nep-pub New Economics Papers
on Public Finance
Issue of 2019‒09‒02
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Rules of Thumb and Attention Elasticities: Evidence from Under- and Overreaction to Taxes By William Morrison; Dmitry Taubinsky
  2. The potential of tax microdata for tax policy By Seán Kennedy
  3. Income Inequality and the Size of Government: A Causal Analysis By Guzi, Martin, Kahanec, Martin
  4. Spatial Competition and Effectiveness of Soda Tax: Evidence from Berkeley and Philadelphia By Balagtas, Joseph V.; He, Xiaoyang
  5. Who Bears the Burden of Real Estate Transfer Taxes? Evidence from the German Housing Market By h.c. Clemens Fuest; Mathias Dolls; Carla Krolage; Florian Neumeier

  1. By: William Morrison; Dmitry Taubinsky
    Abstract: This paper develops a methodology for testing whether attention costs are a source of consumers' misreaction to opaque prices. We show that costly attention models make a series of predictions about how individual differences in misreaction respond to stakes. We then test and confirm these predictions in an experiment on consumers’ online shopping decisions in the presence of shrouded sales taxes that are exogenously varied within consumer over time. The empirical results point to a model in which consumers use heterogeneous rules of thumb to compute the opaque tax when the stakes are low, but use costly mental effort to increase their accuracy when the stakes increase. In particular, some consumers systematically underreact to sales taxes while others systematically overreact. But when the stakes increase, consumers who tend to underreact become more sensitive to sales taxes, while consumers who tend to overreact becomes less sensitive to sales taxes. We establish the results both by using simple reduced-form tests as well as by developing novel econometric techniques for quantifying individual differences. The results are inconsistent with models in which attention is exogenous and models in which all consumers are either fully attentive to the tax or ignore it completely.
    JEL: D9 H2
    Date: 2019–08
  2. By: Seán Kennedy
    Abstract: This paper explores one distinctive form of the ‘big data’ of economics – individual tax record microdata – and its potential for tax policy analysis. The paper draws on OECD collaborations with Slovenia and Ireland in 2018 where tax microdata was used.Most empirical economics is based on survey data. However, the current trend of low and falling response rates has placed a question mark over the future value of survey practice generally. By contrast, this paper discusses the increasing use of tax microdata in economic research and the new types of policy analysis made possible by it. In the future, best-practice tax policy analysis is likely to combine tax microdata with survey and national account data. The advantages of these combined data will be important for policymakers to understand and address future policy challenges including protecting tax revenues in an era of population ageing and supporting fairness given the changing nature of economic mobility.
    Keywords: big data, economic mobility, income distributions, income inequality, tax administration data, tax policy analysis
    JEL: D31 H24
    Date: 2019–09–09
  3. By: Guzi, Martin, Kahanec, Martin
    Abstract: Expansion of the public sector and redistributive policies may reduce income inequality, but formal tests suffer from the problem of endogeneity of government size with respect to the distribution of income. Studying 30 European countries over the period 2004-2015, we apply instrumental variable estimation techniques to identify a causal relationship between income inequality and government size, measured as the government expenditure share in GDP. Using a novel instrument – the number of political parties in the ruling coalition – we find that accounting for the possible endogeneity of government size increases the magnitude of the estimated negative effects. Our findings thus suggest that much of the literature underestimates the true role of the government in attenuating income inequality. The estimated relationship between income inequality and government size persists in a series of robustness checks.
    Keywords: inequality,redistribution,government size,instrumental variable,Gini index
    JEL: D31 D60 H20
    Date: 2019
  4. By: Balagtas, Joseph V.; He, Xiaoyang
    Keywords: Agricultural and Food Policy
    Date: 2019–06–25
  5. By: h.c. Clemens Fuest; Mathias Dolls; Carla Krolage; Florian Neumeier
    Abstract: This paper examines the effects of real estate transfer taxes (RETT) on house prices using a rich micro dataset on German properties covering the period from 2005 to 2018. We exploit a 2006 constitutional reform that allowed states to set their own RETT rates, leading to frequent increases in states’ tax rates in subsequent years. Our monthly event study estimates indicate a price response that strongly exceeds the change in the tax burden for single transactions. I.e., twelve months after a reform, a one percentage point increase in the tax rate reduces property prices by on average 3.5%. Effects are stronger for apartments and apartment buildings than for single family houses. We interpret these results in the context of a theoretical model that accounts for the effects of RETT on a property’s resale value. If a property is expected to be traded more frequently in the future, the decline in its price can exceed the in crease in the tax burden. Moreover, larger price effects can be explained by higher bargaining power of sellers.
    Keywords: Real estate transfer taxes, property taxes, housing market
    JEL: H22 H71 R32 R38
    Date: 2019

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