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

  1. Updated Budget Projections: 2014 to 2024 By Congressional Budget Office
  2. An Analysis of the President's 2015 Budget By Congressional Budget Office
  3. The "True" Deficit By Maria Marcanova; Ludovit Odor
  4. How Does Tax Progressivity and Household Heterogeneity Affect Laffer Curves? By Hans A. Holter; Dirk Krueger; Serhiy Stepanchuk
  5. Tax Incidence in the Presence of Tax Evasion By Doerrenberg, Philipp; Duncan, Denvil
  6. Indirect taxes in oligopoly in presence of licensing opportunities By Sen, Neelanjan; Biswas, Rajit
  7. Time preference and perceptions about government spending and tax: Smokers’ dependence on government support By Yamamura, Eiji
  8. Can Tax Compliance Research Profit from Biology? By Benno Torgler
  9. Saving behavior and risk taking: Evidence from the Dutch Tax Reform in 2001 By Erik Floor; Arjan Lejour
  10. How to Improve Taxes and Transfers in Israel By Philip Hemmings
  11. Adding Employer Contributions to Health Insurance to Social Security's Earnings and Tax Base By Karen E. Smith; Eric Toder

  1. By: Congressional Budget Office
    Abstract: Under current law, the deficit will decrease to $492 billion in 2014, CBO projects, as revenues continue rebounding from their low in the recession. But beginning in 2016, deficits will rise again—largely because of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments. By 2024, debt will reach 78 percent of GDP, twice the average of the past four decades.
    JEL: H20 H30 H50 H51 H55 H60 H61 H62 H63 H68
    Date: 2014–04–14
  2. By: Congressional Budget Office
    Abstract: The President's proposals would, relative to CBO's current-law baseline, boost deficits from 2014 through 2016 but reduce them from 2017 through 2024, CBO and JCT estimate. Deficits would total $6.6 trillion between 2015 and 2024, $1.0 trillion less than the cumulative deficit in CBO's baseline. Federal debt held by the public would equal 74 percent of GDP at the end of 2024, the same as it is expected to be at the end of 2014.
    JEL: H20 H30 H50 H51 H55 H60 H61 H62 H63 H68
    Date: 2014–04–17
  3. By: Maria Marcanova (Council for Budget Responsibility); Ludovit Odor (Council for Budget Responsibility)
    Abstract: In this paper we propose a new methodology to improve the estimation of structural budget balances in Slovakia. Major innovations compared to currently used methods are in using more robust output gap estimates, inclusion of pensions in the analysis, imposing consistency between various gap measures, elimination of effects of different deflators and using time-varying elasticities. Significant attention is attached also to one-off and temporary measures, where we define 10 principles for identification. The estimation is complemented with bottom-up approaches which focus more directly on discretionary fiscal action. Latest changes to the European fiscal framework have strengthened significantly the role of structural budget balances. With the adoption of the Fiscal Compact there is a numerical threshold each year for the deviation of the structural balance from the medium - term objective (or the adjustment path toward it). Moreover, automatic correction mechanisms are activated if the deviation is above the threshold. The basic motivation of this paper was that independent fiscal institutions are going to play an important role in triggering these correction mechanisms.
    Keywords: fiscal policy, budget balance, structural fiscal balance, one-off measures
    JEL: E32 E60 E62 H30 H60 H62
    Date: 2014–03
  4. By: Hans A. Holter (Uppsala University and UCFS); Dirk Krueger (Department of Economics, University of Pennsylvania, CEPR and NBER); Serhiy Stepanchuk (Cole Polytechnique Federale de Lausanne)
    Abstract: The recent public debt crisis in most developed economies implies an urgent need for increasing tax revenues or cutting government spending. In this paper we study the importance of household heterogeneity and the progressivity of the labor income tax schedule for the ability of the government to generate tax revenues. We develop an overlapping generations model with uninsurable idiosyncratic risk, endogenous human capital accumulation as well as labor supply decisions along the intensive and extensive margins. We calibrate the model to macro, micro and tax data from the US as well as a number of European countries, and then for each country characterize the labor income tax Laffer curve under the current country-specific choice of the progressivity of the labor income tax code. We find that more progressive labor income taxes significantly reduce tax revenues. For the US, converting to a flat tax code raises the peak of the laffer curve by 7%. We also find that modeling household heterogeneity is important for the shape of the Laffer curve.
    Keywords: Progressive Taxation, Fiscal Policy, Laffer Curve, Government Debt
    JEL: E62 H20 H60
    Date: 2014–03–01
  5. By: Doerrenberg, Philipp (University of Cologne); Duncan, Denvil (Indiana University)
    Abstract: This paper studies the effect of tax evasion on the economic incidence of sales taxes. We design a laboratory experiment in which buyers and sellers trade a fictitious good in double auction markets. A per-unit tax is imposed on sellers, and sellers in the treatment group are provided the opportunity to evade the tax whereas sellers in the control group are not. We find that the market equilibrium price in the treatment group is economically and statistically lower than in the control group. This result is consistent with a theoretical model in which access to evasion opportunities reduces the effective tax rate and therefore dampens real behavioral responses. Our findings suggest that the benefits of tax evasion are not limited to the side of the market with access to evasion but are partly shifted to the non-evading side of the market. We discuss the implications of our findings for the distributional and welfare effects of taxes.
    Keywords: tax evasion, tax incidence, double auction
    JEL: H21 H22 H26 H3 D44
    Date: 2014–04
  6. By: Sen, Neelanjan; Biswas, Rajit
    Abstract: This paper considers the relative efficiency of unit tax and ad valorem tax in Cournot doupoly in the presence of licensing opportunities after the announcement of the tax rates by the government. Anderson et al. (2001) shows that in such a case ad valorem tax welfare dominates the unit tax. However, it ignores the licensing possibilities. Interestingly, it is shown in the present paper that in case of fixed-fee licensing unit tax sometimes dominates ad valorem tax. However, unit tax and ad valorem tax are equally efficient in case of royalty licensing.
    Keywords: Unit tax, Ad valorem tax, Cournot Competition, Licensing
    JEL: D43 L13 L24
    Date: 2014–04–21
  7. By: Yamamura, Eiji
    Abstract: Previous studies show that smokers are likely to be more impatient and prefer immediate benefits compared with non-smokers. Thus, smokers are regarded as myopic people and therefore have a high time discount rate. Such a tendency is thought to be related not only to short-term benefits (as opposed to long-term benefits), but also free-riding behavior. Using individual data, this paper examines which types of government spending smokers with such characteristics prefer. The important findings are: (1) smokers consider the amount of government spending on social security and unemployment measures to be low and (2) smokers perceive their tax burden to be high. These findings imply that smokers tend to place greater importance on public expenditure that they will personally benefit from, but they are less willing to bear its cost. It is inferred from the estimation results that those who are myopic do not consider long-term benefits, which can result in a number of personal problems in the future, and they anticipate government expenditure will help them with such problems. That is, to enjoy the benefit of free riding, seemingly myopic people are more likely to prefer expenditure on social security and unemployment measures.
    Keywords: smoker; government spending; perceived tax burden; free rider.
    JEL: D31 H51 H55
    Date: 2014–03–25
  8. By: Benno Torgler
    Abstract: Historically, tax compliance has been a highly interdisciplinary avenue of research to which economics, psychology, law, sociology, history, political science, and accountancy have made valuable contributions. It is less well understood, however, whether we can glean useful insights into tax compliance by moving beyond the social sciences. In particular, the literature pays little attention to the relevance of biology. This paper attempts to remedy this shortcoming by examining the potential opportunities and limitations of introducing biological concepts into tax compliance research.
    Keywords: tax compliance; tax morale; tax evasion; biology; genetics
    JEL: H26 B40 B52 C63 D03 Z19
    Date: 2014–03
  9. By: Erik Floor; Arjan Lejour
    Abstract: We estimate the impact of the marginal tax rate on the ownership in risk-bearing assets and on the share in total assets. In contrast to the literature, we use instrumental variables to correct for endogeneity of the marginal tax rate on capital income. Moreover, we use the exogenous variation in marginal tax rates from the Dutch tax reform of 2001. We find that a change in the difference in the marginal tax rate between risky assets and riskless assets has a significant positive impact on the ownership of risky assets and growth funds. A ten percentage point increase of the marginal rate results in a 0.5 percentage point increase of the probability of owning risky assets. The tax rate has no impact on the share of risky assets if we correct for endogeneity and selection.
    JEL: G11 H24 H31
    Date: 2014–04
  10. By: Philip Hemmings
    Abstract: Ensuring tax and transfer systems bring sufficient revenue to reach macroeconomic fiscal targets, address societal goals in re-distribution and social welfare, recognise the influence taxation has on businesses’ competitiveness and adequately address environmental externalities is a tough challenge, arguably more so in Israel than in many other OECD countries. High interest payments and large defence spending make deficit and debt reduction more difficult, socio-economic divides remain wide and as a small-open economy Israel is highly exposed to mobile international capital and competition over international investment. And, as elsewhere, the incorporation of environmental issues into the tax system remains only partial. This review examines ways forward for policy on several fronts: indirect taxation; household income tax and social benefits; taxes on property and wealth; business taxation; and evasion, avoidance and administration issues. This Working Paper relates to the 2013 OECD Economic Review of Israel ( Comment améliorer le système de prélèvements et de prestations en Israël Les autorités doivent veiller à ce que le système de prélèvements et de prestations permette de dégager des recettes suffisantes pour réaliser les objectifs budgétaires retenus à l’échelle macroéconomique, d’atteindre les objectifs sociétaux visés en termes de redistribution et de protection sociale, de prendre en compte l’influence exercée par la fiscalité sur la compétitivité des entreprises, et de gérer de manière adéquate les externalités environnementales. L’ampleur de la tâche est redoutable, et elle l’est sans doute encore plus en Israël que dans de nombreux autres pays de l’OCDE. La lourdeur des charges d’intérêts et le volume des dépenses de défense rendent la réduction du déficit et de la dette plus difficile, les fractures socioéconomiques restent larges et, en tant que petite économie ouverte, Israël est fortement exposée aux effets de la mobilité des capitaux internationaux et à la concurrence que se livrent les pays pour attirer les investissements internationaux. En outre, comme ailleurs, l’intégration des questions environnementales dans le système d’imposition reste partielle. Nous examinons dans cette Étude les possibilités d’améliorer le cadre d’action publique sur plusieurs fronts : les impôts indirects, la fiscalité des revenus des ménages et le système de prestations sociales, les impôts sur la propriété immobilière et les autres formes de patrimoine, la fiscalité des entreprises, les problèmes de fraude et d’évasion fiscales, ainsi que les questions d’administration de l’impôt. Ce Document de travail se rapporte à l’Étude économique de l’OCDE d’Israël 2013 ( htm).
    Keywords: taxes, transfers, subsidies, tax administration, pensions, welfare, Israel, environmental taxation, company tax, tax evasion, tax avoidance, taxe, subventions, Israël, bien-être, évasion fiscale, fraude fiscale, fiscalité environnementale, administration fiscale, transferts, fiscalité des entreprises, pensions
    JEL: H23 H24 H25 H26 H53 I38
    Date: 2014–04–23
  11. By: Karen E. Smith; Eric Toder
    Abstract: The inclusion of employer-sponsored health insurance (ESI) in taxable income would increase income and payroll tax receipts, but would also increase Old Age, Survivors, and Disability Insurance (OASDI) benefits by adding ESI to the OASDI earnings base. This study uses the Urban Institute’s DYNASIM model to estimate the effects of including ESI premiums in taxable earnings on the level and distribution by age and income groups of income tax burdens, payroll tax burdens, and OASDI benefits. We find that the increased present value of OASDI benefits from including ESI in the wage base in 2014 offsets about 22 percent of increased income and payroll taxes, 57 percent of increased payroll taxes, and 72 percent of increased OASDI taxes. The overall distributions of taxes and benefits by income group follow the same pattern, with both taxes and benefits increasing as a share of income between the bottom and middle quintiles and then declining as a share of income for higher income taxpayers. But households in the bottom income quintiles receive a net benefit from including ESI in the tax base because their increase in OASDI benefits exceeds their increase in income and payroll taxes. Over a lifetime perspective, all earnings groups experience net tax increases, but workers in the middle of the earnings distribution experience the largest net tax increases as a share of lifetime earnings. Higher benefits offset a larger share of tax increases for lower than for higher income groups.
    Date: 2014–04

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