nep-pub New Economics Papers
on Public Finance
Issue of 2016‒10‒30
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Dual Corporate Tax Evasion By Katherine Cuff; Steeve Mongrain; Joanne Roberts
  2. Is consumption-Laffer curve hump-shaped? The role of VAT evasion By Vasilev, Aleksandar
  3. Competitiveness and subsidy or tax policy for new technology adoption in duopoly By Hattori, Masahiko; Tanaka, Yasuhito
  4. Soda Wars: Effect of a Soda Tax Election on Soda Purchases By Kaplan, Scott; Taylor, Rebecca; Villas-Boas, Sofia B
  5. Local Government and Old-Age Support in the New Deal By Daniel K. Fetter
  6. Fiscal Policy, Inequality and the Poor in the Developing World By Nora Lustig
  7. Urbanization and Demand for Water and Sanitation Services: An Analysis on Cross-Region Investment Requirements By Mukherjee, Sacchidananda; Chakraborty, Debashis
  8. The Impact of Taxes, Transfers, and Subsidies on Inequality and Poverty in Uganda By Jon Jellema; Nora Lustig; Astrid Haas; Sebastian Wolf
  9. Fiscal Policy, Inequality and Poverty in Iran: Assessing the Impact and Effectiveness of Taxes and Transfer By Ali Enami

  1. By: Katherine Cuff (McMaster University); Steeve Mongrain (Simon Fraser University); Joanne Roberts (University of Calgary)
    Abstract: Firms are subject to many forms of government regulation and laws. Two major sources of these regulations are corporate tax laws and labour or employment laws. For example, labour codes stipulate that firms must ensure their workplaces meet certain safety and health standards, and pay payroll taxes to cover the provision of government provided benefits to their workers, whereas corporate tax laws require firms to collect sales taxes on goods sold and pay taxes on their income or profits. There are many ways for firms to evade these legal requirements. Much of the literature examining the evasion behaviour of firms assumes that the decision to evade one form of regulation (such as labour regulation) is perfectly linked to the decision to evade another (such as paying business corporate taxes). In this paper, we separate these two evasion decisions and allow firms to decide whether to evade labour market regulations (including the payment of payroll taxes) independently from their decisions to evade corporate taxes. We characterize the firms’ optimal entry and evasion behaviour and derive the government's optimal tax policies.
    Keywords: Informal Labour Market; Labour Regulation; Tax Evasion; Payroll taxes; Corporate Income Taxes
    JEL: H32 H26 K42
    Date: 2016–10–13
  2. By: Vasilev, Aleksandar
    Abstract: This paper shows a standard RBC model, when augmented with a VAT evasion channel, where evasion depends on the consumption tax rate, can produce a hump-shaped consumption Laffer curve. Furthermore, when the evasion channel is turned off, the hump in the Laffer curve disappears, resulting in a monotone relationship between the VAT rate and both the consumption and total tax revenue. This result comes in stark contrast to Hiragara and Nituhara (2015), who generate a peaking curve for consumption tax revenue in a model with a separable utility in consumption and leisure and no evasion. Their results are contingent on implausible values for elasticity parameters, and in addition predict a revenue-maximizing consumption tax rate which is implausibly high. The paper contributes to the public finance literature by providing evidence for the importance of the evasion mechanism, while at the same time adding to the debate about the existence of a peak tax rate for consumption tax revenue.
    Keywords: consumption Laffer curve,VAT evasion,general equilibrium,fiscal policy
    JEL: D58 E26 H26
    Date: 2016
  3. By: Hattori, Masahiko; Tanaka, Yasuhito
    Abstract: We consider a problem of subsidy or tax policy for new technology adoption by duopolistic firms. The technology is developed in and transferred by a foreign country to the domestic country. It is free but each firm must expend some fixed set-up cost for education of its staff to adopt and use it. Assuming that each firm maximizes the weighted average of absolute and relative profits, we examine the relationship between competitiveness and subsidy or tax policies for technology adoption, and show that when firm behavior is not competitive (the weight on the relative profit is small), the optimal policy of the government may be taxation; when firm behavior is competitive (the weight on the relative profit is large), the optimal policy is subsidization or inaction and not taxation. However, if firm behavior is extremely competitive (close to perfect competition), taxation case re-emerges.
    Keywords: new technology adoption, duopoly, subsidy, tax
    JEL: D43 L13
    Date: 2016–10–21
  4. By: Kaplan, Scott; Taylor, Rebecca; Villas-Boas, Sofia B
    Keywords: Social and Behavioral Sciences
    Date: 2016–10–25
  5. By: Daniel K. Fetter
    Abstract: A key question in the design of public assistance to the needy is how allocation of responsibility for funding and decision-making across different levels of government influences the level and type of assistance provided. The New Deal era was a period in which this allocation changed significantly in the United States, as provision of public assistance shifted from local governments to states and the federal government, accompanied by a large increase in government transfer payments. Focusing on assistance to the elderly and using variation in state laws governing the division of funding between local and state governments for the Old Age Assistance (OAA) Program, this paper investigates the responsiveness of OAA payments and recipiency to local government funding shares. Payments per elderly resident were significantly lower in states with higher local funding shares, driven largely by reductions in recipiency. The baseline results suggest that had local governments needed to fund half of OAA payments in 1939, on the lower end of local funding shares prior to the New Deal, the OAA recipiency rate would have been 5 percent rather than 22 percent, and perhaps even lower. More speculative results suggest that greater local funding led to lower representation of blacks among OAA recipients relative to their share of the population, particularly in the South.
    JEL: H75 H77 I38 N32 N42
    Date: 2016–10
  6. By: Nora Lustig (Department of Economics, Tulane University)
    Abstract: Using comparable fiscal incidence analysis, this paper examines the impact of fiscal policy on inequality and poverty in twenty-five countries for around 2010. Success in fiscal redistribution is driven primarily by redistributive effort (share of social spending to GDP in each country) and the extent to which transfers/subsidies are targeted to the poor and direct taxes targeted to the rich. While fiscal policy always reduces inequality, this is not the case with poverty. Fiscal policy increases poverty in four countries using US$1.25/day PPP poverty line, in 8 countries using US$2.50/day line, and 15 countries using the US$4/day line (over and above market income poverty). While spending on pre-school and primary school is pro-poor (i.e., the per capita transfer declines with income) in almost all countries, pro-poor secondary school spending is less prevalent, and tertiary education spending tends to be progressive only in relative terms (i.e., equalizing but not pro-poor). Health spending is always equalizing except for Jordan.
    Keywords: fiscal incidence, social spending, inequality, poverty, Developing Countries.
    JEL: H22 H5 D31 I3
    Date: 2016
  7. By: Mukherjee, Sacchidananda; Chakraborty, Debashis
    Abstract: With advent of economic growth, rapid urbanization has led to a consequent rise in demand for water supply and sanitation (WSS) services. The growth rate of urban population is quite high in regions characterized by low and middle-income, namely, Sub-Saharan Africa, South Asia, Middle East and North Africa, East Asia and the Pacific, Latin America and the Caribbean. Given the poor access to WSS across several regions, the present analysis attempts to estimate the demand for investment in this sector. The empirical estimates reveals that to achieve universal access to improved WSS by 2019, the stock of investment in water services should reach US $2,240 billion at 2005 prices in 2019. At the given stock of investment in 2012, an additional investment of US$ 590 billion (US$ 134 billion in water supply and US$ 456 billion in sanitation) would be required in new water services infrastructure to reach the desired stock of investment by 2019. Given the high investment requirements in lower-income countries, and the potential shortfall in required capacity creation through government budgetary devolutions, the analysis recommends move towards several reforms, including, liberalization of investment regimes, implementation of water-saving innovations, integration of stormwater and rainwater management practices with the wider urban planning.
    Keywords: water and sanitation service, infrastructure investment, MDG, urbanization
    JEL: H4 H41 I15 I18
    Date: 2016–10–27
  8. By: Jon Jellema (Commitment to Equity Institute); Nora Lustig (Department of Economics, Tulane University and Commitment to Equity Institute.); Astrid Haas (International Global Centre); Sebastian Wolf (International Global Centre)
    Abstract: This paper uses the 2012/13 Uganda National Household Survey to analyze the redistributive effectiveness and impact on poverty and inequality of Uganda’s revenue collection instruments and social spending programs. Fiscal policy – including many of its constituent tax and spending elements – is inequality-reducing in Uganda, but the reduction of inequality due to fiscal policy in Uganda is lower than other countries with similar levels of initial inequality, a result tied to low levels of spending in Uganda generally. The impact of fiscal policy on poverty is negligible, while the combination of very sparse coverage of direct transfer programs and nearly complete coverage of indirect tax instruments means that many poor households are net payers into, rather than net recipients from, the fiscal system. As Uganda looks ahead to increased revenues from taxation and concurrent investments in productive infrastructure, it should take care to protect the poorest households from further impoverishment from the fiscal system.
    Keywords: fiscal incidence, poverty, inequality, fiscal policy, Uganda
    JEL: D31 D63 H22 H23 I38
    Date: 2016
  9. By: Ali Enami (Department of Economics, Tulane University.; Department of Economics, Tulane University and Commitment to Equity Institute; University of Akron, OH, USA)
    Abstract: Using the Iranian Household Expenditure and Income Survey (HEIS) for 2011/12, we apply the marginal contribution approach to determine the impact and effectiveness of each fiscal intervention, and the fiscal system as a whole, on inequality and poverty. Net direct and indirect taxes combined reduce the Gini coefficient by 0.0644 points and the headcount ratio by 61 percent. When the monetized value of in-kind benefits in education and health are included, the reduction in inequality is 0.0919 Gini points. Based on the magnitudes of the marginal contributions, we find that the main driver of these reductions is the Targeted Subsidy Program, a universal cash transfer program implemented in 2010 to compensate individuals for the elimination of energy subsidies. The main reduction in poverty occurs in rural areas, where the headcount ratio declines from 44 to 23 percent. In urban areas, fiscally-induced poverty reduction is more modest: the headcount ratio declines from 13 to 5 percent. Taxes and transfers are similar in their effectiveness in achieving their inequality-reducing potential. By achieving 40 percent of its inequality-reducing potential, the income tax is the most effective intervention on the revenue side. On the spending side, Social Assistance transfers are the most effective and they achieve 45 percent of their potential. Taxes are especially effective in raising revenue without causing poverty to rise, indicating that the poor are largely spared from being taxed. In contrast, since the bulk of transfers are not targeted to the poor, they are not very effective: the most effective ones achieve 20 percent of their poverty reduction potential. The effectiveness of the Targeted Subsidy Program could be improved by eliminating the transfer to top deciles and re-allocating the freed funds to the poor.
    Keywords: Inequality, poverty, marginal contribution, CEQ framework, policy simulation
    JEL: D31 H22 I38
    Date: 2016

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