nep-pub New Economics Papers
on Public Finance
Issue of 2019‒08‒26
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Administration vs. Tax Rates: Evidence from Corporate Taxation in Indonesia By M. Chatib Basri; Mayara Felix; Rema Hanna; Benjamin A. Olken
  2. Correct Me If You Can - Optimal Non-Linear Taxation of Internalities By Andreas Gerster; Michael Kramm
  3. Information, Asymmetric Incentives, or Withholding? Understanding the Self-Enforcement of Value-Added Tax By Mazhar Waseem
  4. Medicaid Coverage across the Income Distribution under the Affordable Care Act By Charles J. Courtemanche; James Marton; Aaron Yelowitz
  5. Can Pigou at the Polls Stop Us Melting the Poles? By Soren T. Anderson; Ioana Marinescu; Boris Shor
  6. The media coverage of wealth and inheritance taxation in Germany By Theine, Hendrik
  7. State Institutions and Tax Capacity: An Empirical Investigation of Causality By Olusegun Ayodele Akanbi
  8. Does Tax-Benefit Linkage Matter for the Incidence of Social Security Contributions? By Bozio, Antoine; Breda, Thomas; Grenet, Julien
  9. Carbon Taxes and Stranded Assets: Evidence from Washington State By Stefano Carattini; Suphi Sen

  1. By: M. Chatib Basri; Mayara Felix; Rema Hanna; Benjamin A. Olken
    Abstract: Developing countries collect a far lower share of GDP in taxes than richer countries. This paper asks whether changes in tax administration and tax rates can nevertheless raise substantial additional revenue – and if so, which approach is most effective. We study corporate taxation in Indonesia, where the government implemented two reforms that differentially affected firms. First, we show that increasing tax administration intensity by moving the top firms in each region into “Medium-Sized Taxpayer Offices,” with much higher staff-to-taxpayer ratios, more than doubled tax revenue from affected firms over six years, with increasing impacts over time. Second, using non-linear changes to the corporate income tax schedule, we estimate an elasticity of taxable income of 0.59, which implies that the revenue-maximizing rate is almost double the current rate. The increased revenue from improvements in tax administration is equivalent to raising the marginal corporate tax rate on affected firms by about 23 percentage points. We suggest one reason improved tax administration was so effective was that it flattened the relationship between firm size and enforcement, removing the additional “enforcement tax” on large firms. On net, our results suggest that improving tax administration can have significant returns for developing country governments.
    JEL: H25 H26 O23
    Date: 2019–08
  2. By: Andreas Gerster; Michael Kramm
    Abstract: A growing literature has shown that behavioral biases influence consumer choices. Such so-called internalities are ubiquitous in many settings, including energy efficiency investments and the consumption of sin goods, such as cigarettes and sugar. In this paper, we use a mechanism design approach to characterize the optimal non-linear tax (or subsidy) for correcting behaviorally biased consumers. We demonstrate that market choices are informative about consumers’ bias, which can be exploited for benevolent price discrimination via a non-linear tax schedule. We derive that such “internality revelation” depends on two sufficient statistics: the correlation between valuations and biases, as well as the signal-to-noise ratio of the bias. Furthermore, we find that there must be a minimum alignment of preferences among the designer and the consumer to ensure internality tax implementability. We contrast our results with the insights from standard non-linear income taxation and discuss that the optimal corrective tax schedule is typically convex. In addition, we apply our findings to the light bulb market and determine the optimal non-linear subsidy for energy efficiency.
    Keywords: optimal commodity taxation, non-linear taxation, behavioral economics, public economics, internalities, environmental economics
    JEL: H21 D82 D04 Q58
    Date: 2019
  3. By: Mazhar Waseem
    Abstract: During the period 1996-2000, the coverage of VAT in Pakistan rose by twenty times in terms of the number of firms in the tax net and by ten times in terms of the volume of transactions subject to it. This paper leverages this staggered introduction of VAT in the country to estimate its enforcement spillovers. Focusing on firms already in the tax net, I explore if their tax compliance improves as VAT gets extended to their trading partners. Using differential responses to upward and downward extension of the tax, I characterize the mechanisms underlying the self-enforcement response.
    Keywords: VAT, tax evasion, informality
    JEL: H25 H26 O17
    Date: 2019
  4. By: Charles J. Courtemanche; James Marton; Aaron Yelowitz
    Abstract: This paper examines trends in Medicaid enrollment across the income distribution after the ACA’s Medicaid expansion. Using data from the American Community Survey between 2012 and 2017, we compare Medicaid coverage over time in 9 states that expanded Medicaid in 2014 with no previous expansion for able-bodied, working-age adults with 12 states that had not expanded Medicaid by 2019 and also had no previous expansion for such adults. A difference-in-differences model is used to formalize this comparison. Similar to many previous studies, we find that Medicaid coverage increased dramatically for income-eligible adults under 138% of the federal poverty level (FPL). In addition, we show that Medicaid participation increased by 3.0 percentage points for those with incomes above 138% of the FPL from a pre-ACA baseline of 2.7% among this group. While we cannot say with certainty why these individuals were able to participate in Medicaid, we offer several potential explanations that should be the subject of future work. For example, it is possible that the ACA Medicaid expansions were administered differently at the state or local level than federal rules would require, similarly to differences between effective tax rates and statutory tax rates in many transfer programs.
    JEL: H51 I13
    Date: 2019–08
  5. By: Soren T. Anderson; Ioana Marinescu; Boris Shor
    Abstract: Surveys show majority U.S. support for a carbon tax. Yet none has been adopted. Why? We study two failed carbon tax initiatives in Washington State in 2016 and 2018. Using a difference-in-differences approach, we show that Washington's real-world campaigns reduced support by 20 percentage points. Resistance to higher energy prices explains opposition to these policies in the average precinct, while ideology explains 90% of the variation in votes across precincts. Conservatives preferred the 2016 revenue-neutral policy, while liberals preferred the 2018 green-spending policy. Yet we forecast both initiatives would fail in other states, demonstrating that surveys are overly optimistic.
    JEL: D72 H23 H71 H72 Q52 Q54 Q58
    Date: 2019–08
  6. By: Theine, Hendrik
    Abstract: Based on the political economy of the media perspective, this paper explores the media coverage of wealth and inheritance taxation over the early 21st century (2000 to 2018) based on a large-scale corpus of seven German daily and weekly newspapers. Germany is a useful case study, being one of the most unequal countries in the Eurozone area in terms of wealth inequality. Drawing on text mining methods and corpus linguistics, it shows that wealth and inheritance taxation is a relatively infrequent topic over the entire period, with the exception of a few intense months of increased reporting. On the occasions that the media do report on the topic of wealth and inheritance taxation, it is mainly covered in terms of a political debate. This debate centres on the politics of a possible reform process and the connected difficulties of finding compromise between different actors, rather than focussing on the potential economic impact. Furthermore, this paper explores the power of agents (both on the organisational and individual level) as the primary definers of social reality. It shows that market-liberal and conservative organisations and economists dominate the news over social-democratic and left-wing ones. Overall, the findings indicate a hostile news coverage concerning the introduction of wealth taxation and the increase of inheritance tax.
    Keywords: wealth taxation, economic inequality, media coverage of redistribution policies, critical discourse analysis, political economy of the media
    Date: 2019–08
  7. By: Olusegun Ayodele Akanbi
    Abstract: Would better state institutions increase tax collection, or would higher tax collection help improve state institutions? In the absence of conclusive guidance from theory, this paper searches for an empirical answer to this question, using a panel dataset covering 110 non-resource-rich countries from 1996 to 2017. Employing a panel vector error correction model, the paper finds that tax capacity and state institutions cause and reinforce each other for a wide range of country groups. The bi-directional causality results suggest that developing tax capacity and building state institutions need to go hand in hand for best results, particularly in developing countries. Based on the impulse response analyses, the paper also finds that the causal effects in advanced economies are generally low in both directions, while in developing countries, both tax capacity and institutions shocks have larger positive impacts on institutions and tax capacity, respectively.
    Date: 2019–08–16
  8. By: Bozio, Antoine (Paris School of Economics); Breda, Thomas (Paris School of Economics); Grenet, Julien (Paris School of Economics)
    Abstract: We study the earnings responses to three large increases in employer Social Security contributions (SSCs) in France. We find evidence of full pass-through to workers in the case of a strong and salient relationship between contributions and expected benefits. By contrast, we find limited pass-through of employer SSCs to wages for reforms that increased SSCs with no tax-benefit linkage. Together with a meta-analysis of the literature, we interpret these results as evidence that tax-benefit linkage and its salience matter for incidence, a claim long made by the literature but not backed by direct empirical evidence to date.
    Keywords: tax incidence, payroll tax, social security contributions, tax-benefit linkage
    JEL: H22 H55
    Date: 2019–07
  9. By: Stefano Carattini; Suphi Sen
    Abstract: The climate challenge requires ambitious climate policy. A sudden increase in carbon prices can lead to major shocks to the stock market. Some assets will lose part of their value, others all of it, and hence become “stranded”. If the markets are not ready to absorb the shock, a financial crisis could follow. How well investors anticipate, and thus how large these shocks may be, is an empirical question. We analyze stock market reactions to the rejection of two carbon tax initiatives by voters in Washington state. We build proper counterfactuals for Washington state firms and find that these modest policy proposals with limited jurisdiction caused substantial readjustments on the stock market, especially for carbon-intensive stocks. Our results reinforce concerns about “stranded assets” and the risk of financial contagion. Our policy implications support the inclusion of transition risks in macroprudential policymaking and carbon disclosure and climate stress tests as the main policy responses.
    Keywords: carbon pricing, financial returns, systemic risk, macroprudential policies, voting
    JEL: G12 H23 H71 L50 Q58
    Date: 2019

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