rating, corporate tax behavior becomes more transparent, and consumers actively and costly boycott firms that do not pay their taxes. Firms adapt and anticipate consumer boycotts and increase tax payments, and prices. When rating disclosure is voluntary, the positive effect on corporate tax compliance vanishes in large markets.
    Keywords: tax avoidance, policy measure, tax rating, transparency, lab experiment
    JEL: H26 C92 D78 D82 L15
    Date: 2020–08
  9. By: Takaaki HAMADA (Faculty of Management and Administration, Shumei University)
    Abstract: In this paper, we explore the effects of asymmetric information on endogenous leadership in tax competition under Ogawa (2013)'s setup. Specifically, we analyze the case that one country's productivity of private goods is uncertain for another country. We find that each type of informed country has an incentive to pretend to be the other type. This causes a Stackelberg outcome to emerge endogenously, under which an uninformed country moves first and an informed country moves second, while the unique outcome under complete information is the simultaneous move. Moreover, we show that ex-post social welfare under asymmetric information increases more than that one under complete information because the aggressive tax setting of the uninformed country is suppressed. These results depend on capital ownership and type of uncertainty.
    Keywords: Tax competition; Endogenous leadership; Asymmetric information
    JEL: D82 H30 H87
    Date: 2020–08
  10. By: Stefanie Stantcheva
    Abstract: I study how people understand, reason, and learn about tax policy. The goal is to uncover the mental models that people use to think about income and estate taxes. To that end, I run large-scale online surveys and experiments on representative U.S. samples to elicit not only respondents' factual knowledge about tax policy and the income or wealth distributions, but also their understanding of the mechanisms of tax policy and their reasoning about it. The detailed survey questions are designed to address the three main factors emphasized in our core tax model that can shape support for or opposition to taxes: efficiency effects, distributional implications, and fairness considerations. But they also elicit broader concerns that could influence policy views such as misperceptions, views of government, perceived spillovers from taxes, and views on how tax revenues are or should be spent. To extract people's first-order considerations that come to mind when they are prompted to think about tax policy, its shortcomings, and goals without priming them, open-ended questions are used and then evaluated with text analysis methods. There are partisan divergences not just in the final policy views, but also in reasonings about the underlying mechanisms and most starkly on the fairness considerations. I decompose policy views into the various underlying factors and find that support for tax policy is most strongly correlated with views on the benefits of redistribution and fairness, as well as with views of the government. Efficiency concerns play a more minor role. These correlational patterns are confirmed by the experimental approach, which shows people instructional videos that explain the workings and consequences of one of the aspects of tax policy (the “Redistribution” and the “Efficiency” treatments) or that bring the two together and focus on the trade-off (the “Economist” treatment). The Redistribution treatment and Economist treatments significantly increase support for more progressive taxes.
    JEL: D72 D9 H20 H24 H3
    Date: 2020–08
  11. By: Messacar, Derek
    Abstract: This paper investigates the extent to which older Canadian taxfilers, aged 60 to 69, respond to predictable changes in marginal tax rates created by the tax and transfer system by exhibiting sorting behaviour in taxable income. Using administrative tax data for the years from 2001 to 2012, the analysis assesses how individuals respond to changes in marginal tax rates created at the lower bounds of the second, third and fourth federal tax brackets; the lower bounds of the second and third provincial and territorial tax brackets; and the thresholds at which the Old Age Security and Employment Insurance benefits start being clawed back through recovery taxes.
    Keywords: Tax rate, Pension income, Old age security pensions, Income taxes, Employment insurance benefits, Administrative data
    Date: 2018–11–19
  12. By: Rafael Lalive; Arvind Magesan; Stefan Staubli
    Abstract: We exploit a unique Swiss reform to identify the importance of passivity, claiming social security benefits at the Full Retirement Age (FRA). Sharp discontinuities generated by the reform reveal that raising the FRA while imposing small early claiming penalties significantly delays pension claiming and retirement, but imposing large penalties and holding the FRA fixed does not. The nature of the reform allows us to identify that between 47 and 69% of individuals are passive, while imposing additional structure point identifies the fraction at 67%. An original survey of Swiss pensioners reveals that reference-dependent preferences is the main source of passivity.
    JEL: H55 J21 J26
    Date: 2020–07
  13. By: L. (Lisa B.) Ryan; Ivan Petrov
    Abstract: This paper utilises a difference-in-differences model to study the impact of a vehicle tax reform on purchasing choices over a period of 10 years. In line with many other European countries, on the 1st of July 2008 the motor taxation regime in the Republic of Ireland was reformed to try and stem rising CO2 emissions from the passenger car fleet. To achieve this, both vehicle purchase and circulation taxes switched from an engine capacity basis to a CO2 emissions rating per kilometre basis. The aim of this study is to quantify the effectiveness of this (and subsequent) vehicle policy changes at achieving this goal. Using a difference in differences quasi-experimental design, we attempt to recreate the missing counterfactual (in the absence of the policy change(s)) of vehicle purchasing patterns in Ireland using the trend in UK new passenger car emissions over the same period. The findings suggest that the initial taxation policy change reduced average rated CO2 emissions from new passenger cars by between 8 to 11 g CO2/km. Some subsequent policy changes, such as the introduction of a scrappage scheme in 2010 also had an impact at stimulating the purchase of lower-emitting vehicles. This effect however was achieved by a substantial switch towards diesel powered vehicles, with other consequences for the environment, and a significant drop in tax revenue for the exchequer.
    Keywords: Vehicle taxes; Externalities; Difference-in-differences models; Passenger cars; CO2 emissions
    Date: 2019–06

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