nep-pub New Economics Papers
on Public Finance
Issue of 2016‒06‒14
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Income Taxation with a Stationarity Constraint in a Dynamic Stochastic Economy By Berliant, Marcus; Fujishima, Shota
  2. Corporate Taxation, Leverage, and Macroeconomic Stability By Franziska Bremus; Jeremias Huber
  3. Analysis of the long term effects of a company tax cut By Michael Kouparitsas; Dinar Prihardini; Alexander Beames
  4. Approaches to Making Federal Highway Spending More Productive By Congressional Budget Office
  5. EU corporate tax vs Stacked taxation By Florence LACHET-TOUYA
  6. Public Debt Episodes in Irish Economic History 1950-2015 By Kenny, Sean
  7. Do municipal mergers reduce costs? Evidence from a German federal state By Blesse, Sebastian; Baskaran, Thushyanthan

  1. By: Berliant, Marcus; Fujishima, Shota
    Abstract: We consider the optimal nonlinear income taxation problem in a dynamic, stochastic environment when the government cannot change the tax rule as uncertainty resolves. Due to such a stationarity constraint, our taxation problem is reduced to a static one over an expanded type space that incorporates type evolution. We strengthen the argument in the static model that the zero top marginal tax rate result is of little practical importance because it only applies to the top of the expanded type space. If the maximal type increases over time, the person with top ability in any period but the last has a positive marginal tax rate.
    Keywords: Optimal income taxation; New dynamic public finance
    JEL: H21
    Date: 2016–05–26
  2. By: Franziska Bremus; Jeremias Huber
    Abstract: A key challenge for economic policy today is to make the financial system more resilient. The literature finds that high indebtedness (or: leverage), both in the financial and in the real sectors, is a danger to macroeconomic stability and growth. Moreover, the design of the corporate tax system is an important determinant of leverage: in many countries interest paid on debt is tax-deductible while the return on equity is not, such that tax systems incentivize debt-type financing and, hence,leveraging. This article summarizes the debate about the implications of corporate taxation for leverage and economic stability. Proposals for addressing the debt bias of taxation are also presented.
    Date: 2016
  3. By: Michael Kouparitsas (Treasury, Government of Australia); Dinar Prihardini (Treasury, Government of Australia); Alexander Beames (Treasury, Government of Australia)
    Abstract: For a small open economy, such as Australia, its living standards (per capita income) are determined by the level of its terms of trade, labour productivity, labour force participation and population. Australia’s terms of trade, labour force participation and population growth are expected to be flat or declining in the foreseeable future which implies any improvement in Australia’s living standards must be driven by a higher level of labour productivity. This paper shows that a company income tax cut can do that, even after allowing for increases in other taxes or cutting government spending to recover lost revenue, by lowering the before tax cost of capital. This encourages investment, which in turn increases the capital stock and labour productivity. Analysis presented here also suggests the long-term benefits accrue to workers and households via permanently higher after-tax real wages and consumption.
    Keywords: optimal taxation, company tax, tax reform, policy simulation
    JEL: H21 H25 H30 E27
    Date: 2016–05
  4. By: Congressional Budget Office
    Abstract: Federal spending on highways does not correspond very well with how the roads are used. CBO examines three approaches lawmakers could consider to make highway spending more productive.
    JEL: H41 H54 H76 R41 R42 R48
    Date: 2016–02–11
  5. By: Florence LACHET-TOUYA
    Abstract: When same authorities belonging to a same level of government derive their receipts from a mobile tax base, a competition mechanism takes place among them that triggers externalities. Likewise, when different layers of decision-makers exert their taxing power upon a common base, the choices made by one tier affect the receipts that the other governments can collect. Generally speaking, the decisions made by one government affect the tax revenue that can be collected by the decisionmakers belonging to the same tier of government or by stacked jurisdictions : externalities arise, the existence and the magnitude of which are closely related to the nature of the tax, to the mobility of the base and to the distribution of tax competence among decisionmakers. This paper proposes a model where both horizontal and vertical interactions take place. Uncertainty concerning the base, that is, the amount of capital likely to be invested, is introduced and a generalization of taxation schemes is provided in order to assess the robustness of traditional analyses results in a more general and realistic scheme. The analysis led envisages two possible schemes of European corporate taxation. On the one hand, we consider a setting consisting in having a corporate tax set at the European level only, the receipts of which are distributed among member states. On the other hand, we introduce the addition of a European tax upon national corporate taxes and we simultaneously take into account horizontal and vertical externalities. We distinguish according the nature of the objective function that each kind of government may display. We can show that the fi?rst scheme should be preferred, both from a taxation degree and a public investment point of view.
    Keywords: anticipations, inference, perfect foresight, rational expectations, financial markets, asymmetric information, arbitrage
    JEL: D72 D82 H23 H30 H32 H71 H77
    Date: 2016–05
  6. By: Kenny, Sean (Department of Economic History, Lund University)
    Abstract: In this paper I study the public debt dynamics of three episodes (the crises of the 1950s, the 1980s and 2010-15) in Ireland’s modern economic history. By using traditional debt dynamic decomposition formulae, I measure the components which contributed most to public debt ratio reduction following previous high debt episodes. I also employ the case of Sweden for comparative purposes, in how it emerged from the increase in public debt in the aftermath of its banking crisis 1991-1993. The key findings which emerge are 1) the reduction of the public ratio following the 1980s episode was predominantly driven by cumulative primary surpluses, though a favourable growth and interest rate differential emerged as the key determinant in the late 1990s. Additionally, public debt in the 1980s was considerably more difficult to service in terms of tax revenues and maturity structures than the current event. 2) Public debt continued to increase following the crisis of the 1950s due to higher interest rates and lower inflation, despite a recovery in growth and fiscal contraction. 3) In line with other research isolating the uniqueness of open economy debt reductions, I find that though Sweden (like Ireland) reduced public debt in an environment of strong international growth, it did so in a macroeconomic environment of higher interest rates and falling inflation, entirely through budget surplus accumulation.
    Keywords: Public Debt; Ireland; Public Debt Dynamics; Sweden; Crisis
    JEL: F34 H60 H63 H69 N34
    Date: 2016–05–23
  7. By: Blesse, Sebastian; Baskaran, Thushyanthan
    Abstract: We study the fiscal consequences of municipal mergers by making use of a largescale merger reform in the German federal state of Brandenburg. This reform, which was implemented from 2001 to 2003, led to a substantial reduction in the number of municipalities. Individual mergers were heterogeneous across a number of dimensions, which allows us to contribute to the literature by exploring the consequences of different types of mergers within the same institutional setting. Focusing in particular on the distinction between compulsory and (semi-) voluntary mergers, we implement a difference-in-difference design with panel data from 1995-2010 at the level of post-merger municipalities. We find significant reductions in (administrative) expenditures after compulsory mergers. Voluntary mergers, on the other hand, have no effect on expenditures. We also show that the effects of voluntary and compulsory mergers vary according to further (secondary) characteristics of a merger.
    Keywords: municipal mergers,economies of scale,voluntary and compulsory mergers
    JEL: H11 H72 H77 R53
    Date: 2016

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