nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒01‒31
twelve papers chosen by
Thomas Andrén

  1. Welfare Implication of Tax Rates Increase in a Recessionary Economy By Ibrahim, Umar Bambale; Abubakar, Isah Funtua
  2. The Role of Income and Property Taxes in Tax Transition and the Mediating Effect of Financial Development By Kodjo Adandohoin; Jean-Francois Brun
  3. A Welfare Analysis on Start-Up Decisions under Default Risk By Nicola Comincioli; Paolo Panteghini; Sergio Vergalli
  4. Introducing an Austrian Backpack in Spain By Julian Diaz Saavedra; Ramon Marimon; Joao Brogueira de Sousa
  5. Reforms of an Early Retirement Pathway in Germany and Their Labor Market Effects By Regina T. Riphahn; Rebecca Schrader
  6. The Polish Deal: The economic consequences of the proposed new tax system By Ewa Balcerowicz; Michał Myck; Joanna Tyrowicz; Paweł Wojciechowski; Kajetan Trzciński
  7. Assessment Frequency and Equity of the Real Property Tax: Latest Evidence from Philadelphia By Alaina Barca; Lei Ding; Yulin Hou; David Schwegman
  8. The Fiscal Effect of Immigration: Reducing Bias in Influential Estimates By Michael Clemens
  9. Fiscal Decentralization and the Allocation of Public Spending of Subnational Governments. The Case of Ecuador By Henry Aray; Janeth Pacheco-Delgado
  10. Racial Inequality in Unemployment Insurance Receipt and Take-Up By Elira Kuka; Bryan A. Stuart
  11. Certain effects of random taxes By James Hines Jr.; Michael J. Keen
  12. Public Investment Management in the EU Key Features and Practices By Cristiana Belu Manescu

  1. By: Ibrahim, Umar Bambale; Abubakar, Isah Funtua
    Abstract: In this work, we compare the welfare cost of the two tax policy options in Nigeria, by applying a small-open economy within the New-Keynesian Dynamic Stochastic General Equilibrium Model (NKDSGE) of Nigeria augmented by a robust fiscal sector with several tax rules. Increase in tax rates has different welfare implications in a recessive economy. Increase in Consumption tax VAT rate is welfare superior compared to increase in CIT rate, which harms private agents’ incentive to invest in either new or existing venture. Hence, data does not support tax reform in the form of increase in Company Income Tax rate. Our finding implies that the current Nigerian tax reform in the form of an increase in VAT rate while allowing other tax rates unchanged is the right policy direction.
    Keywords: DSGE Models; Fiscal Policy; Welfare
    JEL: H24
    Date: 2020–09–30
  2. By: Kodjo Adandohoin (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Jean-Francois Brun (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 investigates second wave tax transition (transfer of tax pressure from border taxation towards domestic taxation) concerns in developing countries. It essentially focuses on the compensation effects of incomes and property taxes over international trade tax revenue losses in developing countries. Using a generalized method of moment estimator, we come to the evidence that, incomes and property taxes are poor instruments to balance trade tax revenue losses of trade liberalization in these countries. However, a mediating effect of financial development in the compensation nexus driven by corporate income taxes was found. We explain this result by the fact that the use of financial sector generates paper trails to government in order to enforce and raise corporate income taxes. Financial development may progressively crowd-out informal sector and leads to business formalization. Surprising, we do not find any mediating effect of financial development in the compensation patterns with personal income taxes. Nevertheless, some heterogeneities were discovered. Financial development mediates the compensation patterns of personal income taxes in Latin American countries, while the effect holds on corporate income taxes in African countries. We conclude the paper by highlighting the important role of financial development in second generation tax transition concerns over developing countries.
    Keywords: Income Taxes,Property Tax,Tax Transition,Developing Countries
    Date: 2021
  3. By: Nicola Comincioli; Paolo Panteghini; Sergio Vergalli
    Abstract: This short article studies the tax effects on a start-up investment decision under uncertainty. Since the representative firm can decide both when to invest and how much to borrow, the distortive effects are twofold. We thus show that the deadweight loss (namely, the ratio between the welfare loss and tax revenue) ranges from 25 to 32%, whereas mature firms face a lower distortion (as shown by Comincioli et al. (2021) the maximum deadweight loss is about 25%).
    Keywords: real options, business taxation, default risk
    JEL: H25 G33 G38
    Date: 2021
  4. By: Julian Diaz Saavedra (Department of Economic Theory and Economic History, University of Granada.); Ramon Marimon (European University Institute, UPF - Barcelona GSE, CEPR and NBER.); Joao Brogueira de Sousa (Nova School of Business and Economics.)
    Abstract: In an overlapping generations economy with incomplete insurance markets, the introduction of an employment fund – akin to the one introduced in Austria in 2003, also known as ‘Austrian backpack’– can enhance production efficiency and social welfare. It complements the two classical systems of public insurance: pay-as-you-go (PAYG) pensions and unemployment insurance (UI).We show this in a calibrated dynamic general equilibrium model with heterogeneous agents of the Spanish economy in 2018. A ‘backpack’ (BP) employment fund is an individual (across jobs) transferable fund, which earns the economy interest rate as a return and is financed with a payroll tax (a BP tax). The worker can use the fund when becomes unemployed or retires. In Spain, as an open economy, to complement the existing PAYG pension and UI systems with a welfare maximising 6% BP tax would raise welfare by 0.96% of average consumption at the new steady state, and would be preferred to the status quo by most economic and demographic groups. We also analyze, as a reference, Spain as a closed economy. There are important general equilibrium effects and, as a result, the social value of introducing the backpack is substantially greater; 16.14%, with a BP tax of 18%. Our model also provides a framework where to study reforms of existing social protection systems supported by the introduction of the BP.
    Keywords: Computable general equilibrium, welfare state, social security reform, retirement.
    JEL: C68 H55 J26
    Date: 2021–12–04
  5. By: Regina T. Riphahn; Rebecca Schrader
    Abstract: We investigate the unemployment pathway to retirement in Germany and study the causal effects of two early retirement reforms. Reform 1 (NRA) increased normal retirement age stepwise from 60 to 65. Simultaneously, it became possible to use early retirement with benefit discounts. Reform 2 (ERA) increased the age of early retirement stepwise from 60 to 63. We investigate behavioral responses to the reforms using administrative data and difference-indifferences strategies. We find strong and significant causal effects of both reforms. Individuals postponed retirement, stayed employed longer, postponed unemployment, and shifted to alternative pathways into retirement. The overall use of the retirement system declined by about 1.5 and 2 months per person after each of the two reforms. Individuals with low pension wealth and those who were affected immediately by the reform responded more strongly.
    Keywords: early retirement, program substitution, labor force participation, causal effects, difference-in-differences, effect heterogeneity
    JEL: H55 J26 C21
    Date: 2021
  6. By: Ewa Balcerowicz; Michał Myck; Joanna Tyrowicz; Paweł Wojciechowski; Kajetan Trzciński
    Abstract: In this publication, which was created based on the 170th mBank-CASE Seminar, we analyze one of its parts: the far-reaching proposals for changes in the tax system. The analysis we present here isn’t comprehensive, which would require a broad report, but partial: it covers potential economic effects, in selected areas. One of the goals of the Polish Deal is “the fastest possible return to the path of economic growth,” but the document contains no analysis of whether and how the changes in taxes will affect medium- and long-term growth. Nor are there any estimates of how they will affect the labor market, the propensity to invest (leaving aside the question of special tax relief for investors and the plan for huge government investment in infrastructure).
    Keywords: Polish Deal, tax, tax reform, pension, retirees, investments, Poland
    JEL: H2 K34 J14 J26 D25 E2
    Date: 2021–10–19
  7. By: Alaina Barca; Lei Ding; Yulin Hou; David Schwegman
    Abstract: Philadelphia’s Actual Value Initiative, adopted in 2013, createsa unique opportunity for us to test whether reassessments at short intervals to true market value and taxing by such values improve equity. Based on a difference-in-differences framework using parcel-level data matched with transactions in Philadelphia and 15 comparable cities, this study finds positive evidence on equity outcomes from more regular revaluations. The quality of assessment, as measured by the coefficient of dispersion, improves substantially after 2014, although the extent of improvement varies across communities. Vertical equity, measured by price related differential, also improved, although it was still above the standard threshold. Cross-city comparisons confirm Philadelphia’s improvement in quality and equity of assessments after adopting the initiative. These results highlight the importance of regular reassessment in places where property values increase quickly, and they shed light on the disparate impacts of reassessment across income, property value, race, and gentrification status. The paper makes the case that the property tax, if designed well, can be an equitable tax instrument
    Keywords: real property tax; valuation; assessment cycle; equity
    JEL: H20 H31 H71 R51
    Date: 2021–12–08
  8. By: Michael Clemens
    Abstract: Immigration policy can have important net fiscal effects that vary by immigrants’ skill level. But mainstream methods to estimate these effects are problematic. Methods based on cash-flow accounting offer precision at the cost of bias; methods based on general equilibrium modeling address bias with limited precision and transparency. A simple adjustment greatly reduces bias in the most influential and precise estimates: conservatively accounting for capital taxes paid by the employers of immigrant labor. The adjustment is required by firms’ profit-maximizing behavior, unconnected to general equilibrium effects. Adjusted estimates of the positive net fiscal impact of average recent U.S. immigrants rise by a factor of 3.2, with a much shallower education gradient. They are positive even for an average recent immigrant with less than high school education, whose presence causes a present-value subsidy of at least $128,000 to all other taxpayers collectively.
    Keywords: immigration, fiscal, budget, budgetary, tax revenue, benefits, taxes, deficit, surplus, gain, contribution, welfare, social security
    JEL: F22 H68 J61
    Date: 2021
  9. By: Henry Aray (Department of Economic Theory and Economic History, University of Granada.); Janeth Pacheco-Delgado (Technical University of Manabí)
    Abstract: This article analyzes the relationship between fiscal decentralization and the growth rate of per capita public spending by subnational governments in Ecuador. A theoretical model is proposed to support the empirical strategy. Data at provincial level over the period 2001–2015 are used. The estimation results for the aggregation of subnational governments show that financial autonomy is positively correlated with the growth rates of per capita public investment and per capita current spending. However, the latter is also negatively correlated with tax autonomy. When using disaggregated data on provincial and local governments, results for financial autonomy hold in most of the cases. However, no evidence is found for tax autonomy. Evidence on a structural break following the passing of the Constitution of 2008 is also found and suggests that the Constitution has had an overall positive impact on public spending. Moreover, considering the structural break sheds light on the results found when it is not taken into account.
    Keywords: Subnational governments; Decentralization; Public spending; Ecuador.
    JEL: H53 H77 C23
    Date: 2022–01–18
  10. By: Elira Kuka; Bryan A. Stuart
    Abstract: This paper studies differences in receipt and take-up of unemployment insurance (UI) benefits among white and Black individuals. We combine state-level UI regulations with data containing detailed information on individuals’ work history and UI receipt. Black individuals who separate from a job are 24% less likely to receive UI than whites. The UI receipt gap stems primarily from lower take-up of UI benefits among likely eligible individuals, as opposed to differences in benefit eligibility. Statistical decompositions indicate that about one-half of the take-up gap is explained by Black workers’ lower pre-unemployment earnings and higher tendency to live in the South.
    JEL: H5 I38 J15 J65
    Date: 2021–12
  11. By: James Hines Jr.; Michael J. Keen (UTokyo - The University of Tokyo, IFS - Laboratory of the Institute for Fiscal Studies - Institute for Fiscal Studies, CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Date: 2021–11
  12. By: Cristiana Belu Manescu
    Abstract: The paper addresses the fundamental question of what makes public investment management efficient. It defines public investment as tangible and intangible fixed assets plus ordinary maintenance and repairs and distinguishes the following salient phases: strategic planning, project selection, medium-term budgeting, implementation and ex-post reviews. For each of these phases, the paper provides some examples of good practice in the EU, complemented with insights from the implementation of EU cohesion policy. Finally, the paper identifies significant data gaps both within and across EU countries.
    JEL: H54 H82 H41 H3
    Date: 2021–12

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