nep-pub New Economics Papers
on Public Finance
Issue of 2019‒03‒11
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Progressive Taxation, Nominal Wage Rigidity, and Business Cycle Destabilization By Miroslav Gabrovski; Jang-Ting Guo
  2. On the political economy of income taxation By Berliant, Marcus; Gouveia, Miguel
  3. Optimal Progressivity with Age-Dependent Taxation By Jonathan Heathcote; Kjetil Storesletten; Giovanni L. Violante
  4. Dynamic fiscal competition: a political economy theory By Calin Arcalean
  5. Effects of Austerity: Expenditure- and Tax-based Approaches By Alesina, Alberto F; Favero, Carlo A.; Giavazzi, Francesco
  6. Working Paper 310 - Tax Policy, Foreign Direct Investment and Spillover Effects By Boly Amadou; Seydou Coulibaly; Eric Kéré Nazindigouba
  7. Envy-free Pricing for Impure Public Good By Obara, Takuya; Tsugawa, Shuichi; Managi, Shunsuke
  8. Does tax competition drive cooperation in local economic development policies? Evidence on inter-local business parks in Germany By Ivo Bischoff; Simon Melch; Eva Wolfschuetz
  9. The efficiency and distributive effects of local taxes: evidence from Italian municipalities By Rubolino, Enrico
  10. Pecuniary and Non-Pecuniary Motivations for Tax Compliance: Evidence from Pakistan By Joel Slemrod; Obeid Ur Rehman; Mazhar Waseem
  11. The Impact of Media Campaigns on Tax Filing: Quasi-Experimental Evidence from Pakistan By Antonios M. Koumpias; Jorge Martinez-Vazquez

  1. By: Miroslav Gabrovski (University of Hawaii at Manoa); Jang-Ting Guo (University of California, Riverside)
    Abstract: In the context of a prototypical New Keynesian model, this paper examines the theoretical interrelations between two tractable formulations of progressive taxation on labor income versus (i) the equilibrium degree of nominal wage rigidity as well as (ii) the resulting volatilities of hours worked and output in response to a monetary shock. In sharp contrast to the traditional stabilization view, we analytically show that linearly progressive taxation always operates like an automatic destabilizer which leads to higher cyclical fluctuations within the macroeconomy. We also obtain the same business cycle destabilization result under continuously progressive taxation if the initial degree of tax progressivity is sufficiently low.
    Keywords: Progressive Taxation, Nominal Wage Rigidity, Automatic Stabilizer, Business Cycles
    JEL: E12 E32 E62
    Date: 2019–02
  2. 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: 2019–03–04
  3. By: Jonathan Heathcote; Kjetil Storesletten; Giovanni L. Violante
    Abstract: This paper studies optimal taxation of earnings when the degree of tax progressivity is allowed to vary with age. The setting is an overlapping-generations model that incorporates irreversible skill investment, flexible labor supply, ex-ante heterogeneity in the disutility of work and the cost of skill acquisition, partially insurable wage risk, and a life cycle productivity profile. An analytically tractable version of the model without intertemporal trade is used to characterize and quantify the salient trade-offs in tax design. The key results are that progressivity should be U-shaped in age and that the average marginal tax rate should be increasing and concave in age. These findings are confirmed in a version of the model with borrowing and saving that we solve numerically.
    JEL: E20 H2 H21 H31 H41
    Date: 2019–02
  4. By: Calin Arcalean
    Abstract: I develop a political economy theory of dynamic fiscal competition via public spending and debt. With internationally mobile capital, strategic policies generate two cross-border externalities that voters in each country fail to internalize: (1) an increase in public spending that bolsters capital accumulation but also (2) a race to the top in public debt which crowds out capital. The relative size of these two externalities varies with the number of financially integrated countries and interacts with the domestic political conflict between young and old voters. Despite residence based taxation, capital tax rates are lower under strategic policies than under coordination. Furthermore, they may decline with financial integration. Strategic policies lead to lower long run output and welfare relative to coordination but are preferred by subse-quent generations of voters if the number of financially integrated countries is low or the political weight of the young is high.
    Keywords: political economy, public spending, public debt, economic integration
    JEL: H20 H40 H60
    Date: 2019
  5. By: Alesina, Alberto F; Favero, Carlo A.; Giavazzi, Francesco
    Abstract: We review the debate surrounding the macroeconomic effects of deficit reduction policies (austerity). The discussion about "austerity" in general has distracted commentators and policymakers from a very important result, namely the enormous difference, on average, between expenditure- and tax-based austerity plans. Spending-based austerity plans are remarkably less costly than tax-based plans. The former have on average a close to zero effect on output and lead to a reduction of the debt over GDP ratio. Tax-based plans have the opposite effect and cause large and long lasting recessions. These results also apply to the recent episodes of European austerity which in this respect were not especially different from previous cases.
    Keywords: austerity; fiscal adjustment plans; output growth
    JEL: E60 E62
    Date: 2019–03
  6. By: Boly Amadou; Seydou Coulibaly (Centre d’Etudes et de Recherches sur le Développement International (CERDI), CNRS, and Université d’Auvergne (Clermont-Ferrand, France)); Eric Kéré Nazindigouba (African Development Bank)
    Abstract: JEL Code : C23, E62, F21, H25.Keywords: FDI, statutory corporate tax rate, panel data, spatial econometrics.
    Date: 2019–02–22
  7. By: Obara, Takuya; Tsugawa, Shuichi; Managi, Shunsuke
    Abstract: In this paper, we study optimal public good provision with congestion and user fees to exclude some agents under lump-sum tax/transfer, constrained by the condition of reduction of envy. We adopt the λ envy-free constraint proposed by Diamantaras and Thomson (1990), and employ the exclusion technique used in Hellwig (2005), i.e., the policymaker decides the level of provision and user fee paid by people accessing a public good, as well as a uniform level of tax/transfer. We characterize the optimal public sector pricing rule that depends on utilitarian distributive concerns and envy reduction concerns, which are in conflict with each other. We show that if the social welfare function is strictly increasing and strictly concave and the government is not concerned with reducing envy, the user fee is greater than the marginal congestion cost. Additionally, we show that if the government reflects the notion of equality of opportunity under the reduction of envy, the user fee is lower than the marginal congestion cost. These results imply that the two fairness concerns are countervailing with regard to the surcharge fee.
    Keywords: Public sector pricing, λ envy-free, public good, excludability, congestion
    JEL: D61 D63 H21 H41 H44
    Date: 2019–03
  8. By: Ivo Bischoff (University of Kassel); Simon Melch (University of Kassel); Eva Wolfschuetz (University of Kassel)
    Abstract: An increasing number of municipalities cooperates in the field of economic development. In this paper, we focus on a specific instrument in this field, namely the development of joint business parks. We apply a hazard model to data from West-German municipalities between 2000 and 2015. We find inter-local business parks to be more frequent among small municipalities and in constellations where suitable land is scarce. Our main focus rests on the role of tax competition. An analogy building on the literature on international tax coordination supports the hypothesis that inter-local business parks are more likely in regions where tax competition is intense. The evidence is affirmative: We find that the likelihood of inter-local business park formation to increase in the intensity of local tax competition.
    Keywords: Inter-local business parks, inter-municipal cooperation, tax competition, hazard model, Germany
    JEL: H77 H71 R58 R14
    Date: 2019
  9. By: Rubolino, Enrico
    Abstract: This paper analyzes the effect of local income taxation on taxable income, inequality and internal migration in Italy using two tax reforms and several administrative data sources. These reforms, introduced in 2007 and 2011, granted municipalities the authority to switch from a flat to a progressive local income tax. I obtain two main results. First, the progressive tax reduced taxable income by 5 percent and the income share held by the top percentile of the municipal income distribution by 6 percent. Second, I find compelling evidence of a positive effect of net-of-tax rate differentials across provinces on changing fiscal residence.
    Date: 2019–02–25
  10. By: Joel Slemrod; Obeid Ur Rehman; Mazhar Waseem
    Abstract: We examine two Pakistani programs to explore the role of deterrence as well as social and psychological factors in the tax compliance behavior of agents. In the first of these programs, the government began revealing income tax paid by every taxpayer in the country. The second program publicly recognizes and rewards the top 100 tax paying corporations, partnerships, self-employed individuals, and wage-earners. We find that both public disclosure and social recognition of top taxpayers caused a substantial increase in tax payments. We explore the drivers of this behavior, including the shift of social norms toward compliance.
    JEL: H2 H24 H26
    Date: 2019–02
  11. By: Antonios M. Koumpias (Department of Social Sciences, University of Michigan-Dearborn, USA); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA)
    Abstract: This paper examines the effect of mass media campaigns on income tax filing using survey data from Pakistan. We use information collected about a pro-tax filing communication campaign shortly after the 2013-14 tax filing deadline by Pakistan’s Federal Board of Revenue. We use an inverse probability-weighted regression adjustment estimator to construct comparable treatment and control groups in terms of media exposure and control for predictors of income tax filing. We find that respondents’ likelihood of income tax filing significantly increased in response to exposure to newspaper advertisements of information provision surrounding tax eligibility but not those concerning the tax filing deadline or the benefits associated with tax filing in the form of non-application of financial penalties. TV advertisements that relied on moral suasion and solely portrayed self-employed taxpayers did not significantly improve tax filing for the entire survey population but were effective among the self-employed. This highlights the importance of the content of the message as well as the implementation of targeted media campaigns by a tax administration to enhance income tax filing.
    Date: 2019–02

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