nep-pub New Economics Papers
on Public Finance
Issue of 2019‒07‒08
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price Isn’t Everything: Behavioral Response around Changes in Sin Taxes By Alex Rees-Jones; Kyle T. Rozema
  2. Business tax policy under default risk By Nicola Comincioli; Sergio Vergalli; Paolo Panteghini
  3. Water Taxes and Consumer Behavior in France By Simon Porcher
  4. Cheating the Government: Does Taxpayer Perception Matter? By Jeong-Dae Lee
  5. Partial decentralisation and inter-governmental electoral competition in local public good provision By Marco Catola
  6. The introduction of social pensions and elderly mortality: Evidence 1870-1939 By Jäger, Philipp
  7. Do Tax Incentives Affect Business Location and Economic Development? Evidence from State Film Incentives By Patrick Button
  8. Practices, Challenges and Prospects for Public Sector Taxation in Ethiopia By Waiswa, Ronald; Fekade, Sebsbie; Lake, Asnakech
  9. "Impact of a Recent Tobacco Tax Reform in Argentina" By Martin Gonzalez-Rozada

  1. By: Alex Rees-Jones; Kyle T. Rozema
    Abstract: Taxes change behavior. But how does this change arise? In traditional economic models, change is achieved through the price channel: assuming all else is held constant, taxes increase prices and thus decrease demand. However, the assumption that all else is held constant may be violated in the course of a legal change, in part because the process by which laws are changed often involves the provision of information, attempts at persuasion, and the deployment of alternative dissuasive tools. We examine violations of this assumption in a particular policy domain: discouraging smoking with cigarette taxes. We document a marked increase in related media coverage, lobbying efforts, place-based smoking restrictions, and anti-smoking appropriations in the time period surrounding a tax law change. The intensity of these factors is directly associated with decreases in cigarette consumption in a manner that could be confused with price effects. Our results suggest that price effects may have a surprisingly small role in the behavioral response that occurs around tax law changes.
    JEL: D9 H2
    Date: 2019–06
  2. By: Nicola Comincioli; Sergio Vergalli; Paolo Panteghini
    Abstract: In this article we use a stochastic model with one representative firm to study business tax policy under default risk. We will show that, for a given tax rate, the government has an incentive to reduce (increase) financial instability and default costs if its objective function is welfare (tax revenue).
    Keywords: capital structure, default risk, business taxation and welfare
    JEL: H25 G33 G38
    Date: 2019
  3. By: Simon Porcher (IAE - Institut d'Administration des Entreprises)
    Abstract: Water taxes are employed to correct externalities associated with water pollution or resource scarcity and to raise government revenue. In this paper, using a dataset on more than 4,000 French municipalities, we directly examine how water taxes affect consumer behavior as distinct from tax-exclusive water prices. Our analysis shows that a 10-cent tax increase reduces water consumption by 0.26 percent, similarly to a 10-cent increase in the tax-exclusive water price. The responsiveness of consumers to tax and tax-exclusive price is important because it gives information about consumers' sensitivity to policy interventions versus market prices.
    Keywords: Externalities,Water Utilities
    Date: 2019–06–03
  4. By: Jeong-Dae Lee (Macroeconomic Policy and Financing for Development Division, UNESCAP)
    Abstract: Do people cheat because they can get away with it or because they feel that the rules are unfair? I examine this question in the context of tax evasion. Specifically, I incorporate taxpayer perception into a widely used consumption-based method for estimating income tax evasion. Compared to the standard method which distinguishes taxpayers only by their occupational or income type as a way of measuring their “ability” to misreport income, the refined method introduces taxpayers who may be “able but unwilling” to cheat because they feel fairly treated with respect to public services and compared to other taxpayers. Applied to a longitudinal data for Korea (2007-2015), the standard method yields a uniform tax evasion rate of 13 per cent, but the refined method provides a range of 7 to 25 per cent based on taxpayer perception. This implies that strategies for improving tax compliance must be tailored to different motivations for tax evasion.
    Keywords: Tax evasion, tax compliance, tax morale, taxpayer perception, third-party reporting, Engel curve
    JEL: H26
    Date: 2019–07
  5. By: Marco Catola
    Abstract: Over the last few years, the literature on partial decentralisation has largely grown, pointing out that one of its effects is a reduction in accountability because voters are imperfectly informed about each government contribution. However, the possibility for politicians to directly manipulate this asymmetry in information has not been addressed yet. This paper provides a simple model in which two levels of government are involved in the provision of a local public good with the local government that can decide to spend its budget either on the provision of the public good or in spending that influences the information of the voters in its favour. A central result is that the conflict of interest that arises among the levels of government reduces the spending in the public good at both levels, while it generates a wasteful spending to pander to voters.
    Keywords: partial decenstralisation; party alignment; accountability; intergovernmental transfers
    JEL: D72 H72 H77
    Date: 2019–06–01
  6. By: Jäger, Philipp
    Abstract: The strong association between income and mortality raises the question whether more generous social security systems could improve poor people's health outcomes. Thus, in this paper, I analyze whether a major social security innovation, the introduction of social pensions targeted at poor elderly people in the late 19th-early 20th century, has reduced mortality rates of senior citizens. Therefore, I use a cross-country dataset spanning from 1870 to 1939 consisting of 13 countries of which 9 eventually implemented social pensions before World War II. Applying a difference-in-difference-in-difference as well as a regression discontinuity design, I find no evidence for a decline in elderly mortality due to the introduction of social pensions. Based on aggregate census data, I argue that social pensions have reduced elderly labor supply. The reduction is much smaller than social pension recipiency rates, though. These findings suggest that social pensions have raised elderly incomes which, however, did not translate into lower mortality.
    Keywords: pension,social security,elderly mortality
    JEL: H55 I18
    Date: 2019
  7. By: Patrick Button
    Abstract: I estimate the impacts of recently-popular U.S. state film incentives on filming location, film industry employment, wages, and establishments, and spillover impacts on related industries. I compile a detailed database of incentives, matching this with TV series and feature film data from the Internet Movie Database (IMDb) and Studio System, and establishment and employment data from the Quarterly Census of Employment and Wages and Country Business Patterns. I compare these outcomes in states before and after they adopt incentives, relative to similar states that did not adopt incentives over the same time period (a panel difference-in-differences). I find that TV series filming increases by 6.3 to 55.4% (at most 1.50 additional TV series) after incentive adoption. However, there is no meaningful effect on feature films, and employment, wages, and establishments in the film industry and in related industries. These results show that the ability for tax incentives to affect business location decisions and economic development is mixed, suggesting that even with aggressive incentives, and "footloose" filming, incentives can have little impact.
    JEL: H25 H71 L82 R38 Z11
    Date: 2019–06
  8. By: Waiswa, Ronald; Fekade, Sebsbie; Lake, Asnakech
    Abstract: The tax compliance behaviour of the public sector has been largely neglected in the tax literature. Other than appearing in tax laws as taxpayers, in practice the compliance strategies employed by revenue authorities do not sufficiently cater to government agencies. Enforcement of tax payments on these agencies is generally perceived to be a difficult undertaking and of less value than other priorities. One strategy to improve tax compliance in the public sector has been to separate them from other taxpayers and to provide them with special treatment. This strategy has been employed in Uganda, where it has been reportedly quite successful, and in Nigeria, where there is currently limited empirical evidence to evaluate its success. This paper aims to explore the compliance level of the public sector in Ethiopia, the legal and administrative challenges at the Ethiopian Revenue and Customs Authority (ERCA) to effectively tax public sector entities, and to assess whether segmenting the public sector from other taxpayers would be a relevant strategy in Ethiopia. The study finds that the compliance level of the public sector is wanting, especially in regards to remitting withheld taxes to ERCA. The bottleneck appears to be caused primarily by administrative weaknesses and less by gaps in existing tax laws. This study finds a number of administrative inefficiencies related to ERCA’s taxation of public sector entities, including: (1) the perception that enforcing tax laws on the public sector is a hard or even impossible task; (2) a fragmented VAT withholding system; (3) malfunctioning e-filing and e-payment systems; (4) limited taxpayer sensitisation campaigns; (5) low levels of automation; and (6) unsatisfactory tax services rendered. From the perspective of public sector taxpayers themselves, the study also finds a number of factors that undermine compliance, including: (1) a lack of sufficient care and attention to tax obligations among managers; (2) the fact that some government entities use a single taxpayer identification number (TIN) for many branches makes it difficult to trace transactions; and (3) the lack of supportive actions from political leaders. The study recommends the creation of a decentralised office to administer public sector taxation, conditional on the strong support of leaders from the revenue authority as well as other key government officials.
    Keywords: Economic Development, Finance, Governance,
    Date: 2019
  9. By: Martin Gonzalez-Rozada
    Abstract: The literature on policies for the control of the tobacco epidemic suggests that increasing selective taxes on the consumption of tobacco products is the most cost-effective policy. Cigarette tax structure in Argentina is very complex. All the tax bases for cigarette consumption taxes are related and, therefore, any modification of a tax affects the collection of the rest of the taxes. This is important given that funds raised by one of the taxes, the Special Tobacco Fund (FET), are allocated among the tobacco provinces according to the value of tobacco production. These provinces oppose in the congress to any reform that increase taxes on cigarette consumption that negatively affects these funds. In May 2016, the government decided to increase the rate of one of the taxes, the internal tax, from 60% to 75% until December 2017. We study the impact on cigarettes’ demand price elasticity, consumption and tax revenues of this tobacco tax reform. Using an Error Correction Model, we estimate short- and long-run demand price and income elasticities. We explore the sensitivity of the reform on these elasticities by estimating the model using total average retail price and average retail price of the cheapest and most expensive cigarette brands. We find that the tax reform of May 2016 induced an increase in the magnitude, in absolute value, of the short-run demand price elasticity. This increment in the demand price elasticity occurred not only for the average real retail price but also for both the cheapest brands of the market and the most expensive ones. We also show that the tax reform increased the funds collected by the FET.
    Keywords: tobacco tax reform, demand price elasticity of cigarettes, error correction model,Special Tobacco Fund.
    JEL: H2 H23 I18
    Date: 2019–06

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.