New Economics Papers
on Public Finance
Issue of 2012‒03‒08
seven papers chosen by

  1. Gasoline Taxes and Consumer Behavior By Shanjun Li; Joshua Linn; Erich Muehlegger
  2. Monetary policy and redistribution: What can or cannot be neutralized with Mirrleesian taxes By Gahvari, Firouz; Micheletto, Luca
  3. Business taxes and the electoral cycle By Dirk Foremny; Nadine Riedel
  4. Taxation and political stability By Mutascu, Mihai; Tiwari, Aviral; Estrada, Fernando
  5. Taxation and the Earnings of Husbands and Wives: Evidence from Sweden By M Gelber, Alexander
  6. Effectiveness of cigarette tax in Japan By Kazuki Kamimura
  7. On the Private Provision of Public Goods on Networks By Nizar Allouch

  1. By: Shanjun Li; Joshua Linn; Erich Muehlegger
    Abstract: Gasoline taxes can be employed to correct externalities associated with automobile use, to reduce dependency on foreign oil, and to raise government revenue. Our understanding of the optimal gasoline tax and the efficacy of existing taxes is largely based on empirical analysis of consumer responses to gasoline price changes. In this paper, we directly examine how gasoline taxes affect consumer behavior as distinct from tax-exclusive gasoline prices. Our analysis shows that a 5-cent tax increase reduces gasoline consumption by 1.3 percent in the short-run, much larger than that from a 5-cent increase in the tax-exclusive gasoline price. This difference suggests that traditional analysis could significantly underestimate policy impacts of tax changes. We further investigate the differential effect from gasoline taxes and tax-exclusive gasoline prices on both the intensive and extensive margins of gasoline consumption. We discuss implications of our findings for the estimation of the implicit discount rate for vehicle purchases and for the fiscal benefits of raising taxes.
    JEL: H3 Q4 Q5
    Date: 2012–03
  2. By: Gahvari, Firouz (Department of Economics, University of Illinois); Micheletto, Luca (Uppsala Center for Fiscal Studies)
    Abstract: This paper develops an overlapping-generations model with heterogeneous agents in terms of earning ability and cash-in-advance constraint. It shows that tax pol- icy cannot fully replicate or neutralize the redistributive implications of monetary policy. While who gets the extra money becomes irrelevant, the rate of growth of money supply keeps its bite. A second lesson is that the Friedman rule is not in general optimal. The results are due to the existence of another source of het- erogeneity among individuals besides dierences in earning ability that underlies the Mirrleesian approach to optimal taxation. They hold even in the presence of a general income tax and preferences that are separable in labor supply and goods. If dierences in earning ability were the only source of heterogeneity, the scal au- thority would be able to neutralize the eects of a change in the rate of monetary growth and a version of the Friedman rule becomes optimal.
    Keywords: Monetary policy; scal policy; redistribution; Friedman rule; heterogeneity; overlapping generations; second best 1
    JEL: H21 H52
    Date: 2012–01–25
  3. By: Dirk Foremny (University of Bonn); Nadine Riedel (University of Hohenheim & Oxford University CBT & CESifo Munich)
    Abstract: The purpose of this paper is to assess whether politicians manipulate the timing of tax rate changes in a strategic way to maximize reelection prospects. To do so, we exploit the German local business tax as a testing ground which is set autonomously by German municipalities. As election dates vary across local councils, the data allows us to disentangle effects related to the timing of elections from common trends. Using a rich panel data-set for German municipalities, we assess the impact of elections on local business tax choices. The findings support the notion of a political cycle in tax setting behavior as the growth rate of the local business tax is significantly reduced in the election year and the year prior to the election, while it jumps up in the year after the election. This pattern turns out to be robust against a number of sensitivity checks.
    Keywords: Local business tax choice, political economy, election cycle
    JEL: H25 H71 D72
    Date: 2011
  4. By: Mutascu, Mihai; Tiwari, Aviral; Estrada, Fernando
    Abstract: The present study is, in particular, an attempt to test the relationship between tax level and political stability by using some economic control variables and to see the relationship among government effectiveness, corruption, and GDP. For the purpose, we used the GMM (1991) and GMM system (1998), using a country-level panel data from 112 countries for the period 1997 to 2010. The main results show that political stability is not the key for the tax policy, under the control of political regime durability the taxes as percent in GDP having consistent sinusoidal tendency, by cubic type.
    Keywords: Taxation; Political Stability; Connection; Effects; GMM and GMM system
    JEL: B1 B4 H5 H2 H23 C1 D70 C14 C23 B16 D72 H3 B41 C2
    Date: 2011–07
  5. By: M Gelber, Alexander (The Wharton School)
    Abstract: This paper examines the response of husbands' and wives' earnings to a tax reform in which husbands' and wives' tax rates changed independently, allowing me to examine the effect of both spouses' incentives on each spouse's behavior. I compare the results to those of more simplified econometric models that are used in the typical setting in which such independent variation is not available. Using administrative panel data on approximately 11% of the married Swedish population, I analyze the impact of the large Swedish tax reform of 1990-1. I find that in response to a compensated fall in one spouse's tax rate, that spouse's earned income rises, and the other spouse's earned income also rises. I test and reject a set of models in which the family maximizes a single utility function. A standard econometric specification, in which one spouse reacts to the other spouse's income as if it were unearned income, yields biased coefficient estimates. Uncompensated elasticities of earned income with respect to the fraction of income kept after taxes are over-estimated by a factor of more than three, and income effects are of the wrong sign. A second common specification, in which overall family income is related to the family's tax rate and income, also yields substantially over-estimated own compensated and uncompensated elasticities. Standard econometric approaches may substantially mis-estimate earnings responses to taxation.
    Keywords: taxation; earnings; labor supply; families; spouses; unitary model
    JEL: H21 H24 H31 J12 J16 J21 J22
    Date: 2011–09–09
  6. By: Kazuki Kamimura (Keio University)
    Abstract: In this paper, we estimate the relationship between cigarette tax (price) and smoking behavior in Japan. We breaks smoking behavior into participation part and conditional demand part. With Keio Household Panel Survey (KHPS), we can identify the effect of cigarette price depending on intertempporal variation of cigarette price. Main results are as follows. First, effect of cigarette price is considerable and negative as expected. Particularly in case of male, cigarette price work on both participation and consumption. Thus cigarette tax increase is possible policy alternative to lower the smoking prevalence rate in Japan though decrease of tax revenue is not negligible. Second, effect of large tax increase in October 2010 is not as expected based on past performance. With various specification, effect of large tax increase in October 2010 is smaller than that of modest tax increase in July 2006 in estimates. This result implies accumulated effect of repeating modest cigarette tax increase is larger than effect of large cigarette tax increase even if total increment of cigarette price is the same. Third, there is considerable gender difference of sensitivity to cigarette price. While estimates in participation equation seems almost the same, elasticity differs a lot. In addition, consumption elasticities of male is by far larger than those of female. Thus for most of female, alternatives are smoking as in the past or quit smoking when confronting the cigarette tax increase. Fourth, there is strong evidence for recent anti-smoking trend in Japan. Though our proxy is how many years have passed since the enforcement of Health Promotion Law and thus somehow inaccurate, including the variable considerable change the estimates of cigarette price and is itself significant. Therefore, to explore how cigarette tax works in recent Japan, how to control the anti-smoking trend is unavoidable issue. Additionally we seek to obtain more reliable elasticities with various specifications. When we use dataset consists of who has ever smoked in recent years, elasticities seem most trustworthy.
    Date: 2012–03
  7. By: Nizar Allouch (Queen Mary, University of London)
    Abstract: This paper analyzes the private provision of public goods where consumers interact within a fixed network structure and may benefit only from their direct neighbors' provisions. We present a proof for existence and uniqueness of a Nash equilibrium with general best-reply functions. Our uniqueness result simultaneously extends similar results in Bergstrom, Blume, and Varian (1986) on the private provision of public goods to networks and Bramoullé, Kranton, and D'Amours (2011) on games of strategic substitutes to nonlinear best-reply functions. In addition, we investigate the neutrality result of Warr (1983) and Bergstrom, Blume, and Varian (1986) whereby consumers are able to offset income redistributions and tax-financed government contributions. To this effect, we establish that the neutrality result has a limited scope of application beyond regular networks.
    Keywords: Public goods, Uniqueness of Nash equilibrium, Network games, Neutrality, Bonacich centrality, Main eigenvalue
    JEL: C72 D31 H41
    Date: 2012–02

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