nep-pub New Economics Papers
on Public Finance
Issue of 2016‒01‒03
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation with Behavioral Agents By Farhi, Emmanuel; Gabaix, Xavier
  2. Tax and Non-Tax Revenue of the Budget: What’S the Difference? By Dmitry L. Komyagin
  3. Cumulative Emissions, Unburnable Fossil Fuel and the Optimal Carbon Tax By Armon Rezai; Frederick van der Ploeg
  4. Free-Riding on Environmental Taxation By Maria Chistyakova; Philippe Mahenc
  5. The Political Economy of Soda Taxation By Sriparna Ghosh; Joshua C. Hall
  6. The political economy of municipal amalgamation: Evidence of common pool effects and local public debt By Feld, Lars P.; Fritz, Benedikt
  7. The Political Economy of Growth, Inequality, the Size and Composition of Government Spending By Klaus Schmidt-Hebbel; José Carlos Tello

  1. By: Farhi, Emmanuel; Gabaix, Xavier
    Abstract: This paper develops a theory of optimal taxation with behavioral agents. We use a general behavioral framework that encompasses a wide range of behavioral biases such as misperceptions, internalities and mental accounting. We revisit the three pillars of optimal taxation: Ramsey (linear commodity taxation to raise revenues and redistribute), Pigou (linear commodity taxation to correct externalities) and Mirrlees (nonlinear income taxation). We show how the canonical optimal tax formulas are modified and lead to a rich set of novel economic insights. We also show how to incorporate nudges in the optimal taxation frameworks, and jointly characterize optimal taxes and nudges. We explore the Diamond-Mirrlees productive efficiency result and the Atkinson-Stiglitz uniform commodity taxation proposition, and find that they are more likely to fail with behavioral agents.
    Keywords: behavioural public finance; inattention; mistakes; nudges
    JEL: D03 H21
    Date: 2015–12
  2. By: Dmitry L. Komyagin (National Research University Higher School of Economics)
    Abstract: The article discusses the nature of non-tax public revenue. The author first offers his own universal definition of public revenue. This results in the discovery of a variety of theoretical and practical problems, which include decentralized revenue, non-uniformity of non-tax revenue, and a contradiction involved in grouping certain forms of revenue together. A proposal is offered to consider public revenue in its various phases, initially as a based in national wealth, then as mobilized in the form of budget revenue, redistributed for public needs, and then administered
    Keywords: public needs; public revenue; public expenses; Russian budget, budget revenue; tax revenue; non-tax revenue.
    JEL: K K
    Date: 2015
  3. By: Armon Rezai; Frederick van der Ploeg
    Abstract: A new IAM is used to calculate the optimal tradeoff between, on the one hand, locking up fossil fuel and curbing global warming, and, on the other hand, sacrificing consumption now and in the near future. This IAM uses the Oxford carbon cycle, which differs from DICE, FUND and PAGE in that cumulative emissions are the key driving force of changes in temperature. We highlight how time impatience, intergenerational inequality aversion and expected trend growth affect the time paths of the optimal global carbon tax and the optimal amount of fossil fuel reserves to leave untapped. We also compare these with the adverse and deleterious global warming trajectories that occur if no policy actions are taken.
    Keywords: unburnable fossil fuel, cumulative emissions, optimal carbon tax, Oxford carbon cycle, trend growth, intergenerational inequality aversion, time impatience
    JEL: H21 Q51 Q54
    Date: 2015–11–19
  4. By: Maria Chistyakova; Philippe Mahenc
    Abstract: We examine how tax avoidance affects the optimal design of a linear tax on polluting emissions in a monopoly setting. The firm is owned by shareholder who differ in their cost of tax dodging. Following Buchanan (1969), the optimal tax should correct for two negative externalities due to pollution and the monopolist’s behavior. The analysis highlights two conflicting effects of tax avoidance on the environmental policy design: a free-riding effect and a tax base erosion effect. With heterogeneous tax avoidance, the regulator must also internalize the externality imposed by the free-riding of tax avoiders on the rest of the society. This free-riding makes the regulator either impotent or unfair, depending on the severity of the environmental damage and the firms’ efficiency. We also show that a two-part tax schedule can achieve the first-best outcome.
    Keywords: environmental taxation, monopoly, tax avoidance
    JEL: D43 D82 H23 L12 Q28
    Date: 2015–11–19
  5. By: Sriparna Ghosh (West Virginia University, Department of Economics); Joshua C. Hall (West Virginia University, Department of Economics)
    Abstract: There has been an increase in the prevalence of obesity in the United States over the past several decades. The academic literature has highlighted numerous possible causes, including the consumption of soda and other sugar-sweetened beverages. Soda taxes have been suggested as a way of reducing the consumption of sugar-sweetened beverages and a number of U.S. states disfavor" sugar-sweetened beverages relative to food in their tax code. In this note we employ a political economy model to explain the adoption of these soda taxes." We find that more Democratic states and those with a higher rate of adult obesity are more likely to have soda taxes and states with more convenience stores per capita are less likely to have adopted a tax.
    Keywords: soda, sugar-sweetened beverages, political economy, median voter, special interests
    JEL: D72 H75
    Date: 2015–12
  6. By: Feld, Lars P.; Fritz, Benedikt
    Abstract: This paper investigates the political economy of after merger effects of the large scale municipal amalgamations in the German state of Baden-Württemberg in the early 1970s. By exploiting the huge variance in the amalgamation process in terms of number of participating municipalities, municipality size or amalgamation strategy we identify considerable common pool effects. Amalgamations can create a common pool, as the former independent municipalities have now access to more resources. Common pool exploitation is stronger the more municipalities participate and when municipalities amalgamate by annexation. Additionally, voter involvement is lower in amalgamated municipalities.
    Keywords: Municipal Amalgamation,Public Debt,Common Pool,Difference in Difference
    JEL: D78 H11 H72
    Date: 2015
  7. By: Klaus Schmidt-Hebbel; José Carlos Tello
    Abstract: This paper develops a dynamic general-equilibrium political-economy model for the optimal size and composition of public spending. An analytical solution is derived from majority voting for three government spending categories: public consumption goods and transfers (valued by households), as well as productive government services (complementing private capital in an endogenous-growth technology). Inequality is reflected by a discrete distribution of infinitely-lived agents that differ by their initial capital holdings. In contrast to the previous literature that derives monotonic (typically negative) relations between inequality and growth in one-dimensional voting environments, this paper establishes conditions, in an environment of multi-dimensional voting, under which a non-monotonic, inverted U-shape relation between inequality and growth is obtained. This more general result – that inequality and growth could be negatively or positively related – could be consistent with the ambiguous or inconclusive results documented in the empirical literature on the inequality-growth nexus. The paper also shows that the political-economy equilibrium obtained under multi-dimensional voting for the initial period is time-consistent.
    JEL: D72 E62 H11 H31
    Date: 2014

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