nep-pub New Economics Papers
on Public Finance
Issue of 2016‒07‒02
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Expenditures: A Review and Analysis By Joshua Hall
  3. Optimal Inheritance Tax under Temptation By Monisankar Bishnu; Cagri S. Kumru; Arm Nakornthab
  4. A Rational Economic Model of Paygo Tax Rates By Sheshinski, Eytan; Murtin, Fabrice; de Menil, Georges; T. Yokossi, Murtin
  5. Cashless Payments and Tax Evasion By Giovanni Immordino; Francesco Flaviano Russo
  6. Thanks, but no thanks: Companies’ response to R&D tax credits By Daniel Neicu; Stijn Kelchtermans; Peter Teirlinck
  7. Public debt and aggregate risk By Desbonnet, Audrey; Kankanamge, Sumudu
  8. Challenges of fiscal policy in emerging and developing economies By Raju Huidrom; M. Ayhan Kose; Franziska L. Ohnsorge
  9. The Power to Tax in Sub-Saharan Africa: LTUs, VATs, and SARAs By Christian EBEKE; Mario MANSOUR; Grégoire ROTA-GRAZIOSI

  1. By: Joshua Hall (West Virginia University, Department of Economics)
    Abstract: This study examines a feature of the budget process called the tax expenditure budget. The tax expenditure concept relies heavily on a normative notion that shielding certain taxpayer income from taxation deprives government of its rightful revenues. This view is inconsistent with the proposition that income belongs to the taxpayers and that tax liability is determined through the democratic process, not through arbitrary, bureaucratic assumptions. Furthermore, the methodology of the tax expenditure budget is problematic as its expansive tax base treats the multiple taxation of saving as the norm. By using an expansive view of income as the underlying assumption of the tax expenditure concept, this viewpoint institutionalizes a particular bias into the decision-making process.
    Keywords: tax expenditure budget, tax liability
    Date: 2016–06
  2. By: ZEW
    Abstract: The project 'Effective tax rates in an enlarged European Union' is based on the methodology used for the calculation of effective tax rates (ETRs) as set out by Devereux and Griffith (1999, 2003). It extends the scope of the calculation of ETRs conducted under the study on effective levels of company taxation within an enlarged EU (2008). The project includes a focus on the effects of tax reforms in the EU28, FYROM and Turkey as well as Norway, Switzerland, Canada, Japan and the United States for the period 1998-201 and their impact on the level of taxation for both domestic and cross-border investment.
    Keywords: European Union, taxation, effective tax, corporate tax, enlarged European Union
    Date: 2015–10
  3. By: Monisankar Bishnu; Cagri S. Kumru; Arm Nakornthab
    Abstract: In this paper we derive the expression for optimal inheritance tax when agents' preferences are subject to temptation and self control problem. We consider a dynamic stochastic model as in Piketty and Saez (2013) where agents are heterogeneous in terms of bequest motives and labor productivities. In such a setup we show that the optimal inheritance tax rate decreases with the level of temptation, and thus it works as an incentive mechanism that leads to more bequests and makes succumbing to temptation less attractive. In fact, when temptation is acute, a subsidy may be justified at any percentile of bequest received. This holds independent of the variation in the models used in the literature as well as the assumption of labor elasticity. The study also reveals some interesting observations. Though from the point of view of incentives, this result has the same essence as in Krusell et al. (2010) where temptation justifies a subsidy on capital, we show that unlike their other policy prescription, the long run equilibrium does not demand a constant subsidy. Thus, even under temptation and self control issue, the standard Chamley - Judd result which recommends zero capital tax in the long run is still valid. However, in a setup that is comparable to Farhi and Werning (2010), our paper shows that in the presence of temptation and self control, if dynamic efficiency holds, optimality always requires a subsidy independent of whether social welfare function puts zero or positive direct weight on the children. This is in direct contrast to Piketty and Saez (2013). A calibration using the same micro data used by Piketty and Saez (2013) shows that the drop in inheritance tax is significant in the presence of temptation and self control.
    Keywords: Inheritance tax, Temptation, Self-control, Wealth mobility
    Date: 2016–06
  4. By: Sheshinski, Eytan; Murtin, Fabrice; de Menil, Georges; T. Yokossi, Murtin
    Abstract: We argue that paygo rates are determined by a representative agent and a benevolent government jointly maximizing the expected life-time utility of the agent. The distributions of labor and capital income are calculated from national data on real GDP, real wages and the real return to capital since 1950. With uniform risk aversion, predicted rates explain 83% of the variance of observed rates. The globalization of capital markets would lead to convergence of paygo rates. Our results are immune to crises like 2008.
    Keywords: Paygo, Savings, Risk Aversion, OLG, National Capital Markets
    JEL: H0
    Date: 2016–05
  5. By: Giovanni Immordino (Università di Napoli Federico II and CSEF); Francesco Flaviano Russo (Università di Napoli Federico II and CSEF)
    Abstract: Cashless payments hinder tax evasion because they build a trail for the underlying transactions. We find empirical evidence supporting this claim for Europe, showing a negative relationship between VAT evasion and the payments with credit and debit cards. We also find that using electronic cards to gather cash at ATMs, by making cash more abundant, fosters VAT evasion. Policies aimed at reducing tax evasion should therefore subsidize the direct use of electronic cards as payments, not their possession.
    Keywords: tax evasion; electronic payments.
    JEL: O17 H26
    Date: 2016–06–17
  6. By: Daniel Neicu; Stijn Kelchtermans; Peter Teirlinck
    Abstract: This paper starts from the observation that the majority of firms in Belgium that were eligible for a newly introduced R&D tax credit system does not use it, or is slow to adopt, despite significant potential cost savings. We hypothesize that the R&D support landscape is complex for firms to navigate and that they may cope by relying on their peers’ behaviour to inform their own adoption decisions. We identify endogenous peer effects in industry- and location-based peer groups by exploiting the intransitivity in firms’ peer group networks as well the variation in peer group sizes. The results show that firms’ decisions to use R&D tax credits are indeed influenced by the choices of their peers, primarily in the time window following the introduction. Our analysis complements the literature on peer effects in firm decision making and suggests improvements for the communication of new public support measures for business R&D.
    Keywords: R&D tax credits, peer effects, information diffusion, social interactions
    Date: 2016–06
  7. By: Desbonnet, Audrey; Kankanamge, Sumudu
    Abstract: In this paper, we investigate the importance of aggregate fluctuations for the assessment of the optimal level of public debt in an incomplete markets economy. We start by building a steady state model in which households are only subject to uninsurable idiosyncratic risk and evaluate the optimal level of public debt. We then augment the model to allow for aggregate risk and measure the impact on the optimal level. We show that the cyclical behavior of the economy has a quantitative impact on this level that can be decomposed into the effects of the aggregate productivity shock and the cyclicality of unemployment. Moreover, we find that matching wealth distribution statistics substantially changes the optimal level of public debt.
    Keywords: public debt, aggregate risk, precautionary saving, credit constraints.
    JEL: E32 E60 H30 H60
    Date: 2016–05
  8. By: Raju Huidrom; M. Ayhan Kose; Franziska L. Ohnsorge
    Abstract: This paper presents a systematic analysis of the availability and use of fiscal space in emerging and developing economies. These economies built fiscal space in the run-up to the Great Recession of 2008-09, which was then used for stimulus. This reflects a more general trend over the past three decades, where availability of fiscal space has been associated with increasingly countercyclical (or less procyclical) fiscal policy. However, fiscal space has shrunk since the Great Recession and has not returned to pre-crisis levels. Emerging and developing economies face downside risks to growth and prospects of rising financing costs. In the event that these cause a sharp cyclical slowdown, policymakers may need to employ fiscal policy as a possible tool for stimulus. An important prerequisite for fiscal policy to be effective is that these economies have the necessary fiscal space to employ countercyclical policies. Over the medium-term, credible and well-designed institutional arrangements, such as fiscal rules, stabilization funds, and medium-term expenditure frameworks, can help build fiscal space and strengthen policy outcomes.
    Keywords: Fiscal space, fiscal policy, developing economies, growth slowdown, fiscal rules, stabilization funds, expenditure frameworks
    JEL: E62 H50 H60
    Date: 2016–06
  9. By: Christian EBEKE (Fonds Monétaire international); Mario MANSOUR (Département des Finances - Fonds Monétaire International); Grégoire ROTA-GRAZIOSI (Ferdi)
    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.
    Keywords: tax reforms, Africa, revenue mobilization, causality.
    JEL: H2 O23 O55 C1
    Date: 2016–06

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