nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒07‒31
thirteen papers chosen by
Thomas Andrén

  1. Public Disclosure and Tax Compliance: Evidence from Uganda By Tanner Regan; Priya Manwaring
  2. On the need to anticipate behavioral responses to policies: the case of multiple refilings on taxpayer behavior in Ecuador By Gómez-Rámirez, Leopoldo; Sánchez, Gonzalo E.
  3. Wealth and Income Responses to Dividend Taxation: Evidence from France By Marie-Noëlle Lefebvre; Eddy Zanoutene
  4. R&D tax credits and the acquisition of startups By McShane, William; Sevilir, Merih
  5. How does bonus depreciation affect real investment? Effect size, asset structure, and tax planning By Eichfelder, Sebastian; Knaisch, Jonas; Schneider, Kerstin
  6. Employment versus Efficiency: Which Firms Should R&D Tax Credits Target? By Anna Bernard; Rahim Lila; Joana Silva
  7. The Welfare Economics of Reference Dependence By Daniel Reck; Arthur Seibold
  8. Raising America's future: search for optimal child-related transfers By Oliwia Komada
  9. Global public goods, fiscal policy coordination, and welfare in the world economy By Pierre-Richard Agénor; Luiz Awazu Pereira da Silva
  10. The Effects of an Unconditional Cash Transfer on Mental Health in the United States By Pignatti, Clemente; Parolin, Zachary
  11. Tax policies, informality, and real wage rigidities By Andres García-Suaza; Fernando Jaramillo; Marlon Salazar
  12. Welfare Reform and Migrant's Long-term Labor Market Integration By Johannes Kunz
  13. Revisiting the Countercyclicality of Fiscal Policy By João Tovar Jalles, Youssouf Kiendrebeogo, Raphael Lam, Roberto Piazza

  1. By: Tanner Regan (George Washington University); Priya Manwaring (University of Oxford)
    Abstract: Public disclosure of tax behavior is a promising policy tool for raising tax compliance in low-income countries with limited capacity for alternative enforcement mechanisms. Through a field experiment involving over 65, 000 taxpayers in Kampala, we study effects of reporting delinquents and recognizing compliers and provide evidence on the social determinants of tax compliance. The threat of publicly disclosing delinquency raises compliance, but subsequently disseminating delinquent behavior lowers compliance of others. Public recognition backfires, lowering compliance both for those promised recognition and for those who receive information about compliant taxpayers. These results are consistent with a model of tax evasion with privacy costs to tax eligibility status and limited shame of delinquency. Disseminating tax behavior reduces compliance by lowering compliance beliefs as measured in survey data. Overall, public disclosure policies in this context are limited at raising revenue and enforcement reminder nudges more effective.
    Keywords: property tax, tax morale, public disclosure, shaming
    JEL: O18 H30 H26
    Date: 2023–04
  2. By: Gómez-Rámirez, Leopoldo; Sánchez, Gonzalo E.
    Abstract: In this paper we document the use of multiple refilings to evade taxes using administrative data from Ecuador. Then, we develop a model to study the role of multiple refilings on the behavior of taxpayers that received tax notifications because they under-reported taxes. Our model finds that if multiple refilings are possible, then the better decision for selfish taxpayers is to evade taxes. Differently, the model finds that if multiple refilings are not possible, then for taxpayers who exhibit strong social preferences their better decision is to comply even if the probability of being notified is relatively low. The model also shows that banning the possibility of multiple refilings is a necessary but not sufficient condition to achieve true reporting. Nevertheless, the results imply that for both selfish and socially minded taxpayers, limiting the use of multiple refilings reduces their expected payoff of tax evasion and, therefore, increases the probability of tax compliance.
    Keywords: Tax compliance; refiling; tax evasion; Ecuador; policies future effects
    JEL: C72 H25 H26 K42
    Date: 2023–06
  3. By: Marie-Noëlle Lefebvre (ESPI2R - Laboratoire ESPI2R Research in Real Estate [Paris] - ESPI - Ecole Supérieure des Professions Immobilières, CRED - Centre de Recherche en Economie et Droit - Université Paris-Panthéon-Assas); Eddy Zanoutene (CRED - Centre de Recherche en Economie et Droit - Université Paris-Panthéon-Assas)
    Abstract: This paper analyzes the responses of wealthy taxpayers to an important increase in dividend taxation in France in 2013. Using an exhaustive panel of French households liable for wealth taxation, we use a difference-indifference strategy to elicit responses of both incomes and wealth to changes in dividend taxation. Unsurprisingly we observe a decline in dividends payments due to the rise in dividend taxation. This drop is severe enough for the tax hike to actually result in a loss of government revenue. However, we show that this direct response of dividend to its own marginal tax rate is not sufficient to account for the total impact of the reform. Indeed, we document a significant increase in wealth in response to the tax hike on dividends, especially when we focus on financial wealth. This rise in taxable wealth mitigates the impact of the decline in dividends, although it does not completely offset the loss in government revenue.
    Keywords: Dividend taxation, Wealth Tax, Efficiency
    Date: 2022–03–29
  4. By: McShane, William; Sevilir, Merih
    Abstract: We propose a novel mechanism through which established firms contribute to the startup ecosystem: the allocation of R&D tax credits to startups via the M&A channel. We show that when established firms become eligible for R&D tax credits, they increase their R&D and M&A activity. In particular, they acquire more venture capital (VC)-backed startups, but not non-VC-backed firms. Moreover, the impact of R&D tax credits on firms' R&D is increasing with their acquisition of VC-backed startups. The results suggest that established firms respond to R&D tax credits by acquiring startups rather than solely focusing on increasing their R&D intensity in-house. We also highlight evidence that startups do not appear to benefit from R&D tax credits directly, perhaps because they typically lack the taxable income necessary to directly benefit from the tax credits. In this context, established firms can play an intermediary role by acquiring startups and reallocating R&D tax credits, effectively relaxing the financial constraints faced by startups.
    Keywords: indirect effects, innovation, mergers and acquisitions (M&A), research and development (R&D), startups, tax credits
    JEL: G00 G34 H24 M13 O31
    Date: 2023
  5. By: Eichfelder, Sebastian; Knaisch, Jonas; Schneider, Kerstin
    Abstract: We analyze how tax incentives (bonus depreciation) affect real investment choices of firms by exploiting an exogenous variation in regional tax regulation in former East Germany (Development Area Law, DAL). Our rich administrative panel data for the universe of German manufacturing firms at the establishment level allow us not only to identify an aggregate effect, but also to identify which types of investment (equipment, buildings, land) are are most affected (asset structure). Our baseline results suggest that the DAL increased real gross investment by 16.0% to 19.9%. This aggregate effect is primarily driven by additional investments in buildings (76.6% to 92.3%) and land (108.0% to 121.3%) investments, which have the longest regular depreciation periods in absence of bonus depreciation. The impact on equipment investment is significantly smaller (7.3% to 10.5%). Hence, firms did not only increase their real investment, but also adjusted their asset structure in response to the tax incentive. Addressing firm heterogeneity, we observe a stronger response for firms with more than one business establishment and large firms, thereby providing evidence of tax planning opportunities (multi-establishment firms) and relatively low tax planning costs (large firms) enhancing the effect of bonus depreciation on investment. There is only week evidence of financial reporting costs (accounting incentives) moderating the tax induced effect on firms' real investment choices.
    Keywords: business taxation, user cost of capital, tax elasticity, real investment
    JEL: G11 H25 H32 M41
    Date: 2023
  6. By: Anna Bernard; Rahim Lila; Joana Silva (Católica School of Business and Economics, Universidade Católica Portuguesa; Charles Rivers Associate; Católica School of Business and Economics, Universidade Católica Portuguesa)
    Abstract: R&D tax credits, by stimulating private sector innovation, can play a key role in promoting employment and firm performance. This paper examines the program impact on the trajectory of firms in terms of technology adoption, firm performance and workforce composition, and the extent to which it depends on the size of the targeted firms. It uses rich longitudinal micro-data on innovation, firms and their workers. Combining matching with a staggered adoption differences-in-differences, we show that tax credits increase investment in R&D-related activities while funds are being received, but not thereafter. Productivity and efficiency (but not employment) increase in large firms. These effects are driven by structural changes, both in terms of the increased share of skilled individuals within the firm (keeping the overall employment level constant) and enhanced technological adoption. In contrast, small firms mostly respond by increasing employment and production scale. Our results suggest that an important trade-off: R&D tax credit programs that target large firms are likely to lead to efficiency and productivity gains, but limited effects on employment of supported firms. In contrast, R&D tax credit programs that mostly benefit small firms may lead to employment gains in supported firms, but limited effects on structural changes in productivity and efficiency.
    Keywords: R&D tax credits, Innovation, SIFIDE, Matching, Differences-in-Differences
    JEL: O31 O38 H25
    Date: 2023–07
  7. By: Daniel Reck; Arthur Seibold
    Abstract: Empirical evidence suggests that individuals often evaluate options relative to a reference point, especially seeking to avoid losses. We undertake the first welfare analysis under reference-dependent preferences. We characterize the welfare impact of changes in reference points and prices, decomposing these into direct and behavioral effects. The sign of direct and behavioral effects depends on the form of reference-dependent payoffs; which of these effects matter for welfare depends on whether reference dependence reflects a bias or a normative preference. We derive sufficient statistics formulas quantifying the social welfare effects of changes in reference points and prices in terms of estimable reduced-form parameters and normative judgments. We illustrate these findings with an empirical application to reference dependence exhibited in German workers' retirement decisions. We find positive social welfare effects of increasing the Normal Retirement Age, but ambiguous effects of financial incentives to postpone retirement.
    JEL: D60 D90 H55
    Date: 2023–06
  8. By: Oliwia Komada (Group for Research in Applied Economics (GRAPE))
    Abstract: The US differs from other OECD countries in terms of family policy size and composition. This study examines the welfare and macroeconomic effects of family policy reforms. I explore three policy instruments: child-related tax credits, child care subsidies, and child allowances. The children are merit good due to PAYG social security structure. I show that expanding family policy, similar to the American Rescue Plan, enhances welfare. I also characterize the optimal family policy for the US. It accounts for about 3\% of GDP, three times larger than the existing policy, and primarily focused on child-care subsidies. The structure of family policy is vital for welfare evaluation, as similar expenditure levels can lead to contrasting welfare outcomes depending on policy composition. This study underscores the importance of carefully designed family policies, highlighting the need for ongoing research and policy innovation to maximize societal benefits and promote equitable economic growth.
    Keywords: family policy, social security system, welfare, income risk
    JEL: D21 E62 H31 H55
    Date: 2023
  9. By: Pierre-Richard Agénor; Luiz Awazu Pereira da Silva
    Abstract: A two-region endogenous growth model of the world economy with local and global public goods is used to study strategic interactions between national fiscal authorities. Distortionary levies are used to finance infrastructure investment at home and to generate resources that are transferred to a global public fund for the production of vaccines, which contribute to individual health in both regions. While the global public good is nonexcludable, it is partially rival - its distribution in each region is subject to congestion. Under financial autarky, the cooperative equilibrium is efficient because the benefits of vaccines are fully internalized. Under financial openness, the cooperative equilibrium is also efficient because it preserves the tax base by internalizing the cross-border leakages associated with capital flows. Similar results hold when the health levy takes the form of a wealth tax. However, optimal tax rates are not necessarily higher under cooperation---an important consideration from a policy perspective. Simple numerical experiments are performed to calculate the optimal rates and the gain from cooperation under alternative regimes.
    Keywords: global public goods, endogenous growth, fiscal policy coordination, optimal taxation
    JEL: F43 H51 H87
    Date: 2023–07
  10. By: Pignatti, Clemente (ILO International Labour Organization); Parolin, Zachary (Bocconi University)
    Abstract: Mental health conditions have worsened in many countries in recent decades. The provision of unconditional cash transfers may be one effective policy strategy for improving mental health, but causal evidence on their efficacy is rare in high-income countries. This study investigates the mental health consequences of the 2021 Child Tax Credit (CTC) expansion, which temporarily provided unconditional and monthly cash support to most families with children in the United States (US). Using data from the Behavioral Risk Factor Surveillance System, the largest health-related survey in the US, we exploit differences in CTC benefit levels for households with younger versus older children. More generous CTC transfers are associated with a decrease in the number of reported bad mental health days. The effect materializes after the third monthly payment and disappears when the benefits are withdrawn. The CTC's improvement of mental health is larger for more credit-constrained individuals, including low-income households, women, and younger respondents.
    Keywords: child tax credit, mental health, public policy
    JEL: H51 I18 J18
    Date: 2023–06
  11. By: Andres García-Suaza; Fernando Jaramillo; Marlon Salazar
    Abstract: Developing countries have a vast informal sector generally associated with low productivity levels. The response of informal employment to tax policies might depend on labor market rigidities. This paper proposes a theoretical framework consisting of a search and matching model with segmentation in the labor market to understand how tax policies and enforcement interact to determine the size of the formal sector. The analytical results show that decreasing payroll taxes increases formal employment demand, and enforcement expenditure decreases informal employment offers. The model suggests that a tax policy combination leads to a significant impact on informality reduction. Moreover, the magnitude of the effect of tax policies depends on real wage rigidities, i.e., when the economy faces high real wage rigidities, the tax policies have a higher effect on informality reduction. **** RESUMEN: Los países en desarrollo presentan un sector informal relevante asociado con bajos niveles de productividad. Los efectos de las políticas tributarias sobre los niveles de informalidad dependen de las rigideces del mercado laboral. En el presente artículo se propone un modelo de busqueda y emparejamiento en un mercado laboral segmentado para entender la interaccion entre las políticas tributarias y la aplicacion de la ley sobre el sector formal. Los resultados analíticos muestran que, disminuir los impuestos a la nomina genera aumentos en la demanda de empleo formal, mientras que un aumento en el gasto de auditar a las empresas disminuye la oferta de empleo informal. El modelo sugiere un impacto significativo en la reduccion de la informalidad al combinar las políticas tributarias. Ademas, la magnitud del efecto de las políticas depende de las rigideces en los salarios reales. De esta forma, cuando la economía presenta altas rigideces en los salarios reales, las políticas tributarias tienen un mayor efecto sobre la reducción de la informalidad.
    Keywords: Informality, payroll taxes, fiscal policy, enforcement, search frictions, shirking, Informalidad, Impuestos a la nómina, Política fiscal, Aplicación de la ley, Busqueda y Emparejamiento
    JEL: E26 E62 J21 J46 J31 O17 K42
    Date: 2023–07
  12. By: Johannes Kunz (Monash University)
    Abstract: We study the effect of reducing welfare assistance on migrants’ long-term integration in Australia. The policy postponed a migrant’s eligibility for benefits during their first two years in the country. It mainly affected mothers and was announced after their arrival. Using a regression discontinuity design and 21 years of administrative welfare data, we find significant reductions in welfare receipt, where the gap widened over time, and stabilized in the long run. Benefit receipt amounts reduced by 28%, and time-on-benefits by 19%, particularly in the unemployment and disability categories. We observe larger treatment effects for mothers from disadvantaged backgrounds.
    Keywords: Welfare reform, labor market outcomes, migration, job quality
    JEL: E64 I30 J60
    Date: 2023–06
  13. By: João Tovar Jalles, Youssouf Kiendrebeogo, Raphael Lam, Roberto Piazza
    Abstract: This paper provides a novel dataset of time-varying measures on the degree of countercyclicality of fiscal policies for advanced and developing economies between 1980 and 2021. The use of time-varying measures of fiscal stabilization, with special attention to potential endogenity issues, overcomes the major limitation of previous studies and alllows the analysis to account for both country-specific as well as global factors. The paper also examines the key determinants of countercyclicality of fiscal policy with a focus on factors as severe crises, informality, financial development, and governance. Empirical results show that (i) fiscal policy tends to be more counter-cyclical during severe crises than typical recessions, especially for advanced economies; (ii) fiscal counter-cyclicality has increased over time for many economies over the last two decades; (iii) discretionary and automatic countercyclicality are both strong in advanced economies but acyclical (at times procyclical) in low-income countries, (iv) fiscal countercyclicality operates primarily through the expenditure channel, particularly for social benefits, (vi) better financial development, larger government size and stronger institutional quality are associated with larger countercyclical effects of fiscal policy. Our results are robust to various specifications and endogeneity checks.
    Keywords: Countercyclical fiscal policy; automatic stabilizers; discretionary ficsal policy; fiscal multipliers, stabilization coefficients; local projection.
    JEL: E32 E62 H50 H62
    Date: 2023–06

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