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

  1. Income Taxes, Gross Hourly Wages, and the Anatomy of Behavioral Responses: Evidence from a Danish Tax Reform By Kazuhiko Sumiya; Jesper Bagger
  2. Short-Term Tax Cuts, Long-Term Stimulus By James Cloyne; Joseba Martinez; Haroon Mumtaz; Paolo Surico
  3. Macroeconomic Effects of Dividend Taxation with Investment Credit Limits By Matteo Ghilardi; Roy Zilberman
  4. Ghosting the Tax Authority: Fake Firms and Tax Fraud By Paul Carrillo; Dave Donaldson; Dina Pomeranz; Monica Singhal
  5. The lock-in effect of marriage: Work incentives after saying “Yes, I do.” By Michael Christl; Silvia De Poli; Viginta Ivaskaite-Tamosiune
  6. Visual Nudges: How Deterrence and Equity Shape Tax Compliance Attitudes and Behaviour in Rwanda By Santoro, Fabrizio; Mascagni, Giulia
  7. Romania: Technical Assistance Report on Reforming Personal Income Taxation By International Monetary Fund
  8. Agglomeration, Innovation, and Spatial Reallocation: The Aggregate Effects of R&D Tax Credits By Alexandre Sollaci
  9. ZEW-EviSTA: A microsimulation model of the German tax and transfer system By Buhlmann, Florian; Hebsaker, Michael; Kreuz, Tobias; Schmidhäuser, Jakob; Siegloch, Sebastian; Stichnoth, Holger
  10. Taxation of Carbon Emissions with Social and Private Discount Rates By Mathias Mier; Jacqueline Adelowo
  11. Complementary Taxation of Carbon Emissions and Local Air Pollution By Mathias Mier; Jacqueline Adelowo; Christoph Weissbart
  12. The Zombification of the Economy? Assessing the Effectiveness of French Government Support during Covid-19 Lockdown By Mattia Guerini; Lionel Nesta; Xavier Ragot; Stefano Schiavo

  1. By: Kazuhiko Sumiya (Research Institute of Economy, Trade and Industry, RIETI); Jesper Bagger (Royal Holloway London)
    Abstract: This paper provides quasi-experimental evidence on the effects of income taxes on gross hourly wages by utilizing administrative data and a tax reform in Denmark. The reform introduced joint taxation to a middle tax bracket, bringing large changes to the tax system facing married couples. Using variation in spousal income for identification, we present non-parametric graphical evidence based on a difference-in-differences design among working married males. First, we find heterogeneous effects across income levels. For low-income workers, taxes have negative and dynamic effects on wages. Their elasticity of wages (with respect to net-of-marginal-tax rates) is close to one. For higher-income workers, the effects are small and static, with an elasticity of approximately 0.2. Second, wages respond to taxes through human capital accumulation and job changes. Finally, with smaller magnitudes than wages, daily hours worked also respond negatively to taxes, which contrasts with the prediction from a standard labor supply-and-demand model.
    Keywords: income taxation, administrative data, tax reforms, difference-in-differences, gross hourly wages, labor supply, human capital accumulation, job changes
    JEL: H22 H24 J22 J24 J30 J62
    Date: 2022–08–18
  2. By: James Cloyne; Joseba Martinez; Haroon Mumtaz; Paolo Surico
    Abstract: We study the persistent effects of temporary changes in U.S. federal corporate and personal income tax rates using a narrative identification approach. A corporate income tax cut leads to a sustained increase in GDP and productivity, with peak effects between five and eight years. R&D spending and capital investment display hump-shaped responses while hours worked and employment are much less affected. In contrast, personal income tax cuts trigger a short-lived boost to GDP, productivity and hours worked but have no long-term effects. We develop and estimate an endogenous growth model with variable factor utilization and show that these features generate a pro-cyclical response of productivity which is key to account for our empirical findings.
    JEL: E23 E62 H24 H25 H31 H32 O32
    Date: 2022–07
  3. By: Matteo Ghilardi; Roy Zilberman
    Abstract: We analyze the effects of dividend taxation in a general equilibrium business cycle model with an occasionally-binding investment credit limit. Permanent dividend tax reforms distort capital investment decisions in the binding long-run equilibrium, but are neutral otherwise. Temporary unexpected tax cuts stimulate shortterm real activity in the credit-constrained economy, yet produce contractionary macroeconomic outcomes in the slack regime. The occasionally-binding constraint reconciles the `traditional' and `new' views of dividend taxation, and highlights the importance of measuring the firm's initial borrowing position before enacting tax reforms. Finally, permanently lower dividend taxes dampen financial business cycles, and help to explain macroeconomic asymmetries.
    Keywords: Dividend Taxation; Occasionally-Binding Borrowing Constraints; Investment; Business Cycles.; borrowing position; tax relief; dividend distribution; dividend tax rate; dividend tax adjustment; tax environment; benchmark system; dividend tax shock; dividend tax cut; tax adjustment; dividend tax system; Dividend tax; Credit; Corporate income tax; Collateral; Stocks
    Date: 2022–07–01
  4. By: Paul Carrillo; Dave Donaldson; Dina Pomeranz; Monica Singhal
    Abstract: An important but poorly understood form of firm tax evasion arises from the use of "ghost firms"—fake firms that issue fraudulent receipts so that their clients can claim false deductions. We provide a unique window into this global phenomenon using transaction-level tax data from Ecuador. Ghost transactions are widespread, prevalent among large firms and firms with high-income owners, and exhibit suspicious patterns in comparison to ordinary transactions: bunching at round numbers, at the end of the fiscal year, and just below financial system thresholds. We go on to study an innovative enforcement intervention that targeted ghost clients rather than ghosts themselves, which led to substantial tax recovery.
    JEL: H25 H26 H32
    Date: 2022–07
  5. By: Michael Christl (European Commission - JRC); Silvia De Poli (European Commission – JRC); Viginta Ivaskaite-Tamosiune (European Commission – JRC)
    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 tax-benefit 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: 2022–07
  6. By: Santoro, Fabrizio; Mascagni, Giulia
    Abstract: The empirical evidence on the drivers of compliance is expanding quickly, but there is less evidence from low-income countries. Mass-media communication channels are a cheap option that budget-constrained revenue administrations can use to communicate with taxpayers. However, very little is known about the effectiveness of such tools in improving compliance. This paper starts to address this gap by testing the impact of two short animated videos on tax matters – one focusing on deterrence and the other on equity – that were used in a survey experiment. Using a unique dataset of survey and administrative data from Rwandan taxpayers, we are able to measure the impact on compliance perceptions and behaviour. We document two significant results. First, both videos are effective in improving perceptions around enforcement and equity. Second, only the deterrence video translates into more tax being remitted – the equity appeal fails to raise more revenue. We investigate the mechanisms behind this response, and show that prior behaviour of taxpayers might explain the different responses to our deterrence and equity treatments. Our intervention is highly cost-effective and easily scalable.
    Keywords: Governance,
    Date: 2022
  7. By: International Monetary Fund
    Abstract: With one of the lowest revenues in the EU and a projected budget deficit exceeding 7 percent of GDP, Romania should rely on an array of tax (policy and administration) instruments to mobilize revenues. A fundamental question facing Romania’s reform efforts is how to spread the burden of the tax in an equitable manner, especially given the already relatively high income inequality. The fiscal system as a whole currently provides little income support at the bottom of the income distribution.
    Date: 2022–06–29
  8. By: Alexandre Sollaci
    Abstract: I investigate the aggregate effects of R&D tax credits in the US. Because it subsidizes R&D activity and because credit rates vary between states, this policy has both spatial and dynamic effects on the economy. To address this issue, I construct an endogenous growth model with spatial heterogeneity and agglomeration spillovers in innovation. Aggregate outcomes in this model are thus affected by the spatial distribution of the population in the economy, which is itself endogenous and reacts to policy. I use this framework to identify a set of local R&D subsidies that maximize aggregate welfare.
    Keywords: agglomeration; innovation; R&D tax credits
    Date: 2022–07–01
  9. By: Buhlmann, Florian; Hebsaker, Michael; Kreuz, Tobias; Schmidhäuser, Jakob; Siegloch, Sebastian; Stichnoth, Holger
    Abstract: This article describes ZEW-EviSTA®, the microsimulation model developed and used at ZEW - Centre for European Economic Research in Mannheim. The model simulates the German tax and transfer system using household micro level data. By estimating fiscal effects, labor market outcomes as well as distributional impacts the model allows for a comprehensive ex ante analysis of reform proposals. Heterogeneity analyses targeting specific subgroups of the population are feasible, too. The present article describes which data sources are used for the simulation, how key features of the German tax and transfer system are implemented, which simulation methods are employed to analyze policy changes and how the model is validated against official statistics. Moreover, by providing examples of the outputs which ZEW-EviSTA generates the paper gives an idea of the questions that can be answered using the model.
    Keywords: microsimulation,tax system,tax policy,labour market,labour supply,labourdemand,Germany,policy analysis
    JEL: D58 H20 J22 J23
    Date: 2022
  10. By: Mathias Mier; Jacqueline Adelowo
    Abstract: Energy system and power market models refrain from distinguishing between private and social discount rates. We devise a strategy to account for diverging private and social discount rates in intertemporal optimization frameworks, resulting in an optimal carbon tax above the marginal damage when private discount rates exceed the social one. We quantify results for the European power market until 2050. Not distinguishing between private and social discount rates yields carbon emissions of 0.83 Gt in 2050 with rising trend from 2020 onwards. Distinguishing between private and social discount rates achieves full decarbonization (–0.15 Gt in 2050) and avoids damages of 1,386 billion € until 2050. Results explain missing investments of firms and suggest that policymakers should announce high future carbon prices to incentivize sufficient investments into clean technologies.
    Keywords: Carbon taxation, discounting, social cost, carbon emission, externality, intertemporal optimization, power market model, decarbonization
    JEL: C61 H21 H23 H43 L94
    Date: 2022
  11. By: Mathias Mier; Jacqueline Adelowo; Christoph Weissbart
    Abstract: Current decarbonization policies neglect damages from local air pollutants. We analyze the trade-off between complementary taxation of carbon emissions and local air pollution. We quantify results for the European power market until 2050. Taxing only air pollution results in social cost of 5,890 billion € and fosters nuclear deployment. Taxing only carbon yields social cost of 716 billion € and promotes CCS deployment. Taxing both yields cost of 1,118 billion €. Moderate carbon taxation can be complementary to a primary policy of air pollution abatement. On the contrary, a primary policy of decarbonization stands in trade-off with air pollution abatement in the long-term.
    Keywords: Taxation, social cost, air pollution, carbon emission, externality, energy system model, power market model, decarbonization
    JEL: C61 H21 H23 H43 L94
    Date: 2022
  12. By: Mattia Guerini; Lionel Nesta; Xavier Ragot; Stefano Schiavo
    Abstract: This paper evaluates the risk of zombification of the French economy during the sanitary crisis, as a result of the unconditional financial support provided to firms by public authorities. We develop a simple theoretical framework based on a partial-equilibrium model to simulate the liquidity and solvency stress faced by a large panel of French firms and assess the impact of government support measures. Simulation results suggest that those policies helped healthy but illiquid firms to withstand the shock caused by the pandemic. Moreover, the analysis finds no evidence of a “zombification effect”, as government support has not disproportionately benefited less productive companies.
    Keywords: Covid-19, zombie firms, job-retention, schemes, microsimulation, policy evaluation
    JEL: H12 H32 J38 G33 L20
    Date: 2022

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