nep-pub New Economics Papers
on Public Finance
Issue of 2017‒06‒18
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Capital Taxation and Investment: Matching 100 Years of Wealth Inequality Dynamics By Boehl, Gregor; Fischer, Thomas
  2. Occupational Choice with Endogenous Spillovers By Facundo Albornoz; Antonio Cabrales; Esther Hauk
  3. Social justice in the context of redistribution By Kederer, Jan-Felix; Klein, Adelheid; Kovarich, Daniel; Kumm, Lena
  4. Should pollution taxes be targeted at income redistribution? By Bas Jacobs; Frederick van der Ploeg
  5. Social Security and Saving: An Update By Sita Slavov; Devon Gorry; Aspen Gorry; Frank N. Caliendo
  6. Tax evasion, intrinsic motivation, and the evolutionary effects of tax reforms By Fabio Lamantia; Mario Pezzino; Fabio Tramontana
  7. Behavioral insights and business taxation: Evidence from two randomized controlled trials By Biddle, Nicholas; Fels, Katja; Sinning, Mathias
  8. Federal Tax Policies, Congressional Voting, and the Fiscal Advantage of Natural Resources By Fidel Perez-Sebastian; Ohad Raveh
  9. Two Tales of Two U.S. States: Regional Fiscal Austerity and Economic Performance By Rickman, Dan S.; Wang, Hongbo
  10. What Drives Vertical Fiscal Interactions? Evidence from the 1980 Crude Oil Windfall Act By Fidel Perez-Sebastian; Ohad Raveh

  1. By: Boehl, Gregor (IFMS, Goethe University Frankfurt, Germany.); Fischer, Thomas (Department of Economics, Lund University)
    Abstract: Using a parsimonious, analytically tractable dynamic model, we are able to explain up to 100 years of the available data on the dynamics of top-wealth shares for several countries. We build a micro-founded model of heterogeneous agents in which - in addition to stochastic returns on investment - individuals disagree marginally on their expectations of future returns and thus hold different asset positions. We show that, given a positive tax on capital gains, the distribution converges to a double Pareto distribution for which the degree of wealth inequality decreases with the tax rate. Closed-form solutions confirm that without government intervention there is infinite inequality. Moreover, transition dynamics are shown to increase with the tax rate. We discuss the model's ability to match the measured wealth inequality for the US, the UK, Sweden, and France, both in levels and transitions. The heterogeneous development in the different countries and across time can be traced back to different tax regimes.
    Keywords: Wealth inequality; capital taxation; stochastic simulation; heterogeneity
    JEL: C63 D31 G11 H23
    Date: 2017–06–07
  2. By: Facundo Albornoz; Antonio Cabrales; Esther Hauk
    Abstract: We study a model that integrates productive and socializing ef- forts with occupational choice in the presence of endogenous spillovers. Among other results, we show that more talented individuals work harder and contribute more to the emergence of externalities, but also have incentives to segregate. Average socializing increases in the average productivity of the occupation. Also, the size of an occupation grows in its network synergies. Turning to efficiency, we show that individuals underinvest in productive and socializing effort, and sort themselves inefficiently into occupations. We derive the optimal subsidy to achieve efficient effort within occupations and show that efficient sorting into occupations can always be achieved by a linear tax. We illustrate the importance for the government to intervene on both margins, as solving only the within occupation investment problem can exacerbate misallocations due to network choice and may even reduce welfare in presence of congestion costs.
    Keywords: occupational choice, Social interactions, endogenous spillovers, optimal taxation
    JEL: D85 H21 H23 J24
    Date: 2017–06
  3. By: Kederer, Jan-Felix; Klein, Adelheid; Kovarich, Daniel; Kumm, Lena
    Abstract: [Introduction and Research Question ...] Before we turn to the main body, we briefly sketch the organisation of this paper: Section 2 addresses the different components of different social security systems including the allocation of income, a minimum income as well as the respective financing mechanisms. Section 3 covers the description, purposes, hypotheses and results of our experimental design. Section 4 deals with concluding remarks on the empirical procedure including a prospect for further research.
    Date: 2017
  4. By: Bas Jacobs; Frederick van der Ploeg
    Abstract: This paper analyses optimal corrective taxation and optimal income redistribution. The Pigouvian pollution tax is higher if pollution damages disproportionally hurt the poor due to equity weighting of pollution damages. Moreover, optimal pollution taxes should be set below the Pigouvian tax if the poor spend a disproportionate fraction of their income on polluting goods if preferences for commodities are not of the Gorman (1961) polar form. However, optimal pollution taxes should follow the first-best rule for the Pigouvian corrective tax if preferences for commodities are of the Gorman polar form even if the government wants to redistribute income and the poor spend a disproportional part of their income on polluting goods. The often-used quasi-linear, CES and Stone-Geary utility functions all belong to the Gorman polar class. If pollution taxes are not optimized, Pareto-improving green tax reforms exist that move the pollution tax closer to the Pigouvian tax if preferences are Gorman polar. Simulations demonstrate that optimal corrective taxes should be Pigouvian if the demand for polluting goods is derived from a LES demand system, but optimal corrective taxes deviate from the Pigouvian taxes if demand for polluting goods demand is derived from a PIGLOG demand system.
    Keywords: redistributive taxation, corrective pollution taxation, Gorman polar form, Stone-Geary preferences, PIGLOG preferences, green tax reform
    JEL: H21 H23 Q54
    Date: 2017
  5. By: Sita Slavov; Devon Gorry; Aspen Gorry; Frank N. Caliendo
    Abstract: Typical neoclassical life-cycle models predict that Social Security has a large and negative effect on private savings. We review this theoretical literature by constructing a model where individuals face uninsurable longevity risk and differ by wage earnings, while Social Security provides benefits as a life annuity with higher replacement rates for the poor. We use the model to generate numerical examples that confirm the standard result. Using several benefit and tax changes from the 1970s and 1980s as natural experiments, we investigate the empirical relationship between Social Security and private savings and find little to support the strong predictions from the theoretical model. We explore possible reasons for the divergence between theoretical predictions and empirical findings.
    JEL: D14 H31 H55
    Date: 2017–06
  6. By: Fabio Lamantia; Mario Pezzino; Fabio Tramontana
    Date: 2017
  7. By: Biddle, Nicholas; Fels, Katja; Sinning, Mathias
    Abstract: This paper presents the findings of two Randomized Controlled Trials (RCTs) that were conducted in collaboration with the Australian Taxation Office (ATO). The first trial tests the effect of changes to letters (timing, social norms, color, and provision of information about charitable donations) on response rates of businesses, the timing of payments and the amount of tax debt payments. The second trial consists of two parts. The first part aims to raise awareness of the relevance of tax debt payment by changing internal guidelines used by field auditors. The second part focuses on studying the effect of changing the phone script used by desk auditors to offer assistance with payment arrangements and simplifying a follow-up letter. The findings of the first trial indicate that none of the treatments had a significant effect on any of the outcome measures considered. In contrast, the results of the second trial indicate that changing the phone script of desk auditors and simplifying the follow-up letter reduced the proportion of default assessments raised by the ATO significantly, suggesting that businesses are responsive to certain types of nudges.
    Keywords: tax compliance,business taxation,behavioral insights,nudging
    JEL: C93 H25 H26
    Date: 2017
  8. By: Fidel Perez-Sebastian; Ohad Raveh
    Abstract: What determines legislatorsvoting behavior over federal tax policies? Conventional wisdom points primarily at party a¢ liation. This paper presents a novel mechanism of voting patterns across state-levels of scal advantage. We construct a political economy model of scal federalism with state scal asymmetries that originate in heterogeneity in natural resource abundance, representing a non-mobile source of income that provides a scal advantage in the inter-state scal competition. The model shows that representatives of natural resource rich states are more willing to vote in favor of federal tax increases, despite the lower net scal bene ts their states receive. This occurs because these states can reduce their tax rates as a response to an increase in the federal tax rate, and hence attract capital from the rest of the nation to the extent of increasing their pre-shock tax base. Data on roll-call votes in the U.S. Congress over major changes in federal tax bills in the post WW-II period support the predicted voting patterns. Speci cally, we nd that elected o¢ cials of resource rich states are more (less) supportive of capital-related federal tax increases (decreases), controlling for their party a¢ liation, ideology, federal transfers, and economic conditions. Our results indicate that the scal advantage channel is as dominant as party a¢ liation in driving legislatorsvoting decisions over federal tax policies.
    Keywords: Federal tax changes, voting behaviour, federalism, natural resources
    JEL: D72 H77 Q32
    Date: 2017
  9. By: Rickman, Dan S.; Wang, Hongbo
    Abstract: The recent fiscal austerity experiments undertaken in the states of Kansas and Wisconsin have generated considerable policy interest. Using a variety of identification approaches within a difference-in-differences framework and examining a wide range of economic indicators, this paper assesses whether the experiments have spurred growth in the states as promised by the governors and legislatures which enacted them into law. The overall conclusion from the paper is that the fiscal experiments did not spur growth, and if anything, harmed state economic performance. Among the identification approaches used, the Synthetic Control Method (Abadie and Gardeazabal 2003; Abadie et al., 2010) is demonstrated to provide the most compelling evidence.
    Keywords: Fiscal austerity; State taxes; Synthetic Control Method
    JEL: H71 R12 R23
    Date: 2017–03–19
  10. By: Fidel Perez-Sebastian; Ohad Raveh
    Abstract: In economies with multi-level governments, why would a change in the scal rule of a gov-ernment in one level lead to a scal response by a government in a di¤erent level? Previous explanations focus on the standard common-pool problem. In this paper we study a new potential channel: complementarities between the public goods supplied by the two governments. First, we illustrate its potential key role in determining the sign of the vertical reaction through a standard model of horizontal tax competition with vertical scal interactions. Second, we propose a novel strategy for identifying it, by considering an empirical design that con nes the common-pool channel to speci c locations. We implement this design through a quasi-natural experiment: the 1980 U.S. Crude Oil Windfall Act, which increased federal tax collections from sale of crude oil, thereby a¤ecting the tax base of oil rich states speci cally. This latter feature enables attributing the vertical scal reactions of the remaining states to the complementarity channel. Following this strategy, via a di¤erence-in-di¤erences approach, we decompose the sources of the vertical scal reactions arising from this federal tax change and nd that those attributed to the novel channel: (i) point at complementarity between state and federal public goods; (ii) account for approximately 40% of the overall vertical scal response; (iii) are manifested primarily via corporate taxation.
    Keywords: Federalism, vertical fiscal reactions, common-pool problem, complimentarities, natural resources
    JEL: H77 H71 Q32
    Date: 2017

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