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on Public Economics |
| By: | Canta, Chiara (Toulouse Business School); Cremer, Helmuth (Toulouse School of Economics); Gahvari, Firouz (University of Illinois at Urbana-Champaign) |
| Abstract: | We study optimal income taxation in a framework where one's willingness to report his income truthfully is positively correlated with his type. We show that allowing low-productivity types to cheat leads to Pareto-superior outcomes as compared to deterring them, even if audits can be performed costlessly. When there is no cheating, redistribution takes place on first- and second-best frontiers and can never make low-ability types more well-off than high-ability types. Letting low-ability types cheat allows first-best redistribution up to a limit at which low-ability types are better off than high-ability types. |
| Keywords: | optimal taxation, tax evasion, audits, welfare-improving |
| JEL: | H20 H21 H26 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13483&r=all |
| By: | Ole Agersnap; Owen M. Zidar |
| Abstract: | This paper uses an event study approach to estimate the effect of capital gains taxation on realizations at the state level, and then develops a framework for determining revenue-maximizing rates at the federal level. We find that the elasticity of revenues with respect to the tax rate over a ten-year period is -0.5 to -0.3, indicating that capital gains tax cuts do not pay for themselves, and that a 5 percentage point rate increase would yield $18 to $30 billion in annual federal tax revenue. Our long-run estimates yield revenue-maximizing capital gains tax rates of 38 to 47 percent. |
| JEL: | H0 H2 H21 H24 H71 R5 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27705&r=all |
| By: | Shafik Hebous; Zhiyang Jia; Knut Løyland; Thor Olav Thoresen; Arnstein Øvrum |
| Abstract: | The Norwegian Tax Administration operated multi-year random audits of personal income tax returns. We exploit this exceptional randomized setup to estimate the effects of tax audits on future compliance explicitly distinguishing between dynamic responses of compliant and noncompliant audited taxpayers. A priori, the literature has suggested two competing effects: A post-audit deterrence effect—whereby audits prompt taxpayers to comply in subsequent years—or an “approval effect”—whereby audits lower taxpayers’ subjective probability of detecting future evasion and hence weaken compliance. Our results suggest improved future compliance for five post-audit years by those that were found noncompliant in the audits. Those that were found compliant, however, show no signs of behavioral adjustments. Although the findings are consistent with the deterrence effect, we argue that there is also a “learning” effect with the important implication that better information for taxpayers critically complements tax audits. |
| Keywords: | tax administration, tax evasion, tax compliance, tax audits, administrative data |
| JEL: | H26 C23 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8480&r=all |
| By: | Eirini Andriopoulou; Eleni Kanavitsa; Chrysa Leventi; Panos Tsakloglou |
| 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 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:hel:greese:150&r=all |
| By: | ISLAM Nizamul; DOORLEY Karina; FLOOD Lennart |
| Abstract: | We study the effect of a move from joint to individual taxation system using 2,276 couple household living in Luxembourg. We estimate simultaneously labour supply and social assistance (RMG) participation, exploiting a discrete choice model. We focus on the distributional, work (extensive and intensive margin) incentive, and the social welfare effect of introducing a mandatory individual taxation system in Luxembourg. The work incentive of married women increases by 2.27% in intensive margin and 2.58% in extensive margin after the reform. The incentive of married men is almost zero. Equivalised disposable income, after the behavioural adjustment, decreases on average 2.1 per cent. After adjustments to direct and indirect taxes, the net revenue-neutral result is a budget surplus for the central government of around €10 million. |
| Keywords: | Joint taxation; Microsimulation; Labour supply; Welfare |
| JEL: | B21 B31 D31 H24 H31 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:irs:cepswp:2020-05&r=all |
| By: | Youssef Benzarti; Jarkko Harju |
| Abstract: | This paper estimates the effect of payroll tax cuts on firm activity during economic downturns. We use two regional payroll tax cuts in Finland as well as the onset of the Great Recession to estimate the effect of the recession on firms treated by the payroll tax cuts compared to a similar control group. When implemented, prior to the Great Recession, we estimate that the payroll tax cuts had limited effects on firms located in the treated regions. However, when the recession starts, some of its negative effects were substantially hampered by the previously enacted payroll tax cuts in treated firms. These effects are exacerbated for men and low-skilled employees. We also find that sales and profits in treated firms respond differently in treated firms during the recession. This shows that payroll tax cuts can make firms more resilient during downturns. |
| JEL: | H20 H22 H23 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27485&r=all |
| By: | Doligalski, Pawel; Ndiaye, Abdoulaye; Werquin, Nicolas |
| Abstract: | Half of the jobs in the U.S. feature pay-for-performance. We study nonlinear income taxation in a model where such labor contracts arise as a result of moral hazard frictions within firms. We derive novel formulas for the incidence of arbitrarily nonlinear reforms of a given tax code on both average earnings and their sensitivity to output risk. We show theoretically and quantitatively that, following an increase in tax progressivity, the higher sensitivity of earnings to performance caused by the crowding-out of private insurance is almost fully o�set by a countervailing performance-pay effect driven by labor supply responses. As a result, earnings risk is hardly affected by policy. We then turn to the normative analysis of a government that levies taxes and transfers to redistribute income across workers with different levels of uninsurable productivity. We�find that setting taxes without accounting for the endogeneity of private insurance is close to optimal. Thus, the common concern that standard models of taxation underestimate the cost of redistribution is, in the context of performance-based compensation, overblown. |
| Keywords: | moral hazard, optimal taxation, Performance pay, Tax Incidence |
| JEL: | D61 D82 D86 H21 H22 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102652&r=all |
| By: | Andreas Haller, Stefan Staubli, Josef Zweimüller |
| Abstract: | We study the welfare effects of disability insurance (DI) and derive social-optimality conditions for the two main DI policy parameters: (i) DI eligibility rules and (ii) DI benefits. Causal evidence from two DI reforms in Austria generate fiscal multipliers (total over mechanical cost reductions) of 2.0-2.5 for stricter DI eligibility rules and of 1.3-1.4 for lower DI benefits. Stricter DI eligibility rules generate lower income losses (earnings + transfers), particularly at the lower end of the income distribution. Our analysis suggests that the welfare cost of rolling back the Austrian DI program is lower through tightening eligibility rules than through lowering benefits. Applying our framework to the US DI system suggests that both loosening eligibility rules, and increasing benefits, would be welfare increasing. |
| Keywords: | Disability insurance, screening, benefits, policy reform |
| JEL: | H53 H55 J14 J21 J65 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:rsi:irersi:5&r=all |
| 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. |
| Keywords: | Full retirement age, social security, regression discontinuity design, reference dependence |
| JEL: | H55 J21 J26 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:rsi:irersi:4&r=all |
| By: | Haller, Andreas (University of Zurich); Staubli, Stefan (University of Calgary); Zweimüller, Josef (University of Zurich) |
| Abstract: | We study the welfare effects of disability insurance (DI) and derive social-optimality conditions for the two main DI policy parameters: (i) DI eligibility rules and (ii) DI benefits. Causal evidence from two DI reforms in Austria generate fiscal multipliers (total over mechanical cost reductions) of 2.0-2.5 for stricter DI eligibility rules and of 1.3-1.4 for lower DI benefits. Stricter DI eligibility rules generate lower income losses (earnings + transfers), particularly at the lower end of the income distribution. Hence, to roll back the Austrian DI program, policy makers should implement tighter DI eligibility rules rather than lower DI benefits. An application of our framework to the DI system of the U.S. suggests that DI eligibility rules are too strict and DI benefits are too low. |
| Keywords: | disability insurance, screening, benefits, policy reform |
| JEL: | H53 H55 J14 J21 J65 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13539&r=all |
| By: | Roel Beetsma; Brian Burgoon; Francesco Nicoli; Anniek de Ruijter; Frank Vandenbroucke |
| Abstract: | Based on a conjoint survey experiment we explore the support among European citizens for a European Union (EU) budgetary assistance instrument to combat adverse temporary or permanent economic shocks hitting Member States. Suitably designed, there is quite substantial support for such an EU instrument generally and across the sample countries. Support is broader when budgetary support is conditional on debt reduction in normal times and spent in specific policy areas, in particular healthcare and education. Support also increases when there is a role for the European Commission in terms of monitoring and providing guidance. However, there is little support for policy packages that terminate a program and impose a fine in the case of non-compliance. Further, there is broad acceptance of long-run redistribution towards poorer countries. Financing the assistance through a progressive tax increase is more popular than through a flat tax increase. In general, there is substantial scope for constructing assistance packages that command a majority support in all sample countries. The survey was fielded in the midst of the COVID-19 crisis, in which the prospect of a severe economic shock became realistic. However, the results of our survey are based on respondent views in a (partially) pre-political environment: respondents had the opportunity to reason and form their own opinion about the assistance package before concrete policy proposals were debated by political parties that seek the edges of polarization. |
| Keywords: | EU fiscal capacity, conjoint experiment, EU support instruments, temporary or permanent shocks, stabilization, conditionally, taxation, redistribution |
| JEL: | E63 H23 H50 H60 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8470&r=all |
| By: | Kim, Moon Jung (Korea Institute of Public Finance (KIPF)); Lee, Soohyung (Seoul National University) |
| Abstract: | Various countries have implemented transfer programs to individuals since the Covid-19 outbreaks. However, the extent to which such transfers alleviate economic recessions is unclear. This paper analyzes a South Korean program, which provided vouchers redeemable only at small local businesses. We find that, due to the program, over 30% of households across all income groups increased their food and overall household spending, but the usage restriction may have affected consumer choice, distorting business competition. While the employment and sales of small businesses improved, the program's fiscal sustainability is in question because of the large tax exemption. |
| Keywords: | COVID-19, stimulus payment, universal transfers, consumption, distortion |
| JEL: | H2 H6 D3 D6 L1 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13567&r=all |
| By: | Wolfgang Banzhaf |
| Abstract: | We consider a number of Artificial Chemistry models for economic activity and what consequences they have for the formation of economic inequality. We are particularly interested in what tax measures are effective in dampening economic inequality. By starting from well-known kinetic exchange models, we examine different scenarios for reducing the tendency of economic activity models to form unequal wealth distribution in equilibrium. |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2007.02934&r=all |
| By: | David Neumark; Timothy Young |
| Abstract: | We take up two questions that have not been explored in research on enterprise zones. First, does a considerably longer-run perspective on the effects of state enterprise zones lead to different answers? And second, are there heterogeneous effects of enterprise zones that depend on the set of incentives these programs offer, which can vary widely? Our results indicate that whether we look at state enterprise zone programs through a longer-term lens, or through the lens of program heterogeneity, we generally do not find any consistent indication of beneficial effects of state enterprise zone programs, and if anything the longer-run effects are negative. The lack of positive effects is consistent with most of the prior evidence that focuses on effects that are short-term and homogeneous. |
| JEL: | H25 J23 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27545&r=all |