New Economics Papers
on Public Finance
Issue of 2012‒06‒13
seven papers chosen by

  1. Tax Morale and Tax Evasion: Social Preferences and Bounded Rationality By Zsombor Z. M‚der; Andr s Simonovits; J nos Vincze
  2. Who's (Still) Above the Social Security Payroll Tax Cap? By Nicole Woo; Janelle Jones; John Schmitt
  3. Property Tax in Ireland: Key Choices By Keane, Claire; Walsh, John R.; Callan, Tim; Savage, Michael
  4. Cigarettes taxes and smuggling in South Africa: Causes and Consequences By Craig Lemboe; Philip Black
  5. When is debt sustainable? By Jasper Lukkezen; Hugo Rojas-Romagosa
  6. The impact of burden sharing rules on the voluntary provision of public goods By Kesternich, Martin; Lange, Andreas; Sturm, Bodo
  7. The Effects of Voting Costs on the Democratic Process and Public Finances By Roland Hodler; Simon Luechinger; Alois Stutzer

  1. By: Zsombor Z. M‚der (Maastricht University Department of Economics); Andr s Simonovits (Institute of Economics Research Centre for Economic and Regional Studies Hungarian Academy of Sciences and Budapest University of Technology and Economics Institute of Mathematics and Central European University, Department of Economics); J nos Vincze (Institute of Economics Research Centre for Economic and Regional Studies Hungarian Academy of Sciences and Corvinus University of Budapest)
    Abstract: We study a family of models of tax evasion, where a flat-rate tax finances only the provision of public goods, neglecting audits and wage differences. We focus on the comparison of two modeling approaches. The first is based on optimizing agents, who are endowed with social preferences, their utility being the sum of private consumption and moral utility. The second approach involves agents acting according to simple heuristics. We find that while we encounter the traditionally shaped Laffer-curve in the optimizing model, the heuristics models exhibit (linearly) increasing Laffer-curves. This difference is related to a peculiar type of behavior emerging within the heuristics based approach: a number of agents lurk in a moral state of limbo, alternating between altruism and selfishness.
    Keywords: tax evasion, tax morale, agent-based simulation
    JEL: H26
    Date: 2012–01
  2. By: Nicole Woo; Janelle Jones; John Schmitt
    Abstract: The Social Security payroll tax cap is the earnings level above which no further Social Security taxes are collected. The cap is currently at $110,100, though legislation has been introduced in Congress to apply the Social Security payroll tax to earnings above $250,000 (but not between the current cap and this level). This issue brief updates earlier work, finding that 5.8 percent of workers would be affected if the Social Security cap were eliminated entirely and 1.4 percent would be affected if the current tax were applied to earnings over $250,000. It breaks down these numbers further by gender, race or ethnicity, age, and state of residence.
    Keywords: social security, retirement, wage cap
    JEL: H H5 H55
    Date: 2012–05
  3. By: Keane, Claire; Walsh, John R.; Callan, Tim; Savage, Michael
    Abstract: The introduction of a property tax is now firmly on the policy agenda. Designing such a tax involves a series of choices which affect how the burden of the tax is distributed across households. In this paper we use SWITCH, the ESRI tax-benefit model, to explore the implications of alternative approaches designed to link a property tax with ability to pay. We also draw on international experience with property taxes to provide insights into choices regarding the structure and operation of a new tax. A key finding is that an income exemption limit below which property tax is not payable (with marginal relief for those with incomes just above the limit) could provide a powerful tool for shaping the income distribution consequences of the tax. Without such an approach, the highest burden would be on those with lowest incomes. However, an income exemption limit for a single person of ?12,000 per year, just above the State Contributory Pension rate, would greatly reduce the impact on low income groups. A higher income exemption limit of ?15,000, with a tax rate of ?2.50 per ?1,000 of house value would mean that the property tax would have little impact on those on the lowest incomes, and have its greatest impact ? a reduction in disposable income of just under 1 per cent ? on those with the highest incomes.
    Keywords: Ireland/property tax/taxes/Policy/income distribution
    Date: 2012–04
  4. By: Craig Lemboe (Bureau for Economic Research, University of Stellenbosch); Philip Black (Department of Economics, University of Stellenbosch)
    Abstract: The main instrument within the broader framework of tobacco control in South Africa has been the more aggressive use of tobacco taxes which since 1999/2000 have increased from 0.12 cents per cigarette to 0.38c in 2009/10. The primary goal of these policies is to reduce cigarette consumption and the attendant negative externality. National Treasury (NT) data seem to suggest that these initiatives and higher taxes in particular have been effective in reducing cigarette consumption. However, the official (NT) data pay little attention to the illegal cigarette market which in South Africa has long been assumed to be only a fraction of total cigarette consumption. Comparing an independent consumption survey with the NT data we find that the level of cigarette smuggling in South Africa is in fact significant, constituting between 40% and 50% of the total market, and that cigarette tax hikes have to a large extent contributed to its continued existence and growth by creating a financial incentive to smuggle. Furthermore, the well-established informal sector in South Africa - which developed under Apartheid rule and is characterised by strong networks with other African countries - implies that there is a greater ability and likelihood of consumers switching from consuming legal cigarettes to consuming illegal cigarettes following a tax-induced price increase. There is also much evidence indicating that illegal cigarettes are of inferior quality which, combined with the tax induced shift to smuggled cigarettes, suggests that cigarette tax hikes could have the perverse effect of raising rather than lowering the overall negative externality.
    Keywords: externalities, cigarette smuggling, illegal market, tobacco control
    JEL: H23 I18
    Date: 2012
  5. By: Jasper Lukkezen; Hugo Rojas-Romagosa
    Abstract: <p>This CPB Discussion Paper proposes indicators to assess government debt sustainability. Sustainable government finances can be achieved via three main channels: fiscal responses, economic growth and financial repression.</p><p>The fiscal response provides information on the long-term country specific attitude towards fiscal sustainability and is estimated using Bohn (2008)’s approach. We combine the estimated fiscal response with a stochastic debt simulation and calculate the probability of debt-to-GDP ratios rising above some threshold. This is applied on historical data for seven OECD countries. In particular, the probability of debt-to-GDP ratios rising by more than 20% in the next decade clearly identifies countries that have sustainability concerns: Spain, Portugal and Iceland, from those that do not: US, UK, Netherlands and Belgium.</p>
    JEL: E4 E6 H0 H6
    Date: 2012–06
  6. By: Kesternich, Martin; Lange, Andreas; Sturm, Bodo
    Abstract: We investigate how burden sharing rules may impact the voluntary provision of a public good which generates heterogeneous benefits to agents. We compare different rule-based contribution schemes that are based on the principle of the smallest common denominator: all agents can suggest a minimum provision level of the public good that is allocated across agents according to some predetermined rule. We find that rule-based contribution schemes significantly increase payoff levels relative to the VCM. Important differences exist between the rules. Contrary to theory predictions, the equal-payoff rule Pareto-dominates all other rules. This also holds relative to a scheme where different types of players separately can determine their minimum contribution levels. Our results lend insights into the efficient institutional design for voluntary private provision of public goods, and how burden sharing rules interact with efficiency when agents are heterogeneous. --
    Keywords: public goods,institutions,minimum contribution rules,cooperation,heterogeneity
    JEL: C72 C92 H41
    Date: 2012
  7. By: Roland Hodler; Simon Luechinger; Alois Stutzer (University of Basel)
    Keywords: Fiscal policies, political knowledge, postal voting, special-interest politics, voter turnout, voting costs
    JEL: D72 D78 H00
    Date: 2012

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