nep-pub New Economics Papers
on Public Finance
Issue of 2016‒07‒30
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. How Many Harberger Triangles Does it Take to Fill one Okun Gap? By Aart Gerritsen
  2. Optimal Nonlinear Taxation: The Dual Approach By Aart Gerritsen
  3. Productivity, Taxation and Evasion: A Quantitative Exploration of the Determinants of the Informal Economy By Di Nola, Alessandro; Kocharkov, Georgi; Vasilev, Aleksandar
  4. On the measurement of investment types: Heterogeneity in corporate tax elasticities By Jungmann, Hendrik; Loretz, Simon
  5. The incidence of transaction taxes: evidence from a stamp duty holiday By Timothy Besley; Neil Meads; Paolo Surico
  6. Making public finances more growth and equity-friendly in the euro area By Álvaro Pina
  7. Shifting the tax burden from labor to property: The case of Germany By Paetzold, Jörg; Tiefenbacher, Markus
  8. Progressive taxation and (in)stability in an endogenous growth model with human capital accumulation: the case of Bulgaria By Vasilev, Aleksandar

  1. By: Aart Gerritsen
    Keywords: Economic costs of rationing, economic costs of taxation
    JEL: H21 J21 E24
    Date: 2016–03
  2. By: Aart Gerritsen
    Abstract: The usual method of solving for an optimal nonlinear tax schedule is that of the primal approach – ï¬ rst solving for the optimal allocation, and subsequently determining which tax system decentralizes this allocation. While this method is mathematically rigorous, it lacks intuitive appeal. I propose a different method based on the dual approach – directly solving for the optimal tax system – which is equally rigorous, while being much closer in spirit to actual tax policy. I show that this approach can easily incorporate preference heterogeneity, as well as individual behavior that is not fully consistent with utility maximization. Over and above solving for the optimum, the dual approach allows one to obtain new insights into the welfare effects of small nonlinear tax reforms outside the optimum.
    Keywords: Optimal taxation, dual approach, preference heterogeneity, individual misoptimization, tax reforms
    JEL: H21 H23 H24
    Date: 2016–01
  3. By: Di Nola, Alessandro; Kocharkov, Georgi; Vasilev, Aleksandar
    Abstract: This paper evaluates the relative importance of labor productivity vs. income taxes and social security contributions for tax compliance in an economy with a large degree of informality. To this end, we build a bargaining model in which matched employer-employee pairs of heterogeneous productive capacities make decisions on output sharing and the degree of tax evasion. The quantitative model takes as inputs the income tax structure and the estimated aggregate productivity series. The estimation strategy recovers the bargaining parameters and the cost function of tax evasion in the model by matching the empirical series for the size of the informal sector (2000-2014). The results from the performed computational experiments point out that the most important factor is labor productivity, followed by the corporate tax. Income tax progressivity in Bulgaria is found not to be quantitatively relevant for tax evasion.
    Keywords: informal economy,tax evasion
    JEL: H24 H25
    Date: 2016
  4. By: Jungmann, Hendrik (University of Salzburg); Loretz, Simon (Institute for Advanced Studies, Vienna)
    Abstract: This paper highlights the importance of different investment motives and to what extend they affect the responsiveness to corporate taxation. In particular, we discuss how to classify investment as non-related, horizontal, vertical and complex types using a combination of both firm-specific (ownership) information and sector-specific information from input-output tables. Hereby, we point out to what extend the resulting classification depends on assumptions made by the researcher. Following this, we examine the effects of host-country corporate taxation on the volume of investment within related firms (i.e., the intensive margin). We are able to quantitatively replicate the average result in the empirical literature with an overall tax semi-elasticity of approximately -1.5. Taking into account firm-heterogeneity we find that non-related investments react stronger to corporate taxation whereas horizontal investments are less responsive, though, significant negative tax semi-elasticities turn out for the subset of manufacturing industries where horizontal investment is much more prevalent. As the strict categorical classification still yields ambiguous results for both vertical and complex investments we extend the methodology by defining shares of investment and make the point that, by and large, stronger business motives reduce the tax responsiveness of investment.
    Keywords: Corporate Taxation; Investment Strategy; Panel Econometrics
    JEL: C23 F23 H25 L25
    Date: 2016–04–15
  5. By: Timothy Besley; Neil Meads; Paolo Surico
    Abstract: This paper exploits the 2008–09 stamp duty holiday in the United Kingdom to estimate the incidence of a transaction tax on housing. The average reduction in the after-tax sale price is found to be around £900 against the backdrop of an average tax reduction of about £1500. While we estimate an increase in transactions of properties affected by the tax holiday around 8%, most of this effect appears to have reversed rapidly after the policy was withdrawn, suggesting mostly a short-term retiming of transactions. The findings are calibrated to a simple bargaining model to show they imply that about sixty percent of the surplus generated by the holiday accrued to buyers.
    Keywords: tax holiday; surplus incidence; surveyor's evaluation
    JEL: H22 R32
    Date: 2014–11
  6. By: Álvaro Pina
    Abstract: Across the euro area, the ability of public finances to support equitable growth has tended to deteriorate. Concerns about high and rising public debt, together with market pressure in some cases, led to sharp fiscal consolidation in 2011-13, against the backdrop of a weak economic situation at the time, which is considered to have made the recession deeper and longer. Consolidation has slowed down afterwards, but countries with fiscal space have made limited use of the leeway allowed under EU fiscal rules to support euro area aggregate demand. The expenditure composition has generally become less growth-friendly, with large cuts in public investment. On the revenue side, already high taxes on labour have tended to increase further. Structural reforms with direct positive implications for the composition or efficiency of public finances have stalled. While most policy levers to improve public finances remain at the country level, European and national policies can be mutually reinforcing in fiscal governance and public investment. To achieve a euro area fiscal stance that fosters the recovery, countries with fiscal space under the Stability and Growth Pact rules should use budgetary support to raise growth, and existing incentives and flexibility should be taken advantage of to pursue reforms of tax and spending policies. At the national level, it is essential to further upgrade budgetary frameworks, including through the adoption of expenditure rules and regular performance of spending reviews. To promote capital formation and make it more effective, EU budget resources for investment should be deployed in a way to crowd in national public funds and private financing, and foster greater investment productivity. At the national level, better coordination of investment across levels of government and upgraded administrative capacity would increase investment efficiency. This Working Paper relates to the 2016 OECD Economic Survey of the euro area ( Rendre les finances publiques plus favorables à la croissance et à l'équité dans la zone euro Dans la zone euro, la capacité des finances publiques à soutenir la croissance équitable s’est globalement détériorée. Face aux inquiétudes suscitées par le niveau élevé et croissant de l’endettement public, et parfois sous la pression exercée par les marchés, les autorités des pays ont procédé à un effort d’assainissement budgétaire massif en 2011-13 dans un contexte de conjoncture économique défavorable, ce qui est généralement considéré comme ayant contribué à intensifier et à prolonger la récession. Le processus d’assainissement s’est ensuite ralenti, mais les pays disposant d’une marge de manoeuvre budgétaire ont peu utilisé la souplesse autorisée par les règles budgétaires de l’UE pour stimuler la demande globale dans la zone euro. De manière générale, la composition des dépenses est devenue moins favorable à la croissance du fait de coupes drastiques dans les investissements publics. Sur le plan des recettes, la fiscalité du travail, déjà élevée, s’est encore alourdie. Les réformes structurelles qui peuvent avoir des retombées positives directes sur la composition ou l’efficience des finances publiques ont marqué le pas. Si la plupart des leviers d’action permettant d’améliorer les finances publiques restent situés au niveau des pays, les politiques européennes et nationales peuvent se renforcer mutuellement dans les domaines de la gouvernance budgétaire et de l’investissement public. Pour faire en sorte que l’orientation budgétaire de l’ensemble de la zone euro contribue à alimenter la reprise, les pays qui disposent d’une marge de manoeuvre budgétaire au sens des règles du Pacte de stabilité et de croissance devraient recourir à l’appui budgétaire pour stimuler la croissance, et il faudra mettre à profit les dispositifs d’incitation existants et la souplesse prévue par les règles en vigueur pour poursuivre la réforme des politiques fiscales et de dépenses. Au niveau national, il est essentiel de poursuivre l’amélioration des cadres budgétaires, y compris en adoptant des règles de dépenses et en procédant à des examens réguliers des dépenses. Pour promouvoir la formation de capital et rendre celui-ci plus efficace, les ressources budgétaires de l’UE disponibles pour l’investissement devraient être déployées de façon à créer un effet d’attraction sur les fonds publics et les financements privés nationaux et à rendre l’investissement plus productif. À l’échelon national, des investissements mieux coordonnés entre les différents niveaux d’administration et des capacités administratives renforcées conféreraient aux investissements une efficience accrue. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Zone euro 2016 ( conomique-union-europeenne-et-zone-euro. htm)
    Keywords: stability and growth pact, euro area, public investment, fiscal councils, fiscal consolidation, assainissement budgétaire, organismes budgétaires indépendants, zone Euro, pacte de stabilité et de croissance, investissement public
    JEL: E62 F45 H20 H50 H54 H61
    Date: 2016–07–26
  7. By: Paetzold, Jörg (University of Salzburg); Tiefenbacher, Markus (University of Salzburg)
    Abstract: Contrary to frequent recommendations of the public finance literature and international institutions, a persistently high tax wedge on labor is observed in Europe. At the same time, the scope for shifting taxes from labor to more growth-friendly revenue sources appears underused in many European countries. This motivates our simulation of a revenue-neutral property tax reform for Germany, a country in which tax receipts from land are particularly low. More precisely, we assess by how much social insurance contributions (SIC) can be reduced when Germany switches from its current property tax scheme based on outdated cadastral values to one based on market property values. In order to make such a simulation possible, we match property related information with the input dataset of EUROMOD, the tax-benefit simulation model for the EU. Our results suggest that the implicit tax rate on labor could be reduced from currently 37,2% to 36,5%. Furthermore, we simulate different scenarios of the SIC reduction. Redistributive effects of these different scenarios tend to be modest and depend crucially on the design of the SIC reduction.
    Keywords: Statistical Matching; Labor Tax; Property Tax; EUROMOD
    JEL: C15 C83 D31 H12 R28
    Date: 2016–07–22
  8. By: Vasilev, Aleksandar
    Abstract: We show that in a endogenous growth model with human accumulation calibrated to Bulgarian data under the progressive taxation regime (1993-2007), the artificial economy exhibits equilibrium indeterminacy. These results are in line with the recent findings in Chen and Guo (2015) in the context of an AK endogenous growth model. Also, the findings are in contrast to Guo and Lansing (1988) who argue that progressive taxation works as an automatic stabilizer. Progressive taxation in our setup lead to equilibrium indeterminacy. This indeterminacy result could explain, at least partially, why the economic performance under the progressive taxation regime in Bulgaria was not impressive.
    Keywords: Progressive Income Taxation,Human capital,Endogenous Growth,Equilibrium (In)determinacy
    JEL: E32 E62
    Date: 2016

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