nep-pub New Economics Papers
on Public Finance
Issue of 2017‒10‒08
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach By Kroft, Kory; Kucko, Kavan; Lehmann, Etienne; Schmieder, Johannes
  2. The Effects of Pre-announced Consumption Tax Reforms on the Sales and Prices of Consumer Durables By Büttner, Thiess; Madzharova, Boryana
  3. Tax shocks with high and low uncertainty By Bertolotti, Fabio; Marcellino, Massimiliano
  4. Time-varying fiscal spending multipliers in the UK By C. Glocker; G. Sestieri; P. Towbin

  1. By: Kroft, Kory; Kucko, Kavan; Lehmann, Etienne; Schmieder, Johannes
    Abstract: We derive a sufficient statistics optimal income tax formula in a general model that incorporates unemployment and endogenous wages, to study the shape of the tax and transfer system at the bottom of the income distribution. The sufficient statistics are the macro employment response to taxation and the micro and macro participation responses. We estimate these statistics using policy variation from the U.S. tax and transfer system. Our results suggest that the optimal tax more closely resembles a Negative Income Tax than an Earned Income Tax Credit relative to the case where unemployment and wage responses are not taken into account.
    Date: 2017–09
  2. By: Büttner, Thiess; Madzharova, Boryana
    Abstract: This paper utilizes a unique micro data set on consumer durables to study the effect of consumption tax reforms on the time path of consumption. The dataset reports the monthly sales of individual products and their consumer prices in 22 European countries, which enacted numerous consumption tax reforms in recent years. We implement a reduced form specification for sales that allows us to test theoretical predictions by a standard inter-temporal model of consumer choice under different assumptions about the pass-through of taxes into prices. Our identification strategy exploits the trading of individual products in multiple countries. The results document that changes in baseline consumption tax rates are fully and quickly shifted into consumer prices and exert very strong effects on the time path of consumption. We find that a one percentage point increase in consumption taxes causes an inter-temporal shift in consumption by 3 or more percent. In addition, purchases of durable goods increase temporarily by about 2 percent in the last month before a tax increase.
    Keywords: Tax Reform,Fiscal Policy,Consumption Tax,Pass-Through,Tax Incidence,Durable Goods
    JEL: D12 H24 H32 E21 E62
    Date: 2017
  3. By: Bertolotti, Fabio; Marcellino, Massimiliano
    Abstract: We assess whether the effects of fiscal policy depend on the extent of uncertainty in the economy. Specifically, focusing on tax shocks, identified by the narrative series by Romer and Romer (2010), and various measures of uncertainty, we use a Threshold VAR model to allow for dependence of the effects of the tax shocks both on the level of uncertainty and on the sign of the shock. Our two main empirical results are that the economy responds more positively to tax cuts during periods of low uncertainty, while, in response to tax increases, monetary policy contributes significantly in making the reaction of the economy neutral during more uncertain times. We also show that existing theoretical models can explain, to a good extent, this empirical evidence.
    Date: 2017–09
  4. By: C. Glocker; G. Sestieri; P. Towbin
    Abstract: We study fiscal spending multipliers of the UK economy using a time-varying parameter factor augmented vector autoregressive (TVP-FAVAR) model. We show that government spending multipliers vary over time and that most of the variation is cyclical: multipliers are typically above one in recessions and below one in expansions. Regarding the drivers of the cyclical variations, our results are consistent with theories emphasizing the role of financial frictions and economic slack. We find no evidence that multipliers are larger at the zero lower bound. Structural factors seem to play a lesser role and multipliers do not exhibit a clear tread. We conclude that policy recommendations based on average multipliers that do not take into account the position of the economy in the cycle are potentially misleading and that the impact of government spending shocks is rather limited in the UK in non-recessionary periods.
    Keywords: Government spending shocks, Fiscal transmission mechanism, Time-varying parameter models, Business cycle.
    JEL: C32 E62 H30 H50
    Date: 2017

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