nep-pub New Economics Papers
on Public Finance
Issue of 2015‒07‒11
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The effect of tax-benefit changes on the income distribution in 2008-2014 By De Agostini, Paola; Paulus, Alari; Tasseva, Iva Valentinova
  2. The Impact of Short- and Long-Term Participation Tax Rates on Labor Supply By Bartels, Charlotte; Pestel, Nico
  3. Shifting taxes from labor to consumption: More employment and more inequality By Pestel, Nico; Sommer, Eric
  4. The impact of taxes on competition for CEOs By Krenn, Peter
  5. Wealth Inequality, Family Background, and Estate Taxation By Fang Yang; Mariacristina De Nardi
  6. Differentiated property tax and urban sprawl in Italian urbanized areas By Ermini, Barbara; Santolini, Raffaella
  7. On the optimal provision of social insurance By Krueger, Dirk; Ludwig, Alexander
  8. Do taxes affect firmsÕ asset write-downs? Evidence from discretionary write-downs of equity investments in Italy By Giampaolo Arachi; Valeria Bucci

  1. By: De Agostini, Paola; Paulus, Alari; Tasseva, Iva Valentinova
    Abstract: More than half of the EU countries have become poorer and more unequal since the start of the crisis in 2008. Despite lack of timely household micro data, using microsimulation techniques with up-to-date information on policy rules enables us to estimate the direct effect of tax-benefit policy changes in 2008-2014 on the income distribution, poverty and inequality levels in 10 EU countries, as well as track most recent trends by evaluating policy effects in 2013-2014. We identify and quantify these effects using the EU tax-benefit model EUROMOD to construct relevant counterfactual scenarios. Our results indicate that among these countries, most managed to pursue policies without adverse distributional effects, despite of challenging economic problems in this period. However, this has been accompanied by reductions in household income in several countries. There have also been some cases of clearly regressive changes in particular policy instruments. Overall, our results demonstrate the importance of comprehensive regular indexation to avoid the erosion of benefit amounts and tax thresholds over time, and specific population groups systematically gaining or losing relative to others.
    Date: 2015–07–02
  2. By: Bartels, Charlotte (Freie Universität Berlin); Pestel, Nico (IZA)
    Abstract: Generous income support programs as provided by European welfare states have often been blamed to hamper employment. This paper investigates the importance of incentives inherent in the tax-benefit system for the individual decision to take up work. Using German microdata over the period 1993-2010 we find that recent reforms in Germany increased work incentives at the extensive margin measured by the Participation Tax Rate (PTR), particularly for low-income individuals. Work incentives are even higher if the time horizon is extended to more than one year, pointing at an overestimation of the disincentives by standard measures. Regression analysis reveals that a decrease in the PTR increases the likelihood of taking up work significantly.
    Keywords: labor force participation, work incentives, welfare, unemployment insurance, income taxation
    JEL: H24 H31 J22 J65
    Date: 2015–06
  3. By: Pestel, Nico; Sommer, Eric
    Abstract: This paper investigates the effect of shifting taxes from labor income to consumption on labor supply and the distribution of income in Germany. We simulate stepwise increases in the value-added tax (VAT) rate, which are compensated by revenue-neutral reductions in income-related taxes. We differentiate between the personal income tax (PIT) and social security contributions (SSC). Based on a dual data base and a microsimulation model of household labor supply behavior, we find a regressive impact of such a tax shift in the short run. When accounting for labor supply adjustments, the adverse distributional impact persists for PIT reductions, while the overall effects on inequality and progressivity become lower when payroll taxes are reduced. This is partly due to increases in aggregate labor supply, resulting from higher work incentives.
    Keywords: income and payroll taxes,consumption taxes,microsimulation,inequality,Germany
    JEL: C63 D31 H23
    Date: 2015
  4. By: Krenn, Peter
    Abstract: This paper tries to answer the question how taxation of corporate and individual income affects competition among firms for highly-skilled human resources like CEOs. It shows that individual income taxes can perform a substantial impact on the outcome of such a competition if marginal tax rates are different like in an international labor market. Additionally, it presents the surprising result that in a local labor market for CEOs observed gross fixed salaries should decline in the individual income tax rate. The effects of taxation in a market for CEOs is in particular an interesting topic because recent developments with respect to compensation practices of top-level managers have opened a public debate about the use of instruments for regulating compensation of those managers. The investigation follows an analytical economics-based approach by extending an LEN type model of moral hazard with elements of competition and income taxation. It investigates the impact of differential taxation on the competition between two firms for the exclusive service of a unique, highly-skilled CEO.
    Keywords: CEO,taxes,competition for talents,skilled human resources
    JEL: D82 H24 H25 J31 J33 L13
    Date: 2015
  5. By: Fang Yang (Louisiana State University); Mariacristina De Nardi (UCL and Federal Reserve Bank of Chicago)
    Abstract: This paper provides two main contributions. First, it proposes a new theory of wealth inequality that merges two sources of inequality previously proposed: bequests motives and inheritance of ability of across generations, and an earnings process that allows for more earnings risk for the richest. Second, it uses our calibrated framework to study the importance of parental background and the effects of changing estate taxation on inequality, aggregate capital accumulation, intergenerational mobility, welfare, and on family background as a source of inequality. Our calibrated model generates realistically skewed distributions for wealth, earnings, and bequests, and a correlation of lifetime earnings and wealth at retirement that is close to that in the data and is thus a good laboratory to use to study these questions. We find that parental background is a crucial determinant of one's expected lifetime utility. We also find that increasing estate taxation from its effective levels observed over many years, to levels that are closer to the statutory ones observed in year 2000, would significantly reduce wealth concentration in the hands of the richest few and the role of parental background in determining one's lot in life. The implied welfare gains of such a policy would be positive for 71% of the population. For those experiencing losses, their loss would be a one-time cost of the order of 11% of average income.
    Date: 2015
  6. By: Ermini, Barbara; Santolini, Raffaella
    Abstract: City’s core and suburbans tax differentials can affect sprawl within an urban area. We empirically address this issue by analyzing the pattern of growth of 72 Italian urbanized areas. As a novelty, we investigate the causes of the emerging land development pattern. Our results show that density of urban area declines in response to an increase in the city’s core property tax rate. We find that this effect is due to changes in dwelling size. By contrast, density of urban area significantly rises when suburbans property tax rates increase, making the urban area more compact. This effect is attributable to changes in the improvement effect of property taxation.
    Keywords: differentiated property tax, urban sprawl, functional urban area
    JEL: H3 H30 H71 R1 R10 R14
    Date: 2015–07
  7. By: Krueger, Dirk; Ludwig, Alexander
    Abstract: In this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk, but distort the education decision of households. Optimally chosen tertiary education subsidies mitigate these distortions. We highlight the importance of two different channels through which academic talent is transmitted across generations (persistence of innate ability vs. the impact of parental education) for the optimal design of these policies and model different forms of labor as imperfect substitutes, thereby generating general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers. We show that subsidizing higher education has important redistributive benefits, by shrinking the college wage premium in general equilibrium. We also argue that a full characterization of the transition path is crucial for policy evaluation. We find that optimal education policies are always characterized by generous tuition subsidies, but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium.
    Keywords: Progressive Taxation,Education Subsidy,Transitional Dynamics
    JEL: E62 H21 H24
    Date: 2015
  8. By: Giampaolo Arachi (Department of Management, Economics, Mathematics and Statistics; University of Salento); Valeria Bucci (Department of Management, Economics, Mathematics and Statistics; University of Salento)
    Abstract: If assets write-downs are tax-deductible from the corporate income tax base, companies could discretionally use them to reduce their tax burden. This paper aims at investigating whether and to what extent taxes affect the firmÕs discretionary choice to write-down long term equity investments. The analysis is based on panel data for Italian companies. In the period 1998Ð2006 the Italian corporate income tax was reformed several times. In particular, the tax deductibility of write-downs of equity investment was repealed in 2004. The paper exploits the ensuing high cross-sectional and timeseries variation in the marginal tax rate (measured before the decision to write-down equity investments) in order to identify tax effects. The econometric analysis delivers strong evidence that taxes affect the decision to write-down. The paper also provides evidence of an interaction between tax minimization, financial reporting costs and agency costs.
    Keywords: corporate taxation, asset impairments, write-downs of equity investments, tax planning, financial reporting, agency relationship
    JEL: H25 H32 K34 M41
    Date: 2013–12

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