nep-pub New Economics Papers
on Public Finance
Issue of 2014‒11‒28
twelve papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. High Marginal Tax Rates on the Top 1%? Lessons from a Life Cycle Model with Idiosyncratic Income Risk By Fabian Kindermann; Dirk Krueger
  2. Indirect taxation, public pricing and price cap regulation: A synthesis By Valentini, Edilio
  3. The Tax-Rate Elasticity of Local Business Profits By Frank M. Fossen; Viktor Steiner
  4. Tax Farming Redux: Experimental Evidence on Performance Pay for Tax Collectors By Adnan Q. Khan; Asim I. Khwaja; Benjamin A. Olken
  5. The three hurdles of tax planning: How business context, aims of tax planning, and tax manager power affect tax By Feller, Anna; Schanz, Deborah
  6. Heterogeneous Preferences and In-Kind Redistribution By Luna Bellani; Francesco Scervini
  7. When are There Natural Limits on Inequality? By Scott S. Condie; Richard W. Evans; Kerk L. Phillips
  8. On the Definition of Public Goods. Assessing Richard A. Musgrave's contribution By Maxime Demarais-Tremblay
  9. Voting for burden sharing rules in public goods games By Gallier, Carlo; Kesternich, Martin; Sturm, Bodo
  10. Growth and Inequality in Public Good Games By Gächter, Simon; Mengel, Friederike; Tsakas, Elias; Vostroknutov, Alexander
  11. Is Public-Private Partnership Obsolete? Assessing the Obstacles and Shortcomings of PPP By Claude Ménard
  12. Sustainability of Public Debt in the United States and Japan By William R. Cline

  1. By: Fabian Kindermann; Dirk Krueger
    Abstract: In this paper we argue that very high marginal labor income tax rates are an effective tool for social insurance even when households have preferences with high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. To make this point we construct a large scale Overlapping Generations Model with uninsurable labor productivity risk, show that it has a wealth distribution that matches the data well, and then use it to characterize fiscal policies that achieve a desired degree of redistribution in society. We find that marginal tax rates on the top 1% of the earnings distribution of close to 90% are optimal. We document that this result is robust to plausible variation in the labor supply elasticity and holds regardless of whether social welfare is measured at the steady state only or includes transitional generations.
    JEL: E62 H21 H24
    Date: 2014–10
  2. By: Valentini, Edilio
    Abstract: This paper provides a unified vision of a number of results that appeared in three separate streams of literature. The author emphasizes the strong parallelism between the results obtained in a number of papers that analyzed the relationships between price cap regulation, welfare maximization, welfare improvements, distributional preferences and poverty reduction and those originating from the well-established theories of optimal indirect taxation and tax reforms, as well as public pricing.
    Keywords: Price cap regulation,indirect taxation,public pricing
    JEL: D6 L5
    Date: 2014
  3. By: Frank M. Fossen; Viktor Steiner
    Abstract: Local business profits respond to local business tax (LBT) rates that vary across municipalities. We estimate that a one percent increase in the LBT rate decreases the LBT base by 0.45 percent, based on the universe of German LBT return files, which include corporations and unincorporated businesses. However, the fiscal equalization scheme largely compensates municipalities for the loss in the LBT base when they increase the LBT rate. Our estimates suggest that using taxrevenue data instead of tax return data, as commonly done in the literature, results in a significant bias of the elasticity away from zero.
    Keywords: Local business tax, corporate tax, tax responsiveness, tax-rate elasticity
    JEL: H25 H71
    Date: 2014
  4. By: Adnan Q. Khan; Asim I. Khwaja; Benjamin A. Olken
    Abstract: Performance pay for tax collectors has the potential to raise revenues, but might come at a cost if taxpayers face undue pressure from collectors. We report the first large-scale field experiment on these issues, where we experimentally allocated 482 property tax units in Punjab, Pakistan into one of three performance-pay schemes or a control. After two years, incentivized units had 9.3 log points higher revenue than controls, which translates to a 46 percent higher growth rate. The scheme that rewarded purely on revenue did best, increasing revenue by 12.8 log points (62 percent higher growth rate), with little penalty for customer satisfaction and assessment accuracy compared to the two other schemes that explicitly also rewarded these dimensions. Further analysis reveals that these revenue gains accrue from a small number of properties becoming taxed at their true value, which is substantially more than they had been taxed at previously. The majority of properties in incentivized areas in fact pay no more taxes, but do report higher bribes. The results are consistent with a collusive setting in which performance pay increases collector's bargaining power over taxpayers, who either have to pay higher bribes to avoid being reassessed, or pay substantially higher taxes if collusion breaks down.
    JEL: D73 H26
    Date: 2014–10
  5. By: Feller, Anna; Schanz, Deborah
    Abstract: The question of why some companies pay more taxes than others is a widely investigated topic of interest. One of the famous suspect explanations is a phenomenon called tax avoidance. We develop a holistic theoretical concept of influences on corporate tax planning through a series of 19 in-depth German tax expert interviews. Our findings show that three distinct hurdles in the tax planning process can explain different levels of tax expense across companies. Those three hurdles are which tax planning methods are. available (defined by business context), desirable (given via aims of tax planning), and implementable (determined by tax manager power). A large part of previous research has estimated the influence of firm characteristics, which we define as part of the business context, on the tax expense, while the other influences that we identify have largely been left "out of the equation". In order to apply and operationalize the identified three-hurdle concept, we construct five short, real-world company case studies. In these case studies, we show how variation in two key constructs across companies leads to different levels of tax expense. First, companies vary widely in the aggressiveness of their aims of tax planning. Second, tax managers can assume very different levels of power in their organization, determining the ability to implement tax planning methods. In conclusion, we provide generalizable insights into the tax planning process of companies which help to explain the observed variation in tax expenses across firms.
    Keywords: tax planning,tax avoidance,manager power,qualitative research
    JEL: D22 H25 M12 M41
    Date: 2014
  6. By: Luna Bellani (Department of Economics, University of Konstanz, Germany); Francesco Scervini (ESOMAS, University of Turin, Italy)
    Abstract: This paper examines the impact of social heterogeneity on in-kind redistribution. We contribute to the previous literature in two ways: we consider i) the provision of several public goods and ii) agents different not only in income, but also in their preferences over the various goods provided by the public sector. In this setting, both the distribution and size of goods provision depend on the heterogeneity of preferences. Our main result is that preference heterogeneity tends to decrease in-kind redistribution, while income inequality tends to increase it. An empirical investigation based on United States Census Bureau data confirms these theoretical findings.
    Keywords: Heterogeneous preferences, in-kind redistribution, voting, social distance, local public budgets
    JEL: D31 D72 H42 H70
    Date: 2014–11–13
  7. By: Scott S. Condie (Department of Economics, Brigham Young University); Richard W. Evans (Department of Economics, Brigham Young University); Kerk L. Phillips (Department of Economics, Brigham Young University)
    Abstract: This paper examines Thomas Piketty's thesis that there are no natural limits on accumulation of wealth. We undertake our examination in the context of a simple general equilibrium model with infintely-lived dynasties. We show that extreme wealth accumulation does not happen in general equilibrium unless capital and labor are substitutes, an assumption which also leads to unbalanced growth. We also show that even with unbalanced growth, differences in rates of return and effective labor are not sufficient to cause unbounded inequality. Only savings rate differences can lead to extreme wealth concentration. Finally, we show that while a flat wealth tax will not eliminate extreme wealth concentration, both a graduated wealth tax and a flat income tax will.
    Keywords: Piketty, inequality, wealth tax, welfare
    JEL: D51 H21 H23 H30 P16
    Date: 2014–10
  8. By: Maxime Demarais-Tremblay (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, Centre Walras Pareto - Université de Lausanne)
    Abstract: This paper provides an explanation of the emergence of the standars textbook definition of public goods in the middle of the 20th century. It focuses on Richard Musgrave's contribution in defining public goods as non-rival and non-excludable - from 1939 to 1969. Although Samuelson's mathematical definition is generally used in models of public goods, the qualitative understanding of the specificity of pure public goods owes more to Musgrave's emphasis on the impossibility of exclusion. This paper also highlights the importance of the size of the group to which benefits of a public good accrue. This analysis allow for a reassessment of the Summary table of goods which first appeared in Musgrave and Musgrave (1973) textbook.
    Keywords: Richard A. Musgrave; social goods; public goods; non-rivalry; non-exclusion
    Date: 2014–01
  9. By: Gallier, Carlo; Kesternich, Martin; Sturm, Bodo
    Abstract: In this experiment, we endogenize the choice of which contribution scheme is implemented in a public goods game. We investigate three rule-based contribution schemes. In a first step, players agree on a common group provision level using the principle of the smallest common denominator. Subsequently, this group investment is allocated according to a specific rule to individual minimum contributions. The game is implemented either as a Single- or a Multi-Phase Game. In the Single-Phase Game, the contribution schemes are exogenously implemented. In the Multi-Phase Game, we let subjects vote on the rule-based contribution schemes. If a scheme obtains a sufficient majority it is implemented. In case no sufficient majority is reached, subjects have to make their contributions to the public good using the voluntary contribution mechanism (VCM). Our results suggest that the endogenous choice of a contribution scheme has an impact on the level of contributions. In case of a rule-based contribution scheme which equalizes payoffs, contributions are higher if subjects choose the scheme than in case the scheme is implemented exogenously. In contrast, contributions are higher if the VCM is implemented exogenously than in case a sufficient majority cannot be obtained and, therefore, subjects have to play the VCM.
    Keywords: public goods,endogenous institutions,minimum contribution rules,cooperation
    JEL: C72 C92 H41
    Date: 2014
  10. By: Gächter, Simon (University of Nottingham); Mengel, Friederike (University of Essex); Tsakas, Elias (Maastricht University); Vostroknutov, Alexander (Maastricht University)
    Abstract: In a novel experimental design we study public good games with dynamic interdependencies. Each agent's income at the end of a period serves as her endowment in the following period. In this setting growth and inequality arise endogenously allowing us to address new questions regarding their interplay and effect on cooperation levels. In stark contrast to standard public good experiments, we find that contributions are increasing over time even in the absence of punishment possibilities. Inequality and group income are positively correlated for poor groups, but negatively correlated for rich groups. There is very strong path dependence: inequality in early periods is strongly negatively correlated with group income in later periods. These results give new insights into why people cooperate and should make us rethink previous results from the literature on repeated public good games regarding the decay of cooperation in the absence of punishment.
    Keywords: public goods, inequality, growth
    JEL: C92 H41 D63
    Date: 2014–09
  11. By: Claude Ménard (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: Public-Private Partnership has been high on the agenda of public decision makers since the 1990's. Primarily a contractual approach to the delivery of infrastructures, goods and services traditionally provided by the public sector or by private operators submitted to tight regulation, PPP is also a very special contractual practice as it seeks to introduce market-type relationships in a context in which non-market forces play a major role. An important consequence is the overlapping of decision rights as well as property rights, which exposes PPP to a double alignment problem, organizational and institutional. Away from the ideological controversies about the legitimacy of PPP in provisioning public goods, this chapter focuses on problems rooted in the very nature of PPPs and the actual design of their supportive contracts, as well as in the institutions in which they are embedded and that define the capacity to implement and monitor these arrangements properly.
    Keywords: Public-Private Partnership; transaction costs; organization; infrastructures; misalignment
    Date: 2013
  12. By: William R. Cline (Peterson Institute for International Economics)
    Abstract: This paper applies the probabilistic debt sustainability model developed for the euro area in Cline (2012, 2014) to sovereign debt in the United States and Japan. The results indicate that to avoid further increases in the expected ratio of public debt to GDP over the next decade, average annual primary deficits will need to be reduced by about 0.75 percent of GDP in the United States and by about 3 percent of GDP in Japan from the likely baselines as of mid-2014.
    Keywords: Public Debt, United States, Japan, Debt Sustainability, Deficits
    JEL: E62 H63 H68
    Date: 2014–10

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