nep-pub New Economics Papers
on Public Finance
Issue of 2016‒12‒18
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation and R&D Policies By Ufuk Akcigit; Douglas Hanley; Stefanie Stantcheva
  2. Public Finance, Economic Growth and Inequality: A Survey of the Evidence By Åsa Johansson
  3. Regionalization and Consolidation of Municipal Taxes and Services By Joshua C. Hall; Joshua Matti; Yang Zhou
  4. The Impact of Tax and Benefit Systems on the Workforce Participation Incentives of Women By Alastair Thomas; Pierce O’Reilly
  5. The Effect of the Size and the Mix of Public Spending on Growth and Inequality By Jean-Marc Fournier; Åsa Johansson
  6. Taxes and Economic Growth in OECD Countries: A Meta-Analysis By Nazila Alinaghi; W. Robert Reed
  7. Falling Corporate Tax Rates in the EU: Is there a case for harmonisation? By María T. Álvarez-Martínez; Salvador Barrios; Diego d'Andría; Maria Gesualdo; Jonathan Pycroft; Dimitrios Pontikakis
  8. Who Bears the Burden of Social Security Contributions in Germany? Evidence from 35 Years of Administrative Data By Kai-Uwe Müller; Michael Neumann
  9. Measuring the Effectiveness of Taxes and Transfers in Fighting Poverty and Inequality in Iran By Ali Enami

  1. By: Ufuk Akcigit; Douglas Hanley; Stefanie Stantcheva
    Abstract: We study the optimal design of R&D policies and corporate taxation when the outputs of innovation are not appropriable in the absence of intellectual property rights policies and there are non-internalized technology spillovers across firms. Firms are heterogeneous in their research productivity, i.e., in the efficiency with which they convert a given set of R&D inputs into successful innovations. There is asymmetric information about firm productivity and about its stochastic evolution over time that prevents the first best solution to the technology spillover. The problem is thus posed as one of dynamic mechanism design with externalities. We characterize the optimal constrained efficient allocations over firms' life cycles and for firms of different productivities. We show that the constrained efficient allocations can be implemented either by a patent system plus a price subsidy for the monopolists' products, together with a parsimonious R&D subsidy function or, equivalently, by a prize mechanism. We estimate our model using firm-level data matched to patent data and quantify the optimal policies. Simpler innovation policies, such as linear R&D subsidies and linear profit taxes, lead to large revenue losses relative to the optimal mechanism.
    JEL: H0 H2 H21 H23 H25 O0 O31 O32 O33 O38
    Date: 2016–12
  2. By: Åsa Johansson
    Abstract: This paper reviews the key issues concerning the impact of public spending and taxation on long-run growth and inequality and takes stock of existing theoretical and empirical studies. Overall, the evidence highlights that the size of the government matters for long-term growth as a too large government may undermine growth through the cost of financing public spending. A reallocation of public spending towards infrastructure and education would raise income in the long run, whereas increasing social welfare spending can reduce inequality as such spending increases redistribution and risk sharing. Similarly, the available evidence also supports the hypothesis that some taxes are more distortionary than others, with income taxes found to be more harmful for growth than consumption and property taxes. However, a tax shift from income towards consumption taxes has equity implications, since income taxes are generally more progressive than other taxes. The effect of a reallocation of spending and taxes on growth and inequality likely varies across countries depending on country characteristics. Finances publiques, croissance économique et inégalités : Une revue de littérature Ce rapport examine les principales questions liées à l’impact des dépenses publiques et de la fiscalité sur la croissance à long terme et les inégalités, et fait le point sur les études théoriques et empiriques déjà publiées. Il ressort de ces publications que la taille du secteur public exerce une influence sur la croissance à long terme, dans la mesure où un secteur public trop important peut freiner la croissance en raison de la charge financière qu’il représente. La réaffectation des dépenses publiques au financement des infrastructures et de l’éducation peut avoir un effet bénéfique sur le revenu à long terme, tandis que l’augmentation des dépenses allouées à la protection sociale peut contribuer à résorber les inégalités en favorisant la redistribution et la mutualisation des risques. Ces études corroborent en outre l’hypothèse selon laquelle certains impôts génèrent davantage de distorsions que d’autres : il est ainsi attesté que les impôts sur le revenu pèsent davantage sur la croissance que les impôts sur la consommation ou la propriété. Néanmoins, un transfert de la charge fiscale du revenu vers la consommation a des implications en termes d’équité, étant donné que les impôts sur le revenu sont généralement plus progressifs que les autres. Les conséquences qu’aurait, sur la croissance et les inégalités, une réaffectation des dépenses et des impôts varient selon les pays, en fonction des caractéristiques de chacun.
    Keywords: economic growth, fiscal policy, income inequality, Public spending, taxation
    JEL: D31 O43 H30 H11 H50 H21 O40 H20
    Date: 2016–12–15
  3. By: Joshua C. Hall (West Virginia University, Department of Economics); Joshua Matti (West Virginia University, Department of Economics); Yang Zhou (West Virginia University, Department of Economics)
    Abstract: The United States has a rich history of local government taxation and good provision. The last fifty years, however, have seen increasing calls for the regionalization of municipal taxes and services from policymakers. Arguments for greater regionalization emphasize improved efficiency, enhanced equity, mitigation of spillovers, and improved economic development. A number of localist scholars have responded to regionalists’ concerns. This review articulates regionalists’ arguments, the localists’ response, and then summarizes the relevant empirical literature to see which side’s theories hold forth in the data.
    Keywords: local governments, Bloomington School, regionalism, localism
    JEL: H11 H70 H71 H77
    Date: 2016–12
  4. By: Alastair Thomas (OECD); Pierce O’Reilly (OECD)
    Abstract: This paper examines the impact of tax and benefit systems on the incentives for second earners to enter formal employment. The paper highlights how various tax design features create greater participation disincentives for second earners than for primary earners or single individuals. As second earners in OECD countries are more often women, these greater disincentives create significant gender-equity concerns. As second earners are also typically highly responsive to work disincentives, these features are likely to negatively impact economic growth. These disincentives stem from a range of policies including the choice of family-based rather than individual-based taxation, the use of dependent spouse tax credits and allowances, and the use of tax credits and benefits based on family rather than individual income. Reform options to address these issues will depend on countries’ existing tax policy design choices. For countries where individual-based taxation is combined with some family-based provisions, reform of these family-based provisions to lessen their impact on second earner work disincentives may be warranted. For countries with family-based tax systems, the introduction of some individual-based provisions could be considered to mitigate the negative effects of family-based taxation on second earner work incentives.
    Date: 2016–12–14
  5. By: Jean-Marc Fournier; Åsa Johansson
    Abstract: This paper provides evidence on the effects of the size and the composition of public spending on long-term growth and inequality. An estimated baseline convergence model captures the long-term effect of human capital and total investment on potential output for a panel of OECD countries. The composition of public spending added to this baseline provides evidence that certain public spending items (public investment and education) boost potential growth, while others (pensions and public subsidies) lower potential growth. There is also evidence that too large governments reduce potential growth, unless the functioning of government is highly effective. This paper also investigates the effect of public spending items on income inequality. Increasing the size of government, family benefits or subsidies decreases inequality. Reforms making the government more effective and an education reform that aims at encouraging completion of secondary education may also decrease income inequality. Simulations combining both growth and distributional effects illustrate that most reforms can deliver considerable growth gains and benefit the poor. L’effet de la taille et de la composition des dépenses publiques sur la croissance et les inégalités Cet article fournit des preuves empiriques sur les effets de la taille et de la composition des dépenses publiques sur la croissance à long terme et les inégalités. Un modèle de convergence de base mesure l’effet à long terme du capital humain et de l’investissement total sur la production potentielle pour un panel de pays de l’OCDE. La composition des dépenses publiques ajoutée à ce modèle de base montre que certains postes de dépenses publiques (investissements publics et éducation) stimulent la croissance potentielle, tandis que d’autres (pensions et subventions publiques) diminuent la croissance potentielle. Il est également prouvé que des gouvernements trop importants réduisent la croissance potentielle, à moins que le fonctionnement du gouvernement soit très efficace. Cet article examine également l’effet des dépenses publiques sur les inégalités de revenus. Augmenter la taille du gouvernement, les prestations familiales ou les subventions diminue les inégalités. Les réformes rendant le gouvernement plus efficace et une réforme de l’éducation qui vise à encourager l’achèvement de l’enseignement secondaire peuvent également réduire les inégalités de revenus. Des simulations combinant les effets de croissance et de distribution montrent que la plupart des réformes peuvent générer des gains de croissance considérables et bénéficier aux pauvres.
    Keywords: government size, growth, income inequality, public spending
    JEL: H55 D31 H50 H52 H54 O40 H53
    Date: 2016–12–15
  6. By: Nazila Alinaghi; W. Robert Reed (University of Canterbury)
    Abstract: This paper uses meta-analysis to evaluate the results of 42 studies and 641 individual estimates of the effect of taxes on economic growth in OECD countries. Our analysis addresses a number of difficult coding issues such as: implications of the government budget constraint for interpretations of tax effects; units of measurement for economic growth rates and tax rates; implications of equation specifications that measure short-run, medium-run, and long-run effects; length of time period (annual data versus multi-year periods); and other factors. Our main findings are: Estimates in the literature are characterized by significant (negative) publication bias. Controlling for publication bias, we find that increases in unproductive expenditures funded by distortionary taxes and/or deficits have a significant, negative effect on growth; while increases in non-distortionary taxes to fund productive expenditures and/or government surpluses have a significant, positive effect. The estimated differences in these policies indicate that there is scope for tax policy to have a meaningful impact on economic growth. Finally, we find weak evidence that taxes on labour are more growth retarding than other types of taxes, while the evidence regarding other types of taxes is mixed.
    Keywords: Meta-analysis, taxes, economic growth, OECD
    JEL: H2 H5 H6 O47 O50
    Date: 2016–12–15
  7. By: María T. Álvarez-Martínez (European Commission - JRC); Salvador Barrios (European Commission - JRC); Diego d'Andría (European Commission - JRC); Maria Gesualdo (European Commission - JRC); Jonathan Pycroft (European Commission - JRC); Dimitrios Pontikakis (European Commission - JRC)
    Abstract: In a globalised world economy where capital is highly mobile governments are eager to attract foreign investors by lowering their corporate tax rates. EU countries have been particularly active in this respect given that capital can move freely across EU member states´ borders thanks to reforms removing major obstacles to cross-border investments. Multinationals are therefore in a good position to exploit the tax loopholes associated with the complexity and multiplicity of tax regimes in the EU. As a result tax revenues and tax levels might be distorted and a closer coordination of tax rate setting might be warranted. In this paper we quantify the macroeconomic consequences of changing corporate tax rates depending on a given EU country specific situation, in particular in terms of economic size and tax level and structure, and we investigate the possible case for a closer coordination of corporate tax policies in the EU. We use a computable general equilibrium (CGE) model reflecting countries´ heterogeneity to assess the economic impact of corporate tax changes and the possible economic impacts of uncoordinated and coordinated tax policy reforms in the EU. The aim of this paper is to contribute to the ongoing debate about the desirability, modality and likely impact of alternative policy solutions to the challenges posed by tax competition and aggressive tax planning. We find that corporate income tax rates can generate substantial responses within the implementing country as well as beyond its own borders depending on the country size. Harmonisation of CIT rates would involve winners and losers and it may have costs for the EU and as such, may be best pursued gradually and as part of a broader package of corporate tax reform on tax bases and government transfers.
    Keywords: corporate taxation, computable general equilibrium models, tax harmonization
    Date: 2016–12
  8. By: Kai-Uwe Müller; Michael Neumann
    Abstract: This paper provides evidence over a long time period on the question of who bears the burden of social security contributions (SSC) in Germany. Following Alvaredo et al. (2016) we exploit kinks in the budget set generated by a drop in the marginal SSC rate at earnings caps. Based on cross-sectional earnings distributions the framework does not rely on policy reforms. Applying the approach to administrative data for West Germany facilitates a comprehensive incidence analysis between 1975 and 2010. We find that neither employers nor employees shift a substantial part of their SSC burden. These results are consistent over the whole time period and in robustness checks corroborating previous findings. A small trend towards a slight increase in the SSC burden falling on employees is not statistically significant.
    Keywords: Incidence, social security contributions, discontinuities
    JEL: H22 J38 H55
    Date: 2016
  9. By: Ali Enami (Tulane University and CEQ Institute.)
    Abstract: This paper introduces two new Commitment to Equity (CEQ) indexes to assess the effectiveness of taxes and transfers in reducing inequality and poverty: the Impact and Spending Effectiveness indicators. The Spending Effectiveness indicator has an additional interpretation as a measure of efficiency. These effectiveness indicators are used in this paper to rank taxes and transfers in Iran. In addition, I estimate the Fiscal Impoverishment and Fiscal Gains to the Poor Effectiveness indicators, which have also been developed by the CEQ Institute. The results show that in this case study, taxes and transfers are similarly effective in achieving their inequality-reducing potential. The income tax is the most effective intervention on the revenue side, achieving 40 percent of its inequality-reducing potential. On the spending side, social assistance transfers are the most effective, achieving 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 taxation. In contrast, transfers are not very effective because the majority of them are not targeted to the poor: the most effective transfers achieve 21 percent of their poverty reduction potential.
    Keywords: Inequality, poverty, fiscal incidence, marginal contribution, effectiveness indicator, policy simulation, Iran
    JEL: D31 H22 I38

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