nep-pub New Economics Papers
on Public Finance
Issue of 2014‒02‒08
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Income Tax Buyouts and Income Tax Evasion By Laszlo Goerke
  2. Do payroll tax cuts raise youth employment? By Egebark, Johan; Kaunitz, Niklas
  3. Lobbying, family concerns and the lack of political support for estate taxation By DE DONDER, Philippe; PESTIEAU, Pierre
  4. Circumstantial Risk: Impact of Future Tax Evasion and Labor Supply Opportunities on Risk Exposure By Doerrenberg, Philipp; Duncan, Denvil; Zeppenfeld, Christopher
  5. Who wins, who loses? Tools for distributional policy evaluation (PRELIMINARY) By Kasy, Maximilian
  6. Effects of Taxation on Software Piracy Across the European Union By Nicolas Dias Gomes; Pedro André Cerqueira; Luís Alçada Almeida
  7. Optimal Altruism in Public Good Provision By Robert Hahn; Robert Ritz
  8. Ambiguity on Audits and Cooperation in a Public Goods Game By Dai, Zhixin; Hogarth, Robin M.; Villeval, Marie Claire
  9. Public-Private Partnerships for Transport Infrastructure: Some Efficiency Risks By Matthew Ryan; Flávio Menezes

  1. By: Laszlo Goerke (Institute for Labour Law and Industrial Relations in the EU, University of Trier)
    Abstract: A tax buyout is a contract between tax authorities and a tax payer which reduces the marginal income tax rate in exchange for a lump-sum payment. While previous contributions have focussed on labour supply, we consider the interaction with tax evasion and show that a buyout can increase expected tax revenues. This will be the case if (1) the audit probability is constant and the penalty for evasion is a function of undeclared income or (2) the penalty depends on the amount of taxes evaded, and authorities use information about income generated by the decision about a tax buyout offer when setting audit probabilities. Since individuals will only utilise a tax buyout if they are better off, higher tax revenues imply that such contracts can be Pareto-improving.
    Keywords: Asymmetric information, Revenues, Self-selection, Tax buyouts, Tax evasion
    JEL: D82 H21 H24 H26
    Date: 2014–01
  2. By: Egebark, Johan (Dept. of Economics, Stockholm University); Kaunitz, Niklas (SOFI)
    Abstract: In 2007, the Swedish employer-paid payroll tax was cut on a large scale for young workers, substantially reducing labor costs for this group. Using Difference-in-Differences paired with exact matching, we estimate a small impact, both on employment and on wages, implying a labor demand elasticity for young workers at around -0.31. Since the tax reduction applied also to existing employments, the cost of the reform was sizable, and the estimated cost per created job is at more than four times that of directly hiring workers at the average wage. Hence, we conclude that payroll tax cuts are an inefficient way to boost employment for young individuals.
    Keywords: Youth unemployment; Payroll tax; Tax subsidy; Labor costs; Exact matching
    JEL: H25 H32 J23 J38 J68
    Date: 2014–01–30
  3. By: DE DONDER, Philippe (Toulouse School of Economics, France); PESTIEAU, Pierre (CREPP, Université de Liège & HEC Belgium; Université catholique de Louvain, CORE, Belgium; Toulouse School of Economics, France)
    Abstract: We provide an explanation for why estate taxation is surprisingly little used over the world, given the skewness of the estate distribution. Taxing estates implies meddling with intra-family decisions, which may be frown upon by many. At the same time, the concentration of estates means that a low proportion of the population stands to gain a lot by decreasing estate taxation. We provide an analytical model, together with numerical simulations, where agents bequeathing large estates make monetary contributions that are used to play up the salience of the encroachment aspects of estate taxation on family decisions in order to decrease its political support.
    Keywords: estate taxation, family values, political economy, lobbying, Kantian equilibrium
    JEL: D72 H31
    Date: 2014–01–13
  4. By: Doerrenberg, Philipp (University of Cologne); Duncan, Denvil (Indiana University); Zeppenfeld, Christopher (University of Cologne)
    Abstract: This paper examines whether risk-taking in a lottery depends on the opportunity to respond to the lottery outcome through additional labor effort and/or tax evasion. Previous empirical attempts to answer this question face identification issues due to self-selection into jobs that facilitate tax evasion and labor effort flexibility. We address these identification issues using a laboratory experiment (N = 180). Subjects have the opportunity to invest earned income in a lottery and, depending on randomly assigned treatment states, have the opportunity to respond to the lottery outcome through evasion and/or extra labor effort. We find strong evidence that ex-post access to labor opportunities reduces ex-ante risk willingness while access to tax evasion has no effect on risk behavior. We discuss possible explanations for this result based on the existing literature.
    Keywords: tax evasion, labor supply, risk behavior, lab experiment
    JEL: G11 H21 H24 H26 J22
    Date: 2014–01
  5. By: Kasy, Maximilian
    Abstract: Most policy changes generate winners and losers. Political economy and optimal policy suggest questions such as: Who wins, who loses? How much? Given a choice of welfare weights, what is the impact of the policy change on social welfare? We propose a framework to empirically answer such questions. The framework is grounded in utilitarian welfare economics and allows for arbitrary heterogeneity across individuals as well as for endogenous prices and wages. The proposed methods are based on imputation of money-metric welfare impacts for every individual in the data. Our framework generalizes approaches used in the empirical optimal tax literature, the distributional decomposition literature, and the literature on determinants of the wage distribution. We show that welfare effects can be calculated by subtracting a ``behavioral correction'' from effects on the distribution of incomes. We provide new identification results for marginal causal effects conditional on a vector of endogenous outcomes. These identification results are required for imputation of individual welfare effects, and form the basis of the inference procedures we suggest. We apply our methods to historical changes in US labor markets, using the SIPP data provided by the Census Bureau.
    Date: 2014–01
  6. By: Nicolas Dias Gomes (Faculty opf Economics, University of Coimbra and INESC-Coimbra, Portugal); Pedro André Cerqueira (Faculty opf Economics, University of Coimbra and GEMF, Portugal); Luís Alçada Almeida (Faculty opf Economics, University of Coimbra and INESC-Coimbra, Portugal)
    Abstract: This paper explores the relation between levels of taxation among different types of households in the European Union and the levels of software piracy from 1996 to 2010. It extends previous works introducing a large panel data set for the European Union and it´s different regions. We estimate our model using the fixed effect, comparing results from the Euro Area and the Countries that joined EU in 2004 and 2007. Results show that levels of taxation increase the levels of software piracy losses; moreover these results depend on marital status and number of children. The weight of taxation on GDP, namely the taxes on consumption, have a positive effect on piracy losses while the impact of inflation is negative and marginal. Additional to this we also found that the relative importance of these taxes in relation to total taxation can affect this phenomenon. An increase in the weight of capital taxation would decrease software piracy while this effect was opposite when considering the relative importance of consumption taxes.
    Keywords: Panel data, personal taxation, software piracy.
    JEL: C23 H20 O52
    Date: 2014–01
  7. By: Robert Hahn; Robert Ritz
    Abstract: We present a model of altruistically-minded-yet rational-players contributing to a public good. A key feature is the tension between altruism and "crowding-out" effects (players' efforts are strategic substitutes). We find that more altruistic behaviour can raise or reduce welfare, depending on the fine details of the environment. It is almost always optimal for a player to act more selfishly than her true preference. We discuss applications to a range of public good problems, including global climate policy. Our results highlight that it may be difficult to infer social preferences from observed behaviour.
    Keywords: Altruism, climate policy, crowding out, public goods
    JEL: D03 H23 H41 Q58
    Date: 2014–01–29
  8. By: Dai, Zhixin (CNRS, GATE); Hogarth, Robin M. (Universitat Pompeu Fabra); Villeval, Marie Claire (CNRS, GATE)
    Abstract: We investigate the impact of various audit schemes on the future provision of public goods, when contributing less than the average of the group is sanctioned exogenously and the probability of an audit is unknown. We study how individuals update their beliefs about the probability of being audited, both before and after audits are definitely withdrawn. We find that when individuals have initially experienced systematic audits, they decrease both their beliefs and their contributions almost immediately after audits are withdrawn. In contrast, when audits were initially less frequent and more irregular, they maintain high beliefs about the probability of being audited and continue cooperating long after audits have been withdrawn. Inconsistency in experiencing audits across time clearly increases the difficulty of learning the true audit probabilities. Thus, conducting less frequent and irregular audits with higher fines can increase efficiency dramatically.
    Keywords: ambiguity, audits, sanctions, beliefs, cooperation, public goods, experiment
    JEL: C92 H41 D83
    Date: 2014–01
  9. By: Matthew Ryan (The University of Auckland); Flávio Menezes (School of Economics, The University of Queensland)
    Abstract: This paper models a Public-Private Partnership (PPP) to construct a highway. It captures some of the key features of the Transmission Gully PPP. The winner of the tender recovers its costs (including capital costs) via an availability payment rather than toll revenue. While the availability payment eliminates demand risk, the winner of the tender faces cost risk: maintenance costs are only learned after construction is complete. The winning firm can make investments during the construction phase that reduce subsequent maintenance costs. As the government faces transaction costs to replace the successful bidder, firms use debt strategically to pass on some of the cost risk to the government. This distorts incentives to invest in maintenance cost reduction. Private financing therefore undermines some of the benefits from bundling construction and maintenance, which is often mentioned as an important advantage of PPPs.
    Date: 2014–02–05

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