nep-pub New Economics Papers
on Public Finance
Issue of 2016‒03‒10
ten papers chosen by

  1. When is the Laffer Curve for Consumption Tax Hump-Shaped? By Kengo Nutahara; Kazuki Hiraga
  2. Cash-cum-in-kind transfers and income tax function By MATTOS, Enlinson; TERRA, Rafael
  3. The Impact of Social Pressure on Tax Compliance: a Field Experiment By Pietro Battiston; Simona Gamba
  4. Energy Tax Reform in Time of Crisis - The Case of Energy-Dependent and Open Economies By Emmanuel Combet
  5. Fiscal Stimulus and Firms: A Tale of Two Recessions By Dobridge, Christine L.
  6. Estimating Fiscal Multipliers with Correlated Heterogeneity By Emmanouil Kitsios; Manasa Patnam
  7. Flexible Fiscal Rules and Countercyclical Fiscal Policy By Martine Guerguil; Pierre Mandon; Rene Tapsoba
  8. Public expenditure in time of crisis: are Italian policymakers choosing the right mix? By Maria Jennifer Grisorio; Francesco Prota
  9. The competition analysis in the field of corporate income tax in the EU By Beáta Blechová
  10. Financial Transaction Taxes in the European Union By Thomas Hemmelgarn; Gaëtan Nicodème; Bogdan Tasnadi; Pol Vermote

  1. By: Kengo Nutahara; Kazuki Hiraga
    Abstract: This paper characterizes the shape of the Laffer curve for consumption tax. It is shown that the Laffer curve for consumption tax can be hump-shaped if the utility function is additively separable in consumption and labor supply. Conversely, it cannot be hump-shaped if the utility function is non-separable as reported by previous researchers. It is also shown that the difference in the utility functions has quantitatively significant effects on the peak tax rates of the Laffer curves for labor and capital income taxes.
    Date: 2016–02
  2. By: MATTOS, Enlinson; TERRA, Rafael
    Abstract: This paper investigates income tax revenues response to tax rate changes taking into consideration that cash-cum-in-kind transfers are used as a redistributive package to the community. First, we show that when cash and in-kind transfers are not tied to be substitute instruments, a marginal income tax increase may unambiguously decrease the quantity supplied of labor (and tax revenues therein). Next, we show that whenever the government chooses the optimum provision for the publicly provided good the tax revenue function has a negatively-sloped part with respect to tax rates except for one case. Last, we consider Brazilian data - PNAD - from 1976 to 2008 to test our theoretical implications. Our estimations suggest a weak evidence in favor of the existence of a La er-type curve for Brazilian income tax revenues data. Moreover, wend that the actual average income tax rate seems to be below the estimated optimum level. In a shorter sample from 1996-1999, we nd evidence that labor supply decreases with tax rate when cash and in-kind transfers are in play. Using a pseudo-panel from the same shorter sample, we try to estimate the elasticity of taxable income, following Creedy and Gemmell (2012) and Saez et al. (2009). We explore a small tax reform between 1997 and 1998 that a ected only the higher income tax bracket, and evidence that Brazil is on the revenue reducing side of the La er Curve, at least for individuals in the higher income tax bracket.
    Date: 2016–02–25
  3. By: Pietro Battiston; Simona Gamba
    Abstract: We study the effect of social pressure on tax compliance, focusing on the compliance of shop sellers to the legal obligation of releasing tax receipts for each sale. We carry out a field experiment on bakeries in Italy, where a strong gap exists between the legal obligation and the actual behavior of sellers. Social pressure is manipulated by means of an explicit request for a receipt when not released. We employ an innovative approach to the identification of the treatment effect. We find that a single request for a receipt causes a 17 per cent rise in the probability of a receipt being released for a sale occurring shortly thereafter, causing on average more than two receipts to be released. We also find strong evidence of persistence in compliance decisions.
    Keywords: Tax evasion, field experiment, peer pressure, social pressure
    JEL: C93 H32 K34
    Date: 2016–02
  4. By: Emmanuel Combet (Centre Internal de Recherche sur l'Environnement et le Développement (CIRED))
    Abstract: Many arguments against higher energy taxes and environmental pricing assume that a unilateral reform will necessary harm the production costs and the purchasing power of households, and therefore, in the aftermath of the crisis, exacerbate the economic downturn. This paper considers the most extreme arguments which assume that no substitution possibilities away from energy are available in the short to medium run. Unemployment is due to non-clearing wages in the labour market and a shortage of demand in the product market. Under such circumstances, however, a tax shift from labour to energy can increase employment if external trade is sufficiently sensitive to production costs and if the reform succeeds in shifting the tax burden away from production costs to the final consumers’ incomes. When external trade is less sensitive to production costs, what matters the most is the domestic market. In that case, the effect is positive only if wages adjust to compensate the higher final energy bills of consumers, and thus, maintain the level of internal demand.
    Keywords: Optimal Price Adjustment, Energy Policy, Tax Reform, General Equilibrium, Uncertainty
    JEL: D50 H20 Q43
    Date: 2016–02
  5. By: Dobridge, Christine L. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: In this paper, I examine the effects of a countercyclical fiscal policy that gave firms additional tax refunds--additional liquidity--at the end of the past two recessions. I take advantage of a discontinuity in the slope of the tax refund formula to estimate the policy's impact. I find that after passage of the policy in 2002, firms allocated $0.40 of every tax refund dollar to investment. After passage of the policy in 2009, in contrast, firms used the refunds to increase cash holdings ($0.96 of every refund dollar) before paying down debt in the following year. I provide evidence that differences in macroeconomic conditions across the two periods drove these differences in firm responses, illustrating how the effects of stimulus vary across recessionary states of the world. I also show that while the policy had no discernable effect on investment in the most recent recessionary period, it did reduce firms’ bankruptcy risk and the probability of a future credit- rating downgrade.
    Keywords: Financing policy; fiscal policy; fixed investment; taxation
    Date: 2016–02–22
  6. By: Emmanouil Kitsios; Manasa Patnam
    Abstract: We estimate the average fiscal multiplier, allowing multipliers to be heterogeneous across countries or over time and correlated with the size of government spending. We demonstrate that this form of nonseparable unobserved heterogeneity is empirically relevant and address it by estimating a correlated random coefficient model. Using a panel dataset of 127 countries over the period 1994-2011, we show that not accounting for omitted heterogeneity produces a significant downward bias in conventional multiplier estimates. We rely on both crosssectional and time-series variation in spending shocks, exploiting the differential effects of oil price shocks on fuel subsidies, to identify the average government spending multiplier. Our estimates of the average multiplier range between 1.4 and 1.6.
    Keywords: Government expenditures;Economic growth;Fiscal policy;Panel analysis;Economic theory;Fiscal Multipliers, Nonseparable Unobserved Heterogeneity, Oil Price
    Date: 2016–02–04
  7. By: Martine Guerguil; Pierre Mandon; Rene Tapsoba
    Abstract: This paper assesses the impact of different types of flexible fiscal rules on the procyclicality of fiscal policy with propensity scores-matching techniques, thus mitigating traditional self-selection problems. It finds that not all fiscal rules have the same impact: the design matters. Specifically, investment-friendly rules reduce the procyclicality of both overall and investment spending. The effect appears stronger in bad times and when the rule is enacted at the national level. The introduction of escape clauses in fiscal rules does not seem to affect the cyclical stance of public spending. The inclusion of cyclical adjustment features in spending rules yields broadly similar results. The results are mixed for cyclically-adjusted budget balance rules: enacting the latter is associated with countercyclical movements in overall spending, but with procyclical changes in investment spending. Structural factors, such as past debt, the level of development, the volatility of terms of trade, natural resources endowment, government stability, and the legal enforcement and monitoring arrangements backing the rule also influence the link between fiscal rules and countercyclicality. The results are robust to a wide set of alternative specifications.
    Date: 2016–01–22
  8. By: Maria Jennifer Grisorio; Francesco Prota
    Abstract: In the “austerity debate” a crucial issue is the composition of fiscal adjustment. This article provides empirical evidence on the relationship between economic crisis episodes and composition of public expenditure by examining the impact of economic crises on the share of different types of public spending in total public expenditure in the Italian regions. Our results suggest that fiscal consolidation strategies have not had growth-friendly composition.
    Keywords: Economic crisis, composition of government expenditure, panel data.
    JEL: C23 H12 H72
    Date: 2016–03
  9. By: Beáta Blechová (Department of Finance and Accounting, School of Business Administration, Silesian University)
    Abstract: With the emergence of multinational corporations and globalization of their economic activities, the competition between these companies is being expanded also on the competition between individual states. This competition is also manifested in the tax area, when less economically developed countries are trying to attract the foreign investors from economically advanced countries to their country through a lower corporate tax burden, which is considered as harmful tax competition. This article contains a comparative analysis of developments in the corporate income tax burden in the EU, with the aim to assess the merits of the opinion on the harmful impact of tax policy in this area, used by thirteen new, economically less developed EU member countries. As an indicator of the size of the tax burden are used herein both the statutory and the effective corporate tax rates.
    Keywords: corporate income tax rates, global economy, tax competition, tax coordination and harmonization
    JEL: F21 H25 H26
    Date: 2016–02–29
  10. By: Thomas Hemmelgarn (European Commission); Gaëtan Nicodème (European Commission); Bogdan Tasnadi (European Commission); Pol Vermote (European Commission)
    Abstract: The merits and demerits of financial transaction taxes have been heavily debated among economists, who remain divided on the effects of the taxes on trading volumes, market liquidity, and quotes volatility. In 2011, the European Commission put forth a legislative proposal for a common system of financial transaction taxes in the European Union. The proposal did not gather unanimity among all Member States and eleven asked to go ahead under the so-called enhanced cooperation procedure. In parallel, countries such as France and Italy have introduced their own taxes, while others of the group of eleven already had an FTT in place (Belgium and Greece). Discussions between Member States on the final design of the financial transaction tax are progressing, but to date no final decision has been made. This paper reviews the most recent economic literature on the effects of financial transaction taxes, with a focus on those recently introduced. It also details the proposals made by the European Commission.
    Keywords: taxation, financial sector, financial transaction taxes, European Union
    JEL: G18 G28 G38 H21 H32
    Date: 2016–02

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.