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on Public Finance |
| By: | Christiane Nickel (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Isabel Vansteenkiste (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper analyses the empirical relationship between fiscal policy and the current account of the balance of payments and considers how Ricardian equivalence changes this relationship. To do so, we estimate a dynamic panel threshold model for 22 industrialised countries in which the relationship between the current account and the government balance is allowed to alter according to the government debt to GDP ratio. The results show that for countries with debt to GDP ratios up to 90% the relationship between the government balance and the current account is positive, i.e. an increase in the fiscal deficit leads to a higher current account deficit. For very high debt countries this relationship however turns negative but insignificant, suggesting that a rise in the fiscal deficit does not result in a rise in the current account deficit. Implicitly this result suggests that households in very hight debt countries tend to become Ricardian. Estimating the same model for the 11 largest euro area countries shows that the reationship between the govnerment balance and the current account turns statistically insignificant when the debt to GDP ratio exceeds 80%. JEL Classification: F32, E62, F41. |
| Keywords: | Fiscal policy, current account, panel threshold model. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080935&r=pub |
| By: | Schindler, Dirk (University of Konstanz) |
| Abstract: | We set up an OLG-model, where households both choose human capital investment and decide on investing their endogenous savings in a portfolio of riskless and risky assets, exposing them to (aggregate) wage and capital risks due to technological shocks. We derive the optimal public policy mix of taxation and education policy. We show that risks can be efficiently diversified between private and public consumption. This results hinges on that the government can apply a wide set of instruments, including differentiated wage and capital taxation. We also show that for sufficient risk aversion the (Northern) European way of relying on progressive wage taxation and granting education subsidies is an optimal response to wage and capital risks. |
| Keywords: | Optimal Income Taxation; Multiple Income Risks; Human Capital Investment; Portfolio Choice |
| JEL: | H21 I28 J24 |
| Date: | 2008–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2008_018&r=pub |
| By: | Charles Grant (University of Reading); Christos Koulovatianos (Goethe University Frankfurt, University of Vienna); Alexander Michaelides (London School of Economics); Mario Padula (University Ca' Foscari of Venice) |
| Abstract: | Marginal income taxes may have an insurance effect by decreasing the effective fluctuations of after-tax individual income. By compressing the idiosyncratic component o personal income fluctuations, higher marginal taxes should be negatively correlated with the dispersion of consumption across households, a necessary implication of an insurance effect of taxation. Our study empirically examines this negative correlation, exploiting the ample variation of state taxes across US states. We show that taxes are negatively correlated with the consumption dispersion of the within-state distribution of non-durable consumption and that this correlation is robust. |
| Keywords: | Undiversifiable Earnings Risk, Consumption Insurance, Tax Distortions |
| JEL: | E21 H20 H31 |
| Date: | 2008–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200806&r=pub |
| By: | Bennmarker, Helge (IFAU - Institute for Labour Market Policy Evaluation); Mellander, Erik (IFAU - Institute for Labour Market Policy Evaluation); Öckert, Björn (IFAU - Institute for Labour Market Policy Evaluation) |
| Abstract: | Using a Difference-in-Differences approach we evaluate the effects of a 10 percentage points reduction in the payroll tax introduced in 2002 for firms in the northern part of Sweden. We find no employment effects for existing firms and can rule out that a 1 percentage point payroll tax reduction would increase employment with more than 0.2 percent. We do, however, find that tax reductions have significantly positive effects on the average wage bill per employee. These are likely to be driven by higher average wages, but might also be due to more hours worked. As a sensitivity check we investigate if reduced payroll taxes affect the likelihood of firm entry and exit, and find some support for a net firm inflow. Our attempts to assess concomitant effects on employment indicate that payroll tax reductions might yield increases in employment through the start-up of new firms. |
| Keywords: | Payroll tax; Labour demand; Incidence; Firm entry/exit; Difference-in-Differences |
| JEL: | H22 J23 J38 J58 J68 |
| Date: | 2008–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ifauwp:2008_019&r=pub |
| By: | Beckmann, Klaus (Helmut Schmidt University, Hamburg); Gattke, Susan (Helmut Schmidt University, Hamburg) |
| Abstract: | We take issue with the argument expounded, among others, by Layard (2006, Economic Journal) that status-seeking preferences justify heavier taxation of income because this serves to internalise the negative externality that the pursuit of status imposes on others. In a model where status depends on both income and effort, we show that the optimal corrective tax rate is smaller than if non-monetary status plays no role, and that a subsidy of work effort at the margin may be called for. Additionally, we demonstrate how the elasticity of labour supply depends on the parameters of the status production function in such a model, and discuss potential implications for optimal income taxation. |
| Date: | 2008–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:ris:vhsuwp:2008_076&r=pub |
| By: | Karen Crabbé; Hylke Vandenbussche |
| Abstract: | Corporate tax rates in Europe have been falling rapidly; as a consequence tax competition within the EU is fiercer than in the rest of the OECD. This paper analyzes heterogeneity in corporate tax rate changes between EU-15 countries as a function of the proximity to the EU-10 new member states. The average corporate tax rate in the new member states has always been considerably lower than the average in the EU-15 countries. Their entry into the EU eliminated capital barriers, in principle allowing firms to locate in one of the new EU-10 with full access to the European Market. Our results indicate that EU-15 countries physically closer to Central-Europe experienced more tax competition. Next we use a spatial regression framework to more formally test the hypothesis that distance to a low tax region affects countries' tax reaction functions. |
| Keywords: | Spatial tax competition, Corporate taxes, fiscal reaction function |
| JEL: | H25 H77 H39 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:lic:licosd:21608&r=pub |