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on Public Finance |
| By: | Chen, Ping-ho; Chu, Angus C.; Chu, Hsun; Lai, Ching-Chong |
| Abstract: | In this note, we examine the effects of capital taxation on innovation and economic growth. We find that capital taxation has drastically different effects in the short run and in the long run. An increase in the capital income tax rate has both a consumption effect and a tax-shifting effect on the equilibrium growth rates of technology and output. In the long run, the tax-shifting effect dominates the consumption effect yielding an overall positive effect of capital taxation on steady-state economic growth. However, in the short run, the consumption effect becomes the dominant force causing an initial negative effect of capital taxation on the equilibrium growth rates. These contrasting effects of capital taxation at different time horizons may provide a plausible explanation for the mixed evidence in the empirical literature on capital taxation and economic growth. |
| Keywords: | Capital taxation; economic growth; R&D; transition dynamics |
| JEL: | H2 O3 O4 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:72211&r=pub |
| By: | Raju Huidrom (World Bank, Development Prospects Group); M. Ayhan Kose (World Bank, Development Prospects Group; Brookings Institution; CAMA; CEPR); Jamus J. Lim (World Bank, Development Prospects Group); Franziska L. Ohnsorge (World Bank, Development Prospects Group) |
| Abstract: | This paper analyzes the relationship between fiscal multipliers and fiscal positions of governments using an Interactive Panel Vector Auto Regression model and a large dataset of advanced and developing economies. Our methodology permits us to trace the endogenous relationship between fiscal multipliers and fiscal positions while maintaining enough degrees of freedom to draw sharp inferences. We report three major results. First, the fiscal multipliers depend on fiscal positions: the multipliers tend to be larger when fiscal positions are strong (i.e. when government debt and deficits are low) than weak. For instance, the long run multiplier can be as large as unity when fiscal position is strong, while it can be negative when the fiscal position is weak. Second, these effects are separate and distinct from the impact of the business cycle on the fiscal multiplier. Third, the state-dependent effects of the fiscal position on multipliers is attributable to two factors: an interest rate channel through which higher borrowing costs, due to investors’ increased perception of credit risks when stimulus is implemented from a weak initial fiscal position, crowd out private investment; and, a Ricardian channel through which households reduce consumption in anticipation of future fiscal adjustments. |
| Keywords: | Fiscal multipliers, fiscal position, state-dependency, Ricardian channel, interest rate channel, business cycle |
| JEL: | E62 H50 H60 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1605&r=pub |
| By: | Sengupta, Bodhisattva |
| Abstract: | The paper explores the issue of leadership in central transfer within a federation. In a federal country, provinces, in anticipation of the ultimate federal bailout, may spend more than what is optimal. Such behaviour creates negative fiscal externalities and harms the central government. To counter such tendencies, it is suggested by policymakers that central authority should always be a first mover in the transfer game: once the grant (presumably formulaic) is dispensed, it should refrain from any ex post transfer. In spite of such recommendations, central governments, in almost all countries, chooses to be the second mover from time to time. We explore the conditions, other than the familiar political economy arguments, under which the central government optimally chooses to be the second mover. The key determinants of the first or second mover advantages in such situations is the nature of spillover effects of public goods between the two tiers of government |
| Keywords: | Federalism, Transfer Game, First and Second Mover Advantages |
| JEL: | H77 |
| Date: | 2016–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:71882&r=pub |
| By: | Huidrom, Raju; Kose, Ayhan; Lim, Jamus; Ohnsorge, Franziska |
| Abstract: | This paper analyzes the relationship between fiscal multipliers and fiscal positions of governments using an Interactive Panel Vector Auto Regression model and a large dataset of advanced and developing economies. Our methodology permits us to trace the endogenous relationship between fiscal multipliers and fiscal positions while maintaining enough degrees of freedom to draw sharp inferences. We report three major results. First, the fiscal multipliers depend on fiscal positions: the multipliers tend to be larger when fiscal positions are strong (i.e. when government debt and deficits are low) than weak. For instance, the long run multiplier can be as large as unity when fiscal position is strong, while it can be negative when the fiscal position is weak. Second, these effects are separate and distinct from the impact of the business cycle on the fiscal multiplier. Third, the state-dependent effects of the fiscal position on multipliers is attributable to two factors: an interest rate channel through which higher borrowing costs, due to investors' increased perception of credit risks when stimulus is implemented from a weak initial fiscal position, crowd out private investment; and, a Ricardian channel through which households reduce consumption in anticipation of future fiscal adjustments. |
| Keywords: | Fiscal multipliers; Fiscal position; State-dependency; Ricardian channel; Interest rate channel; Business cycle |
| JEL: | E62 H50 H60 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11346&r=pub |
| By: | Chen, Xi (Yale University) |
| Abstract: | This paper makes use of the most recent social pension reform in rural China to examine whether receipt of the pension payment equips adult children of pensioners to migrate. Employing a regression discontinuity (hereafter RD) design to a primary longitudinal survey, this paper overcomes challenges in the literature that households eligible for pension payment might be systematically different from ineligible households and that it is difficult to separate the effect of pension from that of age or cohort heterogeneity. Around the pension eligibility age cut-off, results reveal large and significant increase among adult sons (but not daughters) to migrate out of their home county. Meanwhile, adult children are more likely to migrate out if their parents are healthy. Our Fuzzy RD estimations survive a standard set of key placebo tests and robustness checks. |
| Keywords: | rural pension, RD Design, adult children, migration |
| JEL: | H55 I38 J14 J22 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10016&r=pub |
| By: | Desmet, Klaus; Ortuño-Ortín, Ignacio; Weber, Shlomo |
| Abstract: | This paper advances the hypothesis that in societies that suffer from center-periphery tension it is harder to agree on public goods than on transfers. After micro-founding a new peripheral diversity index, it puts forth a simple theory in which the cost of public goods increases with peripheral diversity and tax compliance decreases with overall diversity. It then empirically explores the relation between public goods provision, transfers, peripheral diversity and overall diversity. Consistent with the theory, we find that higher levels of peripheral diversity are associated with less provision of public goods, but more transfers, whereas higher levels of overall diversity have a negative association with transfers. Public goods and transfers are therefore substitutes in their reaction to a change in peripheral diversity. |
| JEL: | H4 H5 Z10 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11348&r=pub |
| By: | Huidrom, Raju; Kose, Ayhan; Ohnsorge, Franziska |
| 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: | developing economies; expenditure frameworks; fiscal rules; Fiscal space; growth slowdown; stabilization funds |
| JEL: | E62 H50 H60 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11347&r=pub |
| By: | Liliana Harding (University of East Anglia); Mihai Mutascu (West University of Timisoara) |
| Abstract: | This paper analyses the effects of migration on per capita collected tax revenues. The panel data used includes 25 European Union (EU) countries and covers the period 1996-2010. The research contributes to the debate linking migration and tax, and finds evidence that net migration is a significant factor explaining tax revenues. In the case of EU countries, net migration accelerates to some extent the rise in collected tax, and strongly impacts on the level of tax revenues available per capita. |
| Keywords: | migration, tax payment, government revenue, European Union |
| JEL: | H20 F22 C23 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:uea:ueaeco:2016_08&r=pub |
| By: | Brülhart, Marius; Gruber, Jonathan; Krapf, Matthias; Schmidheiny, Kurt |
| Abstract: | We study the effects of wealth taxation on reported wealth. Our analysis is based on data for Switzerland, which has the highest rate of annual wealth taxation in the developed world. While the wealth tax base is defined at the federal level, tax rates vary considerably across locations and over time. We use aggregate data on wealth holdings by canton and individual-level data for the canton of Bern. Our estimated behavioral elasticities substantially exceed those of the taxable income literature. We also find that taxpayers bunch below the tax threshold, that observed responses are driven by changes in wealth holdings rather than mobility, and that financial wealth is somewhat more responsive than non-financial wealth. |
| Keywords: | Behavioral Responses; Switzerland; Wealth Taxation |
| JEL: | H24 H31 H73 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11342&r=pub |