nep-pbe New Economics Papers
on Public Economics
Issue of 2020‒12‒21
eight papers chosen by
Thomas Andrén

  1. Designing, not Checking, for Policy Robustness: An Example with Optimal Taxation By Benjamin Lockwood; Afras Y. Sial; Matthew C. Weinzierl
  2. Automatic fiscal stabilisers: Recent evolution and policy options to boost their effectiveness By Alessandro Maravalle; Łukasz Rawdanowicz
  3. Can Nudges Increase Take-up of the EITC?: Evidence from Multiple Field Experiments By Elizabeth Linos; Allen Prohofsky; Aparna Ramesh; Jesse Rothstein; Matt Unrath
  4. Size, heterogeneity and distributional effects of self-employment income tax evasion in Italy By Bazzoli, Martina; Di Caro, Paolo; Figari, Francesco; Fiorio, Carlo V.; Manzo, Marco
  5. Some Amendments to the Algebraic Representation and Empirical Estimation of the Fiscal Multipliers By Nizam, Ahmed Mehedi
  6. Income Tax Evasion: Recovery from Economic Disasters By Bruno Coric; Blanka Peric Skrabic
  7. How effective are automatic fiscal stabilisers in the OECD countries? By Alessandro Maravalle; Łukasz Rawdanowicz
  8. Variations in COVID strategies: Determinants and lessons By S. Nazrul Islam; Hoi Wai Jackie Cheng; Kristinn Sv. Helgason; Hiroshi Kawamura; Marcelo LaFleur

  1. By: Benjamin Lockwood; Afras Y. Sial; Matthew C. Weinzierl
    Abstract: Economists typically check the robustness of their results by comparing them across plausible ranges of parameter values and model structures. A preferable approach to robustness—for the purposes of policymaking and evaluation—is to design policy that takes these ranges into account. We modify the standard optimal income tax model to include the policymaker’s subjective uncertainty over parameter values, and we characterize robust optimal policy as that which maximizes expected social welfare. After calibrating uncertainty over the elasticity of taxable income from past empirical work and novel survey data on economists’ beliefs, we compare the implied robust optimal marginal tax rates to the alternative benchmark policy based on the best point estimates of relevant parameters. Our results suggest that robust optimal marginal tax rates are typically more progressive than in benchmark analyses, raising top marginal tax rates by between 5 and 7 percentage points, and generating modest expected welfare gains.
    JEL: H21 H24
    Date: 2020–11
  2. By: Alessandro Maravalle; Łukasz Rawdanowicz
    Abstract: Building on the automatic fiscal stabilisers literature, this paper assesses how automatic stabilisers have evolved over the past two decades by analysing changes in the personal income tax and social benefit systems. In three-quarters of the 35 OECD countries analysed, indicators of the strength of automatic stabilisers (aggregate elasticities of household income after tax with respect to the cycle and aggregate net replacement rates) changed little or moderately over the past two decades, suggesting broadly stable automatic stabilisers of household disposable income. The paper discusses pros and cons of several policy options to strengthen automatic stabilisers in the current environment. The effectiveness and possible side effects, particularly related to disincentives to work, vary across policy options. Consequently, policy reform proposals should be carefully assessed in a country-specific context and take into account other important policy objectives of tax and benefit systems.
    Keywords: automatic fiscal stabilisers, business cycles, fiscal policy
    JEL: H31 H6 E6 E32
    Date: 2020–12–15
  3. By: Elizabeth Linos; Allen Prohofsky; Aparna Ramesh; Jesse Rothstein; Matt Unrath
    Abstract: The Earned Income Tax Credit (EITC) distributes more than $60 billion to over 20 million low-income families annually. Nevertheless, an estimated one-fifth of eligible households do not claim it. We ran six pre-registered, large-scale field experiments to test whether “nudges” could increase EITC take-up (N=1million). Despite varying the content, design, messenger, and mode of our messages, we find no evidence that they affected households’ likelihood of filing a tax return or claiming the credit. We conclude that even the most behaviorally informed low-touch outreach efforts cannot overcome the barriers faced by low-income households who do not file returns.
    JEL: D91 H24 H26 I38
    Date: 2020–11
  4. By: Bazzoli, Martina; Di Caro, Paolo; Figari, Francesco; Fiorio, Carlo V.; Manzo, Marco
    Abstract: We measure tax evasion in Italy by estimating a food expenditure equation that disentangles households with prevalent income from self-employment, which is self-declared, from those with mostly third-party reported income. By using a novel dataset that links the 2013 Italian Household Budget Survey with individual tax records over a period of 7 years, we reduce measurement error by a great extent. We also depart from the usual constant share of underreporting, showing that underreporting heterogeneity among self-employed is significant, and is larger for singles and for college-educated households. We show that self-employed workers in Italy exhibit a similar attitude to tax evasion as those in other developed countries. Therefore, we point to the structure of the economy for an explanation of why aggregate tax evasion in Italy is larger than in other developed countries. The estimated heterogeneity of underreporting behavior of households combined with the use of a tax-benefit microsimulation model have allowed us to shed light on the distributional effects of income tax evasion, showing that almost 73% of the missing revenue is attributable to tax-payers at the top of the income distribution.
    Date: 2020–12–09
  5. By: Nizam, Ahmed Mehedi
    Abstract: Conventional algebraic estimate of the fiscal multipliers ignores the concept of velocity of money and mistakenly assumes that money changes hands an infinite number of times during a given year while we know money only has a finite velocity. Apart from the velocity of money, fiscal multipliers tend to depend on average propensity to consume and average propensity to import of the economy as a whole and also on average tax rate among other things which are not reflected in the modern SVAR based estimation. Here, in the first place, we amend the algebraic definition of the fiscal multipliers considering the impact of velocity of money, provide a micro-foundation relating fiscal multipliers with money velocity and other macro variables and later propose a modification in the conventional SVAR set up by incorporating aforesaid macro variables arranged in a logical manner. Proposed amendments to the SVAR set up entail relatively stable estimates of the fiscal multipliers as can be seen from empirical estimation of the multiplier values for US and UK data during the period 1972-2018.
    Keywords: fiscal multipliers; money velocity; government spending multipliers; average propensity to consume; average propensity to import; average tax rate
    JEL: E62 H3 H50
    Date: 2020–11–25
  6. By: Bruno Coric; Blanka Peric Skrabic
    Abstract: This study uses two large datasets to explore the output dynamics following economic disasters, one including 180 economic disasters across 38 countries over the last two centuries, and the other including 204 economic disasters in 182 countries since World War II. Our results suggest that extreme economic crises are associated with huge and remarkably persistent output loss. On average, output loss surges to above 26 percent in the first few years after the outbreak of an economic disaster and remains above 20 percent for as long as 20 years. It is only after more than 50 years that the loss is fully recovered.
    Keywords: economic disaster; output loss; economic recovery;
    JEL: E32 N10
    Date: 2020–11
  7. By: Alessandro Maravalle; Łukasz Rawdanowicz
    Abstract: This paper proposes an approach to assess the extent of automatic fiscal stabilisation of aggregate household disposable income after a specific shock. The approach is based on the national account identity of household disposable income and elements of the OECD methodology to cyclically adjust budget balances. In a stylised scenario assuming a decline in household market income, automatic stabilisers in 23 OECD countries are found to offset on average around 60% of the shock on impact. Direct taxes provide larger stabilisation than social benefits and social security contributions. There are important differences in the effectiveness of automatic stabilisers across the OECD countries. They mainly reflect non-linear interactions among the size of a specific automatic stabiliser, the elasticity of the automatic stabiliser with respect to a relevant economic variable and the specific shock scenario analysed.
    Keywords: automatic fiscal stabilisers, cyclical adjustment of government budget balances, fiscal policy, household disposable income
    JEL: H31 H6 E63 E32
    Date: 2020–12–15
  8. By: S. Nazrul Islam; Hoi Wai Jackie Cheng; Kristinn Sv. Helgason; Hiroshi Kawamura; Marcelo LaFleur
    Abstract: This paper examines the experience of a set of countries that performed relatively well in coping with the COVID-19 crisis. The goal is to garner insights and lessons that can help countries that may experience initial or second-round outbreaks of the pandemic in the future. The paper finds healthcare, social protection, and overall governance systems as the three main determinants of COVID-19 strategies and their success. Though unique country-specific factors played an important role in confronting the pandemic in some countries, their role was generally mediated through one or the other of the above three main determinants. The findings of the paper suggest that establishing universal healthcare and social protection systems and improvement of governance need to be taken up as an immediate task – and not as a distant goal – even by developing countries. In view of the possibility of recurrence of epidemics in the future, this task has become important.
    Keywords: COVID-19; Social protection; Healthcare system; Containment measures; Trace-Test-Quarantine; Sustainable development
    JEL: H12 H51 H53 H55 I18 J65 P50
    Date: 2020–11

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