nep-pub New Economics Papers
on Public Finance
Issue of 2019‒06‒10
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Sovereign default and imperfect tax enforcement By Francesco Pappada; Yanos Zylberberg
  2. The use of revenues from carbon pricing By Melanie Marten; Kurt van Dender
  3. Property rights and long-Run capital By Julio Dávila
  4. Taxing vehicles, fuels, and road use: Opportunities for improving transport tax practice By Kurt van Dender
  5. Predicting free-riding in a public goods game: Analysis of content and dynamic facial expressions in face-to-face communication By Bershadskyy, Dmitri; Othman, Ehsan; Saxen, Frerk
  6. Social Security’s Financial Outlook: The 2019 Update in Perspective By Alicia H. Munnell
  7. A Global Financial Transaction Tax. Theory, Practice and Potential Revenues By Atanas Pekanov; Margit Schratzenstaller
  8. The Effect of Tax-Motivated Transfer Pricing on U.S. Aggregate Trade Statistics: Working Paper 2019-05 By Dorian Carloni; Daniel Fried; Molly Saunders-Scott
  9. Can We Reconcile French People with the Carbon Tax? Disentangling Beliefs from Preferences By Thomas Douenne; Adrien Fabre
  10. Why do we need self-employed persons? Some economic reflections, mainly tax related ones By Adam Adamczyk; Leszek Morawski; Jarek Neneman

  1. By: Francesco Pappada; Yanos Zylberberg
    Abstract: We show that, in many countries, tax compliance is volatile and markedly responds to fiscal policy. To explore the consequence of this novel stylized fact, we build a model of sovereign debt with limited commitment and imperfect tax enforcement. Fiscal policy persistently affects the size of the informal economy, which impact future fiscal revenues and thus default risk. Thismechanism captures one key empirical regularity of economies with imperfect tax enforcement: the low sensitivity of debt price to fiscal consolidations. The interaction of imperfect tax enforcement and limited commitment strongly constrains the dynamics of optimal scal policy. During default crises, high tax distortions force the government towards extreme scal policies, notably including costly austerity spells.
    Keywords: China, productivity.
    Date: 2019–05–29
  2. By: Melanie Marten; Kurt van Dender
    Abstract: The paper collects comprehensive and detailed data on what 40 OECD and G20 economies do with the revenues from carbon taxes, emissions trading systems, and excise taxes on energy use. It notes that constraints – which can take the form of political commitments or legal earmarks – on revenue use differ between carbon taxes, emissions trading systems, and excise taxes. Constraints are less common for excise taxes, which also raise the most revenue. Carbon tax revenues are relatively often associated with environmental tax reforms, involving reductions in personal or corporate income taxes. Revenues from emissions trading systems are frequently directed towards green spending. The results may be relevant to the political economy of ambitious carbon pricing schemes in the sense that the political expedience of choices on revenue use may depend on the amount of revenue raised.
    Keywords: carbon pricing, climate change, effective carbon rates, environmental tax reform, external costs
    JEL: H21 H23 Q41 Q48 Q54 Q58
    Date: 2019–06–05
  3. By: Julio Dávila (Centre d'Economie de la Sorbonne and CORE - Université Catholique de Louvain)
    Abstract: The fact that some proprietary capital gradually falls into the public domain (e.g. patents) or is taxed to fund productive public spending (e.g. public infrastructures and the institutional framework) inefficiently decreases capital accumulation, impacting households' consumption. Specifically, for a neoclassical infinitely-lived agents economy with constant returns to scale the planner's steady state consumption is 4.6%-9.1% higher than the market one —for standard empirically supported parameters. For a similarly parametrised overlapping generations economy it is around 10.5%. A tax and subsidy balanced policy able to decentralise the planner's steady consists of (i) subsidising the rental rate of private capital by an amount equal to its depreciation by (ii) taxing households' net position between, on the one hand, firm and depreciated capital ownership and, on the other, borrowing against future dividends and its resale value. From standard functions and parameterisations of the OG setup it follows that the savings rate decentralising the planner's steady state is close to 61.5% —of which ? in loans to firms and ? in real monetary balances and assets ownership net of borrowing against the latter— and that the tax rate on household net debt is smaller the bigger are monetary real balances and debt
    Keywords: Property rights; capital accumulation
    JEL: H21 H23 O4
    Date: 2019–05
  4. By: Kurt van Dender
    Abstract: This paper discusses the main external costs related to road transport and the design of taxes to manage them. It provides an overview of evolving tax practice in the European Union and the United States and identifies opportunities for better alignment of transport taxes with external costs. There is considerable scope for improving transport tax practice, notably by increasing the use of taxes based on road use. Distance charges offer great promise in delivering more efficient road transport. In heavily congested areas, targeted charges are a cost-effective way of reducing congestion. Fiscal objectives provide an impetus for change as improving vehicle fuel efficiency and fleet penetration of alternative fuel vehicles erode traditional tax bases, particularly those relating to fossil fuel use. A gradual shift from an energy-based approach towards distance-based transport taxes has the potential to establish a stable tax base in the road transport sector in the long run.
    Keywords: congestion, congestion charging, distance-charges, external costs, fuel taxes, pollution, road transport
    JEL: H23 Q58 R4 R41 R48
    Date: 2019–06–05
  5. By: Bershadskyy, Dmitri; Othman, Ehsan; Saxen, Frerk
    Abstract: This paper illustrates how audio-visual data from pre-play face-to-face communication can be used to identify groups which contain free-riders in a public goods experiment. It focuses on two channels over which face-to-face communication influences contributions to a public good. Firstly, the contents of the face-to-face communication are investigated by categorising specific strategic information and using simple meta-data. Secondly, a machine-learning approach to analyse facial expressions of the subjects during their communications is implemented. These approaches constitute the first of their kind, analysing content and facial expressions in face-to-face communication aiming to predict the behaviour of the subjects in a public goods game. The analysis shows that verbally mentioning to fully contribute to the public good until the very end and communicating through facial clues reduce the commonly observed end-game behaviour. The length of the face-to-face communication quantified in number of words is further a good measure to predict cooperation behaviour towards the end of the game. The obtained findings provide first insights how a priori available information can be utilised to predict free-riding behaviour in public goods games.
    Keywords: automatic facial expressions recognition,content analysis,public goods experiment,face-to-face communication
    JEL: C80 C92 D91
    Date: 2019
  6. By: Alicia H. Munnell
    Abstract: Contrary to media reports, the 2019 Trustees Report contains no real news. The program continues to run a 75-year deficit between 2 and 3 percent of taxable payrolls, and the trust fund will be exhausted in the early 2030s, after which the program can pay only about three quarters of benefits. If anything, the 2019 report shows a slight improvement in the program’s 75-year finances: the deficit is projected at 2.78 percent of taxable payrolls in 2019 compared to 2.84 percent in 2018. Similarly, the trust fund is scheduled to run out of money one year later – 2035 rather than 2034, as reported last year. The improvement, after accounting for various offsetting changes, is almost entirely due to a more favorable outlook for the Disability Insurance (DI) program. On the administrative side, the timing of the Trustees Report has returned to April, after several years of June or July releases. A more noteworthy issue is that this report once again reflects the continuing absence of public trustees. These slots should be filled. Public trustees play an important role in overseeing the program and communicating its status to the public. Their continued absence reflects a failure with the political process, not with the program itself. This brief updates the numbers for 2019 and puts the current report in perspective. It also briefly discusses recent developments on the disability front. The bottom line is that Social Security’s finances remain steady. Social Security’s shortfall over the next 75 years, which has been evident for the last three decades, should be addressed sooner rather than later in order to share the burden more equitably across cohorts, restore confidence in the nation’s major retirement program, and give people time to adjust to needed changes.
    Date: 2019–05
  7. By: Atanas Pekanov (WIFO); Margit Schratzenstaller (WIFO)
    Abstract: This study presents in detail the concept of a financial transaction tax (FTT) and the theoretical and empirical evidence in favour and against introducing it, the potential revenues, different implementation designs and its ability to correct various market failures. We analyse the benefits and challenges of introducing a tax on financial transactions, putting special focus on the introduction of such a tax on a world-wide scale. For a number of reasons, international cooperation is deemed a central prerequisite for an efficient FTT. The purpose of the tax is to raise substantial revenues and help dampen excessive financial market speculation and market volatility. An FTT would ensure that the financial sector contributes more substantially to government revenues. In its optimal form, the tax would be broad-based and there will be no financial instrument types exempted. In a second step, we analyse from a political economy perspective the prospects, the current status, and the lessons learnt from the European discussion on the implementation of an FTT. Finally, we calculate the revenue potential of a global FTT and report how much revenues would accrue to specific countries. We estimate that the tax, if imposed globally and taking into account still evasion, relocation and lock-in effects, can bring significant revenues – between 237.9 and 418.8 billion $ annually. The baseline case delivers 326.9 billion $ overall for the global economy, which corresponds to 0.43 percent of global GDP. These are lower bounds for potential revenues due to missing data on a number of financial instrument types. For specific countries, in the baseline case this would result in 72.57 billion $ annual potential revenues for the USA (0.37 percent of GDP), 119.46 billion $ for the European Union (0.69 percent of GDP), 10.00 billion $ for Germany (0.27 percent of GDP), 9.99 billion $ for France (0.39 percent of GDP) and 19.99 billion $ for Japan (0.41 percent of GDP).
    Date: 2019–05–29
  8. By: Dorian Carloni; Daniel Fried; Molly Saunders-Scott
    Abstract: The prices that multinational corporations set for transactions among international affiliates—referred to as transfer prices—play an important role in determining where income is taxed. Many factors affect how multinationals set their transfer prices, including tax considerations. If tax considerations affect transfer prices, then those changes in transfer prices may distort aggregate trade and income statistics. In this paper, we analyze how corporate income tax rates affect trade flows between the affiliates of multinationals—known as related-party trade—to examine
    JEL: H25 H26 F23
    Date: 2019–05–31
  9. By: Thomas Douenne (Paris School of Economics – Université Paris 1 Panthéon Sorbonne); Adrien Fabre (Paris School of Economics – Université Paris 1 Panthéon Sorbonne)
    Abstract: Using a new survey and National households' survey data, we investigate French perception over carbon taxation. We find that French people largely reject a tax and dividend policy where revenues of the tax would be redistributed uniformly. However, their perception about the properties of the tax are biased: people overestimate the negative impact on their purchasing power, wrongly think the scheme is regressive, and do not perceive it as environmentally effective. Our econometric analysis shows that correcting these three bias would suffice to generate majority acceptance. Yet, we find that people's beliefs are persistent and their revisions biased towards pessimism, so that only few can be convinced.
    Keywords: Climate Policy, Carbon tax, Bias, Beliefs Preferences
    JEL: D72 D91 H23 H31 Q58
  10. By: Adam Adamczyk; Leszek Morawski; Jarek Neneman
    Abstract: For many years, we have been hearing about the need for innovation and entrepreneurship. Successive Polish government declare their support for entrepreneurs and expand the catalog of privileges, mainly related to taxes and mandatory contributions. Not infrequently, in these discussions the self-employed are equated with entrepreneurs. In this work, we will seek an answer to the questions: Who, then, are the self-employed? Are they really entrepreneurs? Should we support their activities? And finally the fundamental question: What does the economy get from the self-employed? In this work we point out that the differences in rates of self-employment between countries may result from differences in taxation on the labor provided by self-employed and salaried workers. In the main part of the work, taking advantage of the potential of the EUROMOD tax-benefit microsimulation model, we show that in Europe there is no single model of taxation of work conducted as one’s own business. In the majority of the tax-contribution systems we examined, the profitability of employment or self-employment changes along with changes in income. In light of the regressivity of the burdens on the self-employed, as a rule it begins to be profitable only above a certain income level. In the first part of the work we define the self-employed as those who run a business, and later we distinguish within this group entrepreneurs, meaning those who take on risk and create innovations. Discussing the advantages and disadvantages of self-employment from the point of view of the self-employed and the employer, we point out that the benefits – including systemic (tax and contribution) benefits, outweigh the disadvantages. We also discuss in more detail the imposition of income tax on the self-employed. In the second part we present changes in the value of self-employment over the last 25 years. Here we use data from the World Bank and certain data points from the European Union Statistics on Income and Living Conditions (EU-SILC). They allow us to observe how the relationship between the self-employed and the economy is changing: The significance of services provided for other businesses is growing. Additionally, we can see that the significance of self-employment is falling. In Poland the level of (non-agricultural) self-employment is low. The dynamics of the rate of self-employment indicate that the influence of legal regulations on the scale of self-employment is secondary. It seems that in this case, technological and demographic factors are much more significant.
    Keywords: self-employment, taxation, incentives, EUROMOD, EU-SILC
    JEL: J38 J08 H30 L53
    Date: 2019–05–08

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.
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