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on Public Finance |
| By: | Don Fullerton; Chi L. Ta |
| Abstract: | To help first- or second-year graduate students in economics apply their theoretical training, this paper shows how to solve a simple and intuitive computable general equilibrium (CGE) model using a calculator. Because this simplified Harberger model uses Cobb Douglas functional forms for utility and production, one can solve for all input and output prices and quantities with no taxes and then solve for exact measures of output with a large tax change (not using derivatives). We then show how to solve simultaneously for capital and labor prices (incidence on the sources side of income), for both output prices (incidence on the uses side), for exact measures of overall welfare loss such as the equivalent variation, for excess burden and marginal excess burden, and for the effects on revenue in the form of a Laffer Curve. |
| JEL: | A20 C63 C68 D04 D58 H21 H22 H23 H24 H25 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23064&r=pub |
| By: | St Pierre, Charles |
| Abstract: | A large tax wedge can lead to a dramatic increase in economic efficiency. The market share of 'deadweight loss' produced by a tax wedge consists of inefficient producers and indifferent consumers. The high costs in resources involved in production of the relatively small quantity of 'deadweight loss benefits' can be much more efficiently applied elsewhere in an economy. Because of this increase in efficiency, we find a substantial government sector and its services may be maintained essentially without cost. We also examine the case of regulation induced wedges and deadweight loss, and find comparable results. The case of price floors we find equivocal. Monopoly and comparable economic structures can also result in improved economic efficiency. Because the resultant deterioration of economic performance may be dramatic, tax wedges and regulations already in place should be examined carefully before their removal. |
| Keywords: | social welfare, taxation, tax wedge, regulation, deadweight loss, economic efficiency, opportunity costs |
| JEL: | D6 D61 H21 H23 |
| Date: | 2017–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76547&r=pub |
| By: | Kumar, Anil (Federal Reserve Bank of Dallas); Liang, Che-Yung (Uppsala University) |
| Abstract: | We extend a standard taxable income model with its typical functional-form assumptions to account for nonlinear budget sets. We propose a new method to estimate taxable income elasticity that is more policy relevant than the typically estimated elasticity based on linearized budget sets. Using U.S. data from the NBER tax panel for 1979-1990 and differencing methods, we estimate an elasticity of 0.75 for taxable income and 0.20 for broad income. These estimates are higher than those obtained by specifications based on linearization. Our approach offers a new way to address the problem of endogenous observed marginal tax rates. |
| Keywords: | taxable income; nonlinear budget sets; panel data |
| JEL: | D11 H24 J22 |
| Date: | 2016–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1611&r=pub |
| By: | Ivica Urban (Institute of Public Finance, Croatia) |
| Abstract: | Traditional analyses of redistributive effects of the tax-benefit system are rooted in the concepts of relative income inequality and proportionality. This observation also applies to decompositions proposed by Kakwani (1977, 1984) and Lambert (1985) that reveal the vertical and horizontal effects of tax-benefit instruments. This paper generalises those decompositions within the frameworks of the alternative inequality concepts suggested by Ebert (2004) and Bosmans et al. (2014). As expected, the results of the empirical analysis indicate that for different views of inequality, different taxes and benefits play significantly different roles in reducing inequality. |
| Keywords: | inequality concepts, redistributive effect, vertical equity, taxes and benefits. |
| JEL: | D63 H22 H23 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2017-427&r=pub |
| By: | Benjamin B. Lockwood; Dmitry Taubinsky |
| Abstract: | A common objection to “sin taxes”—corrective taxes on goods like cigarettes, alcohol, and sugary drinks, which are believed to be over-consumed—is that they fall disproportionately on low-income consumers. This paper studies the interaction between corrective and redistributive motives in a general optimal taxation framework. On the one hand, redistributive concerns amplify the corrective benefits of a sin tax when sin good consumption is concentrated on the poor, even when bias and demand elasticities are constant across incomes. On the other hand, a sin tax can generate regressivity costs, raising more revenue from the poor than from the rich. Sin tax regressivity can be offset by targeted transfers or income tax reforms if differences in sin good consumption are driven by income effects, but not if they are driven by preference heterogeneity, and not if the indirect incentives the sin tax generates for labor supply decisions are not salient. The price elasticity of demand determines the extent to which corrective benefits versus regressivity costs determine the size of the optimal tax. We implement our optimal tax formulas in a calibrated model of sugar-sweetened beverage consumption for a range of parameter values suggested by empirical work. |
| JEL: | H0 I18 I3 K32 K34 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23085&r=pub |
| By: | Eliasson, Jonas; Fosgerau, Mogens |
| Abstract: | This paper addresses the problem of measuring the welfare benefits of a transport improvement. We formulate and analyze a rich spatial model that allows for spillovers, matching and income tax, in a setting with multiple work and residential locations and very general worker heterogeneity. The conventional consumer surplus captures part of the benefits and is calculated based on predictions of changes in travel demand and transport costs. The issue is to determine which so-called wider impacts to add to this. We find that adding the change in total output as a wider impact leads to double-counting of benefits. The output change due to spillovers should be added, while the output change due to matching is already partly included in the consumer surplus. These results are useful for applied cost-benefit analysis of transport policies. |
| Keywords: | Agglomeration; spillovers; matching; cost-benefit analysis; transport policy |
| JEL: | D6 H4 R1 R4 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76526&r=pub |
| By: | Evers, Maria Theresia; Meier, Ina; Nicolay, Katharina |
| Abstract: | Over the last decade, a large body of tax accounting literature on the association between book-tax conformity (BTC)/book-tax differences (BTD) and firms' opportunistic reporting behavior has emerged. Yet, existing empirical evidence on the questions whether increased book-tax conformity actually reduces Earnings Management (EM) and/or Tax Sheltering (TS) and whether book-tax differences are really indicative of such opportunistic reporting behavior is not yet clear. We therefore conduct a meta-analysis aimed at identifying the sources of heterogeneity in primary studies and at providing a consensus estimate with respect to the sign and the statistical significance level for the examined association. Our qualitative literature review reveals that major sources of heterogeneity in the study design include differences in the proxies for EM and TS and in the measures used to determine BTD and BTC. Our meta-regression results show that BTD are indeed indicative of opportunistic reporting behavior, and even more so of EM. These results are, however, weaker for studies that determine BTD only roughly as the difference between book and estimated taxable income instead of using more specific BTD proxies. Moreover, examining actual BTD computed from tax returns instead of only approximating these from financial statements strongly increases the effects. Hence, efforts taken to accurately determine BTD seem to be worth wile when it comes to the explanatory power for opportunistic reporting. Furthermore, our results suggest a negative association between book-tax conformity and EM/TS, which we interpret as an indicator for higher conformity indeed being effective in reducing aggressive reporting. |
| Keywords: | book-tax conformity,book-tax differences,tax sheltering,earnings management,meta-analysis |
| JEL: | H20 H26 K34 M41 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:17003&r=pub |
| By: | Gee, Laura Katherine (Tufts University); Lyu, Xinxin (Tufts University); Urry, Heather (Tufts University) |
| Abstract: | The ability to punish free-riders can increase the provision of public goods. However, sometimes the benefit of increased public good provision is outweighed by the costs of punishments. One reason a group may punish to the point that net welfare is reduced is that punishment can express anger about free-riding. If this is the case, then tools that regulate emotions could decrease the use of punishments while keeping welfare high, possibly depending on pre-existing levels of aggression. In this lab experiment, we find that adopting an objective attitude (Objective), through a form of emotion regulation called cognitive reappraisal, decreases the use of punishments and makes a statistically insignificant improvement to both net earnings and self-reported emotions compared to a control condition (Natural). Although the interaction between the emotion regulation treatment and level of aggression is not significant, only low aggression types reduce their punishments; the results are of the same direction but statistically insignificant for high aggression types. Overall, our findings suggest that pairing emotion regulation with punishments can decrease the use of punishments without harming monetary and mental welfare. |
| Keywords: | public goods, punishment, emotions |
| JEL: | C72 C91 C92 D7 H41 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10499&r=pub |
| By: | Raimond Maurer; Olivia S. Mitchell; Ralph Rogalla; Tatjana Schimetschek |
| Abstract: | People who delay claiming Social Security receive higher lifelong benefits upon retirement. We survey individuals on their willingness to delay claiming later, if they could receive a lump sum in lieu of a higher annuity payment. Using a moment-matching approach, we calibrate a lifecycle model tracking observed claiming patterns under current rules and predict optimal claiming outcomes under the lump sum approach. Our model correctly predicts that early claimers under current rules would delay claiming most when offered actuarially fair lump sums, and for lump sums worth 87% as much, claiming ages would still be higher than at present. |
| JEL: | G11 G22 H55 J26 J32 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23073&r=pub |
| By: | Li Tan (Department of Economics at the University of Missouri); Cory Koedel (Department of Economics and Truman School of Public Affairs, at the University of Missouri); |
| Abstract: | We forecast lifetime earnings of young workers to study the redistributive effects of Social Security, prospectively. Using data from an older generation of workers, we first establish that our forecasting method can recover the actual distribution of Average Indexed Monthly Earnings taken from Social Security Administration records. We then extend the method to forecast Social Security returns for recent cohorts and examine redistributive trends. Our methods and data are accessible, facilitating straightforward replications and extensions. Focusing on redistributions across race and education groups, and on men’s own benefits, we show that Social Security exhibits little progressivity, and little progressivity improvement, for recent cohorts. |
| Keywords: | Earnings forecast, Bayesian forecasting, Social Security, Social Security progressivity, Social Security projections |
| JEL: | H55 J18 J32 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:1701&r=pub |
| By: | Bick, Alexander (Arizona State University); Fuchs-Schündeln, Nicola (Goethe University Frankfurt) |
| Abstract: | We document contemporaneous differences in the aggregate labor supply of married couples across 17 European countries and the US. Based on a model of joint household decision making, we quantify the contribution of international differences in non-linear labor income taxes and consumption taxes to the international differences in hours worked in the data. Through the lens of the model, taxes, together with wages and the educational composition, account for a significant part of the small differences in married men's and the large differences in married women's hours worked in the data. Taking the full nonlinearities of labor income tax codes, including the tax treatment of married couples, into account is crucial for generating the low cross-country correlation between married men's and women's hours worked in the data, and for explaining the variation of married women's hours worked across European countries. |
| Keywords: | taxation, two-earner households, hours worked |
| JEL: | E60 H20 H31 J12 J22 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10504&r=pub |
| By: | Bergner, Sören Martin; Bräutigam, Rainer; Evers, Maria Theresia; Spengel, Christoph |
| Abstract: | This paper discusses the impact and the appropriateness of tax incentives for small and medium-sized enterprises (SMEs) in the European Union. First, we provide a survey of implemented tax incentives specifically targeted at SMEs in the 28 EU Member States. Building hereon, we measure the impact of these regimes on the effective tax burdens of targeted companies. We find that SME tax incentives are a commonly used measure among European policy makers. The vast majority of regimes, however, only marginally reduce the tax liability of SMEs. If major reliefs are available, they mostly stem from special tax rates whereas tax credits and special allowance play a minor role. In the second main part of the analysis, we examine the arguments potentially justifying the usage of SME tax incentives. As a main result, small firms per se do not create more jobs and innovations nor do they face insurmountable financing constraints. The existence of market failures commonly associated with SMEs - and possibly warranting the use of SME tax incentives - can therefore not be confirmed. Instead, disproportionate tax compliance costs for small entities constitute the most compelling argument for a special tax treatment. These compliance costs can most appropriately be addressed by administrative reliefs. Special tax rates, tax credits and allowances, in contrast, are not only inefficient but also ineffective in this regard. Instead of improving the neutrality of the overall tax system, the latter are likely to add further distortions and unnecessary complexity. Altogether, the focus of policy-makers should thus shift from providing discriminatory incentives to the design of a generally neutral and simple tax system, which would benefit small as well as large enterprises. |
| Keywords: | SME,Tax Policy,European Union |
| JEL: | H24 H25 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:17006&r=pub |
| By: | Wolfgang Frimmel; Martin Halla; Jörg Paetzold |
| Abstract: | Does tax evasion run in the family? To answer this question, we study the case of the commuter tax allowance in Austria. This allowance is designed as a step function of the distance between the residence and the workplace, creating sharp discontinuities at each bracket threshold. The distance to these brackets is a strong determinant of compliance since it corresponds to the probability of detection. The match of different administrative data sources allows us to observe actual compliance behavior at the individual level across two generations. To identify the intergenerational causal effect in tax evasion behavior, we use the paternal distance-to-bracket as an instrumental variable for paternal compliance. We find that paternal non-compliance increases children's non-compliance by about 20 percent. |
| Keywords: | tax evasion, tax morale, intergenerational correlation, intergenerational causal effect |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2017-01&r=pub |
| By: | Stefan Bach; Martin Beznoska; Viktor Steiner |
| Abstract: | This paper documents methodology underlying the construction of the integrated data base for our study on “Wer trägt die Steuerlast in Deutschland? – Verteilungswirkungen des deutschen Steuer- und Transfersystems” (Who bears the tax burden in Germany? – Distributional Analyses of the German tax and transfer system). Financial support from the Hans Böckler Stiftung for the project is gratefully acknowledged. The paper greatly benefited from comments by the members of the scientific advisory council of the project. |
| Keywords: | Microsimulation models on taxes and transfers, data integration, income distribution |
| JEL: | H24 C81 D31 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwddc:dd86&r=pub |