nep-pub New Economics Papers
on Public Finance
Issue of 2015‒10‒17
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Estimating VAT Pass Through By Dora Benedek; Ruud A. de Mooij; Philippe Wingender
  2. Investment effects of wealth taxes under uncertainty and irreversibility By Niemann, Rainer; Sureth-Sloane, Caren
  3. Taxes: Price of Civilization or Tribute to Leviathan? - Working Paper 412 By Lant Pritchett, Yamini Aiyar
  4. Does legality matter? The case of tax avoidance and evasion By Blaufus, Kay; Braune, Matthias; Hundsdoerfer, Jochen; Jacob, Martin
  5. From fixed to state-dependent duration in public-private partnerships By Daniel Danau; Annalisa Vinella
  6. Inequality and Fiscal Redistribution in Middle Income Countries: Brazil, Chile, Colombia, Indonesia, Mexico, Peru and South Africa - Working Paper 410 By Nora Lustig
  7. The End of the Flat Tax Experiment in Slovakia By Michal Horváth; Matúš Senaj; Zuzana Siebertová; Norbert Švarda
  8. Effective Tax Rates on Consumption and Factor Incomes: a quarterly frequency estimation for Brazil By Cyntia Freitas Azevedo; Angelo Marsiglia Fasolo

  1. By: Dora Benedek; Ruud A. de Mooij; Philippe Wingender
    Abstract: This paper estimates the pass through of VAT changes to consumer prices, using a unique dataset providing disaggregated, monthly data on prices and VAT rates for 17 Eurozone countries over 1999-2013. Pass through is much less than full on average, and differs markedly across types of VAT change. For changes in the standard rate, for instance, final pass through is about 100 percent; for reduced rates it is significantly less, at around 30 percent; and for reclassifications it is essentially zero. We also find: differing dynamics of pass through for durables and non-durables; no significant difference in pass through between rate increases and decreases; signs of non-monotonicity in the relationship between pass through and the breadth of the consumption base affected; and indications of significant anticipation effects together with some evidence of lagged effects in the two years around reform. The results are robust against endogeneity and attenuation bias.
    Keywords: Value added tax;Consumer prices;Tax rates;Econometric models;Value added tax; Tax incidence; Price effect; Pass through; Europe.
    Date: 2015–09–30
  2. By: Niemann, Rainer; Sureth-Sloane, Caren
    Abstract: The growing dissatisfaction with perceived distributional inequality and budgetary constraints gave rise to a discussion on the (re-)introduction of wealth taxes. Wealth taxes are typically levied on private wealth, in some countries also on corporate wealth. To avoid misleading statements concerning possible distributional consequences of wealth taxes, preceding analyses of the economic and particularly investment effects are necessary. As investments drive job creation, tax-induced changes in investment timing may significantly affect the income and wealth distribution. We analyze the impact of wealth taxes on investment timing under uncertainty and irreversibility and the propensity to carry out risky projects. Using a Dixit/Pindyck type real options model we find that wealth taxes have real effects. This means that higher wealth tax rates can either stimulate or depress the propensity to invest in risky projects. We find that apparently paradoxical wealth tax effects (accelerated investment due to higher wealth tax rates) are more likely for low interest rates and for high-risk investments. Using either historical cost or fair value accounting may affect investment timing ambiguously. Thus, the design of wealth taxes is crucial for the resulting delay or acceleration of investment. Although our model takes an individual perspective, our findings are also relevant for the current tax policy discussion on the introduction of wealth taxes. Our results indicate that wealth taxes are particularly harmful for specific classes of investments, for example low-risk investments.
    Keywords: wealth tax,investment decisions,real options,timing flexibility,uncertainty,irreversibility
    JEL: H25 H21
    Date: 2015
  3. By: Lant Pritchett, Yamini Aiyar
    Abstract: There are two dominant narratives about taxation. One is taxes are the “price we pay for a civilized society” (Oliver Wendell Holmes Jr.). In this view taxes are not a necessary evil (as in the pairing of “death and taxes” as inevitable) but a positive good: more taxes buy more “civilization.” The other view is that taxes are “tribute to Leviathan”—a pure involuntary extraction from those engaged in economic production to those who control coercive power producing no reciprocal benefit. In this view taxes are a bane of the civilized. We consider the question of taxes as price versus tribute for contemporary India and make three points. First, most discussions of government budgets focus on allocations across sectors and activities, focusing on the accounting cost of services provided. But if the accounting cost exceeds the economic cost (the minimum at which the good or service could have been provided), then the difference can be considered “tribute.” Second, to the extent that government engages in activities which would not have otherwise been carried out at all but which citizens value, the “price of civilization” is maximized. In contrast, when government budgets produce private goods at such low quality they are valued at zero by many, then those taxpayers consider this tribute. Third, the structure of social spending between “insurance”-like programs which benefit all individuals at various states or stages of life, and sharply targeted transfer programs determines whether most taxpayers consider taxes to fund these expenditures a price or tribute. The notion of a “compulsory purchase” versus “tax” helps elucidate this difference, and sharp targeting is seen as raising the price to any given individual of a given degree of individual benefit. Taken together we argue India needs more taxes as price of civilization but less taxes as tribute, which currently dominate. There is currently a sharp contradiction between the needs for greater revenue mobilization for India to continue its progress and provide the increasingly sophisticated “civilization” demanded with higher productivity and incomes, and the perception of the “middle class” that most taxes are tribute. This contradiction is created by a costly and yet ineffective state the solution to which can neither be a weaker state on the one hand nor more tribute paid to dysfunction on the other, but rather a better state.
    JEL: H2 H21 H71
    Date: 2015–08
  4. By: Blaufus, Kay; Braune, Matthias; Hundsdoerfer, Jochen; Jacob, Martin
    Abstract: Previous research argues that law expresses social values and could, therefore, influence individual behavior independently of enforcement and penalization. Using three laboratory experiments on tax avoidance and evasion, we study how legality affects individuals' decisions. We find that, without any risk of negative financial consequences, the qualification of tax minimization as illegal versus legal reduces tax minimization considerably. Legislators can thus, in principle, affect subjects' decisions by defining the borderline between legality and illegality. However, once we introduce potential negative financial consequences, legality does not affect tax minimization. Only if we use moral priming to increase subjects' moral cost do we again find a legality effect on tax minimization. Overall, this demonstrates the limitations of the expressive function of law. Legality appears to be an important determinant of behavior only if we consider activities with no or low risk of negative financial consequences or if subjects are morally primed.
    Keywords: Expressive Law,Legality,Moral Appeals,Tax Avoidance,Tax Evasion,Real Effort Experiment
    JEL: M41 M48 H20 H30 Z18
    Date: 2015
  5. By: Daniel Danau (Universitè de Caen Basse-Normandie - Centre de Recherche en Economie et Management); Annalisa Vinella (Università degli Studi di Bari "Aldo Moro" - Dipartimento di Scienze economiche e metodi matematici)
    Abstract: A government delegates a build-operate-transfer project to a private Örm. In the contracting stage, the operating cost is unknown. The Örm can increase the likelihood of facing a low cost, rather than a high cost, by exerting costly e§ort when building the infrastructure. Once this is in place, the Örm learns the true cost and begins to operate. We show that, under limited commitment, if the break-up of the partnership is su¢ciently costly to the government and/or information problems are su¢ciently severe, the contract is not robust to renegotiation unless it has a longer duration when the realized cost is low. This result is at odds with the prescription of the literature on aÌexible-term contracts, which recommends a longer duration when operating conditions are unfavourable.
    Keywords: Public-private partnerships; state-dependent duration; aÌexible-term con- tract; limited commitment; renegotiation; break-up
    JEL: D82 H57 H81
    Date: 2015–01
  6. By: Nora Lustig
    Abstract: This paper examines the redistributive impact of fiscal policy for Brazil, Chile, Colombia, Indonesia, Mexico, Peru and South Africa using comparable fiscal incidence analysis with data from around 2010. The largest redistributive effect is in South Africa and the smallest in Indonesia. Success in fiscal redistribution is driven primarily by redistributive effort (share of social spending to GDP in each country) and the extent to which transfers/subsidies are targeted to the poor and direct taxes targeted to the rich. While fiscal policy always reduces inequality, this is not the case with poverty. Fiscal policy increases poverty in Brazil and Colombia (over and above market income poverty) due to high consumption taxes on basic goods. The marginal contribution of direct taxes, direct transfers and inkind transfers is always equalizing. The marginal effect of net indirect taxes is unequalizing in Brazil, Colombia, Indonesia and South Africa. Total spending on education is pro-poor except for Indonesia, where it is neutral in absolute terms. Health spending is pro-poor in Brazil, Chile, Colombia and South Africa, roughly neutral in absolute terms in Mexico, and not pro-poor in Indonesia and Peru.
    Keywords: fiscal incidence, social spending, inequality, developing countries
    JEL: H22 D31 I3
    Date: 2015–08
  7. By: Michal Horváth; Matúš Senaj; Zuzana Siebertová; Norbert Švarda
    Abstract: The paper provides a quantitative assessment of the consequences of departing from a flat-tax system in the context of Slovakia. A behavioural microsimulation model of the labour supply is embedded into a general equilibrium framework with search and matching frictions. Some recently implemented changes in the tax system leave aggregate labour market indicators as well as inequality measures virtually unaffected. We also examine hypothetical revenue-neutral reforms that would significantly increase the progressivity of the system through graduated marginal tax rates. We find that there are narrow limits to what policy makers could accomplish through such reforms in terms of employment and equality of income. Hence, an income tax reform should at best be seen as a complementary tool to other initiatives promoting such objectives. Moreover, we highlight an important trade-off: income tax reforms that promote employment may harm growth.
    Keywords: flat tax, microsimulation, general equilibrium, search and matching, labour supply elasticity
    JEL: E24 H24 H31 J22
    Date: 2015–10–05
  8. By: Cyntia Freitas Azevedo; Angelo Marsiglia Fasolo
    Abstract: This paper estimates time series of effective tax rates for consumption and factor incomes for Brazil, following the spirit of Mendoza et al (1994). The procedure to generate quarterly estimates of the tax base, using microdata from populational surveys, and the tax revenues seems to be appropriate, despite its simplicity, as the time series of the tax burden and the effective tax rates are in line with the historical Brazilian experience on fiscal policy. The estimated tax burden identifies a positive trend over time, despite the partial interruption after the international crisis in 2008. The paper also provides preliminary evidence on the properties of the computed effective tax rates and their relation with the business cycles
    Date: 2015–09

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