New Economics Papers
on Public Finance
Issue of 2011‒02‒05
six papers chosen by

  2. Redistributive Taxation, Incentives, and the Intertemporal Evolution of Human Capital By Christian Ferreda; Matías Tapia
  3. The Deficit-Reducing Potential of a Financial Speculation Tax By Dean Baker
  4. How Will Higher Tax Rates Affect the National Retirement Risk Index? By Alicia H. Munnell; Anthony Webb; Francesca Golub-Sass
  5. Tax evasion, information reporting, and the regressive bias hypothesis By Pinje, Jori Veng; Boserup, Simon Halphen
  6. Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age By Luc Behaghel; David M. Blau

  1. By: Javier Díaz-Giménez (IESE Business School); Josep Pijoan-Mas (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: In this article we quantify the aggregate, distributional and welfare consequences of investment expensing and progressivity in flat-tax reforms of the United Sates economy. We find that investment expensing as in the Hall and Rabushka type of reform brings about sizable output gains and non-trivial increase in after-tax income inequality. But we also find that it results in large aggregate welfare gains in steady-state. Two additional flat-tax reforms with full investment expensing and varying degrees of progressivity reveal that the distributional role of the tax-exemption in the labor income tax is limited. But we also find that the progressivity of the reforms matters for welfare: economies with more progressive consumption-based flat-taxes are good for the very poor and are ultimately preferred by a Benthamite social planner because they allow households to do more consumption and leisure smoothing. Our findings suggest that moving towards a progressive consumption-based flat tax scheme could achieve the goals of raising government income, stimulating the economy and providing a safety net for the households that have been hit the hardest by the recession.
    Keywords: Flat-tax reforms, progressivity, efficiency, inequality.
    JEL: D31 E62 H23
    Date: 2011–01
  2. By: Christian Ferreda; Matías Tapia
    Abstract: This paper contributes to the literature on redistributive taxation and human capital dynamics by explicitly analyzing the role of incentives in the education market where human capital is produced. We introduce an explicit education market with heterogeneous private schools in a dynamic stochastic general equilibrium model with overlapping generations and human capital accumulation. We use the model to simulate the effects of taxation on growth, intergenerational mobility, inequality, and welfare. Equalization in education expenditures reduces incentives for differentiation in the education market, with the distribution of education investments shifting towards the least productive schools. This has significant consequences on equilibrium outcomes, and highlights the importance of incorporating the role of intermediation when analyzing redistribution policies.
    Keywords: Human capital, school market, redistributive taxation, inequality, efficiency.
    JEL: E24 H21 I21
    Date: 2010
  3. By: Dean Baker
    Abstract: While a number of commissions and organizations around Washington have produced plans for reducing the projected deficit in the decades ahead, most have not included a financial speculation tax (FST) in the mix. This seems peculiar since an FST has several features that could make it attractive as a revenue source.
    Keywords: taxes, speculation, transactions, Wall Street
    JEL: G G1 G18 G2 G24 G28 G3 G38
    Date: 2011–01
  4. By: Alicia H. Munnell; Anthony Webb; Francesca Golub-Sass
    Abstract: The National Retirement Risk Index (NRRI) measures the share of American households ‘at risk’ of being unable to maintain their pre-retirement standard of living in retirement. The calculations are based on the assumption that taxes remain at current levels. But federal government spending as a percentage of GDP is projected to increase rapidly in coming decades. To help bridge the gap between revenue and spending, policymakers could decide to substantially increase the personal income tax, raise Social Secu­rity payroll taxes, and establish additional revenue sources such as a value-added tax. This brief explores how such tax increases could affect the percentage of households ‘at risk.’ This brief is structured as follows. The first section recaps the NRRI. The second describes how much taxes could increase. The third section describes the channel through which higher taxes may affect retire­ment preparedness. The fourth section presents the impact of plausible tax increases on the percentage of households ‘at risk.’ The final section concludes that higher taxes will have a relatively modest effect on the NRRI for most groups – the exception being high-income households on the cusp of retirement. It also cautions that the effect could be substantially greater if people reduce their saving in response to an unprecedented increase in taxes, and that the increase in the NRRI tells only half the story because economic well-being as measured by consumption will be lower both before and after retirement.
    Date: 2010–12
  5. By: Pinje, Jori Veng; Boserup, Simon Halphen
    Abstract: A robust prediction from the tax evasion literature is that optimal auditing induces a regressive bias in e¤ective tax rates compared to statutory rates. If correct, this will have important distributional consequences. Nevertheless, the regressive bias hypothesis has never been tested empirically. Using a unique data set, we provide evidence in favor of the regressive bias prediction but only when controlling for the tax agencys use of third-party information in predicting true incomes. In aggregate data, the regressive bias vanishes because of the systematic use of third-party information. These results are obtained both in simple reduced-form regressions and in a data-calibrated state-of-the-art model.
    Keywords: tax evasion; tax enforcement; information reporting; auditing
    JEL: D82 K42 H26
    Date: 2011–01–26
  6. By: Luc Behaghel (Paris School of Economics-INRA); David M. Blau (Ohio State University)
    Abstract: We use a US Social Security reform as a quasi-experiment to provide evidence on framing effects in retirement behavior. The reform increased the full retirement age (FRA) from 65 to 66 in two month increments per year of birth for cohorts born from 1938 to 1943. We find strong evidence that the spike in the benefit claiming hazard at 65 moved in lockstep along with the FRA. Results on self-reported retirement and exit from employment are less clear-cut, but go in the same direction. The responsiveness to the new FRA is stronger for people with higher cognitive skills. We interpret the findings as evidence of reference dependence with loss aversion. We develop a simple labor supply model with reference dependence that can explain the results. The model has potentially important implications for framing of future Social Security reforms. JEL: J26
    Date: 2010–12

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