New Economics Papers
on Public Finance
Issue of 2012‒05‒02
eight papers chosen by

  1. Optimal Redistributive Taxation with both Labor Supply and Labor Demand Responses By Laurence Jacquet; Etienne lehmann; Bruno Van Der Linden
  2. The Impact of Redistributive Policies on Inequality in OECD Countries By Philipp Doerrenberg; Andreas Peichl
  3. Paternalistic goods to improve income distribution: a political economy approach By Rosella Levaggi; Francesco Menoncin
  4. Regional Effects of Federal Tax Shocks By Bernd Hayo; Matthias Uhl
  5. Business taxation and economic performance in hierarchical government structures By Federico Revelli
  6. Signing distortions in optimal tax or other adverse selection models with random participation By Laurence Jacquet; Etienne lehmann; Bruno Van Der Linden
  7. Tax Reform in Norway: A Focus on Capital Taxation By Oliver Denk
  8. How Sustainable are Latin American Fiscal Deficits: A Panel Data Approach By Jacobo Campo Robledo; Luis Fernando Melo Velandia

  1. By: Laurence Jacquet; Etienne lehmann; Bruno Van Der Linden (THEMA, Universite de Cergy-Pontoise; CREST; IRES - Université Catholique de Louvain and FNRS)
    Abstract: This paper characterizes the optimal redistributive tax schedule in a matching unemployment framework where (voluntary) nonparticipation and (involuntary) un- employment are endogenous. The optimal employment tax rate is given by an inverse employment elasticity rule. This rule depends on the global response of the employ- ment rate, which depends not only on the participation (labor supply) responses, but also on the vacancy posting (labor demand) responses and on the product of these two responses. For plausible values of the parameters, our matching environment induces much lower employment tax rates than the usual competitive model with endogenous participation only.
    Keywords: Optimal taxation, Labor market frictions, Unemployment, Kalai so- lution.
    JEL: D82 H21 J64
    Date: 2012
  2. By: Philipp Doerrenberg (CGS, University of Cologne); Andreas Peichl (IZA, University of Cologne, ISER and CESifo)
    Abstract: Recent discussions about rising inequality in industrialized countries have triggered calls for more government intervention and redistribution. Due to obvious behavioral effects caused by redistribution, it is however not clear whether redistributional policies are indeed able to combat inequality. This paper contributes to this relevant research question by using different contextual country-level data sources to study inequality trends in OECD countries since the 1980s. We first investigate the development of inequality over time before analyzing the question of whether governments can effectively reduce inequality. Different identification strategies, using fixed effects and instrumental variables models, provide some evidence that governments are capable of reducing income inequality despite countervailing behavioral adjustments. The effect is stronger for social expenditure policies than for progressive taxation, which seems to trigger more inequality increasing indirect behavioral effects. Our results also suggest that the use of secondary inequality data should be handled with caution.
    Keywords: Inequality, Redistribution, Social Expenditure, Progressive Taxation
    JEL: D31 D60 H20
    Date: 2012–04–13
  3. By: Rosella Levaggi (Economics Department, University of Brescia, Italy); Francesco Menoncin (Economics Department, University of Brescia, Italy)
    Abstract: In this article we show that when the provision of paternalistic goods is entwined with income distribution, the political decision process may prevent welfare maximisation. We model the decision process from a political economy perspective by assuming that the quantity of a paternalistic good to be produced, its regional distribution, and the equalisation grant are the result of a utilitarian bargaining process between a (relatively) rich Region and a poor one. Two cases are considered: a unitary and a federal State. The solution for a unitary State shows that First Best can be achieved only if the two Regions have the same bargaining power. In this case the level of income distribution is negatively correlated with the power of the rich Region. For a federal State we show that the result of the bargaining process always implies underprovision of the paternalistic good. Our model may explain the observed cross-national differences in the redistributive power of public policies.
    Keywords: Paternalistic Goods, Income Distribution
    JEL: I18 H77
    Date: 2012–04
  4. By: Bernd Hayo (University of Marburg); Matthias Uhl (University of Marburg)
    Abstract: This paper studies regional output asymmetries following U.S. federal tax shocks. We estimate a vector autoregressive model for each U.S. state, utilizing the exogenous tax shock series recently proposed by Romer and Romer (2010) and find considerable variations: estimated output multipliers lie between –0.2 in Utah and –3.3 in Hawaii. Statistically, the difference between state and national output effect is significant in about half the U.S. states. Analyzing the determinants of differences in the magnitude of regional tax multipliers suggests that industry composition of output and sociodemographic characteristics help explain the observed asymmetry across U.S. states in the transmission of federal tax policy.
    Keywords: Fiscal Policy Tax Policy Narrative Approach U.S. States Regional Effects Asymmetries in Fiscal Policy Transmission
    JEL: E32 E62 H20 R10 R11
    Date: 2012
  5. By: Federico Revelli (University of Torino)
    Abstract: This paper models theoretically and investigates empirically the consequences on local economic performance of state mandates on financially distressed authorities. In particular, I analyze the switch from systematic state bailout of regional health care deficits to selectively mandated hikes in regions’ own business income tax rates that took place in Italy around the mid 2000s, and exploit such dramatic switch to identify the impact of tax policy on the economy. I model factor input use within a multi-jurisdiction neoclassical framework, where production takes place in plants, and physical capital requires energy in fixed proportions depending on the size of energy-saving capital that is installed along with physical capital. Energy-saving capital can be interpreted either as tangible information technology (IT) equipment (e.g., computer-aided line speed control devices) or as intangible assets (e.g., process design skills) lowering a plant energy requirement. The estimation results based on panel data for the Italian provinces and regions over a decade (2000-2010) reveal that, by raising the user cost of capital, mandated business income tax hikes stimulate province-level business energy use, lending support to the hypothesis of short run substitution between energy and energy-saving capital, and hamper the employment of human resources in science and technology (S&T) occupations, the latter being interpretable as a proxy for energy-saving capital.
    Keywords: Business income tax, state mandates, energy tax, energy use
    JEL: H25 H71 H73 Q48 R12
    Date: 2012
  6. By: Laurence Jacquet; Etienne lehmann; Bruno Van Der Linden (THEMA, Universite de Cergy-Pontoise; CREST; IRES - Université Catholique de Louvain and FNRS)
    Abstract: We develop a methodology to sign output distortions in the random participation framework. We apply our method to monopoly nonlinear pricing problem, to the regulatory monopoly problem and mainly to the optimal income tax problem. In the latter framework, individuals are heterogeneous across two unobserved dimensions: their skill and their disutility of participation to the labor market. We derive a fairly mild condition for optimal marginal tax rates to be non negative everywhere, implying that in-work eort is distorted downwards. Numerical simulations for the U.S. conrm this property. Moreover, it is typically optimal to provide a distinct level of transfer to the non-employed and to workers with zero or negligible earnings.
    Keywords: Adverse selection, Optimal taxation, Random participation.
    JEL: H21 H23
    Date: 2012
  7. By: Oliver Denk
    Abstract: Norway’s dual income tax system achieves high levels of revenue collection and income redistribution, without overly undermining economic performance and while paying attention to environmental externalities. It treats capital and labour income in different ways: capital income is taxed at a single low rate, while labour income is taxed at progressive rates. However, effective tax rates on savings vary widely across asset classes. The favourable treatment of owner-occupied housing relative to financial savings should be reduced, preferably by taxing imputed rents at the standard 28% statutory rate. The wealth tax implies very high effective tax rates on savings, indicating that it either gives rise to tax avoidance or significantly inhibits growth. The government should investigate the issue and, if the growth-equity trade-off is too unfavourable to growth, phase out or lower the wealth tax. To restrain tax avoidance by the wealthy, the base of the gift and inheritance tax should be broadened. Overall, the reform package recommended in this paper would improve the allocation of capital and increase work and investment incentives. It could be designed to be broadly neutral in regard to income redistribution and public revenue.<P>La réforme fiscale en Norvège : Privilégier l'imposition du capital<BR>En Norvège, le système d'imposition duale atteint d’excellents résultats en termes de recouvrement des recettes et de redistribution du revenu, sans pénaliser excessivement la performance économique et en prenant en compte les externalités environnementales. Ce système n’applique pas le même traitement aux revenus du capital et du travail : le revenu du capital est soumis à un taux d’imposition unique faible, tandis que celui du travail est taxé à des taux progressifs. Toutefois, les taux d’imposition effectifs de l’épargne varient beaucoup d’une catégorie d’actifs à l’autre. Le traitement favorable des logements occupés par leurs propriétaires devrait être réduit, de préférence en taxant leur valeur locative imputée au taux légal normal de 28 %. L’impôt sur la fortune entraîne des taux d’imposition effectifs de l’épargne très élevés, qui ouvrent la voie à l’évasion fiscale ou qui entravent significativement la croissance. Le gouvernement doit se pencher sur cette question et, si l’arbitrage entre croissance et équité est par trop défavorable à la croissance, éliminer progressivement l’impôt sur la fortune ou réduire son taux. Afin de restreindre les possibilités d’évasion fiscale de la part des contribuables les plus aisés, il faudrait élargir la base de l’impôt sur les donations et les successions. Dans l’ensemble, les réformes recommandées dans ce document amélioreraient la répartition du capital et renforceraient les incitations à travailler et à investir. Elles pourraient être conçues de façon à avoir un impact globalement neutre sur la redistribution des revenus et les recettes publiques.
    Keywords: Norway, taxation, capital taxation, own-occupied housing, dual income tax system, wealth tax, rate of return allowance, allowance for corporate equity, fiscalité, Norvège, double système d'imposition, imposition du capital, propriétaires occupants, impôt sur la fortune, taux de l'indemnité de retour, déduction pour capital de l'entreprise
    JEL: D9 H2 R21 R38
    Date: 2012–04–03
  8. By: Jacobo Campo Robledo; Luis Fernando Melo Velandia
    Abstract: This paper evaluates the fiscal sustainability hypothesis for eight Latin American countries, Argentina, Chile, Colombia, Ecuador, Panama, Peru, Paraguay and Uruguay, during the period 1960 - 2009. Using second generation cointegration panel data models, we test whether Government revenues and primary expenditures are sustainable in the long-run. This methodology allows for cross-sectional dependence among countries and is also appropriated under the existence of potential structural breaks. We found empirical evidence of sustainability of the primary deficit for these Latin American countries but only in a weak sense.
    Keywords: Fiscal Sustainability, Panel Unit Root tests, Panel Cointegration tests, Structural Change. Classification JEL:C22, C23, H62.
    Date: 2011–11

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