nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒10‒17
twelve papers chosen by
Thomas Andrén

  1. Labour supply responses to income tax changes in Spain. By Antonio Cutanda; Juan A. Sanchis
  2. Is Our Fiscal System Discouraging Marriage? A New Look at the Marriage Tax By Elias Ilin; Laurence J. Kotlikoff; M. Melinda Pitts
  3. Revealing 21 per cent of GDP in hidden assets: Evidence from Argentina's tax amnesties By Juliana Londoño-Vélez; Dario Tortarolo
  4. Collateral value and entrepreneurship: Evidence from a property tax reform By Miguel A. Ferreira; Joao Pereira dos Santos; Ines Venancio
  5. Tax incentives for high skilled migrants: evidence from a preferential tax scheme in the Netherlands By Lisa Marie Timm; Massimo Giuliodori; Paul Muller
  6. The Macroeconomics of Partial Irreversibility By Isaac Baley; Andrés Blanco
  7. Mortgage prepayments and tax-exempted intergenerational transfers: from rich parents to rich children? By Yue Li; Mauro Mastrogiacomo
  8. The Intended and Unintended Consequences of Taxing Waste. By Tommaso Colussi; Matteo Romagnoli; Elena Villar
  9. Income inequality and redistribution in Lithuania: The role of policy, labor market, income, and demographics By Nerijus Cerniauskas; Denisa Sologon; Cathal O'Donoghue; Linas Tarasonis
  10. Wealth and Its Distribution in Germany, 1895-2018 By Thilo N. H. Albers; Charlotte Bartels; Moritz Schularick
  11. Militarization and Income inequality in European Countries (2000-2017) By Raul Caruso; Antonella Biscione
  12. Introducing an Austrian Backpack in Spain By João Brogueira de Sousa; Julián Díaz-Saavedra; Ramon Marimon

  1. By: Antonio Cutanda (Universidad de Valencia, Valencia, Spain. ORCID number: 0000-0003-2066-4632); Juan A. Sanchis (Universidad de Valencia and ERICES, Valencia, Spain. ORCID number: 0000-0001-9664-4668)
    Abstract: This paper simulates the response of the Spanish labour supply to income tax changes using estimates for the intertemporal elasticity of substitution of leisure. These elasticities are calculated using a pseudo-panel built combining information of the EPA and of the ECPF, from 1987 to 1997. Our findings suggest that income tax changes can have an impact on Spanish labour supply, though the effects would be minor. We also uncover that this labour response differs across men and women, as well as between permanent and fixed-term contract workers. And that the responses differ depending on the age of the worker.
    Keywords: Labour Supply; Labour Income Tax; Intertemporal Elasticity of Substitution of Leisure; Simulations
    JEL: E62 H24 H31 J22
    Date: 2022–09
  2. By: Elias Ilin; Laurence J. Kotlikoff; M. Melinda Pitts
    Abstract: We develop, apply, and test a new measure of the marriage tax: the reduction in future spending from getting married. Our measure is a comprehensive, actuarial (expected) present value. It incorporates all major and most minor US tax and benefit programs, weighing the present value of additional net taxes from marrying along each marital survivor path by the path’s probability. And it assumes clone marriage—marrying oneself—to ensure the living-standard loss from marrying is unaffected by spousal choice. We calculate our marriage tax for young respondents using the Survey of Consumer Finances (SCF). The marriage tax rate—the percentage reduction in expected future spending from marrying—averages 2.69 percent. This sample-weighted average is comparable to losing several years of earnings and is much higher in some states than others. Average marriage tax rates are also highly income dependent. Nationwide, the average marriage penalty imposed on people with low incomes is roughly twice that levied on the rich. Low-income females with children face particularly stiff marrying penalties, primarily in the form of lost benefits, both in-cash or in-kind. The variation in marriage taxation is particularly striking and ranges, across our sample, from negative 74.4 percent to positive 45.8 percent. We use the American Community Survey to study the impact of our marriage tax (imputed via a SCF statistical match) on marrying rates. Our tax on remaining lifetime spending matters—a lot. This is particularly true for low-income, single females with children. Absent the tax, 13.7 percent more would marry each year. Cumulatively, 7.5 percent more would be married at age 35. These are much larger effects than arise using the conventional marriage-tax measure. Our findings are robust to adjusting for partial benefit take-up and respondents marrying higher- or lower-income versions of themselves. Given the importance of marriage to child development and a host of economic indicators, heavily penalizing marriage might have far-reaching, deleterious consequences.
    Keywords: marriage taxation; disincentives; marriage; social safety net; income tax
    JEL: H2 H31 J12 J18
    Date: 2022–06–29
  3. By: Juliana Londoño-Vélez; Dario Tortarolo
    Abstract: This paper studies the effectiveness of tax amnesties and their impacts on capital taxation and public spending. We leverage rich policy variation from Argentina, where left- and right-wing governments implemented multiple programmes and achieved varying success. After numerous failed enforcement efforts, its 2016 scheme reportedly revealed assets worth 21 per cent of GDP—the world's most successful tax amnesty. We use detailed data from fiscal tabulations spanning two decades and obtain three key results.
    Keywords: Tax evasion, Argentina, Taxation
    Date: 2022
  4. By: Miguel A. Ferreira; Joao Pereira dos Santos; Ines Venancio
    Abstract: We study the role of property taxes on entrepreneurial activity using a quasi-natural experiment, which unexpectedly reduced the upper bound of the Portuguese property tax rate for urban properties in 2008. Using a diffrence-in-differences approach, we nd that treated municipalities (i.e., municipalities that had a property tax rate above the new upper bound) experienced higher entry rates in the manufacturing sector vis-a-vis control municipalities (i.e., municipalities that had a property tax rate at or below the new upper bound). Taking advantage of rm-level data, we show that start-ups created as a response to the decrease in property taxes in treated municipalities use more debt, invest more, and are more likely to survive.
    Keywords: Entrepreneurship, Property taxes, Savings, Portugal
    JEL: L26 H20 R30
    Date: 2022
  5. By: Lisa Marie Timm (University of Amsterdam); Massimo Giuliodori (University of Amsterdam); Paul Muller (Vrije Universiteit Amsterdam)
    Abstract: This paper examines to what extent an income tax exemption affects international mobility and wages of skilled immigrants. We study a preferential tax scheme for foreigners in the Netherlands, which introduced an income threshold for eligibility in 2012 and covers a large share of the migrant income distribution. By using detailed administrative data ina difference-in-differences setup, we find that the number of migrants in the income range closely above the threshold more than doubles, whereas there is little empirical support for a decrease of migration below the threshold. Our results indicate that these effects are driven mainly by additional migration, while wage bargaining responses are fairly limited. We conclude that the preferential tax scheme is highly effective in attracting more skilled migrants
    Keywords: international migration, income tax benefits, wage bargaining, bunching.
    JEL: F22 J61 H24 H31
    Date: 2022–09–27
  6. By: Isaac Baley; Andrés Blanco
    Abstract: We investigate the macroeconomic effects of partially irreversible investment arising from a wedge between the buying and selling price of capital. We derive sufficient statistics that characterize the implications of irreversibility for three long-run macroeconomic outcomes- capital allocation, capital valuation, and capital fluctuations. Measuring these statistics with investment microdata, we find that irreversibility distorts the allocation of capital, lowers capital valuation, and increases the persistence of capital fluctuations. Corporate income tax cuts, by lowering the deductibility of capital losses due to the price wedge, effectively increase irreversibility and structurally change long-run capital behavior.
    Keywords: investment frictions, fixed adjustment costs, irreversibility, lumpiness, capital misallocation, Tobin's q, transitional dynamics, inaction, propagation, corporate taxes
    JEL: D30 D80 E20 E30
    Date: 2022–01
  7. By: Yue Li; Mauro Mastrogiacomo
    Abstract: The Dutch government modified twice the taxation of intergenerational transfers aimed at mortgage down-payments and prepayments. We identify the causal effects of the tax exemption on prepayments and inter vivos transfers separately by exploiting changes in the policy design. Subsequent policy changes resulted in two expansions of the tax-free transfers that caused a significant increase in the probability of receiving such transfers — a relatively rare event — which translated then in a more modest increase in the probability to make prepayments, that are far more common. Initially the amounts prepaid increased by a similar magnitude, while the second expansion only increased the amounts being transferred but not the prepayments. The macroprudential policy goal of the reform was to reduce the number of underwater mortgages, at the time constituting more than onethird of all mortgages. We find that the prepayments triggered by the policy change increased mostly for borrowers with low original loan to value (LTV) ratios. This implies that most transfers were made from wealthy parents to housing-rich children. This because the policy was too generic, so it did not help to reduce the share of underwater mortgages.
    Keywords: mortgage repayments; intergenerational transfers; household indebtedness;
    JEL: G5 H2
    Date: 2022–09
  8. By: Tommaso Colussi (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Matteo Romagnoli (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Elena Villar (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: This paper investigates the economic and environmental effects of pay-as-youthrow (PAYT) waste programs. Using a newly constructed longitudinal dataset of Italian municipalities and a staked-by-event design, we obtain three main findings: (i) PAYT programs significantly reduce total waste production; (ii) they further decrease waste management costs and leave municipal finances unaffected; (iii) they generate positive spillover effects on pro-environmental behaviors not directly targeted by the program. Survey evidence suggests that PAYT increases environmental awareness and concerns of the population in treated municipalities.
    Keywords: Waste Management, Taxation, Difference-in-Differences, Variation in Treatment Timing.
    JEL: C21 H23 Q53
    Date: 2022–09
  9. By: Nerijus Cerniauskas (Vilniaus Universitetas); Denisa Sologon (Luxembourg Institute of Socio-Economic Research (LISER, CEPS/INSTEAD)); Cathal O'Donoghue (National University of Ireland); Linas Tarasonis (Vilniaus Universitetas; Lietuvos Bankas)
    Abstract: We model the household disposable income distribution in Lithuania and explore the drivers of the increase in income inequality between 2007 and 2015. We quantify the contributions of four factors to changes in the disposable income distribution: (i) demographics; (ii) labor market structure; (iii) returns and prices; and (iv) tax–benefit system. Results show that the effects of the factors were substantial and reflected heterogeneous developments over two subperiods: changes in the tax and benefit system cushioned a rapid rise in market income inequality because of the global financial crisis during 2007–2011, but failed to do so during the subsequent years of economic expansion, when rising returns in the labor and capital markets significantly increased disposable income inequality. We also find that declining marriage rates contributed to the increase in income inequality in Lithuania.
    Keywords: income inequality, redistribution, decompositions, microsimulation, tax-benefit policies.
    JEL: D31 H23 J21
    Date: 2021
  10. By: Thilo N. H. Albers; Charlotte Bartels; Moritz Schularick
    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
  11. By: Raul Caruso (Department of Economic Policy and CSEA, Catholic University of Sacred Heart CESPIC, Catholic University “Our Lady of Good Counsel”); Antonella Biscione (CESPIC, Catholic University “Our Lady of Good Counsel”)
    Abstract: This paper investigates the impact of militarization on income inequality. The analysis is conducted on a panel of 40 European countries over the period 2000-2017. The degree of militarization of a country is captured by means of the Global Militarization Index (GMI) and we employ the Gini index as a measure of inequality. The main findings show that militarization and inequality are positively associated. The findings appear to be robust. We also consider control variables related to military commitment, namely (i) conscription; (ii) NATO membership; (iii) involvement in an armed conflict. Interestingly conscription appears to be negatively associated with income inequality whereas an armed conflict and NATO membership show the opposite sign. For sake of robustness, we undertake the same estimations on alternative samples of countries and results are confirmed. Eventually, to deal with the issue of endogeneity, we apply the Lewbel (2012) IV–GMM approach and results are confirmed.
    JEL: O15 H5 H56 C23
    Date: 2021–06
  12. 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

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