nep-pub New Economics Papers
on Public Finance
Issue of 2017‒11‒26
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tony Atkinson and his legacy By Aaberge, Rolf; Bourguignon, François; Brandolini, Andrea; Ferreira, Francisco H. G.; Gornick, Janet C.; Hills, John; Jäntti, Markus; Jenkins, Stephen P.; Micklewright, John; Marlier, Eric; Nolan, Brian; Picketty, Thomas; Radermacher, Walter J.; Smeeding, Timothy M.; Stern, Nicholas; Stiglitz, Joseph; Sutherland, Holly
  2. A note on time discretion and the welfare cost of lump-sum taxation By Cristian F. Sepulveda
  3. Until Taxes Do Us Part: Tax Penalties or Bonuses and the Marriage Decision By Barigozzi, Francesca; Cremer, Helmuth; Roeder, Kerstin
  4. An Interdisciplinary View on Tax Revenue Estimates and Forecasts and its Impacts on a Multilevel Public Budget System By André W. Heinemann; Hanna Kotina; Maryna Stepura

  1. By: Aaberge, Rolf; Bourguignon, François; Brandolini, Andrea; Ferreira, Francisco H. G.; Gornick, Janet C.; Hills, John; Jäntti, Markus; Jenkins, Stephen P.; Micklewright, John; Marlier, Eric; Nolan, Brian; Picketty, Thomas; Radermacher, Walter J.; Smeeding, Timothy M.; Stern, Nicholas; Stiglitz, Joseph; Sutherland, Holly
    Abstract: Tony Atkinson is universally celebrated for his outstanding contributions to the measurement and analysis of inequality, but he never saw the study of inequality as a separate branch of economics. He was an economist in the classical sense, rejecting any sub-field labelling of his interests and expertise, and he made contributions right across economics. His death on 1 January 2017 deprived the world of both an intellectual giant and a deeply committed public servant in the broadest sense of the term. This collective tribute highlights the range, depth and importance of Tony’s enormous legacy, the product of over fifty years’ work.
    Keywords: Anthony B. Atkinson; inequality; poverty; public economics
    JEL: N0 E6
    Date: 2017–08–25
  2. By: Cristian F. Sepulveda (Farmingdale State College, SUNY)
    Abstract: The lump-sum tax is broadly regarded by standard optimal tax theory as the only non-distortionary tax instrument; any other tax instrument distorts relative prices and thus creates a deadweight loss. This paper discusses an unintended effect of lump-sum taxation that can be considered a distortion of the time endowment. Whenever this tax exceeds the amount of non-labor income, it reduces the taxpayer’s ability to freely allocate her time endowment. As long as the taxpayer assigns a positive value to time discretion, then the lump-sum tax creates a welfare cost that has not been identified in the literature. The welfare cost of the lump-sum tax could plausibly be greater than the traditional measure of deadweight loss of an equal yield labor income tax, which does not affect time discretion. Since the lump-sum tax does not unambiguously lead to a greater welfare level, we can conclude that it is not a proper efficiency standard at low levels of non-labor income. The same argument can be used to call for caution in the use of taxes based on the value of assets that are not the source of income flows, like owner-occupied property taxes and some types of wealth taxes. At low levels of non-labor income, these tax instruments will also have a negative effect on time discretion.
    Date: 2017–11
  3. By: Barigozzi, Francesca (University of Bologna); Cremer, Helmuth (Toulouse School of Economics); Roeder, Kerstin (University of Augsburg)
    Abstract: The tax regimes applied to couples in many countries including the US, France, and Germany imply either a marriage penalty or a marriage bonus. We study how they affect the decision to get married by considering two potential spouses who play a marriage proposal game. At the end of the game they may get married, live together without formal marriage, or split up. In this signaling game, proposing (or getting married) is costly but can indicate strong love. The striking property we obtain is that a marriage bonus may actually reduce the probability that a couple gets married. If the bonus is sufficiently large, the signaling mechanism breaks down, and only a pooling equilibrium in which fewer couples get married remains. Similarly, a marriage penalty may increase the marriage probability. Specifically, the penalty may lead to a separating equilibrium with efficiency enhancing information transmission, which was otherwise not possible. Our results also imply that marriage decisions in the laissez-faire are not necessarily privately optimal. In some cases a bonus or a penalty may effectively make the marriage decision more efficient; it may increase the number of efficient marriages that otherwise may not be concluded.
    Keywords: marriage penalty, marriage bonus, proposal game, signaling
    JEL: J12 D82 H31
    Date: 2017–10
  4. By: André W. Heinemann (University of Bremen); Hanna Kotina (Kyiv National Economic University); Maryna Stepura (Kyiv National Economic University)
    Abstract: While tax revenue forecasts are required for the public budget planning and execution process, the frameworks and accuracy of tax revenue forecasts are crucial for economic analysis of public budgets in multilevel systems. Insufficient and defective tax revenue forecasts can lead to budget problems as well as budget interdependencies in multilevel systems. The determination of budget revenues amount, which can actually be carried out, needs to estimate the forecast of tax revenues reasonably and accurately. Adequacy and feasibility of relevant indicators depend on the assessment of the state, trends and forecasting of economic and social development, stability and progressiveness of the current legislation, the forms and methods of tax mobilization, the level of fiscal culture and other factors. The role of tax revenue forecasting is enhanced significantly. Fiscal equalization schemes, grant systems and bailout rules have to take into account in the case of problems with the accuracy of tax revenue forecasts. If tax revenues forecasts in the medium-term are upward biased, the institutional setting can be an explanation for forecasts errors (Breuer 2014). However, over-optimistic as well as under-optimistic forecasts influence budgeting and budget targets.The present paper deals with the conditions and institutional frameworks for accuracy of tax revenue forecasts, especially in a medium-income and a high-income country. First, we present a literature review on tax revenue forecast and the importance of institutional performance for accurate tax revenue forecasts. Thereby, empirical studies to explain forecasts errors will be analyzed. In a comparison of two countries, the second session describes the institutional setting for tax revenue forecasts and the procedures in the Ukraine and Germany and shows the methods, actors and institutional mechanisms in these different multilevel systems. The analysis focusses on the degree of decentralization in both countries and legal equalization schemes. We show some determinants of tax revenue forecast errors and discuss the impacts and consequences for budgetary planning and budget managing in multilevel systems. Our findings point out the importance of fiscal governance in multilevel systems if tax revenue forecasts are influenced by many determinants in specific ways that makes revenue forecast difficult. Multilevel fiscal governance is required to solve problems in tax revenue forecasts and budgeting in decentralized systems. Additionally, the knowledge on taxpayer´s behavior (households, employees, consumer, firms) under conditions of globalization of taxation is underestimated at the present, but is needed for the improvement of public budget managing processes.
    Keywords: Tax estimates, Tax forecasts, Budget planning, Multilevel governance
    JEL: H11 H70 H77
    Date: 2017–10

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