nep-pub New Economics Papers
on Public Finance
Issue of 2014‒06‒14
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Is the Flat Tax Optimal under Income Risk? By Dominique Henriet; Patrick A. Pintus; Alain Trannoy
  2. Trade Structure and Growth Effects of Taxation in a Two-Country World By Amano, Daisuke; Mino, Kazuo
  3. Property taxation, bounded rationality and housing prices By Elinder, Mikael; Persson, Lovisa
  4. Can tax rate increases foster investment under entry and exit flexibility? Insights from an economic experiment By Fahr, René; Janssen, Elmar; Sureth, Caren
  5. Do investors request advance tax rulings to alleviate tax risk (and do tax authorities provide them)? A joint taxpayers' and tax authorities' view on investment behavior By Diller, Markus; Kortebusch, Pia; Schneider, Georg; Sureth, Caren
  6. The effect of tax privacy on tax compliance: An experimental investigation By Blaufus, Kay; Bob, Jonathan; Otto, Philipp E.
  7. The positive theory of benefit taxation in the italian school of public finance By Paolo Liberati; Massimo Paradiso
  8. Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions By Benjamin B. Lockwood; Matthew Weinzierl
  9. Health Insurance Tax Credits, the Earned Income Tax Credit, and Health Insurance Coverage of Single Mothers By Merve Cebi; Stephen A. Woodbury
  10. Fiscal policies in Spain: Main stylises facts revisited By Francisco de Castro; Francisco Martí; Antonio Montesinos; Javier J. Pérez; A. Jesús Sánchez-Fuentes

  1. By: Dominique Henriet (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM)); Patrick A. Pintus (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM)); Alain Trannoy (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM))
    Abstract: We derive testable conditions ensuring that the income tax is optimal when agents are ex-ante identical but face idiosyncratic income risk. The optimal tax depends positively on both absolute risk aversion and risk variance and negatively on labor supply elasticity and absolute prudence. The comparison with the formula of the optimal non-linear income tax provides the restrictions on both the preferences and the income distribution conditional on effort ensuring that the optimal tax is indeed linear. In general it requires that the ratio of absolute prudence to absolute risk aversion be no less than two; if the income density has a linear likelihood ratio, it requires a (generalized) logarithmic consumption utility. Under HARA utility and linear or logarithmic likelihood ratios, explicit solutions for the optimal non-linear income tax are derived.
    Keywords: optimal income taxation; income risk; linear and nonlinear income tax
    Date: 2014–05
  2. By: Amano, Daisuke; Mino, Kazuo
    Abstract: This paper explores the long-run impacts of tax policy in a two-country model of endogenous growth with variable labor supply. We focus on international spillover effects of tax reforms under alternative trade structures. It is shown that if the instantaneous utility function of the representative family in each country is additively separable and if international capital mobility is absent, then a change in taxation in one country does not directly affect capital formation in the other country. Such a conclusion is fundamentally modified if international borrowing and lending are allowed. Due to free financial flows, a change in tax policy in one country directly diffuses to the growth performance of the other country, even though preference structures are assumed to be log-additive forms.
    Keywords: factor-income tax, consumption tax, equilibrium dynamics, two-country model, endogenous growth, variable labor supply,
    Date: 2014–05
  3. By: Elinder, Mikael (Department of Economics); Persson, Lovisa (Department of Economics)
    Abstract: In 2008, the Swedish property tax was reformed and a cap on yearly tax liabilities was introduced. A large fraction of owner occupied houses was subject to a substantial decrease in the tax. When the reform was announced, most analysts projected - in line with tax capitalization theory - that the tax decrease would lead to significant increases in house prices. We estimate price responses and capitalization degrees, using various DID strategies, in which the price dynamics of houses that were subject to a generous tax reduction are compared to the price dynamics of houses with a more modest reduction. Our results are largely inconsistent with capitalization theory. For the majority of properties, we find no evidence that the tax cut led to increases in house prices. However, we find evidence of partial capitalization in sub-markets with highly valued properties, highly educated citizens and were it is especially difficult to increase supply. We argue that theories of bounded rationality can help explain why house buyers may fail to take a tax decrease into account in the valuation of houses.
    Keywords: announcement effects; capitalization; financial literacy; housing market; inattention; saliency
    JEL: D01 D03 D04 D12 H22 H24 R21 R38
    Date: 2014–05–18
  4. By: Fahr, René; Janssen, Elmar; Sureth, Caren
    Abstract: It is well-known that taxes affect risky investment decisions. Analytical studies indicate that tax rate increases can foster (accelerate) investment if there is flexibility, in particular when an exit option is available. We design an experiment that is based on an analytical model with binomial random walk and entry and exit flexibility. Contrasting the underlying model, we find accelerated investment, which is often considered as an increased willingness to invest, on tax rate increases to be independent of the existence of an exit option. However, we observe this investor reaction only for a tax increase, not for a tax decrease. This investment behavior is driven possibly by tax salience and the mechanisms known from the theory of irreversible choice under uncertainty. Our empirical evidence suggests that the accelerating tax effects are much more common than is predicted by the theoretical literature. Policy makers should therefore carefully consider the behavioral aspects when anticipating taxpayer reactions. --
    Keywords: Investment Decisions,Tax Effects,Timing Flexibility,Economic Experiment
    JEL: H25 H21 C91
    Date: 2014
  5. By: Diller, Markus; Kortebusch, Pia; Schneider, Georg; Sureth, Caren
    Abstract: Tax uncertainty often negatively affects investment. Advance tax rulings (ATRs) are commonly used to provide tax certainty. We analyze ATRs from the taxpayers' and tax authorities' perspectives. Investors request ATRs if the fee does not exceed a certain threshold. We integrate this finding into the tax authorities' decision whether to offer ATRs. We find that ATRs are usually only offered if tax authorities are capable of significantly reducing their tax audit costs or increasing the detection probability. Otherwise, ATRs may be beneficial only if the tax authorities restrict them to classes of investments or use investment-specific fees. These results provide new explanations for why ATRs are currently not as intensively requested by taxpayers as expected against the background of high tax uncertainty. Moreover, the findings help to improve the design of ATRs. --
    Keywords: Advance Tax Rulings,Fee Design,Investment Effects,Tax Risk,Tax Uncertainty
    JEL: H21 H25 M41 M42 M48
    Date: 2014
  6. By: Blaufus, Kay; Bob, Jonathan; Otto, Philipp E.
    Abstract: In this paper, a tax game with audit costs as a public bad is designed to investigate the impact of public disclosure on tax evasion experimentally. Three different types of tax privacy are tested, ranging from complete privacy to full disclosure. We expect to observe two different effects: first, a contagion effect, arising when an individual observes non-compliance of other individuals and therefore reduces his own tax compliance; second, a shame effect of increased tax compliance due to the anticipated shame of being declared a tax evader. We find evidence of increasing tax evasion with reduced tax privacy if information is disclosed anonymously. Our results also indicate that the shame effect is not strong enough to override the contagion effect when both effects are present. Our results are of particular importance for fiscal policy because public disclosure may lead to more evasion instead of less, due to motivational crowding-out of tax morale. --
    Keywords: Tax privacy,Tax evasion,Public bad,Social norm,Conditional cooperation,Economic experiment
    JEL: H24 H26 H30
    Date: 2014
  7. By: Paolo Liberati; Massimo Paradiso
    Abstract: This paper addresses the historical evolution of benefit-based taxation, with particular reference to the contribution of the Italian school of public finance. In particular, it is shown that the positive interpretation of the benefit theory as a criterion of rationality and judgment is well established in the Italian tradition of public finance. Indeed, the practice of taxation as interpreted by Italian scholars reflects more the outcome of a political bargaining, rather than the consistent application of any normative principle as in the contribution by Lindahl (1919). Under this perspective, the benefit theory may help the functioning of a system of democratic finance, in order to avoid large deviations of the level of taxation from its natural path. Thus, the concept remains of a fundamental role played by the benefit principle in its positive guise as a base for judgments and control of the action of governments.
    Keywords: Benefit theory; Italian public finance; Taxation.
    JEL: H11 N00 Z18
    Date: 2014–06
  8. By: Benjamin B. Lockwood (Harvard University); Matthew Weinzierl (Harvard Business School, Business, Government and the International Economy)
    Abstract: We use official data and standard optimal tax conditions to infer the positive and normative judgments implicit in U.S. tax policy since 1979. We find that explanations within this framework for the time path of U.S. policy require central parameters of the model, namely the elasticity of taxable income or the marginal social welfare weights on top earners, to take unconventional values. We use inferred social preferences to provide novel estimates of the welfare costs of unequal growth and recessions and find that they are sensitive to the assumed distortionary costs of taxation and the year from which preferences are derived. We explore several possible explanations for our findings with available data.
    Date: 2014–06
  9. By: Merve Cebi (University of Massachusetts Dartmouth); Stephen A. Woodbury (W.E. Upjohn Institute for Employment Research)
    Keywords: Employment, compensation, health insurance, poverty, inequality, tax policy
    JEL: J3 H2 I3
  10. By: Francisco de Castro (European Comiission); Francisco Martí (Banco de España); Antonio Montesinos (Banco de España); Javier J. Pérez (Banco de España); A. Jesús Sánchez-Fuentes (Universidad Complutense de Madrid)
    Abstract: We provide key stylised facts on fiscal policy developments in Spain over the past three decades using quarterly data (1986Q1-2012Q2). First, we compute stylised facts on the cyclical properties of fiscal policies over that period. Next, we report updated evidence on the macroeconomic effects of non-systematic fiscal policies, including updated estimates of their macroeconomic impact (fiscal multipliers) for alternative datasets. To perform the analysis in the paper we built up a comprehensive database of seasonally adjusted quarterly fiscal variables for the period of interest.
    Keywords: fi scal policies, stylised facts, fiscal multipliers, mixed-frequencies, time-series models.
    JEL: E62 E65 H6 C3 C82
    Date: 2014–05

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