nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒06‒28
fourteen papers chosen by
Thomas Andrén

  1. Social Network and Tax Evasion: Theoretical Model and Empirical Evidence in Bangladesh By Kazi Abdul, Mannan; Khandaker Mursheda, Farhana; G M Omar Faruque, Chowdhury
  2. Socio-economic Factors of Tax Compliance: An Empirical Study of Individual Taxpayers in the Dhaka Zones, Bangladesh By Kazi Abdul, Mannan; Khandaker Mursheda, Farhana; G M Omar Faruque, Chowdhury
  3. Reforming the Individual Income Tax in Spain By Guner, Nezih; Lopez-Segovia, Javier; Ramos Magdaleno, Roberto
  4. Culture, Immigration and Tax Compliance By Antoine Malézieux; Benno Torgler
  5. Taxation and Innovation: What Do We Know? By Akcigit, Ufuk; Stantcheva, Stefanie
  6. Corporate taxation and firm-level investment in South Africa By Mashekwa Maboshe
  7. Charity, Status, and Optimal Taxation: Welfarist and Non-Welfarist Approaches By Aronsson, Thomas; Johansson-Stenman, Olof; Wendner, Ronald
  8. Combining Rules and Discretion in Economic Development Policy: Evidence on the Impacts of the California Competes Tax Credit By Matthew Freedman; Shantanu Khanna; David Neumark
  9. Does Tax Policy Work When Consumers Have Imperfect Price Information? Theory and Evidence By Felix Montag; Alina Sagimuldina; Monika Schnitzer
  10. Social Security Wealth, Inequality, and Life-cycle Saving: An Update By John Sabelhaus; Alice Henriques Volz
  11. The Effect of Changes in Social Security's Delayed Retirement Credit: Evidence from Administrative Data By Mark Duggan; Irena Dushi; Sookyo Jeong; Gina Li
  12. Beyond Health: Non-Health Risk and the Value of Disability Insurance By Manasi Deshpande; Lee Lockwood
  13. Heterogeneity in the Impact of Privatizing Social Health Insurance: Evidence from California's Medicaid Program By Mark Duggan; Craig Garthwaite; Adelina Yanyue Wang
  14. Public Pension Design and Household Retirement Decisions: A Comparison of the United States and Germany By David Knapp; Jinkook Lee; Maciej Lis; Drystan Phillips

  1. By: Kazi Abdul, Mannan; Khandaker Mursheda, Farhana; G M Omar Faruque, Chowdhury
    Abstract: This paper examines ethical and behavioral aspects of taxpayers, the financial condition of citizens, tax fairness, taxpayer services, complexities in the tax regime, tax rates, penalties and enforcement, and tax amnesties and the black economy. Primary data were collected by conducting a survey utilizing structured printed questionnaires. Secondary data were collected from project reports, government publications and documents, books, journals, reports, newspapers and electronic media. Empirical findings suggest that all these issues are associated with tax evasion in Bangladesh. We also find that eligibility in a social network increases the likelihood that others will take-up. This suggests that taxpayers affect each other’s decisions about tax avoidance, highlighting the importance of accounting for social interactions in understanding enforcement and tax avoidance behavior, and providing a concrete example of optimization frictions in the context of behavioral responses to taxation. The involvement and nexus of the three actors in tax policy formulation, implementation and compliance processes were examined. The empirical findings indicate the presence of this nexus which facilitates tax evasion. The high magnitude of tax evasion in Bangladesh is significantly acknowledged by respondents in the study. The empirical findings suggest that the absence of a participatory policy making process, lack of research into, and reform of, the tax system, short-term oriented and politically motivated tax policies, loopholes, anomalies and complexities of tax laws and policies are responsible for creating scope for tax evasion.
    Keywords: Taxation, Social Network, Tax Evasion, Tax Avoidance, Network Centrality, Optimal Auditing, Network Model
    JEL: H2 H20 H21 H22 H24 H26 H7 H75
    Date: 2021
  2. By: Kazi Abdul, Mannan; Khandaker Mursheda, Farhana; G M Omar Faruque, Chowdhury
    Abstract: Tax compliance can be affected by many factors such as magnitude of compliance cost, the extent of penalty, perceived fairness of the tax system, awareness level of taxpayers and perceptions of government spending. The purpose of the study is identifying factors that affect compliance of individual income taxpayers in Bangladesh. The target population of the study is individual income taxpayers of the fifteen zones of Dhaka. The sample size is determined to 385 self-assessment assesse and 376 general procedure return submitted income taxpayers to which the questionnaire was distributed during the period of 1st December 2019 to 15th February, 2020. The results of the ordered logistic regression model reveal that the fairness, tax penalty and relationship with regard to taxpayer’s perception of government spending have positive and significant relationships with compliance. It also examines the effects of compliance decisions of referrals on others compliance decisions. The findings show a negative but insignificant relationship between them which implies that individual income taxpayer’s make their compliance decisions independent of others' decisions. Finally, the study having evaluated the effect of cost of complying with the tax law on tax compliance and concluded that there is a negative relationship between them implying that higher cost of compliance will lead to lower levels of compliance. Therefore, this paper suggests that maintaining tax fairness, optimum levels of penalty, spending the tax revenue on public development projects, keeping tax rates to the minimum as much as possible and keeping compliance costs to the minimum can enhance the compliance of taxpayers.
    Keywords: Taxation, Compliance, Socioeconomic, Fairness, Tax Penalty, Tax Rate, Awareness
    JEL: H2 H20 H21 H23 H24 H25 H26 H27
    Date: 2020
  3. By: Guner, Nezih; Lopez-Segovia, Javier; Ramos Magdaleno, Roberto
    Abstract: We study how much revenue can be generated by more progressive personal income taxes in Spain. We build a life-cycle economy with uninsurable labor productivity risk and endogenous labor supply. Individuals face progressive taxes on labor and capital incomes and proportional taxes that capture social security, corporate income, and consumption taxes. An increase (decrease) in labor income taxes for individuals who earn more (less) than the mean labor income generates a small additional revenue. The revenue from labor income taxes is maximized at an effective marginal tax rate of 51.6% (38.9%) for the richest 1% (5%) of individuals, versus 46.3% (34.7%) in the benchmark economy. The additional revenue from labor income taxes is only 0.82% higher, while the total tax revenue declines by 1.55%. The total tax revenue is higher if marginal taxes are raised only for the top earners. The increase, however, must be substantial and cover a large segment of top earners. The new tax collection from a 3 percentage points increase on the top 1% is just 0.09%. A 10 percentage points increase on the top 10% of earners (those who earn more than e41,699) raises the total taxes by 2.81%.
    Keywords: Labor Supply; Laffer Curve; progressivity; taxation; Top Earners
    JEL: E21 E6 H2 J2
    Date: 2020–05
  4. By: Antoine Malézieux; Benno Torgler
    Abstract: Although understanding how multiculturalism shapes society is imperative in today's globalized world, insights on certain behavior domains remain limited, including those on tax compliance among domestic versus foreign taxpayers. Our meta-study of laboratory tax experiments analyzes over 50,000 tax declaration decisions by almost 5,000 subjects entailing 95 nationalities. Not only do immigrant participants exhibit signicantly less tax compliance than natives even with controls for numerous covariates, but tax compliance correlates positively with tax morale, which in turn also interacts signicantly with immigration status. Few variablesmainly linked to politicsinuenced the gap of compliance between natives and immigrants.
    Keywords: Tax evasion; Immigration; Meta-analysis
    JEL: C9 H0 H3
    Date: 2021–06
  5. By: Akcigit, Ufuk; Stantcheva, Stefanie
    Abstract: Tax policies are a wide array of tools, commonly used by governments to influence the economy. In this paper, we review the many margins through which tax policies can affect innovation, the main driver of economic growth in the long-run. These margins include the impact of tax policy on i) the quantity and quality of innovation; ii) the geographic mobility of innovation and inventors across U.S. states and countries; iii) the declining business dynamism in the U.S., firm entry, and productivity; iv) the quality composition of firms, inventors, and teams; and v) the direction of research effort, e.g., toward applied versus basic research, or toward dirty versus clean technologies. We give ideas drawn from research on how the design of policy can allow policy makers to foster the most productive firms without wasting public funds on less productive ones.
    Keywords: entrepreneurship; growth; Innovation; inventors; patents; productivity; R&D; taxation
    JEL: H20 O30 O38 O43
    Date: 2020–05
  6. By: Mashekwa Maboshe
    Abstract: This paper investigates the responsiveness of firm-level investment to corporate tax changes in South Africa over the period 1999 to 2012. The study exploits rare changes in corporate tax policy to assess the responsiveness of firm-level investment among Johannesburg Stock Exchange listed non-financial firms. Our estimation of a neoclassical investment model using GMM techniques shows that although changes in corporate tax policy reduced the tax-adjusted marginal cost of capital over time, the reductions did not translate into significant investments in fixed assets. We speculate that the well-documented financial frictions in the capital markets could explain the failure of neoclassical investment theory in South Africa. Our findings are similar to those in other developing countries and crucially suggest that investment policies should look beyond the use of corporate tax incentives.
    Keywords: corporate taxation, capital investment, user cost of capital
    JEL: E22 H32 C23
    Date: 2021–06
  7. By: Aronsson, Thomas; Johansson-Stenman, Olof; Wendner, Ronald
    Abstract: This paper analyzes optimal taxation of charitable giving to a public good in a Mirrleesian framework with social comparisons. Leisure separability together with zero transaction costs of giving imply that charitable giving should be subsidized to such an extent that governmental contributions are completely crowded out, regardless of whether the government acknowledges warm glows of giving. Stronger concerns for relative charitable giving and larger transaction costs support lower marginal subsidies, whereas relative consumption concerns work in the other direction. A dual screening approach, where charitable giving constitutes an indicator of wealth, is also presents. Numerical simulations supplement the theoretical results.
    Keywords: Conspicuous consumption, conspicuous charitable giving, optimal taxation, public good provision, warm glow, multiple screening
    JEL: D03 D62 H21 H23
    Date: 2021–06
  8. By: Matthew Freedman; Shantanu Khanna; David Neumark
    Abstract: We evaluate the effects of one of a new generation of economic development programs, the California Competes Tax Credit (CCTC), on local job creation. Incorporating perceived best practices from previous initiatives, the CCTC combines explicit eligibility thresholds with some discretion on the part of program officials to select tax credit recipients. The structure and implementation of the program facilitates rigorous evaluation. We exploit detailed data on accepted and rejected applicants to the CCTC, including information on scoring of applicants with regard to program goals and funding decisions, together with restricted access American Community Survey (ACS) data on local economic conditions. Using a difference-in-differences approach, we find that each CCTC-incentivized job in a census tract increases the number of individuals working in that tract by over two – a significant local multiplier. We also explore the program’s distributional implications and impacts by industry. We find that CCTC awards increase employment among workers residing in both high income and low income communities, and that the local multipliers are larger for non-manufacturing awards than for manufacturing awards.
    Keywords: Economic Development, Business Incentives, Tax Credits, Hiring Incentives, Place- Based Policies
    JEL: H25 H71 J68 R11 R23 R58
    Date: 2021–06
  9. By: Felix Montag; Alina Sagimuldina; Monika Schnitzer
    Abstract: We investigate how the pass-through rate of commodity taxes depends on competition in a setting where consumers have imperfect information about prices. We use a theoretical search model that has two key predictions: First, the larger the number of price sensitive consumers, the higher the pass-through rate. Second, there is a hump-shaped relationship between the average pass-through experienced by consumers and the number of sellers. We test our theoretical predictions by studying pass-through in the context of a tax decrease and increase in the German retail fuel market. We estimate pass-through of these tax changes to diesel and gasoline prices using a unique dataset containing the universe of price changes at fuel stations in Germany and France and a synthetic difference-in-differences strategy. Our empirical results are in line with our theoretical predictions. Finally, we show that our theoretical framework can encompass and reconcile a large number of empirical observations in previous studies.
    Keywords: pass-through, carbon tax, VAT, consumer search, competition
    Date: 2021
  10. By: John Sabelhaus (University of Michigan); Alice Henriques Volz (Federal Reserve Board)
    Abstract: Social Security wealth (SSW) is the present value of future benefits an individual will receive less the present value of future taxes they will pay. When an individual enters the labor force, they generally face a lifetime of taxes to pay before they will receive any benefits and, thus, their initial SSW is generally low or negative. As an individual works and pays into the system their SSW grows and generally peaks somewhere around typical Social Security benefit claiming ages. The accrual of SSW over the working life is most important for lower income workers because the progressive Social Security benefit formula means that taxes paid while working are associated with proportionally higher benefits in retirement. We estimate SSW for individuals in the Survey of Consumer Finances (SCF) for 1995 through 2019 using detailed labor force history and expectations modules. We use a pseudo-panel approach to empirically demonstrate life-cycle patterns of SSW accumulation and drawdown. We also show that including SSW in a comprehensive wealth measure generally reduces estimated levels of U.S. wealth inequality, but does not reverse the upward trend in top wealth shares.
    Date: 2020–11
  11. By: Mark Duggan; Irena Dushi; Sookyo Jeong; Gina Li
    Abstract: The delayed retirement credit (DRC) increases monthly OASI (Old Age and Survivors Insurance) benefits for primary beneficiaries who claim after their full retirement age (FRA). For many years, the DRC was set at 3.0 percent per year (0.25 percent monthly). The 1983 amendments to Social Security more than doubled this actuarial adjustment to 8.0 percent per year. These changes were phased in gradually, so that those born in 1924 or earlier retained a 3.0 percent DRC while those born in 1943 or later had an 8.0 percent DRC. In this paper, we use administrative data from the Social Security Administration (SSA) to estimate the effect of this policy change on individual claiming behavior. We focus on the first half of the DRC increase (from 3.0 to 5.5 percent) given changes in other SSA policies that coincided with the later increases. Our findings demonstrate that the increase in the DRC led to a significant increase in delayed claiming of social security benefits and strongly suggest that the effects were larger for those with higher lifetime incomes, who would have a greater financial incentive to delay given their longer life expectancies.
    JEL: H55
    Date: 2021–06
  12. By: Manasi Deshpande; Lee Lockwood
    Abstract: The public debate over disability insurance has centered on concerns about individuals without severe health conditions receiving benefits. We go beyond health risk alone to quantify the overall insurance value of U.S. disability programs, including value from insuring non-health risk. We find that disability recipients, especially those with less-severe health conditions, are much more likely to have experienced a wide variety of non-health shocks than non-recipients. Selection into disability receipt on the basis of non-health shocks is so strong among individuals with less-severe health conditions that by many measures less-severe recipients are worse off than more-severe recipients. As a result, under baseline assumptions, benefits to less-severe recipients have an annual surplus value (insurance benefit less efficiency cost) over cost-equivalent tax cuts of $7,700 per recipient, about three-fourths that of benefits to more-severe recipients ($9,900). Insurance against non-health risk accounts for about one-half of the value of U.S. disability programs.
    JEL: H5 I3
    Date: 2021–05
  13. By: Mark Duggan; Craig Garthwaite; Adelina Yanyue Wang
    Abstract: State governments face the classic “make or buy” decision for the provision of Medicaid services. Over the past two decades, the majority of states have outsourced the provision of social health insurance through Medicaid Managed Care (MMC) programs. These programs have been extensively studied in the literature – with little evidence of large positive or negative effects. However, most states initially allowed older and sicker enrollees to remain enrolled in the government run fee for service (FFS) programs. It is possible that these more fragile enrollees could have a different experience in managed care. In this paper we study California’s mandatory enrollment of the senior and persons with disabilities (SPD) population in MMC. We find this mandatory enrollment caused an increased use of the emergency department and transfers between hospitals. This was not simply a hassle cost for enrollees – we also estimate an increase in mortality for the affected population. These effects were strongest for the sickest enrollees – the types of enrollees that might be expected to have a different experience with managed care. Our results suggest the adverse impact of MMC varies by the enrollee health, which should inform the optimal outsourcing decision for governments.
    JEL: H0 H1 I1 I10 I13 I18
    Date: 2021–06
  14. By: David Knapp (University of Southern California and RAND); Jinkook Lee (University of Southern California); Maciej Lis (Organisation for Economic Co-operation and Development); Drystan Phillips (University of Southern California)
    Abstract: Social Security provides retirement benefits to age-eligible workers and their spouses. Benefits are permanently increased if initial receipt is delayed. For benefits paid to spouses, these incentives reflect a complex interaction of the worker’s and spouse’s earnings histories, benefit claiming decisions, and age difference. We demonstrate that the benefit increment from delaying initial receipt of spousal and survivor benefits is substantial for some households. Past studies find that workers respond to potential increments in their own benefit by delaying labor force exit. Using a nationally representative panel, we investigate whether an additional dollar in expected lifetime benefits paid to the worker directly is treated the same as an additional dollar paid to the worker’s spouse from spouse and survivor benefits. We find minimal evidence that workers or their spouses change retirement behavior in a way that is theoretically consistent with spouse and survivor benefit claiming incentives. The lack of responsiveness suggests that incentives to delay claiming for benefits other than the worker’s own are not salient in the worker’s decision-making. This may reflect the complexity of benefit rules or different preferences concerning benefits paid to others. A parallel analysis using German data, where rules surrounding survivor benefits are simpler, finds that workers respond in a theoretically consistent way, but small sample sizes prevent conclusive results. Our findings suggest models estimating the policy impact of reducing spousal and survivor benefits on female labor supply are likely overstated, and that a greater understanding of survivor benefits may lead to better claiming decisions for couples.
    Date: 2021–02

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