nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒10‒24
fifteen papers chosen by
Thomas Andrén

  1. Distributional Effects of Tax Reforms in Japan: Micro-simulation Approach By Takuma Hisanaga
  2. Corporate Taxation in Open Economies By Radek Šauer
  3. Incidence and Avoidance Effects of Spatial Fuel Tax Differentials: Evidence using Regional Tax Variation in Spain By Ander Iraizoz; José M Labeaga
  4. Profit Taxation, R&D Spending, and Innovation By Andreas Lichter; Max Löffler; Ingo E. Isphording; Thu-Van Nguyen; Felix Poege; Sebastian Siegloch
  5. Taxation and Migration by the Super-Rich By Advani, Arun; Burgherr, David; Summers, Andy
  6. Minimum inequality taxation, average and minimally progressive taxations and depolarization By Satya R. Chakravarty; Rama Pal; Rupayan Pal; Palash Sarkar
  7. Targeting Tax Enforcement Efforts on Larger Firms By Pierre Bachas
  8. A Worker's Backpack as an alternative to PAYG pension systems By Julián Díaz-Saavedra; Ramon Marimon; João Brogueira de Sousa
  9. Corporate Tax Shields and Capital Structure: Levelling the Playing Field in Debt vs Equity Finance By Cao, Yifei; Whyte, Kemar
  10. The macroeconomics of establishing a basic income grant in South Africa By Steenkamp, Daan; Havemann, Roy; Hollander, Hylton
  11. The macroeconomic effects of climate policy: A Keynesian point of view By Nicolas Piluso; Edwin Le Heron
  12. Lost in taxation By Jérome Massiani
  13. Is Social Protection a Luxury Good? By Michael Lokshin; Martin Ravallion; Iván Torre
  14. Experience of the COVID-19 Pandemic and Support for Safety-Net Expansion By Alex Rees-Jones; John D’Attoma; Amedeo Piolatto; Luca Salvadori
  15. CBO’s Use of the Income and Payroll Tax Offset in Its Budget Projections and Cost Estimates By Congressional Budget Office

  1. By: Takuma Hisanaga
    Abstract: This paper conducts micro-simulations to study the distributional effects of several tax measures in Japan, considering households’ heterogeneity in terms of both income and wealth. Simulation results suggest that increasing the consumption tax rate and strengthening the recurrent tax on immovable property would weigh more heavily on low-income households with large wealth than on those of comparable incomes with small wealth, and that introduction of a consumption tax credit would be effective in containing a rise in tax burden of low-income households.
    Keywords: Tax Policy; Japan; Inequality; Micro-simulation; consumption tax credit; employment income deduction; capital income tax tax rate; reform option; pension income deduction; Consumption taxes; Income; Tax incidence; Tax allowances; Personal income tax; resident tax; income decile
    Date: 2022–07–22
  2. By: Radek Šauer
    Abstract: This paper analyzes the macroeconomic impact of corporate taxation. The analysis is conducted in a quantitative two-country model. In the first step, the paper describes the long-run effects of corporate taxation. A reduction in the corporate-income tax rate increases GDP, wages, consumption, investment, and business density. The trade balance is at the same time negatively affected. Firms headquartered in a country which lowers its corporate tax become internationally less active and instead focus more on their domestic market. In the second step, the paper presents adjustment dynamics that are induced by a corporate-tax reform. The dynamic response of the economy can substantially differ when comparing shorter and longer time horizons.
    Keywords: corporate taxation, macroeconomy, heterogeneous firms, multinationals, international spillovers
    JEL: E62 F42 H25
    Date: 2022
  3. By: Ander Iraizoz (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); José M Labeaga (UNED - Universidad Estatal a Distancia)
    Abstract: In this paper, we study the effect of spatial tax differentials on fuel tax pass-though and sales responses. We use two-way fixed effects methods to exploit regional variation in diesel excise taxes in Spain. Using a dataset containing daily diesel prices for the universe of petrol stations in Spain, we find that diesel tax pass-through is asymmetric depending on the sign of tax differentials with bordering regions. Petrol stations bordering with lower tax regions pass-through only 56% of fuel taxes, petrol stations bordering with higher tax regions pass-through 120% of fuel taxes. We provide evidence to attribute the asymmetric spatial incidence of fuel taxes to the market power given by the competitive tax advantage relative to competitors. Furthermore, we use diesel sales data aggregated at the province level and we find significant spatial tax avoidance responses to regional fuel tax differentials.
    Keywords: Automotive Fuel,Tax Incidence,Spatial Avoidance
    Date: 2022–09
  4. By: Andreas Lichter (DICE and HHU Düsseldorf); Max Löffler (Maastricht University); Ingo E. Isphording (IZA – Institute for Labor Economics); Thu-Van Nguyen (Stifterverband Essen); Felix Poege (Technology & Policy Research Initiative, Boston University and Max Planck Institute for Innovation and Competition); Sebastian Siegloch (University of Cologne)
    Abstract: We study how business taxes affect establishments’ R&D activities. Relying on geocoded panel data targeting the universe of R&D-active establishments in Germany, we exploit around 7,300 changes in the local business tax rate over the period 1987 2013 for identification. Using event study techniques, we find a sizable negative and statistically significant effect of an increase in the local business tax on establishments’ total R&D spending and patents filed. Zooming into the process of innovation production, we uncover substantial heterogeneity in the impact of business taxation for various R&D inputs, among establishment characteristics, and for different types of research projects.
    Keywords: corporate taxation, firms, R&D, innovation, patents
    JEL: H25 H32 O31 O32
    Date: 2022–09
  5. By: Advani, Arun (University of Warwick, CAGE, the Institute for Fiscal Studies (IFS), and the LSE International Inequalities Institute (III)); Burgherr, David (LSE III.); Summers, Andy (London School of Economics, III, and CAGE)
    Abstract: Using administrative data on the globally connected super-rich in the UK, we study the effect of a large tax reform on migration behaviour. Prior to 2017, o shore investment returns for `non-doms' - individuals tax resident in the UK but with connections to other countries - were untaxed. Average off shore investment returns for these individuals exceeded £420,000; even without considering other types of income, this puts them in the top 0.2% of the population. A reform in 2017 brought long-stayers and UK-born non-doms into the standard tax system, reducing their effective net of average tax rate by between 8.8% and 13.0%. We nd that migration responses were limited : our central estimate of the migration elasticity is 0.02, and across a range of specifications we can rule out elasticities larger than 0.5. Using reforms for the UK-born super-rich who were living abroad, we find that migration elasticities are limited even for recent arrivals, for whom our central estimate is 0.18. Assuming similar elasticities for all non-doms, abolition of the preferential regime would increase tax revenue collected from non-doms by £3.2bn (84%).
    Keywords: taxation; migration; capital income; inequality; mobility JEL Codes: F22 ; H31 ; J61
  6. By: Satya R. Chakravarty (Indian Statistical Institute, Kolkata); Rama Pal (Indian Institute of Technology, Mumbai); Rupayan Pal (Indira Gandhi Institute of Development Research); Palash Sarkar (Indian Statistical Institute, Kolkata)
    Abstract: An inequality minimizing taxation (IMT) policy addresses the problem of procuring a certain amount of tax from a given set of persons in an inequality minimizing manner by maintaining rank orders of the individuals in the pre- and post-tax situations and without imposing any notion of inequality invariance. In this article we demonstrate analytically that the newly introduced IMT policy is sufficient but not necessary for average progressive and minimally progressive taxation principles. Using a recent result from the literature we then show that an IMT scheme also implies but is not implied by depolarizing (bipolarization reducing) and bipolarization minimizing taxation policies. An empirical illustration of our results is provided using income data collected by the Center for Monitoring Indian Economy.
    Keywords: average progressivity, minimal progressivity, depolarization, inequality minimization
    JEL: D31 D63 H24
    Date: 2022–08
  7. By: Pierre Bachas
    Keywords: Public Sector Development - Tax Policy Law and Development - Tax Law Macroeconomics and Economic Growth - Taxation & Subsidies Private Sector Development - Private Sector Economics
    Date: 2021–04
  8. By: Julián Díaz-Saavedra; Ramon Marimon; João Brogueira de Sousa
    Abstract: Facing an ageing population and historical trends of low employment rates, pay-as-you-go (PAYG) pension systems, currently in place in several European countries, imply very large economic and welfare costs in the coming decades. In an overlapping generations economy with incomplete insurance markets and frictional labour markets, an employment fund, which can be used while unemployed or retired, can enhance production efficiency and social welfare. With an appropriate design, the sustainable Backpack employment fund (BP) can greatly outperform -measured by average social welfare in the economy- existing pay-as-you go systems and also Pareto dominate a full privatization of the pension system, as well as a standard fully funded defined contribution pension system. We show this in a calibrated model of the Spanish economy, by comparing the effect of its ageing transition under these different pension systems and by showing how a front-loaded reform-transition, from the PAYG to the BP system can be Pareto improving, while minimizing the cost of the reform.
    Keywords: social security reform, ageing, taxation, debt
    JEL: C68 H55 J26
    Date: 2022–09
  9. By: Cao, Yifei; Whyte, Kemar
    Abstract: A common feature within most corporate income tax systems is that the cost of debt is deductible as an expenditure when calculating taxable profits. An unintended consequence of this tax distortion is the creation of under-capitalized firms - raising default risk in the process. Using a difference-in-differences approach, this paper shows that a reduction in tax discrimination between debt and equity finance leads to better capitalized banks. The paper exploits the exogenous variation in the tax treatment of debt and equity created by the introduction of an Allowance for Corporate Equity (ACE) system in Italy, to identify whether an ACE positively impacts banks' capital structure. The results demonstrate that a move to an unbiased corporate tax environment increases bank capital ratios, driven by an increase in equity rather than a reduction in lending activities. The change also leads to a reduction in risk taking for ex-ante low capitalized banks. Overall, these results suggest that the ACE could be a valuable policy instrument for prudential bank regulators.
    Keywords: Bank capital structure, Banking regulation, Tax shields, Banking stability
    JEL: G21 G28 G32 H25
    Date: 2022–10
  10. By: Steenkamp, Daan; Havemann, Roy; Hollander, Hylton
    Abstract: This paper quantifies the effect of fiscal transfers on the trade-off between social relief and debt accumulation, and discusses the economic growth and fiscal implications of different combinations of expanded social support and funding choices. Given South Africa’s already high level of public debt, the opportunity to fund a basic income grant through higher debt is limited. Using a general equilibrium model, the paper shows that extending the social relief of distress grant could be fiscally feasible provided taxes rise to fund such a programme. Implementing such a policy would, however, have a contractionary impact on the economy. A larger basic income grant (even at the level of the food poverty line) would threaten fiscal sustainability as it would require large tax increases that would crowd-out consumption and investment. The model results show that sustainably expanding social transfers requires structurally higher growth, which necessitates growth-enhancing reforms that crowd-in the private sector through, for example, relieving the energy constraint, increasing government infrastructure investment and expanding employment programmes.
    Keywords: Universal basic income, DSGE, fiscal sustainability
    JEL: D58 E62 H63
    Date: 2022–09–16
  11. By: Nicolas Piluso (CERTOP - Centre d'Etude et de Recherche Travail Organisation Pouvoir - UT2J - Université Toulouse - Jean Jaurès - UT3 - Université Toulouse III - Paul Sabatier - Université Fédérale Toulouse Midi-Pyrénées - CNRS - Centre National de la Recherche Scientifique, UT3 - Université Toulouse III - Paul Sabatier - Université Fédérale Toulouse Midi-Pyrénées); Edwin Le Heron (CED - Centre Émile Durkheim - IEP Bordeaux - Sciences Po Bordeaux - Institut d'études politiques de Bordeaux - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique, Institut d'Études Politiques [IEP] - Bordeaux)
    Abstract: The paper analyzes the effects of introducing a corporate carbon tax on GDP and the effectiveness of this macroeconomic policy. The study is based on constructing a simple Keynesian model with flexible prices. It shows that the carbon tax can have a double beneficial effect on the economy in addition to its favorable effect on the environment: i.e., an increase in GDP and employment. The initial values (y = 100; C = 60; I = 18; G = 16; g(A) = 6) was used to simulate a positive shock of the carbon tax T, increasing from 1.75 to 1.9. The paper considers three different cases depending on the low (Case 1), medium (Case 2), or high (Case 3) sensitivity of the marginal propensity to consume in response to an increase in the prices of goods. In addition, case 4 is considered: stimulus policy associated with climate policy; and case 5 is: policy to increase nominal wages. The results show that the carbon tax can lead to an increase in prices. Although the tax does not excessively negatively affect consumption, it has a positive effect on GDP via the increase in green investments and the induced increase in public spending. Households are, therefore, not necessarily penalized because they benefit from the multiplier effects of the increase in public spending due to the introduction of the ecological tax. Furthermore, stimulus policy is even more effective when combined with an emissions tax.
    Keywords: pollution,carbon tax,inflation,fiscal policy,employment,GDP
    Date: 2022–09–14
  12. By: Jérome Massiani
    Abstract: Cost-Benefit Analysis (CBA) was developed to assess the net socioeconomic benefits of a wide variety of projects in many fields. In this context, it is relevant to investigate how this method is actually used for project evaluation, and whether its merits and limitations are properly understood by a wider community of economists. In this study, we showcase a debate that took place in Italy in 2019 about an important high-speed rail project, following the publication of a CBA that received much criticism. To learn from this episode, we find it useful to set up a meta-model of CBA that allows the formalisation of a large number of CBA calculations (including potentially ill-funded calculations) and to verify their validity. With this meta model, we review the criticisms formulated during the 2019 CBA debate focusing on two salient topics; whether CBA should include taxation and whether the Rule-of-Half measure of users’ surplus is valid. Our analysis suggests: (1) That the proposed meta-equation can help in structuring the scientific debate regarding CBA and the relevant economic discussion about a given project; (2) with few exceptions, the criticisms formulated regarding the 2019 CBA on these topics were incorrect, mostly incoherent from an axiomatic point of view. This indicates that ill-founded methods are at risk of becoming well-accepted in the larger community of economists, with the risk of lowering the general quality of policy recommendations formulated by economists. This underlines the need for economists to revise the misguided views of CBA.
    Keywords: Cost-Benefit Analysis, transport infrastructure, welfare function.
    Date: 2022–08
  13. By: Michael Lokshin; Martin Ravallion; Iván Torre
    Abstract: The claim that social protection is a luxury good—with a national income elasticity exceeding unity—has as been influential. The paper tests the “luxury good hypothesis” using newly-assembled data on social protection spending across countries since 1995, treating the pandemic period separately, as it entailed a large expansion in social protection efforts. While the mean income share devoted to social protection rises with income, this is attributable to multiple confounders, including relative prices, weak governance in low-income countries and access to information-communication technologies. Controlling for these, social protection is not a luxury good. This was also true during the pandemic.
    JEL: H53 I38 O15
    Date: 2022–09
  14. By: Alex Rees-Jones; John D’Attoma; Amedeo Piolatto; Luca Salvadori
    Abstract: Did individuals’ experiences with the harms of the COVID-19 pandemic influence their attitudes towards safety-net programs? To assess this question, we combine rich information about county-level impacts and individual-level perceptions of the early pandemic, repeated measurements of attitudes towards safety-net expansion, and prepandemic measurements of related political attitudes. Individuals facing higher county-level impact or greater perceived risks are more likely to support long-term expansions to unemployment insurance and government-provided healthcare when surveyed in June 2020. These differences persist across time, with experiences in the early months of the pandemic remaining strongly predictive of attitudes towards safety-net expansion in early 2021.
    Keywords: COVID-19, Unemployment Insurance, healthcare, safety net
    JEL: H2 H5
    Date: 2021–10
  15. By: Congressional Budget Office
    Abstract: Excise taxes and other types of “indirect†taxes reduce the revenues derived from individual and corporate income taxes and payroll taxes. When CBO and the Joint Committee on Taxation estimate the budgetary effects of changes in indirect taxes, they generally reduce the estimated change in indirect tax revenues by applying an income and payroll tax offset.
    JEL: H20 H24 H25
    Date: 2022–10–04

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