nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒09‒18
nine papers chosen by
Thomas Andrén, Konjunkturinstitutet

  1. Redistributive Income Taxation with Directed Technical Change By Jonas Loebbing
  2. International Tax Spillovers and Tangible Investment, with Implications for the Global Minimum Tax By Mr. Michael Keen; Ms. Li Liu; Hayley Pallan
  3. Beyond Greed: Why Armed Groups Tax By Bandula-Irwin, Tanya; Gallien, Max; Jackson, Ashley; van den Boogaard, Vanessa; Weigand, Florian
  4. Evaluating Fiscal Policy Reforms using the Fiscal Frontier By CHEN Xiaoshan; LEITH Campbell; RICCI Mattia
  5. How to Fund Unemployment Insurance with Informality and False Claims: Evidence From Senegal By Abdoulaye Ndiaye; Kyle F. Herkenhoff; Abdoulaye Cisse; Alessandro Dell'Acqua; Ahmadou Aly Mbaye
  6. Social welfare Promotion, Carbon Emission and Tax By Ellalee, Haider; Alali, Walid Y.
  7. The Effects of Social Insurance Benefits on Leaving Employment at Older Ages in the Netherlands By Adriaan Kalwij; Arie Kapteyn
  8. An Ounce of Prevention for a Pound of Cure: Efficiency of Community-Based Healthcare By Bancalari, Antonella; Bernal, Pedro; Celhay, Pablo; Martinez, Sebastian; Sánchez, Maria Deni
  9. Zakat, Non-State Welfare Provision and Redistribution in Times of Crisis: Evidence from the Covid-19 Pandemic By Gallien, Max; Javed, Umair; van den Boogaard, Vanessa

  1. By: Jonas Loebbing (LMU Munich)
    Abstract: What are the implications of (endogenous) directed technical change for the design of redistributive income taxes? I study this question in a Mirrleesian economy augmented to include endogenous technology development and adoption choices by firms. Under certain conditions, any progressive tax reform induces technical change that compresses the pre-tax wage distribution. The key intuition is that progressive tax reforms tend to increase labor supply of less skilled relative to more skilled workers, which induces firms to develop and use technologies that are more complementary to the less skilled. These directed technical change effects make the optimal tax scheme more progressive, raising marginal tax rates at the right tail of the income distribution and lowering them at the left tail. For reasonable calibrations, the impact of directed technical change on the optimal tax is quantitatively important: optimal marginal tax rates are reduced substantially for incomes below the median and increase monotonically over the bulk of the income distribution instead of being U-shaped (as in most of the previous literature).
    Keywords: optimal taxation; directed technical change; endogenous technical change; wage inequality;
    JEL: H21 H23 H24 J31 O33
    Date: 2023–08–25
  2. By: Mr. Michael Keen; Ms. Li Liu; Hayley Pallan
    Abstract: This paper articulates and, using newly-assembled data, explores how international taxation affects aggregate tangible cross-border investment. Spillovers from statutory tax rates abroad seem: As sizable as effects from the host’s rate; larger than previous consensus values (attributed to a systematic bias from FDI data); and consistent with ‘implicit’ profit shifting through real investment (rather than ‘paper’ profit shifting). Contrary to much policy discussion, the results also imply that: Host countries’ marginal effective tax rates have at best a weak effect on real investment; those elsewhere have none; and, applied to the prospective global minimum tax, inward tangible investment in most sample countries will increase.
    Keywords: Corporate Taxation; International Tax; Multinational Investment; Foreign Direct Investment
    Date: 2023–08–04
  3. By: Bandula-Irwin, Tanya; Gallien, Max; Jackson, Ashley; van den Boogaard, Vanessa; Weigand, Florian
    Abstract: Armed groups tax. Journalistic accounts often have a tone of surprise about this fact, while policy reports tend to strike a tone of alarm, highlighting the link between armed group taxation and ongoing conflict. Policymakers often focus on targeting the mechanisms of armed group taxation as part of their conflict strategy, often described as ‘following the money’. We argue that what is instead needed is a deeper understanding of the nuanced realities of armed group taxation, the motivations behind it, and the implications it has for an armed group’s relationship with civilian and diaspora populations, as well as the broader international community. We build on two distinct literatures, on armed groups and on taxation, to provide the first systematic exploration into the motivation of armed group taxation. Based on a review of the diverse practices of how armed groups tax, we highlight that a full account of the groups’ motivations needs to go beyond revenue motivations, and engage with key themes around legitimacy, control of populations, institution building, and the performance of public authority. Summary of Working Paper 131.
    Keywords: Finance, Security and Conflict,
    Date: 2023
  4. By: CHEN Xiaoshan; LEITH Campbell; RICCI Mattia (European Commission - JRC)
    Abstract: We develop a Fiscal Frontier which traces out the maximum government debt level that can be sustained at a given welfare cost. Through duality, the intertemporal policy mix underpinning the Frontier mirrors standard Ramsey policy and defines an upper limit on the welfare gains that can be achieved by any fiscal reform. The Frontier is then used to evaluate a variety of fiscal reforms: (1) one-off changes in tax instruments considered in Laffer curve calculations, (2) a gradual reduction in capital taxation proposed by Lucas (1990), and (3) fiscal consolidation strategies akin to those considered by the Congressional Budget Office. Conventional Laffer curve calculations significantly under-estimate the sustainable debt of the US. The desirable pace of capital tax abolition has slowed since the 1970s, but the reform remains close to the Frontier. Achieving debt reduction targets considered by the Congressional Budget Office is typically very costly, especially when the fiscal consolidation is large and must be achieved quickly, but a simultaneous capital tax reform can more than offset those costs in all cases we consider.
    Keywords: Laffer Curve, Optimal Policy, Debt Sustainability, Fiscal Limit, Duality
    JEL: E62 H30 H60
    Date: 2023–07
  5. By: Abdoulaye Ndiaye; Kyle F. Herkenhoff; Abdoulaye Cisse; Alessandro Dell'Acqua; Ahmadou Aly Mbaye
    Abstract: This paper studies the welfare effects of unemployment insurance (UI) in low-income countries characterized by high levels of informality, weak enforcement of UI claims, and job search frictions. We assess the impact of UI on workers’ welfare in the presence of moral hazard and liquidity constraints. Our analysis highlights the significance of the UI scheme design on workers’ welfare and identifies potential funding constraints in implementing UI in imperfect labor markets. Using a custom labor force survey conducted in Senegal, we estimate the key parameters of an extended Chetty (2006) model incorporating an informal sector, and we evaluate the welfare implications of three different UI schemes with varying degrees of enforcement and funding sources. Our results demonstrate that workers respond to UI benefits and that welfare gains depend on the design of the UI system. We find that broad-based taxation through a VAT, inflation tax, or external funding can compensate for weak enforcement (i.e., high false UI claim rates), leading to substantial and quantifiable welfare gains. Moreover, safety net expansions reduce loan default rates, potentially fostering greater credit access. This study suggests that increasing the prevalence of UI in low-income countries could raise standard measures of consumer welfare.
    JEL: E0 E24 H21 J65 O10 O55
    Date: 2023–08
  6. By: Ellalee, Haider; Alali, Walid Y.
    Abstract: The objective of this research is to find the preferable carbon taxation regime to achieve net-zero carbon emissions and enhance social welfare levels. Two regimes were discussed in this paper, including a carbon tax at the aggregate level of social welfare (CTTW) and a carbon tax at the level of single social welfare (CTSW). The results present a preferable regime depending on the substitution of the product and product price flexibility of demand. Not only does industrial transformation bring about changes in the substitution of the product and demand flexibility in product prices, but as well both regimes also have a serious effect on achieving net zero carbon emissions and enhancing the level of social welfare.
    Keywords: Social welfare, Carbon Tax, Carbon Emission, Environment
    JEL: B22 C33 E65 D12 I13 Q48
    Date: 2022
  7. By: Adriaan Kalwij; Arie Kapteyn
    Abstract: In the Netherlands, from 1989 to 2013, in the age group 55-63 the annual exit rate from employment to receiving social insurance benefits in the following year decreased from around 17 percent to 7 percent for men, and from 14 percent to 5 percent for women. We found that less generous social insurance benefits have had small but significant negative effects on these exit rates: The annual exit rate to social insurance benefit receipt next year (at ages 56-64) would have been about 14 percent higher for both men and women in 2013 should social insurance benefits schemes of 1989 still have been in place. This increase amounts to staying, on average, three months longer in employment from age 55 onwards in 2013 than in 1989. These findings are driven to some extent by the reduction in the maximum duration of unemployment insurance benefits in 2007, but predominantly by making (early) retirement schemes actuarially fair from 2006 onwards. The increase in disability insurance’s income replacement rate in 2006 has led to a slight increase in the exit rate from employment, conditional on eligibility. As the estimated effects of changes in the social insurance benefits from 1989 to 2013 on working beyond age 55 are relatively small, they suggest the importance of other factors such as changes in workers’ skills, improved health (on which we provide some evidence), and social insurance’s tighter eligibility criteria.
    JEL: H0 J26
    Date: 2023–08
  8. By: Bancalari, Antonella (Institute for Fiscal Studies, London); Bernal, Pedro (Inter-American Development Bank); Celhay, Pablo (Pontificia Universidad Catolica de Chile); Martinez, Sebastian (International Initiative for Impact Evaluation (3ie)); Sánchez, Maria Deni (Inter-American Development Bank)
    Abstract: We study the efficiency in health systems generated by community health teams, a common strategy in low- and middle-income countries for primary healthcare delivery. We exploit the rollout of a nation-wide expansion of coverage to this model in El Salvador. Using a panel dataset of municipalities spanning 2009-2018 from consultation and hospital records of almost 4 million episodes, we show that investing in community-based healthcare, which relied on less-specialized health workers, led to a more efficient allocation of care. Preventive care increased and curative care and hospitalizations from preventable conditions decreased, while coverage in curative care for previously unattended chronic diseases increased.
    Keywords: community-based healthcare, efficiency, access
    JEL: I15 I18 H21 H51
    Date: 2023–07
  9. By: Gallien, Max; Javed, Umair; van den Boogaard, Vanessa
    Abstract: The funding of social protection initiatives is especially complex in times of crisis. While social protection is critical as a means of redistributing income, delivering relief to those in particular need, and building economic resilience, crises severely limit states’ abilities to fund these efforts. Immediate pandemic relief efforts have prompted renewed attention to this dynamic. While state-driven social protection efforts around the pandemic have been studied extensively, little attention has been paid to non-state welfare provision in a context of crisis. There has been particularly little analysis of the role and implications of what is likely the world’s largest system of non-state welfare provision – zakat. Summary of Working Paper 163.
    Keywords: Health,
    Date: 2023

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