nep-pub New Economics Papers
on Public Finance
Issue of 2014‒08‒25
ten papers chosen by

  1. Financial crises, debt volatility and optimal taxes By Julian A. Parra-Polania; Carmiña O. Vargas
  2. Progressive Taxation in a Tournament Economy By Carpenter, Jeffrey P.; Matthews, Peter Hans; Tabb, Benjamin
  3. Positional Preferences for Housing: Income Taxation as a Second-Best Policy? By Aronsson, Thomas; Mannberg, Andrea
  4. Tax Reforms and the Capital Structure of Banks By Thomas Hemmelgarn; Daniel Teichmann
  5. Social Identity, Education and Tax Policy By Aronsson, Thomas; Heidrich, Stefanie; Wikström, Magnus
  6. The Effect of Corporate Tax Rate Reduction: A simulation analysis with a small open economy DSGE model for Japan (Japanese) By HASUMI Ryo
  8. Strengthening Subnational Public Finance By World Bank
  9. Government Support to Public Private Partnerships : 2011 Highlights By Alexander Nicholas Jett; Militaru Andreea; Robbert van Eerd
  10. Public–Private Service Delivery Arrangements and Incentive Schemes in Developing Asia By Capuno, Joseph J.

  1. By: Julian A. Parra-Polania; Carmiña O. Vargas
    Abstract: We study financial crises in a model of a small open production economy subject to a credit constraint and to uncertainty on the real value of debt repayments. We find that, unlike most of the previous literature, the decentralized equilibrium exhibits underborrowing. The future possibility of reducing the severity of crises gives the incentives to the central planner (CP) to increase both current debt and the crisis probability. We also find that the CP equilibrium can be implemented by means of a tax on debt (a macro-prudential policy) and, only during crises, subsidies on consumption and a tax on non-tradable labor. The welfare gain of moving to the CP equilibrium is small for the baseline scenario but very sensitive to changes in debt volatility and the degree of openness of the economy. Classification JEL: F34, F41, H21.
    Date: 2014–08
  2. By: Carpenter, Jeffrey P. (Middlebury College); Matthews, Peter Hans (Middlebury College); Tabb, Benjamin (Middlebury College)
    Abstract: Not enough is known about the responsiveness of individuals, in particular those who tend to work under different incentives, to changes in marginal tax rates. We ask whether changes in marginal tax rates are less distortionary for workers engaged in a contest. To examine this potential rationale for a more progressive tax code, we first model the effort decisions of workers faced with progressive taxation under tournaments and piece rates. Because of the difficulty identifying any distortion that may be induced by the tax code in naturally occurring data, we then report on the results of a real-effort experiment based on this model. Consistent with a behavioral approach to public finance, we find that tournament workers are less sensitive, and conclude with a tentative evaluation of the welfare benefits of progressive taxation in tournament economies.
    Keywords: taxation, tournaments, public good, real effort experiment
    JEL: H20 H41 J22 J33 C91
    Date: 2014–08
  3. By: Aronsson, Thomas (Department of Economics, Umeå School of Business and Economics); Mannberg, Andrea (Department of Economics, Umeå School of Business and Economics)
    Abstract: This paper analyzes whether marginal taxation of labor and capital income might be useful second best instruments for internalizing the externalities caused by conspicuous housing consumption, when the government is unable to implement a first best corrective tax on housing wealth. The rationale for studying income taxation in this particular context is that first best taxes on housing wealth may be infeasible (at least in a shorter time perspective), while income taxes indirectly affect both the level and composition of accumulated wealth. We show that a suboptimally low tax on housing wealth provides an incentive for the government to subsidize financial saving and tax labor income at the margin.
    Keywords: Relative consumption; housing; taxation; behavioral economics
    JEL: D62 H21 H23
    Date: 2014–08–19
  4. By: Thomas Hemmelgarn (European Commission); Daniel Teichmann
    Abstract: The paper studies the link between corporate income tax reforms and domestic bank entities' financing decisions. We use a dataset of corporate income tax (CIT) reforms and estimate the effect of tax rate changes on leverage, dividend policies and earnings management of banks. The results suggest that taxation influences all three variables in the first three years after the reform. Leverage increases with the CIT rate. The reason is that the statutory CIT rate determines the value of the debt tax shield. A higher tax rate increases incentives to use debt finance when interest payments are deductible from the CIT base. The tax effects we find are statistically and economically significant but considerably lower than those found in previous research. Also, dividend pay-outs increase after an increase of CIT rates. This could indicate that banks actively manage their pay-out policies around tax reforms and adjust their capital structure with changes in dividends. Furthermore, banks increase loss loan reserves in anticipation of tax rate cuts since losses become less valuable with lower CIT rates. In the context of the current regulatory reform in the financial sector, which focuses strongly on improving equity ratios of banks, our results suggest that future tax policies should focus on eliminating the favourable treatment of debt for banks. The reason is that this distortion at least partly undermines the regulatory objectives of increasing (regulatory) capital.
    Keywords: Corporate income tax, tax reform, debt-equity bias, leverage, banks.
    JEL: G21 H25 H32
    Date: 2013–10
  5. By: Aronsson, Thomas (Department of Economics, Umeå School of Business and Economics); Heidrich, Stefanie (Department of Economics, Umeå School of Business and Economics); Wikström, Magnus (Department of Economics, Umeå School of Business and Economics)
    Abstract: This paper analyzes the implications of social identity and self-categorization in the context of optimal redistributive income taxation. A two-type model is supplemented by an assumption that individuals select themselves into social categories, in which norms are formed and education effort choices partly depend on these norms. Optimal tax policy is analyzed under two different assumptions about the social objective function: a welfarist objective based on consumer preferences and a paternalist objective that does not reflect the consumer preference for social identity. We show how the welfarist government implements a tax policy to internalize the externalities arising from social norms, while the paternalist government uses tax policy to make individuals behave as if their preferences for social identity were absent.
    Keywords: Optimal income taxation; education; social identity; self-categorization
    JEL: D03 H21 I21 Z13
    Date: 2014–08–19
  6. By: HASUMI Ryo
    Abstract: This paper studies the short-term and long-term effects of tax policy changes on the Japanese economy by using a small open economy dynamic stochastic general equilibrium (DSGE) model with endogenous stochastic trends. The parameters of the model are estimated by a usual Bayesian method based on Japanese quarterly macroeconomic data from 1980 to 2010. A simulation analysis of a 1% to gross domestic product (GDP) scale corporate tax reduction has been implemented, in which fiscal neutrality is kept by raising the consumption tax rate. The real GDP increases by about 1.1% and the consumer price index (CPI) (excluding the effect of the consumption tax change) rises by about 0.2% within two years. This result suggests that such tax policy change induces short-term increases in the growth and inflation rate.
    Date: 2014–08
  7. By: Ida, Tomoya (Faculty of Economics); Wilhelmsson, Mats (Centre for Banking and Finance)
    Abstract: We empirically reexamine the dominance of tax externalities in Sweden for the period of 2000 through 2011. Where hierarchical governments share a mobile tax base, a tax externality can arise not only horizontally across the same level of government but also vertically between different levels of government. A horizontal externality shifts tax rates toward a level that is too low, whereas a vertical externality pushes them toward a level that is too high. The net outcome of these competing effects is theoretically unclear within benevolent federal government systems. Brülhart and Jametti (2006) implemented a pioneering empirical test of the issue using Swiss data. Their empirical setting, however, assumes a single tax instrument, which contradicts the fiscal system in Switzerland. This inconsistency would theoretically distort their estimation. By contrast, our study investigates the pure dominance of tax externality in a sample of Swedish jurisdictions that can tax only personal income. We find a vertical externality to be relatively dominant.
    Keywords: Interregional tax competition; Horizontal and vertical tax externalities; Benevolent governmental systems; Personal income taxes; Swedish tax system; Housing market
    JEL: H21 H24 H71 R39
    Date: 2014–04–28
  8. By: World Bank
    Keywords: Public Sector Economics Public Sector Management and Reform Macroeconomics and Economic Growth - Subnational Economic Development Finance and Financial Sector Development - Debt Markets Finance and Financial Sector Development - Access to Finance Public Sector Development
    Date: 2013–04
  9. By: Alexander Nicholas Jett; Militaru Andreea; Robbert van Eerd
    Keywords: Public Sector Management and Reform Governance - Regional Governance Finance and Financial Sector Development - Debt Markets Housing and Human Habitats Urban Development - Urban Governance and Management Communities and Human Settlements Public Sector Development
    Date: 2012–09
  10. By: Capuno, Joseph J. (University of the Philippines)
    Abstract: In many countries, public agencies or private firms are gradually moving away from being exclusive providers of goods and services that traditionally were assigned to the state or markets, respectively. Instead, state agencies, both at the national and the local level, and private organizations, both for-profit firms and nongovernment organizations (NGOs), increasingly coordinate, collaborate, or partner to finance, produce, or provide public services. This paper attempts to identify the factors that account for the successes or failures of such public–private service delivery arrangements, with a focus on the role of monetary andnonmonetary incentives used in selected case studies in developing Asia. It finds that such arrangements are a viable service delivery mechanism where there is a state or market failure. While governments now increasingly enter into such partnerships, they appear to do so more with for-profit firms than with NGOs. A key lesson is to mobilize potential private sector partners, match the partner’s mission with the appropriate type or level of service provision, and then motivate them with the right incentives but also monitor them for performance accordingly.
    Keywords: public–private partnerships; NGOs; incentives; public service delivery; Asia
    JEL: H39 H49 L31 L33
    Date: 2014–02–01

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