nep-pub New Economics Papers
on Public Finance
Issue of 2019‒05‒13
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax-Sheltered Retirement Accounts: Can Financial Education Improve Decisions? By M. Martin Boyer; Philippe d'Astous; Pierre-Carl Michaud
  2. Promoting education under distortionary taxation: Equality of opportunity versus welfarism By Haaparanta Pertti; Kanbur Ravi; Pirttilä Jukka; Paukkeri Tuuli; Tuomala Matti
  3. Compliance effects of risk-based tax audits By Knut Løyland; Oddbjørn Raaum; Gaute Torsvik; Arnstein Øvrum
  4. Updated Budget Projections: 2019 to 2029 By Congressional Budget Office
  5. The economic impact and efficiency of state and federal taxes in Australia By Jason Nassios; John Madden; James Giesecke; Janine Dixon; Nhi Tran; Peter Dixon; Maureen Rimmer; Philip Adams; John Freebairn
  6. Tax Research in South Africa By Pirttilä Jukka; Ebrahim Amina; Gcabo Rebone; Khumalo Lilian
  7. Domestic and cross border spillover effects of corporate tax policy in Africa By Jean-François Brun; Seydou Coulibaly
  8. Learning from the ?best?: The impact of tax-benefit systems in Africa By Jara Xavier; Bargain Olivier; Kwenda Prudence; Ntuli Miracle
  9. Modelling value-added tax (VAT) in South Africa: Assessing the distributional impact of the recent increase in the VAT rate and options for redress through the benefits system By Pirttilä Jukka; Barnes Helen; Wright Gemma; Noble Michael; Masekesa Faith; Gcabo Rebone; Moche Boitumelo; Steyn Wynnona; Moahlodi Boikhutso
  10. Taxing Identity: Theory and Evidence from Early Islam By Saleh, Mohamed; Tirole, Jean

  1. By: M. Martin Boyer; Philippe d'Astous; Pierre-Carl Michaud
    Abstract: We conduct a stated-choice experiment to analyze the decision to contribute to front or back-loaded tax-sheltered savings accounts. Our experimental design includes a randomized financial education treatment that provides information on the two types of accounts. We assess whether respondents learn about the tax implications of these accounts, and whether they make better contribution choices when exposed to the financial education intervention. We find that, relative to a control group, our intervention improves both the understanding of the tax implications of the savings accounts (an increase of 6 to 15 points on a score of 100) and the quality of contribution decisions, improving the well-being of respondents by about 140$ in each scenario presented to them.
    Keywords: Tax sheltered saving,retirement saving,financial education,
    JEL: G11 H31 D14
    Date: 2019–05–03
  2. By: Haaparanta Pertti; Kanbur Ravi; Pirttilä Jukka; Paukkeri Tuuli; Tuomala Matti
    Abstract: How does the public provision of education and the deployment of distortionary tax and subsidy instruments differ when the government’s objective is conventional welfarist compared to when the objective is the non-welfarist one of equality of opportunity?This paper develops a framework in which the tax and provision rules in the two settings can be easily compared and contrasted. A range of results are derived which help to answer questions such as whether it is the case that progressive taxation is not used at all under opportunities-based objectives. We show that progressive taxation still plays a role in achieving the objective of equal opportunities, and illustrate how its use may differ under the two objectives.We also show how the provision of public education depends on how private education choices respond, especially the differential responses by higher- and lower-income families. These themes reflect concerns in the policy discourse, and our framework provides an entry point into a systematic exploration of a broad range of issues in comparing the consequences of welfarist and equality of opportunity objectives.
    Keywords: Public goods provisions,Income tax,Economic inequality,Educational subsidies,equality of opportunity
    Date: 2019
  3. By: Knut Løyland; Oddbjørn Raaum; Gaute Torsvik; Arnstein Øvrum
    Abstract: Tax administrations use machine learning to predict risk scores as a basis for selecting individual taxpayers for audit. Audits detect noncompliance immediately, but may also alter future filing behavior. This analysis is the first to estimate compliance effects of audits among high-risk wage earners. We exploit a sharp audit assignment discontinuity in Norway based on individual tax payers risk score. Additional data from a random audit allow us to estimate how the audit effect vary across the risk score distribution. We show that the current risk score audit threshold is set far above the one that maximizes net public revenue.
    Keywords: tax audits, tax revenue, tax reporting decisions, income tax, machine learning, risk profiling
    JEL: D04 H26 H83
    Date: 2019
  4. By: Congressional Budget Office
    Abstract: CBO estimates that the deficit for fiscal year 2019 will be $896 billion, which is $1 billion less than the agency estimated in January. If current laws generally remained unchanged, deficits would average 4.3 percent of gross domestic product over the 2020–2029 period. Other than the period immediately after World War II, the only other time the average deficit has been so large over so many years was after the 2007–2009 recession.
    JEL: H20 H50 H51 H55 H60 H61 H62 H63 H68
    Date: 2019–05–02
  5. By: Jason Nassios; John Madden; James Giesecke; Janine Dixon; Nhi Tran; Peter Dixon; Maureen Rimmer; Philip Adams; John Freebairn
    Abstract: The Henry Review of Australia's Future Tax System (2009), made several recommendations to promote resilience, fairness, and prosperity via tax reform. Some of the key reforms suggested include a reduction in Australia's federally-imposed corporate income tax rate from 30 to 25 per cent; and the removal of property transfer duties levied by state governments. The review by Henry et al. (2009) utilised a long-run, comparative static computable general equilibrium (CGE) model of the Australian economy to study the tax system. Implicit within this framework is a single layer of government. In reality, Australia's state government levied tax rates differ across the eight states and territories; some, such as state land tax, health insurance and life insurance levies, are applied in a subset of states and territories only. A general lack of interstate coordination is evident in setting, developing and reforming Australian tax policy. In this paper, we present a meticulous and detailed analysis of Australia's state and federal tax system, using a bottom-up multi-regional CGE model of Australia's states and territories, called VURMTAX. The general framework underlying VURMTAX is similar to the Monash multi-regional forecasting (MMRF) model and its successor VURM; see Adams et al. (2015). A state/local government agent therefore operates within each region, with an overarching federal government agent operating across all state and territories. VURMTAX differs from MMRF/VURM in several ways. For example, we include new theory to model the interaction between Australia's corporate and personal tax system via full dividend imputation. This involves the introduction of two types of investment agents: foreign and local investors. In VURMTAX, the tax rate levied on corporate profits accruing to these two classes of investor differ, because only the domestic investor can claim franking credits. We also give careful consideration to industry-specific foreign capital ownership shares. This means the mining sector, for example, has a larger foreign capital ownership share than the economy-wide average in VURMTAX. We also modify the standard Klein-Rubin utility function that governs the consumption choices facing region-specific representative households in MMRF/VURM, to take account of important distortions in consumer choice caused by Australia's tax system. More specifically, we model the impact of housing tenure choice distortions introduced by owner-occupied housing exemptions in state land taxes and personal income tax, using a nested CES framework. The elasticity of substitution between rented and owner-occupied housing is then calibrated based on findings from an appropriately specified discrete choice model of housing tenure choice. We also alter the standard household decision theory to properly account for the impact of property transfer duties on the demand for the bundle of goods typically consumed by households or businesses when moving house or factory/office. We call this bundle of goods moving services. These services include real estate services contracted to sell a house/buy a property, legal services contracted to prepare necessary transfer forms, and public administration services that are demanded to formally update title office documents. We also account for the impact of motor vehicle taxes on transport modal choice by households. As such, when the motor vehicle registration duty is increased in VURMTAX, we allow for direct modal substitution between, e.g, road passenger transport (taxis), and private transport. Among other theoretical developments, we account for the impact of jurisdiction-specific payroll tax thresholds in Australia on the output levels of monopolistically competitive firms, which yields insights into whether a reduction in payroll tax rates or a rise in payroll tax thresholds are more effective means of stimulating a regional economy. We also embed within VURMTAX a detailed equation system to account for Australia's goods and services tax (GST). We apply this new theory to quantify: (i) the relative economic efficiency of unilateral state tax policy reforms in a single Australian state, New South Wales (NSW); (ii) the excess burden of Australia's three main federally-imposed taxes; and (iii) the broader macroeconomic, state and industry impacts of federal tax policy, and unilateral state tax policy, reforms. Our assessment of the relative efficiency of NSW state and Australian federal taxes yields a set of marginal and average excess burdens, which are summarised and discussed. In total, we calculate excess burdens for nineteen major Australian taxes, of which sixteen are levied at the state/local government level. In addition to our study of the allocative efficiency impacts of the various state and federal taxes, detailed long-run (21 years postreform) results are provided and described, to quantify the economic and industry effects of Australian tax policy reforms. With regard to state taxes, we find residential property transfer duties to be the most damaging of the state government levied taxes. More specifically, we derive a marginal excess burden for residential property transfer duties that exceeds 100 cents per dollar of revenue raised. Contrary to many past studies of Australia's tax system, we also derive a negative marginal excess burden for company tax in Australia. We compare and contrast this result to past studies, and elucidate some key differences in parameter assumptions and modelling methodology that drive this result.
    Keywords: Taxation policy CGE modelling Dynamics Excess burden
    JEL: C68 E20 E62 H2
    Date: 2019–04
  6. By: Pirttilä Jukka; Ebrahim Amina; Gcabo Rebone; Khumalo Lilian
    Abstract: This framing paper has two main purposes. We first provide a brief survey of the economic literature on taxation in South Africa. Second, we attempt to offer some ideas about areas and topics on which more information is needed and which are therefore suitable topics for further research.Replications of earlier studies conducted using older South African data or from elsewhere, are also considered in this context. We present our thoughts on gaps in the literature and make some recommendations on future research possibilities.
    Keywords: Tax administration data,Tax incidence,Taxation
    Date: 2019
  7. By: Jean-François Brun (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Seydou Coulibaly (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique, BAD - Banque africaine de développement / African Development Bank)
    Abstract: This paper examines spillover effects in corporate tax policy for African economies. Using a balanced panel data in statutory corporate income tax (CIT) rate for 34 African countries over the period 1995-2013, we find positive interaction between CIT rates in Africa only when common time trend effects are not controlled. We conclude that the evidence of pure corporate tax competition among African countries is weak. These countries' tendency to implement similar fiscal policies under the common intellectual assistance may explain the positive slope reaction between their CIT rates. Regarding corporate tax base spillovers, estimation results indicate that cuts in foreign countries' average corporate tax rate reduce the host country's corporate tax base. When the host country reacts to a one percentage point cut in foreign countries' CIT rates by cutting its own CIT rate in the same proportion, this ultimately results in a net erosion of its corporate tax base by 0.4%. This represents a 2.3 % loss of corporate tax revenue. Moreover, we find strategic complement responses in corporate tax base policies suggesting that countries react to the uptake of measures that tend to reduce the corporate tax burden in other countries by also undertaking similar measures.
    Keywords: Tax competition,Corporate income tax,Instrumental variable estimation,System GMM,Africa
    Date: 2019–04–09
  8. By: Jara Xavier; Bargain Olivier; Kwenda Prudence; Ntuli Miracle
    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: microsimulation,Tax-benefit microsimulation,tax-benefit policy,Inequality,Poverty
    Date: 2019
  9. By: Pirttilä Jukka; Barnes Helen; Wright Gemma; Noble Michael; Masekesa Faith; Gcabo Rebone; Moche Boitumelo; Steyn Wynnona; Moahlodi Boikhutso
    Abstract: Using SAMOD, a tax-benefit microsimulation model for South Africa, this paper examines the joint distributional impact of the increase in the value-added tax (VAT) rate and increases in benefit amounts in 2018. Although poverty and inequality did not increase overall, the poorest still saw a reduction in their purchasing power, as many of those in the lowest decile do not receive any social benefits.The paper then explores the consequences of eliminating zero-rating in VAT and using the generated revenues to finance new social benefits. The results suggest that a policy package of a uniform VAT and an expanded set of social benefits would lead to reduced poverty and inequality in comparison to the current practice of zero rating of some consumption goods in the VAT.The findings demonstrate the superiority of using direct taxes and benefits as opposed to provisions in indirect taxes in achieving redistribution.
    Keywords: microsimulation,Redistribution,value-added tax,Poverty
    Date: 2019
  10. By: Saleh, Mohamed; Tirole, Jean
    Abstract: A ruler who does not identify with a social group, whether on religious, ethnic, cultural or socioeconomic grounds, is confronted with a trade-off between taking advantage of the out-group population's eagerness to maintain its identity and inducing it to ``comply'' (conversion, quit, exodus or any other way of accommodating the ruler's own identity). This paper first analyzes the ruler's optimal mix of discriminatory and non-discriminatory taxation, both in a static and an evolving environment. The paper then uses novel data sources to test the theory in the context of Egypt's conversion to Islam between 641 and 1200. The evidence is broadly consistent with the theoretical predictions.
    Keywords: identity taxation; Islam; Laffer Curve; Legitimacy; Poll tax
    JEL: D82 H2 N45 Z12
    Date: 2019–04

This nep-pub issue is ©2019 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.