nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒03‒27
eleven papers chosen by
Thomas Andrén

  1. On the relationship between information and individuals’ perception in affecting income tax evasion By Ludovica Spinola
  2. Rethinking the Welfare State By Nezih Guner; Remzi Kaygusuz; Gustavo Ventura
  3. Rethinking Taxation in the Digital Economy By Bañez, Emerson S.
  4. Price Effects of Temporary VAT Rate Cuts: Evidence from Spanish Supermarkets By AMORES Antonio F.; BARRIOS Salvador; SPEITMANN Raffael; STOEHLKER Daniel
  5. Imperfect competition, emissions tax and the Porter hypothesis By Flavio M. Menezes; Jorge Pereira
  6. Not So Sweet: Impacts of a Soda Tax on Producers By Goncalves, Judite; Merenda, Roxanne; Pereira dos Santos, João
  7. Means Testing and Social Security in the U.S. By Shantanu Bagchi
  8. The Odd Fascination with Tax-to-GDP Ratio By Nadeem Ul Haque; Raja Rafi Ullah
  9. Unconditional Cash Transfers for Families with Children in the U.S.: A Scoping Review By Hema Shah; Lisa A. Gennetian
  10. Not That Basic: How Level, Design and Context Matter for the Redistributive Outcomes of Universal Basic Income By Aerts, Elise; Marx, Ive; Verbist, Gerlinde
  11. The Micro and Macro Effects of Changes in the Potential Benefit Duration By Jessen, Jonas; Jessen, Robin; Galecka-Burdziak, Ewa; Góra, Marek; Kluve, Jochen

  1. By: Ludovica Spinola (Department of Economics, University Of Venice CÃ Foscari)
    Abstract: We experimentally test how information about the number of caught tax evaders, by interacting with individuals’ prior beliefs, affect the decision to underreport taxes. Specifically, our results indicate that when individuals receive the information about the number of people caught evading taxes and perceive this as higher than prior beliefs, they evade less. When, instead, individuals consider the number of caught evaders as low with respect to their beliefs, they evade more. These findings suggest that when subjects are informed on how many people have been found evading taxes they infer the audit probability, rather than the tax evasion rate. Finally, we observe no salience bias effect when considering individuals to whom we highlighted information about others’ norm violation nor when looking at those to whom we emphasised the probability of being audited.
    Keywords: tax evasion, social information, audit probability, salience bias, laboratory experiment
    JEL: D83 D9 H2 H26
    Date: 2023
  2. By: Nezih Guner; Remzi Kaygusuz; Gustavo Ventura
    Abstract: The U.S. spends non trivially on non-medical transfers for its working-age population in a wide range of programs that support low and middle-income households. How valuable are these programs for U.S. households? Are there simpler, welfare-improving ways to transfer resources that are supported by a majority? What are the macroeconomic effects of such alternatives? We answer these questions in an equilibrium, life-cycle model with single and married households who face idiosyncratic productivity risk, in the presence of costly children and potential skill losses of females associated with non-participation. Our findings show that a potential revenue-neutral elimination of the welfare state generates large welfare losses in the aggregate, although most households support the move as losses are concentrated among a small group. We find that a Universal Basic Income program does not improve upon the current system. If instead per-person transfers are implemented alongside a proportional tax, a Negative Income Tax experiment, it becomes feasible to improve upon the current system. Providing per-person transfers to all households is costly, and reducing tax distortions helps providing for resources to expand redistribution.
    Keywords: taxes and transfers, universal basic income, household labor supply, income risk, Social Insurance
    JEL: E62 H24 H31
    Date: 2023–03
  3. By: Bañez, Emerson S.
    Abstract: The study aims to evaluate the country’s legal framework for taxing digital transactions, specifically, the extent to which the provisions of the law can map onto the value of digital markets. Based on the findings on the structure of the digital commerce value chain and its possible interactions with both current and proposed tax regimes, four policy prescriptions are recommended: (1) to optimize existing tax authority over platforms, (2) to establish a digital-ready tax administration, (3) to expand the scope for investigation and liability, and (4) to promote engagement at the international level. Nonresident providers have gained the most from digital markets while minimizing the tax impact of their activities. Thus, the Philippines should continue to explore multilateral options for reallocating taxing rights and addressing base erosion and profit shifting. These include regional tax treaties and the OECD framework treaty. Efforts at negotiating and crafting the provisions should consider the Philippines’ trading power relative to other countries and its comparative ability to exercise jurisdiction. Comments to this paper are welcome within 60 days from the date of posting. Email
    Keywords: digital taxation;taxes;digital commerce;tax law;tax administration
    Date: 2022
  4. By: AMORES Antonio F. (European Commission - JRC); BARRIOS Salvador (European Commission - JRC); SPEITMANN Raffael (European Commission - JRC); STOEHLKER Daniel (European Commission - JRC)
    Abstract: The Spanish government has implemented a temporary VAT rate cut on basic food products as part of its anti-inflationary measures to protect households' purchasing power. Starting from January 2023, and for six months, bread, flour, milk, cheese, eggs, fruits, vegetables, legumes, tubers and cereals are taxed at a 0% VAT rate (down from 4%), while pasta and cooking oil are subject to a new super-reduced rate of 5% (down from 10%). This paper analyses the extent to which such measure led to an effective reduction in final consumer prices. This is done by comparing the prices of affected products in Spain with those in Germany, where such measure has not been taken. Our results suggest that the prices of products concerned have dropped significantly in January 2023, indicating a high pass-through to consumer prices, and therefore an effective application of the policy reform.
    Keywords: Tax policy, pass-through analysis, inflation
    Date: 2023–01
  5. By: Flavio M. Menezes (Australian Institute for Business and Economics, University of Queensland, Brisbane, Australia); Jorge Pereira (School of Economics, University of Queensland, Brisbane, Australia)
    Abstract: This paper investigates the conditions under which the design of an emissions tax can align social and private interests. Our contribution is to determine the general conditions for firms' profits and social welfare to be higher under the implementation of an emissions tax than under no tax. We consider n firms producing an homogeneous product and competing over supply schedules, which covers a continuum of imperfect competition equilibria from Bertrand to Cournot. We show that, as competition intensifies, the pass-through of the tax to consumers increases, to a point where the price rises more than offsets the net result of the investment outlay. Our analysis provides new insights into the trade-off between environmental policy, market competition and the so-called "win-win" outcome for firms and society.
    Keywords: Technology; R&D; Environment; Policy; Emission tax; Subsidy; Porter Hypothesis
    JEL: H23 O32 O38 Q55 Q58
    Date: 2023–02–28
  6. By: Goncalves, Judite (Universidade Nova de Lisboa); Merenda, Roxanne (Universidade Nova de Lisboa); Pereira dos Santos, João (RWI)
    Abstract: Portugal introduced a sugar-sweetened beverages (SSB) tax in 2017. This study uses unique administrative accounting data for all SSB producers/importers in Portugal, and an event study design with bottled water firms as the primary comparison group, to assess the causal impacts of the tax on multiple firm-level outcomes. We find a 6.8% average decrease in domestic SSB sales, vis-à-vis bottled water. The soda tax hindered SSB firms' financial health, namely net income, ability to convert receivables into cash, and liabilities. SSB producers/importers did not decrease wages, cut jobs, or modify their workforce towards higher R&D capacity. Forgone corporate income tax appears negligible compared to the government revenue generated by the tax itself.
    Keywords: sugar tax, soda tax, firm-level, sin taxes
    JEL: H25 H51 I18
    Date: 2023–02
  7. By: Shantanu Bagchi (Department of Economics, Towson University)
    Abstract: This paper uses a heterogeneous-agent overlapping-generations model to examine the fiscal and distributional consequences of introducing a means test in U.S. Social Security. I find that a means test, i.e. conditioning benefit payments on a household’s earnings and/or assets, leads to a higher implicit tax on old-age resources, but has desirable distributional effects. A 75% cut in the benefits to households with earnings more than 200% of the median leads to a 2.3% reduction in the overall size of Social Security, but has almost no effect on the average benefit level. A fiscally comparable payroll tax cut, on the other hand, leads to an across-the-board decline of 2% decline in the benefits. Finally, an asset-based means test causes a decline of 1% in average benefits, but has a large negative effect on the accidental bequests left behind by deceased households.
    Keywords: Health risk, Social Security, benefit-earnings rule, consumption smoothing, general equilibrium.
    JEL: E21 E62 H55
    Date: 2023–03
  8. By: Nadeem Ul Haque (Pakistan Institute of Development Economics); Raja Rafi Ullah (Pakistan Institute of Development Economics)
    Abstract: There has been persistent pressure on successive Pakistani Governments by policymakers, especially those affiliated with multilateral donor agencies, to increase the Percentage Tax-to-GDP ratio. It is true, that the fiscal deficit continues to increase. However, the assumption that it is a tax shortfall that grows the deficit needs to be challenged. Haque (2020 & 2022) and PIDE (2021) have consistently challenged this hypothesis by noting that growing government expenditures arise from its inability to control inefficiencies, losses, and staffing. In addition, the government creates a large number of new agencies often duplicating work and often without regard to funding and cost benefit considerations.
    Date: 2022
  9. By: Hema Shah; Lisa A. Gennetian
    Abstract: Children represent the largest indirect beneficiaries of the U.S. social welfare system. Yet, many questions remain about the direct benefits of cash aid to children. The current understanding of the impacts of cash aid in the U.S. is drawn primarily from studies of in-kind benefits, tax credits, and conditional cash aid programs. A corresponding economics literature focuses on the labor supply responses of parents and the role of income, parenting skills, and early education as family investment mechanisms that reduce socioeconomic inequality in children’s well-being. In contrast to the U.S., dozens of low- to middle-income nations use direct cash aid—conditional or unconditional—as a central policy strategy, with demonstrated positive effects across a host of economic and health measures and selected aspects of children’s health and schooling. This paper reviews the economic research on U.S. safety net programs and cash aid to families with children and what existing studies reveal about its impacts on family investment mechanisms and children’s outcomes. We specifically highlight gaps in understanding the impacts of unconditional cash aid on children. We then review nine contemporary unconditional cash transfer programs and discuss their promise and limitations in filling the U.S.-based economic evidence gap about the impact of cash aid on children’s development.
    JEL: H31 H53 H75 I3 I38 J13 J18
    Date: 2023–02
  10. By: Aerts, Elise (University of Antwerp); Marx, Ive (University of Antwerp); Verbist, Gerlinde (University of Antwerp)
    Abstract: Proponents of a basic income (BI) claim that it could bring significant reductions in financial poverty, on top of many other benefits, including greatly reduced administrative complexity and cost. Using microsimulation analysis in a comparative two-country setting, we show that the potential poverty-reducing impact of BI strongly depends on exactly how and where it is implemented. Implementing a BI requires far more choices than advocates seem to realize. The level at which the BI is set matters, but its exact specification matters even more. Which parts of the existing tax-benefit system are maintained, and which parts are abolished, modified or replaced? The impact of a BI, be it a low or a high one, thus strongly depends on the characteristics of the system that it is (partially) replacing or complementing, as well as the socio-economic context in which it is introduced. Some versions of BI could potentially help to reduce poverty but always at a significant cost and with substantial sections of the population incurring significant losses, which matters for political feasibility. A partial basic income complementing existing provisions appears to make more potential sense than a full basic income replacing them. The simplicity of BI, however, tends to be vastly overstated.
    Keywords: basic income, poverty, income distribution, policy interaction, microsimulation
    JEL: D31 H55 I38 C81
    Date: 2023–02
  11. By: Jessen, Jonas (European University Viadrina, Frankfurt / Oder); Jessen, Robin (RWI); Galecka-Burdziak, Ewa (Warsaw School of Economics); Góra, Marek (Warsaw School of Economics); Kluve, Jochen (KfW Development Bank)
    Abstract: We quantify micro and macro effects of changes in the potential benefit duration (PBD) in unemployment insurance. In Poland, the PBD is 12 months for newly unemployed if the previous year's county unemployment rate is more than 150% of the national average, and 6 months otherwise. We exploit this discontinuity using RD estimates on registry data containing the universe of unemployed from 2004 to 2020. For workers whose PBD is directly affected by the policy rule (benefit recipients younger than 50), a PBD increase from 6 to 12 months leads to 13 percent higher unemployment. The aggregate effect on unemployment is entirely explained by this increase. Thus, the micro effect equals the macro effect. We find no evidence of spill-overs on two distinct groups of unemployed whose PBD is unchanged and no effect on measures of labour market tightness. A decomposition analysis reveals that 12 months after an increase in the PBD, changes in exits from and entries into unemployment each contribute to about one half of the overall increase in unemployment.
    Keywords: unemployment benefits, extended benefits, spell duration, separation rate, regression discontinuity
    JEL: H55 J20 J65
    Date: 2023–02

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