nep-pub New Economics Papers
on Public Finance
Issue of 2019‒01‒14
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. On the political economy of income taxation By Berliant, Marcus; Gouveia, Miguel
  2. Spending Multipliers with Distortionary Taxes: Does the Level of Public Debt Matter? By Rym Aloui; Aurélien Eyquem
  3. A Progressive Consumption Tax - an Important Instrument for Stabilizing Business Cycles, or just an Exotic Idea? By Aleksandar Vasilev
  4. Is the marginal cost of public funds equal to one? By Bjart Holtsmark
  5. Tax Evasion and Optimal Corporate Income Tax Rates in a Growing Economy By Hori, Takeo; Maebayashi, Noritaka; Morimoto, Keiichi
  6. Effects of the Austrian Income Tax Reform 2015/2016 on Private Consumption: Survey Findings By Kronberger, Ralf; Schmid, Christoph
  7. Name and shame? Evidence from the European Union tax haven blacklist By Polakova, Aija
  8. French Favored Redistributions Derived From Surveys: a Political Assessment of Optimal Tax Theory By Adrien Fabre
  9. Collusive tax evasion by employers and employees. Evidence from a randomized fi eld experiment in Norway By Marie Bjørneby; Annette Alstadsæter; Kjetil Telle
  10. The Role of Public Pensions in Income Inequality among Elderly Households in China 1988–2013 By Li, Jinjing; Wang, Xinmei; Yuan, Chang; Xu, Jing
  11. Working Longer in China: Implicit Tax or Subsidy? By Xu, Jing; Wang, Xinmei

  1. By: Berliant, Marcus; Gouveia, Miguel
    Abstract: The literatures dealing with voting, optimal income taxation, implementation, and pure public goods are integrated here to address the problem of voting over income taxes and public goods. In contrast with previous articles, general nonlinear income taxes that affect the labor-leisure decisions of consumers who work and vote are allowed. Uncertainty plays an important role in that the government does not know the true realizations of the abilities of consumers drawn from a known distribution, but must meet the realization-dependent budget. Even though the space of alternatives is infinite dimensional, conditions on primitives are found to assure existence of a majority rule equilibrium when agents vote over both a public good and income taxes to finance it.
    Keywords: Voting; Income taxation; Public good
    JEL: D72 D82 H21 H41
    Date: 2018–12–12
  2. By: Rym Aloui (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Aurélien Eyquem (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We investigate the link between the size of government indebtedness and the effectiveness of government spending shocks in normal times and at the Zero Lower Bound (ZLB). We develop a New Keynesian model with capital, distortionary taxes and public debt in which the ZLB constraint on the nominal interest rate may be binding. In normal times, high steady-state levels of government debt to GDP lead to reduced output multipliers. After a negative capital quality shock that pushes the economy at the ZLB however, high steadystate debt levels produce larger output multipliers. Our results rely on the fact that fiscal policy becomes self-financing at the ZLB, and that distortionary taxes rise (respectively fall) after a spending shock at the steady state (resp. ZLB). Our results have non-trivial consequences on the design of optimized spending policies in the event of large economic downturns.
    Keywords: Zero Lower Bound,Fiscal Policy,Distortionary Taxes,Public Debt
    Date: 2018
  3. By: Aleksandar Vasilev (Lincoln International Business School, UK)
    Abstract: We introduce progressive consumption taxation into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the presence of of progressive taxation of consumption expenditures for the stabilization of cyclical uctuations in Bulgaria. We find the quantitative effect of such a tax to be very small, and thus not important for either business cycle stabilization, or public finance issues.
    Keywords: business cycles, progressive consumption taxation, Bulgaria
    JEL: E24 E32
    Date: 2018–12
  4. By: Bjart Holtsmark (Statistics Norway)
    Abstract: In a recent article Bas Jacobs found that the marginal cost of public funds (MCF) is one when taxation gives second best resource allocation. This conclusion is based on a claim that there are certain shortcomings with the standard definition of MCF, for example that the size and sign of the standard MCF measure is sensitive to the choice of the untaxed good. A less frequently used definition of MCF is therefore applied instead. If a lump-sum tax is a marginal source for public revenue and taxation is optimal, MCF is one with the proposed definition. The contribution of the present paper is two-fold. First, it finds the standard MCF-measure is not sensitive to the choice of the untaxed good. Second, it finds that the proposed alternative definition has undesirable properties, for example that it could give negative MCF-measures along the upward sloping part of the Laffer curve and is sensitive to the choice of the untaxed good also in cases where this does not make sense. The present paper therefore concludes that there is a weak basis for the conclusion that MCF is one with optimal taxation.
    Keywords: Marginal cost of public funds; taxation; lump-sum taxes; public goods
    JEL: H20 H40 H50
    Date: 2019–01
  5. By: Hori, Takeo; Maebayashi, Noritaka; Morimoto, Keiichi
    Abstract: We explore how tax evasion by firms affects the growth- and welfare-maximizing rates of corporate income tax (CIT) in an endogenous growth model with productive public service. We show that the negative effect of CIT on growth is mitigated in the presence of tax evasion. This increases the benefit of raising the CIT rate for public service provision. Thus, in contrast to Barro (1990), the optimal tax rate is higher than the output elasticity of public service. Through numerical exercises, we demonstrate that the role of tax evasion by firms is quantitatively significant.
    Keywords: corporate income tax, tax evasion, growth, welfare
    JEL: H21 H26 O40
    Date: 2018–12–22
  6. By: Kronberger, Ralf; Schmid, Christoph
    Abstract: We use survey findings to analyse the effects of the Austrian income tax reform 2015/2016 on private consumption differentiated by income classes. Using survey data, we also estimate the corresponding average marginal propensities to consume and compare them to applied average marginal propensities to consume in economic models used to analyse the previous two income tax reforms in Austria. The estimated average marginal propensity to consume amounts to approximately 0.46, whereby in tendency increasing from the lowest income class (0.42-0.43) to the highest income class (0.48-0.50). Our estimated average marginal propensity to consume across all income classes basically corresponds to those used in economic models to evaluate the income tax reform 2015/2016. However, our estimated marginal propensities to consume by income classes fundamentally differ from those used in the economic models.
    Keywords: income tax reform, private consumption response, marginal propensity to consume, survey methodology
    Date: 2018–12
  7. By: Polakova, Aija (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: I study publication of the European Union (EU) tax haven blacklist on December 5, 2017 to examine whether and how the use of recognized tax havens affects firm value. I find that the tax haven naming and shaming by the EU was associated with a negative stock price reaction of firms with tax haven affliates. The largest reaction was for those tax havens, for which it was not foreseeable that they would be included in the blacklist. Retail firms experienced a larger decrease in share price than firms in other industries, which is consistent with a potential consumer backlash. Also more tax aggressive firms faced more negative returns, which suggests that investors expect firms might be audited or fined for past or overly aggressive tax avoidance. The negative reaction was less pronounced in countries with low levels of investor protection and weakly-governed firms with substantial conflicts of interest between principals and shareholders. This is consistent with increased scrutiny and potential for countermeasures associated with the blacklist, which reduce opportunities for managerial wealth diversion.
    Keywords: Event study; governance; tax avoidance; tax haven
    JEL: G12 G32 H25 H26
    Date: 2018–12–14
  8. By: Adrien Fabre (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Keywords: Preferences for redistribution,Desired tax,Income tax rates,Income distribution,France
    Date: 2018–12
  9. By: Marie Bjørneby; Annette Alstadsæter; Kjetil Telle (Statistics Norway)
    Abstract: Third-party reporting and employers’ tax withholding are powerful compliance mechanisms, as long as the employer and employee do not collude to evade. Using data from randomly assigned on-site audits among 2,462 Norwegian firms, we provide evidence of collusive tax evasion. We find that firms assigned to be audited increased their subsequent wage reporting on behalf of their employees by 18 percent relative to firms assigned to the control group. The effect is more pronounced among small firms with few employees. Our results document the limitations of third-party reporting, but also that these limitations can be counteracted by relatively inexpensive on-site audits.
    Keywords: collaborative tax evasion; collusive tax evasion; random audits; undeclared work; third-party reporting
    JEL: E26 H26 H32
    Date: 2018–12
  10. By: Li, Jinjing; Wang, Xinmei; Yuan, Chang; Xu, Jing
    Abstract: Using data from the Chinese Household Income Project surveys for 1988, 1995, 2002 and 2013, we investigate the role of public pensions in income inequality among households with elderly members across two decades of pension policy reforms. We examine the distribution and role of public pensions at a national level. We analyse the evolution of the contribution of public pensions to national income inequality across a much more extended time period than earlier studies, which have generally focused on regional changes over short periods. Our findings suggest that public pensions have become the most important source of income for households with elderly members on average in China, but the distribution of pension income is highly unequal, with a Gini coefficient of 0.74 in 2013. Public pension income has been the largest source of income inequality for elderly households since 2002 and contributed to more than half of total income inequality in the most recent year of the survey. This finding is robust against variations in the income inequality measures used. Additionally, our analysis suggests unequal distribution of pension benefits is the primary driver of pensioners’ income inequality. Among several hypothetical policy changes, ensuring a minimum pension benefit for all existing pensioners seems to be the most fiscally effective option in reducing income inequality, with a 0.8% reduction in the Gini coefficient for a 1% increase in public pension expenditure.
    Keywords: income inequality, public pension, Gini decomposition
    JEL: H55 C53 C54
    Date: 2018–12
  11. By: Xu, Jing; Wang, Xinmei
    Abstract: Using the conventional concept of implicit tax, we investigate pension incentives to retire for private sector employees in China. The social security pension consists of pay-as-you-go defined benefit (DB) and defined contribution (DC) systems. Based on Chinese official parameters and the revised OECD models, our studies conclude that the DB system discourages people from working more, but the DC system offers considerably greater incentives at the expense of financial sustainability. If the annuity factors in the DC scheme were linked to the probability of retirees’ mortality, then both constant incentives to work longer and financial sustainability could be achieved.
    Keywords: implicit tax, incentives, pension wealth, social security pension, working longer
    JEL: C53 C54 H55
    Date: 2018–12

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