nep-pub New Economics Papers
on Public Finance
Issue of 2016‒09‒18
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Earned Income Tax Credit: Targeting the Poor but Crowding Out Wealth By Froemel, M.; Gottlieb, C.
  2. Consumption Taxes and Divisibility of Labor under Incomplete Markets By Shuhei Takahashi; Tomoyuki Nakajima
  3. Multinational firms and tax havens By Gumpert, Anna; Hines Jr, James R; Schnitzer, Monika
  4. Tax Cuts, Tax Expenditures, and Comprehensive Tax Reform: Federal Income Tax Reform in the United States, 1961-1986 By Seiichiro Mozumi
  5. Wealth Inequality in Sweden: What Can We Learn from Capitalized Income Tax Data? By Lundberg, Jacob; Waldenström, Daniel
  6. Public Expenditure and Growth: The Indian Case By Antra Bhatt; Claudio Sardoni

  1. By: Froemel, M.; Gottlieb, C.
    Abstract: In this paper, we quantify the effects of the Earned Income Tax Credit (EITC) from a macroeconomic perspective. We use an incomplete markets model to analyze jointly the labor supply and saving responses to changes in tax credit generosity and their aggregate and distributional implications. In line with existing literature, our results show that the EITC is an effective policy instrument to raise labor force participation and provide insurance to working poor households. However, we show that the EITC also disincentivizes private savings for a large part of the population, except for the poorest transfer recipients. Furthermore, since unskilled labor supply reacts more strongly than skilled workers’ labor supply, wages for low skilled workers fall relative to high skilled workers. Whilst reducing post-tax earnings inequality, the EITC contributes to both a higher skill premium and wealth inequality. Finally, our welfare analysis suggests that EITC expansions are welfare improving for the majority of the population, both ex ante and when accounting for transitional dynamics.
    Date: 2016–09–05
  2. By: Shuhei Takahashi (Kyoto University); Tomoyuki Nakajima (Kyoto University)
    Abstract: We analyze lump-sum transfers financed through consumption taxes in a heterogeneous-agent model with uninsured idiosyncratic wage risk and endogenous labor supply. The model is calibrated to the U.S. economy. We find that consumption inequality and uncertainty decrease with transfers much more substantially under divisible than indivisible labor. Increasing transfers by raising the consumption tax rate from 5% to 35% decreases the consumption Gini by 0.04 under divisible labor, whereas it has almost no effect on the consumption Gini under indivisible labor. The divisibility of labor also affects the relationship among consumption-tax financed transfers, aggregate saving, and the wealth distribution.
    Date: 2016
  3. By: Gumpert, Anna; Hines Jr, James R; Schnitzer, Monika
    Abstract: Multinational firms with operations in high-tax countries can benefit the most from reallocating taxable income to tax havens, though this is sufficiently diffcult and costly that only 20.4 percent of German multinational firms have any tax haven affiliates. Among German manufacturing firms, a one percentage point higher foreign tax rate is associated with a 2.3 percent greater likelihood of owning a tax haven affiliate. This is consistent with tax avoidance incentives, and contrasts with earlier evidence for U.S. firms. The relationship is less strong for firms in service industries, possibly reflecting the difficulty of reallocating taxable service income.
    Keywords: multinational firms; tax havens
    JEL: F23 H87
    Date: 2016–09
  4. By: Seiichiro Mozumi (Faculty of Economics, Keio University)
    Abstract: In the United States since the 1930s, the Treasury Department and tax experts has attempted to accomplish a "one package" comprehensive tax reform program to create a simpler, fairer, and more equitable federal income tax system with sufficient ability to raise revenue. However, their attempts to accomplish the kind of tax reform have always failed except in 1986. This paper picks up three episodes of federal tax reform to demonstrate the Treasury's and tax experts' significant effort to accomplish a "one package" comprehensive tax reform, and the process in and for which they failed and succeeded: Federal tax reform of 1964, 1978, and 1986. In the meantime, through examining the three episodes, this paper explores how Congress had seriously considered the kind of comprehensive tax reform that the Treasury and tax experts proposed after World War II.
    Keywords: "one package" comprehensive tax reform, Stanley S. Surrey
    JEL: H2 N42
    Date: 2016–08–24
  5. By: Lundberg, Jacob (Department of Economics); Waldenström, Daniel (Research Institute of Industrial Economics (IFN))
    Abstract: This paper presents new estimates of wealth inequality in Sweden during 2000–2012, linking wealth register data up to 2007 and individually capitalized wealth based on income and property tax registers for the period thereafter when a repeal of the wealth tax stopped the collection of individual wealth statistics. We find that wealth inequality increased after 2007 and that more unequal bank holdings and apartment ownership appear to be important drivers. We also evaluate the performance of the capitalization method by contrasting its estimates and their dispersion with observed stocks in register data up to 2007. The goodness-of-fit varies tremendously across assets and we conclude that although capitalized wealth estimates may well approximate overall inequality levels and trends, they are highly sensitive to assumptions and the quality of the underlying data sources.
    Keywords: Wealth distribution; Capitalization method; Investment income method; Gini co-efficient; Top wealth shares; Great Recession
    JEL: D31 H20 N32
    Date: 2016–08–31
  6. By: Antra Bhatt (University of Chicago - Harris School of Public Policy.); Claudio Sardoni (Department of Social Sciences and Economics, Sapienza University of Rome)
    Abstract: The paper deals with the analysis of the relationship between public spending and growth as well as the dynamics of the ratio public debt/GDP. We show that a composition of public spending that favours productive expenditures, i.e. those with a direct positive effect on the economy's rate of growth, can determine a situation in which the ratio of the public debt to GDP is stable, even though the government runs primary de cits. We test our theoretical results by considering the Indian case that, for a number of reasons, appears to be consistent with our theoretical hypotheses and assumptions. The results of the empirical analysis substantially support the idea that the dynamics of the economy as well as of the ratio public debt/GDP are crucially contingent on having a public sector that favours productive expenditures.
    Keywords: Public expenditure, Growth, Public debt.
    JEL: H30 H54 H60
    Date: 2016–09

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