New Economics Papers
on Public Finance
Issue of 2011‒09‒22
twelve papers chosen by

  1. Do Tax Cuts Boost the Economy? By David Rosnick; Dean Baker
  2. Growth and Productivity: the role of Government Debt By António Afonso; João Tovar Jalles
  3. Who's Above the Social Security Payroll Tax Cap? By Nicole Woo; Janelle Jones; John Schmitt
  4. Taxing capital is not a bad idea indeed: the role of human capital and labor-market frictions By Chen, Been-Lon; Chen, Hung-Ju; Wang, Ping
  5. The effect of globalization on capital taxation: What have we learned after 20 years of empirical studies? By Adam, Antonis; Kammas, Pantelis; Lagou, Athina
  6. Taxing Women: A Macroeconomic Analysis By Guner, Nezih; Kaygusuz, Remzi; Ventura, Gustavo
  7. Personal income tax progressivity and output volatility: evidence from OECD countries By Maria-Grazia Attinasi; Cristina Checherita-Westphal; Malte Rieth
  8. Redistribution Policy and Inequality Reduction in OECD Countries: What Has Changed in Two Decades? By Herwig Immervoll; Linda Richardson
  9. Redistributive Politics and Government Debt in a Borrowing-constrained Economy By Ryo Arawatari; Tetsuo Ono
  10. Economic analysis of advance tax rulings By Diller, Markus; Vollert, Pia
  11. Optimal auditing and insurance in a dynamic model of tax compliance By B. Ravikumar; Yuzhe Zhang
  12. The influence of tax labeling and tax earmarking on the willingness to contribute: A conjoint analysis By Hundsdoerfer, Jochen; Sielaff, Christian; Blaufus, Kay; Kiesewetter, Dirk; Weimann, Joachim

  1. By: David Rosnick; Dean Baker
    Abstract: There are many economists who argue that temporary tax cuts, like those in the 2009 stimulus and the ones proposed by President Obama last week, have no impact on the economy. They argue that people will save a temporary tax credit rather than spend it. Stanford Economics Professor John Taylor, who served as Under Secretary of the Treasury for International Affairs under President Bush, is one of the economists making this argument. He purports to show that there was no statistically significant increase in private consumption of goods and services as a result of certain types of government transfers made over the last decade. According to his analysis, it is unclear whether an additional dollar of government transfers led to any additional spending, or, alternatively, whether it raised personal savings by more than one dollar. This paper shows that there is very little indication that – based on Taylor’s work – personal transfers from the government fail to stimulate private spending.
    Keywords: stimulus, recession, tax cuts
    JEL: E E6 E64 E65 H H2 H3 H31
    Date: 2011–09
  2. By: António Afonso; João Tovar Jalles
    Abstract: We use a panel of 155 countries to assess the links between growth, productivity and government debt. Via growth equations we assess simultaneity, endogeneity, cross-section dependence, nonlinearities, and threshold effects. We find a negative effect of the debt ratio. For the OECD, the higher the debt maturity the higher economic growth; financial crisis are detrimental for growth; fiscal consolidation promotes growth; and higher debt ratios are beneficial to TFP growth. The growth impact of a 10% increase in the debt ratio is -0.2% (0.1%) respectively for countries with debt ratios above (below) 90% (30%), and an endogenous debt ratio threshold of 59% can be derived.
    Keywords: government debt, crises, panel analysis. Classification-C23, E62, H50.
    Date: 2011–07
  3. By: Nicole Woo; Janelle Jones; John Schmitt
    Abstract: When most workers look at their pay stubs, they can see that the Social Security payroll tax rate is 12.4 percent – with the employee and employer each paying 6.2 percent. But many workers do not know that any annual wages above $106,800 are not taxed by Social Security. In other words, a worker who makes twice the Social Security wage cap – $213,600 per year – pays Social Security tax on only half of his or her earnings, and one who makes just over a million dollars per year pays the tax on only about a tenth. Raising the Social Security cap – which would make some or all earnings above $106,800 subject to the Social Security tax – has gotten some attention as a way to help alleviate Social Security’s long-term budget shortfall. U.S. Senator Bernie Sanders plans to introduce legislation to keep the current cap at $106,800, but to also apply the Social Security payroll tax to earnings over $250,000. It is similar to previous bills and echoes a proposal by then-Senator Obama on the campaign trail in 2008. While this would leave those making between the current cap of $106,800 and the proposed cap of $250,000 paying the lowest rates, it would help secure the solvency of the program and avoid an increase in taxes on the middle class. To help inform this policy debate, this paper examines Census Bureau data from the most recently available American Community Survey to determine how raising the cap would affect workers based on gender, race or ethnicity, age, and state of residence.
    Keywords: social security, retirement, wage cap
    JEL: H H5 H55
    Date: 2011–09
  4. By: Chen, Been-Lon; Chen, Hung-Ju; Wang, Ping
    Abstract: In a second-best optimal growth setup with only factor taxes as available instruments, is it optimal to fully replace capital by labor income taxation? The answer is generally positive based on Chamley, Judd, Lucas, and many follow-up studies. In the present paper, we revisit this important tax reform-related issue by developing a human capital-based endogenous growth framework with frictional labor search and matching. We allow each firm to create multiple vacancies and each worker to determine labor market participation endogenously. We consider a benevolent fiscal authority to finance direct transfers to households and unemployment compensation only by factor taxes. We then conduct dynamic tax incidence exercises using a model calibrated to the U.S. economy with a pre-existing 20% flat tax on both the capital and labor income. Our numerical results suggest that, due to a dominant channel via the interactions between the firm's vacancy creation and the worker's market participation, it is optimal to switch partly by a modest margin from capital to labor taxation in a benchmark economy where human capital formation depends on both the physical and human capital stocks. When the human capital accumulation process is independent of physical capital, the optimal tax mix features a slightly larger shift from capital to labor taxation; when we remove the extensive margin of the labor-leisure trade-off, such a shift is much larger. In either case, however, the optimal capital tax rate is far above zero.
    Keywords: Tax Incidence; Endogenous Human Capital Accumulation; Labor-Market Search and Matching Frictions
    JEL: E62 H22 O40 J20
    Date: 2011–08–30
  5. By: Adam, Antonis; Kammas, Pantelis; Lagou, Athina
    Abstract: Abstract: This paper applies meta- regression analysis to the empirical literature that examines the impact of international market integration on capital taxation. The main objective is to explore whether particular data, model specification and estimation procedures exert systematic impact on the reported findings. Our results provide empirical evidence that differences across studies can be attributed to differences in the measurement of globalization. Moreover, in contrast to the conventional wisdom, study characteristics related to the measurement of the tax burden on capital appear to have an insignificant effect on the above mentioned relationship. Finally the meta- analysis fails to confirm a negative effect of globalization on the taxation of capital.
    Keywords: capital mobility; tax competition; Meta analysis
    JEL: H4 F2 H2
    Date: 2011–09–14
  6. By: Guner, Nezih (MOVE, Barcelona); Kaygusuz, Remzi (Sabanci University); Ventura, Gustavo (Arizona State University)
    Abstract: Based on well-known evidence on labor supply elasticities, several authors have concluded that women should be taxed at lower rates than men. We evaluate the quantitative implications of taxing women at a lower rate than men. Relative to the current system of taxation, setting a proportional tax rate on married females equal to 4% (8%) increases output and married female labor force participation by about 3.9% (3.4%) and 6.9% (4.0%), respectively. Gender-based taxes improve welfare and are preferred by a majority of households. Nevertheless, welfare gains are higher when the U.S. tax system is replaced by a proportional, gender-neutral income tax.
    Keywords: taxation, two-earner households, labor force participation
    JEL: E62 H31 J12 J22
    Date: 2011–09
  7. By: Maria-Grazia Attinasi (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt, Germany.); Cristina Checherita-Westphal (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt, Germany.); Malte Rieth (TU Dortmund University, Applied Economics Vogelpothsweg 87, D-44227 Dortmund, Germany.)
    Abstract: This paper investigates empirically the effect of personal income tax progressivity on output volatility in a sample of OECD countries over the period 1982-2009. Our measure of tax progressivity is based on the difference between the marginal and the average income tax rate for the average production worker. We find supportive empirical evidence for the hypothesis that higher personal income tax progressivity leads to lower output volatility. All other factors constant, countries with more progressive personal income tax systems seem to benefit from stronger automatic stabilisers. JEL Classification: E63, E32, H10.
    Keywords: Progressivity, personal income taxes, output volatility, automatic stabilisers.
    Date: 2011–09
  8. By: Herwig Immervoll; Linda Richardson
    Abstract: We use a range of data sources to assess if, and to what extent, government redistribution policies have slowed or accelerated the trend towards greater income disparities in the past 20-25 years. In most countries, inequality among “non-elderly” households has widened during most phases of the economic cycle and any episodes of narrowing income differentials have usually not lasted long enough to close the gap between high and low incomes that had opened up previously. With progressive redistribution systems in place, greater inequality automatically leads to more redistribution, even if no policy action is taken. We find that, in the context of rising market-income inequality, tax-benefit systems have indeed become more redistributive since the 1980s but that this did not stop income inequality from rising: market-income inequality grew by twice as much as redistribution. The redistributive strength of tax-benefit systems weakened in many countries particularly in the most recent decade. While growing market-income disparities were the main driver of inequality trends between the mid-1980s and mid-1990s, reduced redistribution was often the main driver in the ten years that followed. Benefits had a much stronger impact on inequality than social contributions or taxes, despite the much bigger aggregate size of direct taxes. As a result, redistribution policies were often less successful at counteracting growing income gaps at the bottom in the top half of the income distribution.<BR>Nous utilisons une série de sources de données afin d'évaluer si, et dans quelle mesure, les politiques de redistribution du gouvernement ont ralenti ou accéléré la tendance vers une aggravation des disparités de revenus dans les 20-25 dernières années. Dans la majorité des pays, l'inégalité parmi les ménages de “non-personnes âgées” s’est élargie pendant la plupart des phases du cycle économique et des épisodes de rétrécissement d’écarts de revenus n'ont généralement pas duré assez longtemps pour réduire l'écart entre les revenus élevés et faibles qui se sont ouverts auparavant. Avec les systèmes de redistribution progressive en place, une plus grande inégalité conduit automatiquement à une plus grande redistribution, même si aucune décision politique n'est prise. Nous constatons que, dans le contexte de la hausse de l’inégalité du revenu du marché, les systèmes socio-fiscaux sont en effet devenus plus redistributifs depuis les années 80 mais cela n'a pas empêché les inégalités de revenu à augmenter : l'inégalité du revenu du marché a augmenté deux fois plus que la redistribution. La force de redistribution des systèmes socio-fiscaux s’est affaiblie dans de nombreux pays, en particulier dans la dernière décennie. Alors que l’augmentation des disparités du revenu du marché a été le principal moteur de l'évolution des inégalités entre les années 80 et 90, la réduction de redistribution était souvent le principal moteur dans les dix ans qui ont suivi. Les bénéfices ont eu un impact beaucoup plus fort sur les inégalités que les cotisations sociales ou les impôts, malgré l’importance plus grande de l’ensemble des impôts directs. En conséquence, les politiques de redistribution ont souvent connu moins de succès à contrecarrer les écarts de revenus croissants au fond dans la moitié supérieure de la répartition des revenus.
    Keywords: redistribution, OECD, income inequality, working age population
    JEL: C81 D31 H22 H55
    Date: 2011–09–02
  9. By: Ryo Arawatari (Faculty of Economics, Shinshu University); Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: We develop a two-period, three-class of income model where low-income agents are borrowing constrained because of capital market imperfections, and where redistributive expenditure is financed by tax and government debt. When the degree of capital market imperfection is high, there is an ends-against-the-middle equilibrium where the constrained low-income and the unconstrained high-income agents favor low levels of government debt and redistributive expenditure; these agents form a coalition against the middle. In this equilibrium, the levels of government debt and expenditure are below the efficient levels, and the spread of income distribution results in a lower debt-to-GDP ratio.
    Keywords: Government debt; Borrowing constraints; Voting; Structure-induced equilibrium; Income inequality.
    JEL: D72 H52 H60
    Date: 2011–01
  10. By: Diller, Markus; Vollert, Pia
    Abstract: This paper aims to analyze the impact of applying for an advance tax ruling and of examining complex tax issues with the help of an external consultant, on the investor's decision to invest when the environment is uncertain. Using decision theory, we first determine the maximum fee an investor is willing to pay for such a ruling or consultation in order to firm up the investment decision. We expand our analysis by assisting the potential investor in deciding on the maximum fee he is willing to pay for such a service when the fee for an advance tax ruling is set by law. --
    Keywords: Advance Tax Rulings,Decision Theory
    JEL: H25 K34
    Date: 2011
  11. By: B. Ravikumar; Yuzhe Zhang
    Abstract: We study the optimal auditing of a taxpayer’s income in a dynamic principal- agent model of hidden income. Taxpayers in our model initially have low income and stochastically transit to high income that is an absorbing state. A low-income taxpayer who transits to high income can underreport his true income and evade his taxes. With a constant absolute risk-aversion utility function and a costly and imperfect auditing technology, we show that the optimal auditing mechanism in our model consists of cycles. Within each cycle, a low-income taxpayer is initially unaudited, but if the duration of low-income reports exceeds a threshold, then the auditing probability becomes positive. That is, the tax authority guarantees that the taxpayer will not be audited until the threshold duration is reached. We also find that auditing becomes less frequent if the auditing cost is higher or if the variance of income is lower.
    Keywords: Tax auditing ; Taxation
    Date: 2011
  12. By: Hundsdoerfer, Jochen; Sielaff, Christian; Blaufus, Kay; Kiesewetter, Dirk; Weimann, Joachim
    Abstract: We apply conjoint analysis to study the influence of tax labeling and tax earmarking on German taxpayers' willingness to contribute. From a survey based sample we show that labeling and earmarking effects can substantially increase participants' willingness to contribute, which results in a considerable deviation from a pure consumption maximizing behavior. Furthermore, we give an explanation for this effect regarding socio-demographic attributes of German taxpayers. These results explain the variety in tax labels and provide implications for tax policy regarding further reforms of the tax and contribution system: Labeling and earmarking of contributions are important instruments in selling policies and increasing tax revenue. --
    Keywords: Behavioral Taxation,Tax Labeling,Tax Earmarking,Willingness to Contribute,Conjoint Analysis,Perceived Tax Burden
    JEL: H20 H51 H52 K34
    Date: 2011

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