nep-pub New Economics Papers
on Public Finance
Issue of 2018‒01‒01
thirteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A note on progressive taxation and inequality equivalence By Claudio Zoli
  2. The effects of the tax mix on inequality and growth By Oguzhan Akgun; Boris Cournède; Jean-Marc Fournier
  3. Frictions and taxpayer responses: evidence from bunching at personal tax thresholds By Stuart Adam; James Browne; David Phillips; Barra Roantree
  4. Democracy and taxation By Balamatsias, Pavlos
  5. Until taxes do us part: tax penalties or bonuses and the marriage decision By Barigozzi, Francesca; Cremer, Helmuth; Roeder, Kerstin
  6. No Business Taxation Without Model Representation; Adding Corporate Income and Cash Flow Taxes to GIMF By Benjamin Carton; Emilio Fernández Corugedo; Benjamin L Hunt
  7. Corruption, Taxes and Compliance By Anja Baum; Sanjeev Gupta; Elijah Kimani; Sampawende J Tapsoba
  8. Housing booms and busts and local fiscal policy By Albert Solé-Ollé; Elisabet Viladecans-Marsal
  9. Can taxation predict US top-wealth share dynamics? By Böhl, Gregor; Fischer, Thomas
  10. Income redistribution through taxes and transfers across OECD countries By Orsetta Causa; Mikkel Hermansen
  11. Tax Policies in the European Union: 2017 Survey By European Commission
  12. Inequality and fiscal redistribution in Mexico: 1992–2015 By John Scott; Enrique de la Rosa; Rodrigo Aranda
  13. The effect of land consumption on municipal tax revenue: Evidence from Bavaria By Langer, Sebastian; Korzhenevych, Artem

  1. By: Claudio Zoli (Department of Economics (University of Verona))
    Abstract: We investigate the relationship between the notion of progressive taxation and inequality reduction under a general version of the concept of inequality equivalence. We consider a two parameter formalization of the concept of inequality equivalence that both includes as special cases the intermediate inequality equivalence and the unit-consistent inequality equivalence. Both criteria could range from relative to absolute inequality views as the parameters in the formulation change. For the unit-consistent inequality equivalence the condition of non-decreasing average tax rate is necessary and sufficient to guarantee the post-tax inequality reduction for all the inequality views in between the relative and the absolute.
    Keywords: Progressive taxation, Inequality equivalence, Intermediate measures, Unit consistency
    JEL: D31 D63 H23
    Date: 2017–12
  2. By: Oguzhan Akgun; Boris Cournède; Jean-Marc Fournier
    Abstract: Can reforms that shift the balance among different taxes in the revenue mix lastingly influence the overall prosperity of an economy and the distribution of income across households? The present study takes this question to the data, using the experience of 34 OECD countries over 1980-2014 to assess the effects of changes in the tax structure on the long-term level of average output per capita and the distribution of disposable income across households. Changing the revenue mix while keeping government size constant typically lift long-term output per capita when they involve cuts in the labour tax wedge below or above average incomes, cuts in corporate income taxes or increases in property taxes. The relative-income effects of revenue-neutral reductions in labour tax wedges are broadly in line with intuition: the relative position of those benefitting from them typically improves. In absolute terms, however, nearly all the income distribution benefits from revenue-neutral reductions in labour tax wedges, be they focused on below or average income earners.
    Keywords: growth, household disposable income, inequality, tax, taxation
    JEL: H11 H2 H23 H24 H25 H27
    Date: 2017–12–15
  3. By: Stuart Adam (Institute for Fiscal Studies and Institute for Fiscal Studies); James Browne (Institute for Fiscal Studies and Institute for Fiscal Studies); David Phillips (Institute for Fiscal Studies and Institute for Fiscal Studies); Barra Roantree (Institute for Fiscal Studies and Institute for Fiscal Studies)
    Abstract: We investigate bunching at personal tax thresholds in the UK over a 40-year period. At kinks, where the marginal tax rate rises, we find bunching among company owner-managers and the self-employed, but not those with only employment income. Notches, where the average rate rises, provide compelling evidence that this is because most employees face substantial frictions: fewer than a quarter bunch even where doing so would increase consumption and leisure. We develop a new approach for identifying selection in who responds and for decomposing responses into hours and wage components. We find that employees who bunch at notches are higher-hours, lower-wage, part-time workers.
    Keywords: Behavioural response, income tax, social security con- tributions, optimisation frictions, elasticity of taxable income
    JEL: H20 H24 J22
    Date: 2017–08–22
  4. By: Balamatsias, Pavlos
    Abstract: In this paper, the author argues that democracies tend to positively affect the size and composition of tax revenues. His argument is based on the hypothesis that democracies can increase direct taxation, such as income taxes and capital taxes, due to increased compliance of taxpayers and also because there is a diffusion of tax measures between neighboring democratic/autocratic countries. The main theoretical hypothesis is then tested on a dataset that consists of 74 countries over the period 1993-2012. His main explanatory variable will be a dichotomous measure of democracy; but he alters his analysis from previous research by assuming that democracy or autocracy is not an exogenous variable. Instead the author follows the theory of Huntington (The third wave: Democratization in the late twentieth century (Vol. 4), 1991) and the methodology of Acemoglu et al. (Democracy does cause growth, 2014) about regional democratization waves. According to this theory, democratizations occur in regional waves; consequently diffusion of demand or discontent for a political system is easier to happen in neighboring countries due to socio-political and historical similarities. This measure shows him that demand or discontent for a given political system in a geographical area, can in turn influence the power of a country's political regime and subsequently that regime's effect on taxation. The author then uses a two stage least square (2SLS) fixed effects to test our hypothesis. The empirical findings suggest that regional waves of democratization have a positive and statistically significant correlation with democracy, and in turn democracy also has a positive effect on direct taxation as well as the ratio of direct to indirect taxation in the countries of his sample. This result remains the same when several robustness tests are used. Finally when examining the long-run effect of regional waves, the author does not find any evidence of a significant relationship between regional waves of democratization and a country's own regime; however democracy still has a positive effect on direct taxes and tax ratio.
    Keywords: democracy,political development,regional democratization waves,taxation
    JEL: P16 H2
    Date: 2017
  5. 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 penalty; marriage bonus; proposal game; signaling
    JEL: D82 H31 J12
    Date: 2017–11
  6. By: Benjamin Carton; Emilio Fernández Corugedo; Benjamin L Hunt
    Abstract: The Global Integrated Monetary and Fiscal model (GIMF) is a multi-region, forward-looking, DSGE model developed at the International Monetary Fund for policy analysis and international economic research. This paper documents the incorporation of corporate income, cash-flow and destination based cash-flow taxes into the model. The analysis presented considers the transmission mechanism of these taxes and details how financial frictions interact with each of the taxes.
    Date: 2017–11–17
  7. By: Anja Baum; Sanjeev Gupta; Elijah Kimani; Sampawende J Tapsoba
    Abstract: This paper revisits the effects of corruption on the state’s capacity to raise revenue, building on the existing empirical literature using new and more disaggregated data. We use a comprehensive dataset for 147 countries spanning 1995-2014, compiled by the IMF. It finds that—consistent with the existing literature—corruption is negatively associated with overall tax revenue, and most of its components. This relationship is predominantly influenced by the way corruption interacts with tax compliance. The establishment of large taxpayer offices improves tax compliance by dampening the perception of corruption, thereby boosting revenue.
    Date: 2017–11–17
  8. By: Albert Solé-Ollé (IEB, Universitat de Barcelona); Elisabet Viladecans-Marsal (IEB, Universitat de Barcelona)
    Abstract: This paper examines how local governments adjust their spending, savings and taxes in response to a temporary revenue windfall generated by a housing boom and how they cope with the inevitable shortfall that appears during the bust. We focus on Spanish local governments given the intensity of the last housing boom-bust experienced there and the large share of construction-related revenues they obtain. We find, first, that just a small share of the boom windfall was saved, with revenues being used primarily to increase spending (above all, current spending) and (to a lesser extent) cut taxes. Second, we find that the failure to save during the boom is higher in places with less informed voters and more contested elections. Third, we also examine what happens during the bust, and find that these governments had to cut abruptly their spending (above all, capital), raise taxes, and allow deficits to grow. Finally, in places wit less informed voters and more contested elections local governments had more trouble in adjusting during the bust, and they tend to rely more on spending cuts than on tax increases.
    Keywords: Tax volatility, forward-looking behavior, policy myopia
    JEL: E62 H72 R5
    Date: 2017–12
  9. By: Böhl, Gregor; Fischer, Thomas
    Abstract: The level of capital tax gains has high explanatory power regarding the question of what drives economic inequality. On this basis, the authors develop a simple, yet micro-founded portfolio selection model to explain the dynamics of wealth inequality given empirical tax series in the US. The results emphasize that the level and the transition of speed of wealth inequality depend crucially on the degree of capital taxation. The projections predict that - continuing on the present path of capital taxation in the US - the gap between rich and poor is expected to shrink whereas "massive" tax cuts will further increase the degree of wealth concentration.
    Keywords: wealth inequality,US top-wealth shares,capital taxation,Fokker-Planck equation,Kalman Filter
    JEL: D31 H23 G11
    Date: 2017
  10. By: Orsetta Causa; Mikkel Hermansen
    Abstract: This paper produces a comprehensive assessment of income redistribution to the working-age population, covering OECD countries over the last two decades. Redistribution is quantified as the relative reduction in market income inequality achieved by personal income taxes, employees’ social security contributions and cash transfers, based on household-level micro data. A detailed decomposition analysis uncovers the respective roles of size, tax progressivity and transfer targeting for overall redistribution, the respective role of various categories of transfers for transfer redistribution; as well as redistribution for various income groups. The paper shows a widespread decline in redistribution across the OECD, both on average and in the majority of countries for which data going back to the mid-1990s are available. This was primarily associated with a decline in cash transfer redistribution while personal income taxes played a less important and more heterogeneous role across countries. In turn, the decline in the redistributive effect of cash transfers reflected a decline in their size and in particular by less redistributive insurance transfers. In some countries, this was mitigated by more redistributive assistance transfers but the resulting increase in the targeting of total transfers was not sufficient to prevent transfer redistribution from declining.
    Keywords: income inequality, progressivity, redistribution, taxes, transfers
    JEL: D31 H23 H53 I38
    Date: 2017–12–21
  11. By: European Commission
    Abstract: This report aims to improve the transparency of the European Semester process by publishing in a clear and accessible format the main indicators used to examine Member States' tax policies, alongside information on recent tax reforms. It also sets out some reform options and examples to act as inspiration for Member States looking to improve the fairness and efficiency of their tax systems.
    Keywords: European Union, taxation
    JEL: H23 H24 H25 H27 H71
    Date: 2017–12
  12. By: John Scott; Enrique de la Rosa; Rodrigo Aranda
    Abstract: This paper uses income and expenditure surveys from 1992 to 2014 and public tax and spending accounts to estimate the redistributive impact of Mexico’s fiscal system over this period. It presents standard and marginal benefit incidence analysis for the principal public transfers (education, health, social security, direct cash transfers) in 1992–2014, and for the full fiscal system for 2008–14. The paper also estimates the effects of a major recent fiscal reform for the years 2015–18: the transition from large subsidies to taxes on petrol. The analysis shows a continuous improvement in the redistributive effects of the fiscal system through the 1990s and 2000s associated with an increase in social spending and in the progressivity of this spending over this period. This trend stagnated and reversed after 2008/2010, reflecting in part an interruption of the expansive and progressive trend of social transfers, but especially a sharp decline of net indirect subsidies.
    Date: 2017
  13. By: Langer, Sebastian; Korzhenevych, Artem
    Abstract: This paper aims to quantify the municipal tax revenue effects of built-up area increases. The assumed existence of these effects is one of the key reasons for ongoing land consumption on the side of the municipalities. Some previous case studies however suggested that these effects might be not large enough especially in rural municipalities and would thus make land development not profitable. We estimate the effect of built-up industrial and commercial (BIC) area change on the business tax revenues in cross-sectional instrumental variable (IV) estimations. Based on detailed data for Bavaria, we find a significant and positive tax revenue effect of an increase in municipal BIC area. There exist strong differences in the size of this effect between urban and rural municipalities. The largest effects are generated by the BIC area in the large cities and become substantially smaller when these are dropped from the sample. Based on these findings, we reflect on the tradable planning permits (TPP) scheme recently discussed in the land use literature in the context of policies aiming to limit land consumption. Furthermore, we relate our estimates to the average municipal costs for land development and execute a number of robustness checks.
    Keywords: tax revenues,municipal taxes,land consumption,instrumental variable regression
    JEL: H21 H25 H70 H71 R14 R52
    Date: 2017

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