nep-pub New Economics Papers
on Public Finance
Issue of 2015‒02‒16
thirteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Do tax cuts increase consumption? An experimental test of Ricardian Equivalence By Rostam-Afschar, Davud; Meissner, Thomas
  2. On the Consequences of Eliminating Capital Tax Differentials By Slavik, Ctirad; Yazici, Hakki
  3. Smoothing state tax revenues over the business cycle: gauging fiscal needs and opportunities By Kodrzycki, Yolanda
  4. Taxes and Economic Growth in Developing Countries : A Dynamic Panel Approach By NANTOB, N'Yilimon
  5. Optimal Dynamic Carbon Taxation in a Life-Cycle Model with Distortionary Fiscal Policy By Rausch, Sebastian; Abrell, Jan
  6. Fiscal Equalization, Tax Salience, and Tax Competition By Altemeyer-Bartscher, Martin
  7. Taxing Capital Income: Effective Marginal Tax Rates Under 2014 Law and Selected Policy Options By Congressional Budget Office
  8. Charitable giving and its persistent and transitory reactions to changes in tax incentives: Evidence from the German taxpayer panel By Bönke, Timm; Werdt, Clive
  9. The elasticity of taxable income for Germany and its sensitivity to the appropriate model By Werdt, Clive
  10. Fiscal Decentralization and Economic Growth: Evidence from Regional-Level Panel Data for Colombia By Luis Ignacio Lozano-Espitia; Juan Manuel Julio-Román
  11. Behavioral Responses to Local Tax Rates: Quasi-Experimental Evidence from a Foreigners Tax Scheme in Switzerland By Slotwinski, Michaela; Schmidheiny, Kurt
  12. Mid-term Effects of the Flat Rate Personal Income Tax in Hungary By Bartha, Zoltán
  13. When Identifying Contributors is Costly: An Experiment on Public Goods By Samek, Anya; Sheremeta, Roman

  1. By: Rostam-Afschar, Davud; Meissner, Thomas
    Abstract: This paper tests whether the Ricardian Equivalence proposition holds in a life cycle consumption laboratory experiment. This proposition is a fundamental assumption underlying numerous studies on intertemporal choice and has important implications for tax policy. Using nonparametric and panel data methods, we find that the Ricardian Equivalence proposition does not hold in general. Our results suggest that taxation has a significant and strong impact on consumption choice. Over the life cycle, a tax relief increases consumption on average by about 22% of the tax rebate. A tax increase causes consumption to decrease by about 30% of the tax increase. These results are robust with respect to variations in the difficulty to smooth consumption. In our experiment, we find the behavior of about 62% of our subjects to be inconsistent with the Ricardian proposition. Our results show dynamic effects; taxation inuences consumption beyond the current period.
    Keywords: Ricardian Equivalence,Taxation,Life Cycle,Consumption,Laboratory Experiment
    JEL: D91 E21 H24 C91
    Date: 2014
  2. By: Slavik, Ctirad; Yazici, Hakki
    Abstract: In the United States structure and equipment capital are e ffectively taxed at different rates. Recently, President Obama joined the group of policy makers and economists who propose to eliminate these di erentials. This paper analyzes the consequences of such a reform using an incomplete markets model with equipment-skill complementarity. We fi nd that the reform increases average welfare by 0.1%. Importantly, we fi nd that the reform does not involve the usual effi ciency vs. equality trade-o ff: it improves both.
    JEL: E62 H21 H25
    Date: 2014
  3. By: Kodrzycki, Yolanda (Federal Reserve Bank of Boston)
    Abstract: During the two most recent U.S. recessions in 2001 and in 2007–2009, state governments experienced an unusually high degree of fiscal stress due to increased revenue cyclicality. Expanding upon the aggregate evidence, this paper explores the degree to which individual states have experienced fluctuating tax receipts over the business cycle. The findings provide state policymakers with information to better understand the extent and causes of this tax revenue cyclicality and, in the context of balanced budget requirements, the efficacy of alternative measures that might be employed to smooth the sensitivity of state resources to economic conditions.
    Keywords: state tax policy; revenue cyclicality; tax volatility; individual income tax
    JEL: H2 H7
    Date: 2014–10–30
  4. By: NANTOB, N'Yilimon
    Abstract: This paper looks at the effects of taxes increase on economic growth of 47 developing countries. In developing countries, there is no magic tax strategy to encourage economic growth. Some countries with high tax burdens have high growth rates and some countries with low tax burdens have low growth rates. Despite much theoretical and empirical inquiry as well as political and policy controversy, no simple answer exists concerning the relationship of taxes on economic growth in developing countries. The research takes an empirical approach to analyze the effects of four types of taxes namely taxes revenue, taxes on goods and services, taxes on income, profits, and capital gains and taxes on international trade on economic growth. Mobilizing a dynamic panel data over the period 2000–2012 and using the system GMM estimator to address endogeneity issues, the econometric results yield that (i) there is a non-linear relationship between taxes revenue and economic growth, specifically, these taxes increase economic growth at short run and this effect then increases over time as these taxes increase, and (ii) there is a non-linear (U-shaped) relationship between taxes on income, profits and capital gains, taxes on international trade and economic growth, specifically, these taxes lower economic growth at short run and these effects then diminish over time as these taxes increase.
    Keywords: Taxes, Economic growth, Developing counties, Dynamic panel data
    JEL: C33 H20 H21 H27 O40
    Date: 2014–10–22
  5. By: Rausch, Sebastian; Abrell, Jan
    Abstract: We quantitatively characterize optimal carbon, capital, and labor income taxes in an economy-climate integrated assessment model that features overlapping generations and distortionary fiscal policy. First, we show that the optimal carbon tax significantly differs from the Pigouvian carbon levy in a first-best setting with overlapping generations in which fully rational households optimize over finite lifetimes. The key driving force behind this result is the life-cycle structure of the our model, in conjunction with endogenously chosen labor supply. We also show that the assumed labor supply elasticity is important for the size of deviation of the optimal carbon tax from the Pigouvian tax, but not the existence of the deviation from Pigouvian pricing. Second, interacting life-cycle household behavior with distortionary fiscal policy is shown to further drive a wedge between the second-best optimal carbon tax and a Pigouvian carbon levy.
    JEL: E13 H21 H24
    Date: 2014
  6. By: Altemeyer-Bartscher, Martin
    Abstract: This paper analyzes the efficiency consequences of local revenue policies if jurisdictions try to attenuate the pressures of inter-regional competition for mobile factors by substituting attention-grabbing tax instruments that spotlight an additional tax burden with rather inconspicuous ones. We show that the substitution of tax instruments with the view to reduce the perceived tax price may suppress the under-exploitation of tax bases that typically goes along with fiscal equalization.
    JEL: H77 H22 H30
    Date: 2014
  7. By: Congressional Budget Office
    Abstract: An effective marginal tax rate (ETR) measures an investor’s tax burden on returns from an investment. CBO estimates that the ETR, on average, for all capital income is 18 percent. ETRs on returns from investment vary by sector, ranging from 29 percent for businesses to virtually zero for owner-occupied housing. In this report, CBO estimates ETRs under current law and eight policy options for taxing capital income.
    JEL: H25
    Date: 2014–12–18
  8. By: Bönke, Timm; Werdt, Clive
    Abstract: We estimate the elasticity of charitable giving with respect to price and income changes using a rich panel of income tax returns covering the period 2001 to 2006. Employing censored quantile regression and exploiting the panel structure, the advantage of our analysis is twofold: First, we derive results for different points in the underlying distribution of charitable giving and allow for giving to be heterogeneous. Thus, we do not only estimate responses of giving to prices and incomes but also where the incentives matter most. Second, we disentangle long-run responses to persistent changes in price and income from temporary reactions, consumption smoothing, or tax planning. Indeed, our results suggest that price elasticity is heterogenous across the distribution of donors and that the persistent price elasticity is close to one in absolute value at the upper and lower tail of the distribution of charitable giving.
    Keywords: charitable giving,price and income elasticity,censored quantile regression,taxpayer panel,administrative data,school performance
    JEL: C31 H31 H53
    Date: 2015
  9. By: Werdt, Clive
    Abstract: This paper provides new empirical insights on the elasticity of taxable income for Germany. Using a rich panel of German income tax return data, the tax reforms of 2004 and 2005 are exploited implementing a new dynamic income model. Showing and discussing potential estimation problems of the most prominent model in the literature by Gruber and Saez (2002), this dynamic model delivers significant smaller estimates of the elasticity of taxable income. The overall estimate is 0.36 and robust against a number of sensitivity checks including non linear income controls. Elasticities differ between married and single assessed taxpayers with an elasticity of 0.17 for single and 0.44 for married taxpayers. These elasticities are similar to recent German results and considerablly smaller than recent results for the US from Weber(2014).
    Keywords: taxable income elasticity,dynamic panel data estimation,income tax return data,administrative data
    JEL: C26 H21 H61
    Date: 2015
  10. By: Luis Ignacio Lozano-Espitia; Juan Manuel Julio-Román
    Abstract: This paper provides evidence on the positive role of fiscal decentralization on regional economic growth in Colombia since the promulgation of the Political Constitution of 1991. The empirical strategy involved the choice of a suitable estimator for the panel data approach, the Augmented Mean Group Estimator, which allows adding unobserved determinants suggested by literature to traditional long term explanatory factors. The strategy was complemented with exercises that helped us to support the results coming from (i) cross-section models for different periods and various control variables, (ii) test on the complementarity hypothesis between public goods provided by different jurisdictions (spillover effects), and (iii) an assessment of unconditional convergence in regional income differences.
    Keywords: Fiscal decentralization, Economic growth, Complementarity, Panel Data Models
    JEL: O40 H77 C33
    Date: 2015–02–03
  11. By: Slotwinski, Michaela; Schmidheiny, Kurt
    Abstract: For a long time two main obstacles have prevented researchers from empirically identifying the causal effect of income taxes on individuals behavior: omitted variable bias and the inherent reverse causality between income taxes and the tax base. This paper exploits an institutional feature of Swiss tax law concerning the income taxation of foreign employees living in Switzerland (Quellenbesteuerung). The implied discontinuities (tax notches) allow us to draw causal inferences on behavioral reactions of individuals to taxation within a quasi-random setting. We study the effect of local taxes on individuals location choice and income adjustment to preferential tax schemes at such institutional tax notches. We find strong evidence that foreigners with income around the tax notch strategically adjust their income. We do not find evidence that local income tax rates affect the initial location choice of newly arriving foreigners. However, we do find significant effects of local income tax rates on the location choice once these foreigners receive permanent residence status after 5 years of arrival. These effects materialize mainly for high income earners.
    JEL: J22 H24 J61
    Date: 2014
  12. By: Bartha, Zoltán
    Abstract: The objective of the paper is to examine whether the advantages and disadvantages mentioned in the literature of the flat rate income tax could be observed in Hungary. Personal income tax data provided by the Hungarian National Tax and Customs Administration was used to check the arguments. It was found that the flat tax indeed favours richer taxpayers, and because of the family tax credits, it heavily favours families with children. Tax revenues declined as tax rates were cut, while the GDP growth rate was close to stagnant. Both of these developments go against the expectations of the flat tax supporters, although it has to be mentioned that the changes were made in the midst of a European- and world-wide depression, which could have distorted the pure effects of the new tax code. Although in many countries the flat rate tax was a positive signal for investors boosting foreign direct investments, the Hungarian government introduced extra taxes on some of the transnational companies in order to balance the budget (and compensate for the lost personal income tax revenues), which meant that there was a decline in the mood of the investors. There is some indication that some illegal activities are shifted to the legal domain: the ratio of those tax reporters who earned an annual income of HUF 2 million or higher has gone from 62.5% to 66.6% in the period of 2010-12.
    Keywords: flat rate income tax, Hungary, tax statistics, income distribution
    JEL: E64 H24
    Date: 2014–09
  13. By: Samek, Anya; Sheremeta, Roman
    Abstract: Studies show that identifying contributors increases contributions to public goods. In practice, viewing identifiable information is costly, which may discourage people from accessing it. We design a public goods experiment in which participants can pay to view information about identities and contributions of group members. We compare this to a treatment in which there is no identifiable information, and a treatment in which all contributors are identified. Our main findings are that: (1) contributions in the treatment with costly information are as high as those in the treatment with free information, (2) participants rarely choose to view the information, and (3) being a high contributor is correlated with choosing to view information about others.
    Keywords: public-goods, information, recognition, laboratory experiment
    JEL: C72 C91 H41
    Date: 2015–02–02

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.