nep-pub New Economics Papers
on Public Finance
Issue of 2016‒11‒06
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Heterogeneous Effects of Government Spending: It's All About Taxes By Gaston Navarro; Axelle Ferriere
  2. Optimal Fiscal Policy in a Model with Uninsurable Idiosyncratic Shocks By Marcelo Zouain Pedroni; Sebastian Dyrda
  3. Tax administration resources and Income inequality By Nguyen, Trang T.T.
  4. Business Income and Business Taxation in the United States Since the 1950s By Conor Clarke; Wojciech Kopczuk
  5. Fiscal Equalization Schemes and Subcentral Government Borrowing By Barrios, Salvador; Martínez–López, Diego
  6. The Redistributive Impactive of Government Spending on Education and Health Evidence from Thirteen Developing Countries in the Commitment to Equity Project By Nora Lustig

  1. By: Gaston Navarro (Federal Reserve Board); Axelle Ferriere (European University Institute)
    Abstract: Empirical work suggests that government spending generates large expansions of output and consumption. Most representative-agent models predict a moderate expansion of output, and a crowding-out of consumption. We reconcile these findings by taking into account the distribution of taxes. Using US data from 1913 to 2012, we provide evidence that government spending induces larger expansions in output and consumption when financed with more progressive taxes. We then develop a model with heterogeneous households and idiosyncratic risk, to show that a rise in government spending can be expansionary, both for output and consumption, only if financed with more progressive labor taxes. Key to our results is the model endogenous heterogeneity in households’ marginal propensities to consume and labor supply elasticities. In this respect, the distributional impact of fiscal policy is central to its aggregate effects.
    Date: 2016
  2. By: Marcelo Zouain Pedroni (University of Amsterdam); Sebastian Dyrda (University of Toronto)
    Abstract: This paper studies optimal taxation in the standard incomplete markets model. We formulate a Ramsey problem and solve numerically for the optimal (time varying) paths of proportional capital and labor income taxes, (possibly negative) lump-sum transfers, and government debt. The solution maximizes welfare along the transition between an initial steady state, calibrated to replicate key features of the US economy, and an endogenously determined final steady state. We find that in the optimal (utilitarian) policy: (i) capital income taxes are front-loaded hitting the imposed upper bound of 100 percent for 33 years before decreasing to 45 percent in the long-run; (ii) labor income taxes are reduced to less than half of their initial level, from 28 percent to about 13 percent in the long-run; and (iii) the government accumulates assets over time reducing the debt-to-output ratio from 63 percent to ô€€€17 percent in the long-run. This leads to an average welfare gain equivalent to a permanent 4.9 percent increase in consumption. Though distortive, taxes reduce the variance both cross-sectionally and over time of after-tax income, increasing welfare for both a redistributive and an insurance motive which we quantify.
    Date: 2016
  3. By: Nguyen, Trang T.T.
    Abstract: The paper contributes to the research field as the first quantitative study deploying OECD Tax administration database to provide empirical evidence with respect to the impact of Tax administration resources on income inequality. Methodologically speaking, we apply, for the unique data set of 46 countries extracted from OECD Tax administration 2015 database, the cross-sectional multiple regression employing the OLS estimator before justifying with other estimators i.e. truncated regression, quantile regression and weighted least squared (WLS). We finally obtain the robustly negative relationship between Tax administration resources (employees and non-salary expenditure) and income inequality as hypothesize. The paper ends with some policy recommendations following the limitations and directions for further research.
    Keywords: income inequality, Tax administration, OECD Tax administration database, Tax administration resources, Tax administration employees, non-salary expenditure
    JEL: D63 H00 H20 M21
    Date: 2016–10–30
  4. By: Conor Clarke; Wojciech Kopczuk
    Abstract: In theory, the U.S. tax system aims to attribute and tax all business income to individuals. But the tax treatment of this income varies. Pass-through income is taxed when earned; capital-gains income is taxed when realized; dividends when distributed; other forms of business income may escape taxation entirely. Business owners often have control over the timing and character of their income: They can often choose, for example, between reporting business income or deducting it as wages or fringe benefits. And laws change, changing the incentive and ability to shift income between the individual and corporate sectors. We integrate a wide variety of tax data to document the large long-run changes in the structure of business income and business taxation in the United States. These changes include the degree to which business incomes are taxed on a realization versus an accrual basis, the extent to which taxation is deferred, and the share of business income that is ultimately subject to taxation. We highlight the evolving relevance of retained earnings in the changing corporate sector and their relationship to equity values and unrealized capital gains. We also document the evolution of individual income components — profits of pass-through entities, dividends, and capital gains (both taxable gains and those escaping taxation through step-up). As a result of these changes, business incomes are increasingly taxed through personal income taxes instead of a combination of corporate and personal taxes. In particular, this implies that the observability of business incomes on personal income tax returns has improved over time, a fact that has implications for measuring and understanding the income distribution.
    JEL: D31 H25
    Date: 2016–10
  5. By: Barrios, Salvador (Asian Development Bank Institute); Martínez–López, Diego (Asian Development Bank Institute)
    Abstract: Examining the cases of Canada, Germany, and Spain, the role played by fiscal equalization schemes in determining subnational borrowing was analyzed, and the link between regional governments’ primary fiscal balances and gross domestic product per capita was tested econometrically. The study results show that either poor or rich regions can display higher regional public borrowing on average, and these results can be linked to the institutional design of regional equalization systems in place. Particular elements, such as tax efforts and fiscal capacities, also play relevant roles in this regard. Reforms of these schemes can therefore prove instrumental in reducing regional heterogeneity in public borrowing.
    Keywords: Fiscal equalization schemes; government borrowing; public borrowing; subnational borrowing; fiscal capacity; Canada; Germany; Spain; 公共借入金; 政府借入金; 財政能力
    JEL: H70 R50
    Date: 2016–10–27
  6. By: Nora Lustig (Stone Center for Latin American Studies, Department of Economics, Tulane University.)
    Abstract: Here, I examine the level, redistributive impact and pro-poorness of government spending on education and health for thirteen developing countries from the Commitment to Equity project. Social spending as a share of total income is high by historical standards, and it rises with income per capita and income inequality. Spending on education and health lowers inequality and its marginal contribution to the overall decline in inequality is, on average, 69 percent. There appears to be no “Robin Hood Paradox:” redistribution increases with income inequality, even if one controls for per capita income. Concentration coefficients indicate that spending on pre-school, primary and secondary education is pro-poor in twelve countries. Spending on tertiary education is regressive and unequalizing in three countries, and progressive and equalizing (but not pro-poor) in ten. Health spending is pro-poor in five countries. Of the remaining eight, health spending per capita is roughly equal across the income distribution in three, and progressive and equalizing (but not pro-poor) in five.
    Keywords: fiscal incidence, social spending, inequality, developing countries
    JEL: H22 D31 I3
    Date: 2015–03

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