nep-pub New Economics Papers
on Public Finance
Issue of 2006‒05‒27
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Income Taxes and Entrepreneurial Choice : Empirical Evidence from Germany By Frank M. Fossen; Viktor Steiner
  2. Tax Rates with Corruption: Labour-market Effects. Empirical Cross-country Comparisons on OECD Countries By Mária Lackó
  3. Taxing consumption in Jamaica By Kelly Edmiston; Richard M. Bird
  4. (UBS Pensions Series 040) PENSIONS: OVERVIEW OF ISSUES By Nicholas Barr
  5. (UBS Pensions Series 041)THE ECONOMICS OF PENSIONS By Peter Diamond; Nicholas Barr
  6. Estimating retirement behavior with special early retirement offers By Eklöf, Matias; Hallberg, Daniel

  1. By: Frank M. Fossen; Viktor Steiner
    Abstract: Entrepreneurial activity is often regarded as an engine for economic growth and job creation. Through tax policy, governments possess a potential lever to influence the decisions of economic agents to start and close small businesses. In Germany, the top marginal income tax rates were reduced exclusively for entrepreneurs in 1994 and 1999/2000. These tax reforms provided two naturally defined control groups that enable us to exploit the legislation changes as "natural experiments". First, the tax rate reductions did not apply to freelance professionals (Freiberufler), and second, entrepreneurs with earnings below a certain threshold were not affected. Using data from two different sources, the SOEP and the Mikrozensus (LFS), we analyse the effect of the tax cuts on transitions into and out of self-employment and on the rate of self-employment. We apply a "difference-in-difference-in-difference" estimation technique within a discrete time hazard rate model. The results indicate that the decrease in tax rates did not have a significant effect on the self-employment decision.
    Keywords: Taxation, entrepreneurship, natural experiment, difference-in-difference-in-difference estimation
    JEL: H24 H25 J23
    Date: 2006
  2. By: Mária Lackó (Institute of Economics, Hungarian Academy of Sciences)
    Abstract: The paper investigates how tax rates, corruption and institutional aspects of the labour market influence the size of the segments of the labour market such as unemployment, employment, self-employment and activity in the hidden economy. The novelty of our approach is the theoretical justification of the interaction between the perception of taxes and of corruption, as well as the establishment of a new concept and variable, the subjective tax rate. Alternative regression calculations are carried out on data for OECD countries for the period 1995 to 2000. The tests confirm the validity of the new variable and the results imply the need for a more sophisticated policy approach for influencing labour market outcomes.
    Keywords: Taxation, corruption, labour market, hidden economy
    JEL: D73 J2 H26
    Date: 2006–05–15
  3. By: Kelly Edmiston; Richard M. Bird
    Abstract: In Jamaica, as in most countries, consumption taxes in the form of a value-added tax called the General Consumption Tax (GCT) and several excise taxes collectively known as the Special Consumption Tax (SCT) are critically important revenue sources, accounting for 37.4 percent of total revenues in fiscal year 2003/04 (27.7 percent for GCT alone) and an estimated 11.2 percent of GDP (8.3 percent for GCT alone). This paper first describes in some detail the present structure and administration of the GCT and SCT and then evaluates the performance of these taxes from several angles -- as revenue generators, with respect to their distributional effects and their relation to the shadow economic, their administrative aspect, and in international perspective. It concludes by setting out a number of recommendations for reform.
    Keywords: Jamaica ; Value-added tax
    Date: 2006
  4. By: Nicholas Barr
    Abstract: Many countries face increasing fiscal problems financing pensions in the face of population aging. There is controversy about th e underlying economic theory, about th e extent of the problem, and about th ebest mix of policies to protect old-age security. This paper establishes the areas of debate: gives thumbnail descriptions of pension arrangements in different countries; discusses the main analytical and empirical issues relevant to thinking about pension design; and assess a range of policy directions. The main conclusions are that what matters most is effective government and economic growth; that the debate between pay-as-you-go and funding is secondary; that good pension schemes can take many forms; and that there is a problem in financing pensions, but not a crisis.
    Date: 2006–05
  5. By: Peter Diamond; Nicholas Barr
    Abstract: This paper sets out the economic analytics of pensions. After introductory discussion, successive sections consider the effects of different pension arrangements on labour markets, on national savings and growth, and on the distribution of burdens and benefits. These are controversial and politically higly salient. While we are open about expressing our own views, the main purpose of the paer is to set out the analytical process by which we reach them, to enable readers to form their own conclusions.
    Date: 2006–05
  6. By: Eklöf, Matias (Department of Economics); Hallberg, Daniel (Department of Economics)
    Abstract: We model retirement behavior in Sweden during the 1990ies with focus on voluntary early retirement where there is an option for “buy-outs”. An employer can offer the employees generous pension programs if the employee agrees on early retirement. Earlier studies have neglected such offers, but in doing so, estimates of the individuals’ responses to financial incentives in a retirement decision are likely to be biased upward. We propose an estimation strategy where the retirement decision and the accesses to early retirement pension offers are estimated in a simultaneous equation system, yielding unbiased estimates of the model parameters. We apply the model using detailed Swedish register data. Our results indicate that the marginal effects in retirement probability w.r.t. a change in financial incentives is less pronounced if early retirement pensions are accounted for. Further, we illustrate that the early retirement probabilities would decrease by 10-30 percent if early retirement pension offers were absent.
    Keywords: Retirement; early retirement pension; golden handshakes; occupational pension; demand for old workers
    JEL: J14 J21
    Date: 2006–05–17

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