nep-pub New Economics Papers
on Public Finance
Issue of 2013‒05‒11
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Heterogeneity in Labor Supply Elasticity and Optimal Taxation By Marios Karabarbounis
  2. Factor Income Taxation in a Horizontal Innovation Model By Xin Long; Alessandra Pelloni
  3. The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States By Morten Ravn; Karel Mertens
  4. Taxation and development: A review of donor support to strengthen tax systems in developing countries By Fjeldstad, Odd-Helge
  5. Making the Tax System Less Distortive in Switzerland By Andrés Fuentes
  6. Fiscal equalisation schemes and sub-central government borrowing By Diego Martínez López; Salvador Barrios
  7. Does cutting back the public sector improve efficiency? Some evidence from 15 European countries By Sabrina Auci; Laura Castellucci; Manuela Coromaldi
  8. Asymmetric Fiscal Policy Shocks By Gogas, Periklis; Pragidis, Ioannis
  9. Linking Appropriation of Common Resources and Provision of Public Goods Decreases Rate of Destruction of the Commons By Anabela Botelho; Ariel Dinar; Lígia M.Costa Pinto; Amnon Rapoport

  1. By: Marios Karabarbounis (University of Rochester)
    Abstract: Standard public finance principles imply that workers with more elastic labor supply should face smaller tax distortions. This paper quantitatively tests the potential of such an idea within a realistically calibrated life cycle model of labor supply with heterogeneous agents and incomplete markets. Heterogeneity in labor supply elasticity arises endogenously from differences in reservation wages. I find that older cohorts are much more responsive to wage changes than younger and especially middle aged cohorts. Both a shorter time horizon and a larger stock of savings account for this difference. Since the government does not have direct information on individual labor supply elasticity it uses these life cycle variables as informative moments. The optimal Ramsey tax policy decreases the average and marginal tax rates for agents older than 50 and more so the larger is the accumulated stock of savings. At the same time, the policy increases significantly the tax rates for middle aged workers. Finally, the optimal policy provides redistribution by decreasing tax rates of wealth-poor young workers. The policy encourages work effort by high elasticity groups while targets inelastic middle aged groups to raise revenues. As a result, total supply of labor increases by 2.98% and total capital by 5.37%. These effects translate into welfare gains of about 0.85% of annual consumption.
    Date: 2012
  2. By: Xin Long (African Development Bank Group); Alessandra Pelloni (University of Rome "Tor Vergata")
    Abstract: We consider the optimal factor income taxation in a standard R&D model with technical change represented by an increase in the variety of intermediate goods. Redistributing the tax burden from labor to capital will in most cases increase the employment rate in equilibrium. This has opposite effects on two distortions in the model, one due to monopoly power, the second to the incomplete appropriability of the benefits of inventions. Their relative momentum determines the sign of the welfare effect of the redistribution. We show that, for parameter values consistent with available estimates, the optimal tax rate on capital will be sizable.
    Keywords: Capital Income Taxes, R&D, Growth Effect, Welfare Effect.
    JEL: E62 H21 O41
    Date: 2013–04–19
  3. By: Morten Ravn (University College London); Karel Mertens (Cornell University)
    Abstract: This paper estimates the dynamic effects of changes in taxes in the United States. We dis- tinguish between the effects of changes in personal and corporate income taxes using a new narrative account of federal tax liability changes in these two tax components. We develop an estimator in which narratively identified tax changes are used as proxies for structural tax shocks and apply it to quarterly post WWII US data. We find that short run output effects of tax shocks are large and that it is important to distinguish between different types of taxes when considering their impact on the labor market and the major expenditure components.
    Date: 2012
  4. By: Fjeldstad, Odd-Helge
    Abstract: Recent years have seen a growing interest among donors on taxation in developing countries. This reflects a concern for domestic revenue mobilization to finance public goods and services, as well as recognition of the centrality of taxation for growth and
    Keywords: tax policy, tax administration, tax effort, technical assistance
    Date: 2013
  5. By: Andrés Fuentes
    Abstract: The tax burden in Switzerland is low in international comparison, largely reflecting the substantial non-tax compulsory contributions towards the health and pension systems which are managed by private institutions. Taxation of personal income and labour earnings is relatively high, whereas the taxation of consumption is low. Empirical research on OECD economies and on Switzerland specifically indicates that shifting taxation away from personal income towards the taxation of consumption would strengthen incentives to engage in economic activity. The structure of the corporate tax burden could be improved to remove disincentives for small firms to grow. Reducing the generous provisions which allow interest payments to be deducted from taxable personal income would reduce incentives for households to excessively leverage their wealth, with benefits both for financial stability and equity in the tax system. While tax competition among sub-national authorities has reinforced fiscal discipline, adverse side effects on equity could be reduced, including through greater reliance on real estate taxation in municipalities. This Working Paper relates to the 2012 OECD Economic Survey of Switzerland (<P>Réduire les distorsions dues au système fiscal en Suisse<BR>En Suisse, la pression fiscale est faible par comparaison avec les autres pays, ce qui s’explique dans une large mesure par l’importance des contributions obligatoires non fiscales aux systèmes de santé et de retraite qui sont gérés par des institutions privées. L’imposition des revenus des personnes physiques et des rémunérations du travail est relativement élevée, tandis que les impôts sur la consommation sont faibles. Une modification de la structure fiscale qui consisterait à réduire la part des impôts sur le revenu des personnes physiques au profit de celle des impôts sur la consommation renforcerait l’incitation à exercer une activité économique. La structure de l’impôt sur les sociétés pourrait être améliorée afin de supprimer les facteurs qui dissuadent les petites entreprises de se développer. Si l’on réduisait les dispositions avantageuses qui permettent de déduire les versements d’intérêts du revenu imposable des personnes physiques, les ménages seraient moins incités à exercer un effet de levier excessif sur leur patrimoine, ce qui serait bénéfique à la fois pour la stabilité financière et l’équité du système fiscal. Si la concurrence fiscale entre les autorités infranationales a renforcé la discipline fiscale, il serait possible de réduire ses effets collatéraux défavorables sur l’équité, notamment en ayant davantage recours à la fiscalité immobilière dans les communes. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Suisse, 2012 (
    Keywords: taxation, Switzerland, fiscalité, Suisse
    JEL: H2
    Date: 2013–04–16
  6. By: Diego Martínez López (Dpto. Economía, Mét. Cuantitativos e H.ª Econ.); Salvador Barrios (IPTS - Instituto de Prospectiva Tecnológica)
    Abstract: This paper analyses the role played by the fiscal equalisation scheme in determining sub-national public borrowing in decentralised countries. We show theoretically how the regional income redistribution modifies the intertemporal budget constraint of the regions and discuss the conditions under which the federal equalisation arrangements are likely to lead to diverging borrowing between rich and poor regions. We test empirically the link between regional government primary balances and the level of GDP per capita in Canada, Germany and Spain. Our econometric analysis shows that this relationship can be either positive (as in the German case) or negative (as in the Canadian and Spanish cases), thus suggesting that either poor or rich regions can display higher regional public borrowing on average. We attribute these results to the differences in the design of the fiscal equalisation schemes and illustrate this through numerical simulations of our model. These results suggest that reforms of the federal financing schemes can prove instrumental in reducing regional heterogeneity in public borrowing. Este artículo analiza el papel jugado por el sistema de nivelación fiscal a la hora de determinar el endeudamiento de gobiernos subcentrales, Mostramos teóricamente cómo la redistribución territorial de la renta modifica la restricción presupuestaria intertemporal de las regiones y discutimos las condiciones bajo las que los sistemas de nivelación fiscal pueden conducir a niveles de endeudamiento distintos en las regiones ricas y pobres. Comprobamos empíricamente los vínculos entre el superávit primario regional y la renta per cápita en Canadá, Alemania y España. Nuestro análisis econométrico muestra que esta relación puede ser positiva (Alemania) o negativa (Canadá y España), sugiriendo por tanto que tanto las ricas como las pobres pueden llegar a niveles de endeudamiento superiores. Atribuimos este resultado a las diferencias en el diseño de los modelos de nivelación fiscal y lo ilustramos con simulaciones numéricas. Estos hallazgos sugieren que las reformas en los modelos de financiación territorial tienen efectos sobre la heterogeneidad en los comportamientos de gobiernos regionales a la hora de endeudarse.
    Keywords: nivelación fiscal, deuda pública. fiscal equalisation, public debt.
    JEL: H7 H6
    Date: 2013–04
  7. By: Sabrina Auci (University of Palermo); Laura Castellucci (University of Rome "Tor Vergata"); Manuela Coromaldi (University of Rome “Niccolò Cusano)
    Abstract: The successful development of the welfare state that transpired for three decades after WWII in the developed countries, came to a halt around the end of the 1980s. Since then, the number of articles and books dedicated to the crisis of the welfare state has increased. We can now assert that at the turn of the century, almost all industrialized countries had cut at least “some” entitlements in their welfare program along with other expenditure items, and the trend continued in the first decade of this century. To defend the cuts and possibly to justify continuing cuts, several economic reasons, both theoretical and empirical, have been highlighted. From mention of Baumol’s disease to the fiscal crisis, the support for making such decisions by governments gained momentum, with their political inspiration changing during the same period in favor of more conservative, right-wing positions. The low productivity of the public sector and the high level of tax burden were the substantial arguments used to support cuts. The aim of this paper is to provide an empirical investigation into the impact of retrenchment of the public sector on the performance of 15 European countries. In particular, we aim to empirically test the view that “big government” reduces a country's efficiency. We have found that no such empirical support exists. We have also included analysis of the distribution of income through the Gini index and have found the standard trade-off relation between inequality and efficiency.
    Keywords: Stochastic frontier production function, public sector productivity, welfare
    JEL: H11 H53 O4 D6
    Date: 2013–04–30
  8. By: Gogas, Periklis (Democritus University of Thrace); Pragidis, Ioannis (Democritus University of Thrace)
    Abstract: We empirically test the effects of unanticipated fiscal policy shocks on the growth rate and the cyclical component of real private output and reveal different types of asymmetries in fiscal policy implementation. The data used are quarterly U.S. observations over the period 1967:1 to 2011:4. In doing so, we use two alternative vector autoregressive systems in order to construct the fiscal policy shocks: one with the simple sum monetary aggregate MZM and one with the alternative CFS Divisia MZM aggregate. From each one of these systems we extracted four types of shocks: a negative and a positive government spending shock and a negative and a positive government revenue shock. These eight different types of unanticipated fiscal shocks were used next to empirically examine their effects on the growth rate and cyclical component of real private GNP in two sets of regressions: one that assumes only contemporaneous effects of the shocks on output and one that is augmented with four lags of each fiscal shock.
    Keywords: Fiscal Policy; Asymmetric Effects; VAR
    JEL: E62
    Date: 2013–05–04
  9. By: Anabela Botelho (NIMA, Universidade do Minho); Ariel Dinar (Water Science and Policy Center, Department of Environmental Sciences, University of California, Riverside); Lígia M.Costa Pinto (NIMA, Universidade do Minho); Amnon Rapoport (A. Gary Anderson School of Business Administration, University of California, Riverside)
    Abstract: Experimental studies of common pool resource (CPR) dilemmas are frequently terminated with collapse of the resource; however, there is considerable evidence in real-world settings that challenge this finding. To reconcile this difference, we propose a two-stage model that links appropriation of the CPR and provision of public goods in an attempt to explain the emergence of cooperation in the management of CPRs under environmental uncertainty. Benchmark predictions are derived from the model, and subsequently tested experimentally under different marginal cost-benefit structures concerning the voluntary contribution to the provision of the good. Our results suggest that the severity of the appropriation problem is significantly mitigated by the presence of an option for voluntarily contributing a fraction of the income surplus from the appropriation phase to the provision of the public good.
    Date: 2013–04

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