nep-pub New Economics Papers
on Public Finance
Issue of 2019‒04‒08
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. How “Big” Should Government Be? By António Afonso; Ludger Schuknecht
  2. Fiscal Redistribution and Social Welfare By David Coady; Devin D'Angelo; Brooks Evans
  3. Capital Income Taxation and Aggregate Instability By Kevin x.d. Huang; Qinglai Meng; Jianpo Xue
  4. On the Macroeconomic and Fiscal Effects of the Tax Cuts and Jobs Act By Lieberknecht, Philipp; Wieland, Volker
  5. Tax Morale and Fairness in Conflict - An Experiment By Christoph Engel; Luigi Mittone; Azzurra Morreale
  6. Designing Interest and Tax Penalty Regimes By Christophe J Waerzeggers; Cory Hillier
  7. New Normal? The Declining Relative Importance of State Taxes By David L. Sjoquist
  8. Transaction-tax Evasion in the Housing Market By José García-Montalvo; Amedeo Piolatto; Josep Raya
  9. The Antipoverty Impact of the EITC: New Estimates from Survey and Administrative Tax Records By Maggie R. Jones; James P. Ziliak
  10. Age-Based Property Tax Exemptions in Georgia By H. Spencer Banzhaf; Ryan Mickey; Carlianne Patrick; Per Johnson

  1. By: António Afonso; Ludger Schuknecht
    Abstract: We assess how “big” government should reasonably be in a number of advanced countries. First, we will link the recent findings of Data Envelope Analysis on efficient public expenditure with the question of the size of the government. Second, we report descriptive analysis of various government performance indicators in relation to public expenditure to provide indications of overall “optimal” across spending categories. In principle, the highest savings potential is in the biggest expenditure categories, public consumption and social expenditure.
    Keywords: government size; government efficiency; DEA; advanced economies
    JEL: C14 E62 H11 H50
    Date: 2019–03
  2. By: David Coady; Devin D'Angelo; Brooks Evans
    Abstract: Fiscal policy is a key tool for achieving distributional objectives in advanced economies. This paper embeds the discussion of fiscal redistribution within the standard social welfare framework, which lends itself to a transparent and practical evaluation of the extent and determinants of fiscal redistribution. Differences in fiscal redistribution are decomposed into differences in the magnitude of transfers (fiscal effort) and in the progressivity of transfers (fiscal progressivity). Fiscal progressivity is further decomposed into differences in the distribution of transfers across income groups (targeting performance) and in the social welfare returns to targeting due to varying initial levels of income inequality (targeting returns). This decomposition provides a clear distinction between the concepts of progressivity and targeting, and clarifies the relationship between them. For illustrative purposes, the framework is applied to data for 28 EU countries to determine the factors explaining differences in their fiscal redistribution and to discuss patterns in fiscal redistribution highlighted in the literature.
    Date: 2019–03–08
  3. By: Kevin x.d. Huang (Vanderbilt University); Qinglai Meng (Oregon State University); Jianpo Xue (Renmin University of China)
    Abstract: This paper overturns the conventional wisdom that reliance on capital tax rate adjustment to ensure fiscal sustainability is immune to extrinsic uncertainty. The interaction of capital taxation and endogenous capital utilization generates fiscal increasing returns and factor share redistribution to induce sunspots expectations. Capital depreciation allowance debilitates this mechanism to preempt policy induced instability while achieving budget objective. Self-fulfilling fluctuations can occur in real-world economies, unless their depreciation allowances are sufficiently higher or income tax rates lower than the current levels. This adds a short-run motivation to the long-run approach to capital taxation and the supply-side view of fiscal policy reforms.
    Keywords: Capital income taxation, Depreciation allowance, Endogenous utilization, Fiscal increasing returns, Self-fulfilling prophecies
    JEL: E6 E3
    Date: 2019–03–27
  4. By: Lieberknecht, Philipp; Wieland, Volker
    Abstract: There is substantial disagreement about the consequences of the Tax Cuts and Jobs Act (TCJA) of 2017, which constitutes the most extensive tax reform in the United States in more than 30 years. Using a large-scale two-country dynamic general equilibrium model with nominal rigidities, we find that the TCJA increases GDP by about 2% in the medium-run and by about 2.5% in the long-run. The short-run impact depends crucially on the degree and costs of variable capital utilization, with GDP effects ranging from 1 to 3%. At the same time, the TCJA does not pay for itself. In our analysis, the reform decreases tax revenues and raises the debt-to-GDP ratio by about 15 percentage points in the medium-run until 2025. We show that combining the TCJA with spending cuts can dampen the increase in government indebtedness without reducing its expansionary effect.
    Keywords: fiscal policy transmission; macroconomic modeling; Tax Cuts; tax reform; TJCA
    JEL: E1 E62 E63
    Date: 2019–03
  5. By: Christoph Engel (Max Planck Institute for Research on Collective Goods); Luigi Mittone (University of Trento); Azzurra Morreale (LUT University, Finland)
    Abstract: Arguably, for many citizens the perceived expected disutility from sanctions is smaller than the monetary gain from tax evasion. Nevertheless most people pay their taxes most of the time. In a lab experiment, we show that the willingness to pay taxes even absent enforcement is indeed pronounced. Yet voluntary compliance is reduced if participants learn that income is heterogeneous. The effect is driven by participants with the lowest income. The reduction obtains irrespective of the tax regime. If the tax is proportional to income, or progressive, participants become more skeptical about the willingness of participants with high income to comply.
    Keywords: tax evasion, tax morale, heterogeneity, income inequality, lump sum tax, proportional tax, progressive tax, beliefs, path model
    JEL: C30 C91 D01 D02 D31 D63 D91 H26 K34 K42
    Date: 2019–02
  6. By: Christophe J Waerzeggers; Cory Hillier
    Abstract: Designing Interest and Tax Penalty Regimes
    Keywords: Tax revenue;Market interest rates;Tax assessments;Interest rates on loans;Tax evasion;administrative penalty;underpayment;tax authority;late payment;taxpayer
    Date: 2019–03–18
  7. By: David L. Sjoquist (The Center for State and Local Finance, Georgia State University, USA)
    Abstract: The Great Recession’s substantial effect on state revenue has been well documented. State tax revenue decreased: By 2017, state tax revenue as a percentage of income was just 5.79 percent, which is 9 percent less than in 2007 and 4.66 percent less than in 2013. An obvious question is, why has state tax revenue as a percentage of income not returned to its pre-Great Recession level? There are two potential reasons: Either economic growth has not increased the tax base sufficiently or policymakers have not raised taxes sufficiently. This paper explores this question and whether the post-2008 period could be a “new normal.” I first discuss the trend in total state taxes as a percentage of income. I then discuss four specific taxes to provide a framework for discussing policy decisions.
    Date: 2019–03
  8. By: José García-Montalvo; Amedeo Piolatto; Josep Raya
    Abstract: We model the behaviour of a buyer trying to evade the real estate transfer tax. We identify over-appraisal as a key, easily-observable element that is inversely related with tax evasion. We conclude that the tax authority could focus auditing efforts on low-appraisal transactions. We include `behavioural' components (shame and stigma) allowing to introduce buyers' (education) and societal (social capital) characteristics that explain individual and idiosyncratic variations. Our empirical analysis confirms the predictions using a unique database, where we directly observe: real payment, value declared to the authority, appraisal, buyers' educational level and local levels of corruption and trust.
    Keywords: transfer tax, Tax evasion, second-hand housing market, overappraisal, Loan-To-Value, corruption, social capital, stigma, shame, education
    JEL: G21 H26 R21
    Date: 2019–03
  9. By: Maggie R. Jones; James P. Ziliak
    Abstract: Evaluations of the EITC, including its antipoverty effectiveness, are based on simulated EITC benefits using either the Census Bureau’s tax module or from external tax simulators such as the National Bureau of Economic Research’s TAXSIM or Jon Bakija’s model. Each simulator utilizes model-based assumptions on who is and who is not eligible for the EITC, and conditional on eligibility, assumes that participation is 100 percent. However, recent evidence suggests that take-up of the EITC is considerably less than 100 percent, and thus claims regarding the impact of the program on measures of poverty may be overstated. We use data from the Current Population Survey Annual Social and Economic Supplement (CPS ASEC) linked to IRS tax data on the EITC to compare the distribution of EITC benefits from three tax simulation modules to administrative tax records. We find that significantly more actual EITC payments flow to childless tax units than predicted by the tax simulators, and to those whose family income places then well above official poverty thresholds. However, actual EITC payments appear to be target efficient at the individual tax unit level, whether correctly paid or not. We then compare the antipoverty impact of the EITC across the survey and administrative tax measures of EITC benefits. We find that in the full CPS ASEC the tax simulators overestimate the antipoverty effects of the EITC by about 1.8 million persons in a typical year. Restricting to a harmonized sample of filers, we find that the antipoverty estimates derived from the TAXSIM and Bakija models align more closely to actual EITC payments compared to the CPS, suggesting a discrepancy in assignment of tax filers between the tax simulators.
    Date: 2019–04
  10. By: H. Spencer Banzhaf (The Center for State and Local Finance, Georgia State University, USA); Ryan Mickey (Maryville College, USA); Carlianne Patrick (The Center for State and Local Finance, Georgia State University, USA); Per Johnson (The Center for State and Local Finance, Georgia State University, USA)
    Abstract: Many local jurisdictions offer property tax exemptions or similar concessions to older citizens, especially from the school portion of the tax bill. Such exemptions can be controversial. This report is a step toward informing (but surely not settling!) such debates in Georgia. First, we apprise readers of a new resource, the Georgia Property Tax Database, housed at Georgia State University’s Fiscal Research Center. Second, we describe the patterns of the data, documenting the kinds of jurisdictions offering age-targeted exemptions and the steady increase in their prevalence and coverage over time. Third, we show how these data can be used to estimate the fiscal impacts of such exemptions on local budgets using static scoring. Fourth, we show how the data can be used to estimate the effect of these exemptions on the migratory and location decisions of older households. Finally, we include an age-based homestead exemption estimate calculator in the appendix.
    Date: 2019–04

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