nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒07‒26
thirteen papers chosen by
Thomas Andrén

  1. Who Should Bear the Burden of Covid-19 Related Fiscal Pressure? An Optimal Income Taxation Perspective By Mehmet Ayaz; Lea Fricke; Clemens Fuest; Dominik Sachs
  2. Unemployment and Tax Design By Albert Jan Hummel
  3. State-Dependent Effects of Tax Changes in Germany and the United Kingdom By Bernd Hayo; Sascha Mierzwa
  4. The Impact of Covid-19 on Economic Activity: Evidence from Administrative Tax Registers By Nikolay Angelov; Daniel Waldenström
  5. Does A Wealth Tax Improve Equality of Opportunity? By Kristoffer Berg; Shafik Hebous
  6. Does a Spoonful of Sugar Levy Help the Calories Go Down? An Analysis of the UK Soft Drinks Industry Levy By Dickson, Alex; Gehrsitz, Markus; Kemp, Jonathan
  7. Wage Effects of Employer-Mediated Transfers By Santiago Garriga; Dario Tortarolo
  8. Do Market Failures Create a 'Durability Gap' in the Circular Economy? By Don Fullerton; Shan He
  9. Revisiting the Relationship between Trade Liberalization and Taxation By Grégoire Rota-Graziosi; Rabah Arezki; Alou Adesse Dama
  10. Estimating employment responses to South Africa's Employment Tax Incentive By Joshua Budlender; Amina Ebrahim
  11. International Investment Agreements, Double-Taxation Treaties and Multinational Activity: The (Heterogeneous) Effects of Binding By Monika Sztajerowska
  12. Emerging Tax Issues in the Digital Economy By Cuenca, Janet S.
  13. School Health Programs: Education, Health, and Welfare Dependency of Young Adults By Abrahamsen, Signe A.; Ginja, Rita; Riise, Julie

  1. By: Mehmet Ayaz; Lea Fricke; Clemens Fuest; Dominik Sachs
    Abstract: The Covid-19 pandemic has led to an increase in public debt in most countries. This will increase fiscal pressure in the future. We study how the shape of the optimal nonlinear income tax schedule is affected by this increase in fiscal pressure. We calibrate the workhorse optimal income tax model to five European countries: France, Germany, Italy, Spain and the UK. We apply the inverse-optimum approach to the pre-Covid-19 economies. We then ask how the schedule of marginal and average tax rates should be optimally adjusted to the increase in fiscal pressure. For all countries, we find that the increase in fiscal pressure leads to a less progressive optimal tax schedule both in terms of marginal and average tax rates.
    Keywords: Fiscal pressure, optimal taxation
    JEL: H21 H23
    Date: 2021
  2. By: Albert Jan Hummel
    Abstract: This paper studies optimal income taxation in an environment where matching frictions generate a trade-off for workers between high wages and low unemployment risk. A higher marginal tax rate shifts the trade-off in favor of low unemployment risk, whereas a higher tax burden or unemployment benefit has the opposite effect. Changes in unemployment generate fiscal externalities, which modify optimal tax formulas. I show that optimal employment subsidies (such as the EITC) phase in with income and that the provision of unemployment insurance justifies a positive marginal tax rate even without income heterogeneity. A calibration exercise to the US economy suggests that optimal transfers for low-income individuals are larger if unemployment risk is taken into account.
    Keywords: directed search, optimal taxation, unemployment insurance
    JEL: H21 J64 J65 J68
    Date: 2021
  3. By: Bernd Hayo (University of Marburg); Sascha Mierzwa (University of Marburg)
    Abstract: We study state-dependent effects of narratively identified tax shocks in Germany and the UK over the period 1974Q1–2018Q4 using local projections. In addition, we distinguish between aggregated and disaggregated tax types (direct and indirect taxes) as well as look for possible asymmetries between tax hikes and tax cuts. We find a number of differences across the business cycle, and between sample countries, tax types, and direction of tax changes. For instance, aggregated tax cuts initially have a larger effect during times of nonrecession in Germany, whereas we find no state-dependent effects for the UK. When disaggregating tax types, German indirect tax cuts only appear expansionary during downturns, whereas the effect is positive throughout the business cycle in the UK. Furthermore, we find different reactions when considering tax cuts and hikes individually: tax hikes can be expansionary in Germany (UK) when implemented during non-recessionary (recessionary) periods whereas they are contractionary during recessions (non-recessions). When considering tax cuts, German GDP rises only when cuts are enacted in times of non-recession, whereas in the UK, the reactions is positive in either case and mostly symmetric. All these findings are robust to various changes in the econometric setup.
    Keywords: Fiscal policy, tax policy, legislated tax changes, state dependence, direct taxes, indirect taxes, asymmetric effects, Germany, United Kingdom, local projections, narrative approach
    JEL: E62 E63 H20 H30 K34
    Date: 2021
  4. By: Nikolay Angelov; Daniel Waldenström
    Abstract: We use population-wide tax register data to document the impact of the COVID-19 pandemic on firm sales, tax revenues, and sick pay in Sweden. The pandemic impact is identified using within-year, between-year, and geographical variation, and our data allows us to run placebo tests. Our findings confirm the large negative effects of the pandemic, but shed new light on their magnitudes and sensitivity to COVID-19 morbidity rates. Specifically, we find that the impact on VAT and firm sales was larger than on commonly used industrial and service production indexes, larger than the effect on electricity for industrial use, but less than the effect on excise taxes on air travel. The pandemic’s impact on short-term sick pay is large, but unlike tax payments, it does not vary with local infection rates, indicating behavioral responses to more generous rules for sickness insurance during the pandemic.
    Keywords: Covid-19 impact, VAT, excise taxes, sick pay
    JEL: H24 H25 J22 J24
    Date: 2021
  5. By: Kristoffer Berg; Shafik Hebous
    Abstract: Does parental wealth inequality impact next generation labor income inequality? And does a tax on parental wealth affect the labor income distribution of the next generation? We tackle both questions empirically using detailed intergenerational data from Norway, focusing on effects on wages rather than capital income. Results suggest that a net wealth of NOK 1 million increases wages of the children by NOK 14,000. Children of wealthy parents also have a higher labor income mobility. The estimated hypothetical wage distribution without the wealth tax is more unequal. Moreover, suggestive evidence indicates parental wealth is associated with higher labor risk taking.
    Keywords: wealth tax, equality of opportunity, parental wealth, income mobility, inequality, redistribution
    JEL: D31 D63 H24
    Date: 2021
  6. By: Dickson, Alex (University of Strathclyde); Gehrsitz, Markus (University of Strathclyde); Kemp, Jonathan (AG Barr)
    Abstract: This study evaluates the effects of the 2018 UK Soft Drinks Industry Levy on soft drinks prices, sales, reformulation activities, and consequently calories consumed. We combine novel electronic point of sale data that cover most of the UK soft drinks market with longitudinal nutritional information and a variety of event-study specifications. We document that all but a few global soft drinks brands reduced sugar content and hence avoided the tiered levy. For brands that maintained their original sugar content, the levy was on average over-shifted resulting in substantial retail price increases. Consumers responded by reducing their consumption of levied drinks by around 18% which is indicative of an inelastic demand response, especially in the drink-now and energy drink segments of the market. We also document substitution into diet drinks in response to the tax. In total, the levy is responsible for a reduction in intake of just under 6,500 calories from soft drinks per annum per UK resident. More than 80% of reductions were due to manufacturers' reformulation activities and occurred in the two years between the announcement of the levy and its implementation.
    Keywords: sugar tax, soda tax, reformulation, tax pass-through, sin taxes
    JEL: H21 H23 H51 I12 I18
    Date: 2021–07
  7. By: Santiago Garriga; Dario Tortarolo
    Abstract: We explore whether the way in which tax credits are disbursed affects the gross wage of workers. We exploit an unusual reform in Argentina that shifted the disbursement responsibility of child benefits from employers to a government agency in a staggered fashion, from 2003 to 2010. Using population-wide administrative data and an event-study approach based on firms’ switching dates set by the government, we show that the way tax credits are disbursed matters for the final economic incidence. Our evidence suggests that employers capture about 6-14 percent of the transfers through lower wages when they mediate the payments. We argue that in the firm-based system, transfers were likely understood as part of the starting compensation package and employers exploited this confusion to extract rents. Our findings therefore accord with the hypothesis that transfers are not entirely captured dollar for dollar by workers. More generally, this paper suggests that relying on firms as mediators in the tax-benefit system could have unintended consequences; as less salient schemes may lead to rent capture.
    Keywords: tax credits, family allowances, means-tested transfers, incidence, wage effects, event study
    JEL: H23 H31 H71 I38 J31 J32 J33
    Date: 2021
  8. By: Don Fullerton; Shan He
    Abstract: Circular Economy literature recommends longer lasting products, in order to reduce pollution from extraction, production, and disposal. Our economic analysis finds conditions where consumers choose lives that are too short – a “durability gap”. Then policies targeting durability raise welfare. While externalities are corrected by Pigovian taxes that ignore durability, raising the output tax nonetheless induces consumers to pay more for goods that last longer. Second, if the tax is suboptimal, a durability mandate raises welfare. Third, internalities have ambiguous effects. Fourth, a social discount rate less than private discount rate is the strongest case for policy to favor durability.
    Keywords: Pigovian taxes, first-best policy, externalities, internalities
    JEL: H21 H23 Q58
    Date: 2021
  9. By: Grégoire Rota-Graziosi (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Rabah Arezki; Alou Adesse Dama (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: This paper explores the dynamic effects of trade liberalization on tax revenue using a worldwide panel dataset. Results point to statistically significant negative effect of liberalization on (non- resource) tax revenues in the short term and no significant effect in the medium term. Liberalization also alter the tax structure tilting revenues toward indirect taxes away from direct ones. Economies which have implemented value added taxes prior to liberalization have mitigated its negative effects on tax revenues. The evidence is supportive of the complementarity role of state capacity to reap the benefits of liberalization.
    Keywords: Tax,Tax structures,Openness,Liberalization,Natural resources
    Date: 2021–06
  10. By: Joshua Budlender; Amina Ebrahim
    Abstract: We present new evidence on the effects of South Africa's Employment Tax Incentive (ETI), a hiring and employment wage subsidy aimed at reducing youth unemployment. We show that attempts to estimate firm-level treatment effects via conditional difference-in-differences are likely to fail when comparing ETI to matched non-ETI firms.
    Keywords: Difference-in-differences, Employment, event study, South Africa, Wage subsidy
    Date: 2021
  11. By: Monika Sztajerowska (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 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 Paris 1 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)
    Abstract: There are close to 3,000 international investment agreements (IIAs) that aim to protect and promote cross-border investment. Do they achieve their main purpose? This paper provides novel firm-level evidence on the effects of IIAs on location decisions of multinational enterprises (MNEs) in a multi-country context. It uses unique micro-level data on the location of MNEs' affiliates globally and country-pair data on the coverage and content of treaties over a twenty-year period (1990-2010). It finds that IIAs, in particular those with the investor state dispute settlement (ISDS), increase the probability of MNEs' first foreign entry when they are accompanied by a double-taxation treaty. This interaction between investment and tax treaties can have important policy implications.
    Keywords: Double Taxation Treaties,Bilateral Investment Agreements,Multinational Enterprises,Double Taxation Treaties Multinational Enterprises,Double Taxation Treaties F23,F14,F15,F53
    Date: 2021–06
  12. By: Cuenca, Janet S.
    Abstract: The issues and challenges in taxation in the digital economy stem from the complex and multifaceted nature of the digital economy. Reaching a common understanding and measurement of its size and impact is critical in devising a tax regime for the digital economy. In APEC Secretariat (2019), the Philippines identified the major barriers and challenges (i.e., scoping and measurement of the digital economy, the regulatory and legal framework--including sandboxes and digital infrastructure gap) to implementing structural reforms relating to the digital economy. It also identified the major policy gaps in terms of its regulatory and legal framework, competition policy, internet infrastructure improvements, and consumer education on digital economy. The opportunities and challenges that the digital economy brings are particularly important for developing countries, including the Philippines. Thus, it is deemed critical for the Philippine government to eliminate the barriers and challenges and address the identified policy gaps to fully reap the benefits from the digital economy. Also, the need for development strategies cannot be overemphasized. This paper argues that development strategies should first focus on developing domestic digital capacities. <p>Comments to this paper are welcome within 60 days from date of posting. Email
    Keywords: taxation, ICT, Digital Economy, information and communication technology, e-commerce, platform economy, digitalized economy, electronic commerce, digital tax, base erosion and profit shiftin, BEPS ?
    Date: 2021
  13. By: Abrahamsen, Signe A. (University of Bergen); Ginja, Rita (University of Bergen); Riise, Julie (University of Bergen)
    Abstract: This paper provides new evidence that preventive health care services delivered at schools and provided at a relatively low cost have positive and lasting impacts. We use variation from a 1999-reform in Norway that induced substantial differences in the availability of health professionals across municipalities and cohorts. In municipalities with one fewer school nurse per 1,000 school-age children before the reform there was an increase in the availability of nurses of 35% from the pre- to the post-reform period, attributed to the policy change. The reform reduced teenage pregnancies and increased college attendance for girls. It also reduced the take-up of welfare benefits by ages 26 and 30 and increased the planned use of primary and specialist health care services at ages 25-35, without impacts on emergency room admissions. The reform also improved the health of newborns of affected new mothers and reduced the likelihood of miscarriages.
    Keywords: school health services, teenage pregnancy, welfare dependency, utilization of health services, health status
    JEL: H75 I10 I12 I28 I30 I38
    Date: 2021–07

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