nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒08‒29
twelve papers chosen by
Thomas Andrén

  1. Corporate Taxes Reduce Investment: New Evidence from Germany By Sebastian Link; Manuel Menkhoff; Andreas Peichl; Paul Schüle
  2. Legal aspects of iron ore processing in the Kryvyi Rih iron ore basin By Anatoliy Kostruba; V. Mikhailov,; S. Shniukov,; T. Kharytonova,; K. Hryhorieva,; M. Tkalych,
  3. R&D Tax Credits across the European Union: Divergences and convergence By Stéphane Robin; Laurence Jacquet
  4. The lock-in effect of marriage: Work incentives after saying, "Yes, I do." By Christl, Michael; De Poli, Silvia; Ivaškaitė-Tamošiūnė, Viginta
  5. Are environmental fiscal incentives effective in inducing energy-saving renovations? An econometric evaluation of the French energy tax credit By Anna Risch
  6. The Effect of Diesel Tax Rates on the Daily Commuting of US Workers: An Effective Instrument to Promote Sustainable Mobility? By Belloc, Ignacio; Gimenez-Nadal, J. Ignacio; Molina, José Alberto
  7. Maldives: Technical Assistance Report-Modernizing the Goods and Services Tax By International Monetary Fund
  8. Small Firm Growth and the VAT Threshold : Evidence for the UK By Liu, Li; Lockwood, Ben; Tam. Eddy
  9. Turning Non-members into Members: Do Public Subsidies to Union Membership Matter? By Erling Barth; Alex Bryson; Harald Dale-Olsen
  10. Losing prospective entitlement to unemployment benefits. Impact on educational attainment By Bart Cockx; Koen Declercq; Muriel Dejemeppe
  11. Debt and Taxes: Optimal Fiscal Consolidation in the Small Open Economy By Carlos Rondón-Moreno
  12. Financial Innovations in a World with Limited Commitment: Implications for Inequality and Welfare By Saroj Dhital; Pedro Gomis-Porqueras; Joseph H. Haslag

  1. By: Sebastian Link; Manuel Menkhoff; Andreas Peichl; Paul Schüle
    Abstract: This policy brief provides novel empirical evidence on the causal effect of increasing corporate taxes on firm investment. The study combines unique data on investment plans and their realizations of firms in the German industrial sector and data on more than 1,400 local tax changes in the specific system of business taxation in Germany. We show that firms reduce their investments if corporate taxes were increased. An increase of corporate tax rates to stabilize fiscal revenues would be especially costly during recessions. We conclude that fiscal policy should therefore avoid higher corporate taxation in times of economic crisis. Moreover, our results have implications for the op-timal design of fiscal federalism in Germany. Strong dependencies of municipalities on local business tax revenues should be avoided, as they can be very harmful during recessions.
    Date: 2022
  2. By: Anatoliy Kostruba (Vasyl Stefanyk Precarpathian National University); V. Mikhailov,; S. Shniukov,; T. Kharytonova,; K. Hryhorieva,; M. Tkalych,
    Abstract: The current version of the Tax Code allows for misinterpretation of the interpretation of the term "primary processing of mineral resources". In particular, the tax authorities believe that the primary processing of mineral raw materials includes magnetite concentrate, which in this case is subject to taxation. That is, a number of mining and processing enterprises have faced the problem of double taxation, which threatens significant financial losses. Accordingly, this led to the choice of topic for writing this article, the purpose of which is to conduct research on changes in mineral forms of minerals (iron ore), their aggregate-phase state, crystal chemical structure during production processes at mining, crushing and concentrating production of Kryvyi Rih mining and processing enterprises, and establishing at what stage of production the primary processing of minerals for the purposes of rent taxation is completed and whether the position of enterprises on limiting primary processing by the stage of fragmentation meets the requirements of the Tax Code of Ukraine.
    Keywords: Tax code,subsoil use,double taxation,mineral resources,iron ore basin,geology,minerals
    Date: 2022–06–01
  3. By: Stéphane Robin (UP1 - Université Paris 1 Panthéon-Sorbonne, THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université); Laurence Jacquet (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)
    Abstract: We examine the R&D, innovation and productivity effects of R&D tax credits (R&DTC) in 8 EU countries, in the context of a proposed EU-wide "super deduction" on R&D expenditures. Our econometric analysis, performed on industry-level panel data, shows that past R&D feeds current R&D, whether it is conducted under an R&DTC or not. Our estimate of additionality during an R&DTC phase is generally close to 1. R&D intensity also affects patenting intensity positively in Belgium, Czech Republic, France, Spain and the UK, but this relationship is R&DTC-related only in Belgium, France and Spain. Only in France and the UK do we observe a full (yet fragile) R&D-innovation-productivity relationship. In the UK, this relationship is not affected by the R&DTC scheme. In France, a 1% increase in R&D conducted under the second to fourth phases of R&DTC (1999-2017) entails a cumulated 0.37% increase in patenting intensity, which translates to a 0.16% increase in productivity. The main policy implication of these results is that a "super-deduction" on R&D is likely to help the EU reach its "R&D at 3% of GDP" objective, but only time will tell how generous it must be to really spur innovation and productivity.
    Keywords: R&D Tax Credits,Public Support to R&D,Science and Technology Policy,European Policy JEL codes: O38,H25,H54
    Date: 2022–05–30
  4. By: Christl, Michael; De Poli, Silvia; Ivaškaitė-Tamošiūnė, Viginta
    Abstract: In this paper, we use EUROMOD, the tax-benefit microsimulation model of the European Union, to investigate the impact of marriage-related tax-benefit instruments on the labour supply of married couples. For each married partner, we estimate their individual marginal effective tax rate and net replacement rate before and after marriage. We show that the marriage bonus, which is economically significant in eight European countries, decreases the work incentives for women and, particularly, on the intensive margin. In contrast, the incentives on the intensive margin increase for men once they are married, pointing to the marriage-biased and gender-biased taxbenefit structures in the analysed countries. Our results suggest that marriage bonuses contribute to a lock-in effect, where second earners, typically women, are incentivised to work less, with negative economic consequences.
    Keywords: marriage,cohabitation,marriage bonus,work incentives,gender,tax-benefit system,labour supply,Europe
    JEL: H31 J12 J22
    Date: 2022
  5. By: Anna Risch (GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes)
    Abstract: Fiscal incentives have been introduced to encourage households in many countries to undertake energy-saving renovations. This paper assesses the impact of an energy tax credit on (i) renovation rate and (ii) renovation expenditures using French data. We exploit a sharp discontinuity corresponding to the introduction of the French tax credit in 2005 to identify the policy's effects. Results indicate that the tax credit has little effect on the decision to renovate, increasing renovations by 1.09%, ceteris paribus. We find that the presence of free riding reduces the actual effect of fiscal measures. However, this fiscal policy does lead to an increase in renovation expenditures by 21.76%, all things being equal. This suggests that the energy tax credit induces households who are already determined to renovate to perform more substantial energy-saving renovations. We conduct a robustness check using the matching method, which confirms our results.
    Keywords: Policy evaluation,Regression discountinuity design,Energy tax credit,Energy-efficient renovation
    Date: 2020–08
  6. By: Belloc, Ignacio (University of Zaragoza); Gimenez-Nadal, J. Ignacio (University of Zaragoza); Molina, José Alberto (University of Zaragoza)
    Abstract: In this paper, we analyze whether diesel fuel taxes can be an effective tool to boost the daily commuting of US workers towards the use of green modes of transport. To that end, we use data from the American Time Use Survey 2003-2019 and explore the factors influencing commuting time and the proportion of commute using alternative modes of transport, including walking and cycling. Our results indicate that diesel fuel taxes are linked to a reduction in the total time devoted to commuting, and to the proportion of commuting by private car, and to an increase in the proportion of commuting done by green modes of transport such as public transport and walking. This relationship is not homogeneous in the urban dimension, as the effects on total commuting time and the percentage of commuting by public transport is present in urban areas only. In a context where many countries are implementing policies aimed at increasing the use of sustainable modes of personal mobility, our results indicate that taxing fuels used for personal mobility may be an efficient way to decrease the use of more polluting modes of transport and encourage more eco-friendly alternatives while commuting.
    Keywords: commuting time, green mobility, state diesel taxes, American Time Use Survey
    JEL: D1 Q4 R4
    Date: 2022–07
  7. By: International Monetary Fund
    Abstract: This report reviews the Goods and Services Tax (GST) regime in the Maldives and identifies policy and legal reform options to support its modernization, as well as enhancing efficiency, equity, and revenue mobilization. Despite five existing amendments to the Goods and Services Tax Act (GSTA) and 28 amendments to the associated regulations, the core parameters of the GST have barely changed in nearly 12 years. In addition, rapid changes to global business models and the increasing digitalization of the Maldivian economy have made key features of the legislation – such as place of supply rules – increasingly inadequate. The mission identified several key GST policy reforms and proposed legal redrafting recommendations that should be prioritized by the authorities in the upcoming reform window. Table 1 summarizes the potential revenue implications and implementation timeline of the main policy measures proposed.
    Keywords: Act amendment; tourism Goods and Services Tax; VAT revenue; VAT C-efficiency; GST payment; Value-added tax; Digital currencies; Consumption taxes; Tourism; Tax allowances; Global; South Asia
    Date: 2022–06–16
  8. By: Liu, Li (International Monetary Fund); Lockwood, Ben (University of Warwick); Tam. Eddy (King's College london)
    Abstract: This paper studies the effect of the VAT threshold on firm growth in the UK, using exogenous variation over time in the threshold, combined with turnover bin fixed effects, for identification. We find robust evidence that annual growth in turnover slows by about 1 percentage point when firm turnover gets close to the threshold, and weaker evidence of higher growth when the threshold is passed. Growth in firm costs shows a similar pattern, indicating that the response to the threshold is likely to be a real response rather than an evasion response. Firms that habitually register even when their turnover is below the VAT threshold (voluntary registered firms) have growth that is unaffected by the threshold, whereas firms that select into the Flat-Rate Scheme have a less pronounced slowdown response than other firms. Similar patterns of turnover and cost growth around the threshold are also observed for non-incorporated businesses. Finally, simulation results clarify the relative contribution of "noncrossers" ( firms who eventually register for VAT) and "non-crossers" (those who permanently stay below the threshold) in explaining our empirical findings. JEL Classification: H22 ; H25 ; H26
    Keywords: VAT ; size-based threshold ; firm growth
    Date: 2022
  9. By: Erling Barth (Institute for Social Research, Oslo); Alex Bryson (University College London, IZA, and NIESR); Harald Dale-Olsen (Institute for Social Research, Oslo, and IZA)
    Abstract: Using linked employer-employee data for Norway we estimate the impact of changes in tax subsidies for union membership on individuals’ membership probabilities. Increased subsidisation of the unions increases union take-up, while increased union fees reduce the demand for membership. The price elasticity of demand for union membership is -9 percent in 2012, though effects are heterogeneous across workers. In the absence of the hikes in tax subsidies and holding workforce composition constant aggregate private sector union membership density would have fallen by 5 percentage points between 2001 and 2012. But it would have fallen by 10 percentage points among those on temporary contracts, for instance.
    Keywords: trade unions; union membership; wages, tax subsidies
    JEL: J01 J08 J50 J51
    Date: 2022–07–01
  10. By: Bart Cockx (: Department of Economics); Koen Declercq (CEREC, UCLouvain – SaintLouis Bruxelles); Muriel Dejemeppe (IRES/LIDAM, UCLouvain)
    Abstract: Providing income support to unemployed education-leavers reduces the returns to investments in education because it makes the consequences of unemployment less severe. We exploit in a difference-in-differences approach a two-part policy reform in Belgium to study whether conditioning the prospective entitlement to unemployment benefits for education-leavers on age, and schooling attainment can affect educational achievements. The first part of this reform disqualified labor market entrants over the age of 25 from benefits for which they were otherwise eligible if unemployed with little or no employment experience one year after leaving education. The second part conditioned the eligibility for this unemployment benefit for youth below the age of 21 on the attainment of a high school degree. While we find evidence that the prospect of financial loss in case of unemployment can significantly raise degree completion and reduce dropout in higher education, we find no evidence of an increase in the graduation rate in high school.
    Keywords: : Unemployment insurance, conditionality, degree completion, school dropout, behavioral biases
    JEL: H52 I21 I26 I28 J08 J18 J24 J65 J68
    Date: 2022–07
  11. By: Carlos Rondón-Moreno
    Abstract: In this paper, I argue that the optimal design of a fiscal consolidation plan must consider the transition dynamics of the economy and be chosen such that either welfare (or another given measure of prosperity) is maximized. In the context of a small open economy, I study the optimal design of a fiscal consolidation plan under different monetary policy regimes and, in particular, the implications of reducing debt under a currency peg. Two main lessons are derived from the results. First, consolidation is costly enough regarding welfare, so that the fiscal authority would like to implement it at a very slow pace. If the government is forced to do it by a certain deadline, the welfare maximizing path will reduce the losses but will not be able to offset them. Second, from the output perspective, the optimal consolidation path under an independent monetary regime leads to a positive response of aggregate demand. While, under the currency peg, the optimal path induces an economic recession. Devaluation seems to be a key factor in stabilizing output during fiscal consolidation.
    Date: 2022–03
  12. By: Saroj Dhital (Economics and Business Department, Southwestern University); Pedro Gomis-Porqueras (School of Economics and Finance, Queensland University of Technology, Brisbane, Australia); Joseph H. Haslag (Department of Economics, University of Missouri-Columbia)
    Abstract: Do financial innovations benefit or harm expected welfare? For innovations that provide greater access to banks, researchers have argued that lower transaction costs and better project assessments result in expected welfare gains. Others, however, have shown that with incomplete markets, financial innovations result in expected welfare losses. In this paper, we examine the impacts of financial innovations in economies with incomplete markets and limited commitment. We show that the results critically depend on whether assets are priced fundamentally or not. When priced fundamentally, greater access does improve expected welfare, also resulting in greater consumption inequality. However, when assets carry a premium, there is an additional channel owing to limited commitment. Because of a more severe limited commitment problem, collateral is necessary. A fixed quantity of pledgeable assets are spread across a larger measure of depositors, resulting in less consumption for those with access to banks and consumption inequality decreases. Second, we consider a financial innovation that increases the pledegeability of one type of bank collateral. We also show that the results critically depend on whether assets are priced fundamentally or not. When assets are priced fundamentally, this type of financial innovation does not change welfare nor consumption inequality. In contrast, when assets carry a premium, better collateral results in more consumption for depositors with access to the more sophisticated payment option. We extend our model economy to consider an endogenous decision to access checkable deposits. This allows us to examine the effects of changes in the distribution of costs that are important to the choice of participating in observing buyers’ deposit or not. Third, our analysis demonstrates that collateral in a limited commitment framework provides a mechanism through which financial innovation can increase or decrease the impact that financial innovations have on welfare and inequality.
    Keywords: welfare, financial innovation, financial access, inequality
    JEL: E40 E61 E62 H21
    Date: 2022–05

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