nep-pub New Economics Papers
on Public Finance
Issue of 2019‒07‒22
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Long Term Health Efect of Earned Income Tax Credit By Ze Sogn
  2. Should Electric Vehicle Drivers Pay a Mileage Tax? By Lucas W. Davis; James M. Sallee
  3. The Political Economy of Social Security Reform By Michael J. Boskin; Diego J. Perez; Daniel S. Bennett
  4. International Welfare Spillovers of National Pension Schemes By James Staveley-O'Carroll; Olena Staveley-O'Carroll
  5. Reach for Yield by U.S. Public Pension Funds By Lina Lu; Matthew Pritsker; Andrei Zlate; Kenechukwu E. Anadu; James Bohn
  6. Maldives; Technical Assistance Report-Reform Options to Strengthen Tax Policy By International Monetary Fund

  1. By: Ze Sogn (Rutgers University)
    Abstract: Using decades of variation in the federal and state Earned Income Tax Credit (EITC) and the Panel Study of Income Dynamics (PSID) dataset, I examine the impact of exposure to EITC expansions in utero and during childhood on health outcomes in adulthood. In order to overcome the confounding relationship between family income and health outcomes, this study uses the maximum EITC benefit as the key variable. Reduced-form estimates show that EITC expansions had a positive impact on self-reported health status. Specific ally, a $1000 increase in the maximum EITC exposure from ages 13 to 18 corresponds with a 0.01 point increase in the reported health status during adulthood. In addition, being exposed to EITC expansions in utero increases reported health status by 0.05 point. Relative to the range of reported health of 1 to 5 and the standard deviation of 0.94, these are very small effects. Nonetheless, these health effects are consequential, associating with increases in both family income and maternal labor supply.
    Keywords: eitc, health
    JEL: I1 H2
    Date: 2019–06–28
  2. By: Lucas W. Davis; James M. Sallee
    Abstract: In many countries the revenue from gasoline taxes is used to fund highways and other transportation infrastructure. As the number of electric vehicles on the road increases, this raises questions about the effectiveness and equity of this financing mechanism. In this paper, we ask whether electric vehicle drivers should pay a mileage tax. Though the gasoline tax has been traditionally viewed as a benefits tax, we take instead the perspective of economic efficiency. We derive a condition for the optimal electric vehicle mileage tax that highlights a key trade-off. On the one hand, there are externalities from driving including traffic congestion and accidents that imply a mileage tax is efficient. On the other hand, gasoline tends to be underpriced, so a low (or even negative) mileage tax might be justified to encourage substitution away from gasoline-powered vehicles. We then turn to an empirical analysis aimed at better understanding the current policy landscape for electric vehicles in the United States. Using newly available nationally-representative microdata we calculate that electric vehicles have reduced gasoline tax revenues by $250 million annually. We show that the foregone tax revenue is highly concentrated in a handful of states and is highly regressive, as most electric vehicles are driven by high-income households, and we discuss how this motivates and informs optimal policy.
    JEL: D12 L62 Q41 Q54 Q55
    Date: 2019–07
  3. By: Michael J. Boskin; Diego J. Perez; Daniel S. Bennett
    Abstract: We identify which types of Social Security reforms are supported when people vote in their financial self-interest, under alternative economic and demographic projections and voting proclivity assumptions. While 40% of voters have negative lifetime net transfers, less than 10% have negative future transfers under the un- sustainable status quo. Framing the problem as a choice between reforms is necessary for any to receive majority support. Delayed reforms are often preferred, but immediate tax hikes or slower benefit growth win in some circumstances. Inter-generational AND intragenerational heterogeneity of economic interests combine to affect which reforms are blocked and which are feasible.
    JEL: H55 H62 H68
    Date: 2019–06
  4. By: James Staveley-O'Carroll (Babson College); Olena Staveley-O'Carroll (College of the Holy Cross)
    Abstract: We employ a two-country overlapping-generations model to explore the international dimension of household portfolio choices induced by the asymmetric provision of government-run pensions. We study the resulting patterns of risk-sharing and the corresponding welfare effects on both home and foreign agents. Introducing the de?fined benefi?ts pay-as-you-go system at home increases the welfare of all other agents at the expense of the home workers and improves the degree of intergenerational risk sharing abroad. Conversely, a defi?ned contributions system leads to welfare losses of both home cohorts accompanied by gains abroad, but does increase the extent of intergenerational risk sharing at home.
    Keywords: welfare, pay-as-you-go system, international portfolio choice, OLG model
    JEL: D52 F21 F41 G11 H55
    Date: 2019–07
  5. By: Lina Lu; Matthew Pritsker; Andrei Zlate; Kenechukwu E. Anadu; James Bohn
    Abstract: This paper studies whether U.S. public pension funds reach for yield by taking more investment risk in a low interest rate environment. To study funds’ risk-taking behavior, we first present a simple theoretical model relating risk-taking to the level of risk-free rates, to their underfunding, and to the fiscal condition of their state sponsors. The theory identifies two distinct channels through which interest rates and other factors may affect risk-taking: by altering plans’ funding ratios, and by changing risk premia. The theory also shows the effect of state finances on funds’ risk-taking depends on incentives to shift risk to state debt holders. To study the determinants of risk-taking empirically, we create a new methodology for inferring funds’ risk from limited public information on their annual returns and portfolio weights for the interval 2002-2016. In order to better measure the extent of underfunding, we revalue funds’ liabilities using discount rate s that better reflect their risk. We find that funds on average took more risk when risk-free rates and funding ratios were lower, which is consistent with both the funding ratio and the risk-premia channels. Consistent with risk-shifting, we also find more risk-taking for funds affiliated with state or municipal sponsors with weaker public finances. We estimate that up to one-third of the funds’ total risk was related to underfunding and low interest rates at the end of our sample period.
    Keywords: U.S. public pension funds ; reach for yield ; Value at Risk ; underfunding ; duration-matched discount rates ; state public debt
    JEL: E43 G11 G32 G23 H74
    Date: 2019–06–27
  6. By: International Monetary Fund
    Abstract: This report reviews tax policy in the Maldives and identifies reform options to support efficiency, equity, and revenue. The absence of a broad-based personal income tax (PIT) generates revenue leakages and significantly diminishes the role of tax policy in income redistribution. A modern tax design requires a holistic view of the taxation of different sources of income and different legal forms of taxpayers to maintain tax neutrality, to the extent possible, while preserving some degrees of progressivity, simplicity, and administrability. Moreover, updating the tax system to cope with recent international developments is vital to safeguard revenues. While strengthening the goods and services tax (GST) can raise revenues in the short- to medium-term, a property tax is an important option for the long-term. The diagram below demonstrates reform priorities, as identified in this report, to modernize tax policy in the Maldives.
    Date: 2019–07–01

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.