nep-pub New Economics Papers
on Public Finance
Issue of 2015‒01‒26
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Raise Top Tax Rates, Not the GST By Patricia Apps; Ray Rees
  2. Measuring Tax Complexity By David Ulph
  3. The Returns to the Federal Tax Credits for Higher Education By George B. Bulman; Caroline M. Hoxby
  4. Efficient Classified Land Taxation By Erik B. Johnson; Jason Pearcy
  5. Optimal Spatial Taxation: Are Big Cities too Small? By Jan Eeckhout; Nezih Guner
  6. Medicaid as an Investment in Children: What is the Long-Term Impact on Tax Receipts? By David W. Brown; Amanda E. Kowalski; Ithai Z. Lurie
  7. Effects of taxes and subsidies on media services By Kind, Hans Jarle; Møen, Jarle
  8. The Impact of Announcing Future Punishment Opportunities in a Public Goods Game By Martine Visser, Alex Child, Jamil Moorad and Wisdom Akpalu
  9. A wind of change? Reforms of Tax Systems since the launch of Europe 2020 By Gaëlle Garnier; Endre György; Kees Heineken; Milena Mathé; Laura Puglisi; Savino Rua; Agnieszka Skonieczna; Astrid Van Mierlo
  10. Tax and Transfer Policies and the Female Labor Supply in the EU By Klara Kaliskova
  11. Generating Larger Tax Revenue in South Asia By Gupta, Poonam

  1. By: Patricia Apps; Ray Rees
    Abstract: This paper argues that increasing the GST, by raising the rate above 10 per cent while retaining the current tax base, or by broadening the base to include all forms of consumption expenditure, does not offer a solution to the widely perceived problems of the Australian tax system. The direct, regressive effects of such GST changes are well understood. We argue here that when we also take into account the effects of the measures, generally accepted as a corollary of the policy, that are required to compensate low income households, not only will the regressive distributional effects be exacerbated, but serious losses of economic efficiency will also result. Our analysis supports the proposition that raising tax rates across top incomes would be a far more equitable and less distortionary reform than raising the GST.
    Date: 2013–06
  2. By: David Ulph (University of St Andrews)
    Abstract: This paper critically examines a number of issues relating to the measurement of tax complexity. It starts with an analysis of the concept of tax complexity, distinguishing tax design complexity and operational complexity. It considers the consequences/costs of complexity, and then examines the rationale for measuring complexity. Finally it applies the analysis to an examination of an index of complexity developed by the UK Office of Tax Simplification (OTS).
    Keywords: Complexity; Design Complexity; Tax Equivalence; Distortions; Legal Uncertainty, Compliance Costs; Avoidance
    JEL: H11 H2 H8
    Date: 2014–10–01
  3. By: George B. Bulman; Caroline M. Hoxby
    Abstract: Three tax credits benefit households who pay tuition and fees for higher education. The credits have been justified as an investment: generating more educated people and thus more earnings and externalities associated with education. The credits have also been justified purely as tax cuts to benefit the middle class. In 2009, the generosity of and eligibility for the tax credits expanded enormously so that their 2011 cost was $25 billion. Using selected, de-identified data from the population of potential filers, we show how the credits are distributed across households with different incomes. We estimate the causal effects of the federal tax credits using two empirical strategies (regression kink and simulated instruments) which we show to be strong and very credibly valid for this application. The latter strategy exploits the massive expansion of the credits in 2009. We present causal estimates of the credits' effects on postsecondary attendance, the type of college attended, the resources experienced in college, tuition paid, and financial aid received. We discuss the implications of our findings for society's return on investment and for the tax credits' budget neutrality over the long term (whether higher lifetime earnings generate sufficient taxes to recoup the tax expenditures). We assess several explanations why the credits appear to have negligible causal effects.
    JEL: H2 H24 I22 I23 I28
    Date: 2015–01
  4. By: Erik B. Johnson (Quinnipiac University); Jason Pearcy (Montana State University)
    Abstract: While there is a rich literature on both the spatial impact of taxation and the efficient composition of differential classified taxes, there is a paucity of research on the role of spatial land competition in the choice of these taxes. This paper analyzes the efficient choice of a classified land tax under differing types of spatial competition through the use of open or closed city models with absentee landowners or pubic land ownership. A key result of this analysis is that when there are absentee landowners, changes in efficient classified land taxes do not change the composition of the city. The same is not true with public ownership where classified taxes result in changes in population, resident utility, and land usage. Comparing an open and closed city with absentee landowners, different tax rates are set in a closed city, but it is never efficient to have different tax rates in an open city.
    Keywords: Efficient Taxation, Spatial Competition, Local Public Finance, Land Tax
    JEL: R1 R5 H21 H3
    Date: 2014–01–23
  5. By: Jan Eeckhout; Nezih Guner
    Abstract: We analyze the role of optimal income taxation across different local labor markets. Should labor in large cities be taxed differently than in small cities? We find that a planner who needs to raise revenue and is constrained by free mobility of labor across cities does not choose equal taxes for cities of different sizes. The optimal tax schedule is location specific and tax differences between large and small cities depends on the level of government spending and on the concentration of housing wealth. Our estimates for the US implies higher marginal rates in big cities, but lower than what is observed. Simulating the US economy under the optimal tax schedule, there are large effects on population mobility: the fraction of population in the 5 largest cities grows by 8.0% with 3.5% of the country-wide population moving to bigger cities. The welfare gains however are smaller. Aggregate consumption goes up by 1.53%. This is due to the fact that much of the output gains are spent on the increased costs of housing construction in bigger cities. Aggregate housing consumption goes down by 1.75%.
    Keywords: misallocation, taxation, population mobility, city size, general equilibrium
    JEL: H21 J61 R12 R13
    Date: 2014–12
  6. By: David W. Brown; Amanda E. Kowalski; Ithai Z. Lurie
    Abstract: We examine the long-term impact of expansions to Medicaid and the State Children's Health Insurance Program that occurred in the 1980's and 1990's. With administrative data from the IRS, we calculate longitudinal health insurance eligibility from birth to age 18 for children in cohorts affected by these expansions, and we observe their longitudinal outcomes as adults. Using a simulated instrument that relies on variation in eligibility by cohort and state, we find that children whose eligibility increased paid more in cumulative taxes by age 28. These children collected less in EITC payments, and the women had higher cumulative wages by age 28. Incorporating additional data from the Medicaid Statistical Information System (MSIS), we find that the government spent $872 in 2011 dollars for each additional year of Medicaid eligibility induced by the expansions. Putting this together with the estimated increase in tax payments discounted at a 3% rate, assuming that tax impacts are persistent in percentage terms, the government will recoup 56 cents of each dollar spent on childhood Medicaid by the time these children reach age 60. This return on investment does not take into account other benefits that accrue directly to the children, including estimated decreases in mortality and increases in college attendance. Moreover, using the MSIS data, we find that each additional year of Medicaid eligibility from birth to age 18 results in approximately 0.58 additional years of Medicaid receipt. Therefore, if we scale our results by the ratio of beneficiaries to eligibles, then all of our results are almost twice as large.
    JEL: H2 I1 I38
    Date: 2015–01
  7. By: Kind, Hans Jarle (Dept. of Economics, Norwegian School of Economics); Møen, Jarle (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: We start out reviewing the justification for press subsidies. The social value of journalism can be larger than what the newspapers are able to extract because of knowledge externalities, public good characteristics of investigative journalism and nonappropriability of consumer surplus. A free market will then underinvest in journalism. Problems related to economies of scale and scope further imply that the number of newspapers and their circulations may be too small, while advertising can give newspapers too strong incentives to aim for the mass market. According to the media economics literature, a preferential VAT regime provides higher differentiation incentives for existing newspapers, while a tax deduction for editorial expenses is well suited to increase journalistic investments. Micro economic theory further indicates that fixed transfers is the most efficient instrument to reduce entry barriers and avoid newspaper mortality, and that a subsidy per copy sold will increase circulation. We end the article by summarizing empirical evidence on the effects of media support.
    Keywords: Media support; Two sided markets; VAT exemption; Tax credit; Direct and indirect subsidies
    JEL: H00 H20
    Date: 2014–12–19
  8. By: Martine Visser, Alex Child, Jamil Moorad and Wisdom Akpalu
    Abstract: We explore the effects of announcements of future punishment opportunities in public goods games. Announcements can influence subject behaviour, through changing expectations, before the institution is implemented (adjustment effect) or after implementation (adaptation effect). Our results indicate that announcements do not lead to significant adjustment effects, nor increased free-riding before implementation. Once punishment opportunities are implemented, those forewarned with announcements exhibit positive adaptation effects. The number of contributors to the public good increases relative to the no-announcement treatment; this is partly mediated by increased utilisation of punishment, but diminished anti-social use of the institution. Announcements can therefore increase the efficacy of institutional change.
    Keywords: future punishment opportunities, public goods game
    JEL: C9 H41 H30 Q58
    Date: 2014
  9. By: Gaëlle Garnier (European Commission); Endre György (European Commission); Kees Heineken (European Commission); Milena Mathé (European Commission); Laura Puglisi; Savino Rua (European Commission); Agnieszka Skonieczna (European Commission); Astrid Van Mierlo (European Commission)
    Abstract: This paper reviews the tax reforms implemented by EU Member States since the adoption of the first country-specific recommendations in the framework of the Europe 2020 strategy. Even though there is a need for more action, as evidenced by the number of tax recommendations, overall many Member States have put in place reforms that follow the logic of the EU policy recommendations in most priority areas. A large number of Member States have recently introduced targeted reductions in the tax burden on labour and have shifted the tax burden towards less detrimental tax bases, although these changes have been of a limited magnitude. Tax incentives to support research and development have grown in importance, and have contributed to sustaining R&D investment during the crisis. Regarding private debt, which was one of the roots of the crisis, several Member States have taken measures to reduce the debt bias in their tax system. Almost half of the Member States have shifted some of the tax burden to recurrent immovable property taxes, even if significant increases were only observed in a few countries. Finally, many Member States have worked on strengthening tax compliance with some of them reporting tangible financial results. However, progress has been more limited in relation to environmental tax reforms and VAT.
    Keywords: European Union; European Semester; taxation, tax policy; VAT; fraud; corporate taxation; personal income taxation; environment; research and development; compliance
    JEL: H11 H20 H24 H25 H26 H27 H87
    Date: 2014–11
  10. By: Klara Kaliskova
    Abstract: This study contributes to the female labor supply responsiveness literature by measuring the eect of tax-benefit policies on female labor supply based on a broad sample of 26 European countries in 2005-2010. The tax-benefit microsimulation model EUROMOD is used to calculate the measure of extensive margin work incentives - the participation tax rate, which is then used as the main explanatory variable in a female participation equation. This allows me to deal with the endogeneity of income in a new way by a simulated instrumental variable based on a fixed EU-wide sample of women. Results suggest that a 10 percentage point increase in the participation tax rate decreases the female employment probability by 2 percentage points. The effect is higher for single mothers, for women in the middle of the skills distribution, and in countries that have lower rates of female participation.
    Keywords: female labor supply; tax and benefit system; Europe; instrumental variable;
    JEL: C25 H24 H31 J22
    Date: 2014–12
  11. By: Gupta, Poonam
    Abstract: Despite repeated attempts, South Asian countries have managed only limited and sporadic success in mobilizing larger tax revenue. Tax-to-GDP ratios in most countries in the region remain below cross country averages and are considered inadequate to meet their financing needs. Underperformance in tax revenue generation does not seem due to paucity of tax policy reforms. South Asian countries have undertaken considerable reforms in the last decade, and their tax structures have converged with the rest of the world. But they have been less successful in widening their tax base, in strengthening tax administration, and in improving compliance. Additionally, structural factors such as large share of agriculture, low literacy, and large informal sectors have hindered tax collection. Further efforts in the region to increase tax revenue ought to be wider in scope than before and should extend to the subnational and local governments. They should focus on simplifying tax systems, strengthening tax administration, and broadening the tax base. These efforts should be situated within a wider reform program that aims to strengthen governance, improve business environment and help formalize their economies.
    Keywords: South Asia, Tax Revenue, Tax Policy
    JEL: H2 H24 H26 H6
    Date: 2015–01

This nep-pub issue is ©2015 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.