nep-pub New Economics Papers
on Public Finance
Issue of 2017‒12‒03
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxing bequests and consumption in the steady state By Johann K. Brunner; Susanne Pech
  2. Taxing Humans: Pitfalls of the Mechanism Design Approach and Potential Resolutions By Alex Rees-Jones; Dmitry Taubinsky
  3. Until taxes do us part: tax penalties or bonuses and the marriage decision By Barigozzi, Francesca; Cremer, Helmuth; Roeder, Kerstin
  4. Strategic Interaction Among Governments in the Provision of a Global Public Good By Kyle, Margaret K; Ridley, David; Zhang, Su
  5. Public Private Partnership management effects on road safety outcomes By Daniel Albalate; Paula Bel-Piñana

  1. By: Johann K. Brunner; Susanne Pech
    Abstract: We study the optimal tax system in a dynamic model where di¤erences in wages induce di¤erences in inheritances, and the transition from parent ability to child ability is described by a Markov chain. In accordance with empirical evidence, we assume that in any generation more able individuals are likely to have a more able parent, which implies that in the steady state they also tend to receive larger inheritances than less able individuals. We show that the Atkinson-Stiglitz result on the redundancy of indirect taxes does not hold in this framework. In particular, given an optimal income tax, a bequest tax as well as a consumption tax are potential instruments for additional redistribution. For the bequest tax the sign of the overall welfare e¤ect depends on the reaction of bequests and on inequality aversion, while for the consumption tax the sign is always positive because the distorting e¤ect is outweighed by the induced increase in wealth accumulation.
    Keywords: Optimal taxation, estate tax, consumption tax, wealth transmission.
    Date: 2017–10
  2. By: Alex Rees-Jones; Dmitry Taubinsky
    Abstract: A growing body of evidence suggests that psychological biases can lead different implementations of otherwise equivalent tax incentives to result in meaningfully different behaviors. We argue that in the presence of such failures of “implementation invariance,” decoupling the question of optimal feasible allocations from the tax system used to induce them—the “mechanism design approach” to tax analysis—cannot be the right approach to analyzing optimal tax systems. After reviewing the diverse psychologies that lead to failures of implementation invariance, we illustrate our argument by formally deriving three basic lessons that arise in the presence of these biases. First, the mechanism design approach neither estimates nor bounds the welfare computed under psychologically realistic assumptions about individuals' responses to the tax instruments used in practice. Second, the optimal allocations from abstract mechanisms may not be implementable with concrete tax policies, and vice-versa. Third, the integration of these biases may mitigate the importance of information asymmetries, resulting in optimal tax formulas more closely approximated by classical Ramsey results. We conclude by proposing that a “behavioral” extension of the “sufficient statistics” approach is a more fruitful way forward in the presence of such psychological biases.
    JEL: D03 D6 H0 H2 H21
    Date: 2017–10
  3. By: Barigozzi, Francesca; Cremer, Helmuth; Roeder, Kerstin
    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 bonus; marriage penalty; proposal game; signaling
    JEL: D82 H31 J12
    Date: 2017–10
  4. By: Kyle, Margaret K; Ridley, David; Zhang, Su
    Abstract: How do governments respond to other governments when providing a global public good? Using data from 2007-2014 on medical research funding for infectious and parasitic diseases, we examine how governments and foundations in 41 countries respond to funding changes by the US government (which accounts for half of funding for these diseases). Because funding across governments might be positively correlated due to unobserved drivers they have in common, we use variation in the representation of research-intensive universities on US Congressional appropriations committees as an instrument for US funding. We find that a 10 percent increase in US government funding for a disease is associated with a 2 to 3 percent reduction in funding for that disease by another government in the following year.
    Keywords: free riding; health; Innovation; pharmaceuticals; Public Goods
    JEL: H4 H5 I18 O1 O3
    Date: 2017–11
  5. By: Daniel Albalate (GiM-IREA, Universitat de Barcelona); Paula Bel-Piñana (GiM-IREA, Universitat de Barcelona)
    Abstract: Public Private Partnerships (PPP) have become common in providing high-quality infrastructure in many countries worldwide. One of the main reasons for PPP agreements is to improve efficiency and quality in the delivery of public services, as well as to boost investments for expensive projects. Despite PPPs having been particularly widespread in the case of the construction and rehabilitation of high-capacity road infrastructure, their impact in terms of road safety outcomes is still unexplored. This paper studies the effects of PPPs on road safety outcomes by taking advantage of the variety of management models provided in the Spanish highway network. Results based on a panel-data fixed-effects method show that the most relevant aspect influencing road safety outcomes is the quality of design of the road. However, we find strong evidence suggesting that privately operated highways perform better in terms of road safety outcomes than publicly operated highways, for roads with a similar quality of design.
    Keywords: Public Private Partnership, highway, road safety, management
    JEL: H23 I18 L33
    Date: 2017–11

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