nep-pub New Economics Papers
on Public Finance
Issue of 2014‒04‒05
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Capital Taxation and Consumer Uncertainty By Ryan Chahrour; Justin Svec
  2. The Behavioralist As Tax Collector: Using Natural Field Experiments to Enhance Tax Compliance By Michael Hallsworth; John A. List; Robert D. Metcalfe; Ivo Vlaev
  3. Taxes on Income: Ireland in Comparative Perspective By Callan, Tim; Keane, Claire; Savage, Michael; Walsh, John R.
  4. Discretionary fiscal policy and economic activity in Greece By Athanasios O. Tagkalakis
  5. Assessing the variability of indirect tax elasticity in Greece By Athanasios O. Tagkalakis

  1. By: Ryan Chahrour (Boston College); Justin Svec (College of the Holy Cross)
    Abstract: This paper analyzes the impact of consumer uncertainty on optimal fiscal policy in a model with capital. The consumers lack confidence about the probability model that characterizes the stochastic environment and so apply a max-min operator to their optimization problem. An altruistic fiscal authority does not face this Knightian uncertainty. We show analytically that, in responding to consumer uncertainty, the government no longer sets the expected capital tax rate exactly equal to zero, as is the case in the full-confidence benchmark model. Rather, our numerical results indicate that the government chooses to subsidize capital income, albeit at a modest rate. We also show that the government responds to consumer uncertainty by smoothing the labor tax across states and by making the labor tax persistent.
    Keywords: Model uncertainty, capital income tax, public debt
    JEL: E62 H21
    Date: 2014–04–01
  2. By: Michael Hallsworth; John A. List; Robert D. Metcalfe; Ivo Vlaev
    Abstract: Tax collection problems date back to the earliest recorded history of mankind. This paper begins with a simple theoretical construct of paying (rather than declaring) taxes, which we argue has been an overlooked aspect of tax compliance. This construct is then tested in two large natural field experiments. Using administrative data from more than 200,000 individuals in the UK, we show that including social norms and public goods messages in standard tax payment reminder letters considerably enhances tax compliance. The field experiments increased taxes collected by the Government in the sample period and were cost-free to implement, demonstrating the potential importance of such interventions in increasing tax compliance.
    JEL: C93 H2 H26
    Date: 2014–03
  3. By: Callan, Tim; Keane, Claire; Savage, Michael; Walsh, John R.
    Date: 2013–06
  4. By: Athanasios O. Tagkalakis (Bank of Greece)
    Abstract: This paper investigates the effects of discretionary fiscal policy changes on economic activity and its subcomponents in Greece in the period 2000-2011. Changes in government spending and net taxes have Keynesian effects. An increase in government consumption has the most pronounced positive effects on output growth, private consumption and non-residential investment, while it reduces residential investment. Cuts in the public investment programme crowd in private investment, but are associated negatively with the net exports ratio. Both indirect and direct tax hikes lower private consumption, private investment and output growth. Additionally, higher direct taxes, by lowering disposable income, reduce import demand, thus, improving the trade balance.
    Keywords: : Discretionary fiscal policy; economic growth; consumption; investment; net exports
    JEL: E62 O52 H30
    Date: 2013–12
  5. By: Athanasios O. Tagkalakis (Bank of Greece)
    Abstract: This paper shows that the variability of indirect tax elasticity relative to GDP has increased significantly in recent years in Greece. Based on this finding we show that the budgetary sensitivity of indirect taxes following a 1% change in real GDP has increased dramatically since 2010. This finding has substantial policy implications; failure to account for these higher elasticities will lead to recurrent revenue shortfalls requiring new policy measure to meet previously set fiscal targets. This could lead to a downward spiral of continuously declining economic activity, new revenue shortfalls and additional fiscal measures and so on.
    Keywords: indirect taxes; elasticity; GDP; Greece
    JEL: C32 E32 H20 O52
    Date: 2014–01

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