nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒08‒23
ten papers chosen by
Thomas Andrén

  1. Pensions, Income Taxes and Homeownership: A Cross-Country Analysis By Hans Fehr; Maurice Hofmann; George Kudrna
  2. Why Do (Some) Ordinary Americans Support Tax Cuts for the Rich? Evidence From a Randomized Survey Experiment By Hope, David; Limberg, Julian; Weber, Nina Sophie
  3. Do Collateral Sanctions Work? Evidence from the IRS’ Passport Certification and Revocation Process By Paul R. Organ; Alex Ruda; Joel Slemrod; Alex Turk
  4. Behavioural responses to a wealth tax By Advani, Arun; Tarrant, Hannah
  5. Procyclical Fiscal Policy and Asset Market Incompleteness By Andrés Fernández; Daniel Guzman; Ruy E. Lama; Carlos A. Vegh
  6. Optimum Size of the Informal Credit Market - A Political Economy Perspective By Sugata Marjit; Suryaprakash Mishra
  7. Revenue and distributional modelling for a UK wealth tax By Advani, Arun; Hughson, Helen; Tarrant, Hannah
  8. Beyond Pigouvian Taxes: A Worst Case Analysis By Moshe Babaioff; Ruty Mundel; Noam Nisan
  9. Behavioral Taxation: Opportunities and Challenges By Benno Torgler
  10. Evolution of the tax framework of participatory products in Morocco By Asmae Mrhar; Aziz Bensbahou

  1. By: Hans Fehr; Maurice Hofmann; George Kudrna
    Abstract: This paper studies the role of pensions and income taxes in determining homeownership and household wealth. It provides a cross-country analysis, using tax and pension policy designs in Germany, the US and Australia. These developed nations have similar incomes per capita but very different homeownership rates, with the US and Australia having much higher homeownership compared to Germany. The question is to what extent the observed differences in homeownership are induced by national tax and transfer policies. To that end, we develop a stochastic, overlapping generations (OLG) model with tenure choice. The model is calibrated to Germany featuring German statutory public pension and dual income tax systems, and then applied to study the effects of alternative income tax and pension policy structures. Our simulation results indicate that the US and Australian policy designs have a dramatic impact on homeownership, explaining more than half of the observed differentials. We also show significant macroeconomic effects due to differences in tax and pension policies.
    Keywords: housing demand, social security, income taxation, stochastic general equilibrium
    JEL: R21 H55 H31 H24 C68
    Date: 2021
  2. By: Hope, David; Limberg, Julian; Weber, Nina Sophie
    Abstract: Why do (some) ordinary citizens support tax cuts for the rich? A prominent explanation in the political economy literature stresses the role of unenlightened self-interest. According to this view, citizens consistently fail to gauge whether they are directly affected by tax policy reforms. We use a randomized survey experiment in the US to identify the drivers of preferences for cutting taxes on the rich. The results show that informing individuals of whether they are directly affected by a cut in the top federal income tax rate has no impact on preferences. We therefore find no support for the unenlightened self-interest explanation. In contrast, we find preferences for taxing the rich are fundamentally affected by information that shifts citizens' core fairness beliefs, as well as information on the past trajectory of top tax rates. Our results therefore align with explanations of tax policy preferences that emphasize the importance of fairness perceptions and reference points.
    Date: 2021–08–17
  3. By: Paul R. Organ; Alex Ruda; Joel Slemrod; Alex Turk
    Abstract: Penalties for tax evasion are typically financial, but many jurisdictions also utilize collateral sanctions that deny access to some government-provided service. To learn about the effectiveness of such penalties, we examine a U.S. policy restricting passport access for taxpayers with substantial tax debt, known as “certification.” We find an immediate and strong positive effect on compliance actions when a passport request is denied. We then take advantage of randomization during the policy rollout to identify the direct compliance effect of certification, and find smaller but non-trivial effects whose heterogeneity is consistent with measures of taxpayers’ value of having a passport.
    JEL: H2 H24 H26
    Date: 2021–07
  4. By: Advani, Arun (University of Warwick, CAGE, the Institute for Fiscal Studies (IFS), and the LSE International Inequalities Institute (III)); Tarrant, Hannah (London School of Economics III)
    Abstract: In this paper, we review the existing empirical evidence on how individuals respond to the incentives created by a net wealth tax. Variation in the overall magnitude of behavioural responses is substantial: estimates of the elasticity of taxable wealth vary by a factor of 800. We explore three key reasons for this variation: tax design, context, and methodology. We then discuss what is known about the importance of individual margins of response and how these interact with policy choices. Finally, we use our analysis to systematically narrow down and reconcile the range of elasticity estimates. We argue that a well-designed wealth tax would reduce the tax base by 7-17% if levied at a tax rate of 1%.
    Date: 2021
  5. By: Andrés Fernández; Daniel Guzman; Ruy E. Lama; Carlos A. Vegh
    Abstract: To explain the fact that government spending and tax policy are procyclical in emerging and developing countries, we develop a model for the joint behavior of optimal tax rates and government spending over the business cycle. Our set-up relies on financial frictions, which have been shown to be critical features of emerging markets, captured by various degrees of asset market incompleteness as well as varying levels of debt-elastic interest rate spreads. We first uncover a novel theoretical result within a simple static framework: incomplete markets can account for procyclical government spending but not necessarily procyclical tax policy. Explaining procyclical tax policy also requires that the ratio of private to public consumption comoves positively with the business cycle, which leads to larger fluctuations in the tax base. We then show that the procyclicality of tax policy holds in a more realistic DSGE model calibrated to emerging markets. Finally, we illustrate how larger financial frictions, which amplify the business cycle through more procyclical fiscal policies, have sizeable Lucas-type welfare costs.
    JEL: F41 F44 H21 H30
    Date: 2021–08
  6. By: Sugata Marjit; Suryaprakash Mishra
    Abstract: Informality of markets is largely perceived as undesirable. Yet, ample evidence suggests that the informal sector contributes substantially in terms of income and employment in the entire developing world. In this paper, tax evaded income is invested in the informal credit market which in turn determines demand for labor in the informal sector and hence income of informal workers. Political authority cares about lost tax revenue due to evasion but is also concerned with politically adverse consequence of lower income of informal labor due to lack of investment in the informal sector. This trade off determines an optimum size of the informal credit market and the informal economy. The size is sensitive and non–monotonic with respect to changes in the tax rate and size of the labor force, depending on the tax revenue effect of tax policy, labor demand political sensitivity of the govt. towards lower wage in the informal sector.
    Keywords: tax evasion, underreporting of income, informal credit market, political economy perspective
    JEL: D78 H25 H26 H32 I18 O17 P48
    Date: 2021
  7. By: Advani, Arun (University of Warwick, CAGE, the Institute for Fiscal Studies (IFS), and the LSE International Inequalities Institute (III)); Hughson, Helen (London School of Economics III); Tarrant, Hannah (London School of Economics III)
    Abstract: In this paper we model the revenue that could be raised from an annual and a one-off wealth tax of the design recommended by Advani, Chamberlain and Summers (2020b). We examine the distributional effects of the tax, both in terms of wealth and other characteristics. We also estimate the share of taxpayers who would face liquidity constraints in meeting their tax liability. We find that an annual wealth tax charging 0.17% on wealth above £500,000 could generate £10 billion in revenue, before administrative costs. Alternatively, a one-off tax charging 4.8% (effectively 0.95% per year, paid over a five-year period) on wealth above the same threshold, would generate £250 billion in revenue. To put our revenue estimates into context, we present revenue estimates and costings for some commonly-proposed reforms to the existing set of taxes on capital.
    Date: 2021
  8. By: Moshe Babaioff; Ruty Mundel; Noam Nisan
    Abstract: In the early $20^{th}$ century, Pigou observed that imposing a marginal cost tax on the usage of a public good induces a socially efficient level of use as an equilibrium. Unfortunately, such a "Pigouvian" tax may also induce other, socially inefficient, equilibria. We observe that this social inefficiency may be unbounded, and study whether alternative tax structures may lead to milder losses in the worst case, i.e. to a lower price of anarchy. We show that no tax structure leads to bounded losses in the worst case. However, we do find a tax scheme that has a lower price of anarchy than the Pigouvian tax, obtaining tight lower and upper bounds in terms of a crucial parameter that we identify. We generalize our results to various scenarios that each offers an alternative to the use of a public road by private cars, such as ride sharing, or using a bus or a train.
    Date: 2021–07
  9. By: Benno Torgler
    Abstract: The field of behavioral taxation dates back at least to the 1950s. In this contribution I will explore the opportunities and challenges in the area, with a particular focus on tax compliance. I will focus on the data required to make further progress, discussing what can be improved when working with surveys and how the fie ld could benefit from open government data initiatives. I focus on collaborative efforts among scientists as well as with the government or the tax administration and examine many potenti al areas of exploration. The opportunities currently emerging due to digitalization provide not only interesting avenues for collaborations but also a natural method of using tools such as lab and field experiments. In addition, I will discuss potential dangers faced by the field of behavioral economics that also threaten the field of behavioral taxation.
    Date: 2021–07
  10. By: Asmae Mrhar (UIT - Université Ibn Tofaïl); Aziz Bensbahou (UIT - Université Ibn Tofaïl)
    Abstract: Morocco has finally joined the trajectory of participatory finance. However, despite the efforts made to promote this nascent industry, this is still very insufficient to encourage it. In addition, the tax variable is a determining factor in the financing decision because it weighs heavily on the cost of participatory banking products. In the absence of tax regulations that take into account the nature of these products and put in place an incentive and encouraging tax framework that guarantees better tax neutrality, this industry risks being less competitive compared to their conventional counterparts. The scarcity of studies dealing with this tax evolution, prompted us to study and analyze this question, while basing ourselves on the evolution of the tax framework of these products in Morocco and also on the various tax novelties brought by the succession of the laws of finances.
    Abstract: Le Maroc s'est enfin inscrit dans la trajectoire de la finance participative. Cependant, malgré les efforts déployés pour promouvoir cette industrie naissante, cela reste très insuffisant pour l'encourager. Par ailleurs, la variable fiscale constitue une déterminante de la décision de financement du fait qu'elle pèse lourdement sur le coût des produits bancaires participatifs. Dans l'absence d'une réglementation fiscale prenant en considération la nature de ces produits et mettant en place un cadre fiscal incitatif et encourageant et garantissant une meilleure neutralité fiscale, cette industrie risque d'être moins compétitive en comparaison avec leurs homologues conventionnels. La rareté des études traitant cette évolution fiscale nous a poussés à étudier et à analyser cette question, tout en nous basant sur l'évolution du cadre fiscal de ces produits au Maroc et aussi sur les différentes nouveautés fiscales apportées par la succession des lois de finances.
    Keywords: Tax Neutrality,Participatory Finance,Financing Decision,Tax Variable,Neutralité Fiscal,Décision de Financement,Variable Fiscale,Finance Participative
    Date: 2021–07–27

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