nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒12‒05
thirteen papers chosen by
Thomas Andrén

  1. Salience and Taxation with Imperfect Competition By Kroft Kory; Laliberté Jean-William P.; Leal Vizcaíno René; Notowidigdo Matthew J.
  2. Profit Shifting Frictions and the Geography of Multinational Activity By Alessandro Ferrari; Sébastien Laffitte; Mathieu Parenti; Farid Toubal
  3. Welfare-Enhancing Taxation and Price Discrimination By Anna D'Annunzio; Antonio Russo
  4. Effects of the Earned Income Tax Credit for Childless Adults: A Regression Discontinuity Approach By Jonathan Meer; Joshua Witter
  5. Redistributive effects of 2017-2022 social spending and tax reforms for French households By Paul Dutronc-Postel; Brice Fabre; Chloé Lallemand; Nolwenn Loisel; Lukas Puschnig
  6. Growth or Goods: Examining Tax Morale Among Property Owners in Lagos By Wilson, Nicole; Rosenzweig, Leah
  7. Government size and automation By Casas, Pablo; Torres, José L.
  8. Productivity Slowdown and Tax Havens: Where Is Measured Value Creation? By Jean-Charles Bricongne; Samuel Delpeuch; Margarita Lopez Forero
  9. Do International Environmental Agreements Affect Tax and Environmental Competition among Asymmetric Countries? By Thierry Madiès; Ornella Tarola; Emmanuelle Taugourdeau
  10. The role of tax-benefit systems in protecting household incomes in Latin America during the COVID-19 pandemic By David Rodríguez; H. Xavier Jara; Mariana Dondo; Cristina Arancibia; David Macas; Rebeca Riella; Joana Urraburu; Linda Llamas; Luis Huesca; Javier Torres; Rodrigo Chang
  11. Earnings Losses and the Role of the Welfare State during the COVID-19 Pandemic: Evidence from Sweden By Adermon, Adrian; Laun, Lisa; Lind, Patrik; Olsson, Martin; Sauermann, Jan; Sjögren, Anna
  12. Public Finance in the Era of the Covid-19 Crisis By David R. Agrawal; Aline Bütikofer
  13. The Municipal Role in Public Health By Katherine Fierlbeck; Gaynor Watson-Creed; Lawrence Loh; Lindsay McLaren; Jason Cabaj; Gabriel Eidelman; Tomas Hachard; Ruth Rosalle

  1. By: Kroft Kory; Laliberté Jean-William P.; Leal Vizcaíno René; Notowidigdo Matthew J.
    Abstract: This paper studies commodity taxation in a model featuring heterogeneous consumers, imperfect competition, and tax salience. We derive new formulas for the incidence and marginal excess burden of commodity taxation highlighting interactions between tax salience and market structure. We estimate the necessary inputs to the formulas by using Nielsen Retail Scanner and Consumer Panel data covering grocery stores and households in the U.S. and detailed sales tax data. We estimate a large amount of pass-through of taxes onto consumer prices and find that households respond more to changes in prices than taxes. We also estimate significant heterogeneity in tax salience across households. We calibrate our new formulas using these results and conclude that essentially all of the incidence of sales taxes falls on consumers, and the marginal excess burden of taxation is larger than estimates based on standard formulas that ignore imperfect competition and tax salience.
    Keywords: Sales taxes;Marginal Excess Burden;Incidence;Salience;Imperfect Competition
    JEL: D12 D22 D43 D60 L13 H25 H71
    Date: 2022–10
  2. By: Alessandro Ferrari; Sébastien Laffitte; Mathieu Parenti; Farid Toubal
    Abstract: We develop a quantitative general equilibrium model of multinational activity embedding corporate taxation and profit shifting. In addition to trade and investment frictions, our model shows that profit-shifting frictions shape the geography of multinational production. Key to our model is the distinction between the corporate tax elasticity of real activity and profit shifting. The quantification of our model requires estimates of shifted profits flows. We provide a new, model-consistent methodology to calibrate bilateral profitshifting frictions based on accounting identities. We simulate various tax reforms aimed at curbing tax-dodging practices of multinationals and their impact on a range of outcomes, including tax revenues and production. Our results show that the effects of the international relocation of firms across countries are of comparable magnitude as the direct gains in taxable income.
    Keywords: Profit Shifting; Tax Avoidance; Tax Havens, International Tax Reforms, Minimum taxation, DBCFT, Multinational firms
    Date: 2022–10
  3. By: Anna D'Annunzio; Antonio Russo
    Abstract: We analyze the effects of commodity taxation in markets where suppliers implement second-degree price discrimination schemes, such as offering different package sizes and quality-differentiated versions of the same product. In these markets, suppliers distort the quantity (or quality) intended for all types of consumers, except for those with the highest marginal willingness to pay. We show that differentiated ad valorem taxes can alleviate this distortion, and thus increase government revenue as well as welfare, provided the tax rate increases with the size (or quality) of the good supplied.
    Keywords: commodity taxation, tax incidence, price discrimination
    JEL: D40 H21 H22 L10
    Date: 2022
  4. By: Jonathan Meer; Joshua Witter
    Abstract: Most antipoverty policy in the United States focuses on families with children, but efforts to assist childless adults have gained traction in recent years. We examine the impact of the Earned Income Tax Credit on the labor force outcomes of childless adults using the age-25 eligibility discontinuity. We find no impacts on labor force participation and employment outcomes, which may be due to lack of information about the credit, lack of behavioral response due to its small size, or that childless adults already have very high labor force participation rates.
    JEL: H22 H24 J20
    Date: 2022–11
  5. By: Paul Dutronc-Postel (IPP - Institut des politiques publiques); Brice Fabre (IPP - Institut des politiques publiques); Chloé Lallemand (IPP - Institut des politiques publiques); Nolwenn Loisel (IPP - Institut des politiques publiques); Lukas Puschnig (IPP - Institut des politiques publiques)
    Abstract: Numerous social spending and tax reforms were decided during the 2017–2022 French presidential term. On average, these measures improved households' standard of living by 1.9%, essentially due to reductions in compulsory levies. However, this average effect masks strong heterogeneity according to the level of household income. Although these reforms led to an average increase in disposable income for all households classified by standard-of-living percentile, the gains were only 0.8% for the poorest 5%, compared with 3.3% for the wealthiest 1%. In line with the government's objectives of encouraging work, the employed experienced an average gain of 2.6%, compared with 0.6% for pensioners and a loss of 1.1% for the unemployed. These effects are due to the switch of social security contributions to the CSG (contribution sociale généralisée), revaluation of the employment bonus (prime d'activité) and the reform of unemployment insurance. The larger gains for the highest incomes can be explained both by the transformation of the wealth tax (impôt de solidarité sur la fortune, ISF) into the tax on real estate assets (impôt sur la fortune immobilière, IFI) and by the introduction of the single flat-rate levy (prélèvement forfaitaire unique, PFU) on capital income. Within each standard-of-living percentile, there is a significant share of losers – 24% on average – despite positive average gains. The combination of increases in indirect taxation (tobacco and energy) with certain reductions in social benefits (housing) or their revaluation below inflation (especially for retirement pensions) has had a negative impact on the disposable income of certain households which have not necessarily benefited from the reductions in compulsory levies.
    Date: 2022–11–08
  6. By: Wilson, Nicole; Rosenzweig, Leah
    Abstract: What motivates property owners to pay taxes in places where state enforcement is weak? Using an online experiment among property owners in Lagos, Nigeria, we evaluate the extent to which different appeals increase respondents’ tax morale, their willingness to pay taxes if there is no enforcement, and attitudes about government enforcement of tax collection. Respondents were randomly assigned to read either a vignette emphasising the role of property tax revenue in contributing to economic growth and increased property values, or one highlighting that tax revenue is used for public goods and services benefiting all residents. The growth message made respondents significantly more favourable towards enforcement of tax collection, but there was no difference in willingness to pay between the two treatment conditions. We also look at heterogeneity across class identification and attitudes toward redistribution, and find that support for a more equal society reduces the advantage of the growth appeal.
    Keywords: Governance,
    Date: 2022
  7. By: Casas, Pablo; Torres, José L.
    Abstract: This paper explores the consequences of automation for public finance. We find that as the automation rate increases, the government size, measured as the fiscal revenues to output ratio, declines due to the substitution of traditional inputs which bear the burden of taxes by the new automatic technology. These results are explained by the effects of automation on labor, where taxation of labor income (including social security contributions) represents the most important source of fiscal revenues in most advanced economies. The paper performs two additional counterfactual experiments. First, we calculate how individual tax rates should be changed in response to automation in order to keep constant fiscal revenues from the different sources of taxes. However, this experiment reveals that this fiscal policy would have significant harmful effects on output and labor, and that a deep reform of the current tax mix is compulsory to offset the effects of automation on public finance. Second, we calculate the tax rate on capital, without modifying the other tax rates, required to keep constant the size of the government, resulting in a capital income tax rate of around 0.77 for an automation rate of 45%.
    Keywords: Automation; Taxes; Fiscal revenues; Autonomous capital; Traditional inputs
    JEL: E22 E23 H30 O33
    Date: 2022–11–04
  8. 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
  9. By: Thierry Madiès (Université de Fribourg, Switzerland.); Ornella Tarola (DISSE, Rome, Italy); Emmanuelle Taugourdeau (CNRS, CREST, Palaiseau, France)
    Abstract: Developed and developing countries compete using various instruments including corporate taxes and environmental regulations in order to attract firms. They also commit to international environmental agreements with “common but differentiated responsibilities” (CBDR). We investigate how the principles of CBDR and of “in a position to do so” embedded in global environmental agreements affect optimal corporate taxes and environmental standards. We find that the latter depend only on the mitigation burdens imposed by international agreements. In other words, the burden of competition between countries is carried by corporate taxes, which depend among others on the level of firms’ mobility costs and on production cost differentials. Interestingly, we find that developed countries are not necessarily worse-off in terms of payoffs under CBDR, while emerging countries “in a position to do so” are not necessarily harmed by assuming responsibilities.
    Keywords: Tax Competition, Capital Integration, Global Pollution, Environmental agreements.
    JEL: H2 R3 R5 Q5
    Date: 2022–11–15
  10. By: David Rodríguez; H. Xavier Jara; Mariana Dondo; Cristina Arancibia; David Macas; Rebeca Riella; Joana Urraburu; Linda Llamas; Luis Huesca; Javier Torres; Rodrigo Chang
    Abstract: The COVID-19 pandemic drastically affected household incomes around the world. In developed economies, pre-pandemic tax-benefit policies and emergency transfers mitigated to a large extent the negative income shock. However, less is known about the effect of government intervention on household incomes in developing countries. The aim of this paper is to assess in a comparative way the role of tax-benefit policies in protecting household incomes during the pandemic in seven Latin American countries: Argentina, Bolivia, Colombia, Ecuador, Mexico, Peru, and Uruguay.
    Keywords: Taxes, Benefits, COVID-19, Latin America, Automatic stabilizers, Tax-benefit policy
    Date: 2022
  11. By: Adermon, Adrian (IFAU); Laun, Lisa (IFAU); Lind, Patrik (IFAU); Olsson, Martin (IFN - Research Institute of Industrial Economics); Sauermann, Jan (IFAU); Sjögren, Anna (IFAU)
    Abstract: Many governments introduced temporary adjustments to counter the economic and health consequences of the COVID-19 pandemic. We study the importance of already existing government transfers and pandemic measures to mitigate individual income losses during the pandemic in Sweden using a difference-in-differences approach and population-wide data on monthly earnings and government transfer payments. We find that labor earnings dropped by 2.7 percent in 2020. Existing transfers and pandemic measures reduced earnings losses to 1.5 percent. These average effects mask considerable differences in income losses, which were, by and large, evened out by existing transfers and pandemic measures.
    Keywords: COVID-19, income inequality, government transfers, short-time work
    JEL: D31 E24 H20 H12 C23
    Date: 2022–10
  12. By: David R. Agrawal; Aline Bütikofer
    Abstract: The COVID-19 crisis poses new policy challenges and has spurred new research agendas in public economics. In this article, we selectively reflect on how the field of public economics has been shaped by the COVID-19 pandemic and discuss several areas where more research is necessary. We highlight major changes and inequalities in the labor market and K-12 education, in addition to discussing how technological change creates new challenges for the taxation of income and consumption. We discuss various policy responses to these challenges and the role of fiscal federalism in the context of worldwide crises. Finally, we summarize the key issues discussed at the 2021 International Institute of Public Finance Congress and the papers published in this special issue.
    Keywords: public economics, labor economics, education, tax, expenditure, Covid-19, inequality, fiscal federalism
    JEL: H00 J00
    Date: 2022
  13. By: Katherine Fierlbeck; Gaynor Watson-Creed; Lawrence Loh; Lindsay McLaren; Jason Cabaj; Gabriel Eidelman; Tomas Hachard; Ruth Rosalle (University of Toronto)
    Abstract: The start of the COVID-19 pandemic in Canada, with its near daily briefings from the Prime Minister, Premiers, and Medical Officers of Health pushed the importance of public health to the forefront of collective consciousness. We learned that public health is both a complex concept and a shared responsibility, where coordination and cooperation between different orders of government take on a special importance. The fourth report in the Who Does What series from the Institute on Municipal Finance and Governance (IMFG) and the Urban Policy Lab focuses on the role that Canadian municipalities presently play in public health, which functions they are best suited to perform, and how they can work better with other orders of government. Katherine Fierlbeck and Gaynor Watson-Creed emphasize the important role of municipalities in tailoring public health interventions to the local context. They argue that municipalities often hold the key to addressing social determinants of health in a nimbler and more focused manner than provinces. In contrast, provincial centralization of the public health system can undermine its capacity to address larger health issues in a targeted and effective manner. Lawrence C. Loh draws on case studies to describe the complex interplay of municipal and provincial governments in determining health policy. He offers a series of proposals to strengthen public health systems that include keeping public health separate from health care; maintaining the “local” in public health; enshrining the unique role and expertise of local Medical Officers of Health; increasing the resources available to public health now and into the future; and addressing disparities in resourcing across public health units. Lindsay McLaren and Jason Cabaj reflect on the current and ideal roles for municipal governments in public health and put forward two broad recommendations to improve population well-being and health equity. First, they emphasize the need to strengthen mechanisms for intersectoral and intergovernmental collaboration within formal public health structures. Second, they lay out a vision for a “well-being agenda,” which also requires daring leadership and sustained attention to the root causes of poor health and health inequities.
    Keywords: Canada, municipalities, public health, healthcare, intergovernmental relations
    JEL: H7 H51 I14 I15 I18
    Date: 2022–11

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