nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒07‒24
nineteen papers chosen by
Thomas Andrén

  1. How to Design a Presumptive Income Tax for Micro and Small Enterprises By Jean-François Wen
  2. How does corporate taxation affect business investment?: Evidence from aggregate and firm-level data By Tibor Hanappi; Valentine Millot; Sébastien Turban
  3. The Taxation of Couples By Felix J. Bierbrauer; Pierre C. Boyer; Andreas Peichl; Daniel Weishaar
  4. Estimating the Laffer Tax Rate on Capital Income: Cross-base Responses Matter By Marie-Noëlle Lefebvre; Etienne Lehmann; Michaël Sicsic
  5. No Taxation Without Reallocation: The Distributional Effects of Tax Changes By Stephanie Ettmeier
  6. Rethinking Capital and Wealth Taxation By Thomas Piketty; Emmanuel Saez; Gabriel Zucman
  7. Tax Withholding and the Size of Government By Sutirtha Bagchi; Libor Dušek
  8. The Quantitative Effect of the Thatcherism Taxation Programme: Computational Experiments based on a Dynamic General Equilibrium Model By Robbie Noel Wilson; Aleksandar Vasilev
  9. Uniform taxation of electricity: incentives for flexibility and cost redistribution among household categories By Philipp Andreas Gunkel; Febin Kachirayil; Claire-Marie Bergaentzl\'e; Russell McKenna; Dogan Keles; Henrik Klinge Jacobsen
  10. Tax Revenue from Pillar One Amount A: Country-by-Country Estimates By Mona Barake; Elvin Le Pouhaër
  11. TURKMOD: developing a tax and benefit microsimulation model for Turkey By Okan Erol, Kazim
  12. In search of lost time: An ensemble of policies to restore fiscal progressivity and address the climate challenge By Demetrio Guzzardi; Elisa Palagi; Tommaso Faccio; Andrea Roventini
  13. Dynamic Causal Forests, with an Application to Payroll Tax Incidence in Norway By Gavrilova, Evelina; Langørgen, Audun; Zoutman, Floris T.
  14. A Modern Excess Profit Tax By Manon François; Carlos Oliveira; Bluebery Planterose; Gabriel Zucman
  15. A Welfare Analysis of Tax Audits Across the Income Distribution By William C. Boning; Nathaniel Hendren; Ben Sprung-Keyser; Ellen Stuart
  16. On the Time Consistency of Universal Basic Income By Jang, Youngsoo
  17. The Heterogeneous Effects of Social Assistance and Unemployment Insurance: Evidence from a Life-Cycle Model of Family Labor Supply and Savings By Peter Haan; Victoria Prowse
  18. The Impact of Pension Reform on Employment, Retirement and Disability Insurance Claims By Hernaes, Erik; Markussen, Simen; Piggott, John; Røed, Knut
  19. Fiscal Performance under Inflation and Inflation Surprises: Evidence from Fiscal Reaction Functions for the Euro Area By Olegs Tkacevs; Karsten Staehr; Katri Urke

  1. By: Jean-François Wen
    Abstract: Turnover taxes are prevalent in developing countries as a simple form of presumptive taxation of business income. Such simplified tax regimes can reduce the relatively high compliance costs of micro and small enterprises, which might otherwise discourage entrepreneurs from formalizing their activities and paying taxes. The note addresses design issues for a turnover tax regime—which taxes it replaces, what the criteria are for eligibility, how to determine the optimal threshold, and how to set the tax rate. A key observation is that, although low turnover tax rates may incite larger firms to artificially reduce their sales, the rate should also not be so high as to discourage formalization of activities. A table of tax rates and turnover thresholds observed internationally is provided. The note concludes by suggesting analytical steps to guide practitioners in designing turnover tax regimes.
    Keywords: Presumptive tax; turnover tax; informal sector; microenterprises; taxpayer Compliance cost; turnover tax rate; turnover tax systems; IMF library; Sales tax; Income and capital gains taxes; Income tax systems; Corporate income tax; Effective tax rate; Africa; South America; Eastern Europe; West Africa; Western Europe
    Date: 2023–06–29
  2. By: Tibor Hanappi; Valentine Millot; Sébastien Turban
    Abstract: Business investment in OECD countries has remained weak, in particular since the 2008 global financial crisis. At the same time, the cost of capital has significantly and steadily decreased over the last thirty years, reflecting a fall in both interest rates and corporate tax rates. This raises the question of whether business investment still responds to the cost of capital and thus whether corporate tax policy can support investment. This paper analyses trends in business investment and in the cost of capital in OECD countries over the past three decades. Then, it investigates empirically the sensitivity of business investment to corporate taxation, and how this sensitivity varies across firm, investment and tax-design characteristics. Panel regressions at the firm and industry levels confirm that business investment rates are negatively related to corporate taxation, measured by country-level forward-looking effective tax rates. However, the tax sensitivity of business investment has fallen significantly since the global financial crisis. It also differs significantly across firms, assets, and corporate tax design characteristics. Overall, the estimation results suggest that a nuanced and granular approach to corporate tax policy, accounting for heterogeneity in tax sensitivity, is needed to support investment effectively. The paper discusses possible policy options, including the reduction of non-profit taxes, the use of targeted corporate income tax instruments, and the use of more generous capital allowances where they may induce strong investment responses.
    Keywords: capital allowances, corporate taxation, fiscal policy, investment, non-profit taxes
    JEL: D22 D24 E22 E62 H25 H32
    Date: 2023–07–19
  3. By: Felix J. Bierbrauer (Center for Macroeconomic Research, University of Cologne, Germany); Pierre C. Boyer (CREST, Ecole Polytechnique, Institut polytechnique de Paris, France); Andreas Peichl (ifo Munich, LMU Munich, CESifo, IHS and IZA); Daniel Weishaar (LMU Munich)
    Abstract: This paper studies the tax treatment of couples. We develop two different ap-proaches. One is tailored to the analysis of tax systems that stick to the principle that the tax base for couples is the sum of their incomes. One is tailored to the analysis of reforms toward individual taxation. We study the US federal income tax since the 1960s through the lens of this framework. We find that, in the recent past, realizing efficiency gains requires lowering marginal tax rates for secondary earners. We also find that revenue-neutral reforms towards individual taxation are in the interest of couples with high secondary earnings while couples with low secondary earnings are worse off. The support for such a reform recently passed the majority threshold. It is rejected, however, by a Rawlsian social welfare function. Thus, there is a tension between Rawlsian and Feminist notions of social welfare.
    Keywords: Taxation of couples; Tax reforms; Optimal taxation; Political economy; Non-linear income taxation.
    JEL: C72 D72 D82 H21
    Date: 2023–06
  4. By: Marie-Noëlle Lefebvre (ESPI - Ecole Supérieure des Professions Immobilières); Etienne Lehmann (CRED - Centre de Recherche en Economie et Droit - Université Paris-Panthéon-Assas); Michaël Sicsic (CRED - Centre de Recherche en Economie et Droit - Université Paris-Panthéon-Assas)
    Abstract: We theoretically express the Laffer tax rate on capital income as a function of the elasticities of capital income (the "direct" elasticity) and of labor income (the "cross" elasticity) with respect to the net-of-tax rate on capital income. We estimate these elasticities using salient capital tax reforms that took place in France between 2008 and 2017. Graphical evidence and Instrumental variables (IV) estimates confirm the existence of significant responses of both capital and labor income to capital tax reforms. Both approaches lead to positive cross responses, in contrast to the prediction of income-shifting models but in line with the two-period "working and saving" model. We obtain a direct elasticity around 0.76 which is robust across specifications. Ignoring the cross elasticity leads to a Laffer rate around 56%. However, since labor incomes are much larger than capital incomes, the Laffer tax rate is especially sensitive to the cross elasticity. Using our estimated positive cross elasticity dramatically reduces the Laffer tax rate on capital income to around 44%, taking income tax on labor income into account.
    Keywords: Capital Income taxation, Optimal tax, Laffer tax rate, Instrumental Variables
    Date: 2023–05–04
  5. By: Stephanie Ettmeier
    Abstract: This paper quantifies the distributional effects of tax changes in the United States. A functional vector autoregression framework is used to estimate the joint dynamics of tax shocks, the cross-sectional distribution of disposable income, and macroeconomic aggregates. I distinguish between changes in personal and corporate income taxes and investigate the distributional effects on families and business owners. I document that tax changes affect incomes along the distribution unevenly and that the family status and the source of income matters. Tax reductions benefit high incomes and disadvantage lower incomes. Entrepreneurs and families benefit more from tax cuts than individuals without business income and non-families.
    Keywords: Income Distribution, Functional Vector Autoregressions, Tax Policy Shocks
    JEL: C11 C32 E32 E62
    Date: 2023–06
  6. By: Thomas Piketty (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, PJSE - Paris Jourdan Sciences Economiques - 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); Emmanuel Saez (UC Berkeley - University of California [Berkeley] - UC - University of California); Gabriel Zucman (UC Berkeley - University of California [Berkeley] - UC - University of California)
    Abstract: This paper reviews recent developments in the theory and practice of optimal capital taxation. We emphasize three main rationales for capital taxation. First, the frontier between capital and labor income flows is often fuzzy, thereby lending support to a broadbased, comprehensive income tax. Next, the very notions of income and consumption flows are difficult to define and measure for top wealth holders where capital gains due to asset price effects dwarf ordinary income and consumption flows. Therefore the proper way to tax billionaires is a progressive wealth tax. Finally, as individuals cannot choose their parents, there are strong meritocratic reasons why we should tax inherited wealth more than earned income or self-made wealth for which individuals can be held responsible, at least in part. This implies that the ideal fiscal system should also include a progressive inheritance tax, in addition to progressive income and wealth taxes. We then confront our prescriptions with historical experience. Although there are significant differences, we argue that observed fiscal systems in modern democracies bear important similarities with this ideal tryptic.
    Keywords: Optimal capital taxation, Wealth taxation, Inheritance taxation
    Date: 2022–11–22
  7. By: Sutirtha Bagchi (Department of Economics, Villanova School of Business, Villanova University); Libor Dušek (Charles University, Faculty of Law)
    Abstract: This paper examines the hypothesis that an improvement in tax collections causally leads to bigger government. We exploit the staggered introduction of withholding of the state personal income tax by U.S. states between 1948 and 1987 and find that withholding led to an increase in tax revenues by about 28 percent. We derive a theoretical model through which we interpret the estimates distinguishing between a mechanical increase in tax collections driven by reduced noncompliance, subsequent adjustments in revenue choices in response to that reduced noncompliance, and an increase in the underlying demand for revenue that may have motivated the adoption of withholding. Governments responded to the improvement in personal income tax collections by shifting the composition of revenues towards a heavier reliance on this tax. States also increased tax rates as they implemented withholding, which suggests that a need to raise more revenue was an important motive for adopting withholding.
    Keywords: Political economy of taxation; Size of government; Third-party reporting; Withholding
    JEL: H11 H21 H26 H71 N42
    Date: 2023–07
  8. By: Robbie Noel Wilson; Aleksandar Vasilev
    Abstract: This paper analyses the quantitative welfare effects of the Thatcherism taxation programme reforms. Modern macroeconomic techniques are put into application to the important historical fiscal reforms. The Paper provides details of the Thatcherism taxation reform, the changes in taxation rates and brackets. Through a dynamic general equilibrium model, the paper provides counter-factual growth rates. A comparison between the factual and counter-factual growth rates is given. The paper finds that through both welfare measures, that welfare increased due to the Thatcherism taxation program. These results will provide use and benefit for; policymakers, those studying the Laffer-Curve, those with supply-side economic ideas or beliefs, and those studying the economic, political, and historical period under the Thatcher government.
    Keywords: Thatcher government, tax reform, general equilibrium, endogenous growth model, compensatory variation
    JEL: E32
    Date: 2023–06–02
  9. By: Philipp Andreas Gunkel (Section for Energy Economics and Modelling, DTU Management, Technical University of Denmark, 2800 Kongens Lyngby, Denmark); Febin Kachirayil (Chair of Energy Systems Analysis, Institute of Energy and Process Engineering, ETH Zuerich, 8092 Zuerich, Switzerland); Claire-Marie Bergaentzl\'e (Section for Energy Economics and Modelling, DTU Management, Technical University of Denmark, 2800 Kongens Lyngby, Denmark); Russell McKenna (Chair of Energy Systems Analysis, Institute of Energy and Process Engineering, ETH Zuerich, 8092 Zuerich, Switzerland; Paul Scherrer Institute, Laboratory for Energy Systems Analysis, Forschungsstrasse 111, 5232 Villigen PSI, Switzerland); Dogan Keles (Section for Energy Economics and Modelling, DTU Management, Technical University of Denmark, 2800 Kongens Lyngby, Denmark); Henrik Klinge Jacobsen (Section for Energy Economics and Modelling, DTU Management, Technical University of Denmark, 2800 Kongens Lyngby, Denmark)
    Abstract: Recent years have shown a rapid adoption of residential solar PV with increased self-consumption and self-sufficiency levels in Europe. A major driver for their economic viability is the electricity tax exemption for the consumption of self-produced electricity. This leads to large residential PV capacities and partially overburdened distribution grids. Furthermore, the tax exemption that benefits wealthy households that can afford capital-intense investments in solar panels in particular has sparked discussions about energy equity and the appropriate taxation level for self-consumption. This study investigates the implementation of uniform electricity taxes on all consumption, irrespective of the origin of the production, by means of a case study of 155, 000 hypothetical Danish prosumers. The results show that the new taxation policy redistributes costs progressively across household sizes. As more consumption is taxed, the tax level can be reduced by 38%, leading to 61% of all households seeing net savings of up to 23% off their yearly tax bill. High-occupancy houses save an average of 116 Euro per year at the expense of single households living in large dwellings who pay 55 Euro per year more. Implementing a uniform electricity tax in combination with a reduced overall tax level can (a) maintain overall tax revenues and (b) increase the interaction of batteries with the grid at the expense of behind-the-meter operations. In the end, the implicit cross-subsidy is removed by taxing self-consumption uniformly, leading to a cost redistribution supporting occupant-dense households and encouraging the flexible behavior of prosumers. This policy measure improves economic efficiency and greater use of technology with positive system-wide impacts.
    Date: 2023–06
  10. By: Mona Barake (EU Tax - EU Tax Observatory, 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); Elvin Le Pouhaër (EU Tax - EU Tax Observatory)
    Abstract: This paper presents simulations of the tax revenue arising from the Pillar One Amount A proposal of the G20/OECD Inclusive Framework on Base Erosion and Profit Shifting. Amount A aims at revising taxing rights on multinational enterprises with at least e20 billion in revenue and with profitability above 10%. We consider the latest available Amount A rules and use a variety of databases (Forbes 2000 list of largest companies, Orbis database, OECD AMNE data, OECD CbCR data). In a first step, we identify the MNEs that would be covered by Amount A. Then, we approximate the destination-based revenues of MNEs in different jurisdictions, to determine reallocated profits. In a final step, we account for double taxation relief to obtain the net revenue from Amount A. We find that the total amount of additional tax revenue arising from Amount A is around e15.6 billion. We provide detailed country-specific estimates and a comparison to digital taxes. The extent of taxing rights redistribution induced by Amount A is affected by (a) the inclusion criteria of covered MNEs; (b) the reallocation parameter of 25%.
    Keywords: Pillar One Amount A, Two-Pillar Solution, International Taxation
    Date: 2023–03
  11. By: Okan Erol, Kazim
    Abstract: This paper aims to study the income distribution and redistribution in Turkey by using a microsimulation analysis. Developing a Turkish tax and benefit microsimulation model allows the analysis of the Turkish public revenue system by using national SILC data. In this research, TRSILC input data have been transformed into a EUROMOD input dataset and included in the EUROMOD model, such that we can test the effectiveness of the Turkish tax and benefit system on data representative for Turkish private households. The aim of this study is to be able to compare the Turkish tax-benefit system with those of other European countries by implementing the same methodology. As a pioneering model, TURKMOD can be essential to assess the of the tax and benefit system on income inequality in Turkey.
    Date: 2022–02–01
  12. By: Demetrio Guzzardi; Elisa Palagi; Tommaso Faccio; Andrea Roventini
    Abstract: The European Union needs to raise significant resources to finance a just green transition. At the same time, there is a widespread fiscal regressivity in many EU countries. Indeed, recent empirical evidence shows that the tax systems of many EU members are characterized by low degrees of progressivity, with high-income groups paying lower effective tax rates vis-a-vis middle- and low-income classes. In order to jointly tackle such issues, we propose an ensemble of tax policies at the EU level grounded on the recent proposals advanced in the literature. This fiscal reform includes a wealth tax targeting the top 1% of wealth holders, a tax on unrealized capital gains, and an increase of the minimum corporate tax. Our first estimates suggest that these measures can generate substantial yearly revenues in the order of 1.9%-2.9% of EU GDP. Such resources can contribute to the funding of the additional climate mitigation and adaptation policies required to tackle the climate emergency, while reducing inequality, thus contributing to put EU economies on sustainable and inclusive growth pathways.
    Keywords: Taxation; Inequality; Wealth tax; Capital gains tax; Corporate tax; Climate change.
    Date: 2023–07–10
  13. By: Gavrilova, Evelina (Dept. of Business and Management Science, Norwegian School of Economics); Langørgen, Audun (Statistics Norway); Zoutman, Floris T. (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: This paper develops a machine-learning method that allows researchers to estimate heterogeneous treatment effects with panel data in a setting with many covariates. Our method, which we name the dynamic causal forest (DCF) method, extends the causal-forest method of Wager and Athey (2018) by allowing for the estimation of dynamic treatment effects in a difference-in-difference setting. Regular causal forests require conditional independence to consistently estimate heterogeneous treatment effects. In contrast, DCFs provide a consistent estimate for heterogeneous treatment effects under the weaker assumption of parallel trends. DCFs can be used to create event-study plots which aid in the inspection of pre-trends and treatment effect dynamics. We provide an empirical application, where DCFs are applied to estimate the incidence of payroll tax on wages paid to employees. We consider treatment effect heterogeneity associated with personal- and firm-level variables. We find that on average the incidence of the tax is shifted onto workers through incidental payments, rather than contracted wages. Heterogeneity is mainly explained by firm-and workforce-level variables. Firms with a large and heterogeneous workforce are most effective in passing on the incidence of the tax to workers.
    Keywords: Causal Forest; Treatment Effect Heterogeneity; Payroll Tax Incidence; Administrative Data
    JEL: C18 H22 J31 M54
    Date: 2023–06–29
  14. By: Manon François (EU Tax - EU Tax Observatory, 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); Carlos Oliveira (EU Tax - EU Tax Observatory, NOVA SBE - NOVA - School of Business and Economics - NOVA - Universidade Nova de Lisboa = NOVA University Lisbon); Bluebery Planterose (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, EU Tax - EU Tax Observatory); Gabriel Zucman (EU Tax - EU Tax Observatory, UC Berkeley - University of California [Berkeley] - UC - University of California)
    Abstract: This paper presents a new way to tax excess profits. We propose to tax the rise in the stock market capitalization of companies that benefit from extraordinary circumstances, such as energy firms following the invasion of Ukraine in February 2022. Targeting the rise in stock market capitalization (which is easily observable) makes the tax much harder to avoid than standard excess profit taxes, and allows to capture rents irrespective of where multinational companies book their profits. We apply this proposal to energy companies that are headquartered or have sales in the European Union. We estimate that taxing the January 2022 to September 2022 valuation gains of energy firms at a rate of 33% would generate around €80 billion in revenue (0.4% of GDP) for the European Union. We discuss implementation practicalities and compare our proposals to other plans made to tax excess profits.
    Date: 2022–09
  15. By: William C. Boning; Nathaniel Hendren; Ben Sprung-Keyser; Ellen Stuart
    Abstract: We estimate the returns to IRS audits of taxpayers across the income distribution. We find an additional $1 spent auditing taxpayers above the 90th income percentile yields more than $12 in revenue, while audits of below-median income taxpayers yield $5. We draw upon comprehensive internal accounting information and audit-level enforcement logs to quantify the average costs and revenues associated with each audit. We begin by estimating the average initial return to all audits of US taxpayers filing in 2010-2014. On average, $1 in audit spending raises $2.17 in initial revenue. Audits of high-income taxpayers are more costly, but the additional revenue raised more than offsets the costs. Audits of the 99-99.9th percentile have a 3.2:1 return; audits of the top 0.1% return 6.3:1. We then exploit the 40% audit reduction between tax years 2010 and 2014 to examine the returns to marginal audits. We find they exceed the returns to average audits. Revenues remain relatively unchanged but marginal costs fall below average costs due to economies of scale. Next, we use randomly selected audits to examine the impact of an initial audit on future revenue. This specific deterrence effect produces at least three times more revenue than the initial audit. Deterrence effects are relatively consistent across the income distribution. This results in the 12:1 return above the 90th percentile. We conclude by estimating the welfare consequences of audits using the MVPF framework and comparing audits to other revenue raising policies. We find that audits raise revenue at lower welfare cost.
    JEL: H0
    Date: 2023–06
  16. By: Jang, Youngsoo
    Abstract: I study how government commitment shapes optimal Universal Basic Income (UBI) by characterizing the equilibria of a dynamic game between heterogeneous individuals and a benevolent government. I find that commitment, throughout the transition, influences how the government balances income redistribution through taxes and UBI with pecuniary externalities from changes in factor income composition. In a calibrated economy, commitment substantially improves welfare by implementing considerable UBI that incurs long-run welfare losses but drives front-loaded welfare gains through income redistribution facilitated by reduced precautionary savings. Without commitment, the government obtains smaller welfare improvements, overlooking the impacts of long-run UBI on the short-run economy.
    Keywords: Universal Basic Income, Time Inconsistency, Taxes and Transfers, Heterogeneous Agents, Incomplete Markets
    JEL: E61 H11
    Date: 2023–04
  17. By: Peter Haan; Victoria Prowse
    Abstract: We empirically analyze the heterogeneous welfare effects of unemployment insurance and social assistance. We estimate a structural life-cycle model of singles' and married couples' labor supply and savings decisions. The model includes heterogeneity by age, education, wealth, sex and household composition. In aggregate, social assistance dominates unemployment insurance; however, the opposite holds true for married men, whose leisure time declines more than that of their spouses when unemployment insurance is reduced. A revenue-neutral rebalancing of social support away from unemployment insurance and toward social assistance increases aggregate welfare. Income pooling in married households decreases the welfare value of social assistance.
    Keywords: Life-cycle labor supply, family labor supply, unemployment insurance, social assistance, household savings, employment risk, added worker effect, intra-household insurance
    JEL: J18 J58 H21 I38
    Date: 2023
  18. By: Hernaes, Erik (Ragnar Frisch Centre for Economic Research); Markussen, Simen (Ragnar Frisch Centre for Economic Research); Piggott, John (University of New South Wales); Røed, Knut (Ragnar Frisch Centre for Economic Research)
    Abstract: We evaluate a comprehensive reform of Norwegian early retirement institutions in 2011 through the lens of a parsimonious random utility choice model. The reform radically changed work incentives and/or pension access-age for some (but not all) workers. We find that improved work incentives caused employment to rise considerably, at the expense of both early retirement and exits through disability insurance. Lower access-age to own pension funds caused a small increase in employment and a large drop in disability program participation. Properly designed pension reforms thus need to take the interplay between old age pension and disability insurance programs into account.
    Keywords: pension reform, disability insurance, program substitution
    JEL: H55 J22
    Date: 2023–06
  19. By: Olegs Tkacevs (Latvijas Banka); Karsten Staehr (Eesti Pank); Katri Urke (Eesti Pank)
    Abstract: This paper estimates fiscal reaction functions to examine the importance of inflation and inflation sur- prises for fiscal outcomes in the euro area countries, covering the first 12 countries to join the euro area. The effect of HICP inflation on the primary fiscal balance in per cent of GDP is positive, and statistically and economically significant. The positive effect stems from both the revenue side, particularly direct taxes and indirect taxes, and the expenditure side, particularly primary current expenditures. The effects of HICP inflation on the primary balance and other fiscal outcomes appear in large part to stem from inflation surprises, which are errors in the inflation forecasts available for preparing budgets. The positive effect on the primary fiscal balance does not exhibit noticeable non-linearities.
    Keywords: public finances, fiscal outcome, inflation, inflation surprises
    JEL: H6 H62 H68 E31
    Date: 2023–06–02

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