nep-pub New Economics Papers
on Public Finance
Issue of 2016‒04‒09
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A Choice Experiment on Tax: Are Income and Consumption Taxes Equivalent? By Hirofumi Kurokawa; Tomoharu Mori; Fumio Ohtake
  2. Avoiding Taxes by Transfers Within the Family By Edoardo Di Porto; Henry Ohlsson
  3. Effects of Taxes on Youth Self-Employment and Income By Egebark, Johan
  4. Taxing away M&A: The effect of corporate capital gains taxes on acquisition activity By Feld, Lars P.; Ruf, Martin; Schreiber, Ulrich; Todtenhaupt, Maximilian; Voget, Johannes
  5. Tax bunching by owners of small corporations By Leon Bettendorf; Arjan Lejour; Maarten van 't Riet
  6. The big trade-off between efficiency and equity - is it there? By Andersen, Torben M; Maibom, Jonas
  7. Do fiscal rules constrain fiscal policy? A meta-regression-analysis By Heinemann, Friedrich; Moessinger, Marc-Daniel; Yeter, Mustafa
  8. Why Governments Won't Invest By Sir Vince Cable
  9. U.S. Inequality, Fiscal Progressivity, and Work Disincentives: An Intragenerational Accounting By Alan J. Auerbach; Laurence J. Kotlikoff; Darryl R. Koehler
  10. Sub-national Tax Policy and State Level Growth Dynamics: Evidence from U.S. States By William Gbohoui (Sans nom); François Vaillancourt
  11. Inequality and top incomes in Uruguay: a comparison between household surveys and income tax micro-data By Gabriel Burdín; Fernando Esponda; Andrea Vigorito

  1. By: Hirofumi Kurokawa; Tomoharu Mori; Fumio Ohtake
    Abstract: We test the equivalence of income and consumption taxes through a choice experiment. Under a given set of income and consumption parameters, subjects were asked to choose among an income tax of 20%, a consumption tax of 25% (which is an equivalent tax burden), a consumption tax of 22%, and a consumption tax of 20%. Our results showed that subjects prefer income tax to consumption tax when the nominal consumption tax rate is higher than the nominal income tax rate. However, subjects tend to prefer consumption tax to income tax when the nominal tax rates are identical. Our result, that subjects prefer income tax to consumption tax despite a higher tax burden, implies the consumption tax miscalculation bias. The consumption tax miscalculation bias is one where subjects miscalculate the amount of consumption tax as if it is declared by tax inclusive, as in the case of income tax, despite consumption tax being tax exclusive. If the income tax burden is equivalent to the consumption tax burden, subjects prefer income tax. This result implies that income and consumption taxes are not equivalent due to the consumption tax miscalculation bias.
    Date: 2016–03
  2. By: Edoardo Di Porto (Università di Napoli Federico II, CSEF and UCFS, Uppsala University); Henry Ohlsson (Uppsala University and Sveriges Riksbank)
    Abstract: We document an episode with considerable tax avoidance that occurred in Italy after 2008 when the Italian government reformed the property taxation by abolishing taxation on principal residences and increasing taxation on secondary properties. In presence of a very low inter vivos gift tax, Italian families found it beneficial to redistribute properties among their members. Difference-in-difference estimates indicate that property tax reform increased the probability that high-wealth donors made an inter vivos property gift by 3 percentage points and the size transferred by 4 square meters relative to less wealthy donors. Our estimates allow us to compute (back of the envelope) the amount of tax avoidance due to inter vivos transfer. The amount is around 78 million euros, or 4 percent of the annual tax revenue from principal residences.
    Keywords: Tax avoidance, property taxes, inter vivos gifts
    JEL: H27 D31 D11
    Date: 2016–04–04
  3. By: Egebark, Johan (Research Institute of Industrial Economics (IFN))
    Abstract: I study the link between taxes and youth self-employment. I make use of a Swedish reform, implemented in 2007–09, which suddenly made the payroll tax and the self-employment tax vary by age. The results suggest that youth self-employment is insensitive to tax reductions, both in the short run and in the somewhat longer run. I also study the effect of the tax reductions on income. For those that are defined as self-employed, I find positive effects on income from self-employment, and negative effects on income from wage employment. This finding suggests that the lower taxes caused the self-employed to reallocate time from employment to self-employment.
    Keywords: Youth unemployment; Self-employment tax; Tax subsidy; Self-employment
    JEL: H25 H32 J23 J38 J68
    Date: 2016–03–10
  4. By: Feld, Lars P.; Ruf, Martin; Schreiber, Ulrich; Todtenhaupt, Maximilian; Voget, Johannes
    Abstract: Taxing capital gains is an important obstacle to the efficient allocation of resources because it imposes a transaction cost on the vendor which locks in appreciated assets by raising the vendor's reservation price in prospective transactions. For M&As, this effect has been intensively studied with regard to share-holder taxation, whereas empirical evidence on the effect of capital gains taxes paid by corporations is scarce. This paper analyzes how corporate level taxation of capital gains affects inter-corporate M&As. Studying several substantial tax reforms in a panel of 30 countries for the period of 2002-2013, we identify a significant lock-in effect. Results from estimating a Poisson pseudo-maximum-likelihood (PPML) model suggest that a one percentage point decrease in the corporate capital gains tax rate would raise both the number and the total deal value of acquisitions by about 1.1% per year. We use this result to estimate an efficiency loss resulting from corporate capital gains taxation of 3.06 bn USD per year in the United States.
    Keywords: corporate taxation,M&A,capital gains tax,lock-in effect
    JEL: H25 G34
    Date: 2016
  5. By: Leon Bettendorf; Arjan Lejour; Maarten van 't Riet
    Abstract: In the Netherlands owners of small corporations face taxation of corporate, labour and capital income. Taxation of the latter may be deferred. We study their options for income shifting using bunching techniques. Based on individual tax records over the period 2007-2011 we report four main findings. The first is that the distribution of gross labour income strongly peaks at the legal 'minimum' level. Second, taxable labour income bunches at the cut-offs of the tax brackets. The elasticity of taxable income at the top tax cut-off ranges from 0.06 to 0.11. Third, we show that distributed profits strongly responded to the temporary tax cut from 25 to 22% in 2007, which doubled tax revenues on dividends. Fourth, using a Heckman selection model we find that the size of own equity has a positive effect on the probability of distributing profits and the size. We reconfirm the importance of intertemporal income shifting for business owners.
    JEL: E62 H24 H68
    Date: 2016–03
  6. By: Andersen, Torben M; Maibom, Jonas
    Abstract: Widely quoted cross-country evidence finds income to be negatively associated with inequality, which suggests that there is no trade-off between efficiency and equity. Such inference presumes that countries are at the frontier in the efficiency-equity space. We refute this for most OECD countries, and find that the best-practice frontier displays a trade-off. In accordance with standard economic theory, a larger tax burden is associated with lower efficiency and more equity. Interestingly, there is no evidence that the trade-off has become steeper over the sample period 1980-2010. Country positions differ significantly with some being consistently at or close to the frontier, while others are well inside the opportunity set.
    Keywords: efficiency; equity; trade-off.
    JEL: D61 D63 E02 H2
    Date: 2016–03
  7. By: Heinemann, Friedrich; Moessinger, Marc-Daniel; Yeter, Mustafa
    Abstract: We implement a meta-regression-analysis for the budgetary impact of numerical fiscal rules. Based on 30 studies published in the last decade, we offer a consensus estimate with respect to the level of statistical significance, provide suggestive evidence for the effect size, and identify study features of relevance for the measured impact of fiscal rules. Overall, the results document a constraining impact of rules. However, this impact is weakened if refined identification strategies are employed. Moreover, the results provide evidence for a publication bias in which journals are more likely to report constraining and statistically significant effects compared to working papers. We further provide recommendations for future research on the budgetary impact of fiscal rules.
    Keywords: fiscal rules,meta-regression-analysis,public finances
    JEL: H50 H6 H63
    Date: 2016
  8. By: Sir Vince Cable
    Abstract: The UK Government is currently exerting a sharp and tightening squeeze on public investment at a time when borrowing for public investment has never, historically, been cheaper with interest rates close to zero in real terms on long term public borrowing. Moreover, financially prudent and disinterested bodies like the IMF are calling for the UK to be more expansive in public investment. In this paper I discuss the Treasury's aversion to public investment, an issue which has persisted for some time, but become all the more pressing since the financial crisis. I argue that policymakers should focus on identifying and investing in high quality, professionally assessed, public projects - something that can be aided by a National Investment (or Infrastructure) Bank which would neatly complement the newly created Infrastructure Commission. But, like the Green Investment Bank, and other institutions before it, it would be allowed only a very modest role unless the institutional obsession with curbing public investment can be overcome.
    Keywords: UK economy, public investment, public debt, government policy, infrastructure
    JEL: H54 H60 G10 H83
    Date: 2016–03
  9. By: Alan J. Auerbach; Laurence J. Kotlikoff; Darryl R. Koehler
    Abstract: This study combines the 2013 Federal Reserve Survey of Consumer Finances data and the Fiscal Analyzer, a highly detailed life-cycle consumption-smoothing program, to a) measure ultimate economic inequality – inequality in lifetime spending power – within cohorts, b) assess fiscal progressivity within cohorts, c) calculate marginal remaining lifetime net tax rates, taking into account all major federal and state tax and transfer policies, d) evaluate the ability of current income to correctly classify households as rich, middle class, and poor, e) determine whether current-year average net tax rates accurately capture actual fiscal progressivity, and f) determine whether current-year marginal tax rates on labor supply accurately capture actual remaining lifetime marginal net tax rates. We find far less inequality in spending power than in wealth or labor earnings due to the fiscal system’s high degree of progressivity. But U.S. fiscal redistribution generally comes with very high work disincentives for households of all ages, regardless of income class. There is, however, substantial dispersion in marginal net tax rates, which seems hard to reconcile with standard norms of optimal taxation. We also find that current income is a very poor proxy for remaining lifetime resources and that current-year net tax rates can provide a highly distorted picture of true fiscal progressivity and work disincentives.
    JEL: A0 D31 D63 D91 E25 E62 H20 H21 H22 H55
    Date: 2016–02
  10. By: William Gbohoui (Sans nom); François Vaillancourt
    Abstract: To understand the role of subnational tax policies in explaining regional growth, we present stylized facts on U.S. state income and state-level tax policies. We use real Gross State Products (GSP) as the indicator of economic performance in contrast to the existing literature, which relies on Personal Income. The results reveal an increase in per capita income disparities, and time - persistent differences in human capital and physical capital between U.S. states. In addition, we find that subnational tax policies vary widely between states. Using augmented Barro regressions, we show that educational attainment, and state-level tax policies are the key determinants in explaining the differences between state-level economic growth. More precisely, higher corporate income or general sales taxes significantly retard economic growth, while human capital positively impacts state-level growth.
    Keywords: Regional growth, state and local taxation,
    JEL: H71 R11
    Date: 2016–03–29
  11. By: Gabriel Burdín; Fernando Esponda; Andrea Vigorito
    Abstract: After increasing over more than a decade, recent studies based on household surveys data show that income inequality in Uruguay started to decline in 2008. In this study we assess whether this trend is robust to the use of novel micro-data from the recently restored Uruguayan personal income tax for the years 2009-2011. We analyze primary income and pensions and carry out to main comparative exercises. In the first part of the paper, we adjust household surveys to make them comparable to tax records. After that, we follow the methodology proposed by Atkinson et al (2011) and Alvaredo (2011) to compute top income shares and corrected inequality measures. We also investigate the redistributive effect of the personal income tax burden in the two data sets. Inequality indexes depict a similar trend in inequality reduction, even though the decrease is less sharp in tax records than in harmonized household surveys. According to our estimations from income tax data, the share of the top 1% did not decline in this period, and was situated around 14%. Household survey data underestimate the share of the top 1% in total income by approximately 3 p.p. and depict an opposite trend in the top shares evolution throughout the period compared to the one observed in income tax micro-data. This result might be revealing an increasing difficulty of ECH for capturing very high incomes. Finally, personal income tax in Uruguay redistributes roughly 2 p.p. of the Gini index. Effective tax rates exhibit a progressive pattern in the case of total income, labour income and pensions, whereas they are slightly regressive when considering capital income.
    Keywords: top incomes, income inequality, personal income taxation, Uruguay
    JEL: D31 H24 O54
    Date: 2014–05

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