nep-pub New Economics Papers
on Public Finance
Issue of 2015‒01‒03
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Policy Endogeneity: Evidence from R&D Tax Credits By Chang, Andrew C.
  2. Tax evasion and Prospect Theory in a OLG economy By Francesco Busato; Francesco Giuli; Enrico Marchetti
  3. Tax compliance costs: A review of cost burdens and cost structures By Eichfelder, Sebastian; Vaillancourt, François
  4. Excise Taxes on Wines, Beers and Spirits: An Updated International Comparison By Anderson, Kym
  5. Taxes in Cities By Brülhart, Marius; Bucovetsky, Sam; Schmidheiny, Kurt
  6. Common Pool Problems in Voluntary Municipal Mergers By Tuukka Saarimaa; Janne Tukiainen
  7. The Public Choice and the traditional view of political science By Vicini, Andrea

  1. By: Chang, Andrew C. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Because policymakers may consider the state of the economy when setting taxes, endogeneity bias can arise in regression models that estimate relationships between economic variables and taxes. This paper quantifies the policy endogeneity bias and estimates the impact of R&D tax incentives on R&D expenditures at the U.S. state level. Identifying tax variation comes from changes in federal corporate tax laws that heterogeneously impact state-level R&D tax incentives due to the simultaneity of state and federal corporate taxes. With this exogenous variation, my preferred estimates indicate a 1 percent increase in R&D tax incentives leads to a 2.8-3.8 percent increase in R&D. Alternatively, estimates that ignore endogenously determined policies indicate that a 1 percent increase in R&D tax incentives leads to a 0.4-0.7 percent increase in R&D. These results are consistent with tax policies that are implemented before an economic downturn.
    Keywords: Corporate tax; fiscal policy; R&D price elasticity; tax credits; policy endogeneity
    JEL: H20 H25 H32 H71 K34 O38
    Date: 2014–11–21
  2. By: Francesco Busato; Francesco Giuli; Enrico Marchetti
    Abstract: This paper presents a simple Overlapping Generation Model (OLG), aug-mented with Prospect Theory elements in the spirit of al-Nowaihi and Dhami (2007). Themodel tackle several open questions in the analysis of tax evasion and compliance decisions. In particular, the paper presents a new and complementary approach to address tax compliance decision in a OLG economy with behavioral components. Our main results are the following: there exists an equilibrium with a tax evasion level which can be coherent with the empirical estimates for the US economy; for our calibrations we ¯nd that the relationship between the tax rate and the evasion rate is a positive one (i.e., the model offers a solution to the Yitzhaki puzzle); we can highlight the role played in the context of tax evasion by an essential component of Prospect Theory, the framing effect, which was precluded to simple individual choice models.
    Keywords: Tax evasion, OLG models, Prospect theory
    JEL: E21 D03 D81
    Date: 2014–11
  3. By: Eichfelder, Sebastian; Vaillancourt, François
    Abstract: Our paper provides a comprehensive report of empirical research on tax compliance costs. Compared to previous reviews, our focus is on average costs for sub-groups (individual taxpayers, small businesses, large businesses) and the composition of the cost burden with regards to different cost components (in-house time effort, external adviser costs, other monetary expenses), different taxes (e.g. income tax, value added tax) and different activities like tax accounting and tax planning. In addition, we give a short review of the most important compliance cost drivers and discuss the underlying causes of tax complexity and compliance costs.
    Keywords: tax compliance costs,cost structures,cost burdens,cost drivers
    JEL: H21 H24 H25
    Date: 2014
  4. By: Anderson, Kym
    Keywords: wine, taxes, Agricultural and Food Policy, International Relations/Trade, Political Economy, Public Economics,
    Date: 2014–10
  5. By: Brülhart, Marius; Bucovetsky, Sam; Schmidheiny, Kurt
    Abstract: Most cities enjoy some autonomy over how they tax their residents, and that autonomy is typically exercised by multiple municipal governments within a given city. In this chapter, we document patterns of city-level taxation across countries, and we review the literature on a number of salient features affecting local tax setting in an urban context. Urban local governments on average raise some ten percent of total tax revenue in OECD countries and around half that share in non-OECD countries. We show that most cities are highly fragmented: urban areas with more than 500,000 inhabitants are divided into74 local jurisdictions on average. The vast majority of these cities are characterized by a central municipality that strongly dominates the remaining jurisdictions in terms of population. These empirical regularities imply that an analysis of urban taxation needs to take account of three particular features: interdependence among tax-setting authorities(horizontally and vertically), jurisdictional size asymmetries, and the potential for agglomeration economies. We survey the relevant theoretical and empirical literatures, focusing in particular on models of asymmetric tax competition, of taxation and income sorting and of taxation in the presence of agglomeration rents.
    Keywords: agglomeration; cities; fiscal federalism; local taxation; population sorting; tax competition
    JEL: H71 H73 R28 R51
    Date: 2014–08
  6. By: Tuukka Saarimaa; Janne Tukiainen
    Abstract: We analyse free-riding behaviour of Finnish municipalities prior to voluntary municipal mergers. The merger process creates a temporary common pool problem, because of a delay from the initial decision to the actual merger during which municipalities stay autonomous. Using a difference-indifferences strategy, we find that the stronger free-riding incentive a municipality faced the more it increased its debt and spent its cash reserves. These funds were spent mostly on investments and current expenditures. The results can be attributed to the "law of 1/n" rather than to responding to an anticipated loss of political power or voluntary transfers between merging municipalities. Besides providing a test of the law of 1/n, our results suggest that local jurisdiction mergers are likely to involve a substantial (one-time) cost due to free-riding. This leads to two policy implications. First, during a merger process, some financial constraints on the local level may be a good idea to mitigate common pool problems. Second, for the merger policy to achieve the goal of decreasing public spending without reducing service quality, the scale economies need to be fairly large. Our results should be of wider interest, not only because mergers are used extensively in various countries, but also because common pool problems are present in many other contexts, such as (local) governments bail outs.
    Keywords: Common pool; difference-in-differences; free-riding; law of 1/n; municipality mergers
    Date: 2014–11
  7. By: Vicini, Andrea
    Abstract: This article, explore the origin of public choice compared with the traditional view of political science. The emphasize is on the methodology and the initial research program developed by Buchanan and Tullock.
    Keywords: Public Choice, Gordon Tullock, James Buchanan.
    JEL: H00 H11 H70
    Date: 2011–05

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