nep-pub New Economics Papers
on Public Finance
Issue of 2016‒04‒16
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Mirrlees meets Diamond-Mirrlees By Scheuer, Florian; Werning, Iván
  2. Consumption Taxes and Divisibility of Labor under Incomplete Markets By Tomoyuki Nakajima; Shuhei Takahashi
  3. 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
  4. Taxation of Knowledge-Based Capital: Non-R&D Investments, Average Effective Tax Rates, Internal Vs. External KBC Development and Tax Limitations By Alessandro Modica; Thomas Neubig
  5. Public investment multipliers in EU countries: Does the efficiency of public sector matter? By Papaioannou, Sotiris
  6. Public Goods and Minimum Provision Levels: Does the institutional formation affect cooperation? By Martinsson, Peter; Persson, Emil
  7. Framing and Minimum Levels in Public Good Provision By Martinsson, Peter; Medhin, Haileselassie; Persson, Emil

  1. By: Scheuer, Florian; Werning, Iván
    Abstract: We show that the Diamond and Mirrlees (1971) linear tax model contains the Mirrlees (1971) nonlinear tax model as a special case. In this sense, the Mirrlees model is an application of Diamond-Mirrlees. We also derive the optimal tax formula in Mirrlees from the Diamond-Mirrlees formula. In the Mirrlees model, the relevant compensated cross-price elasticities are zero, providing a situation where an inverse elasticity rule holds. We provide four extensions that illustrate the power and ease of our approach, based on Diamond-Mirrlees, to study nonlinear taxation. First, we consider annual taxation in a lifecycle context. Second, we include human capital investments. Third, we incorporate more general forms of heterogeneity into the basic Mirrlees model. Fourth, we consider an extensive margin labor force participation decision, alongside the intensive margin choice. In all these cases, the relevant optimality condition is easily obtained as an application of the general Diamond-Mirrlees tax formula.
    Date: 2016–03
  2. By: Tomoyuki Nakajima (Institute of Economic Research, Kyoto University and Canon Institute for Global Studies.); Shuhei Takahashi (Institute of Economic Research, Kyoto University)
    Abstract: We analyze lump-sum transfers financed through consumption taxes in a heterogeneous- agent model with uninsured idiosyncratic wage risk and endogenous labor supply. The model is calibrated to the U.S. economy. We find that consumption inequality and uncertainty decrease with transfers much more substantially under divisible than indi- visible labor. Increasing transfers by raising the consumption tax rate from 5% to 35% decreases the consumption Gini by 0.04 under divisible labor, whereas it has almost no effect on the consumption Gini under indivisible labor. The divisibility of labor also affects the relationship among consumption-tax financed transfers, aggregate saving, and the wealth distribution.
    Keywords: Transfers; Consumption taxes; Inequality; Uncertainty; Divisibility of labor; Incomplete markets
    JEL: E62 D31 J22 C68
    Date: 2016–03
  3. 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
  4. By: Alessandro Modica; Thomas Neubig
    Abstract: This paper extends the tax analysis of knowledge-based capital (KBC) in several dimensions. The paper analyses non-R&D KBC: computer software, architectural and engineering designs, and economic competencies which account for over 70% of total KBC. The paper analyses the tax treatment of internally-developed KBC which is used in production by the developer versus KBC sold to third-party producers. The current tax rules generally favour internally-developed KBC, which disadvantages many SMEs and start-up companies specializing in innovation. The analysis reports two average effective tax rates (ETRs) depending on investors’ considerations of their investment opportunities. When KBC is unique, earns excess returns due to market power, or involves financing-constraints, ETRs are high despite immediate expensing. The paper also analyses the effects of tax limitations, where many SMEs and start-up companies can’t benefit from tax credits and deductions until having sufficient tax liability. L'imposition du capital intellectuel : Investissements non liés à la R-D, taux moyens effectifs d'imposition, développement interne/externe du capital intellectuel et restrictions fiscales Ce document prolonge l’analyse fiscale du capital intellectuel dans différents domaines. Il analyse le capital intellectuel non lié à la R-D : les logiciels informatiques, la conception architecturale et technique, et les compétences économiques qui représentent plus de 70 % du capital intellectuel total. Ce document examine le traitement fiscal du capital intellectuel développé en interne, qui est employé en production par le développeur, par rapport au capital intellectuel vendu à des producteurs tiers. Les règles fiscales actuelles favorisent généralement le capital intellectuel développé en interne, ce qui pénalise de nombreuses PME et jeunes entreprises qui se spécialisent dans l’innovation. L’analyse met en évidence deux taux moyens effectifs d’imposition (TMEI) en fonction de l’évaluation par les investisseurs des opportunités d’investissement. Lorsque le capital intellectuel est unique, génère un rendement excessif en raison de l’existence d’un pouvoir de marché ou implique des contraintes de financement, les TMEI sont élevés malgré une passation immédiate en charges. Ce document analyse également les conséquences des restrictions fiscales, sous l’effet desquelles de nombreuses PME et jeunes entreprises ne peuvent pas bénéficier de crédits et d’allégements d’impôts tant que le montant de leur impôt n’atteint pas un niveau suffisant.
    Date: 2016–03–10
  5. By: Papaioannou, Sotiris
    Abstract: This study examines whether differences in public sector efficiency are associated with diverging effects of public investment on growth. At first stage, we estimate public investment multipliers for each country of the European Union (EU). Their size varies considerably across countries. Then we construct measures of public sector efficiency which are used in the econometric analysis to study the relationship between public investment and growth. The main result of the econometric analysis is that the efficiency of public sector indeed matters in raising the influence of public investment on growth. This result remains robust to several changes in the econometric specification and to various measures of government efficiency which used as explanatory variables in the econometric estimations.
    Keywords: Public investments, Fiscal multipliers, Public sector efficiency, Economic growth.
    JEL: E62 H30 O40
    Date: 2016–03–22
  6. By: Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Persson, Emil (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We investigate the role of institutional formation on the implementation of a binding minimum contribution level in a linear public goods game. Groups either face the minimum level exogenously imposed by a central authority or are allowed to decide for themselves by means of a group vote whether or not a minimum level should be implemented. We find a binding minimum contribution level to have a positive and substantially significant effect on cooperation. The main impact is on the extensive margin, meaning that it is possible to force free riders to increase their contribution without crowding out others’ voluntary contributions. This result is robust to the mode of implementation and thus when the minimum level is enforceable, it is a simple policy that will increase provision of the public good.
    Keywords: Public goods; Minimum level; Voting; Experiment
    JEL: C91 D72 H41
    Date: 2016–04
  7. By: Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Medhin, Haileselassie (Department of Economics, School of Business, Economics and Law, Göteborg University); Persson, Emil (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Using a laboratory experiment in the field, we examine how the choice architecture of framing a social dilemma – give to or take from a public good – interacts with a policy intervention that enforces a minimum contribution level to the public good. We find that cooperation is significantly higher in the give frame than in the take frame in our standard public goods experiment. When a minimum contribution level is introduced, contributions are significantly higher in the take frame since contributions are crowded out in the give frame but crowded in in the take frame. Our results therefore stress the importance of choosing the frame when making policy recommendations.
    Keywords: Choice architecture; Framing; Public goods; Minimum level; Experiment; Ethiopia.
    JEL: C91 H41
    Date: 2016–04

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