nep-pub New Economics Papers
on Public Finance
Issue of 2014‒01‒17
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  2. A Politico-Economic Model of Public Expenditure and Income Taxation By Joan Esteban; Laura Mayoral
  3. Tax Havens, Growth, and Welfare By Chu, Hsun; Lai, Ching-Chong; Cheng, Chu-Chuan
  4. Understanding Countries’ Tax Effort By Ricardo Fenochietto; Carola Pessino
  5. Taxing Mobile Capital in Free Trade Zones to the Detriment of Workers By Glenn P. Jenkins; Chun-Yan Kuo
  6. The Impact of Taxes and Social Spending on Inequality in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: An Overview By Nora Lustig; Florencia Amabile; Marisa Bucheli; George Gray Molina; Sean Higgins; Miguel Jaramillo; Wilson Jimenez Pozo; Veronica Paz Arauco; Claudiney Pereira; Carola Pessino; Maximo Rossi; John Scott; Ernesto Yanez Aguilar
  7. Comparing the Incidence of Taxes and Social Spending in Brazil and the United States By Sean Higgins; Nora Lustig; Whitney Ruble; Timothy Smeeding
  8. The Social Security Windfall Elimination and Government Pension Offset Provisions for Public Employees in the Health and Retirement Study By Alan L. Gustman; Thomas L. Steinmeier; Nahid Tabatabai
  9. Recognizing Contributors: An Experiment on Public Goods By Anya Savikhin Samek; Roman M. Sheremeta

  1. By: LAURENCE SEIDMAN (Department of Economics,University of Delaware)
    Abstract: This article recommends a tax reform strategy that can accomplish three objectives: (1) raise sufficient revenue to deal with long run budget challenges; (2) promote long run economic growth; (3) provide progressivity in the face of increasing inequality. The strategy for overcoming this fiscal trilemma is to retain (with modification) the personal income tax, the corporate income tax, and the payroll tax, and add two progressive consumption tax supplements: a value added tax made progressive by a refundable VAT credit on the 1040, and a progressive consumption surtax on the 1040.
    Keywords: Tax reform, Progressive consumption tax supplements
    JEL: H20 H24 H25
    Date: 2014
  2. By: Joan Esteban; Laura Mayoral
    Abstract: We model the political process as consisting of voting on the issue considered salient, public expenditure, with a subsequent consensus over size of government and income taxation. We prove that for each majoritarian choice there is a unique consensus policy on progressivity and government size. We empirically validate the implication that the sign of the relationship between inequality and progressivity chosen by the median voter is conditional on the degree of substitutability between government and market supplied goods. We also obtain that this substitutability has a negative impact on the negative marginal effect of inequality on the size of government.
    Keywords: government policy, income taxation, public expenditure
    JEL: H23 H50 O50
    Date: 2013–11
  3. By: Chu, Hsun; Lai, Ching-Chong; Cheng, Chu-Chuan
    Abstract: This paper develops an endogenous growth model featuring tax havens, and uses it to examine how the existence of tax havens affects the economic growth rate and social welfare in high-tax countries. We show that the presence of tax havens generates two conflicting channels in determining the growth effect. First, the public investment effect states that tax havens may erode tax revenues and in turn decrease the government’s infrastructure expenditure, thereby reducing growth. Second, the tax planning effect of tax havens reduces marginal cost of capital and hence encourages capital accumulation so as to spur economic growth. The overall growth effect is ambiguous and is determined by the extent of these two effects. The welfare analysis shows that tax havens are more likely to be welfare-enhancing if the government expenditure share in production is low, or the initial income tax rate is high. Moreover, the welfare-maximizing income tax rate is lower than the growth-maximizing income tax rate if tax havens are present.
    Keywords: tax havens, endogenous growth, optimal income tax
    JEL: H21 H26 O11 O40
    Date: 2013–09
  4. By: Ricardo Fenochietto; Carola Pessino
    Abstract: This paper presents a model to determine the tax effort and tax capacity of 113 countries and the main variables on which they depend. The results and the model allow a clear determination of which countries are near their tax capacity and which are some way from it, and therefore, could increase their tax revenue. This paper also determines central factors on which tax capacity depends: the level of development, trade, education, inflation, income distribution, corruption, and the ease of tax collection.
    Keywords: Taxes;Natural resources;Tax systems;Economic models;Cross country analysis;tax effort, tax frontier, tax capacity, tax revenue, stochastic tax frontier, inefficiency
    Date: 2013–12–16
  5. By: Glenn P. Jenkins (Department of Economics, Queen's University, Canada, Eastern Mediterranean University, Mersin 10, Turkey); Chun-Yan Kuo (Department of Economics, Queen's University, Canada)
    Abstract: Many countries exempt the income of firms operating in their free trade or export processing zones from corporate income taxation. This paper examines both theoretically and empirically the incidence of removing this exemption. The empirical analysis is carried out for the Dominican Republic. The findings indicate that removal of the corporate income tax exemption would inflict a burden on relatively low-waged workers of over nine times the amount of additional tax revenue collected from the companies operating in the country's free trade zones. In turn, this loss would largely be a gain to the more advantaged groups in society.
    Keywords: WTO, tax incidence, free trade zones, corporate income taxation, Dominican Republic
    JEL: F13 H22 O24 O54
    Date: 2013–12
  6. By: Nora Lustig (Department of Economics, Tulane University); Florencia Amabile (Economics Department, Universidad de la Republica, Uruguay); Marisa Bucheli (Economics Department, Universidad de la Republica, Uruguay); George Gray Molina (Chief Economist for UNDP-Latin America and the Caribbean, New York, New York); Sean Higgins (Department of Economics, Tulane University); Miguel Jaramillo (GRADE (Grupo de Análisis para el Desarrollo), Peru); Wilson Jimenez Pozo; Veronica Paz Arauco; Claudiney Pereira (Department of Economics, Tulane University); Carola Pessino (School of Government and Executive Director, Centro de Investigaciones y Evaluación en Economía Social para el Alivio de la Pobreza, Universidad Torcuato Di Tella, Buenos Aires, Argentina); Maximo Rossi (Economics Department, Universidad de la Republica, Uruguay); John Scott (CIDE (Centro de Investigación y Docencia Económicas), Mexico and,Consejero Académico, CONEVAL (Consejo Nacional de Evaluación de la Política de Desarrollo Social), Mexico); Ernesto Yanez Aguilar
    Abstract: How much redistribution and poverty reduction is being accomplished in Latin America through social spending, subsidies, and taxes? Standard fiscal incidence analyses applied to Argentina, Bolivia, Brazil, Mexico, Peru, and Uruguay using a comparable methodology yields the following results. Direct taxes and cash transfers reduce inequality and poverty by nontrivial amounts in Argentina, Brazil, and Uruguay but less so in Bolivia, Mexico, and Peru. While direct taxes are progressive, the redistributive impact is small because direct taxes as a share of GDP are generally low. Cash transfers are quite progressive in absolute terms, except in Bolivia where programs are not targeted to the poor. In Bolivia and Brazil, indirect taxes more than offset the poverty-reducing impact of cash transfers. When one includes the in-kind transfers in education and health, valued at government costs, they reduce inequality in all countries by considerably more than cash transfers, reflecting their relative size.
    Keywords: fiscal incidence, inequality, poverty, taxes, social spending, Latin America
    JEL: H22 I3 O1
    Date: 2013–08
  7. By: Sean Higgins (Department of Economics, Tulane University); Nora Lustig (Department of Economics, Tulane University); Whitney Ruble (Department of Economics, Tulane University); Timothy Smeeding (Institute for Research on Poverty, Robert M. La Follette School of Public Affairs, University of Wisconsin-Madison)
    Abstract: We perform the first comprehensive fiscal incidence analyses in Brazil and the US, including direct cash and food transfers, targeted housing and heating subsidies, public spending on education and health, and personal income, payroll, corporate income, property, and expenditure taxes. In both countries, primary spending is close to 40 percent of GDP. The US achieves higher redistribution through direct taxes and transfers, primarily due to underutilization of the personal income tax in Brazil and the fact that Brazil’s highly progressive cash and food transfer programs are small while larger transfer programs are less progressive. However, when health and non-tertiary education spending are added to income using the government cost approach, the two countries achieve similar levels of redistribution. This result may be a reflection of better-off households in Brazil opting out of public services due to quality concerns rather than a result of government effort to make spending more equitable.
    Keywords: inequality, fiscal policy, taxation, social spending
    JEL: D31 H22 I38
    Date: 2013–11
  8. By: Alan L. Gustman (Dartmouth College); Thomas L. Steinmeier (Texas Tech University); Nahid Tabatabai (Dartmouth College)
    Abstract: This paper uses data from the Health and Retirement Study to investigate the effects of Social Security’s Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) provision on Social Security benefits received by individuals and households. WEP reduces the benefits of individuals who worked in jobs covered by Social Security and also worked in uncovered jobs where a pension was earned. WEP also reduces spouse benefits. GPO reduces spouse and survivor benefits for persons who worked in uncovered government employment where they also earned a pension. Unlike previous studies, we take explicit account of pensions earned on jobs not covered by Social Security, a key determinant of the size of WEP and GPO adjustments. Also unlike previous studies, we focus on the household. This allows us to incorporate the full effects of WEP and GPO on spouse and survivor benefits, and to evaluate the effects of WEP and GPO on the assets accumulated by affected families. Among our specific findings: About 3.5 percent of households are subject to either WEP or to GPO. The present value of their Social Security benefits is reduced by roughly one fifth. This amounts to five to six percent of the total wealth they accumulate before retirement. Households affected by both WEP and GPO lose about one third of their benefit. Limiting the Social Security benefit to half the size of the pension from uncovered employment reduces the penalty from WEP for members of the original HRS cohort by about 60 percent.
    Date: 2013–10
  9. By: Anya Savikhin Samek (School of Human Ecology, University of Wisconsin-Madison); Roman M. Sheremeta (Weatherhead School of Management, Case Western Reserve University and the Economic Science Institute, Chapman University)
    Abstract: We experimentally investigate the impact of recognizing contributors on public good contributions. We vary recognizing all, highest or lowest contributors. Consistent with previous studies, recognizing all contributors significantly increases contributions relative to the baseline. Recognizing only the highest contributors does not increase contributions compared to not recognizing contributors, while recognizing only the lowest contributors is as effective as recognizing all contributors. These findings support our conjecture that aversion from shame is a more powerful motivator for giving than anticipation of prestige.
    Keywords: public-goods, information, experiments
    JEL: C72 C91 H41
    Date: 2013

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