nep-pub New Economics Papers
on Public Finance
Issue of 2016‒07‒23
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Political Economy of Tax Reforms – Workshop proceedings By Savina Princen
  2. Optimal automatic stabilizers By Alisdair McKay; Ricardo Reis
  3. Is financial VAT neutral to financial sector size? By López-Laborda, Julio; Peña, Guillermo
  4. Evolution of Cooperation in Public Good Game By Colasante, Annarita
  5. Assessing Public Spending Efficiency in 20 OECD Countries By António Afonso,; Mina Kazemi
  6. The effects of replacing income tax with consumption tax on the state and the individual: a Canadian example By Jim Fischer
  7. Beggar-Thy-Neighbour Tax Cuts: Mobility after a Local Income and Wealth Tax Reform in Switzerland By Martinez, Isabel Z.
  8. Tax burden inequality of population in Georgia and conceptual – methodological problems of evaluation By Tamar Kbiladze; David Kbiladze

  1. By: Savina Princen
    Abstract: In the context of tax policy challenges in many EU Member States, the 2015 ECFIN taxation workshop addressed the political economy obstacles substantial tax reforms face and possible avenues to successful reform implementation. It presented concrete examples of tax reforms in Italy and Greece, discussed the political economy dimensions of specific tax areas and looked into issues related to tax fraud and tax coordination. The workshop hosted Commissioner Moscovici for the keynote address.
    JEL: H21 H23 H24 H25 H26 P48
    Date: 2016–03
  2. By: Alisdair McKay; Ricardo Reis
    Abstract: Should the generosity of unemployment benefits and the progressivity of income taxes de- pend on the presence of business cycles? This paper proposes a tractable model where there is a role for social insurance against uninsurable shocks to income and unemployment, as well as inefficient business cycles driven by aggregate shocks through matching frictions and nominal rigidities. We derive an augmented Baily-Chetty formula showing that the optimal generosity and progressivity depend on a macroeconomic stabilization term. Using a series of analytical examples, we show that this term typically pushes for an increase in generosity and progressivity as long as slack is more responsive to social programs in recessions. A calibration to the U.S. economy shows that taking concerns for macroeconomic stabilization into account raises the optimal unemployment benefits replacement rate by 13 percentage points but has a negligible impact on the optimal progressivity of the income tax. More generally, the role of social insurance programs as automatic stabilizers affects their optimal design.
    Keywords: Counter-cyclical fiscal policy; redistribution; distortionary taxes.
    JEL: E62 H21 H30
    Date: 2016–06–17
  3. By: López-Laborda, Julio; Peña, Guillermo
    Abstract: The influence of the taxation of financial services in VAT on financial sector size is analyzed empirically. The authors use data from 36 countries of the European Union and the OECD for the period between 1961 and 2012. Dynamic panel data techniques are used, concretely the GMM System. An unbalanced panel is handled. The results allow them to support the theoretical analysis that states financial VAT has no significant effect on financial sector development, being neutral in relation to this variable. Results are robust to the specifications of the dependent variable.
    Keywords: financial VAT,panel data,financial depth
    JEL: H25 H21 E62 E44 G21
    Date: 2016
  4. By: Colasante, Annarita
    Abstract: This paper presents an investigation about cooperation in a Public Good Game using an Agent Based Model calibrated on experimental data. Starting from the experiment proposed in Colasante and Russo (2016), we analyze the dynamic of cooperation in a Public Good Game where agents receive an heterogeneous income and choose both the level of contribution and the distribution rule. The starting point is the calibration and the output validation of the model using the experimental results. Once tested the goodness of fit of the Agent Based Model, we run some policy experiment in order to verify how each distribution rule, i.e. equidistribution, proportional to contribution and progressive, affects the level of contribution in the simulated model. We find out that the share of cooperators decreases over time if we exogenously set the equidistribution rule. On the contrary, the share of cooperators converges to 100% if we impose the progressive rule. Finally, the most interesting result refers to the effect of the progressive rule. We observe that, in the case of high inequality, this rule is not able to reduce the heterogeneity of income.
    Keywords: Public Good Game, Cooperation, Social Influence
    JEL: C63 D71 H41
    Date: 2016
  5. By: António Afonso,; Mina Kazemi
    Abstract: This study follows the framework of Afonso, Schuknecht, and Tanzi (2005), aiming to look at the public expenditure of 20 OECD countries for the period 2009-2013, from the perspective of efficiency and assess if these developed countries are performing efficiently compared to each other. Public Sector Performance (PSP) and Public Sector Efficiency (PSE) indicators were constructed and Data Envelopment Analysis was conducted. The results show that the only country that performed on the efficiency frontier is Switzerland. The average input-oriented efficiency score is equal to 0.732. That is, on average countries could have reduced the level of public expenditure by 26.8% and still achieved the same level of public performance. The average output-oriented efficiency score is 0.769 denoting that on average the sample countries could have increased their performance by 23.1% by employing the same level of public expenditure. Key Words : Public Spending, Technical Efficiency, Public Sector Performance (PSP), Data Envelopment Analysis (DEA)
    JEL: C14 C87 H40 H50 Y10
    Date: 2016–06
  6. By: Jim Fischer (Mount Royal University)
    Abstract: Consumption tax has been lauded as an alternative to income tax, in that it promotes savings and investment, and enables increased consumption over time. Despite these claims, no state has opted to replace income tax with consumption tax as the prime source of revenue. It is proposed that when consumption tax replaces income tax as the means of financing the state, investment increases, individuals are able to consume more over a lifetime, and levels of government revenue can be maintained. This study compares an average Canadian taxpayer in Canada’s current hybrid tax regime with a taxpayer in a hypothetical consumption tax regime. The rate of consumption tax is calculated to provide the equivalent amount of revenue the Canadian government currently receives. Comparisons are made between the two regimes in three scenarios to reflect different taxpayer behavior: holding investment steady, holding consumption steady, and maximizing the use of current tax shelters. The study concludes that in any scenario, individuals are able to enjoy more total consumption and purchasing power over time, adjusted for inflation, when a consumption tax substitutes for income tax. On the other hand, government revenue received from the average taxpayer in some scenarios is less when consumption tax replaces income tax, and is more in others. Government revenue was more when comparisons were made between taxpayers in the income tax regime who made use of current tax shelters, and those in the consumption tax regime who maximized their investment. This is the ideal behavior one would expect of taxpayers who are left with more disposable income. Opportunities for further study are suggested.
    Keywords: consumption tax, income tax, government revenue, tax policy
    JEL: H27 E21 D31
  7. By: Martinez, Isabel Z.
    Abstract: Tax competition raises the question to which extent taxpayers respond to differences in income tax rates by migrating to low-tax areas. This paper analyzes a large, two-step tax reform in the canton of Obwalden in central Switzerland in 2006 and 2008. The canton first introduced a regressive income tax scheme with the explicit purpose of attracting affluent taxpayers, followed by a flat rate tax, thereby lowering taxes for all taxpayers. DiD estimations comparing Obwalden and two neighboring cantons confirm that the reform was successful in increasing the canton’s tax base by increasing the share of rich and their average income. Using individual tax data I apply a 2SLS approach to estimate how responsive migration was to the tax reduction. I find an elasticity of the stock of rich taxpayers in the canton with respect to the average net-of-tax rate of 1.9–2.4. The elasticity of the inflow of rich taxpayers is even larger, ranging from 5 to 12. These large elasticities can be explained by (i) the large pool of intentionally treated in the present institutional setting, which puts almost no restrictions on taxpayers to take advantage of the low tax, and (ii) the initially low share of rich taxpayers in Obwalden combined with the small size of the canton. A small number of rich taxpayers relocating therefore translates into a large elasticity. DiD estimates of cantonal revenue, however, suggest that the tax cuts despite attracting and retaining a substantial number of rich taxpayers, did not lead to an increase
    Keywords: Tax-induced mobility; Personal income tax; Local taxes; Tax competition; Elasticity of taxable income ETI
    JEL: H71 H73 R23 H31 H24
    Date: 2016–05
  8. By: Tamar Kbiladze (Ivane Javakhishvili Tbilisi State University); David Kbiladze (David Agmashenebeli University of Georgia, Guram Tavartkiladze Teaching University)
    Abstract: Fairly determined taxes and tax burden of population is one of the most important criteria for living standards evaluation. Should tax rates be the same for everyone? This is the challenge which every government meets and successful decision regarding this issue is very important for sustainable development of the economy. The aim of the conducted research is to propose methodology and evaluate existing tax burden of population in Georgia. Empirical study was performed in order to reveal heaviness and lightness of population tax burden. On the basis of empirical research, we conclude that tax burden of population in Georgia, considering their income, is unequal, while according to tax code of Georgia, income of individuals is taxed by flat rate of 20%. Result of investigation, described in the article will be useful for executive and legislative authorities of Georgia to make decisions regarding tax system in Georgia, also for scientists and students who have research interest in the same field.
    Keywords: Decile inequality; Proportional tax system; Progressive tax system; Tax burden; Tax rate; Population
    JEL: H21 H24 G28

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