nep-pub New Economics Papers
on Public Finance
Issue of 2018‒09‒24
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxes and Economic Growth in OECD Countries: A Meta-Analysis By Nazila Alinaghi; W. Robert Reed
  2. Immigrant Voters, Taxation and the Size of the Welfare State By Chevalier, Arnaud; Elsner, Benjamin; Lichter, Andreas; Pestel, Nico
  3. Taxation and Innovation in the 20th Century By Ufuk Akcigit; John Grigsby; Tom Nicholas; Stefanie Stantcheva
  4. Did tax-transfer policy change New Zealand disposable income inequality between 1988 and 2013? By Nolan, Matt
  5. Horizontal and Vertical Equity in the New Zealand Tax-Transfer System: 1988-2013 By Nolan, Matt

  1. By: Nazila Alinaghi; W. Robert Reed (University of Canterbury)
    Abstract: This paper uses meta-analysis to evaluate the results of 42 studies and 641 individual estimates of the effect of taxes on economic growth in OECD countries. Our analysis addresses a number of difficult coding issues such as: implications of the government budget constraint for interpretations of tax effects; units of measurement for economic growth rates and tax rates; implications of equation specifications that measure short-run, medium-run, and long-run effects; length of time period (annual data versus multi-year periods); and other factors. Our main findings are: Estimates in the literature are characterized by significant (negative) publication bias. After controlling for publication bias, we find that tax policies predicted by growth theory to be growth-retarding, such as the use of distortionary taxes to fund unproductive expenditures, are significantly associated with lower economic growth. Tax polices predicted to be growth-enhancing, such as the use of non-distortionary taxes to fund productive expenditures, are significantly associated with higher economic growth. The estimated differences in these policies indicate that there is scope for tax policy to have a meaningful impact on economic growth. Finally, we find weak evidence that taxes on labour are particularly growth-inhibiting, while the evidence for other types of taxes is mixed.
    Keywords: Meta-analysis, taxes, economic growth, OECD
    JEL: H2 H5 H6 O47 O50
    Date: 2018–09–01
  2. By: Chevalier, Arnaud (Royal Holloway, University of London); Elsner, Benjamin (University College Dublin); Lichter, Andreas (IZA); Pestel, Nico (IZA)
    Abstract: This paper studies the impact of immigration on public policy setting. As a natural experiment, we exploit the sudden arrival of eight million forced migrants in West Germany after World War II. These migrants were on average poorer than the West German population, but unlike most international migrants they had full voting rights and were eligible for social welfare. Using panel data for West German cities and applying difference-in-differences and an instrumental variables approach, we show that local governments responded to this migration shock with selective and persistent tax raises as well as shifts in spending. In response to the inflow, farm and business owners were taxed more while residential property and wage bill taxes were left unchanged. Moreover, high-inflow cities significantly raised welfare spending while reducing spending on infrastructure and housing. Election data suggest that these policy changes were partly driven by the political influence of the immigrants: in high-inflow regions, the major parties were more likely to nominate immigrants as candidates, and a pro-immigrant party received high vote shares. We further document that this episode of mass immigration had lasting effects on people's preferences for redistribution. In areas with larger inflows in the 1940s, people have substantially higher demand for redistribution more than 50 years later.
    Keywords: migration, taxation, spending, welfare state
    JEL: J61 H20
    Date: 2018–08
  3. By: Ufuk Akcigit; John Grigsby; Tom Nicholas; Stefanie Stantcheva
    Abstract: This paper studies the effect of corporate and personal taxes on innovation in the United States over the twentieth century. We use three new datasets: a panel of the universe of inventors who patent since 1920; a dataset of the employment, location and patents of firms active in R&D since 1921; and a historical state-level corporate tax database since 1900, which we link to an existing database on state-level personal income taxes. Our analysis focuses on the impact of taxes on individual inventors and firms (the micro level) and on states over time (the macro level). We propose several identification strategies, all of which yield consistent results: i) OLS with fixed effects, including inventor and state-times-year fixed effects, which make use of differences between tax brackets within a state-year cell and which absorb heterogeneity and contemporaneous changes in economic conditions; ii) an instrumental variable approach, which predicts changes in an individual or firm's total tax rate with changes in the federal tax rate only; iii) a border county strategy, which exploits tax variation across neighboring counties in different states. We find that taxes matter for innovation: higher personal and corporate income taxes negatively affect the quantity, quality, and location of inventive activity at the macro and micro levels. At the macro level, cross-state spillovers or business-stealing from one state to another are important, but do not account for all of the effect. Agglomeration effects from local innovation clusters tend to weaken responsiveness to taxation. Corporate inventors respond more strongly to taxes than their non-corporate counterparts.
    JEL: H24 H25 H31 J61 O31 O32 O33
    Date: 2018–09
  4. By: Nolan, Matt
    Abstract: This paper investigates the role tax and transfer policies changes played in the increase in disposable income inequality over the 1988-2013 period. Utilising the Household Economic Survey (HES) and a behavioural microsimulation model (Treasury’s TAXWELL-B) the relative contributions of tax policy and changes in various sociodemographic characteristics (age, highest educational attainment, and employment status) to the change in inequality are estimated. Tax and transfer policy changes are found to have had a major role in the increase in income inequality, accounting for around a third of the observed increase. Furthermore, non-policy related changes in the employment distribution also increased income inequality. However, increases in tertiary educational attainment and the proportion of workers in their prime earning years were both factors that were reducing income inequality over this same period. With these factors pushing in separate directions, this research also indicates that there are significant unobserved determinants of the rise in income inequality that cannot be attributed to the static role of tax-transfer policy, age, education, or employment status distributions.
    Keywords: New Zealand, Income, Tax policy, Income inequality, Tax-transfer policy,
    Date: 2018
  5. By: Nolan, Matt
    Abstract: Between 1988 and 2013 New Zealand’s tax and welfare systems have experienced a significant period of change, with real benefit payments and tax rates both declining. When evaluating the perceived fairness of these reforms the focus has predominantly fallen on how average economic activity and income inequality changed. However, such evaluation is partial at best. In this paper I intend to extend the evaluation of tax-transfer policy change during this period by reframing the adjustment in the distribution of income (as proxied by the Gini coefficient) due to policy into “horizontal equity†, “vertical equity†, and “reranking†effects. This decomposition is achieved by applying the observed tax-transfers systems to two sets of pooled years of HES data (1988-1991 and 2011-2013), and then constructing appropriate concentration coefficients to analyse how the tax system transformed pre-tax and transfer family income into disposable family income. Such a decomposition allows us to discuss how the observed changes could be consistent with a change in perceptions of what is fair (eg the importance of treating equals the same vs the importance of redistributing income).
    Keywords: New Zealand, Taxation, Welfare system,
    Date: 2018

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