nep-pub New Economics Papers
on Public Finance
Issue of 2013‒03‒16
twelve papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Average Personal Income Tax Rate and Tax Wedge Progression in OECD Countries By Dominique Paturot; Kirsti Mellbye; Bert Brys
  2. Taxation of Goods and Services from 1862 to 2010 By Stenkula, Mikael
  3. Generalized Social Marginal Welfare Weights for Optimal Tax Theory By Emmanuel Saez; Stefanie Stantcheva
  4. The Welfare Impact of Indirect Pigouvian Taxation: Evidence from Transportation By Christopher R. Knittel; Ryan Sandler
  5. A global assessment of the economic effects of export taxes: By Laborde Debucquet, David; Estrades, Carmen; Bouёt, Antoine
  6. Relative Consumption, Optimal Taxation and Public Provision of Private Goods By Koenig, Tobias; Lausen, Tobias
  7. Publicly Provided Private Goods and Optimal Taxation when Consumers Have Positional Preferences By Aronsson, Thomas; Johansson-Stenman, Olof
  8. Taxation and Public Goods Provision in China and Japan before 1850 By Sng, Tuan-Hwee; Moriguchi, Chiaki
  9. Temporary and Persistent Fiscal Policy Shocks By Sergio Sola
  10. The dark side of fiscal stimulus By Strulik, Holger; Trimborn, Timo
  11. REPLICATION STUDY: Hoover and Pecorino (Public Choice, 2005) By Stratford Douglas; W. Robert Reed
  12. Comparing Inequality Aversion across Countries When Labor Supply Responses Differ By Bargain, Olivier; Dolls, Mathias; Neumann, Dirk; Peichl, Andreas; Siegloch, Sebastian

  1. By: Dominique Paturot; Kirsti Mellbye; Bert Brys
    Abstract: The statutory progressivity of the income taxes paid by wage earners, net of the standard cash benefits they receive, depend on the design and interaction of personal income taxes, social security contributions (SSCs) and cash benefits. In order to capture their combined impact, this paper presents statutory tax progressivity indicators for the 34 OECD member countries on the basis of average effective income tax rates and tax wedges which are calculated using the OECD’s Taxing Wages framework. The analysis shows a decreasing pattern of tax progressivity across income levels. In some countries, the tax system becomes regressive when the SSC ceiling has been reached. Also, child benefits increase progressivity (especially at low income levels) and their effect is larger than the flattening impact of SSCs, except at top income levels. Reductions in SSCs targeted at low-incomes and dependant spouse allowances increase progressivity in some OECD countries. Income-splitting systems typically have the opposite effect.<P>Progression des taux moyens de l'impôt sur le revenu des personnes physiques et du coin fiscal dans les pays de l'OCDE<BR>La progressivité légale des impôts sur le revenu payés par les salariés, après déduction des prestations en espèces qu’ils perçoivent, dépend de la conception des impôts sur le revenu des personnes physiques, des cotisations de sécurité sociale (CSS) et des prestations en espèces ainsi que de leurs interactions. Afin de déterminer leur effet combiné, cette étude présente des indicateurs de la progressivité légale des impôts pour les 34 pays membres de l’OCDE, en s’appuyant sur les taux moyens effectifs de l’impôt sur le revenu et sur les coins fiscaux calculés en utilisant le modèle établi par la publication de l’OCDE « Les impôts sur les salaires ». L’analyse révèle que la progressivité diminue à mesure que les niveaux de revenu augmentent. Dans certains pays, le système fiscal devient régressif lorsque le plafond des CSS est atteint. De même, les allocations familiales augmentent la progressivité (surtout pour les bas revenus), et leur incidence est supérieure à l’effet d’atténuation des CSS, sauf pour les hauts salaires. Les réductions de CSS ciblant les bas revenus et les indemnités pour conjoint à charge augmentent la progressivité dans certains pays de l’OCDE. En général, le régime du quotient familial produit l’effet inverse.
    Keywords: personal income tax, tax progressivity, social security contributions, progressivité de l’impôt, cotisations de sécurité sociale, impôt sur le revenu des personnes physiques
    JEL: H24 H55
    Date: 2013–02–20
  2. By: Stenkula, Mikael (Research Institute of Industrial Economics (IFN))
    Abstract: This paper presents annual Swedish time series data on consumption taxes, i.e. the indirect taxation of goods and services, between 1862 and 2010. As a share of total state tax revenues, consumption taxes were very high at the beginning of the period, though as a share of GDP it was rather low. At this time, customs duties and specific consumption taxes on alcohol and sugar were the most important tax revenues. The importance of consumption taxes decreased during the World Wars, in particular during World War I. However, between the Wars the consumption taxes were still important and vehicle taxation as well as tobacco taxation now also contributed significantly to the tax revenues. After World War II and the 1940s, the tax revenues from consumption taxes has increased slightly again. However, as a share of GDP it increased sharply. On the other hand, importance of specific consumption taxes and, in particular, customs duties has fallen dramatically. The mix of the specific consumption taxes has also changed with and increased emphasis on energy and environmental taxes. A permanent general consumption tax was introduced in 1960 and its importance has increased sharply since then.
    Keywords: Consumption taxes; Taxation of goods and services; Excise duties; Customs duties; VAT
    JEL: H20 N43 N44
    Date: 2013–02–20
  3. By: Emmanuel Saez; Stefanie Stantcheva
    Abstract: This paper proposes a theory of optimal taxation using the tax reform approach and generalized social marginal welfare weights to capture social preferences for redistribution. A tax system is optimal if no budget neutral small reform can increase a weighted sum of (money metric) gains and losses across individuals. However, the weights used for aggregating gains and losses are not derived from a standard social welfare function based on individual utilities but instead directly specified to reflect society's views for justice. Optimum tax formulas take the same form as standard welfarist tax formulas by simply substituting standard marginal social welfare weights with those generalized marginal social welfare weights. We show how the use of suitable generalized social welfare weights can help resolve most of the puzzles of the traditional welfarist approach while retaining constrained Pareto efficiency. In contrast to the welfarist approach, generalized welfare weights can be specified to (1) provide a rich theory of optimal taxation even absent any behavioral responses, (2) treat differently ``deserved income'' vs. ``undeserved income,'' (3) treat differently ``deserving transfer beneficiaries'' vs. ``free loaders'', (4) rule out the use of tags unless they can make a Pareto improvement. We show how the most prominent alternatives to utilitarianism such as Libertarianism, Rawlsianism, Equality of Opportunity, Fair Income Taxation, Poverty alleviation, can be re-cast within our theory. Hence, generalized welfare weights can be derived from social justice principles, leading to a normative theory of taxation. Generalized welfare weights can also be derived from estimating actual social preferences of the public, leading to a positive theory of taxation. We use a simple online survey to illustrate this latter approach.
    JEL: H21
    Date: 2013–02
  4. By: Christopher R. Knittel; Ryan Sandler
    Abstract: A basic tenet of economics posits that when consumers or firms don't face the true social cost of their actions, market outcomes are inefficient. In the case of negative externalities, Pigouvian taxes are one way to correct this market failure, where the optimal tax leads agents to internalize the true cost of their actions. A practical complication, however, is that the level of externality nearly always varies across economic agents and directly taxing the externality may be infeasible. In such cases, policy often taxes a product correlated with the externality. For example, instead of taxing vehicle emissions directly, policy makers may tax gasoline even though per-gallon emissions vary across vehicles. This paper estimates the implications of this approach within the personal transportation market. We have three general empirical results. First, we show that vehicle emissions are positively correlated with vehicle elasticities for miles traveled with respect to fuel prices (in absolute value)—i.e. dirtier vehicles respond more to fuel prices. This correlation substantially increases the optimal second-best uniform gasoline tax. Second, and perhaps more importantly, we show that a uniform tax performs very poorly in eliminating deadweight loss associated with vehicle emissions; in many years in our sample over 75 percent of the deadweight loss remains under the optimal second-best gasoline tax. Substantial improvements to market efficiency require differentiating based on vehicle type, for example vintage. Finally, there is a more positive result: because of the positive correlation between emissions and elasticities, the health benefits from a given gasoline tax increase by roughly 90 percent, compared to what one would expect if emissions and elasticities were uncorrelated.
    JEL: H21 H23 L91 Q48 Q51 Q52 Q53 Q54 Q58
    Date: 2013–02
  5. By: Laborde Debucquet, David; Estrades, Carmen; Bouёt, Antoine
    Keywords: Computable General Equilibrium Models, export taxes,
    Date: 2013
  6. By: Koenig, Tobias; Lausen, Tobias
    Abstract: This paper shows that public provision of private goods may be justified on pure efficiency grounds in an environment where individuals have relative consumption concerns. By providing private goods, governments directly intervene in the consumption structure, thereby having an instrument to correct for the excessive consumption of positional goods. We identify sufficient conditions where public provision of private goods is always part of the optimal policy mix, even when consumption taxes are available. In fact, with public provision of private goods, there are cases where the first-best allocation can be achieved, and (linear) consumption taxes can be redundant.
    Keywords: Public Provision, Social Preferences, Status, Optimal Taxation
    JEL: H42 D62
    Date: 2013–02
  7. By: Aronsson, Thomas (Dept of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper analyzes optimal differential commodity taxation, together with optimal nonlinear income taxation, in order to deal with positional preferences. It also derives the optimal public provision of private goods both when differential commodity taxation is feasible and when it is not. It is shown that publicly provided non-positional private goods which are (possibly imperfect) substitutes for positional private goods should be used as a corrective instrument even if the tax system is optimal, i.e. even when differential commodity taxation is feasible. An exception is the special case where all consumers contribute equally much to the positional externality, in which the commodity tax constitutes a perfect instrument for internalizing the positional externality.<p>
    Keywords: Public provision of private goods; income taxation; commodity taxation; relative consumption; asymmetric information; status; positional goods
    JEL: D62 H21 H23
    Date: 2013–03–08
  8. By: Sng, Tuan-Hwee; Moriguchi, Chiaki
    Abstract: We develop a principal-agent model to study fiscal capacity in pre-modern China and Japan. Before 1850, both nations were ruled by stable dictators who relied on bureaucrats to govern their domains. We hypothesize that agency problems increase with the eographic size of a domain. In a large domain, the ruler's inability to closely monitor bureaucrats creates opportunities for the bureaucrats to exploit taxpayers. To prevent overexploitation, the ruler has to keep taxes low and government small. Our dynamic model shows that while economic expansion improves the ruler's finances in a small domain, it could lead to lower tax revenues in a large domain as it exacerbates bureaucratic expropriation. To test these implications, we assemble comparable quantitative data from primary and secondary sources. We find that the state taxed less and provided fewer local public goods per capita in China than in Japan. Furthermore, while the Tokugawa shogunate's tax revenue grew in tandem with demographic trends, Qing China underwent fiscal contraction after 1750 despite demographic expansion. We conjecture that a greater state capacity might have prepared Japan better for the arrival of the West after 1850.
    Keywords: Comparative Institutional Analysis, Principal-Agent Problem, Dictatorships
    JEL: D73 N15 N40 O43 P52
    Date: 2013–02
  9. By: Sergio Sola (Graduate Institute of International Studies)
    Abstract: This paper conducts an empirical investigation of the effects of temporary versus persistent fiscal policy shocks. Using data from the US I show that short lived fiscal expansions have a positive effect on output and consumption; while persistent fiscal shocks generate negative effects on consumption and - to a lesser extent – on output. Persistent fiscal expansions are associated with an increase in precautionary savings, collapse in consumers' confidence and an increase the yield curve's term premium. Consistently with consumption smoothing, short-lived fiscal expansions generate a temporary deficit in the current account, while persistent fiscal shocks leave the external balance unaffected. I find evidence of nonlinearity in the effects of temporary and persistent fiscal shocks according to (i) the level of public debt and (ii) the state of the business cycle. Persistent fiscal shocks have larger negative effects on consumption and output if they take place at high levels of public debt, possibly due to the higher costs of fiscal stabilization. The state of the business cycle is also very relevant. Persistent fiscal shocks generate negative multipliers in times of economic boom, but these negative multipliers disappear in periods of recession when credit constraints are more likely to bind. On the other hand, temporary fiscal shocks have positive effects both in times of expansion and in times of recession, but with the multipliers being way larger in the latter case. Differently with what hypothesized by the earlier literature on \non-Keynesian" _scale effects, I find little evidence that these effects are asymmetric depending on the size of the shocks.
    Keywords: Fiscal Policy; Public Debt; Fiscal Multipliers; Non-Keynesian Eects; Business Cycle.
    JEL: C10 E43 F42 H68
    Date: 2013–02–27
  10. By: Strulik, Holger; Trimborn, Timo
    Abstract: Most of the discussion about fiscal stimulus focuses on the multiplier of government spending on impact. In this paper we shift the focus to the multiplier at the end, i.e. to the period in which a deficit spending program terminates. We show that recent time series analyses as well as economic models of different schools of thought predict that the multiplier turns negative before spending expires. This means that aggregate output at the time of expiry of fiscal stimulus is predicted to be lower than it could be without deficit spending. We set up a simple model that explains this phenomenon. Using phase diagram analysis we prove that the aggregate capital stock at the time of expiry of fiscal stimulus is lower than it would be without the deficit spending program. This fact explains why aggregate output is below its laissez faire level as well. We then calibrate an extended version of the model for the US and demonstrate how fiscal stimulus slows down recovery from a recession in the medium-run. --
    Keywords: fiscal stimulus,government spending,output multiplier,economic recovery
    JEL: E60 H30 H50 O40
    Date: 2013
  11. By: Stratford Douglas; W. Robert Reed (University of Canterbury)
    Abstract: This paper replicates and analyses a study by Hoover and Pecorino on Federal spending in US states (Hoover and Pecorino, 2005; henceforth H&P). H&P followed on path-breaking research by Atlas et al. (1995) in which evidence was claimed in favour of the “small state effect;” namely, that since every state is represented by two Senators, small states have a disproportionate influence relative to their population size. H&P extended previous research by hypothesizing that if a small state effect existed, it should be most evident in Federal spending for (i) grants and (ii) procurement compared to other categories of Federal spending. They test this hypothesis using panel data of Federal spending in US states from 1983-1999. While we are able to closely replicate H&P’s original findings, we argue that that research suffers from several specification problems. When these are corrected, the evidence is mixed, with a substantial number of contradictory results.
    Keywords: Small state effect; Representation; US Senate; Replication study
    JEL: H1 H5 C1
    Date: 2013–02–24
  12. By: Bargain, Olivier (University of Aix-Marseille II); Dolls, Mathias (IZA); Neumann, Dirk (University of Cologne); Peichl, Andreas (IZA); Siegloch, Sebastian (IZA)
    Abstract: We analyze to which extent social inequality aversion differs across nations when control- ling for actual country differences in labor supply responses. Towards this aim, we estimate labor supply elasticities at both extensive and intensive margins for 17 EU countries and the US. Using the same data, inequality aversion is measured as the degree of redistribution implicit in current tax-benefit systems, when these systems are deemed optimal. We find relatively small differences in labor supply elasticities across countries. However, this changes the cross-country ranking in inequality aversion compared to scenarios following the standard approach of using uniform elasticities. Differences in redistributive views are significant between three groups of nations. Labor supply responses are systematically larger at the extensive margin and often larger for the lowest earnings groups, exacerbating the implicit Rawlsian views for countries with traditional social assistance programs. Given the possibility that labor supply responsiveness was underestimated at the time these programs were implemented, we show that such wrong perceptions would lead to less pronounced and much more similar levels of inequality aversion.
    Keywords: social preferences, redistribution, optimal income taxation, labor supply
    JEL: H11 H21 D63 C63
    Date: 2013–02

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