nep-pub New Economics Papers
on Public Finance
Issue of 2018‒05‒21
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Capital Income Taxation, Economic Growth, and the Politics of Public Education By Tetsuo Ono; Yuki Uchida
  2. Optimal Taxation and Debt Management without Commitment By Davide Debortoli; Ricardo Nunes; Pierre Yared
  3. Destination-Based Business Cash Flow Taxes By Will Martin
  4. Emission taxes, firm relocation, and quality differences By Birg, Laura; Voßwinkel, Jan S.
  5. The Impact of the Tax Cuts and Jobs Act on Local Home Values By Martin, Hal
  6. The ‘soda tax’ is unlikely to make Mexicans lighter or healthier: New evidence on biases in elasticities of demand for soda By Andalón, Mabel; Gibson, John
  7. Tax on Large Fortunes: the recent international debate and the situation in Brazil By Pedro Carvalho Jr.; Luana Passos

  1. By: Tetsuo Ono (Graduate School of Economics, Osaka University); Yuki Uchida (Faculty of Economics, Seikei University)
    Abstract: This study considers the politics of public education and its impacts on economic growth and welfare across generations. Public education is funded by taxing the labor income of the working generation and capital income of the retired. We employ probabilistic voting to demonstrate the politics of taxes and expenditure and show that aging results in a shift of the tax burden from the old to the young and a slowdown of economic growth. We then consider three alternative constraints that limit the choice of taxes and/or expenditure: a minimum level of public education expenditure, an upper limit of the capital income tax rate, and a combination of the two. These constraints all create a trade-off between current and future generations in terms of welfare.
    Keywords: Public education, Economic growth, Capital income tax, Political equilibrium
    JEL: D70 E24 H63
    Date: 2018–02
  2. By: Davide Debortoli; Ricardo Nunes; Pierre Yared
    Abstract: This paper considers optimal fiscal policy in a deterministic Lucas and Stokey (1983) economy in the absence of government commitment. In every period, the government chooses a labor income tax and issues any unconstrained maturity structure of debt as a function of its outstanding debt portfolio. We find that the solution under commitment cannot always be sustained through the appropriate choice of debt maturities, a result which contrasts with previous conclusions in the literature. This is because a government today cannot commit future governments to a particular side of the Laffer curve, even if it can commit them to future revenues. We find that the unique stable debt maturity structure under no commitment is flat, with the government owing the same amount of resources to the private sector at all future dates. We present examples in which the maturity structure converges to such a flat distribution over time. In cases where the commitment and no-commitment solutions do not coincide, debt converges to the natural debt limit.
    JEL: E62 H21 H63
    Date: 2018–04
  3. By: Will Martin
    Abstract: Destination-based business cash-flow taxes have received a great deal of attention and are being widely considered as a replacement for traditional, origin-based, corporate taxes. These taxes combine the strong revenue-raising ability of a VAT with an enormously expensive tax deduction for wages. They would certainly be attractive to foreign investors by eliminating the burden of current corporate taxes. However, adopting them at the rates typically discussed would raise consumer prices dramatically. A more fundamental problem is that practical versions of such taxes would likely reduce net government revenues in countries adopting them.
    Date: 2018–04
  4. By: Birg, Laura; Voßwinkel, Jan S.
    Abstract: This paper studies the effect of an emission tax on the relocation decision in a duopoly with exogenous vertical product differentiation. We establish the relationship between quality difference, relocation cost, and marginal damage of emissions in a two-country-setting for three cases: An environmental tax set only by one country, non-cooperative environmental taxation in both countries, and coordinated environmental taxation. We consider two different timings, a time-consistent government, and a committed government. The higher the quality difference is, the more likely it is that at least one firm relocates to the foreign country. A lower marginal damage decreases the equilibrium tax rate and lowers the incentive for relocation. If also the foreign country applies an emission tax, there is no equilibrium in which both firms relocate to the foreign country. If both governments set taxes non-cooperatively, the low-quality firm never relocates in equilibrium. If both countries set taxes cooperatively, it is more likely that both fi rms remain in the home country. Also, relocation only of the low-quality firm is a possible outcome of cooperative taxation.
    Keywords: relocation,environmental policy,vertical quality differences,emission tax
    JEL: H23 F18 L13 Q58
    Date: 2018
  5. By: Martin, Hal (Federal Reserve Bank of Cleveland)
    Abstract: This paper simulates changes to neighborhood home prices resulting from reforms to tax preferences in the recently passed Tax Cuts and Jobs Act (TCJA). The simulation uses federal tax data summarized at a fine geography to impute homeowner rents at the zip code level across six income classes. Employing a user cost framework, I model rents as a function of prices under the old tax law and under the TCJA. While the average price impact of the TCJA is found to be −5.7 percent, local effects range from 0 to −23 percent across zip codes. Variation across income class is also large. Simulations by income class suggest that the most severe declines in price occur for upper middle-income households ($100,000–$200,000). The paper also simulates partial versions of the TCJA that omit different features of the law that affect housing preference. I find that the higher standard deductions in the new law are the largest driver of price declines.
    Keywords: mortgage interest deduction; housing subsidy; income tax;
    JEL: H24 H31 R21
    Date: 2018–05–11
  6. By: Andalón, Mabel; Gibson, John
    Abstract: Mexico’s ‘soda tax’ has been predicted to reduce average weight of Mexicans by up to three pounds, based on extant estimates of the own-price elasticity of quantity demand for soda of between −1.0 and −1.3. These elasticity estimates from household survey data are exaggerated by not accounting for how consumers adjust quality demanded as price changes. Some estimates also are biased by correlated measurement error. To illustrate these biases we use budget survey data and soda price data for Mexico to estimate demand models that correct for both errors. The corrected own-price elasticity of quantity demand is between −0.1 and −0.4, implying that the soda tax might cut average weight by just half a pound, which is too little to improve population health.
    Keywords: Demand, Household surveys, Quality, Price, Soda taxes, Mexico
    JEL: D12 I10
    Date: 2018–04–25
  7. By: Pedro Carvalho Jr. (IPC-IG); Luana Passos (IPC-IG)
    Abstract: "Many discussions have taken place in Brazil about legislation pertaining to subparagraph VII of article 153 of the 1988 Federal Constitution?the regulation, through a Complementary Law, of the Tax on Large Fortunes (Imposto sobre Grandes Fortunas?IGF). In the current scenario, with the country facing a second consecutive annual decrease in tax revenue, the subject of the implementation of the IGF is gaining some traction, with its proponents vehemently arguing that it can represent a balancing mechanism for a possible increase in the tax burden, so that this increased burden would not fall exclusively on the poorest population through indirect taxes. The economic crisis, together with the political crisis, has reactivated the debate on tax reform, especially regarding demands for a less regressive and more efficient system". (...)
    Keywords: Tax, Large Fortunes, recent, international, debate, situation, Brazil
    Date: 2018–03

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