nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒01‒18
twelve papers chosen by
Thomas Andrén

  1. Social Security Reform with Heterogeneous Mortality By John Bailey Jones; Yue Li
  2. Paraísos Fiscales, Wealth Taxation, and Mobility By David R. Agrawal.; Dirk Foremny; Clara Martinez-Toledano
  3. Kantians Defy the Economists' Mantra of Uniform Pigovian Emissions Taxes By Thomas Eichner; Rüdiger Pethig
  4. The economic consequences of major tax cuts for the rich By Hope, David; Limberg, Julian
  5. Spillovers and Long-Run Effects of Messages on Tax Compliance: Experimental Evidence from Peru By Castro, Juan Francisco; Velásquez, Daniel; Beltrán, Arlette; Yamada, Gustavo
  7. Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms: Comment By Clément Malgouyres; Thierry Mayer; Clément Mazet-Sonilhac
  8. Social Security and Endogenous Demographic Change: Child Support and Retirement Policies By Cipriani, Giam Pietro; Fioroni, Tamara
  9. Tax haven, pollution haven or both? By Thierry Madiès; Ornella Tarola; Emmanuelle Taugourdeau
  10. Joint Taxation in Spain and its Effects on Social Welfare: a Microsimulation Analysis By Badenes-Plá, Nuria; Blanco Palmero, Patricia; Gambau-Suelves, Borja; Navas Román, María; Villazán Pellejero, Noemí
  11. Postponing Retirement and Social Security in a Two Sector Model By Partha Sen
  12. Reducing socio-economic differences between municipalities in Israel By Gabriel Machlica

  1. By: John Bailey Jones; Yue Li
    Abstract: Using a heterogeneous-agent, life-cycle model of Social Security claiming, labor supply and saving, we consider the implications of lifespan inequality for Social Security reform. Quantitative experiments show that welfare is maximized when baseline benefits are independent of lifetime earnings, the payroll tax cap is kept roughly unchanged, and claiming adjustments are reduced. Eliminating the earnings test and the income taxation of Social Security benefits provides additional gains. The Social Security system that would maximize welfare in a "2050 demographics" scenario, characterized by longer lifespans and an increased education-mortality gradient, is similar to the one that would maximize welfare today.
    Keywords: Social security; Mortality; Labor Supply; Welfare
    JEL: E21 H24 H55 I38 J11
    Date: 2020–07–17
  2. By: David R. Agrawal. (University of Kentucky); Dirk Foremny (UB - Universitat de Barcelona); Clara Martinez-Toledano (WIL - World Inequality Lab , Columbia Business School - Columbia University [New York])
    Abstract: This paper analyzes the effect of wealth taxation on mobility and the consequences for tax revenue and wealth inequality. We exploit the unique decentralization of the Spanish wealth tax system in 2011—after which all regions levied positive tax rates except for Madrid—using linked administrative wealth and income tax records. We find that five years after the reform, the stock of wealthy individuals in the region of Madrid increases by 10% relative to other regions, while smaller tax differentials between other regions do not matter for mobility. We rationalize our findings with a theoretical model of evasion and migration, which suggests that evasion is the mechanism most consistent with all of the mobility response being driven by the paraíso fiscal. Combining new subnational wealth inequality series with our estimated elasticities, we show that Madrid's status as a tax haven reduces the effectiveness of raising tax revenue and exacerbates regional wealth inequalities.
    Date: 2020–12
  3. By: Thomas Eichner; Rüdiger Pethig
    Abstract: This paper analyzes the efficient emissions taxation in economies with individuals who are morally motivated to reduce their emissions footprint. They are heterogenous with respect to their morality and their consumption preferences. We distinguish between the concepts of moral and conventional utilitarian (= material) welfare. The materially efficient tax rates turn out to be consumer-type specific; they are smaller than the Pigovian tax rate; and the smaller, the higher the individuals’ propensity to act morally. Finally, we briefly characterize the second-best uniform emissions tax.
    Keywords: Pigovian tax, material, moral, Kantian, consumer-type tax
    JEL: H21 Q58
    Date: 2020
  4. By: Hope, David; Limberg, Julian
    Abstract: This paper uses data from 18 OECD countries over the last five decades to estimate the causal effect of major tax cuts for the rich on income inequality, economic growth, and unemployment. First, we use a new encompassing measure of taxes on the rich to identify instances of major reduction in tax progressivity. Then, we look at the causal effect of these episodes on economic outcomes by applying a nonparametric generalization of the difference-in-differences indicator that implements Mahalanobis matching in panel data analysis. We find that major reforms reducings taxes on the rich lead to higher income inequality as measured by the top 1% share of pre-tax national income. The effect remains stable in the medium term. In contrast, such reforms do not have any significant effect on economic growth and unemployment.
    Keywords: tax cuts for the rich; income inequality; growth; unemployment; difference-in-differences; Mahalanobis matching
    JEL: N0 E6
    Date: 2020–12
  5. By: Castro, Juan Francisco (Universidad del Pacifico); Velásquez, Daniel (Universidad del Pacifico); Beltrán, Arlette (Universidad del Pacifico); Yamada, Gustavo (Universidad del Pacifico)
    Abstract: We carry out a randomized controlled trial to evaluate the effect of three different types of messages sent to taxpayers on their compliance with the rental income tax (direct effect) and the spillovers produced on payments related to the capital gains and the self-employment income taxes. One message highlights detection, another appeals to social norms, and the third type appeals to altruism. This is the first study to evaluate if these messages can produce spillovers across taxes and to perform a long-term follow-up. This is important to determine if the treatment increases tax revenues. We find that the message addressing detection produces a positive and permanent direct effect and a negative but transitory spillover on the other two taxes. Overall, it increases tax revenues by US$3.92 per dollar spent in the long run. The message appealing to social norms has no direct effect but produces a permanent negative spillover on the capital gains tax. Ignoring this spillover would have lead one to conclude that this message is innocuous when in fact produces a loss of US$ 5.20 per dollar spent in the long run. The message appealing to altruism produces a transitory negative effect and no spillovers, and has no effect on tax revenues in the long run.
    Keywords: social norms, altruism, tax evasion, randomized controlled trial, Latin America
    JEL: D91 K42 H24 H26 H41
    Date: 2020–12
  6. By: Agne Jakubauskaite (Faculty of Economics and Business Administration, Vilnius University); Egidijus Bikas (Faculty of Economics and Business Administration, Vilnius University)
    Abstract: The main aim of the paper is to analyze factors, which might have an impact on taxpayers? attitude towards tax avoidance. As taxes are the main source of state financial recourses it is important to perceive country?s taxpayers, their preferences and their opinion, which forms their behavior. Data from a three-year survey of the Lithuania taxpayers (natural persons) were used to evaluate taxpayers? tolerance to tax avoidance, the main reasons of such attitude and the incentives for fairer tax payments. Differences between demographic characteristics groups and changes over time were examined by using chi square and logistic regression methods. The analysis showed declining tolerance for tax avoidance in Lithuania during 2017-2019.
    Keywords: Taxes, Taxpayers? behavior, Tax avoidance
    JEL: D10 H26 H29
  7. By: Clément Malgouyres (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, IPP - Institut des politiques publiques); Thierry Mayer (Institut d'Études Politiques [IEP] - Paris, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, CEPR - Center for Economic Policy Research - CEPR); Clément Mazet-Sonilhac (Institut d'Études Politiques [IEP] - Paris, Banque de France - Banque de France - Banque de France)
    Abstract: Suárez Serrato and Zidar (2016) identify state corporate tax incidence in a spatial equilibrium model with imperfectly mobile firms. Their identification argument rests on comparative-statics omitting a channel implied by their model: the link between common determinants of a location's attractiveness and the average idiosyncratic productivity of firms choosing that location. This compositional margin causes the labor demand elasticity to be independent from the product demand elasticity, impeding the identification of incidence from reduced-form estimates. Assigning consensual values to the unidentified parameters, we find that the incidence share born by firm-owners is closer to 25% than the 40% initially reported. The null associated with the "conventional view" that the share on workers is 1 and that on firm owners is 0 is still rejected.
    Keywords: Incidence,Corporate income tax,Discrete/continuous choice
    Date: 2020–12
  8. By: Cipriani, Giam Pietro (University of Verona); Fioroni, Tamara (University of Verona)
    Abstract: This paper studies retirement and child support policies in a small, open, overlapping-generations economy with PAYG social security and endogenous retirement and fertility decisions. It demonstrates that neither fertility nor retirement choices necessarily coincide with socially optimal allocation, because agents do not take into account the externalities of fertility and the elderly labor supply in the economy as a whole. It shows that governments can realize the first-best allocation by introducing a child allowance scheme and a subsidy to incentivize the labor supply of older workers. As an alternative to subsidizing the elderly labor supply, we show that the first-best allocation can also be achieved by controlling the retirement age. Finally, the model is simulated in order to study whether the policies devoted to realizing the social optimum in a market economy could be a Pareto improvement.
    Keywords: PAYG pensions, social security, endogenous fertility, endogenous retirement
    JEL: D10 H2 H55 J13 J18 J26
    Date: 2021–01
  9. By: Thierry Madiès (Université de Fribourg); Ornella Tarola (DISSE, University of Rome La Sapienza); Emmanuelle Taugourdeau (CNRS, CREST, ENS Paris-Saclay)
    Abstract: This paper studies the interplay between a poor and a rich country when they sequentially compete over corporate taxes and environmental regulations to attract imperfectly mobile firms. Countries have also different environmental awareness. We show that the poor country generally undercuts the corporate tax set by the rich country. The poor country chooses to be both a tax and pollution haven when it is less environmentally concerned than the rich country and capital integration is low. The rich country has never an incentive to be both a tax haven a pollution haven. Interestingly, at equilibrium, the poor country rarely does better in terms of welfare than the rich country. Finally we find that higher capital mobility narrows the tax gap between the rich and the poor country but does not affect the optimal environmental policy: tax competition immunizes countries against the detrimental effect of globalization on environmental standards.
    Keywords: Tax Competition, Capital Integration, Cross-border Pollution, Environmental Standards
    JEL: H2 R3 R5 Q5
    Date: 2021–01–08
  10. By: Badenes-Plá, Nuria; Blanco Palmero, Patricia; Gambau-Suelves, Borja; Navas Román, María; Villazán Pellejero, Noemí
    Abstract: This paper focuses on the study of the effects on social welfare generated by the scheme of joint taxation of the Spanish Personal Income Tax (PIT), whose peculiarity linked to its condition of optionality, allows the minimization of households´ tax bill. Different scenarios are simulated using the tax-benefit microsimulator of the European Commission – EUROMOD – with data from the Survey on Income and Living Conditions corresponding to 2016. In order to measure the welfare, the current PIT scheme is taken as reference and then it is compared with two alternatives, one, in which the families that currently can opt for this system are forced to pay jointly, and another, in which the only taxation scheme was individual. The results show that the Spanish system is revealed as a generator of additional welfare linked both to the circumstance of allowing an option to families, as well as to the fact of designing a specific system of joint taxation. In addition, it is shown that the policy recommendations would be different if only the study of inequality had been considered, since the net income gains of the current system offset the possible improvements in inequality of the simulated alternatives. Our results, therefore, also reinforce the convenience of adopting an approach that simultaneously considers efficiency and equity.
    Date: 2020–12–23
  11. By: Partha Sen
    Abstract: Pay-as-you-go (PAYG) social security schemes in the OECD countries are facing solvency problems, as people are living longer and birth rates have declined. Postponing the full retirement age (FRA), when retirees are entitled to full pension, has been proposed as a solution. This effectively lowers the payroll tax rate since pension is paid only in the post-FRA period. In a two-period two-sector overlapping generations model, I show that this shift lowers savings (because a part of the expected old age income is consumed in the first period), as employment increases. In the transition to the new steady state, capital is decumulated and the wage rate falls. Contrast this with a reduction of the payroll tax rate where the initial old suffer reduced consumption, but the young have higher post-tax income and this spurs capital accumulation.
    Keywords: overlapping generations, social security reform, postponing retirement
    JEL: H55
    Date: 2020
  12. By: Gabriel Machlica
    Abstract: Despite being one of the smallest countries in the OECD, Israel is marked by significant socio-economic disparities, which have a clear spatial dimension. Ethnic and religious groups with weak socio-economic outcomes are not benefitting from the thriving high-tech sector in the centre of the country. As a result, there is a persistent lack of employment opportunities in the peripheral areas alongside skills shortages in the dynamic centre. Inequalities between municipalities are the highest in the OECD. Moreover, the current pandemic has hit poorer Haredi neighbourhoods particularly hard. The government should reduce barriers that prevent segments of the population from fully participating in the economic process and give everyone a similar chance to succeed, regardless of where he or she was born. This will require equal access to high-quality education, affordable housing, reasonable public transportation and improved urban planning in every municipality to reduce spatial divides and segregation of disadvantaged households. Local authorities can play a significant role, since good municipal government and effective policies to achieve national priorities are the best means to improve the outcomes of residents of poor areas.
    Keywords: education, fiscal decentralisation, housing, infrastructure, municipalities, regional inequality
    JEL: H52 H53 H54 H71 H72 O18 R11 R52 R58
    Date: 2020–12–22

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