nep-pub New Economics Papers
on Public Finance
Issue of 2015‒05‒30
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation and Human Capital Policies over the Life Cycle By Stefanie Stantcheva
  2. Optimal taxation and debt with uninsurable risks to human capital accumulation By Piero Gottardi; Atsushi Kajii; Tomoyuki Nakajima
  3. Taxation and fiscal expenditure in a growth model with endogenous fertility By Sedgley, Norman; Elmslie, Bruce
  4. Ghost-House Busters: The Electoral Response to a Large Anti Tax Evasion Program By Lorenzo Casaburi; Ugo Troiano
  5. Towards an International Tax Order for the Taxation of Retirement Income By Bernd Genser
  6. A Rational Economic Model of Paygo Tax Rates By Shehsinski, Eytan; de Menil, Georges; Murtin, Fabrice
  7. Environmental Tax Reform in a Federation with Rent-Induced Migration By Jean-Denis Garon; Charles Séguin
  8. Soda Taxes and the Prices of Sodas and Other Drinks: Evidence from Mexico By Jeffrey Grogger

  1. By: Stefanie Stantcheva
    Abstract: This paper derives optimal income tax and human capital policies in a dynamic life cycle model of labor supply and risky human capital formation. The wage is a function of both stochastic, persistent, and exogenous "ability'' and endogenous human capital. Human capital is acquired throughout life through monetary expenses. The government faces asymmetric information regarding the initial ability of agents and the lifetime evolution of ability, as well as the labor supply. The optimal subsidy on human capital expenses is determined by three considerations: counterbalancing distortions to human capital investment from the taxation of wage and capital income, encouraging labor supply, and providing insurance against adverse draws from the productivity distribution. When the wage elasticity with respect to ability is increasing in human capital, the optimal subsidy involves less than full deductibility of human capital expenses on the tax base, and falls with age. I consider two ways to implement the optimum: income contingent loans, and a tax scheme that allows for a deferred deductibility of human capital expenses. Numerical results are presented that suggest that full dynamic risk-adjusted deductibility of expenses might be close to optimal, and that simple linear age-dependent policies can achieve most of the welfare gain from the second best.
    JEL: H21 H23 I21 I22 I24
    Date: 2015–05
  2. By: Piero Gottardi (European University Institute); Atsushi Kajii (Kyoto University and Singapore Management University); Tomoyuki Nakajima (Kyoto University and CIGS)
    Abstract: We consider an economy where individuals face uninsurable risks to their human capital accumulation, and analyze the optimal level of linear taxes on capital and labor income together with the optimal path of government debt. We show that in the presence of such risks it is beneficial to tax both labor and capital and to issue public debt. We also assess the quantitative importance of these findings, and show that the benefits of government debt and capital taxes both increase with the magnitude of idiosyncratic risks and the degree of relative risk aversion.
    Keywords: incomplete markets; Ramsey equilibrium; optimal taxation; optimal public debt.
    JEL: D52 D60 D90 E20 E62 H21 O40
    Date: 2015–03
  3. By: Sedgley, Norman; Elmslie, Bruce
    Abstract: Most growth theorists agree that understanding the economics of innovation and technological change is central to understanding why some countries are richer and/or grow faster than other countries. The driving force behind recent developments in endogenous innovation models of growth is a desire to eliminate population scale effects. In the semi endogenous growth model growth becomes proportional to the exogenous population growth rate but invariant to policy. This paper makes population growth endogenous by modeling fertility along the lines of Barro and Becker (Fertility Choice in a Model of Economic Growth, 1989) and models an array of government policies to demonstrate how some policies can impact levels and growth rates in a scale free endogenous growth model. In the model government policies are categorized according to whether they have level effects only, level and growth effects, or no impact on levels and/or growth.
    Keywords: policy effects on growth,endogenous population,public finance
    JEL: H2 H0 O3
    Date: 2015
  4. By: Lorenzo Casaburi; Ugo Troiano
    Abstract: The incentives of political agents to enforce tax collection are key determinants of the levels of compliance. We study the electoral response to the Ghost Buildings program, a nationwide anti-tax evasion policy in Italy that used innovative monitoring technologies to target buildings hidden from tax authorities. The program induced monetary and non-monetary benefits for non-evaders. A one standard deviation increase in town-level program intensity leads to a 4.8 percent increase in local incumbent reelection rates. In addition, these political returns are higher in areas with lower tax evasion tolerance and with higher efficiency of public good provision, implying complementarity among enforcement policies, the underlying tax culture, and the quality of the government.
    JEL: D72 H26
    Date: 2015–05
  5. By: Bernd Genser (Department of Economics, University of Konstanz, Germany)
    Keywords: income tax reform, taxation of pensions, deferred income taxation
    JEL: H2 H24 H55
    Date: 2015–05–26
  6. By: Shehsinski, Eytan; de Menil, Georges; Murtin, Fabrice
    Abstract: We argue that a rational-economic model of how societies choose their paygo tax rate can explain the cross section variance of these rates in large, developed OECD economies. Using a two-period OLG framework, we suggest that paygo tax rates are determined by a representative agent and a benevolent government jointly maximizing the expected life-time utility of the representative agent. In order to calculate these expected utilities, we construct probability distributions of life-time labor and capital income by simulating annual models of real wages and the return to capital estimated from data on real GDP and the real return to capital from the end of World War II to 2002. The joint distribution of the error terms is bootstrapped from the estmated errors of the annual equations. Expectations are taken over these distributions. The model predicts that each country chooses the paygo tax rate which maximizes the expected life-time utility of its representative agent. Risk aversion, described by a CRRA utility function, is assumed uniform across countries, such that the variance of the predicted rates is due exclusively to cross-country differences in the objective characteristics of the dynamics of wages and the return to capital in each country. These predicted rates are shown to explain 85% of the variance of observed effective-paygo rates. The calculations show that it is cross-country differences in the level and variability of the return to capital which are the most important source of this variance. We use the model to simulate a hypothetical world in which all countries share a unique, global capital market, and show that this scenario leads to a radical convergence of paygo rates. In a further exercise, we add an estimate of the probability of global crises like that of 2008 to the national distributions computed from post-War data, and examine the potential effect on paygo rates of these previously neglected, low probability events.
    Keywords: Pay-as-you-go, Savings, Risk Aversion, OLG, National Capital Markets
    JEL: H0
    Date: 2014
  7. By: Jean-Denis Garon; Charles Séguin
    Abstract: We study the welfare effects of a revenue-neutral green tax reform in a federation. The reform consists of increasing a tax on a polluting input and reducing that on labor income. Households are fully mobile within the federation. Regions are unequally endowed with a non-renewable natural resource. Resource rents are owned by regions and are redistributed to citizens on a residence basis, which generates a motive for inefficiently relocating to the resource-rich jurisdiction. Since the resource-poor region has a higher marginal product of labor than does the resource-rich region, the tax reform mitigates the scope of inefficient migration. This positive welfare effect may significantly reduce abatement costs of pollution and calls for higher environmental tax, as compared with a model where migration is assumed away.
    Keywords: Federalism, Environment, Taxation, Equalization, Mobility, Externalities
    JEL: D62 H21 H23 H77
    Date: 2015
  8. By: Jeffrey Grogger
    Abstract: To combat a growing obesity problem, Mexico imposed a nationwide tax on drinks with added sugar, popularly referred to as a “soda tax,” effective January 2014. I analyze data on taxed and untaxed products collected as part of Mexico’s Consumer Price Index program to estimate how prices responded to the tax. Prices of regular sodas jumped by more than the amount of the tax in the month that the tax took effect. The prices of other taxed drinks also rose, though by a smaller amount. Diet soda prices rose as well, suggesting that consumers may have substituted toward diet sodas after regular sodas became taxable. The prices of bottled water, pure (untaxed) juices, and milk were largely unchanged. A companion analysis of untaxed comparison products showed no general price increases around the time that the soda tax was imposed.
    JEL: H2 I1
    Date: 2015–05

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