nep-pub New Economics Papers
on Public Finance
Issue of 2011‒09‒05
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxes, Wages and Working Hours By Ericson, Peter; Flood, Lennart
  2. Is VAT stabilizing? By Hélène EHRHART; Christian EBEKE
  3. Culture and Taxes: Towards Identifying Tax Competition By Beatrix Eugster; Raphaël Parchet
  4. Public Debt Accumulation and Fiscal Consolidation By Oguro, Kazumasa; Sato, Motohiro
  5. Tiebout Sorting and Neighborhood Stratification By Patrick Bayer; Robert McMillan
  6. Rent-seeking For Public Goods: Group’s Size and Wealth Heterogeneity By Oskar Nupia
  7. The Voluntary Provision of Public Goods When Individuals are Heterogeneous with Respect to Income and Preferences and Equity May Matter By Stuart Mestelman

  1. By: Ericson, Peter (Empirica); Flood, Lennart (Göteborg University)
    Abstract: This paper presents estimates of individuals' responses in hourly wages to changes in marginal tax rates. Estimates based on register panel data of Swedish households covering the period 1992 to 2007 produce significant but relatively small net-of-tax rate elasticities. The results vary with family type, with the largest elasticities obtained for single males and the smallest for married/cohabitant females. Despite these seemingly small elasticities, evaluation of the effects of a reduced state tax using a microsimulation model shows that the effort effect matters. The largest effect is due to changes in number of working hours yet including the effort effect results in an almost self-financed reform. As a reference to the earlier literature we also estimate taxable income elasticities. As expected, these are larger than for the hourly wage rates. However, both specifications produce significantly and positive income effects.
    Keywords: income taxation, hourly wage rates, work effort, micro simulation
    JEL: C8 D31 H24 J22 J31
    Date: 2011–08
  2. By: Hélène EHRHART (Centre d'Etudes et de Recherches sur le Développement International); Christian EBEKE
    Abstract: We study whether the adoption of the value-added tax (VAT) in developing countries was an effective way of stabilizing tax revenues. Using a large panel of 103 developing countries observed over 1980-2008 and several alternative estimation methods in order to deal with the self-selection bias and the endogeneity issue of VAT adoption, we find robust evidence that the presence of VAT leads to significantly lower tax revenue instability. On average, countries with a value added tax experience tax revenue instability forty to fifty percent lower than the countries which do not have a VAT system. Those effects decrease with the levels of economic development and trade openness.
    Keywords: Tax Instability, Value Added Tax, Macroeconomic Fluctuations, developing countries
    JEL: O10 E32 H20
    Date: 2011
  3. By: Beatrix Eugster; Raphaël Parchet
    Abstract: We propose a new strategy to identify the existence of interjurisdictional tax competition and to estimate its spatial reach. Our strategy rests on differences between desired tax levels, determined by culture-specific preferences, and equilibrium tax levels, determined by interjurisdictional fiscal externalities as well as by preferences. While fiscal preferences differ systematically and demonstrably between French-speaking and German-speaking Swiss regions, we find that local income tax burdens do not change discretely at the language border but exhibit smooth spatial gradients. The slope of these gradients implies that tax competition constrains tax choices of jurisdictions with a preference for higher taxes at a distance of up to 20 kilometres. Hence, tax competition does constrain income taxation by local governments. When, as in the Swiss system, local jurisdictions are constrained to decide on a single shifter of an exogenously given tax schedule, the effect of tax competition are confined to a small spatial scale.
    Keywords: tax competition; fiscal federalism; culture
    JEL: H31 H71 Z10
    Date: 2011–08
  4. By: Oguro, Kazumasa; Sato, Motohiro
    Abstract: In this paper, we analyze the relationship between interest rates on government bonds (GB) and fiscal consolidation rule by using an overlapping generation model with endogenous and stochastic growth settings. Our key findings are summarized as follows. First, interest rates of GB may be declining as public debt accumulates relative to private capital, as opposed to the conventional view that buildup of public debt accompanies a rise in interest rates. Second, fiscal consolidation rule plays a key role in determining interest rates in equilibrium. Third, the economy may exhibit discrete changes with interest rates diverging, implying that our observation of relatively low GB interest rates does not assure the continuation of that trend in the future. Fourth, a preventive tax increase to contain public debt at sustainable levels will not gain the political support of existing generations, whose life span is limited. Citizens prefer to shift the ultimate burden of public debt to future generations.
    Keywords: Overlapping generation model, interest rate on government bond, fiscal consolidation rule, default risk
    JEL: E17 H30 H5 H60 E62 H63
    Date: 2011–05
  5. By: Patrick Bayer; Robert McMillan
    Abstract: Tiebout’s classic 1956 paper has strong implications regarding stratification across and within jurisdictions, predicting in the simplest instance a hierarchy of internally homogeneous communities ordered by income. Typically, urban areas are less than fully stratified, and the question arises how much departures from standard Tiebout assumptions contribute to observed within-neighborhood mixing. This paper quantifies the separate effects on neighborhood stratification of employment geography (via costly commuting) and preferences for housing attributes. It does so using an equilibrium sorting model, estimated with rich Census micro-data. Simulations based on the model using credible preference estimates show that counterfactual reductions in commuting costs lead to marked increases in racial and education segregation and, to a lesser degree, increases in income segregation, given that households now find it easier to locate in neighborhoods with like households. While turning off preferences for housing characteristics increases racial segregation, especially for blacks, doing so reduces income segregation, indicating that heterogeneity in the housing stock serves to stratify households based on ability-to-pay. Further, we show that differences in housing also help accentuate differences in the consumption of local amenities.
    JEL: H41 I20 R21
    Date: 2011–08
  6. By: Oskar Nupia
    Abstract: In this paper, we study how between-group wealth and size heterogeneity affect success probabilities as well as aggregate rent-seeking efforts when two groups compete for the allocation of a pure public good. Unlike with previous models, we measure the utility cost of rent-seeking in terms of the loss in private consumption confronting individuals when contributing to this activity. This allows us to escape from most of the neutrality results found in the literature, and to offer new and sensible results regarding the effect of group heterogeneity on rent-seeking efforts. Our model predicts that the total sum of rent-seekers and their between-group distribution do affect group success probabilities and aggregate rent-seeking efforts. Our model also predicts that it is possible to observe a poorer group being more successful than a richer group due to the former having a larger group-size. On the other hand, it shows that greater between-group wealth equality does not necessarily imply more aggregate rent-seeking efforts. The existence of group size asymmetries plays a key role in determining this effect.
    Date: 2011–07–19
  7. By: Stuart Mestelman
    Date: 2011–08

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