nep-pub New Economics Papers
on Public Finance
Issue of 2017‒05‒21
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Effectiveness of Consumption Taxes and Transfers as Insurance against Idiosyncratic Risk By Tomoyuki Nakajima; Shuhei Takahashi
  2. Charging Drivers by the Pound: The Effects of the UK Vehicle Tax System By Davide Cerruti; Anna Alberini; Joshua Linn
  3. The 'Soda Tax' is Unlikely to Make Mexicans Lighter: New Evidence on Biases in Elasticities of Demand for Soda By Mabel Andalon; John Gibson
  4. Effects of tax-benefit policy changes across the income distributions of the EU-28 countries: 2015-2016 By EUROMOD, EUROMOD
  5. Non-Tax Revenue in the European Union: A Source of Fiscal Risk? By Gilles Mourre; Adriana Reut
  6. Stock Option Taxation: A Missing Piece in European Innovation Policy? By Henrekson, Magnus; Sanandaji, Tino
  7. Tax Administration and Firm Performance; New Data and Evidence for Emerging Market and Developing Economies By Era Dabla-Norris; Florian Misch; Duncan Cleary; Munawer Khwaja

  1. By: Tomoyuki Nakajima (Institute of Economic Research, Kyoto University); Shuhei Takahashi (Institute of Economic Research, Kyoto University)
    Abstract: We quantitatively evaluate the effectiveness of a consumption tax and transfer pro- gram as insurance against idiosyncratic earnings risk. Our framework is a heterogeneous- agent, incomplete-market model with idiosyncratic wage risk and indivisible labor. The model is calibrated to the U.S. economy. We find a weak insurance effect of the transfer program. Extending the transfer system from the current scale raises consumption un- certainty, which increases aggregate savings and reduces the interest rate. Furthermore, consumption inequality shows a small decrease.
    Keywords: Consumption taxes; Transfers; Risk sharing; Consumption inequality; Indivisible labor; Incomplete markets
    JEL: E62 D31 J22 C68
    Date: 2017–03
  2. By: Davide Cerruti (ETH Zurich, Switzerland); Anna Alberini (University of Maryland,USA); Joshua Linn (Resources of the Future, USA)
    Abstract: Policymakers have been considering vehicle and fuel taxes to reduce transportation greenhouse gas emissions, but there is little evidence on the relative efficacy of these approaches. We examine an annual vehicle registration tax, the Vehicle Excise Duty (VED), which is based on carbon emissions rates. The UK first adopted the system in 2001 and made substantial changes to it in the following years. Using a highly disaggregated dataset of UK monthly registrations and characteristics of new cars, we estimate the effect of the VED on new vehicle registrations and carbon emissions. The VED increased the adoption of low-emissions vehicles and discouraged the purchase of very polluting vehicles, but it had a small effect on aggregate emissions. Using the empirical estimates, we compare the VED with hypothetical taxes that are proportional either to carbon emissions rates or to carbon emissions. The VED reduces total emissions twice as much as the emissions rate tax but by half as much as the emissions tax. Much of the advantage of the emissions tax arises from adjustments in miles driven, rather than the composition of the new car sales.
    Keywords: CO2 emissions, vehicle registration fees, carbon taxes, vehicle excise duty, UK
    JEL: H23 Q48 Q54 R48
    Date: 2017–05
  3. By: Mabel Andalon (University of Melbourne); John Gibson (University of Waikato)
    Abstract: Mexico’s one peso per liter tax on sugar-sweetened drinks has been predicted to reduce average weight of Mexicans by two to four pounds, based on extant estimates of an own-price elasticity of quantity demand for soda of between -1.0 and -1.3. These elasticity estimates ignore consumer responses on the quality margin and are biased by correlated measurement errors. We combine Mexican household budget survey data with city-level soda price data to estimate unrestricted demand models that allow consumer responses on both the quality and quantity margins. If methods from previous Mexican studies are used, the own-price elasticity of quantity demand for soda is between -1.2 and -1.3 but is just -0.2 to -0.3 if more appropriate methods are used. If the corrected elasticities are used, tax-induced soda price increases might cause weight reductions of less than one pound, which is too small to make much difference to health.
    Keywords: demand; household surveys; quality; price; soda taxes; Mexico
    JEL: D12 I10
    Date: 2017–05–11
    Date: 2017–05–16
  5. By: Gilles Mourre; Adriana Reut
    Abstract: This paper examines the characteristics of government non-tax revenue in the European Union. Nontax revenue includes a large number of diverse income sources, such as fees charged for the provision of public services, income from financial assets and government property, and EU funds. Receipts from sources other than taxes account for slightly more than one-tenth of total revenue, but the fiscal risk stemming from the volatility of non-tax revenue is three times higher than that from the volatility of tax revenue. We present measurements of volatility in non-tax receipts in the Member States that can help identify the uncertainty around annual projections of revenue. Panel data analysis is used to examine whether macroeconomic and fiscal variables can explain the differences in non-tax revenue among Members States. Government spending, tax receipts and the size of financial assets held by government are found to explain close to a third of the cross-sectional variation in non-tax revenue. Granger causality tests are used to examine the direction of causality across Member States between non-tax revenue, tax receipts, and government spending.
    JEL: E62 H27
    Date: 2017–02
  6. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Sanandaji, Tino (Institute for Economic and Business History Research (EHFF), Stockholm School of Economics)
    Abstract: Venture capital has become a dominant form of innovation finance, used by many high-tech startups. Europe lags the U.S. in both VC activity and the creation of successful startups, and has recently been surpassed by China. Few European countries have rates of VC activity commensurable to their deep finan­cial markets, strong legal institutions and high R&D spending. This paper points to the tax treatment of employee stock options as an important and neglected explanation. Innovative entrepreneurship is a complex activity that normally requires support structures and collaboration by actors providing financial and human capital to startups. As a response to high uncertainty and transaction costs, VC financiers developed a model where founders and key recruitments are compensated with stock options under complex contracts. While most countries tax stock options as labor earnings, the U.S. allow them to be taxed at a low capital gains tax rate. This has led to near universal use of stock options in U.S. VC deals, while this remains less common in Europe. There is a strong correlation between favorable tax treatment of employee stock options and VC activity. We discuss the interaction between tax policy and contract theory to show why employee stock options are a suitable solution to agency and incentive problems in this sector. A major advantage of this tax policy is that it narrowly targets entrepreneurial startups without requiring broad tax cuts.
    Keywords: Business taxation; Corporate governance; Entrepreneurship; Innovation; Institutions; Tax policy; Stock options; Venture capital
    JEL: H25 H30 K34 L26
    Date: 2017–05–12
  7. By: Era Dabla-Norris; Florian Misch; Duncan Cleary; Munawer Khwaja
    Abstract: Tax compliance costs tend to be disproportionately higher for small and young businesses. This paper examines how the quality of tax administration affects firm performance for a large sample of firms in emerging market and developing economies. We construct a novel, internationally comparable, and multidimensional index of tax administration quality (the TAQI) using information from the Tax Administration Diagnostic Assessment Tool. We show that better tax administration attenuates the productivity gap of small and young firms relative to larger and older firms, a result that is robust to controlling for other aspects of tax policy and of economic governance, alternative definitions of small and young firms, and measures of the quality of tax administration. From a policy perspective, we provide evidence that countries can reap growth and productivity dividends from improvements in tax administration that lower compliance costs faced by firms.
    Date: 2017–04–14

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