nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒02‒20
eighteen papers chosen by
Thomas Andrén

  1. Tax Support for the Service Industry in Korea By Sung, Yeolyong
  2. Cross-Country Evidence on the Revenue Impact of Tax Reforms By Mr. Valerio Crispolti; Mr. David Amaglobeli; Xuguang Simon Sheng
  3. Do Household Tax Credits Increase the Demand for Legally Provided Services? By Lilith Burgstaller; Annabelle Doerr; Sarah Necker
  4. Own-source budget revenues in the regions of the Russian Far East By Aleksei Novitskii; Ilya Shevchenko
  5. Electoral Cycles in Tax Reforms By Mr. Antonio David; Can Sever
  6. Loss Aversion and Tax Evasion: Theory and Evidence By Sanjit Dhami; Narges Hajimoladarvish; Pavan Mamidi
  7. Tax Deductions & Interstate Migration By Simonson, Matthew J.
  8. Macroeconomic effects of basic income funded by land holding tax By La, Jung Joo
  9. Keeping it Simple–Efficiency Costs of Fixed Margin Regimes in Transfer Pricing By Sebastian Beer; Jan Loeprick; Sebastien Leduc
  10. Optimizing Multiple Airport Charges with Endogenous Airline Quality Considering the Marginal Cost of Public Funds By Doi, Naoshi; Kono, Tatsuhito; Suzaki, Izumo
  11. Optimal Random Taxation and Redistribution By Stéphane Gauthier; Guy Laroque
  12. Using Taxes to Attract the Creative Class in the Presence of a Region-Specific Rent By Batabyal, Amitrajeet; Yoo, Seung Jick
  13. Should we increase or decrease public debt? Optimal fiscal policy with heterogeneous agents By François Le Grand; Xavier Ragot
  14. The end of Londongrad? The impact of beneficial ownership transparency on offshore investment in UK property By Matthew Collin; Florian M. Hollenbach; David Szakonyi
  15. Retirement Decision of Belgian Couples and the Impact of the Social Security System By Cetin, Sefane; Jousten, Alain
  16. China in Tax Havens By Clayton, Christopher; Coppola, Antonio; Santos, Amanda Dos; Maggiori, Matteo; Schreger, Jesse
  17. Two Decades of Social Security Claiming By Sita Slavov
  18. Achieving Universal Health Insurance Coverage in the United States: Addressing Market Failures or Providing a Social Floor? By Katherine Baicker; Amitabh Chandra; Mark Shepard

  1. By: Sung, Yeolyong (Korea Institute for Industrial Economics and Trade)
    Abstract: Tax support is a type of industrial policy instrument used to reallocate resources and help achieve economic policy goals. Unlike other policy instruments such as subsidies and financial support, tax policy is an indirect support tool that has the same effect as ex post incentive payments in inducing specific actions by economic agents because it lowers the tax burden to be paid after the economic agents take those actions. It is for this reason that tax support is occasionally called a “hidden subsidy”. There are various terms used to refer to tax support, such as tax expenditure, tax preferences, tax incentives, and so on, often dependent on the context in which these tools are applied. In Korea, tax support is provided in the form of tax reductions or exemptions, non-taxation, deductions to taxable income, tax credits, preferential tax rates, and tax deferrals, according to the provisions of the special taxation. This paper explores tax support schemes for the service industry in Korea over the past decade and describes some pressing issues for tax support policy for the service industry.
    Keywords: service industry; tax support; tax policy; tax breaks; tax credits; Korea; taxation
    JEL: H21 H25 L80
    Date: 2022–06–01
  2. By: Mr. Valerio Crispolti; Mr. David Amaglobeli; Xuguang Simon Sheng
    Abstract: Many countries face the challenge of raising additional tax revenues without hurting economic growth. Comprehensive, cross-country information on the revenue impact of tax policy changes can thus support informed decision-making on viable reforms. We assess the likely revenue impact of various tax policy changes based on a sample of 21 advanced and emerging market economies, using granular information from the IMF Tax Policy Reform Database v.4.0. Our findings suggest that the revenue yield of a tax policy change varies significantly depending on the tax instrument adopted (e.g., VAT or personal income tax) and the nature of the change (i.e., rate, base). For example, in our sample, base-broadening changes to personal and corporate income taxes as well as to excise and property taxes have generally a more significant and long-lasting revenue yields than rate changes. By contrast, rate changes appear to have a relatively more significant revenue impact in the case of VAT and social security contributions. We also observe an asymmetry in the revenue impact of most tax policy measures when controlling for the direction of tax changes (i.e., its significance varies depending on whether taxes are increased or decreased). While our results are based on qualitative information of tax policy changes (i.e., dummy variables), the revenue yields of rate measures are not materially different from those that would be obtained using quantitative information on the size of the change.
    Keywords: corporate income tax; personal income tax; value added taxes; social security contributions; excise; property taxes; tax reforms; revenue yield; revenue impact; Tax-to-GDP ratio; rate change; SSC rate hike; Tax collection; Value-added tax
    Date: 2022–09–30
  3. By: Lilith Burgstaller; Annabelle Doerr; Sarah Necker
    Abstract: We study the causal effects of household tax credits on the willingness to demand legally provided services using two survey experiments with 1.974 German homeowners. Participants choose between hypothetical offers of service providers and are randomly assigned to a policy scenario 1) without a tax credit, 2) a tax credit households can claim through the annual tax return, or 3) a tax credit granted by the seller at source. We also vary the refund rate of the tax credit (20/30%) and whether the price including the tax reduction is displayed. All tax credits increase the willingness to pay for offers with invoice as well as the probability to select an offer with invoice. The effectiveness of the tax credit is significantly higher when two attractive features (at source+30%) are combined or when the reduction is made salient. We estimate that about two thirds of respondents who would use the tax credit would have demanded an offer without invoice also without the tax credit.
    Keywords: tax credit, financial rewards for compliance, tax evasion, tax compliance, third-party reporting, survey experiment, discrete choice experiment
    JEL: H26 C93 E26 J22 O17
    Date: 2023
  4. By: Aleksei Novitskii; Ilya Shevchenko (Federal Autonomous Scientific Institution «Eastern State Planning Centre»)
    Abstract: The current state and main trends in the development of tax and non-tax revenues of the consolidated budgets of the regions in the Russian Far East are considered. The structure of tax and non-tax budget revenues by types of taxes and types of economic activity is given. An assessment of the real growth rates of budget revenues in the regions of the Russian Far East for the periods 2013-2021 and 2019-2021 is given. The factors that negatively affected the volume of budget revenues are considered, such as the growth of tax expenses due to expansion of preferential taxation regimes, and the reduction in the share of tax revenues credited to regional budgets. An assessment of the volume and structure of tax revenues received by the federal budget from the territory of the Russian Far East is given.
    Keywords: budget system, consolidated budget, regional budget revenues, tax revenues, russian far east
    JEL: E62 H75 H76
    Date: 2022–12
  5. By: Mr. Antonio David; Can Sever
    Abstract: We examine electoral cycles in tax reforms using monthly data over the period of 1990-2018 for 22 advanced economies and emerging markets. We show that governments tend to avoid announcing tax reforms during the months running up to elections. In addition, they become more likely to announce those reforms in the first few months following elections, indicating that “political capital” plays a role in the timing of reforms. These patterns are broad-based regarding the changes in tax base and rate, and for various types of taxes. We also find that the pre-election decrease in the likelihood of tax reform announcements is stronger in emerging markets, and weaker in the countries with relatively better institutional quality. Finally, our results indicate that neither fiscal rules nor IMF programs appear to have differential effects on electoral cycles in tax reforms.
    Keywords: Tax Reforms; Electoral Cycles; Political Economy; Institutional Quality; reform announcement; elections in the sample; announcements decrease; election dummy; election variable; Fiscal rules; Probit models; Personal income tax; Social security contributions; Emerging and frontier financial markets; Global
    Date: 2022–11–04
  6. By: Sanjit Dhami; Narges Hajimoladarvish; Pavan Mamidi
    Abstract: We consider income-source-dependent tax evasion and show that this is a generalization of the well-known endowment effect. We show that loss aversion, moral costs, mental accounting, and risk preferences play a key role in explaining key features of source-dependent tax evasion. We provide evidence of the first direct link between subject-specific loss aversion and tax evasion, which is central to most successful modern theoretical accounts of tax evasion. We provide some evidence that risk aversion strengthens the cautionary effect of loss aversion and risk loving behavior attenuates, or reverses, it. However, the underlying effect is also influenced by the source of income. Evasion is increasing in the tax rate and decreasing in the audit penalty, as predicted. Our paper provides novel theoretical insights; proposes new methods in the estimation of the underlying behavioral parameters; and confirms the central predictions of the theory, while pointing out challenges for further developments that existing theory is unable to account for.
    Keywords: tax evasion, endowment effect, loss aversion, morality, mental accounting, prospect theory, risk aversion
    JEL: C91 C92 D82 D91 G21
    Date: 2023
  7. By: Simonson, Matthew J.
    Abstract: In December of 2017, President Trump signed the Tax Cuts and Jobs Act of 2017 (TCJA). While the law made several changes to the tax code, one major change was instituting a cap on the amount of state and local tax (SALT) deductions a filer can claim. The SALT cap limits a tax filer’s ability to limit the impacts of state and local taxes on their overall tax burden. This new inability to soften the impact of state and local taxes could cause residents to view states with higher taxes as less attractive. The results presented in this paper showed a state’s top income tax rate and a state’s representative tax burden had a statistically significant negative effect on the probability of a household living in a new state after the SALT cap was implemented. This effect was statistically different than the negative impact of the tax measure before the passing. Suggesting, for households of varying income levels, if a state were to increase the top income tax rate by 10 percentage points the probability of a household moving to that state would decrease, on the low end 0.17 percentage points and on the high end 0.52 percentage points more than if the SALT cap was not in place. Larger impacts were found for the representative tax burden measure, where for a 10% increase in the state tax burden the probability of a household moving to the state would fall by 0.57 percentage points on the low end and 0.87 percentage points on the high end.
    Keywords: Consumer/Household Economics, Public Economics
    Date: 2022–12
  8. By: La, Jung Joo
    Abstract: This study examines the macroeconomic effects of the introduction of a scheme to pay a basic income of approximately $900 per year to each citizen through land holding tax. In contrast to the existing literature, this study deals with the issue of whether household members decide to sell land due to a sharp increase in the land holding tax rate to raise funds for the payment of basic income. Furthermore, this study uses the relationship between holding assets and reservation wages to solve the problem of determining whether household members supply labor in accordance with the payment of basic income. Simulation results obtained using data for Korea show that the introduction of the scheme to pay the basic income decreases the real GDP, total labor demand, and social welfare by 1.3%, 0.3%, and 0.4%, respectively.
    Keywords: Basic income; Land holding tax; Macroeconomic effects
    JEL: C61 E20 H24
    Date: 2023–01–27
  9. By: Sebastian Beer; Jan Loeprick; Sebastien Leduc
    Abstract: Simplifying tax policy comes with costs and benefits. This paper explores simplification options for the taxation of MNEs, an area where administrative and compliance costs of the current rules are large. Simplified approaches seek to reduce these costs by relying on an approximation of the true tax base, potentially distorting resource allocation. We examine the efficiency cost of transfer pricing simplification theoretically and empirically. Using a sample of 300, 000 firms located in 22 countries, we estimate that common transfer pricing practices reduce efficiency between 0.25 and 2.2 percent of total factor productivity across sectors. Focusing on the manufacturing sector, we then observe that simplification more than doubles sectoral inefficiency on average. However, large differences exist, with moderate efficiency costs in several sectors.
    Keywords: Taxation of Multinational Enterprises; Transfer Pricing Simplification; Efficiency Costs; modelling transfer pricing Benchmarking; efficiency cost; annex I. descriptive statistics; simplification option; transfer pricing practice; efficiency loss; Transfer pricing; Total factor productivity; Productivity; Tax wedge; Manufacturing; Global
    Date: 2022–09–23
  10. By: Doi, Naoshi; Kono, Tatsuhito; Suzaki, Izumo
    Abstract: Airport operation costs are financed by charge revenues from airport users and funds transferred from general government funds. This study quantitatively optimizes the rates of three types of airport-related charges: per-passenger charges (e.g., passenger service facility charges), per-flight charges (e.g., landing fees), and aviation fuel tax, explicitly considering the marginal cost of public funds of the general funds. This study uses a route-level empirical structural model in which airlines with market power set both airfares and service quality (i.e., flight frequency). Our results show that it is optimal to increase the transfer from the general funds from the current amount and that the optimization increases social welfare by 19 percent. Even if the amount of the transfer is fixed at the current level, the social welfare can be increased by 10 percent only by adjusting the current rates of the airport-related charges. In particular, we show that charges should be adjusted so as to increase flight frequency on routes where small aircraft are used.
    Keywords: Optimal taxation, Airport-related charge, Marginal cost of public funds, Discrete choice model, Endogenous quality
    JEL: H21 H41 L13 R48
    Date: 2023–01
  11. By: Stéphane Gauthier (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, UP1 - Université Paris 1 Panthéon-Sorbonne, IFS - Laboratory of the Institute for Fiscal Studies - Institute for Fiscal Studies); Guy Laroque (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, UCL - University College of London [London], IFS - Laboratory of the Institute for Fiscal Studies - Institute for Fiscal Studies)
    Abstract: We assess the usefulness of stochastic redistribution among a continuum of riskaverse agents with quasilinear utilities in labor. Agents differ according to their consumption tastes, which remain private information. We identify circumstances where stochastic redistribution is socially dominated by the deterministic policy where aftertax income lotteries are replaced with their certainty equivalent. We also provide a parametric example where feasible and incentive compatible lotteries locally dominate the optimal deterministic menu. In this example the downward pattern of incentives prevailing in the deterministic case is reversed to an upward pattern in the stochastic case.
    Keywords: Redistribution, Asymmetric information, Random taxes, Certainty equivalent
    Date: 2022–09–01
  12. By: Batabyal, Amitrajeet; Yoo, Seung Jick
    Abstract: We analyze interregional competition between two regions A and B that use taxes to attract a representative creative class member (the entrepreneur). This entrepreneur establishes a firm in either region A or B and this action guarantees her profit. However, if the entrepreneur locates in region A then she also obtains a stochastic, location-specific rent that is either high with positive probability or low with positive complementary probability. In this setting, we accomplish three tasks. First, given values of the two tax rates, we determine the payoff to the entrepreneur in the two regions for the two possible values of the location-specific rent in A. Second, we ascertain when the entrepreneur will locate in A for both values of the rent and when she will locate in B. Finally, we compute the tax rate that B will set and then specify a condition which ensures that the entrepreneur locates in B.
    Keywords: Creative Class, Entrepreneur, Interregional Competition, Region-Specific Rent, Tax
    JEL: H25 R11
    Date: 2022–11–10
  13. By: François Le Grand; Xavier Ragot (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)
    Abstract: We analyze optimal fiscal policy in a heterogeneous-agent model with capital accumulation and aggregate shocks, where the government uses public debt, capital tax and progressive labor tax to finance public spending. First, he existence of a steady-state equilibrium is proven to depend on three conditions, which have different economic interpretations: a Laffer condition, a Blanchard-Kahn condition and a Straub-Werning condition. First, the equilibrium can feature both a positive level of public debt and capital tax at the steady state, to correct for non-optimal private saving. Second, the optimal public debt increases after a positive public spending shock when its persistence is low, whereas it decreases when its persistence is high, due to a tradeoff between consumption smoothing and the reduction of distortions. We show that our results hold in a quantitative heterogeneous-agent model, where the optimal dynamics of the whole set of fiscal tools is analyzed. The general model also provides new results on optimal tax progressivity and the dynamics of labor tax.
    Keywords: Heterogeneous agents optimal fiscal policy public debt JEL codes: E21 E44 D91 D31, Heterogeneous agents, optimal fiscal policy, public debt, E44, D91, D31, E21
    Date: 2023–01–04
  14. By: Matthew Collin; Florian M. Hollenbach; David Szakonyi
    Abstract: The United Kingdom's (UK) property markets are thought to be a common destination for corrupt and criminal assets and money laundering, with investment often through offshore shell companies. Following the Russian invasion of Ukraine in 2022, we study the impact of the introduction of a policy in the UK intended to increase transparency and eliminate the anonymous ownership of property by requiring offshore companies to file their ultimate beneficial owners on a public register.
    Keywords: Money laundering, Real property, Ownership, Transparency, Tax evasion, Corruption
    Date: 2023
  15. By: Cetin, Sefane (Université catholique de Louvain, LIDAM/CORE, Belgium); Jousten, Alain (Université de Liège)
    Abstract: This paper investigates the retirement patterns of married couples in Belgium. To forecast retirement behavior, we use administrative Social Security data from 2003 to 2017 and a discrete choice random utility model. In particular, we concentrate on the spousal bonus of pension payments to comprehend how financial incentives resulting from the social security system’s structural design affect both partners’ retirement decisions. We simulate the effect of the elimination of the spousal bonus and find that a small portion of women delay their retirement whereas the rest substitute into alternative social security benefits. Our results not only highlight the significance of cross-program spillovers between various Social Security benefits, but also the heterogeneity in preferences for retirement and asymmetry of retirement behavior between husbands and wives.
    Keywords: Old-Age Labor Supply ; Retirement Incentives ; Spousal Bonus ; Pension Reforms
    JEL: D10 H55 J26
    Date: 2022–11–16
  16. By: Clayton, Christopher; Coppola, Antonio; Santos, Amanda Dos; Maggiori, Matteo; Schreger, Jesse
    Abstract: We document the rise of China in offshore capital markets. Chinese firms use global tax havens to access foreign capital both in equity and bond markets. In the last twenty years, China’s presence went from raising a negligible amount of capital in these markets to accounting for more than half of equity issuance and around a fifth of global corporate bonds outstanding in tax havens. Using rich micro data, we show that a range of Chinese firms, including both tech giants and SOEs, use these offshore centers. We conclude by discussing the macroeconomic and financial stability implications of these patterns.
    Date: 2023–01–21
  17. By: Sita Slavov
    Abstract: Twenty years ago, the adjustment to monthly Social Security benefits for early or delayed claiming was, on average, roughly actuarially fair, although some subsets of individuals could gain from delay. Since then, delaying claiming has become much more attractive thanks to three factors: a more generous delayed retirement credit, improvements in mortality, and historically low real interest rates. In this article, I examine how these three factors influence optimal claiming behavior. I also discuss empirical patterns of claiming across individuals and over time, as well as explanations for these patterns. I argue that although many people appear to claim suboptimally early, this behavior may be changing as information spreads about the importance of the claiming decision. Finally, I discuss policy towards claiming and the impact that an increase in strategic claiming could have on Social Security’s finances.
    JEL: G59 H55 J26
    Date: 2023–01
  18. By: Katherine Baicker; Amitabh Chandra; Mark Shepard
    Abstract: The United States spends substantially more on health care than most developed countries, yet leaves a greater share of the population uninsured. We suggest that incremental insurance expansions focused on addressing market failures will propagate inefficiencies and are not likely to facilitate active policy decisions that align with societal coverage goals. By instead defining a basic bundle of services that is publicly financed for all, while allowing individuals to purchase additional coverage, policymakers could both expand coverage and maintain incentives for innovation, fostering universal access to innovative care in an affordable system.
    JEL: H4 H51 I13
    Date: 2023–01

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