nep-pub New Economics Papers
on Public Finance
Issue of 2017‒07‒23
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The stability of tax elasticities over the business cycle in European countries By Melisso Boschi; Stefano d'Addona
  2. Is fiscal policy in the euro area Ricardian? By Nikki Panjer; Leo de Haan; Jan Jacobs
  3. Tax Policy Effects on Business Incentives in Pakistan By James Alm; Mir Ahmad Khan

  1. By: Melisso Boschi; Stefano d'Addona
    Abstract: We estimate short- and long-run tax elasticities that capture the relationship between changes in national income and tax revenue. We show that the short-run tax elasticity changes according to the business cycle. We estimate a two state Markov-switching regression on a novel dataset of tax policy reforms in 15 European countries from 1980 to 2013, showing that the elasticities during booms and recessions are statistically (and often economically) different. The elasticities of (i) indirect taxes, (ii) social contributions, and (iii) corporate income taxes, tend to be larger during recessions. Tax elasticities for personal income tend to be more stable across the regimes. Estimates of long-run elasticities are in line with existing literature.
    Keywords: Tax elasticity, Tax policy discretionary change, Business cycle, European economy, Markov-switching regimes
    JEL: C24 C29 E32 E62 H20 H30
    Date: 2017–07
  2. By: Nikki Panjer; Leo de Haan; Jan Jacobs
    Abstract: According to the so-called 'fiscal theory of the price level' (FTPL), under a non-Ricardian regime the price level has to adjust to fulfil the government's budget constraint. In contrast, under a Ricardian regime, government balances adjust in order to preserve government solvency. We empirically determine whether a Ricardian or a non-Ricardian regime is more plausible for the euro area, following the research strategy of Canzoneri, Cumby, and Diba (2001). A Vector AutoRegressive (VAR) model for the primary government balance and the government debt is estimated for the period 1980q2-2013q4. Our model uses dummy interaction terms to account for the breaks due to the introduction of the Euro Convergence Criteria (ECC) and the start of the global financial crisis, respectively. No evidence is found in favour of either regime for the pre-ECC period. In the post-ECC period, a Ricardian regime is more plausible. Some evidence points in the direction of a non-Ricardian regime for the period after the start of the financial crisis.
    Keywords: Fiscal Policy; Euro area; Ricardian regime
    JEL: E63 H62 H63
    Date: 2017–07
  3. By: James Alm (Department of Economics, Tulane University); Mir Ahmad Khan (Federal Board of Revenue, Government of Pakistan)
    Abstract: The Pakistan system of taxing enterprises has undergone major changes in recent years. Nevertheless, the corporate tax system remains plagued by a number of problems, problems that relate to the neutrality, the yield, and the simplicity of the tax system. This chapter discusses these issues, with a focus on the distorting effects of tax policy on business invest.
    Keywords: Corporate income tax, effective tax rate, tax reform.
    JEL: H20 H25 H32 H87
    Date: 2017–07

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