nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒11‒07
sixteen papers chosen by
Thomas Andrén

  1. The EITC and the Extensive Margin: A Reappraisal By Henrik Kleven
  2. Indirect Tax Incidence in Brazil : Assessing the Distributional Effects of Potential Tax Reforms By Lara Ibarra,Gabriel; Rubião,Rafael Macedo; Simoes Fleury,Eduardo
  3. Globalization and Factor Income Taxation By Bachas,Pierre Jean; Fisher-Post,Matthew; Jensen,Anders; Zucman,Gabriel
  4. Sufficient Statistics for Nonlinear Tax Systems with General Across-Income Heterogeneity By Antoine Ferey; Benjamin B. Lockwood; Dmitry Taubinsky
  5. Tax reforms and network effects By Ferreira, Pedro Cavalcanti; Delalibera, Bruno Ricardo; Gomes, Diego Braz Pereira; Soares, Johann Rodrigues de Souza
  6. Tax Incentives for High Skilled Migrants: Evidence from a Preferential Tax Scheme in the Netherlands By Timm, Lisa Marie; Giuliodori, Massimo; Muller, Paul
  7. Fair Inheritance Taxation By Decerf,Benoit Marie A; Maniquet,François
  8. Nudging in the Time of the Coronavirus : Evidence from an Experimental Tax Trial in Albania at theOnset of a Global Pandemic By Karver,Jonathan George; Shijaku,Hilda; Ungerer,Christoph T F
  9. The Promise and Limitations of Information Technology for Tax Mobilization By Okunogbe,Oyebola Motunrayo; Santoro,Fabrizio
  10. Do Tax Subsidies for Retirement Saving Impact Total Private Saving? New Evidence on Middle-income Workers By Camilla Skovbo Christensen; Bastian Emil Ellegaard
  11. Electronic Payment Technology and Tax Compliance : Evidence from Uruguay’s Financial Inclusion Reform By Brockmeyer,Anne; Saenz Somarriba,Magaly Vanessa
  12. Becoming Legible to the State : The Role of Detection and Enforcement Capacity in Tax Compliance By Okunogbe,Oyebola Motunrayo
  13. Optimal Institutions Under Persistent Tax Uncertainty By Victor Peirone
  14. Taxation, Accountability, and Cash Transfers : Breaking the Resource Curse By Devarajan,Shantayanan; Do,Quy-Toan
  15. Too Complex to Digest? Federal Tax Bills and Their Processing in US Financial Markets By Hamza Bennani; Matthias Neuenkirch
  16. Privatizing Disability Insurance By Seibold, Arthur; Seitz, Sebastian; Siegloch, Sebastian

  1. By: Henrik Kleven (Princeton University)
    Abstract: This paper reappraises the impact of the Earned Income Tax Credit (EITC) on labor supply at the extensive margin for single mothers. I investigate every EITC reform at the state and federal level since the inception of the policy. Apart from the federal 1993 reform, EITC expansions have not had any clear and significant effects on employment. The 1993 reform is associated with large employment effects, but these effects align more closely with confounding changes from welfare reform and the macroeconomy than with the EITC. I conduct a comprehensive analysis of the robustness of the EITC null result to model uncertainty.
    Keywords: labor supply, taxation, fiscal policy
    JEL: H20 H24 H31 J20 J21 J22
    Date: 2022–09
  2. By: Lara Ibarra,Gabriel; Rubião,Rafael Macedo; Simoes Fleury,Eduardo
    Abstract: Using recent expenditure survey data, this paper investigates the incidence of all indirect taxesin Brazil. It applies a novel approach to estimate the effective tax rate by computing the specific cumulativetaxes levied on thousands of items available in the data set. The findings show that for every R$100 of indirect taxrevenue, the first and second deciles pay R$2 and R$3, respectively, while the ninth and tenth deciles pay R$16 andR$33, respectively. Meanwhile, indirect taxes represent between 23 and 45 percent of income among the pooresthouseholds. Simulations of a value-added tax reform suggest that it could be inequality reducing both horizontally andvertically. A flat value-added tax accompanied by excise taxes on fuel items, alcohol, and tobacco would also lead tolower decreases in expenditures. Households would spend 2.8 percent less on average, with those in the bottom (top)decile spending 7.0 percent (1.5 percent) less.
    Keywords: Transport Services,Urban Housing,Urban Housing and Land Settlements,Urban Governance and Management,Municipal Management and Reform,Taxation & Subsidies,Economic Adjustment and Lending,Public Sector Economics,Tax Law,Macro-Fiscal Policy,Public Finance Decentralization and Poverty Reduction,Tax Administration,Educational Sciences,Energy Demand,Energy and Environment,Energy and Mining
    Date: 2021–12–20
  3. By: Bachas,Pierre Jean; Fisher-Post,Matthew; Jensen,Anders; Zucman,Gabriel
    Abstract: How has globalization affected the relative taxation of labor and capital, and why To addressthis question, this paper builds and analyzes a new database of effective macroeconomic tax rates covering 150 countriessince 1965, constructed by combining national accounts data with government revenue statistics. Four main findings areobtained. (1) The effective tax rates on labor and capital have converged globally since the 1960s, due to a 10percentage-point increase in labor taxation and a 5 percentage-point decline in capital taxation. (2) Thedecline in capital taxation is concentrated in high-income countries. By contrast, capital taxation has increased indeveloping countries since the 1990s, albeit from a low base. (3) Consistently across a variety of research designs,the findings show that the rise in capital taxation in developing countries can be explained by a tax capacityeffect of international trade: trade openness leads to a concentration of economic activity in formal corporatestructures, where capital taxes are easier to impose. (4) At the same time, international economic integration reducesstatutory tax rates, due to increased tax competition. In high-income countries, this negative tax competition effectof trade has dominated, while in developing countries, the positive tax-capacity effect of international trade appearsto have prevailed.
    Date: 2022–03–15
  4. By: Antoine Ferey; Benjamin B. Lockwood; Dmitry Taubinsky
    Abstract: This paper provides general and empirically implementable sufficient statistics formulas for optimal nonlinear tax systems in the presence of across-income heterogeneity in preferences, inheritances, income-shifting capabilities, and other sources. We study unrestricted tax systems on income and savings (or other commodities), as well as simpler tax systems that impose common restrictions like separability between earnings and savings taxes. We characterize the optimum using familiar elasticity concepts and a sufficient statistic for general across-income heterogeneity: the difference between the cross-sectional variation of savings with income, and the causal effect of income on savings. We provide tractable extensions of these results that include multidimensional heterogeneity, additional efficiency rationales for taxing heterogeneous returns, and corrective motives to encourage more saving. Drawing on recent empirical work, we apply our formulas to savings and wealth taxation in the U.S., and find that the optimal savings tax is positive and progressive.
    Keywords: sufficient statistics, nonlinear tax systems, general heterogeneity
    JEL: D61 H21 H24
    Date: 2022
  5. By: Ferreira, Pedro Cavalcanti; Delalibera, Bruno Ricardo; Gomes, Diego Braz Pereira; Soares, Johann Rodrigues de Souza
    Abstract: This paper investigates the effects of a tax reform that eliminates tax rate heterogeneity and cumulative taxation using a general equilibrium model calibrated to Brazil that includes multiple sectors with market power. Industries are connected through input-output linkages and changes in tax costs are not confined within industries. The tax reform shocks propagate through the production network, which may amplify or mitigate their results. The revenue-neutral tax reform generates gains of 7.8% of GDP and 1.9% of welfare. Just eliminating VAT rate dispersion leads to a 5.9% increase in GDP. As expected, sectors that were heavily taxed prior to the reform, as well as their suppliers, benefit the most. Yet, due to propagation effects, in 10 sectors direct taxes increased but output and profits did not fall. This is because their costs were reduced as a result of lower taxes on their suppliers and/or increased demand. Moreover, tax distortions were leading to a shorter and inefficient production chain as the reform significantly changed the linkage structure of the economy.
    Date: 2022–10–07
  6. By: Timm, Lisa Marie (University of Amsterdam); Giuliodori, Massimo (University of Amsterdam); Muller, Paul (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 in a 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
  7. By: Decerf,Benoit Marie A; Maniquet,François
    Abstract: This paper studies the optimal taxation of bequests in a model in which agents haveheterogeneous preferences over their consumption and the net-of-tax bequest received by their heir. The bequest leftby an individual depends on both her degree of altruism and the bequest received from her parents. First, the paperstudies two principles that are at the heart of the debates on taxing inheritances: (1) children should not be penalizedby the lack of altruism of their parents, and (2) parents should be free to choose their bequests. Only one socialwelfare function satisfies these two principles, together with Pareto efficiency and a separability principle. Second,the paper studies the shape of the inheritance tax scheme that maximizes this social welfare function. It shows thatin the aggregate, the inheritance tax must collect money (redistributed through a non-negative demogrant). Moreover,small bequests cannot be taxed (they can potentially be subsidized), while bequests that are larger than those ofthe most altruistic individuals who did not receive bequests from their parents should be taxed as much as efficiency permits.
    Date: 2021–10–12
  8. By: Karver,Jonathan George; Shijaku,Hilda; Ungerer,Christoph T F
    Abstract: This paper presents the results of a randomized controlled trial testing the effectiveness oftaxpayer communications informed by behavioral science in inducing business payroll tax compliance at the onset of theCOVID-19 pandemic. In March 2020, an experimental tax trial targeting 5,423 firms was implemented, coinciding with thenational lockdown due to the global pandemic. The Albanian tax authority sent postal letters to employers and selectedemployees highlighting a suspicion that wages were under-declared to avoid personal income tax withholding.Employers and employees suspected of under-declaring were randomly assigned to receive a soft-tone letter(highlighting the social importance of contributing through taxes), a strong-tone letter (highlighting the penaltiesassociated with under-declaring), or none (forming a control group against which the impact of receiving the letterscould be estimated). For employers receiving soft-tone letters, the study finds large, statistically significantincreases on subsequent payroll declarations (by as much as 10 percent relative to the control group), which graduallyattenuate over the following six months. No statistically significant effects are found for letters sent to employeesor strong-tone letters. The findings highlight (i) the importance of framing of communications as well as theimportance of smart selection of letter recipients for taxpayer communication campaigns, (ii) which type oftaxpayer communications were most effective in the context of the COVID-19 pandemic, and (iii) the role that randomizedcontrolled trials and behavioral science can play in strengthening the effectiveness of government policy,particularly for public revenue mobilization.
    Keywords: Tax Law,Public Finance Decentralization and Poverty Reduction,Tax Administration,Public Sector Economics,Democratic Government,De Facto Governments,Administrative & Civil Service Reform,Public Sector Administrative & Civil Service Reform,Public Sector Administrative and Civil Service Reform,International Trade and Trade Rules,Economic Adjustment and Lending,Taxation & Subsidies,Macro-Fiscal Policy
    Date: 2022–03–07
  9. By: Okunogbe,Oyebola Motunrayo; Santoro,Fabrizio
    Abstract: Tax revenue in many low- and middle-income countries is inadequate for fundinginvestments in public goods and human capital. With high levels of informality and limited state capacity, many taxauthorities have difficulty determining the true tax base and collecting taxes efficiently and equitably. Taxauthorities are increasingly adopting new technologies to improve administrative processes, reduce taxpayer compliancecosts, and enhance their overall effectiveness. This paper reviews the recent literature on the use of technology fortax administration. It highlights the potential of technology to improve tax collection by helping to identifythe tax base, monitor compliance and facilitate compliance. It also identifies possible limitations to the use oftechnology arising from inadequate infrastructure and connectivity, lack of adoption or resistance by taxpayersand tax collectors, lack of institutional mainstreaming, and an unsupportive regulatory environment.
    Keywords: Economic Adjustment and Lending,Taxation & Subsidies,Macro-Fiscal Policy,Public Finance Decentralization and Poverty Reduction,Public Sector Economics,Tax Administration,Tax Law,Financial Structures,Information Technology
    Date: 2021–11–15
  10. By: Camilla Skovbo Christensen (University of Copenhagen, Center for Economic Behavior and Inequality); Bastian Emil Ellegaard (University of Copenhagen, Department of Economics)
    Abstract: We exploit exogenous variation from a pension reform in Denmark to estimate the e ect of tax subsidies on total private saving. We present new evidence on individuals in the middle of the income distribution and show that a reduction in tax subsidies for retirement saving reduces total private saving. The reform changed the tax incentives for saving in the pension scheme that holds the highest tax advantage for middle-income workers in Denmark. We find that for each unit of reduced saving in this pension scheme, only 63 percent is substituted to other types of saving.
    Keywords: Crowd-out, Savings, Retirement, Tax incentives, Household Finance
    JEL: H24 H31 D14 G51
    Date: 2022–09–18
  11. By: Brockmeyer,Anne; Saenz Somarriba,Magaly Vanessa
    Abstract: Does the digitization of transactions in an economy increase tax compliance This paper studies theeffect of financial incentives on the adoption of electronic payment technology and on tax compliance by firms.Exploiting administrative data and policy variation from Uruguay, the paper shows that i) consumer value-added taxrebates for credit and debit card transactions trigger an immediate 50 percent increase in the number of cardtransactions, ii) firms' use of card machines increases only on the intensive margin, and iii) tax compliance isunaffected. Endogenous card machine adoption and a low share of card sales in total reported sales can rationalize the findings.
    Keywords: Tax Administration,Tax Law,Public Sector Economics,Public Finance Decentralization and Poverty Reduction,Financial Sector Policy,Labor Markets,International Trade and Trade Rules
    Date: 2022–02–24
  12. By: Okunogbe,Oyebola Motunrayo
    Abstract: Tax revenue in many low-income countries is inadequate for funding government investment ininfrastructure and public services. This paper examines two dimensions of low state capacity that hinder tax collection:the inability to ascertain the tax base (detection capacity) and the inability to enforce unpaid liabilities (enforcementcapacity). A randomized experiment with Liberian property owners finds that using identifying information from a newlydeveloped property database to alert property owners that their noncompliance has been detected quadruples the taxpayment rate, but only when the notice includes details on the penalties for noncompliance. A second experiment finds afurther increase in compliance from signaling greater enforcement probability to delinquent property owners. Theseresults highlight the importance of investments in both detection and enforcement capacity.
    Keywords: Public Finance Decentralization and Poverty Reduction,Tax Administration,Public Sector Economics,Macro-Fiscal Policy,Economic Adjustment and Lending,Taxation & Subsidies,Tax Law,Mining & Extractive Industry (Non-Energy),Crime and Society
    Date: 2021–11–17
  13. By: Victor Peirone
    Abstract: Various economic models ignore the complexity of green field investment and do not assign a fundamental role to institutional uncertainty on the decision making of capital expenditures. These assumptions can be applicable to developed nations, but do not certainly fit into emerging economies. We found that countries with greater volatility in taxation invest less on average. In the Argentine case, this country is among the 1/8 highest tax volatility and lowest investment economies in a sample of ninety nations. Here we explore a tool kit to analyze policies and institutional arrangements to improve pareto optimal outcome.
    JEL: E C7 H2
    Date: 2022–10
  14. By: Devarajan,Shantayanan; Do,Quy-Toan
    Abstract: Why is governance in resource-rich countries so poor This paper argues that it is becausegovernments in these countries do not rely on taxation, which is an important instrument for citizens to hold theirgovernments accountable. Using a game-theoretic model, the authors show that the combination of low taxes and weakgovernance can be an equilibrium in an economy with sizeable mineral revenues. As income from natural resourcesultimately declines, replacing it with tax revenues may require governments to give control of these proceeds tocitizens, in the form of cash transfers say, as a credible commitment to accountability, thereby breaking the countryout of its resource curse.
    Keywords: Tax Administration,Public Finance Decentralization and Poverty Reduction,Tax Law,Public Sector Economics,Services & Transfers to Poor,Access of Poor to Social Services,Disability,Economic Assistance,Economic Development,Macro-Fiscal Policy,Economic Adjustment and Lending,Taxation & Subsidies,Inequality
    Date: 2021–12–13
  15. By: Hamza Bennani; Matthias Neuenkirch
    Abstract: In this paper, we analyze whether the complexity of tax bills affects financial markets. Based on the Flesch-Kincaid grade level of the 32 tax bills identified by Romer and Romer (2010) in the period 1962-2003, we assess the relationship between tax bills' complexity and financial markets using an event study approach. Our results show a negative (positive) and significant relationship between the present value of tax bills and changes in the 10-year government bond yields (S&P 500 returns). The magnitude of this relationship increases over time, suggesting that market participants underreact at first and need a couple of days to digest the information contained in the tax bills. This delay can be explained by the textual characteristics of the bills in the case of the 10-year yields as a lower readability partly offsets the negative relationship for up to three days after the signing of a tax bill, but not thereafter. In the case of the stock market, we find similar offsetting evidence, but only for a part of the readability measures employed in this paper.
    Keywords: Complexity, Event Study, Financial Markets, Readability, Tax Bills
    JEL: G14 H20 H30
    Date: 2022
  16. By: Seibold, Arthur (University of Mannheim); Seitz, Sebastian (University of Manchester); Siegloch, Sebastian (University of Cologne)
    Abstract: Public disability insurance (DI) programs in many countries face pressure to reduce their generosity in order to remain sustainable. In this paper, we investigate the welfare effects of giving a larger role to private insurance markets in the face of public DI cuts. Exploiting a unique reform that abolished one part of the German public DI system for younger workers, we find that despite significant crowding-in effects, overall private DI take-up remains modest. We do not find any evidence of adverse selection on unpriced risk. On the contrary, private DI tends to be concentrated among high-income, high-education and low-risk individuals. Using a revealed preferences approach, we estimate individual DI valuations, a key input for welfare calculations. We find that observed willingness-to-pay of many individuals is low, such that providing DI partly via a private insurance market with choice improves welfare. However, we show that distributional concerns as well as individual risk misperceptions can provide grounds for justifying a full public DI mandate.
    Keywords: disability insurance, social insurance, mandate, privatization, risk-based selection, welfare
    JEL: H55 G22 G52
    Date: 2022–09

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