New Economics Papers
on Public Finance
Issue of 2013‒12‒06
five papers chosen by

  1. Fiscal policy in a Real-Business-Cycle model with labor-intensive government services and endogenous public sector wages and hours By Aleksandar Vasilev
  2. On the Pigouvian Tax Rule in an Open Economy: Opening the Gate to the Eco-industry By Idrissa Sibailly
  3. Prospect Theory and Tax Evasion: A Reconsideration of the Yitzhaki Puzzle By Piolatto, Amedeo; Rablen, Matthew D.
  4. Effects of territorial and worldwide corporation tax systems on outbound M&As By Feld, Lars P.; Ruf, Martin; Scheuering, Uwe; Schreiber, Ulrich; Voget, Johannes
  5. Old-Age Government Transfers and the Crowding Out of Private Gifts: The 70 and Above Program for the Rural Elderly in Mexico By Catalina Amuedo-Dorantes; Laura Juarez

  1. By: Aleksandar Vasilev
    Abstract: Motivated by the high public employment, and the public wage premia observed in Europe, a Real-Business-Cycle model, calibrated to German data (1970-2007), is set up with a richer government spending side, and an endogenous private-public sector labor choice. To illustrate the effects of fiscal policy, two regimes are compared and contrasted to one another - exogenous vs. optimal (Ramsey) policy case. The main findings from the computational experiments performed in this paper are: (i) The op- timal steady-state capital tax rate is zero; (ii) A higher labor tax rate is needed in the Ramsey case to compensate for the loss in capital tax revenue; (iii) Under the optimal policy regime, public sector employment is lower, but government employees receive higher wages; (iv) The benevolent Ramsey planner provides the optimal amount of the public good, substitutes labor for capital in the input mix for public services produc- tion, and private output; (v) Government wage bill is smaller, while public investment is three times higher than in the exogenous policy case.
    Keywords: optimal policy, government spending, public employment and wages
    JEL: E69 E62 E32 H40
    Date: 2013–05
  2. By: Idrissa Sibailly (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, LEI - Laboratoire d'Economie Industrielle - Centre de Recherche en Économie et STatistique (CREST))
    Abstract: This note investigates the impact of (international) technology transfer on optimal pollution taxation. To use a patented pollution abatement technology, the polluters subject to the emissions tax only pay fixed license fees to an (international) eco-industry (whose profits are shared among national and foreign suppliers). The second-best emissions tax is shown to decrease as the exogenous share of imported technology increases. When the domestic polluting industry is imperfectly competitive, this tax is always lower than the marginal damage. In contrast, when the polluting industry is perfectly competitive, the second-best emissions tax is lower than the marginal damage only in the case of incoming technology transfer. If the technology is transferred domestically, the second-best emissions tax is equal to the marginal damage. These results contrast with the literature on the impact of market power in the eco-industry on optimal policy design, initiated by David and Sinclair-Desgagné (2005).
    Keywords: Pigouvian Taxes, Eco-Industry, Technology Transfer, International Trade
    Date: 2013–11–29
  3. By: Piolatto, Amedeo (Barcelona Institute of Economics); Rablen, Matthew D. (Brunel University)
    Abstract: The standard expected utility model of tax evasion predicts that evasion is decreasing in the marginal tax rate (the Yitzhaki puzzle). The existing literature disagrees on whether prospect theory overturns the puzzle. We disentangle four distinct elements of prospect theory and find loss aversion and probability weighting to be redundant in respect of the puzzle. Prospect theory fails to reverse the puzzle for various classes of endogenous specification of the reference level. These classes include, as special cases, the most common specifications in the literature. New specifications of the reference level are needed, we conclude.
    Keywords: prospect theory, tax evasion, Yitzhaki puzzle, stigma, diminishing sensitivity, reference dependence, endogenous audit probability, endogenous reference level
    JEL: H26 D81 K42
    Date: 2013–11
  4. By: Feld, Lars P.; Ruf, Martin; Scheuering, Uwe; Schreiber, Ulrich; Voget, Johannes
    Abstract: Repatriation taxes reduce the competitiveness of multinational firms from tax credit countries when bidding for targets in low tax countries. This comparative disadvantage with respect to bidders from exemption countries violates ownership neutrality, which results in production inefficiency due to second-best ownership structures. This paper empirically estimates the magnitude of these effects. The abolishment of repatriation taxes in Japan and in the U.K. in 2009 has increased the number of acquisitions abroad by Japanese and British firms by 31.9% and 3.9 %, respectively. A similar policy switch in the U.S. is simulated to increase the number of U.S. cross-border acquisition by 17.1 %. We estimate the yearly gain in efficiency to be around 525 million dollar due to the Japanese reform and 13.5 million dollar due to the U.K. reform. Simulating such a reform for the U.S. results in a yearly efficiency gain of 1134 million dollar. --
    Keywords: international mergers and acquisitions,business taxation,repatriation taxes,ownership neutrality
    JEL: H25 G34
    Date: 2013
  5. By: Catalina Amuedo-Dorantes (San Diego State University); Laura Juarez (Banco de Mexico)
    Abstract: We estimate the crowding out of private transfers caused by 70 y Más –a public assistance program for the rural elderly in Mexico for whom family support is an important source of income. Using data from the Mexican Income and Expenditure Survey and a triple difference approach, we find that the program crowds out private gifts by 37 percent, and it does so mostly by reducing the probability of receiving domestic remittances. As a result, the non-labor income of beneficiaries increases by less than their government transfers. Thus, by reducing their private support to the elderly, domestic donors are dampening the effect of the program, although not completely neutralizing it.
    JEL: H3 H55 J14 J18
    Date: 2013–11

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