nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒05‒09
fourteen papers chosen by
Thomas Andrén

  1. Optimal Taxation with Multiple Incomes and Types By Kevin Spiritus; Etienne Lehmann; Sander Renes; Floris Zoutman
  2. The Global Minimum Tax Raises More Revenues than You Think, or Much Less By Eckhard Janeba; Guttorm Schjelderup
  3. The "Robot Economy" and Optimal Tax-Transfer Reforms By Colombino, Ugo; Islam, Nizamul
  4. On the Effects of Taxation on Growth: an Empirical Assessment By Marco Alfò; Lorenzo Carbonari; Giovanni Trovato
  5. Local Property Tax Reform and Municipality Spending Efficiency By António Afonso; Ana Venâncio
  6. The Macroeconomic Effects of Funding U.S. Infrastructure By James Malley; Apostolis Philippopoulos; Jim Malley
  7. Are vat reforms an effective tool for promoting the consumption of culture? Evidence from a quasiexperiment in Spain. By Miguel Gómez-Antonio; Ignacio del Moral Arce; Miriam Hortas-Rico
  8. Effect of tax dynamics on linearly growing processes under stochastic resetting: a possible economic model By Ion Santra
  9. The political economy of big data leaks: Uncovering the skeleton of tax evasion By Pier Luigi Sacco; Alex Arenas; Manlio De Domenico
  10. Taxpayer deductions and the endogenous probability of tax penalisation By Alex A. T. Rathke
  11. The Ramsey Steady State Conundrum in Heterogeneous-Agent Economies By YiLi Chien; Yi Wen
  12. The impact of accumulative pension policy on welfare of individuals By Marika Khozrevanidze
  13. Making Activation for Young Welfare Recipients Mandatory By Dahl, Espen S.; Hernaes, Øystein
  14. Wealth and its Distribution in Germany, 1895-2018 By Thilo N. H. Albers; Charlotte Bartels; Moritz Schularick

  1. By: Kevin Spiritus; Etienne Lehmann; Sander Renes; Floris Zoutman
    Abstract: We analyze the optimal nonlinear income tax schedule when taxpayers earn multiple incomes and differ along many unobserved dimensions. We derive the necessary conditions for the government’s optimum using both a tax perturbation and a mechanism design approach, and show that both methods produce the same results. Our main contribution is to propose a numerical method to find the optimal tax schedule. Applied to the optimal taxation of couples, we find that optimal isotax curves are very close to linear and parallel. The slope of isotax curves is strongly affected by the relative tax-elasticity of male and female income. We make several additional contributions, including a test for Pareto efficiency and a condition on primitives that ensures the government’s necessary conditions are sufficient and the solution to the problem is unique.
    Keywords: nonlinear optimal taxation, multidimensional screening, household income taxation
    JEL: H21 H23 H24 D82
    Date: 2022
  2. By: Eckhard Janeba; Guttorm Schjelderup
    Abstract: The OECD’s proposal for a global minimum tax (GMT) of 15% aims for a reversal of a decades-long race to the bottom of corporate tax rates driven by competition over real investments and profit shifting to low-tax jurisdictions. We study the revenue effects of the GMT by focusing on the induced strategic tax setting effects. The direct effect of the GMT is a reduction in profit shifting, which has a positive effect on revenues in high-tax countries as their tax base grows, and makes higher taxes attractive. A secondary effect, however, is that the value of attracting real foreign investments increases, which intensifies tax competition. We argue that the revenue effects of the GMT depend on the instruments governments use to attract firms. With endogenous corporate tax rates, revenues in non-havens increase if initially tax competition among non-havens is fierce. By contrast, when governments compete via lump sum subsidies, the revenue gains from less profit shifting are exactly offset by higher subsidies.
    Keywords: global minimum tax, tax competition, OECD BEPS, Pillar II
    JEL: F23 F55 H25 H73
    Date: 2022
  3. By: Colombino, Ugo (University of Turin); Islam, Nizamul (LISER (CEPS/INSTEAD))
    Abstract: Globalization and automation might imply deep changes on the labour market. An important policy issue is whether and how the tax-transfer rules should be reformed to cope with those changes. While the prevailing response has consisted of more sophisticated designs of mean-testing and targeting, we also witness an increasing interest in policies inspired by simplicity and universality. In this paper we take the latter route. Using a combination of behavioural microsimulation and numerical optimization, we look for a social welfare optimal tax-transfer rule within a flexible class where total household disposable income is a 4th polynomial in total household taxable income. We use a model of household labour supply that makes it possible to account for equilibrium constraints and to evaluate the effects of exogenous labour demand shocks. We consider two stylized scenarios: the Jobless Economy (the robots take over 10% of jobs at every skill-level) and the Polarized Economy (the robots take over 10% of the unskilled jobs while skilled jobs increase by 10%). We compare the social welfare performance of the polynomial optimal rules and of the current rules under the Current Economy scenario and under the alternative Jobless Economy and the Polarized Economy scenarios. We present results using the 2015 EU-SILC data sets for France, Germany, Italy and Luxembourg. The polynomial optimal rules feature a universal basic income and an almost flat marginal tax rate profile and are social welfare-superior under the Current Economy scenario in all the countries and also under the alternative scenarios in France, Germany and Italy.
    Keywords: empirical optimal taxation, microsimulation, microeconometrics, evaluation of tax-transfer rules, equilibrium, robot economy
    JEL: H21 C18
    Date: 2022–03
  4. By: Marco Alfò (Sapienza Università di Roma, Italy); Lorenzo Carbonari (Dipartimento di Economia e Finanza, Università degli Studi di Roma “Tor Vergata”, Italy; CEIS); Giovanni Trovato (Dipartimento di Economia e Finanza, Università degli Studi di Roma “Tor Vergata”, Italy; CEIS)
    Abstract: We study the effects of taxation on the growth rate of the real per capita GDP in a sample of 21 OECD countries, over the period 1965-2010. To do this we estimate a version of the model proposed by Mankiw, Romer and Weil (1992) augmented to consider both direct and indirect effects of taxation on investment share parameters. We employ a semi-parametric technique – namely, a Finite Mixture Model – which combines features from mixed effect models for panel data and cluster analysis methods to account for country-specific unobserved heterogeneity. Our results suggest that taxes have a negative impact on growth: in the baseline model the coefficient estimates indicate that a 10% cut in personal income tax rate (respectively corporate income tax rate) may raise the GDP growth rate by 0.6% (respectively 0.3%).
    Keywords: Economic Growth, Taxation, Finite Mixture Model, Classification
    JEL: H30 O30 O40
    Date: 2022–04
  5. By: António Afonso; Ana Venâncio
    Abstract: We investigate the effect on municipality spending efficiency of a local property tax reform, which reduced in 2008 the upper limit of the property tax. We compute municipality efficiency scores via data Envelopment Analysis (DEA) from 2005 to 2011, and then we rely in a panel data set to estimate how the tax reform affected the efficiency scores. Results of the analysis show that average input efficiency scores declined from 0.575 before the tax reform to 0.488 after the tax reform. This change was transversal to municipalities that reduced the municipal property tax (IMI) and to the ones that maintained the tax rate. In addition, the IMI reform is linked to higher efficiency scores. In other words, the reduction in efficiency ends up being smaller for the municipalities that decreased the IMI tax rate.
    Keywords: public spending efficiency, local government, data envelopment analysis (DEA), local property tax reform
    JEL: C14 C23 H11 H21 H50
    Date: 2022
  6. By: James Malley; Apostolis Philippopoulos; Jim Malley
    Abstract: This paper quantitatively assesses the macroeconomic effects of the recently agreed U.S. bipartisan infrastructure spending bill in a neoclassical growth model. We add to the literature by considering a more detailed tax structure, different types of infrastructure spending and linkages between the final and intermediate goods sectors. We find that infrastructure spending cannot fully pay for itself despite public and private capital being underprovided. We further find long-run output multipliers above unity if infrastructure spending and rising public debt are financed by consumption, dividend and labour income taxes and below one for corporate taxes. We also show that except for the consumption tax, the size of the multipliers critically depends on the Frisch labour supply elasticity. Finally, when we compute differences in welfare across different public financing regimes, the net welfare gains and losses are relatively minor.
    Keywords: infrastructure investment, public capital, fiscal multipliers, taxation
    JEL: E62 H41 H54
    Date: 2022
  7. By: Miguel Gómez-Antonio; Ignacio del Moral Arce; Miriam Hortas-Rico
    Abstract: Sponsoring culture is a long-term profit-generating investment that public policy makers can achieve by means of Pigouvian subsidy or tax schemes. This paper evaluates the effectiveness of the three VAT reforms implemented between 2012 and 2018 (one tax raise reform and two tax cut reforms) in the cultural sector in Spain. We first provide visual evidence and empirical estimates of the tax shifting and the distribution of the VAT burden between consumers and producers. We then use a regression discontinuity design to assess the causal effects of these VAT reforms on performing acts and cinema consumption (both in the extensive and the intensive margin).
    Keywords: fiscal policy tools; VAT reform; cultural goods; quasi-experimental methods.
    JEL: H27 C22 C34 C35
    Date: 2022–05
  8. By: Ion Santra
    Abstract: We study a system of $N$ agents, whose wealth grows linearly, under the effect of stochastic resetting and interacting via a tax-like dynamics -- all agents donate a part of their wealth, which is, in turn, redistributed equally among all others. This mimics a socio-economic scenario where people have fixed incomes, suffer individual economic setbacks, and pay taxes to the state. The system always reaches a stationary state, which shows a trivial exponential wealth distribution in the absence of tax dynamics. The introduction of the tax dynamics leads to several interesting features in the stationary wealth distribution. In particular, we analytically find that an increase in taxation for a homogeneous system (where all agents are alike) results in a transition from a society where agents are most likely poor to another where rich agents are more common. We also study inhomogeneous systems, where the growth rates of the agents are chosen from a distribution, and the taxation is proportional to the individual growth rates. We find an optimal taxation, which produces a complete economic equality (average wealth is independent of the individual growth rates), beyond which there is a reverse disparity, where agents with low growth rates are more likely to be rich. We consider three income distributions observed in the real world and show that they exhibit the same qualitative features. Our analytical results are in the $N\to\infty$ limit and backed by numerical simulations.
    Date: 2022–02
  9. By: Pier Luigi Sacco; Alex Arenas; Manlio De Domenico
    Abstract: After the leak of 11.5 million documents from the Panamanian corporation Mossack Fonseca, an intricate network of offshore business entities has been revealed. The emerging picture is that of legal entities, either individuals or companies, involved in offshore activities and transactions with several tax havens simultaneously which establish, indirectly, an effective network of countries acting on tax evasion. The analysis of this network quantitatively uncovers a strongly connected core (a rich-club) of countries whose indirect interactions, mediated by legal entities, form the skeleton for tax evasion worldwide. Intriguingly, the rich-club mainly consists of well-known tax havens such as British Virgin Islands and Hong Kong, and major global powers such as China, Russia, United Kingdom and United States of America. The analysis provides a new way to rank tax havens because of the role they play in this network, and the results call for an international coordination on taxation policies that take into account the complex interconnected structure of tax evaders in a globalized economy.
    Date: 2022–02
  10. By: Alex A. T. Rathke
    Abstract: We propose a parametric specification of the probability of tax penalisation faced by a taxpayer, based on the amount of deduction chosen by her to reduce total taxation. Comparative analyses lead to a closed-form solution for the optimum tax deduction, and provide the maximising conditions with respect to the probability parameters.
    Date: 2022–02
  11. By: YiLi Chien; Yi Wen
    Abstract: In infinite horizon, heterogeneous-agent and incomplete-market models, the existence of an interior Ramsey steady state is often assumed instead of proven. This paper demonstrates the critical importance of proving the existence of the Ramsey steady state when conducting theoretical or numerical analysis on optimal fiscal policies. We use an analytically tractable heterogeneous-agent model to make our point by showing that the conditions for the existence of an interior Ramsey steady state are quite sensitive to structural parameter values. In particular, we show that researchers may draw fundamentally misleading conclusions from their analysis when an interior Ramsey steady state does not exist but is erroneously assumed to exist.
    Keywords: Optimal Fiscal Policy; Ramsey Problem; Incomplete Markets; Heterogeneous Agents
    JEL: E13 E62 H21 H30
    Date: 2022–04–14
  12. By: Marika Khozrevanidze
    Abstract: Many countries around the world have had to carry out radical reforms periodically in their pension systems. Global experience shows that it is important to optimize the costs of pension and social security systems in order to ensure a decent old age in addition to reducing the pressure on budgetary resources. By Georgia is changing demographic situation, special attention is paid to proper functioning of the pension policy. The pension reform carried out in Georgia in 2019 caused a difference of opinion among experts. This issue in today is conditions does not lose relevance. The presented thesis discusses the impact of the mandatory funded pension system on the well-being of people. Thesis includes the following issues: peculiarities of the formation of pension systems in Georgia. It is presented a small historical excursion in terms of the development of pension systems. In addition, are discussed the international experience of pension systems and comparative analysis in relation to Georgia. This paper specifically focuses on the essence of the mandatory funded pension system and assesses the current situation in terms of investment potential of the resource accumulated in the pension fund. In conclusion, are presented the challenges of this system and the ways of perfection.
    Date: 2022–01
  13. By: Dahl, Espen S. (University of Oslo); Hernaes, Øystein (Ragnar Frisch Centre for Economic Research)
    Abstract: Activation policies to promote self-sufficiency among recipients of welfare and other types of benefits are becoming more common in many welfare states. We evaluate a law change in Norway making welfare receipt conditional on participation in an activation program for all welfare recipients below the age of 30. Analyzing the program's staggered implementation across municipalities with several modern event study estimators, we estimate that the law change had quite precise 0-effects on benefit receipt, work and education. We also do not find any effects on the probability of being out of work or of being in employment, education or labor market programs. Qualitative evidence suggests that the zero effect may be due to the law change only impacting the participation of recipients with low expected gain from activation.
    Keywords: social assistance, activation, conditionality, welfare reform, labor
    JEL: H55 I38 J18
    Date: 2022–03
  14. By: Thilo N. H. Albers (Humboldt University Berlin; Lund University); Charlotte Bartels (DIW Berlin; UCFS; IZA); Moritz Schularick (University of Bonn, Sciences Po Paris, and CEPR)
    Abstract: German history over the past 125 years has been turbulent. Marked by two world wars, revolutions and major regime changes, as well as a hyperinflation and three currency reforms, expropriations and territorial divisions, it provides unique insights into the role of country-specific shocks in shaping long-run wealth dynamics. This paper presents the first comprehensive study of wealth and its distribution in Germany since the 19th century. We combine tax and archival data, household surveys, historical national accounts, and rich lists to analyze the evolution of the German wealth distribution over the long run. We show that the top 1% wealth share has fallen by half, from close to 50% in 1895 to 27% today. Nearly all of this decline was the result of changes that occurred between 1914 and 1952. The interwar period and the wealth taxation in the aftermath of World War II stand out as the great equalizers in 20th century German history. After unification in 1990, two trends have left their mark on the German wealth distribution. Households at the top made substantial capital gains from rising business wealth while the middle-class had large capital gains in the housing market. The wealth share of the bottom 50% halved since 1990. Our findings speak to the importance of historical shocks to the distribution and valuations of existing wealth in explaining the evolution of the wealth distribution over the long run.
    Keywords: Wealth inequality; portfolio heterogeneity; saving; wealth taxation.
    JEL: D31 E01 E21 H2 N3
    Date: 2022–05

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