nep-pub New Economics Papers
on Public Finance
Issue of 2019‒05‒20
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxation and Public Spending Efficiency: An International Comparison By António Afonso; João Tovar Jalles; Ana Venâncio
  2. Pigou Creates Losers: On the Implausibility of Achieving Pareto Improvements from Efficiency-Enhancing Policies By James M. Sallee
  3. On the Cyclicality of Social Expenditure: New Time-Varying evidence from Developing Economies By João Tovar Jalles
  4. The Effects of EITC Exposure in Childhood on Marriage and Early Childbearing By Katherine Michelmore; Leonard M. Lopoo
  5. Working Paper 04-19 - Tax incentives for business R&D in Belgium - Third evaluation By Michel Dumont
  6. Delegation of Taxation Authority and Multipolicy Commitment in a Decentralized Leadership Model By Nobuo Akai; Takahiro Watanabe
  7. Democratisation and tax structure in the presence of home production: Evidence from the Kingdom of Greece By Pantelis Kammas; Vassilis Sarantides
  8. Turnover-Based Presumptive Taxation and Taxpayers' Perceptions in Ethiopia By Getachew, Abis

  1. By: António Afonso; João Tovar Jalles; Ana Venâncio
    Abstract: This paper evaluates the relevance of the taxation for public spending efficiency in a sample of OECD economies in the period 2003-2017. First, we compute the data envelopment analysis (DEA) scores and the Malmquist productivity index to measure the change in total factor productivity, the change in efficiency and the change in technology. Second, we explain these newly computed public efficiency scores with tax structures using a reduced-form panel data regression specification. Looking at the period between 2007 and 2017, our main findings are as follows: inputs could be theoretically lower by approximately 32-34%; the Malmquist indices show an overall decrease in technology and in TFP. Crucial for policymaking, we find that expenditure efficiency is negatively associated with taxation, more specifically direct and indirect taxes negatively affect government efficiency performance, and the same is true for social security contributions.
    Keywords: government spending efficiency; public sector performance; tax structure; data envelopment analysis (DEA); Malmquist indices; non-parametric estimation; panel data; OECD
    JEL: C14 C23 H11 H21 H50
    Date: 2019–05
  2. By: James M. Sallee
    Abstract: Economic theory predicts that efficiency-enhancing policy changes can be made to benefit everyone through the use of lump-sum transfers that compensate anyone initially harmed by the change. Precise targeting of compensating transfers, however, may not be possible when agents are heterogeneous and the planner faces constraints on the design of transfers. In this paper, I derive a necessary condition for an efficiency-enhancing policy to create a Pareto improvement that can be tested directly with data. The condition relates the size of efficiency gains to the degree of predictability between initial burdens and variables used to determine a transfer scheme. The main empirical application is to a gasoline tax to correct carbon emissions, with related results for other sin taxes also presented. Results indicate that it is infeasible to create a Pareto improvement from the taxation of these goods, and moreover that plausible policies are likely to leave a large fraction of households as net losers. The paper argues that the existence of these losers is relevant to policy design and may help explain the political challenges faced by many efficient policies. The paper concludes with several extensions related to this political economy motivation.
    JEL: H23 L51 Q58
    Date: 2019–05
  3. By: João Tovar Jalles
    Abstract: This paper provides a novel dataset of time-varying measures of social spending cyclicality for an unbalanced panel of 45 developing economies from 1982 to 2012. More specifically, we focus on four categories of government social expenditure: health, social protection, pensions and education. We find that social spending has generally been acyclical over time in developing countries, with the exception of spending on pensions.However, sample averages high marked heterogeneity across countries with the majority showing procyclical behaviour in different social spending categories. In addition,by means of weighted least squares panel regressions with country and time effects, we find that the degree of social spending [pro]cyclicality is generally negatively associated with financial deepening, the level of economic development, trade openness, government size as well as political constraints on the executive.
    Keywords: education, health, pensions, time-varying coefficients, weighted least squares, financial development, institutions
    JEL: C22 C23 H50 H60 H62
    Date: 2019–05
  4. By: Katherine Michelmore (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244); Leonard M. Lopoo (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244)
    Abstract: This study analyzes the effect of exposure to the Earned Income Tax Credit (EITC) in childhood on marriage and childbearing in early adulthood. Results suggest that exposure in childhood leads women to delay marriage and first births in early adulthood (ages 18-25), but not men. These results have implications for the well-being of both individuals exposed to the EITC in childhood as well as their future children. In addition, because childless adults cannot claim the EITC until age 25, our back-of-the-envelope calculations suggest that these delays likely save up to $199 million annually in social welfare costs.
    Keywords: Earned Income Tax Credit, Marriage, Fertility
    JEL: J12 J13 I38
    Date: 2019–05
  5. By: Michel Dumont
    Abstract: Belgium has committed to raise investment in research and development (R&D) to 3% of GDP by 2020. In fulfilment of this commitment, the federal government introduced different tax incentives in support of business R&D. This paper presents the results of the third evaluation of the efficiency of these tax incentives, covering the period 2003-2015.
    Keywords: R&D
    JEL: H32 O32 O38
    Date: 2019–04–29
  6. By: Nobuo Akai (Professor, Osaka School of International Public Policy, Osaka University); Takahiro Watanabe (PhD. Student, Graduate School of Economics, Osaka University)
    Abstract: This paper examines to what extent taxation authority should be delegated to local or lower-level government. Delegation of taxation authority can be regarded as a commitment to the local tax rate ex ante in a decentralized leadership model, in which local governments set policies ex ante and the central government decides transfer policies ex post. Previous papers point out that the ex post interregional transfers of the central government distort the ex ante regional policies of local governments. However, Silva (2014, 2015) clarify the case where efficient expenditure by local governments is achieved. This paper examines the delegation of taxation authority by extending Silva's model to include commitment to taxation and generally derives the conditions when efficient public expenditure by local governments can be achieved in relation to the delegation of taxation authority. The model adopted in this paper allows various levels of spillovers of local public goods and various types of multipolicy commitments of taxation and/or expenditure.
    Keywords: Multipolicy commitment. Ex post interregional transfers. Spillover effect
    JEL: H41 H71 H72 H77
    Date: 2019–05
  7. By: Pantelis Kammas (Athens University of Economics and Business); Vassilis Sarantides (Department of Economics, University of Sheffield)
    Abstract: This paper examines the impact of democratisation on tax structure in an agrarian economy where goods can be produced at home for self-consumption. We first develop a model of optimal taxation with heterogeneous agents where the good produced in the market is subject to a consumption tax, whereas the homogeneous good produced at home is burdened by a direct tax (such as land tithes). Contrary to conventional theory, our model suggests that extension of the voting franchise to poorer segments of the population exerts a negative impact on the share of direct to indirect taxes. Using unique national and regional tax data for the Kingdom of Greece - a typical agrarian economy when universal male suffrage was established in 1864 - we provide consistent empirical evidence. Greek governments adjusted tax policy in order to meet the preferences of the newly enfranchised electorate that constituted mostly by peasants and farmers. This group was harmed substantially by direct taxes on land but was able to avoid indirect taxes through self-consumption. We also employ a sample of 12 European countries over the same period and provide evidence for a similar change in the tax structure when the agricultural sector dominates the economy.
    Keywords: democracy, tax structure, fiscal capacity
    JEL: P16 H2 H5
    Date: 2019–05
  8. By: Getachew, Abis
    Abstract: This paper focuses on the perceptions of a turnover-based presumptive tax system in Ethiopia. It mainly focuses on taxpayers’ perceptions of fairness, simplicity and administrative capacity. In this study, fairness has been assessed based on seven dimensions, namely exchange fairness, procedural fairness, horizontal fairness, vertical fairness, inter-group fairness, time-related fairness and compliance fairness. Exchange fairness refers to the adequacy of the provision of public goods and services to citizens in the long run. Procedural fairness is a measure to assess the representation of taxpayers in the estimation process. Horizontal fairness is a form of fairness that deals with the treatment of taxpayers in similar situations paying similar taxes. Vertical fairness refers to sharing the overall tax burden based on taxpayers’ ability to pay. Time-related fairness means that the total tax liable is suitable over the long term and not overly distorted by fluctuations in income and wealth. Inter-group fairness is the form of fairness that means that no individual group within the system has special treatment. Compliance fairness is a fairness dimension which measures whether all taxpayers in the system pay their tax dues on time. In addition, the study also focuses on design features and challenges encountered in applying the scheme. The paper uses survey data coupled with results of in-depth interviews conducted with selected taxpayers and officials in Addis Ababa. It also highlights the international experiences of presumptive tax designs that Ethiopia can draw lessons from. The findings of the study show that there is a negative perception among taxpayers of five of the seven dimensions of fairness: exchange fairness, procedural fairness, horizontal fairness, time-related fairness and compliance fairness. On the other hand, the findings show that there is a positive perception of two dimensions of fairness: vertical fairness and inter-group fairness. Taxpayers’ perceptions of simplicity and administrative capacity are found to be negative.
    Keywords: Economic Development, Finance, Governance,
    Date: 2019

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