nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒11‒21
twelve papers chosen by
Thomas Andrén

  1. Behavioural responses to income taxation in Norway By Graber, Michael; Mogstad, Magne; Torsvik, Gaute; Vestad, Ola
  2. Optimal fiscal policy in the automated economy By Nakatani, Ryota
  3. Household Indebtedness and the Macroeconomic Effects of Tax Changes By Sangyup Choi; Junhyeok Shin
  4. The Effects of Introducing Withholding on Tax Compliance: Evidence from Pennsylvania’s Local Earned Income Tax By Sutirtha Bagchi
  5. Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms: Comment By Clément Malgouyres; Thierry Mayer; Clément Mazet-Sonilhac
  6. Taxation with a Grain of Salt: The Long-Term Effect of Fiscal Policy on Local Development By Tommaso Giommoni; Gabriel Loumeau
  7. Nonlinear Taxation of Income and Education in the Presence of Income-Misreporting By Spencer Bastani; Firouz Gahvari; Luca Micheletto
  8. Increasing Inequality and Voting for Basic Income: Could Gender Inequality Worsen? By Creina Day
  9. Productivity Slowdown and Tax Havens: Where Is Measured Value Creation? By Jean-Charles Bricongne; Samuel Delpeuch; Margarita Lopez Forero
  10. Food Taxes and Their Impacts on Food Spending By Dong, Diansheng; Stewart, Hayden
  11. Determinants of taxation in South Africa: An econometric approach By Hlongwane, Nyiko Worship; Daw, Olebogeng David; Sithole, Mixo Sweetness
  12. A nation-wide experiment: fuel tax cuts and almost free public transport for three months in Germany -- Report 4 Third wave results By Allister Loder; Fabienne Cantner; Andrea Cadavid; Markus B. Siewert; Stefan Wurster; Sebastian Goerg; Klaus Bogenberger

  1. By: Graber, Michael (SSB); Mogstad, Magne (University of Chicago); Torsvik, Gaute (Dept. of Economics, University of Oslo); Vestad, Ola (SSB)
    Abstract: In this report, we combine theory and empirical estimates for how labor earnings respond to changes in tax rates and non-earned income. We use lottery winnings to obtain variation in non-earned income and tax reforms to obtain variation in the net of tax rate. Combining this information with measures of extensive margin responses and the progressivity of the Norwegian income tax schedule, we are able to point identify uncompensated and compensated behavioral responses to income taxes and therefore to calculate efficiency losses and optimal income tax rates (for given welfare weights).
    Keywords: income effect; labor supply elasticities; lottery winnings; efficiency loss; optimal income taxation
    JEL: D15 H21 H31 H53 J22
    Date: 2022–10–27
  2. By: Nakatani, Ryota
    Abstract: Adding (1) the endogenous labor supply of workers, (2) fiscal policy instruments, and (3) monopolistic competition to Berg et al.’s (2018) general equilibrium model of automation, we study how automation (i.e., robots and artificial intelligence) affects the efficacy of redistribution policy. Using the consumption equivalent welfare gain developed by Domeij and Heathcote (2004) and assuming a 50 percent increase in robot-augmented technology shock, we derive the optimal tax rates for various tax policy instruments in the steady state of the model economy calibrated for the United States. We find that the optimal capital income tax rate is 20 percent. Another finding is that the zero tax rate on the wage income of unskilled workers is an optimal tax policy. We also find that the optimal tax rates on robots and consumption are dependent on the preference of the government. Finally, we find that the Pareto-efficient optimal tax system is characterized as a combination of a 15.9 percent rate on capital income tax and a zero tax rate on unskilled workers’ income. Our analysis contributes to the literature on optimal taxation in the automated age.
    Keywords: Automation; Fiscal Policy; Optimal Taxation; Capital Income Tax; Labor Income Tax; Consumption Tax; Robot Tax; Social Welfare; Dynamic General Equilibrium
    JEL: C68 E25 H21 H24 H25 H30 O30 O40
    Date: 2022–10–16
  3. By: Sangyup Choi; Junhyeok Shin
    Abstract: This study investigates whether household indebtedness influences the macroeconomic effects of U.S. tax changes. By applying a state-dependent local projection method to the exogenous tax shock series, we find that a tax cut is more effective in stimulating output when the economy is characterized by higher household indebtedness. The household debt-dependent tax policy is primarily driven by (i) the response of private consumption, not private investment; (ii) changes in personal income tax, not corporate income tax, suggesting the relevance of a higher MPC of constrained households in understanding the documented state dependence. In response to a tax cut, labor supply also increases more during a high-debt state, which is consistent with the micro-level evidence on the labor supply of constrained households, thereby contributing to higher tax multipliers. Our findings are robust to a battery of sensitivity checks, especially controlling for the additional states of the economy considered in the literature.
    Keywords: Tax policy, Household debt, Borrowing constraints, Marginal propensity to consume, Nonlinearity, Local projections
    JEL: E32 E62 G51 H30
    Date: 2022–09
  4. By: Sutirtha Bagchi (Department of Economics, Villanova School of Business, Villanova University)
    Abstract: This paper examines Act 32 of the Pennsylvania state legislature which mandated the introduction of withholding for the local earned income tax (EIT) for all employees and the consolidation of a fragmented collection system to one collector per county effective January 1, 2012. I find that the act resulted in increased compliance with the EIT of about 14 percent, with the increased compliance driven entirely by an increase in revenues as opposed to changes to the tax base or rates. I confirm this result using a differences-in-differences analysis that contrasts tax compliance for school districts in Pennsylvania with those in Iowa – the only other state where a majority of school districts levy a local income tax. Falsification exercises examining compliance with the property tax confirm that Act 32 did not impact the property tax in either the event study or the differences-in-differences analysis.
    Keywords: Earned income tax; Tax compliance; Withholding; Event Study
    JEL: H26 H71 R51
    Date: 2022–11
  5. By: Clément Malgouyres (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, IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics); Thierry Mayer (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Clément Mazet-Sonilhac (Centre de recherche de la Banque de France - Banque de France)
    Abstract: Suárez Serrato and Zidar (2016) identify state corporate tax incidence in a spatial equilibrium model with imperfectly mobile firms. Their identification argument rests on comparative-statics omitting a channel implied by their model: the link between common determinants of a location's attractiveness and the average idiosyncratic productivity of firms choosing that location. This compositional margin causes the labor demand elasticity to be independent from the product demand elasticity, impeding the identification of incidence from the four estimated reduced-form effects. Assigning consensual values to the unidentified parameters, we find that the incidence share born by firm-owners is closer to 25% than 40%.
    Keywords: Incidence,Corporate income tax,Discrete/Continuous choice
    Date: 2022
  6. By: Tommaso Giommoni; Gabriel Loumeau
    Abstract: This paper studies the long-term effect of taxation on economic geography and development. We rely on a unique natural experiment in place during France’s ancien régime: the salt tax. Introduced in the late 13th century and abrogated by the French Revolution in 1789, the salt tax was not uniformly levied across the French kingdom as its rate varied discontinuously in space. Using a series of rich and original historical data at regular time intervals and very fine spatial resolution since the fifteen century, we estimate a Spatial RDD model. We find that these exogenous tax rate differentials have had large effects on economic geography and development. These effects are, then, confirmed in a DiD analysis, that studies a very large time span (1400-1900 using regular intervals of 25 years) and documents the absence of pre-trends. Most of the effects can still be observed today in population density, firm density, and local average income.
    Keywords: taxation, long-term, economic georgraphy, development, spatial discontinuity, salt tax
    JEL: H20 N33 O23 J61
    Date: 2022
  7. By: Spencer Bastani; Firouz Gahvari; Luca Micheletto
    Abstract: We study the joint design of nonlinear income and education taxes when the government pursues redistributive objectives. A key feature of our setup is that the ability type of an agent can affect both the costs and benefits of acquiring education. Market remuneration of agents depends on both their innate ability type and their educational choices. Our focus is on the properties of constrained efficient allocations when educational choices are publicly observable at the individual level, but earned income is subject to misreporting. We find that income-misreporting (IM) affects the optimal distortions on income and education and shed light on the reasons for it and mechanisms through which it is done. We show how and why IM strengthens the case for downward distorting the educational choices of low-ability agents. Finally, we find that IM provides another mechanism that makes commodity taxation useful.
    Keywords: optimal taxation, education, human capital, income-misreporting, redistribution
    JEL: H21 H26 J31
    Date: 2022
  8. By: Creina Day
    Abstract: This paper examines the link between political support for basic income funded by linear income taxation and income inequality by household and gender. We develop a model with an increasingly right-skewed distribution of skill across households and a gender wage gap within households. Household preference for basic income decreases as skill level increases and female labour supply decreases with time spent rearing children. Majority voting supports the basic income scheme as mean relative to median household skill increases. Household fertility and skill level are inversely related under the scheme. An increase in the marginal tax rate to fund required government revenue could excacerbate gender inequality by reducing female labour supply. Quantitative illustrations suggest that the recent peak in the mean to median wage gap would provide voting support for basic income from the majority of households in the United States. Basic income of $12,000 conditional on below-median wages would increase government spending by 10.8% which, if funded by progressive income taxation, could reduce the adverse effects on gender inequality.
    Keywords: Basic income, Taxation, Gender inequality, Fertility
    JEL: C60 H24 H53 J13 J16
    Date: 2022–09
  9. By: Jean-Charles Bricongne (Centre de recherche de la Banque de France - Banque de France); Samuel Delpeuch (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Margarita Lopez Forero (Université Paris-Saclay)
    Abstract: Based on French firm-level data over 15 years we evaluate the contribution of the microlevel profit-shifting-through tax haven foreign direct investments to the aggregate productivity slowdown measured in France. We show that firm measured productivity in France declines over the immediate years following the establishment in a tax haven, with an average estimated around 3.5% in labor apparent productivity. To isolate the contribution of multinationals' tax optimization to this decline of apparent productivity, we then exploit the 2006 Cadbury-Schweppes decision of the European Court of Justice limiting the extent to which member States can counter European MNEs' tax planning strategies. We find that multinational groups benefiting from that loosening of the legal constraints do exhibit lower apparent productivity in France following that ruling. Our results moreover suggest that this bias is bigger when firms rely more intensively on intangible capital. Finally, given these firms' weight in the economy, our results imply an annual loss of 9.7% in terms of the aggregate annual labor productivity growth.
    Keywords: Profit-shifting FDI,Productivity slowdown,Productivity mismeasurement,Intangible capital,Tax Havens
    Date: 2022–04–15
  10. By: Dong, Diansheng; Stewart, Hayden
    Abstract: County-level sales tax data are combined with USDA’s National Household Food Acquisition and Purchase Survey (FoodAPS) to examine the relationship between taxing groceries, taxing restaurant foods, and U.S. households' food spending patterns. Results are separately provided for SNAP participants, eligible non-participants, and other households.
    Keywords: Public Economics
    Date: 2021–09
  11. By: Hlongwane, Nyiko Worship; Daw, Olebogeng David; Sithole, Mixo Sweetness
    Abstract: The study analyses the determinants of taxation in South Africa for the period from 1972 to 2021. The utilised borrowed time series data from the World Bank. The study employed economic growth, trade, inflation, and government expenditure as control variables. The study performed ADF and PP unit root test, ARDL Bounds test to cointegration, optimal lags model and residual diagnostics. The results of the ARDL model revealed that government spending is a positive statistically determinant while inflation and trade negative statistically significant determinants of taxation in both the short and long run period. Economic growth was found to be a positive statistically significant determinant in the short run while negative statistically insignificant determinant of taxation in the long run. The study provided several policy recommendations such as boosting government expenditure to increase tax collected while revising policies on inflation and trade.
    Keywords: Taxation, ARDL Model, Fiscal Policy, South Africa
    JEL: C01 H2 H30 H50
    Date: 2022–08–30
  12. By: Allister Loder; Fabienne Cantner; Andrea Cadavid; Markus B. Siewert; Stefan Wurster; Sebastian Goerg; Klaus Bogenberger
    Abstract: In spring 2022, the German federal government agreed on a set of measures that aimed at reducing households' financial burden resulting from a recent price increase, especially in energy and mobility. These measures included among others, a nation-wide public transport ticket for 9EUR per month and a fuel tax cut that reduced fuel prices by more than 15%. In transportation policy and travel behavior research this is an almost unprecedented behavioral experiment. It allows to study not only behavioral responses in mode choice and induced demand but also to assess the effectiveness of transport policy instruments. We observe this natural experiment with a three-wave survey and an app-based travel diary on a sample 2'263 individuals; for the Munich Study, 919 participants in the survey-and-app group and 425 in the survey-only group have been successfully recruited, while 919 participants have been recruited through a professional panel provider to obtain a representative nation-wide reference group for the three-wave survey. In this fourth report we present the results of the third wave. At the end of the study, all three surveys have been completed by 1'484 participants and 642 participants completed all three surveys and used the travel diary throughout the entire study. Based on our results we conclude that when offering a 49EUR-Ticket as a successor to the 9~EUR-Ticket and a local travel pass for 30EUR/month more than 60% of all 9~EUR-Ticket owners would buy one of the two new travel passes. In other words, a substantial increase in travel pass ownership in Germany can be expected, with our modest estimate being around 20%. With the announcement of the introduction of a successor ticket in 2023 as well as with the prevailing high inflation, this study will continue into the year 2023 to monitor the impact on mobility and daily activities.
    Date: 2022–10

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