nep-pub New Economics Papers
on Public Finance
Issue of 2016‒06‒18
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Social Comparisons and Optimal Taxation in a Small Open Economy By Aronsson, Thomas; Johansson-Stenman, Olof; Sjögren, Tomas
  2. Unsticking the Flypaper Effect Using Distortionary Taxation By Carlos A. Vegh; Guillermo Vuletin
  3. Does tax competition make mobile firms more footloose? By Ferrett, Ben; Hoefele, Andreas; Wooton, Ian
  4. The impact of taxation and signposting on diet: an online field study with breakfast cereals and soft drinks By Daniel John Zizzo; Melanie Parravano; Ryota Nakamura; Suzanna Forwood; Marc Suhrcke
  5. Retirement Financing: An Optimal Reform Approach By Hosseini, Roozbeh; Shourideh, Ali
  6. The missing link: Are individuals with more social capital in better health? Evidence from low- income countries By Baris Alpaslan
  7. Provision of public goods: Unconditional and conditional donations from outsiders By Esther Blanco; Tobias Haller; James M. Walker
  8. Revisiting the relationship between welfare spending and income inequality in OECD countries By d'Agostino, Giorgio; Pieroni, Luca; Procidano, Isabella
  9. The Power to Tax in Sub-Saharan Africa: LTUs, VATs, and SARAs. By Christian EBEKE; M MANSOUR; Grégoire ROTA-GRAZIOSI

  1. By: Aronsson, Thomas (Department of Economics); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University); Sjögren, Tomas (Department of Economics)
    Abstract: Almost all previous studies on optimal taxation and status consumption are based on closed model-economies. This paper analyzes how international capital mobility – which may constrain the use of capital income taxation – affects the optimal redistributive income tax policy in a small open economy when consumers care about their relative consumption. If the government can perfectly observe (and tax) returns on savings abroad, it is shown that the policy rules for marginal labor and capital income taxation derived for a closed economy largely carry over to the small open economy analyzed here. However, if these returns are unobserved by the government, the marginal tax policy rules will be very different from those pertaining to closed model-economies. In this case, capital income taxes on domestic savings will be completely ineffective, since such taxes would induce the consumers to move their savings abroad. The labor income tax must then indirectly also reflect the corrective purpose that the absent capital income tax would otherwise have had.
    Keywords: Optimal taxation; relative consumption; positional goods; capital mobility; small open economy
    JEL: D03 D60 D62 F21 H21 H23
    Date: 2016–05
  2. By: Carlos A. Vegh; Guillermo Vuletin
    Abstract: The flypaper effect is a widely-documented puzzle whereby the propensity of sub-national governmental units to spend out of unconditional transfers is higher than the propensity to spend out of private income. Building on previous insights in the literature that rationalize this puzzle using costly taxation, we develop a simple optimal fiscal policy model with distortionary taxation that generates two novel and testable implications: (i) there should be a positive association between the size of the flypaper effect and the level of the tax rate, and (ii) the flypaper effect should be larger the lower the elasticity of substitution between private and public spending and, in fact, should vanish for very high degrees of substitution. We show that these hypotheses hold for Argentinean provinces and Brazilian states.
    JEL: H21 H22 H41 H42 H62 H77
    Date: 2016–06
  3. By: Ferrett, Ben; Hoefele, Andreas; Wooton, Ian
    Abstract: Existing analyses of fiscal competition for foreign direct investment (FDI) often assume a one-shot interaction between governments and the firm within a static environment where the firm makes a permanent location choice. We examine a two-period regional model where economic geography evolves, giving the firm an incentive to relocate between periods. Government competition for FDI leads the firm to make efficient location choices, with relocation "more likely" in the presence of international tax competition, because the winning country's bid absorbs some of the firm's relocation costs. With more time periods, tax competition induces firm relocation sooner than in its absence.
    Keywords: dynamic fiscal competition; efficiency; FDI; geographical change
    JEL: F23 H25 R38
    Date: 2016–06
  4. By: Daniel John Zizzo (BENC and Newcastle University, UK); Melanie Parravano (BHRU and Newcastle University, UK); Ryota Nakamura (Centre for Health Economics, University of York, UK); Suzanna Forwood (Anglia Ruskin University, UK); Marc Suhrcke (Centre for Health Economics, University of York, UK)
    Abstract: We present a large scale study where a nationally representative sample of 1,000 participants were asked to make real purchases within an online supermarket platform. The study captured the effect of price changes, and of the signposting of such changes, for breakfast cereals and soft drinks. We find that such taxes are an effective means of altering food purchasing, with a 20% rate being sufficient to make a significant impact. Signposting represents a complementary nudge policy that could enhance the impact of the tax without imposing severe welfare loss, though the effectiveness may depend on the product category.
    Keywords: taxes, signposting, healthy diet, nudges, public health
    JEL: C93 D12 H31 I1
    Date: 2016–06
  5. By: Hosseini, Roozbeh; Shourideh, Ali
    Abstract: We study policy reforms aimed at overhauling retirement financing. We develop a novel approach by considering optimal reforms: policy reforms that minimize the cost for the government while respecting the distribution of welfare in the economy. Our model is an OLG model with life-cycle features and bequest motives where individuals are heterogeneous in their earning ability and mortality. Theoretically, we show that due to the negative correlation between earnings ability and mortality, postretirement distortions to saving decisions are a robust feature of any optimal policy. We, then, use this framework to quantitatively analyze optimal reforms. Our quantitative exercise shows that an optimal reform relative to the status-quo must have three key features: First, post-retirement assets must be subsidized while bequests must be taxed. On average, optimal marginal subsidies on assets for individuals above age 65 is 3.2 percent, while optimal marginal tax on their bequest is 60 percent. Second, pre-retirement transfers must increase while social security benefits must become less generous in the aggregate and more progressive towards low income groups. Finally, earnings tax reform does not contribute to optimal reforms, i.e., optimal marginal taxes on earnings remain very close to the status-quo. The optimal policies reduce the present discounted value of net tax and transfers to each generation by 15 percent.
    Keywords: Retirement, Optimal Taxation, Social Security
    JEL: E6 H21 H55
    Date: 2016–01–19
  6. By: Baris Alpaslan
    Abstract: This paper offers a new model to critically examine associations between human capital, social capital, and health outcomes within the context of a two-period Overlapping Generations (OLG) model of endogenous growth model. Basically, individuals with higher level of human capital can build strong social ties, and those individuals who have more robust social networks are less likely to have health problems and are physically healthier. In an attempt to gain a better understanding of broader policy implications, a numerical analysis for low-income countries has been utilised and a sensitivity analysis under a different set of parameter values has been employed in the paper. We provide a comparison of three main experiments: an increase in the share of public spending on education, social capital-related activities, and health. The results confirm the association between education, social capital, and health outcomes, and its favourable effect on long-run growth in low-income countries.
    JEL: H51 H52 H59 I15 I25 O41
    Date: 2016–05
  7. By: Esther Blanco; Tobias Haller; James M. Walker
    Abstract: The provision of public goods often benefits a larger group than those who actively provide the public good. In an experimental setting, this paper addresses institutional arrangements between subjects who can provide a public good (insiders) and subjects who benefit from the public good but cannot provide it (outsiders). We compare a setting of passive outsiders to situations where outsiders can either make unconditional transfers (donations) or conditional transfers (contracts) to the insiders. The primary behavioral question is to what extent outsiders will respond to the opportunity to subsidize the contributions of insiders and will insiders use such subsidies to increase contributions or simply substitute them for their own contributions. The results suggest the latter. In fact, once conditional or unconditional transfers are allowed, insiders decrease contributions to the public good relative to the baseline condition without transfers.
    Keywords: Public goods, Institution, Externality, Laboratory Experiment
    JEL: D70 H41 C92
    Date: 2016–05
  8. By: d'Agostino, Giorgio; Pieroni, Luca; Procidano, Isabella
    Abstract: The present paper estimates the effects of welfare interventions on income inequality. We propose a theoretical model showing that welfare policies follow the median voter constituency regardless of whether governments are center-left or center-right in the majority electoral system, whereas large differences exist between center-left and center- right coalitions in the proportional representation system. We exploit these differences in the mechanisms of welfare expenditure to estimate their elasticities on income inequality and find that a 1% increase in government spending reduces the Gini income index by half a percentage point. This result is robust under different compositions of expenditure, alternative imputation model specifications and falsification tests.
    Keywords: Welfare policies; Electoral rules; Income inequality; Instrumental variable approach; OECD countries
    JEL: C26 E62 H23 H53
    Date: 2016–06–15
  9. By: Christian EBEKE; M MANSOUR; Grégoire ROTA-GRAZIOSI (Centre d'Etudes et de Recherches sur le Développement International(CERDI))
    Abstract: In the context of achieving the new Sustainable Development Goals, revenue mobilization is a high priority in developing countries and in Sub-Saharan Africa, where governments’ ability to tax remains limited. Using a unique revenue dataset spanning the period 1980-2010, we analyze three important tax reforms: the Large Taxpayers Unit (LTU), the Value Added Tax (VAT), and the Semi-Autonomous Revenue Agency (SARA). We propose an ex-post impact assessment of these tax reforms in SSA countries based on propensity-score matching methodology (PSM) and synthetic control method (SCM). VAT and SARA are found to have an unambiguously large and positive effect on non-resource taxes, while the impact of LTU is insignificant—LTU seems however an important precondition for the adoption of the first two reforms. We conclude also that VAT and SARA display some synergy, and their positive effects strengthen several years after their adoption.
    Keywords: Tax reforms, Africa, Revenue mobilization, Causality.
    JEL: C1 O55 O23 H2
    Date: 2016–06

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