nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒04‒11
fourteen papers chosen by
Thomas Andrén

  1. Optimal Commodity Taxation Under Non-linear Income Taxation By Kevin Spiritus
  2. Informality, Consumption Taxes and Redistribution By Anders Jensen; Pierre Bachas; Lucie Gadenne
  3. Pareto-Improving Optimal Capital and Labor Taxes By Katharina Greulich; Sarolta Laczó; Albert Marcet
  4. Optimal Nonlinear Savings Taxation By Brendon, C.
  5. Introducing an Austrian Backpack in Spain By João Brogueira de Sousa; Julián Díaz-Saavedra; Ramon Marimon
  6. Beyond Greed: Why Armed Groups Tax By Bandula-Irwin, Tanya; Gallien, Max; Jackson, Ashley; van den Boogaard, Vanessa; Weigand, Florian
  7. Tax and Governance in the Context of Scarce Revenues: Inefficient Tax Collection and its Implications in Rural West Africa By Beach, Rachel; van den Boogaard, Vanessa
  8. The economy-wide effects of mandating private retirement incomes By George Kudrna
  9. Taliban Taxation in Afghanistan: (2006-2021) By Amiri, Rahmatullah; Jackson, Ashley
  10. The Future of Taxation in changing labour markets By Michael Christl; Ilias Livanos; Andrea Papini; Alberto Tumino
  11. Public Debt and Economic Growth By Puonti, Päivi
  12. The Benefits and Costs of a U.S. Child Allowance By Irwin Garfinkel; Laurel Sariscsany; Elizabeth Ananat; Sophie M. Collyer; Robert Paul Hartley; Buyi Wang; Christopher Wimer
  13. Progressivity of Public Spending on Health care at the Sub-state Level in India: An Empirical Investigation in Tamil Nadu and Bihar. By Datta, Pritam; Dubey, Jay Dev; Choudhury, Mita
  14. Fiscal policy after the crisis: What role for fiscal policy in times of crisis, low interest rates and high public debts? By Heise, Arne

  1. By: Kevin Spiritus (Erasmus University Rotterdam)
    Abstract: I characterize the optimal linear commodity taxes when households differ in multiple characteristics, in presence of an optimal non-linear tax schedule on the households’ labour incomes. The optimal distortions caused by a linear commodity tax are larger if, conditional on labour income, more deserving in- dividuals consume more of that commodity. This is the case for merit goods, or if the government otherwise seeks to compensate individuals who consume larger quantities of that commodity. Furthermore, the government wishes to tax commodities at different rates to the extent that doing so reduces the dis- tortions caused by the labour income tax. This is the case when individuals with different incomes have different preferences, or when individuals who sup- ply different quantities of labour have different consumption patterns. I extend these findings to the case where households earn multiple incomes.
    Keywords: optimal commodity taxation, multidimensional taxation
    JEL: H21 H24
    Date: 2022–02–27
  2. By: Anders Jensen; Pierre Bachas; Lucie Gadenne
    Abstract: Can taxes on consumption redistribute in developing countries? Contrary to consensus, we show that taxing consumption is progressive once we account for informal consumption. Using household expenditure surveys in 32 countries we proxy for informal consumption using the type of store where purchases occur. We find that the budget share spent in informal stores steeply declines with income, so that the effective tax rate of a broad consumption tax rises with income. Our findings imply that the widespread policy of exempting food from taxation cannot be justified on equity grounds in low-income-countries.
    Keywords: Budget Surveys, Inequality, Informality, Redistribution, Taxes
    JEL: E26 H21 H23
    Date: 2021–09
  3. By: Katharina Greulich; Sarolta Laczó; Albert Marcet
    Abstract: We study optimal Pareto-improving fiscal policy in a model where agents are heterogeneous in their labor productivity and wealth and markets are complete. We first argue that recent results that find positive optimal long-run capital taxes in standard models obtain only if the government is allowed to immiserate the economy or if the government would prefer to waste consumption. Excluding these possibilities the Chamley-Judd result reemerges. We find that the long-run optimal tax mix is the opposite of theci shortand medium-run. For a Pareto improvement the length of the transition is very long, more so for policies that benefit the poor. Therefore the traditional focus on long-run optimal taxes is unwarranted. An initial labor tax cut causes early deficits leading to a positive level of government debt in the long run. Welfare weights need to be found endogenously for a Pareto improvement, a Benthamite policy that weighs equally all agents is often not Pareto improving. The optimal fiscal policy is time-consistent if reoptimization requires consensus and heterogeneity is high. We address the sufficiency of first-order conditions for the Ramsey optimum and provide a solution algorithm.
    Keywords: fiscal policy, factor taxation, Pareto-improving tax reform, redistribution
    JEL: E62 H21
    Date: 2022–01
  4. By: Brendon, C.
    Abstract: This paper analyses the design of optimal nonlinear savings taxation, in a multi-period consumption-savings economy where consumers face persistent, uninsurable shocks to the marginal value that they place on consuming. Its main contributions are: (a) to show that shocks of this kind generically justify positive marginal savings taxes, and (b) to characterise these taxes by reference to a limited number of sufficient statistics. The method for obtaining this characterisation is generalisable, and provides a roadmap for reconnecting ‘Mirrleesian’ and ‘sufficient statistics’ approaches to dynamic taxation. Intuitively, dynamic asymmetric information problems imply significant restrictions on intertemporal consumption elasticities. These restrictions keep sufficient statistics representations manageable, despite the multi-dimensional choice setting.
    Keywords: Nonlinear Taxation, Sufficient Statistics, Mirrleesian Taxation, New Dynamic Public Finance
    JEL: D82 E21 E61 H21 H24 H30
    Date: 2022–03–25
  5. By: João Brogueira de Sousa; Julián Díaz-Saavedra; Ramon Marimon
    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 a market interest rate as a return and is financed with a payroll tax (a BP tax). The worker can use the fund while unemployed or retired. Upon retirement, backpack savings can be converted into an (actuarially fair) retirement pension. 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, if we model Spain as an open economy. 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%. In both economies, the annuity retirement option is an important component of the welfare gains.
    Keywords: computable general equilibrium, welfare state, social security reform, Retirement
    JEL: C68 H55 J26
    Date: 2022–03
  6. By: Bandula-Irwin, Tanya; Gallien, Max; Jackson, Ashley; van den Boogaard, Vanessa; Weigand, Florian
    Abstract: Based on a review of the diverse practices of how armed groups tax, we highlight that a full account of why armed groups tax needs to go beyond revenue motivations, to also engage with explanations related to ideology, legitimacy, institution building, legibility and control of populations, and the performance of public authority. This article builds on two distinct literatures, on armed groups and on taxation, to provide the first systematic exploration of the motivations of armed group taxation. We problematize common approaches toward armed group taxation and state-building, and outline key questions of a new research agenda.
    Keywords: Governance,
    Date: 2022
  7. By: Beach, Rachel; van den Boogaard, Vanessa
    Abstract: In recent years, domestic and international policy attention has often focused on broadening the tax base in order to include a greater share of the population in the ‘tax net’. This is based, in part, on the hope that the expansion of taxation will result in positive ‘governance dividends’ for taxpayers. However, the implications of extending the tax base in rural areas in low-income countries has been insufficiently considered. Through the case studies of Togo, Benin, and Sierra Leone, we demonstrate that extending taxation to rural areas is often highly inefficient, leading to few, if any, revenue gains when factoring in the costs of collection. Where revenues exceed the costs of collection, they often only cover local government salaries with little remaining for the provision of public goods and services. The implications of rural tax collection inefficiency are thus significant for revenue mobilisation, governance and public service delivery, accountability relationships with citizens, and taxpayer expectations of the state. Accordingly, we question the rationale for extending taxation to rural citizens in low-income countries. Instead, we argue for a reconceptualisation of the nature of the fiscal social contract, disentangling the concept of the social contract from the individual. Rather, a collective social contract places greater emphasis on the taxation of wealth and redistribution and recognises that basic rights of citizenship are not, or should not, be contingent on paying direct taxes to the government. Rather than expanding taxation, we argue for the expansion of political voice and rights to rural citizens, through a ‘services-first’ approach.
    Keywords: Governance,
    Date: 2022
  8. By: George Kudrna
    Abstract: This paper investigates the economy-wide effects of mandating private (employment-related) pensions. It draws on the Australian experience with its Superannuation Guarantee legislation which mandates contributions to private retirement (superannuation) accounts. Our key objective is to quantify the long-run implications of alternative mandatory superannuation contribution rates for household economic decisions over the life cycle, household welfare, and macroeconomic and fiscal aggregates. To that end, we develop a stochastic, overlapping generations (OLG) model with labor choice and endogenous retirement, which distinguishes between (i) ordinary private (liquid) assets and (ii) superannuation (illiquid) assets. The benchmark model is calibrated to the Australian economy, fitted to Australian demographic, household survey and macroeconomic data, and accounting for a detailed representation of Australia’s government policy, including its mandatory superannuation system. The model is then applied to simulate the effects of alternative mandatory superannuation contribution rates, with a specific focus on the counterfactual of a legislated future rate of 12% of gross wages. Based on the model simulations, we show that in the long run, this increased mandate generates larger average household wealth, output and consumption per capita and (rational) household welfare across income distribution.
    Keywords: Private Pension, Social Security, Income Taxation, Labor Supply, Endogenous Retirement, Stochastic General Equilibrium
    JEL: J32 H55 H31 J22 J26 C68
    Date: 2022–03
  9. By: Amiri, Rahmatullah; Jackson, Ashley
    Abstract: Before taking control of Afghanistan in August 2021, the Taliban had developed a remarkably state-like revenue collection system throughout the country. This ICTD research explores how that came to be, and what factors shaped the various forms of Taliban taxation. Drawing primarily on fieldwork from Helmand, Ghazni and Kunduz provinces, this paper explores in depth three commonplace types of Taliban taxation: ushr (effectively a harvest tax, applied to both legal crops as well as opium), taxation on transport of goods (similar to customs), and taxes on aid interventions. The paper pays particular attention to geographic variation, exploring how and why each practice evolved differently at the subnational level.
    Keywords: Governance,
    Date: 2022
  10. By: Michael Christl (European Commission - JRC); Ilias Livanos (European Centre for the Development of Vocational Training (CEDEFOP)); Andrea Papini (European Commission - JRC); Alberto Tumino (European Commission - JRC)
    Abstract: This paper provides a first assessment of the fiscal and distributional consequences of the ongoing structural changes in the labour markets of EU Member States, mostly driven by technological progress and ageing. Cedefop 2020 Skill forecasts, EUROSTAT population projections and the forecast on pension expenditures from the 2021 Ageing Report depict a scenario of an ageing population, an inverted U-shaped unemployment trend and potentially polarising labour markets, the latter mostly driven by a surge in high-skill occupations. This analysis makes use of the microsimulation model EUROMOD and reweighting techniques to analyse the fiscal and distributional impacts of these trends, given the current tax-benefit policies. The results suggest that the macro trends will increase pressure on government budgets. The analysis also shows evidence of the capacity of the current tax-benefit systems to counterbalance the increases in income inequality and poverty risks triggered by the expected future labour markets developments.
    Keywords: income distribution, budget, deficit, job polarisation, population ageing
    JEL: J11 J21 H68
    Date: 2022–03
  11. By: Puonti, Päivi
    Abstract: Abstract Economics literature suggests that, even in the absence of fiscal costs, a persistently high and increasing public debt ratio may have a detrimental effect on long run economic growth in an economy that is not over-accumulating capital like Finland today. High public debt creates expectations about future tax increases and a climate of uncertainty, reducing incentives to save and invest. By being informative about its fiscal plans the government can anchor expectations and create a stable investment climate. The relationship between debt and growth is complex and depends on country-specific factors likely to change over time, providing support for country-specific debt-limits or rates of debt reduction. By reducing debt today, the government prepares for unanticipated events requiring significant public borrowing in the future and contains the distortionary effect of taxation required to service the debt. Reducing debt in an economic upturn, when private demand is strong and when monetary policy is accommodative, results in fiscal policy that is optimal both in the short and long run, minimizing the potentially harmful effect of fiscal consolidation on economic growth. Policies and structural reforms boosting economic growth allow the debt ratio to decline through economic growth, reducing the need for fiscal consolidation.
    Keywords: Public debt, Economic growth, Literature review
    JEL: O40 H60 H30
    Date: 2022–04–04
  12. By: Irwin Garfinkel; Laurel Sariscsany; Elizabeth Ananat; Sophie M. Collyer; Robert Paul Hartley; Buyi Wang; Christopher Wimer
    Abstract: We conduct a benefit-cost analysis of a U.S. child allowance, based on a systematic literature review of the highest quality available causal evidence on the short- and long-term effects of cash and near-cash transfers. In contrast to the previous studies we synthesize, which tend to measure a subset of benefits and costs available in a particular dataset, we establish a comprehensive accounting of potential effects and secure estimates of each. We produce core estimates of the benefits and costs per child and per adult of increasing household income by $1,000 in one year; these can be applied to value any cash or near-cash program that increases household income. Using microsimulation, we then apply these estimates to determine net aggregate benefits of three child allowance policies, including the expanded Child Tax Credit as enacted for the year 2021 in the American Rescue Plan (ARP). Our estimates indicate that making that expansion permanent would cost $97 billion per year and generate social benefits with net present value of $982 billion per year. Sensitivity analyses indicate that our estimates are robust to alternative assumptions and that all three child allowance policies we evaluate produce very high net returns for the U.S. population.
    JEL: H2 H23 I38 J18
    Date: 2022–03
  13. By: Datta, Pritam (National Institute of Public Finance and Policy); Dubey, Jay Dev (National Institute of Public Finance and Policy); Choudhury, Mita (National Institute of Public Finance and Policy)
    Abstract: Progressivity of public spending on health is considered welfare enhancing, and is often quantified through Benefit Incidence Analysis (BIA). In India, BIA analyses have been confined to state-level aggregates, and intra-state variation in progressivity among districts have remained largely unknown due to limited availability of disaggregated data. We use multiple datasets to overcome the data constraint and undertake BIA at the district-level in the two states of Bihar and Tamil Nadu. Disaggregated information from respective state treasuries were combined with central and state samples of surveys conducted by the National Sample Survey Organization to estimate utilisation and incidence of the benefits of public spending in districts. Results highlight that several districts diverge from state-level aggregates on progressivity, and this call for targeted heath interventions at the state-level. Further, a comparison of public spending across vertical tiers of the health pyramid and utilization of health facilities in the two states provide insights on state-level effectiveness of health interventions. The study lays forward a methodological framework to undertake BIA at the district-level in India.
    Keywords: Health Financing ; Benefit Incidence Analysis ; Public Spending on Health ; Bihar ; Tamil Nadu ; India
    JEL: H2 I14 I15 I18
    Date: 2022–03
  14. By: Heise, Arne
    Abstract: In 2009, just before the full outbreak of the global financial crisis, Olivier Blanchard (2009) published an article giving a favourable appraisal of the state of macroeconomics. He came to this verdict on the basis that, after a long period of fierce theoretical debate, the discipline had converged on a model known as new consensus macroeconomics (NCM). In the models that made up NCM, fiscal policy played no role - or, to be more precise, fiscal policy had to follow a balanced-budget rule, with the task of stabilising an economy over the business cycle entrusted entirely to monetary policy (following a Taylor rule). And in the midst of the global financial crisis, Carmen Reinhart and Kenneth Rogoff (2010) proposed the figure of 90% of GDP as a threshold level for public debt which, if exceeded, would harm economic growth, leaving fiscal austerity as the best way to trigger economic recovery. Only a decade later, the economics profession now appears to have taken a very different view on fiscal policy: in order to cope with the next economic crisis, resulting from the coronavirus pandemic, most economists recommend an active fiscal policy stance and even a huge increase in debt-to-GDP levels. This paper will shed some light on these developments in economic policymaking and explore the future of fiscal policy.
    Keywords: Fiscal policy,public debt,stabilisation policy
    JEL: E62 H30 H62
    Date: 2022

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