nep-pub New Economics Papers
on Public Finance
Issue of 2019‒01‒21
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation and Debt Management without Commitment By Davide Debortolii; Ricardo Nunes; Pierre Yared
  2. Fiscal Federalism and Income Inequality: An Empirical Analysis for Switzerland By Lars P. Feld; Christian Frey; Christoph A. Schaltegger; Lukas A. Schmid
  3. Do country risk factors attenuate the effect of taxes on corporate risk-taking? By Osswald, Benjamin; Sureth, Caren
  4. Modeling tax distribution in metropolitan regions with PolicySpace By Bernardo Alves Furtado
  5. Learning from the "Best": The Impact of Tax-Benefit Systems in Africa By Bargain, Olivier; Jara Tamayo, Holguer Xavier; Kwenda, Prudence; Ntuli, Miracle

  1. By: Davide Debortolii (Universitat Pompeu Fabra and Barcelona GSE); Ricardo Nunes (University of Surrey and CIMS); Pierre Yared (Columbia University and NBER)
    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 at, 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 at distribution over time. In cases where the commitment and no-commitment solutions do not coincide, debt converges to the natural debt limit.
    JEL: H63 H21 E62
    Date: 2019–01
  2. By: Lars P. Feld; Christian Frey; Christoph A. Schaltegger; Lukas A. Schmid
    Abstract: This paper analyzes the impact of fiscal federalism on income inequality and redistribution. Theoretically contradicting arguments ask for empirical evidence to obtain a better knowledge of this relationship. We rely on the institutional setting in Switzerland to study the issue empirically. According to our findings tax decentralization tends to reduce concentration in pre- and after-tax income without additional redistribution via progressive taxes. It is, however, crucial to consider the interdependence of decentralization and fragmentation as inequality decreasing effects of decentralization are counteracted by its interaction with fragmentation.
    Keywords: federalism, decentralization, inequality, income concentration, top incomes, redistribution, Switzerland
    JEL: D31 H23 H77
    Date: 2018
  3. By: Osswald, Benjamin; Sureth, Caren
    Abstract: This study examines whether country-specific risk attenuates the association between tax policies and corporate risk-taking. We define country-specific risk (political and fiscal budget risk) as taxpayer's risk that tax refunds on losses cannot be paid due to the institutional environment or fiscal reasons. We exploit a cross-country panel with 234 changes in corporate tax rates and 49 changes in loss offset rules. We investigate whether government risk-sharing via loss offset rules and tax rates affects risk-taking conditional on country risk. We also examine whether tax rate changes, that scale the risk-sharing effect, influence the propensity to conduct risky projects in different country-level risk environments. Our results suggest that country-level risk fully attenuates the previously documented association between tax policies and corporate risk-taking. It attenuates both the effectiveness of loss offset rules and tax rate changes on corporate risk-taking. While changes in tax policy are attractive to policymakers because alternative instruments to encourage risk-taking cannot as easily be adjusted, we provide significant evidence that country risk considerably limits policymakers' ability to induce firm risk-taking via changes in tax policies.
    Keywords: corporate risk-taking,country risk,cross-country study,fiscal risk,risky investments
    JEL: H25 H32 G32
    Date: 2018
  4. By: Bernardo Alves Furtado
    Abstract: Brazilian executive body has consistently vetoed legislative initiatives easing creation and emancipation of municipalities. The literature lists evidence of the negative results of municipal fragmentation, especially so for metropolitan regions. In order to provide evidences for the argument of metropolitan union, this paper quantifies the quality of life of metropolitan citizens in the face of four alternative rules of distribution of municipal tax collection. Methodologically, a validated agent-based spatial model is simulated. On top of that, econometric models are tested using real exogenous variables and simulated data. Results suggest two central conclusions. First, the progressiveness of the Municipal Participation Fund and its relevance to a better quality of life in metropolitan municipalities is confirmed. Second, municipal financial merging would improve citizens' quality of life, compared to the status quo for 23 Brazilian metropolises. Further, the paper presents quantitative evidence that allows comparing alternative tax distributions for each of the 40 simulated metropolises, identifying more efficient forms of fiscal distribution and contributing to the literature and to contemporary parliamentary debate.
    Date: 2018–12
  5. By: Bargain, Olivier (University of Bordeaux); Jara Tamayo, Holguer Xavier (University of Essex); Kwenda, Prudence (Wits University); Ntuli, Miracle (Wits University)
    Abstract: Redistributive systems in Africa are still in their infancy but are constantly expanding in order to finance increasing public spending. This paper aims at characterizing the redistributive potential of six African countries: Ghana, Zambia, Mozambique, Tanzania, Ethiopia and South Africa. These countries show contrasted situations in terms of income distribution. We assess the role of tax-benefit systems to explain these differences. Using newly developed tax-benefit microsimulations for all six countries, we produce counterfactual simulations whereby the system of the most (least) redistributive country is applied to the population of all other countries. In this way, we can decompose the total country difference in income distribution between the contribution of tax-benefit policies versus the contribution of other factors (market income distributions, demographics, etc.). This analysis contributes to the recent literature on the redistributive role of socio-fiscal policies in developing countries and highlights the role of microsimulation techniques to characterize how different African countries can learn from each other to improve social protection and reduce inequality.
    Keywords: tax-benefit policy, microsimulation, inequality, poverty, Africa
    JEL: H23 H53 I32
    Date: 2018–12

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