nep-pub New Economics Papers
on Public Finance
Issue of 2017‒09‒03
seventeen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Social Security Claiming Decisions: Survey Evidence By John B. Shoven; Sita Nataraj Slavov; David A. Wise
  2. The Credibility of Commitment and Optimal Nonlinear Savings Taxation By Jang-Ting Guo; Alan Krause
  3. Optimal Taxation to Correct Job Mismatching By Guillaume Wilemme
  4. Should the Rich Be Taxed More? The Fiscal Inequality Coefficient By Hatgioannides, John; Karanassou, Marika; Sala, Hector
  5. Should Robots Be Taxed? By Guerreiro, Joao; Rebelo, Sérgio; Teles, Pedro
  6. Tax Competition with Heterogeneous Capital Mobility By Steeve Mongrain; John D. Wilson
  7. Tax Decentralisation, Labour productivity and Employment By Bartolini, David; Ninka, Eniel; Santolini, Raffaella
  8. An equilibrium-conserving taxation scheme for income from capital By Jacques Tempere
  9. Measuring the Effectiveness of Taxes and Transfers in Fighting Inequality and Poverty By Ali Enami
  10. On the effects of repeated tax amnesties By Sanchez Villalba, Miguel A.
  11. Whose Child Is This? Shifting of Dependents Among EITC Claimants Within the Same Household By David Splinter; Jeff Larrimore; Jacob Mortenson
  12. The impact of taxes and social spending on inequality and poverty in El Salvador By Margarita Beneke; Nora Lustig; Jose Andres Oliva
  13. The Impact of Taxes and Social Spending on Income Distribution and Poverty in Latin America. An Application of the Commitment to Equity (CEQ) Methodology By Nora Lustig
  14. On the Middle 70%. The Impact of Fiscal Policy on the Emerging Middle Class in Latin America usting Commitment to Equity. By Christian Daude; Nora Lustig; Angel Melguizo; Jose Ramon Perea
  15. Assessment of the 2017 Tax Reform for Acceleration and Inclusion By Manasan, Rosario G.
  16. The effects of tax coordination on the tax revenue mobilization in West African Economic and Monetary Union (WAEMU) By Maïmouna Diakite; Jean-François Brun; Souleymane Diarra; Nasser Ary Tanimoune
  17. Optimal Taxation and Economic Growth in Tunisia: Short and Long Run Cointegration Analysis By Chokri Terzi; Anis El Ammari; Ali Bouchrika; Khalil Mhadhbi

  1. By: John B. Shoven; Sita Nataraj Slavov; David A. Wise
    Abstract: While research shows that there are large gains in lifetime wealth from delaying claiming Social Security, most people claim at or before full retirement age. We fielded an original, nationally representative survey to gain insight into people’s rationales for their Social Security claiming decisions, their satisfaction with their past claiming decisions, and how they financed any gap between retirement and claiming. Common rationales for claiming Social Security before full retirement age include stopping work, liquidity, poor health, and concerns about future benefit cuts due to policy changes. Claiming upon stopping work and claiming at full retirement age appear to be viewed as social norms. But while Social Security claiming is strongly associated with stopping work, the roughly quarter of the sample who have a gap of two or more years between retirement and claiming used employer-sponsored pensions and other saving to finance the delay. Individuals who claimed at full retirement age are more satisfied with their claiming decisions than individuals who claimed early or delayed. There is little evidence that claiming decisions and rationales for claiming are correlated with financial literacy or knowledge of Social Security rules.
    JEL: D14 H55 J26
    Date: 2017–08
  2. By: Jang-Ting Guo (Department of Economics, University of California Riverside); Alan Krause (University of York, UK)
    Abstract: We compare optimal nonlinear savings taxation under different assumptions with regard to the government's ability to commit to its future tax policy. In particular, we incorporate the possibility that individuals may differ in their beliefs regarding the probability of commitment. When these beliefs are homogeneous, we find that optimal marginal savings tax rates always fall between those under the polar cases of full-commitment (zero marginal savings taxation) and no-commitment (progressive marginal savings taxation). However, this result no longer holds when beliefs are postulated to be heterogeneous. The effects of beliefs changing in response to past commitment or no-commitment decisions by the government are also quantitatively explored.
    Keywords: Savings Taxation; Commitment; Multi-Dimensional Screening.
    JEL: E60 H21 H24
    Date: 2017–09
  3. By: Guillaume Wilemme (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique - ECM - Ecole Centrale de Marseille)
    Abstract: This paper presents a new efficiency argument for an accommodating taxation policy on high incomes. Job seekers, applying to different segments of a frictional labor market, do not internalize the consequences of mismatch on the entry decision of firms. Workers are not selective enough, resulting in a lower average job productivity and suboptimal job creation. The output-maximizing policy is anti-redistributive to improve the quality of the jobs prospected. As an income tax affects the sharing of the match surplus, a tax on production (or profits) is required to redress the slope of the wage curve. Neither a minimum wage nor unemployment benefits can fully decentralize optimal search behaviors.
    Keywords: anti-redistributive taxation,composition externality,job quality,mismatch,search strategy
    Date: 2017–06
  4. By: Hatgioannides, John (City University London); Karanassou, Marika (Queen Mary, University of London); Sala, Hector (Universitat Autònoma de Barcelona)
    Abstract: This paper holistically addresses the effective (relative) income tax contribution of a given in-come (or, wealth) group. The widely acclaimed standard in public policy is the absolute benefaction of a given income group in filling up the fiscal coffers. Instead, we focus on the ratio of the average income tax rate of an income group divided by the percentage of national income (or wealth) appropriated by the same income group. In turn, we develop the Fiscal Inequality Coefficient which compares the effective percentage income tax payments of pairs of income (or wealth) groups. Using data for the US, we concentrate on pairs such as the Bottom 90% versus Top 10%, Bottom 99% versus Top 1%, and Bottom 99.9% versus Top 0.1%. We conclude that policy makers with a strong social conscience should re-evaluate the progressivity of the income tax system and make the richest echelons of the income and wealth distributions pay a fairer and higher tax.
    Keywords: fiscal policy, progressive income taxation, inequality, effective income tax rate, fiscal inequality coefficient
    JEL: H23 H30 E64
    Date: 2017–08
  5. By: Guerreiro, Joao; Rebelo, Sérgio; Teles, Pedro
    Abstract: We use a model of automation to show that with the current U.S. tax system, a fall in automation costs could lead to a massive rise in income inequality. This inequality can be reduced by raising marginal income tax rates and taxing robots. But this solution yields mediocre outcomes both in terms of efficiency and inequality. A Mirrleesian optimal income tax achieves better outcomes, but is difficult to implement. A practical compromise is to amend the tax system to include a lump-sum rebate. With this rebate in place, it is optimal to tax robots only when there is partial automation.
    Keywords: automation; inequality; optimal taxation; robots.
    JEL: H21 O33
    Date: 2017–08
  6. By: Steeve Mongrain (Simon Fraser University); John D. Wilson (Michigan State University)
    Abstract: An ongoing debate in the tax competition literature is whether a system of countries or regions should restrict the preferential tax treatment of different types of firms or capital. We further investigate this issue by departing from the bulk of the literature in three ways: (1) rather than maximize only tax revenue, governments also put positive weight on the income generated by resident-owned firms; (2) under preferential taxation, firms are distinguished by their country of origin; and (3) the competing regions are allowed to differ in size. Under the assumption of uniformly-distributed moving costs, identical regions always prefer the non-preferential regime. But when a small and large region compete, the small region prefers the preferential regime in some cases. We also identify non-uniform distributions of moving costs where the preferential regime is preferred by identical competing regions. This finding is related to differences in tax-base elasticities.
    Keywords: Tax Competition; Heterogeneity; Preferential Tax Treatment.
    JEL: H73 H77 H71
    Date: 2017–06–21
  7. By: Bartolini, David; Ninka, Eniel; Santolini, Raffaella
    Abstract: Tax decentralisation should improve the efficiency of local governments and ultimately boost output growth. The empirical evidence is however mixed. The current work looks at two channels through which tax decentralisation may affect economic growth: labour productivity and employment rate. The empirical analysis conducted on 20 OECD countries over the period 1980-2010 shows that the ultimate effect of fiscal decentralisation on growth depends on which channel prevails, thus rendering the direct estimation of tax decentralisation on growth ambiguous. Tax decentralisation make the employment rate grow faster, while it has either no effect of reduces labour productivity growth. When the analysis is conducted using an IV approach with instruments based on institutional similarities and geographic distance, the positive and significant effect on employment rate growth is offset by the reduction of labour productivity growth, resulting in the absence of any statistically significant effect on output growth.
    Keywords: economic growth; labour productivity; employment rate; tax decentralisation
    JEL: H70 H77 O40 O47
    Date: 2017–08–31
  8. By: Jacques Tempere
    Abstract: Under conditions of market equilibrium, the distribution of capital income follows a Pareto power law, with an exponent that characterizes the given equilibrium. Here, a simple taxation scheme is proposed such that the post-tax capital income distribution remains an equilibrium distribution, albeit with a different exponent. This taxation scheme is shown to be progressive, and its parameters can be simply derived from (i) the total amount of tax that will be levied, (ii) the threshold selected above which capital income will be taxed and (iii) the total amount of capital income. The latter can be obtained either by using Piketty's estimates of the capital/labor income ratio or by fitting the initial Pareto exponent. Both ways moreover provide a check on the amount of declared income from capital.
    Date: 2017–08
  9. By: Ali Enami (Department of Economics, Tulane University)
    Abstract: This chapter introduces new indicators that measure the effectiveness of the elements of a fiscal system in reducing inequality and poverty. The new indices are generally divided into two families of Impact Effectiveness (IE) and Spending Effectiveness (SE) indicators and are applicable in any context (i.e. inequality and poverty). Moreover, a variation of the former, known as the Fiscal Impoverishment and Gains Effectiveness indicator (FI/FGP), is separately introduced that is only applicable in the context of poverty. IE and SE indicators are similar in the sense that they both compare the performance of a tax or transfer in reducing inequality or poverty with respect to its theoretically maximum potential. For IE indicators, we keep the amount of money raised (or spent) constant and compare the actual and potential performance of a tax (or transfer) to each other. For SE indicators, we keep the impact of a tax (or transfer) on inequality or poverty constant and compare the actual size of a tax (or transfer) with the theoretically minimum amount of tax (or transfer) that would create the same impact.
    Keywords: Inequality, poverty, fiscal incidence, marginal contribution, effectiveness indicator
    JEL: D31 H22 I38
    Date: 2017–08
  10. By: Sanchez Villalba, Miguel A.
    Abstract: We examine empirically the effect of tax amnesties on long term tax collection when such amnesties are used by a government as a regular source of revenue. We use data from the Tucuman province (Argentina) to test the main hypothesis of the model, namely, that amnesties lower the government’s revenue, as they reduce the penalties and make evasion more profitable. We find, however, that amnesties do not affect the long-term revenue. The other main result is in line with the theoretical predictions: the increase in short-run revenue is temporary and only accelerates the collection of the taxes but does not increase the amount collected. Thus, we conclude that amnesties were used only to obtain a short-run surge in revenue and to avoid more fundamental tax reforms.
    Keywords: tax amnesties; tax evasion
    JEL: C22 H26 H27
    Date: 2017
  11. By: David Splinter; Jeff Larrimore; Jacob Mortenson
    Abstract: Using a panel of household level tax data, we estimate the degree to which dependents are "reassigned" between tax units within households, and how these reassignments affect combined tax liabilities. Reassigning dependents reduces combined tax liabilities on average, suggesting some household level coordination. Additionally, when EITC benefits expanded in 2009, reassignments increasingly involved adding a third child to tax returns to claim these new benefits. However, the subgroup reassigning towards three child tax units actually increased total household tax liabilities, suggesting that some taxpayers may prioritize minimizing their own tax burden or focus on particularly salient aspects of tax policy.
    Keywords: Earned income tax credit ; Household level tax coordination ; Tax avoidance
    JEL: D10 H24 H26 H31 H53
    Date: 2017–08–22
  12. By: Margarita Beneke (FUSADES, El Salvador); Nora Lustig (Department of Economics, Tulane University); Jose Andres Oliva (FUSADES, El Salvador)
    Abstract: We conducted a fiscal impact study to estimate the effect of taxes, social spending, and subsidies on inequality and poverty in El Salvador, using the CEQ methodology. Taxes are progressive, but given their volume, their impact is limited. Direct transfers are concentrated on poor households, but their budget is small so their effect is limited; a significant portion of the subsidies goes to households in the upper income deciles, so although their budget is greater, their impact is low. The component that has the greatest effect on inequality is spending on education and health. Therefore, the impact of fiscal policy is limited and low when compared with other countries with a similar level of per capita income. There is room for improvement using current resources.
    Keywords: fiscal incidence, poverty, inequality, El Salvador
    JEL: D31 H22 I14
    Date: 2017–08
  13. By: Nora Lustig (Department of Economics, Tulane University)
    Abstract: Using standard fiscal incidence analysis and the new methodological developments by the Commitment to Equity (CEQ) Institute, this paper estimates the impact of fiscal policy on inequality and poverty in sixteen countries in Latin America around 2010. With information on incomes, consumption, and other dimensions available in household surveys, and knowledge about the characteristics of the fiscal system, the CEQ method consists in allocating to each individual the burden of personal income and consumption taxes, and the benefits from cash transfers, consumption subsidies, and government spending on education and health. This process yields the pre-fiscal and post-fiscal income concepts of interest. These income concepts, in turn, are used to calculate the corresponding indicators of inequality and poverty. Thus, one can estimate, for each country, the impact of the fiscal system and each of its components on inequality and poverty. Since the methodology that was applied is the same, results are comparable across countries. The countries that redistribute the most are Argentina, Brazil, Costa Rica, and Uruguay. Guatemala, Honduras, and Peru are the countries that redistribute the least. Fiscal policy reduces extreme (income) poverty in twelve out of the sixteen countries. The incidence of poverty after taxes, subsidies, and cash transfers, however, is higher than market income poverty in Bolivia, Guatemala, Honduras, and Nicaragua, even though fiscal policy reduces inequality in these four countries. Contributory pensions have a heterogeneous effect on inequality and, contrary to some expectations, their impact is equalizing in nine of the countries. In the sixteen countries, spending on pre-school and primary education is equalizing and pro-poor (per capita benefits decline with income per capita). Spending on secondary education is always equalizing; it is also pro-poor in some of the countries. Spending on tertiary education is never pro-poor but it is equalizing in all the countries except for Guatemala. Spending on health is always equalizing but pro-poor only in some countries. Latin America presents a great deal of heterogeneity in the size of the state and the countries’ capacity to use their fiscal power to reduce inequality and poverty. A higher share of social spending (to GDP) is associated with a larger redistributive effect but countries with similar, or even lower, shares of social spending show heterogeneous redistributive effects implying that other factors beyond size such as the composition and targeting of social spending (and taxes) are at play. It is important to emphasize that a higher redistributive effect is not necessarily a desirable outcome since in this article there is no estimation of the impact of redistributive policy on fiscal sustainability and efficiency. In some countries, the burden of consumption taxes is such that a portion of the poor are net payers into the fiscal system (before receiving "in kind" transfers in education and health). Governments should examine whether this undesirable effect could be avoided, or at least reduced, through an expansion of targeted cash transfers and/or reduction in the consumption taxes that are particularly burdensome for the poor.
    Keywords: Incidencia fiscal, desigualdad, pobreza, impuestos, transferencias, America Latina
    JEL: D31 H22 I38
    Date: 2017–08
  14. By: Christian Daude (Development Bank of Latin America - CAF); Nora Lustig (Stone Center for Latin American Studies, Department of Economics, Tulane University, Commitment to Equity Institute (CEQI).); Angel Melguizo (OECD Development Centre); Jose Ramon Perea (World Bank)
    Abstract: This paper analyzes the effects of indirect and direct taxes, as well as monetary and in-kind transfers on the income distribution in nine Latin American countries applying the CEQ methodology and using household and expenditure microdata around 2010. In particular, we focus on the effect of fiscal policies on two groups of the emerging middle class: the vulnerable and the middle class. We find that while the vulnerable tend to be net receivers in fiscal terms, especially when including in-kind transfers, the middle class seems to be mainly a net payer. This might be aggravated by the perception of a relatively low quality of in-kind transfers, notably in education and health-care services. We provide some evidence based on subjective surveys pointing in this direction.
    Keywords: middle class, tax-benefit analysis, fiscal incidence, fiscal mobility
    JEL: D31 H22 H50 I30
    Date: 2017–08
  15. By: Manasan, Rosario G.
    Abstract: Despite various reform efforts over the years, the tax system in the Philippines continues to suffer from chronic weaknesses. The Duterte administration is pursuing a simpler, more efficient, and more equitable tax system to support its economic growth strategy. The administration's Comprehensive Tax Reform Program was filed as House Bill (HB) No. 4774 in January 2017 at the lower house and Senate Bill (SB) No. 1408 at the Senate. These bills represent the first of several reform packages that will each focus on different areas of tax policy. The House of Representatives approved a compromise bill, HB 5636, titled "Tax Reform for Acceleration and Inclusion" or TRAIN in May 2017. HB 4774, HB 5636, and SB 1408 seek to reform the structure of the personal income tax, value-added tax, and excise tax on petroleum products and automobiles, while improving the progressivity of the tax system. A portion of the additional revenues generated will be earmarked for investments in education, infrastructure, and health to stimulate long-term growth. This paper aims to assess the implications of these bills on the distribution of tax burden across income groups, economic incentives in affected sectors, national government revenues, and likely impact on tax compliance.
    Keywords: Philippines, personal income tax, tax reform, value-added tax, excise tax on petroleum, excise tax on automobiles, excise tax on sugar sweetened beverages
    Date: 2017
  16. By: Maïmouna Diakite (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique); Jean-François Brun (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique); Souleymane Diarra (Commission de l'Union Economique et Monétaire Ouest Africaine); Nasser Ary Tanimoune (University of Ottawa [Ottawa])
    Abstract: A main objective of the regional integration in West African Economic and Monetary Union (WAEMU) is the effective harmonization of national legislations at Community level notably tax legislation. To coordinate taxation in the zone, WAEMU Commission translates into Directives the Decisions taken by the Council of Ministers of the member states. The implementation of the Community acts by countries through tax reforms may impact on their revenue performance. This paper evaluates the impact of the Directives both in terms of coordination and revenue mobilization. It relies on a comparative case study using the synthetic control method developed by Abadie and Gardeazabal (2003) and extended by Abadie, Diamond, and Hainmueller (2010 & 2015). The main results are that the tax coordination affected the revenue mobilization in the Union but the impact is different across countries.
    Keywords: Tax coordination\harmonization,Tax,WAEMU.,Tax reform,Synthetic control method
    Date: 2017–06–08
  17. By: Chokri Terzi (IMM - Institut Marcel Mauss - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique); Anis El Ammari (IMM - Institut Marcel Mauss - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique); Ali Bouchrika (IMM - Institut Marcel Mauss - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique); Khalil Mhadhbi (IMM - Institut Marcel Mauss - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Tax policy is among the most common and relevant instruments in the toolkit of policy-makers when thinking about promoting growth, yet there is not compelling evidence regarding its effect in Tunisia. Using a variety of approaches, we measure firstly the optimal tax burden rate using Scully’s static model and the quadratic model. For Scully’s static model, gross domestic product is the dependent variable. For the quadratic model, growth rate is a dependent variable explained by tax rate in level and in square including dummy variables. Secondly and according to stationary and cointegration test results, we focus on the long-term effects on gross domestic product of the important taxes, namely tax revenue and private receipts including dummy variable. In this second study, we use a basic Scully model and we develop a vector error correction model technique. Our results show that optimal tax burden rate has to be situated between 12.8% and 19.6% of gross domestic product which is widely lower than the current rates. The long-term analysis estimates an optimal rate of 15.2% of gross domestic product which can participate to increase economic growth, to stabilize the tax evasion and to encourage investment especially after the Tunisian revolution.
    Keywords: cointegration,tax burden rate, growth, vector error correction model
    Date: 2017–06–22

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