nep-pub New Economics Papers
on Public Finance
Issue of 2019‒02‒25
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Generational Bias and Tax Policy By Alan Krause
  2. Soda tax incidence and design under monopoly By Cremer, Helmuth; Goulao, Catarina; Lozachmeur, Jean-Marie
  3. Retirement Implications of a Low Wage Growth, Low Real Interest Rate Economy By Jason Scott; John B. Shoven; Sita Slavov; John G. Watson
  4. Optimal Social Insurance and Rising Labor Market Risk By Krebs, Tom; Scheffel, Martin
  5. Optimal Taxation and Economic Growth in Togo: Empirical Investigation in Time Series By Yawovi Mawussé Isaac Amedanou

  1. By: Alan Krause
    Abstract: We examine the nonlinear taxation of labour income and savings when the government places more weight on the welfare of the elderly than of young people. Our analysis is motivated by the observation that the elderly are more likely to vote. Compared to optimal taxation under a utilitarian social welfare function, we show that savings are subsidised, and young low-skill workers face a higher marginal labour tax rate. We also show that the lifetime utility of low-skill individuals is reduced, and that of high-skill individuals is increased, relative to optimal taxation under utilitarianism. An extension of the model to include generation-specific public spending is also considered.
    Keywords: generational policy; nonlinear taxation.
    JEL: H21 H42
    Date: 2019–02
  2. By: Cremer, Helmuth; Goulao, Catarina; Lozachmeur, Jean-Marie
    Abstract: We consider an unhealthy good, such as a sugar-sweetened beverage, the health damages of which are misperceived by consumers. The sugar content is endogenous. We first study the solution under "pseudo" perfect competition. In that case a simple Pigouvian tax levied per unit of output but proportional to the sugar content is sufficient to achieve a first best solution. Then we consider a monopoly. Market power affects both output and sugar content, possibly in opposite directions, and these effects have to be balanced against Pigouvian considerations. We show that, nevertheless, a tax per unit of output achieves an efficient solution, but it must be an affine function of the sugar content; taxing "grams of sugar" is no longer sufficient. Interestingly, both the total tax as well as its sugar component can be positive as well as negative.
    Keywords: misperception; Monopoly; sin tax; Tax Incidence
    JEL: D42 H22 I12
    Date: 2019–02
  3. By: Jason Scott; John B. Shoven; Sita Slavov; John G. Watson
    Abstract: We examine the implications of persistent low real interest rates and wage growth rates on individuals nearing retirement. We begin by reviewing the concept of r star – the long-term real, safe interest rate that is neither expansionary nor contractionary – and presenting recent estimates suggesting that this value has declined. We then examine the implications of low returns and low wage growth for individuals currently aged 45 and 55. We find that low returns and low wage growth have substantial welfare effects, with compensating variations that are often in the hundreds of thousands of dollars. Low returns increase optimal Social Security claiming ages and the marginal benefit of working longer, while low wage growth decreases the marginal benefit of working longer. Low economy-wide wage growth has a much larger welfare effect than low individual wage growth due to wage indexation of the initial benefit and the progressivity of the Social Security benefit formula. When individual wage growth alone is low, wage indexation is unchanged, and the progressivity of the benefit formula provides insurance. When economy-wide wage growth is low, wage indexation is less generous and there is no insurance benefit from progressivity as average wages fall along with individual wages.
    JEL: D14 H55 J26
    Date: 2019–02
  4. By: Krebs, Tom (University of Mannheim); Scheffel, Martin (University of Cologne)
    Abstract: This paper analyzes the optimal response of the social insurance system to a rise in labor market risk. To this end, we develop a tractable macroeconomic model with risk-free physical capital, risky human capital (labor market risk) and unobservable effort choice affecting the distribution of human capital shocks (moral hazard). We show that constrained optimal allocations are simple in the sense that they can be found by solving a static social planner problem. We further show that constrained optimal allocations are the equilibrium allocations of a market economy in which the government uses taxes and transfers that are linear in household wealth/income. We use the tractability result to show that an increase in labor market (human capital) risk increases social welfare if the government adjusts the tax-and-transfer system optimally. Finally, we provide a quantitative analysis of the secular rise in job displacement risk in the US and find that the welfare cost of not adjusting the social insurance system optimally can be substantial.
    Keywords: labor market risk, social insurance, moral hazard
    JEL: E21 H21 J24
    Date: 2019–01
  5. By: Yawovi Mawussé Isaac Amedanou (UCA - Université Clermont Auvergne, CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Abstract : This paper examines the optimal level of taxation in Togo. After checking for stationarity and structural breaks, we estimate two integrated structural equations for dummy variables constructed to account for significant structural shocks. In fact, the two structural models estimated highlight a U-shaped curve and confirm that the effects exerted by the level of taxation on economic activity in Togo are non-linear. The results from the estimates, covering the period from 1960 to 2016, argue that the optimal tax rate in Togo would be 22.6% of GDP. These results imply that the levels of real GDP and economic growth still achieved by the Togolese economy have remained below their potential.
    Abstract: Cet article examine le niveau optimal de taxation au Togo. Après vérification de la stationnarité et des ruptures structurelles, nous estimons deux équations structurelles intégrées des variables indicatrices construites pour prendre en comptes les chocs structurels significatifs. De fait, les deux modèles structurels estimés mettent en évidence une courbe en U et confirment que les effets exercés par le niveau de taxation sur la l'activité économique au Togo sont non linéaires. Les résultats issus des estimations, couvrant la période de 1960 à 2016, soutiennent que le taux optimal de taxation au Togo se situerait à 22,6% du PIB. Ces résultats impliquent que les niveaux du PIB réel et de croissance économique toujours atteint par l'économie togolaise, ont demeuré en deçà de leur potentiel.
    Keywords: Taxation optimale,recettes fiscales,dépenses publiques,croissance économique,Optimal taxation,tax revenues,government spending,economic growth
    Date: 2019–01–22

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