nep-pub New Economics Papers
on Public Finance
Issue of 2009‒02‒28
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Did the 2008 Tax Rebates Stimulate Spending? By Matthew D. Shapiro; Joel B. Slemrod
  2. The Political Economy of the (Weak) Enforcement of Sales Tax By Besfamille, Martin; De Donder, Philippe; Lozachmeur, Jean-Marie
  3. Tax Limits, Houses, and Schools: Seemingly Unrelated and Offsetting Effects By William Hoyt; Paul A. Coomes; Amelia M. Biehl
  4. Reforming the Tax System in Korea to Promote Economic Growth and Cope with Rapid Population Ageing By Randall S. Jones
  5. Are Your Firm's Taxes Set in Warsaw? Spatial Tax Competition in Europe By Crabbé, Karen; Vandenbussche, Hylke
  6. SWEtaxben: A Swedish Tax/benefit Micro Simulation Model and an Evaluation of a Swedish Tax Reform. By Ericson, Peter; Flood, Lennart; Wahlberg, Roger
  7. Social Security and Risk Sharing By Piero Gottardi; Felix Kubler
  8. Public goods, participation constraints, and democracy: A possibility theorem By Grüner, Hans Peter
  9. Private Provision of Highways: Economic Issues By Kenneth A. Small

  1. By: Matthew D. Shapiro; Joel B. Slemrod
    Abstract: Only one-fifth of respondents to a rider on the University of Michigan Survey Research Center’s Monthly Survey said that the 2008 tax rebates would lead them to mostly increase spending. Almost half said the rebate would mostly lead them to pay off debt, while about a third saying it would lead them mostly to save more. The survey responses imply that the aggregate propensity to spend from the rebate was about one-third, and that there would not be substantially more spending as a lagged effect of the rebates. Because of the low spending propensity, the rebates in 2008 provided low “bang for the buck†as economic stimulus. Putting cash into the hands of the consumers who use it to save or pay off debt boosts their well-being, but it does not necessarily make them spend. Low-income individuals were particularly likely to use the rebate to pay off debt.
    JEL: E21 E62 E65 H31
    Date: 2009–02
  2. By: Besfamille, Martin; De Donder, Philippe; Lozachmeur, Jean-Marie
    Abstract: The objective of this paper is to understand the determinants of the enforcement level of indirect taxation in a positive setting. We build a sequential game where individuals differing in their willingness to pay for a taxed good vote over the enforcement level. Firms then compete à la Cournot and choose the fraction of sales taxes to evade. We assume in most of the paper that the tax rate is set exogenously. Voters face the following trade-off: more enforcement increases tax collection but also increases the consumer price of the goods sold in an imperfectly competitive market. We obtain that the equilibrium enforcement level is the one most-preferred by the individual with the median willingness to pay, that it is not affected by the structure of the market (number of firms) and the firms' marginal cost, and that it decreases with the resource cost of evasion and with the tax rate. We also compare the enforcement level chosen by majority voting with the utilitarian level. In the last section, we endogenize the tax rate by assuming that individuals vote simultaneously over tax rate and enforcement level. We prove the existence of a Condorcet winner and show that it entails full enforcement (i.e., no tax evasion at equilibrium). The existence of markets with less than full enforcement then depends crucially on the fact that tax rates are not tailored to each market individually.
    Keywords: imperfect competition; intermediate preferences; majority voting; Tax evasion
    JEL: D43 D72 H26 H32
    Date: 2009–01
  3. By: William Hoyt (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky); Paul A. Coomes (Department of Economics and College of Business, University of Louisville); Amelia M. Biehl (Department of Economics, University of Southern Indiana)
    Abstract: Property tax limitations, as well as other tax and expenditure restrictions on state and local governments in the United States, date back to the late nineteenth century. A surge in property tax limitation legislation occurred in the late 1970s and early 1980s, and its effects on government revenue, school financing, and educational quality have been studied extensively. However, there is surprisingly little literature on how property tax limits affect housing markets. For the first time, we examine the impacts of property tax limitations on housing growth, in addition to their impacts on housing prices. Using state-level data over twenty-three years, we find that property tax limits increase housing prices (indexes) by approximately 1.6%. These limits appear to have little impact on the growth in the housing stock, as measured by the number of permits. Our evidence suggests that this is because while property tax limits reduce property taxes they also increase the price of housing. These two counteracting effects lead to ambiguous impacts on the gross price of housing.
    JEL: H71 R31
    Date: 2009–01
  4. By: Randall S. Jones
    Abstract: Korea has one of the lowest tax burdens in the OECD area, reflecting its small public sector. However, rapid population ageing will put upward pressure on government spending. The challenge is to meet the long-run need for greater expenditures and tax revenue while sustaining strong economic growth. A pro-growth tax reform implies relying primarily on consumption taxes for additional revenue. There is also scope for raising personal income tax revenue from its current low level by broadening the base by reducing the exemptions for personal income. The planned cuts in the corporate tax rate should be financed at least in part by reductions in tax expenditures. The broadening of direct tax bases would also help finance an expansion of the earned income tax credit to address widening income inequality. In addition, the local tax system should be simplified and reformed to enhance the autonomy of local governments.<P>Réformer le système fiscal en Corée afin de favoriser la croissance économique et de faire face au rapide vieillissement démographique<BR>La Corée est l’un des pays où la charge fiscale est la plus faible dans la zone de l’OCDE, en raison de la petite taille du secteur public. Cependant, le rapide vieillissement démographique va exercer une pression grandissante sur les finances publiques. La difficulté consiste à répondre au besoin à long terme de dépenses publiques et de recettes fiscales accrues tout en soutenant une vigoureuse expansion économique. Pour qu’une réforme fiscale aide à la croissance, elle doit privilégier les impôts sur la consommation comme source de recettes supplémentaires. Il est aussi possible d’augmenter le produit de l’impôt sur le revenu des personnes physiques, actuellement peu élevé, en élargissant l’assiette grâce à une diminution des exonérations. Les réductions prévues du taux d’imposition des sociétés devraient être financées, en partie du moins, par des compressions de dépenses fiscales. L’élargissement des bases d’imposition directe aiderait aussi à financer une extension du crédit d’impôt sur les revenus d’activité afin de remédier aux inégalités croissantes de revenu. Par ailleurs, le système d’impôts locaux devrait être simplifié et réformé afin de renforcer l’autonomie des collectivités territoriales.
    Keywords: fiscalité, tax reform, impôt, dépense fiscale, property tax, taxe foncière, relative poverty, pauvreté relative, fiscalité locale, capital gains taxes, TVA, VAT, personal income tax, corporate income tax, réforme de la taxation, coin fiscal, impôt sur les bénéfices, tax expenditures, earned income tax credit, crédit d’impôt sur le revenu d’activités professionnelles, environmentally-related taxes, taxes liées à l'environnement, Korean tax system, système de taxation coréen, local tax system, tax wedge
    JEL: H20 H22 H23 H24 H25
    Date: 2009–02–20
  5. By: Crabbé, Karen; Vandenbussche, Hylke
    Abstract: Tax competition within the EU is fiercer than in the rest of the OECD with tax rates falling rapidly. This paper analyzes tax responses of EU-15 countries to corporate tax changes in the EU-10 new member states as a function of their proximity to these 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, 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 geographically closer to the new member states respond stronger to corporate tax changes in these new member states. We use a theoretical and a spatial regression framework to test the hypothesis that distance to a low tax region intensifies countries' tax reaction functions.
    Keywords: corporate taxes; fiscal reaction function; Spatial tax competition
    JEL: H25 H39 H77
    Date: 2009–02
  6. By: Ericson, Peter (Sim Solution); Flood, Lennart (Department of Economics, School of Business, Economics and Law, Göteborg University); Wahlberg, Roger (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: The purpose of SWEtaxben is to evaluate the impact of changes in the tax/benefit systems on households as well as the central governmental budget. Relating to the micro simulation literature this model can be labeled a static micro simulation model with behavioral changes. This behavioral change takes two different forms and use two different types of models; first binary models that describe mobility in/out from non-work states such as old age pension, disability, unemployment, long term sickness and second models that describe change in working hours and welfare participation. Thus, apart from the choice to work or not to work, working hours conditional on working as well as welfare participation are treated as endogenous variables. As an application the model is used to evaluate the recent Swedish “make work pay” reform, effective from 2007 and further reinforced in 2008 and 2009. The key characteristic of this reform is an in-work tax credit and decreased state tax rate. Simulations performed by SWEtaxben show increased working hours at both the intensive as well as extensive margin. The tax decrease together with dynamic changes results in a strong increase in household’s incomes but also a reduction in income inequality. However, even considering the increase in hours of work, the reform is far from being self-financed.<p>
    Keywords: Micro simulation; tax-benefit system; reform
    JEL: D31 H24
    Date: 2009–02–24
  7. By: Piero Gottardi; Felix Kubler
    Abstract: In this paper we identify conditions under which the introduction of a pay-as-you-go social security system is ex ante Pareto-improving in a stochastic overlapping generations economy with capital accumulation and land. We argue that these conditions are consistent with many calibrations of the model used in the literature. In our model financial markets are complete and competitive equilibria are interim Pareto e¢ cient. Therefore, a welfare improvement can only be obtained if agents' welfare is evaluated exante, and arises from the possibility of inducing, through social security, an improved level of intergenerational risk sharing. We will also examine the optimal size of a given social security system as well as its optimal reform. The analysis will be carried out in a relatively simple set-up, where the various effects of social security, on the prices of long-lived assets and the stock of capital, and hence on output, wages and risky rates of returns, can be clearly identified.
    Keywords: Intergenerational Risk Sharing, Social Security, Ex Ante Welfare Improvements, Social Security Reform, Price E¤ects
    JEL: H55 E62 D91 D58
    Date: 2009
  8. By: Grüner, Hans Peter
    Abstract: It is well known that ex post efficient mechanisms for the provision of indivisible public goods are not interim individually rational. However, the corresponding literature assumes that agents who veto a mechanism can enforce a situation in which the public good is never provided. This paper instead considers majority voting with uniform cost sharing as the relevant status quo. Efficient mechanisms may then exist, which also satisfy all agents' interim participation constraints. In this case, ex post inefficient voting mechanisms can be replaced by efficient ones without reducing any individual's expected utility. Intuitively, agents with a low willingness to pay have to contribute more under majority rule than under an efficient mechanism with a balanced budget. This possibility theorem is not universal in the sense of Schweizer (Games and Economic Behavior, 2005).
    Keywords: Ex post efficiency; Majority voting; Participation constraints; Possibility theorem; Public goods
    JEL: D02 D61 D71 H41
    Date: 2008–12
  9. By: Kenneth A. Small (Department of Economics, University of California-Irvine)
    Abstract: This paper reviews issues raised by the use of private firms to finance, build, and/or operate highways — issues including cost of capital, level and structure of tolls, and adaptability to unforeseen changes. The public sector’s apparent advantage in cost of capital is at least partly illusory due to differences in tax liability and to constraints on the supply of public capital. The evidence for lower costs of construction or operation by private firms is slim. Private firms are likely to promote more efficient pricing. Effective private road provision depends on well-structured franchise agreements that allow pricing flexibility, restrain market power, enforce a sound debt structure, promote transparency, and foster other social goals.
    Keywords: Privatization; Road finance; Toll road; Road pricing
    JEL: H44 H54 L91 R42
    Date: 2009–02

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