nep-pub New Economics Papers
on Public Finance
Issue of 2015‒07‒18
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Effective Policy for Reducing Inequality? The Earned Income Tax Credit and the Distribution of Income By Hilary W. Hoynes; Ankur J. Patel
  2. Designing Efficient College and Tax Policies By Findeisen, Sebastian; Sachs, Dominik
  3. How to stop VAT frauds on the fuel market: a usual price rule By Pavel Semerad
  4. Evaluating pay-as-you-go social security systems By Andreas Bachmann; Kaspar Wüthrich

  1. By: Hilary W. Hoynes; Ankur J. Patel
    Abstract: In this paper, we examine the effect of the EITC on the employment and income of single mothers with children. We provide the first comprehensive estimates of this central safety net policy on the full distribution of after-tax and transfer income. We use a quasi-experiment approach, using variation in generosity due to policy expansions across tax years and family sizes. Our results show that a policy-induced $1000 increase in the EITC leads to a 7.3 percentage point increase in employment and a 9.4 percentage point reduction in the share of families with after-tax and transfer income below 100% poverty. Event study estimates show no evidence of differential pre-trends, providing strong evidence in support of our research design. We find that the income increasing effects of the EITC are concentrated between 75% and 150% of income-to-poverty with little effect at the lowest income levels (50% poverty and below) and at levels of 250% of poverty and higher. By capturing the indirect effects of the credit on earnings, our results show that static calculations of the anti-poverty effects of the EITC (such as those released based on the Supplemental Poverty Measure, Short 2014) may be underestimated by as much as 50 percent.
    JEL: H2 I38 J2
    Date: 2015–07
  2. By: Findeisen, Sebastian; Sachs, Dominik
    Abstract: The total social benefits of college education exceed the private benefits because the government receives a share of the monetary returns in the form of income taxes. We study the policy implications of this fiscal externality in an optimal dynamic tax framework. Using a variational approach we derive a formula for the revenue effect of an increase in college education subsidies and for the excess burden of income taxation caused by the college margin. We also show how the optimal nonlinear income tax problem is altered by the college margin. Our modeling assumptions are strongly guided by the recent structural labor literature on college education. The model incorporates multidimensional heterogeneity, idiosyncratic risk and borrowing constraints. The model matches key empirical results on college enrollment patterns, returns to education and enrollment elasticities. Quantitatively, we find that a marginal increase in college subsidies in the US is at least 70 percent self-financing through the net-present value increase in future tax revenue. When targeting this increase to children in the lowest parental income tercile, it is even up to 165 percent self-financing. The excess burden of income taxation is only slightly altered by the college margin and therefore the optimal Mirrleesian income tax schedule is barely affected as well, in particular if subsidies are set at their optimal level.
    Keywords: Optimal Taxation , College Subsidies , College Enrollment , Tax Reforms
    JEL: H21 H23 I22 I24 I28
    Date: 2015
  3. By: Pavel Semerad (Department of Accounting and Taxation, Faculty of Business and Economics, Mendel university in Brno)
    Abstract: VAT fraud has now grown extensive and complex. One of the biggest problems is carousel fraud which causes huge losses to public budgets in many countries. Attention is devoted to the fuel market. A methodological tool that allows recognizing potential tax fraud on the basis of unusual sale prices was developed. For this reason, sale prices were collected and these could be available to judges and tax administrators when they make a decision about whether the price was usual or not. To get closer to reality, modified prices, which reflect real conditions on the market, e.g. placing goods in a tax warehouse, were also used.
    Keywords: Carousel frauds, fuels, tax evasion, usual price, value added tax
    JEL: H20 H26
    Date: 2015–07
  4. By: Andreas Bachmann; Kaspar Wüthrich
    Abstract: This paper proposes a method for the welfare analysis of pay-as-you-go social security systems. We derive a formula for the welfare consequences of a permanent marginal change in the payroll tax rate that is valid under weak assumptions about the deep structure of the economy. Our approach requires neither a full specification of preferences and technology, nor knowledge of the individual savings behavior. Instead of parameterizing and calibrating the deep model structure, we implement our formula based on reduced form estimates of a VAR model. We apply our method to evaluate the social security system in the United States.
    Keywords: social security system; overlapping generations; optimal payroll taxes; welfare analysis; reduced form VAR
    JEL: E62 H55
    Date: 2015–07

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.