nep-pub New Economics Papers
on Public Finance
Issue of 2019‒08‒19
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Higher Tax and Less Work: An Optimal Response to Relative Income Concern By FitzRoy, Felix; Jin, Jim; Nolan, Michael A.
  2. Stated preferences for capital taxation - tax design, misinformation and the role of partisanship By Chirvi, Malte; Schneider, Cornelius
  3. Repeated Shocks and Preferences for Redistribution By Gualtieri, Giovanni; Nicolini, Marcella; Sabatini, Fabio
  4. The Rise of Fiscal Capacity By Cantoni, Davide; Mohr, Cathrin; Weigand, Matthias
  5. Effects of Housing Transfer Taxes on Household Mobility By Essi Eerola; Oskari Harjunen; Teemu Lyytikäinen; Tuukka Saarimaa
  6. State and Local Taxes and High-Wage Employment By Sohani Fatehin; David L. Sjoquist
  7. Ordinal Tax To Sustain a Digital Economy By Nate Dwyer; Sandro Claudio Lera; Alex Sandy Pentland
  8. In-kind transfers in Brazil: household consumption and welfare effects By Bruno Palialol; Paula Pereda
  9. Fiscal justice in Brazil: taxation as an instrument for equality By Luana Passos

  1. By: FitzRoy, Felix (University of St. Andrews); Jin, Jim (University of St. Andrews); Nolan, Michael A. (University of Hull)
    Abstract: There is much evidence that relative income concern reduces subjective wellbeing and raises labour supply – 'keeping up with the Joneses' (KUJ), while increasing use of social media and growing inequality encourage comparison. Models with one or two agent –types generally miss the policy relevant dimension of labour force participation, so we include a distribution of wages with intensive and extensive margins of labour supply, both of which are increased by comparison. The optimal tax response increases with comparison, but, surprisingly, dominates the comparison effect and reduces individual labour supply, thus reversing KUJ, and maintains constant employment, independent of comparison.
    Keywords: income comparison, maxi-min, inequality, unemployment
    JEL: H24 D63
    Date: 2019–07
  2. By: Chirvi, Malte; Schneider, Cornelius
    Abstract: Although theoretical research on optimal capital taxation suggest to incorporate public opinions, the empirical literature on preferences regarding capital taxation almost exclusively focusses on the emotionally loaded estate tax. This paper presents a more comprehensive investigation of preferences towards different, tangible instruments of capital taxation beyond the estate tax. In particular, we focus on the effects of tax-specific design features and personal as well as asset-related characteristics. For this, we conducted a factorial survey experiment with over 3,200 respondents on Amazon's Mechanical Turk (MTurk). By using different tax instruments as reference points for each other we strengthen the robustness of our findings. While our results confirm well-established findings of previous literature, we show that the specific design of tax instruments is indeed decisive for preferences over capital taxation. Whereas proposed effective tax rates of the estate tax and the one-time wealth tax show a significant progressivity, there is no clear pattern for both periodical taxes. Furthermore, preferences depend on the respondents' characteristics, especially their partisanship. Democrats clearly prefer concentrated over periodical capital taxes, Republicans' only articulated preference refers to the particular rejection of the estate tax. Remarkably, this opposition does not hold for a perfectly congruent one-time wealth tax. This result provides novel empirical evidence for drivers of the opposition towards the estate tax beyond mere misinformation discussed by previous literature: emotional charge potentially triggered by political framing.
    JEL: C90 D31 H21 H24
    Date: 2019
  3. By: Gualtieri, Giovanni (National Research Council, Italy); Nicolini, Marcella (University of Pavia); Sabatini, Fabio (Sapienza University of Rome)
    Abstract: A society that believes wealth to be determined by random "luck", rather than by merit, demands more redistribution. We present evidence of this behavior by exploiting a natural experiment provided by the L'Aquila earthquake in 2009, which hit a large area of Central Italy through a series of destructive shakes over eight days. Matching detailed information on the ground acceleration registered during each shock with survey data about individual opinions on redistribution we show that the average intensity of the shakes is associated with subsequent stronger beliefs that, for a society to be fair, income inequalities should be levelled by redistribution. The shocks, however, are not all alike. We find that only the last three shakes - occurred on the fourth and the eighth day of the earthquake - have a statistically significant impact. Overall, we find that the timing and repetition of the shocks play a role in informing redistributive preferences.
    Keywords: redistribution, inequality, natural disasters, earthquakes, multiple shocks
    JEL: H10 H53 D63 D69 Z1
    Date: 2019–07
  4. By: Cantoni, Davide (LMU Munich); Mohr, Cathrin (LMU Munich); Weigand, Matthias (LMU Munich)
    Abstract: Having sufficient fiscal capacity to tax is a key hallmark and defining feature of states, and there is a growing literature trying to explain its origins. Existing empirical evidence on fiscal capacity is scarce and focuses on large, ex-post successful territories. In this paper we study the introduction of the first centralized, permanent fiscal institutions in the multifarious territories of the Holy Roman Empire from 1400 to 1800. We link information on fiscal centralization and the size and survival of territories to an extensive dataset on state-formation and growth-related outcomes. We empirically confirm that territories are more likely to centralize when neighboring territories are centralized and when they are exposed to a higher threat of war. In line with the literature on the consequences of fiscal capacity, we show that centralized territories are more likely to survive than non-centralized territories and as a result grow more in size. They invest more in administrative and military structures, but investments in the military only occur in the core areas of centralized territories. This contradicts the central assumption of models on fiscal capacity which states that investments into the military are a non-excludable public good.
    Keywords: ;
    Date: 2019–07–30
  5. By: Essi Eerola; Oskari Harjunen; Teemu Lyytikäinen; Tuukka Saarimaa
    Abstract: Housing transfer taxes are fiscally important in many countries despite evidence of substantial welfare losses found in several quasi-experimental studies. Research designs used in this prior literature are prone to attenuation bias due to spillovers from mobility or trading across control and treatment groups. We account for these spillovers by combining quasi-experimental empirical analysis with a one-sided housing market model where households act as both buyers and sellers. Using a Finnish tax reform and total population register data, we find that an increase in the transfer tax has a significant negative effect on household mobility. We calibrate our theoretical model to match the mobility rates in our data and our quasi-experimental estimate. In our setting, relying only on the quasi-experiment and ignoring the spillovers would lead to a 20% underestimation of the effect. We argue that the welfare costs of transfer taxes are larger than previously thought.
    Keywords: household mobility, spillover, transfer tax, welfare cost
    JEL: H21 R21 R23
    Date: 2019
  6. By: Sohani Fatehin (Dickinson College, USA); David L. Sjoquist (The Center for State and Local Finance, Georgia State University, USA)
    Abstract: Although the literature on the effect of taxation on economic growth is quite large, no research has been conducted that examines the differential effect of state and local taxes on the level and growth of jobs by skill level. We investigate whether interstate differences in state and local taxes have differential effects on employment by skill level and, in particular, whether low-skill and high-skill jobs could be less responsive to interstate differences in taxes than middle-skill jobs. Using a panel dataset of U.S. states for the period 1977–2012, we estimated several models of the level and share of employment. We find evidence that high-wage employment is positively and statistically significantly associated with taxes per capita, while middle-wage and low-wage employment is either negatively or not statistically significantly related to taxes per capita.
    Date: 2019–07
  7. By: Nate Dwyer; Sandro Claudio Lera; Alex Sandy Pentland
    Abstract: Recently, the French Senate approved a law that imposes a 3% tax on revenue generated from digital services by companies above a certain size. While there is a lot of political debate about economic consequences of this action, it is actually interesting to reverse the question: We consider the long-term implications of an economy with no such digital tax. More generally, we can think of digital services as a special case of products with low or zero cost of transportation. With basic economic models we show that a market with no transportation costs is prone to monopolization as minuscule, random differences in quality are rewarded disproportionally. We then propose a distance-based tax to counter-balance the tendencies of random centralisation. Unlike a tax that scales with physical (cardinal) distance, a ranked (ordinal) distance tax leverages the benefits of digitalization while maintaining a stable economy.
    Date: 2019–08
  8. By: Bruno Palialol; Paula Pereda
    Abstract: Programa de Alimentação dos Trabalhadores (PAT) creates tax incentives for firms to provide 20 million workers with in-kind transfers in Brazil. Economic theory supports they are distortive when compared to cash transfers but this is not clear when the latter are subject to payroll taxes. Using a propensity score analysis we find evidence that PAT increases poor households food consumption between 15.7% and 25.0% and deadweight loss associated with distortions reach US$63.1 (R$150.1) million. Overconsumption, however, may not be increasing worker’s nutrition, as aimed by the program.
    Keywords: In-kind transfers vs cash transfers; Programa de Alimentação dos Trabalhadores (PAT); Propensity score analysis.
    JEL: D11 D12 I38
    Date: 2019–07–29
  9. By: Luana Passos (IPC-IG)
    Abstract: "The debate around taxation in Brazil has long revolved around issues related to tax burden, efficiency, competitiveness and simplicity. Despite recent fiscal problems and a better understanding of the concentration of income and national wealth, the relevance of a progressive tax system as a tool to fight inequality still enjoys little space in mainstream media discussions. The traditional focus of the Brazilian debate on tax burden is due to the fact that the State absorbs a considerable proportion of gross domestic product (GDP)?approximately 32 per cent in 2016?as taxes. This sets Brazil apart from other countries with similar income levels: its tax burden is one of the highest in Latin America, even greater than in some developed countries, such as Spain and Canada". (...)
    Keywords: Fiscal justice, Brazil, taxation, instrument, equality
    Date: 2019–06

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