nep-pub New Economics Papers
on Public Finance
Issue of 2005‒02‒20
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Value-Added Taxes in Developing and Transitional Countries: Lessons and Questions By Richard M. Bird
  2. The Incentive Effect of Fiscal Equalization Transfers on Tax Policy By Thiess Büttner
  3. Why are More Redistributive Social Security Systems Smaller? A Median Voter Approach By Marko Köthenbürger; Panu Poutvaara; Paola Profeta
  4. Free Choice of Unfunded Systems: A First Assessment By Gabrielle Demange
  5. Personal Security Accounts and Mandatory Annuitization in a Dynastic Framework By Luisa Fuster; Ayse Imrohoroglu; Selahattin Imrohoroglu
  6. Fertility and Social Security By Michele Boldrin; Maria Cristina De Nardi; Larry E. Jones
  7. Social Security in Belgium: Distributive Outcomes By Jousten, Alain; Lefèbvre, Mathieu; Perelman, Sergio; Pestieau, Pierre
  8. SSI for the Aged and the Problem of 'Take-Up' By Todd E. Elder; Elizabeth T. Powers
  9. How to Evaluate the Effects of Social Security Policies on Retirement and Saving When Firm Policies Affect the Opportunities Facing Older Individuals By Alan L. Gustman; Thomas L. Steinmeier

  1. By: Richard M. Bird (International Tax Program, Rotman School of Management, University of Toronto)
    Abstract: The value-added tax has, in recent decades, become the most important single tax in most developing and transitional economies. This paper reviews some problems that have emerged as important as more experience has been gained with how VATs really work in many such countries and suggests some lines of research that need to be explored further to overcome those problems.
    Keywords: value-added tax, developing countries, transitional countries
    JEL: H25 R10
    Date: 2005–02
  2. By: Thiess Büttner
    Abstract: A theoretical analysis considers the impact of a typical system of redistributive “fiscal equalization” transfers on the taxing effort of local jurisdictions. More specifically, it shows that the marginal contribution rate, i.e. the rate at which an increase in the tax base reduces those transfers, might be positively associated with the local tax rate while the volume of grants received is likely to be inversely related to the tax base. These predictions are tested in an empirical analysis of the tax policy of German municipalities. In order to identify the incentive effect the analysis exploits discontinuities in the rules of the fiscal equalization system as well as policy changes. The empirical results support the existence of an incentive effect, suggesting that the high marginal contribution rates induce the municipalities to raise their business tax rates significantly.
    Keywords: fiscal equalization, tax competition, fiscal federalism, incentive effect of taxation, regression discontinuity
    JEL: H71 H77
    Date: 2005
  3. By: Marko Köthenbürger; Panu Poutvaara; Paola Profeta
    Abstract: We suggest a political economy explanation for the stylized fact that intragenerationally more redistributive social security systems are smaller. Our key insight is that linking benefits to past earnings (less redistributiveness) reduces the efficiency cost of social security (due to endogenous labor supply). This encourages voters who benefit from social security to support higher contribution rates in political equilibrium. We test our theory with a numerical analysis of eight European countries. Our simple, but suggestive median voter model performs relatively well in explaining the stylized fact and cross-country differences in social security contribution rates.
    Keywords: earnings-related and flat-rate benefits, social security, public pensions, median voter model
    JEL: D72 H55
    Date: 2005
  4. By: Gabrielle Demange
    Abstract: The first pillars of social security systems differ widely across European countries both in the contribution rate and intra-generational redistribution. What would the impact of these differences be if EU citizens had free access to all systems? This paper aims to highlight some basic features of this question in a very simple two-country model.
    Keywords: unfunded systems, intragenerational redistribution, free choice
    JEL: H55 H87
    Date: 2005
  5. By: Luisa Fuster; Ayse Imrohoroglu; Selahattin Imrohoroglu
    Abstract: The aging of the populations in the OECD countries has prompted various calls for reforming the existing pay-as-you-go (PAYG) pension systems. Currently, there is renewed discussion in the United States about partial privatization where a fraction of the social security payroll tax would be diverted to Personal Security Accounts. In this paper, we quantitatively evaluate the welfare effects of reforming social security by introducing a PSA with and without mandatory annuitization in an economic environment with bequests and borrowing constraints. Our setup allows us to assess whether mandatory saving or mandatory annuitization of accumulated PSA wealth at retirement is welfare enhancing, and if so, for what type of individuals. Our setup follows Fuster, Imrohoroglu, and Imrohoroglu (2003) and studies various pension schemes in a two-sided altruistic framework where social security provides insurance against individual income and lifespan uncertainty. This framework is well suited to consider the annuity role of social security for single individuals versus for households where families also provide annuity insurance to their members. Our main findings can be summarized as follows: - A majority of households prefer a PSA reform (with or without mandatory annuitization) over the current PAYG pension system. Aggregate capital, output, and consumption, as well as individuals' lifetime welfare, are higher in the reformed pension system. - Mandatory annuitization benefits most households. In light of these findings, structuring the social security reform along a two-tiered system with a safety net for low income households that do not have access to family insurance, and allowing all households to accumulate retirement wealth faster through PSAs, and finally, requiring some level of annuitization of this wealth appear welfare improving for a large fraction of households.
    JEL: E20 E60
    Date: 2005
  6. By: Michele Boldrin; Maria Cristina De Nardi; Larry E. Jones
    Date: 2005–02–13
  7. By: Jousten, Alain (Université de Liège, CEPR and IZA Bonn); Lefèbvre, Mathieu (Université de Liège); Perelman, Sergio (Université de Liège); Pestieau, Pierre (Université de Liège, CEPR and DELTA)
    Abstract: The paper analyzes the link between old-age income programs and economic outcomes in Belgium. We use a simulation methodology to construct an average pension generosity variable. Our regression analysis explores the link with distributional outcomes in income, consumption and more subjective indicators. Results document the weak link between average generosity and distributional outcomes across a heterogeneous population.
    Keywords: pensions, inequality, social security, elderly
    JEL: H31 H55 I31 I32
    Date: 2005–02
  8. By: Todd E. Elder (Institute of Labor and Industrial Relations); Elizabeth T. Powers (Institute of Government and Public Affairs)
    Abstract: The Supplemental Security Income (SSI) program provides an income and health care safety net for the elderly poor. The phenomenon of apparently eligible households that do not enroll in, or 'take up' SSI has been noted as a severe problem since the program's inception in 1974. This paper examines SSI eligibility, applications, and participation in the aged population from 1984 (the most recent year analyzed in the literature to date) through 1997. We are fortunate to have administrative data on SSI use that is linked to various panels of the SIPP. We use this information to estimate the SSI-aged application choice. The key findings from the earlier literature are sensitive with respect to exact sample specification, alternative approaches to imputing the expected SSI benefit, and more detailed information on application and receipt culled from administrative files. Our findings suggest that cash benefits may be less influential, and Medicaid access through SSI more influential, than previously estimated.
    Date: 2004–01
  9. By: Alan L. Gustman (Dartmouth College and NBER); Thomas L. Steinmeier (Texas Tech University)
    Abstract: This project uses data from the Health and Retirement Study to examine, in the context of a structural retirement model, the effects on retirement of non-wage aspects of employment emanating from firm side factors. Factors examined include minimum hours constraints, layoffs, physical and mental requirements of the job, informal pressures to retire, accommodations made by the employer when a person has a health problem, and retirement windows. The most important effects found pertain to minimum hours constraints. Should minimum hours constraints be abolished, the percent of the population ages 62 to 69 who are completely retired will decline by 10 to 15 percentage points. The fraction in this age group who are working in partial retirement jobs will increase by roughly twenty percentage points of the population. Were minimum hours constraints abolished, more than twice as many people would enter partial retirement as would leave full time work. As a result, total FTE employment would increase were minimum hours constraints eliminated. Increasing the importance of partial retirement would affect the role of the earnings test and liquidity of the Social Security system, although the increase in partial retirement would be largely, but not entirely offset by the decline in full time work. This would limit the size of any effects on Social Security finances. Authors’ Acknowledgment This paper was supported by a grant from the U.S. Social Security Administration (SSA) to the Michigan Retirement Research Center, UM 03-03. The opinions and conclusions are solely those of the authors and should not be construed as representing the opinions or policy of SSA, the Michigan Retirement Research Center, or the National Bureau of Economic Research. Alan L. Gustman is Loren Berry Professor of Economics at Dartmouth College, Department of Economics, Hanover, N.H. 03755 ( Thomas L. Steinmeier is Professor of Economics, Texas Tech University, Department of Economics, Lubbock, Texas 79409 (
    Date: 2004–06

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