nep-pub New Economics Papers
on Public Finance
Issue of 2018‒06‒25
six papers chosen by

  1. Peers or Police? Detection and Sanctions in the Provision of Public Goods By DeAngelo, Gregory; Gee, Laura Katherine
  2. Firms at the productivity frontier enjoy lower effective taxation By David Bartolini
  3. Tax Refunds and Income Manipulation Evidence from the EITC By Florian Buhlmann; Benjamin Elsner; Andreas Peichl
  4. Taxes and Growth: New Narrative Evidence from Interwar Britain By James Cloyne; Nicholas Dimsdale; Natacha Postel-Vinay
  5. Intertemporal Labor Supply Substitution? Evidence from the Swiss Income Tax Holidays By Isabel Z. Martinez; Emmanuel Saez; Michael Siegenthaler
  6. Sex working and taxation in European countries By Luigi Bernardi

  1. By: DeAngelo, Gregory (West Virginia University); Gee, Laura Katherine (Tufts University)
    Abstract: Sanctions are a common method to discourage free-riding in the provision of public goods. However, we can usually only sanction those who are detected performing the bad act of free-riding. There has been considerable research on the type of sanctions imposed, but this research almost always automatically detects everyone's actions and broadcasts them to the group. This is akin to assuming that a group always has a police force or motivated peer reporting to detect and announce the actions of bad actors. However, in many situations bad acts go undetected and unknown to others. We use a lab experiment to compare public good contribution decisions in an environment where we relax the assumption that detection is automated. The common result that sanctions and the likelihood of detection share an inverse relationship continues to be found in our results. However, free-riders are unwilling to pay for detection when sanctioning is conducted at the group level, because a criminal does not want to fund the police who will catch his bad acts. But, when detection is conducted among peers, free-riders are willing to pay to detect other individuals that free-ride.
    Keywords: public goods, punishment, detection, deterrence
    JEL: C72 C91 C92 D7 H41
    Date: 2018–05
  2. By: David Bartolini
    Abstract: Slow productivity growth in advanced economies holds back income gains and therefore improvements in well-being. Sluggish productivity gains in aggregate hide a growing gap between firms at the frontier, which display sustained productivity growth, and the rest of firms whose productivity stagnates. The empirical analysis – based on firm-level data for the period 1998–2014 – uncovers the existence of a tax burden gap alongside the productivity gap: firms at the frontier pay less for each dollar of profits than lagging firms. This heterogeneous impact of taxation may hinder productivity diffusion, as it reduces incentives (and opportunities) for lagging firms to catch up with the frontier. The negative impact of taxation is particularly important when associated with cash constraints, weak demand and other framework conditions (e.g. labour market legislation, trade openness). The analysis shows that complementing tax incentives with policies to ease cash constraints would help to narrow the productivity gap.
    Keywords: access to credit, effective business taxation, market regulation, Productivity
    JEL: D24 H25
    Date: 2018–06–11
  3. By: Florian Buhlmann (Center for European Economic Research (ZEW)); Benjamin Elsner (University College Dublin, IZA and CReAM); Andreas Peichl (ifo Institute, CESifo, University of Munich, ZEW and IZA)
    Abstract: Welfare programs are important in terms of reducing poverty, although they create incentives for recipients to maximize their income by either reducing their labor supply or manipulating their taxable income. In this paper, we quantify the extent of such behavioral responses for the Earned Income Tax Credit (EITC) in the US. We exploit the fact that US states can set top-up rates, which means that at a given point in time, workers with the same income receive different tax refunds in different states. Using event studies as well as a border pair design, we document that raising the state EITC leads to more bunching of self-employed tax filers at the first kink point of the tax schedule. While we document a strong relationship up until 2007, we find no effect during the Great Recession. These findings point to important behavioral responses to the largest welfare program in the US.
    Keywords: EITC, bunching, income manipulation
    JEL: H20 H24
    Date: 2018–06–18
  4. By: James Cloyne; Nicholas Dimsdale; Natacha Postel-Vinay
    Abstract: The impact of fiscal policy on economic activity is still a matter of great debate. And, ever since Keynes first commented on it, interwar Britain, 1918- 1939, has remained a particularly contentious case | not least because of its high debt environment and turbulent business cycle. This debate has often focused on the effects of government spending, but little is known about the effects of tax changes. In fact, a number of tax reforms in the period focused on long-term and social objectives, often reflecting the personality of British Chancellors. Based on extensive historiographical research, we apply a narrative approach to the interwar period in Britain and isolate a new series of exogenous tax changes. We find that tax changes have a sizable effect on GDP, with multipliers around 0.5 on impact and exceeding 2 within two years. Our estimates contribute to the historical debate about fiscal policy in the interwar period and are remarkably similar to the sizable tax multipliers found after WWII.
    JEL: E32 E62 H2 N1 N44
    Date: 2018–05
  5. By: Isabel Z. Martinez; Emmanuel Saez; Michael Siegenthaler
    Abstract: This paper estimates the intertemporal labor supply (Frisch) elasticity of substitution exploiting an unusual tax policy change in Switzerland. In the late 1990s, Switzerland switched from an income tax system where current taxes were based on the previous two years' income to a standard annual pay as you earn system. This transition created a two-year long, salient, and well-advertised tax holiday. This change occurred both for the federal and local income taxes. Swiss cantons switched to the new regime at different points in time during the 1997--2003 period. Exploiting this variation in timing and using population-wide administrative social security earnings data matched with census data, we identify the Frisch elasticity. We find significant but quantitatively small responses of earnings with a Frisch elasticity of .05 overall. Some groups, such as high wage income earners and especially the self-employed display larger responses with Frisch elasticities of .1 and .27. We find no effects along the extensive margin at all and almost no effects on hours of work suggesting that responses are driven primarily by tax avoidance rather than real labor supply. Therefore, our estimates constitute upper bounds for the labor supply Frisch elasticity.
    JEL: H31
    Date: 2018–05
  6. By: Luigi Bernardi (Università di Pavia)
    Abstract: The paper aims to give a picture of the present nature of taxation of sex working in a large number of European countries. Sex working is widespread, and yet it is only taxed in a few countries. There is a move to extend the taxation of sex working to other countries. Consequently, a number of different tax regimes are applied to this field of activity. Following an overview of such taxation, particularly in Europe (its origins, entity and social acceptance), the paper then discusses the classification of general countries’ “models” of sex working taxation. The corresponding regimes of each country are then examined in greater depth. Finally, the paper considers the main “sex industry taxes” applied in a number of countries, as well as the current proposals to enlarge that number.
    Keywords: sex working, taxation, European Countries
    JEL: H20 H24 H70
    Date: 2018–06

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