nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒10‒16
thirteen papers chosen by
Thomas Andrén, Konjunkturinstitutet

  1. Social Norms as Factors of Tax Evasion By Stanislav Klazar; Paulina Jalaksova
  2. Taxation and Migration by the Super-Rich By Advani, Arun; Burgherr, David; Summers, Andy
  3. Estimating the Laffer Tax Rate on Capital Income: Cross-base Responses Matter! By Marie-Noëlle Lefebvre; Etienne Lehmann; Michaël Sicsic
  4. Property Tax Compliance in Tanzania: Can Nudges Help? By Matthew Collin; Vincenzo Di Maro; David K. Evans; Fredrick Manang
  5. Dining and Wining During the Pandemic? A Quasi-Experiment on Tax Cuts and Consumer Spending in Lithuania By Mr. Serhan Cevik
  6. Pricing energy consumption and residential energy-efficiency investment: An optimal tax approach By Claude Crampes; Norbert Ladoux; Jean-Marie Lozachmeur
  7. The labor market effects of disability benefit loss By Bíró, Anikó; Hornok, Cecília; Krekó, Judit; Prinz, Daniel; Scharle, Ágota
  8. Retirement Consumption and Pension Design By Jonas Kolsrud; Camille Landais; Daniel Reck; Johannes Spinnewijn
  9. Assessing the effectiveness of social protection measures in mitigating COVID-19-related income shocks in the European Union By Gasior, Katrin; Jara, H. Xavier; Makovec, Mattia
  10. Essays in housing, credit, remittances, and taxes: How remittances affect credit demand and housing in Colombia and how transfer taxes influence Belgian housing By Esteban Callejas Perez
  11. A rational pension reform package: Hungary, 2025 By András Simonovits
  12. Graying and staying on the job: The welfare implications of employment protection for older workers By Todd Morris; Benoit Dostie
  13. Welfare Estimates of Shifting Peak Travel By Robert W. Hahn; Robert D. Metcalfe; Eddy Tam

  1. By: Stanislav Klazar (Prague University of Economics and Business); Paulina Jalaksova (Prague University of Economics and Business)
    Abstract: We address the application of a behavioural approach to tax evasion or tax compliance in the European Union. We focus on the relationship between social norms and tax evasion. We analysed data from our survey (in 3 countries with the highest levels of tax evasion compared to 3 countries with the lowest levels). It seems that social norms on tax compliance in countries with low tax evasion are stronger than in other countries, particularly those with high levels of tax evasion. Focusing on forming social norms could solve tax evasion in some economies (countries).
    Keywords: Behavioural approach; Tax evasion; Tax compliance; Social norms
    JEL: H26 H39
  2. By: Advani, Arun (University of Warwick); Burgherr, David (LSE); Summers, Andy (London School of Economics)
    Abstract: Using administrative data on the globally connected super-rich in the UK, we study the effect of a large tax reform on migration behaviour. Prior to 2017, offshore investment returns for 'non-doms' – individuals tax-resident in the UK but with connections to other countries – were untaxed. People making use of that tax status are strongly concentrated at the top of the income distribution: 86% are in the UK top 1% and 29% in the top 0.1% once overseas investment income is taken into account. A reform in 2017 brought long-stayers, who had been in the UK for at least 15 of the last 20 years, into the standard tax system, reducing their effective net-of-average-tax rate by 18%. We find that emigration responses were modest: our central estimate is that the emigration rate increases by 0.26 percentage points for a 1% decline in the net-of-tax rate, and we can rule out increases larger than 0.4 percentage points. Dispelling fears that the targeted taxpayers were able to circumvent the tax hike, we find large average increases in income reported and tax paid in the UK of more than 150%.
    Keywords: taxation, migration, capital income, inequality, mobility
    JEL: F22 H31 J61
    Date: 2023–09
  3. By: Marie-Noëlle Lefebvre; Etienne Lehmann; Michaël Sicsic
    Date: 2023
  4. By: Matthew Collin (World Bank); Vincenzo Di Maro (World Bank); David K. Evans (Center for Global Development); Fredrick Manang (University of Dodoma)
    Abstract: Low tax compliance in low- and middle-income countries around the world limits the ability of governments to offer effective public services. This paper reports the results of a randomly rolled out text message campaign aimed at promoting tax compliance among landowners in Dar es Salaam, Tanzania. Landowners were randomly assigned to one of four groups designed to test different aspects of tax morale. They received a simple text message reminder to pay their tax (a test of salience), a message highlighting the connection between taxes and public services (reciprocity), a message communicating that people who did not pay were not contributing to local or national development (social pressure), or no message (control). Recipients of any message were 18 percent (or 2 percentage points) more likely to pay any property tax by the end of the study period. Each type of message resulted in gains in payment rates, although social pressure messages delivered the lowest gains. Total payment amounts were highest for those who received reciprocity messages. Nudges were most effective in areas with lower initial rates of tax compliance. The average estimated benefit-cost ratio across treatments is 36:1 due to the low cost of the intervention, with higher cost-effectiveness for reciprocity messages.
    Keywords: tax compliance, tax morale, public finance, nudges
    JEL: H26 H13 O17
    Date: 2022–08–08
  5. By: Mr. Serhan Cevik
    Abstract: Could temporary tax cuts stimulate consumer spending? Sector-specific measures to the COVID-19 pandemic provides a quasi-experimental variation in consumption patterns to infer a causal effect of tax policy changes. Using a novel dataset of daily debit and credit card transactions, this paper investigates the effectiveness of Lithuania’s decision to cut the standard value-added tax (VAT) rate from 21 percent to 9 percent on restaurants and catering services during the pandemic in a difference-in-differences regression framework. I obtain robust evidence that the VAT reduction has had no statistically significant impact on consumer spending on restaurants and catering services, while other policy interventions such as mobility restrictions and vaccination have more pronounced effects. These results have important policy implications in terms of the expected stimulative effect of sector-specific VAT reductions and the effective design of fiscal policy interventions to counter the impact of pandemics during which mobility is highly constrained.
    Keywords: Tax policy; value-added tax; consumer spending; pandemic; difference-in-differences; Lithuania
    Date: 2023–09–08
  6. By: Claude Crampes (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Norbert Ladoux (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Jean-Marie Lozachmeur (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique)
    Abstract: We analyze a Pareto optimal income tax problem à la Mirrlees (1971) in which households consume three types of goods: energy goods, energy efficient investments and non-energy goods. The two main ingredients of our normative analysis are: i) an indirect relationship between energy and the satisfaction of energy needs, as energy-efficient investments transform energy into services such as light, heating, and air conditioning; and, ii) imperfect information of the policy designer as regards the level of energy efficiency of households' housing and their labor market productivity. Each household differs with respect to these two latter characteristics, and the government designs a non-linear income tax combined with energy and energy efficient investment non linear pricing that maximizes a weighted sum of households' utilities. We show that a benevolent social planner should distort energy prices in a way that depends on the difference between the saturation of energy needs and the complementarity between energy and the level of energy efficiency in the provision of energy services. A sufficient condition for energy consumption to be subsidized is that the rebound effect is small. Second, when individuals can invest in energy efficiency on top of energy consumption, these investments should always be subsidized and the marginal subsidy should always be higher than the one on energy consumption.
    Keywords: Optimal income taxation, Indirect taxation, Energy services, Energy efficiency, Energy consumption
    Date: 2023
  7. By: Bíró, Anikó; Hornok, Cecília; Krekó, Judit; Prinz, Daniel; Scharle, Ágota
    Abstract: Disability benefits are costly and tend to reduce labor supply. While spending can be contained by careful targeting, correcting past flaws in eligibility rules or assessment procedures may entail welfare costs. We study a major reform in Hungary that reassessed the health and working capacity of a large share of beneficiaries. Leveraging age and health cutoffs in the reassessment, we estimate employment responses to loss or reduction of benefits. We find that among those who left disability insurance due to the reform 58% were employed in the primary labor market, 6% participated in public works and 36% were out of work without benefits in the post-reform period. The consequences of leaving disability insurance sharply differed by pre-reform employment status. 81% of beneficiaries who had some employment in the pre-reform year worked, while only 33% of those without pre-reform employment did. The gains of the reform in activating beneficiaries were small and strongly driven by pre-reform employment status. This points to the importance of combining financial incentives with broader labor market programs that increase employability.
    Keywords: disability insurance, benefit reduction, employment
    JEL: H55 J14
    Date: 2023
  8. By: Jonas Kolsrud; Camille Landais; Daniel Reck; Johannes Spinnewijn
    Abstract: This paper analyzes consumption to evaluate the distributional effects of pension reforms. Using Swedish administrative data, we show that on average workers who retire earlier consume less while retired and experience larger drops in consumption around retirement. Interpreted via a theoretical model, these findings imply that reforms incentivizing later retirement incur a substantial consumption-smoothing cost. Turning to other features of pension policy, we find that reforms that redistribute based on early-career labor supply would have opposite-signed redistributive effects, while differentiating on wealth may help to target pension benefits toward those who are vulnerable to larger drops in consumption around retirement.
    JEL: H55
    Date: 2023–08
  9. By: Gasior, Katrin; Jara, H. Xavier; Makovec, Mattia
    Abstract: By means of counterfactual simulation methods, this paper quantifies the role of tax– benefit policies in mitigating the shock of the COVID-19 pandemic to household income in the European Union. The tax-benefit microsimulation model for the European Union EUROMOD is used to decompose changes in the income distribution into the effects of: (i) earnings losses due to COVID-19, (ii) automatic stabilizers, (iii) monetary compensation schemes introduced during the pandemic; and (iv) COVID-19-specific reforms to taxes and benefits implemented by European Union governments. The results show a great deal of heterogeneity between countries in terms of earnings losses and the effect of tax-benefit policies during the COVID-19 pandemic. In most countries, the largest contribution to cushioning the economic shock of the pandemic comes from monetary compensation schemes. Automatic stabilizers also play a role, mainly through the effects of social insurance contributions, taxes, and unemployment insurance benefits. Tax-benefit systems cushioned incomes to a large extent even among those most severely affected by the shock to earnings, with an important role for monetary compensation schemes, but also a larger stabilizing effect of unemployment insurance. Among automatic stabilizers, social assistance benefits played an important role in cushioning the income shock for the poorest quintiles among the most severely affected, but only in selected countries.
    Keywords: social protection; social safety nets and transfers; social welfare; Covid-19; poverty and fiscal; financial and economic crisis; EU; income distribution
    JEL: D31 E24 H24 I38
    Date: 2023–09–01
  10. By: Esteban Callejas Perez
    Abstract: This doctoral dissertation explores three main questions related to household behaviour. The first question is: what is the effect of remittances on households’ demand for credit? This question is addressed using a representative Colombian survey, revealing a double role of remittances in the demand for credit. On one hand, remittances seem to relax the household’s budget constrain leading to a reduction in its demand for all types of credit; both formal and informal. However, on the other hand, for more expensive loans requiring mortgages as collateral, remittances seem to serve as endorsement for the future repayment of the loan instalments thus augmenting the household’s demand for credit. The effect of informality is also discussed in the analysis, showing that it restricts the access to formal credit. The second question explored is: how remittances affect the housing market in an emerging economy? This answered at the aggregate level using Colombia as a case study, showing evidence that remittances seem to increase the supply of housing, which leads to a decrease in prices both for sale as well as for rent. This effect seems to affect particularly housing in low-income areas. Finally, the third question explored in this work is: How real estate transfer taxes affect the housing market? This question is addressed using the Belgian housing market for the analysis. The analysis shows an increase in housing prices as a consequence of reductions in the transfer tax. Moreover, a substitution effect from apartments to houses is evidenced, favouring the more expensive houses in detriment of the more expensive apartments. However, this substitution effect is reversed after the establishment of a price limit under which the tax discount is dispensed, with the more expensive apartments and the cheaper houses appropriating the reduction in the tax. Inequality and population distribution is also analysed, concluding that the tax reduction reduced the mean age of the treated municipalities, favouring particularly individuals aged between 36 to 55 years, in detriment of younger (26-25) and older (more than 55 years old) individuals, as well as favouring married households with children at the expense of all other types of households. Moreover, evidence is shown that Brussels’ 2015 transfer tax modification increased both income and wealth inequality, whereas Flanders’ 2014 tax reform decreased both types of inequality.
    Keywords: Housing; Remittances; Housing supply; Housing demand; Credit; Households; Household credit demand; Migration; Taxes; Real estate; Transfer taxes; Credit demand; Development
    Date: 2023–08–29
  11. By: András Simonovits (Centre for Economic and Regional Studies)
    Abstract: As part of the Recovery and Resilience Plan (RRP, 2023), the Hungarian government pledged to reform the pension system. The main themes are sustainability and adequacy. The pension plan is to be discussed publicly and put into law by March 2025. The last detailed official pension study was the 2016-discussion paper of the Hungarian National Bank which should be updated. The present study is a private work which may contribute to the improvement of the current pension system. The current and the projected states of the Hungarian pension system are outlined, and then simple and complex reforms are formulated. Naming just two reform steps, I start with the simplest step: the return to public discussion steered by a revitalized Fiscal Council and end with the most complex: the introduction of the flexible (variable) retirement age.
    Keywords: Keywords: pension systems, pension policies, pension reforms, Hungary
    JEL: H55
    Date: 2023–08
  12. By: Todd Morris; Benoit Dostie
    Abstract: We study the welfare implications of employment protection for older workers, exploiting recent bans on mandatory retirement across Canadian provinces. Using linked employeremployee tax data, we show that the bans cause large and similar reductions in job separation rates and retirement hazards at age 65, with further reductions at higher ages. The effects vary substantially across industries and firms, and around two-fifths of the adjustments occur between ban announcement and implementation dates. We find no evidence that the demand for older workers falls, but the welfare effects are mediated by spillovers on savings behavior, workplace injuries, and spousal retirement timing. Nous étudions les répercussions de la protection de l’emploi sur le bien-être des travailleurs âgés, en exploitant les récentes interdictions de la retraite obligatoire dans les provinces canadiennes. À l’aide de données fiscales couplées sur les employés et les employeurs, nous montrons que les interdictions entraînent des réductions importantes et similaires aux taux de cessation d’emploi et des risques de retraite à l’âge de 65 ans, et d’autres réductions à des âges plus élevés. Les effets varient considérablement d’une industrie et d’une entreprise à l’autre, et environ les deux cinquièmes des ajustements surviennent entre l’annonce de l’interdiction et les dates de mise en œuvre. Nous ne trouvons aucune preuve que la demande de travailleurs âgés diminue, mais les effets sur le bien-être sont atténués par les retombées sur le comportement d’épargne, les blessures en milieu de travail et le moment où le conjoint prend sa retraite.
    Keywords: employment protection, retirement, welfare, active and passive savings responses, health effects, spousal spillovers, protection de lâemploi, retraite, bien-être social, épargne active et passive, effets sur la santé, retombées pour le conjoint
    JEL: J26 J78 H55
    Date: 2023–09–28
  13. By: Robert W. Hahn; Robert D. Metcalfe; Eddy Tam
    Abstract: We develop novel estimates of peak and off-peak price elasticities for urban mass transit demand in San Francisco using a large natural experiment with 3.6 million trip sessions and a natural field experiment that both have exogenous price subsidies. We then estimate the welfare impacts for these price subsidies using a sufficient statistics approach. Our analysis suggests that off-peak subsidies can increase welfare, but the positive effects are reduced when consumers take the decisions of others into account compared to when they do not. We also find a large variation in the welfare impacts of shifting travel to different periods, which is explained by differences in demand and congestion characteristics. Finally, we show that the targeting of subsidies can increase welfare, but need not do so if the regulator does not have accurate information on demand.
    JEL: H20 R41
    Date: 2023–08

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