nep-pub New Economics Papers
on Public Finance
Issue of 2019‒10‒07
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation and Discrete Choice By Laurence Ales; Christopher Sleet
  2. Taxing capital and labor when both factors are imperfectly mobile internationally By Hippolyte d'Albis; Agnès Bénassy-Quéré
  3. Measuring the Distributional Impact of Taxation and Public Spending: The Practice of Fiscal Incidence Analysis By Nora Lustig
  4. How to Design Tax Policy in Fragile States By Mario Mansour; Jean-Luc Schneider
  5. Labor Taxes, Productivity and Tax Competition By Satyajit Chatterjee; Amartya Lahiri
  6. Understanding Different Approaches to Benefit-Based Taxation By Robert Scherf; Matthew Weinzierl
  7. When Income Effects are Large: Labor Supply Responses and the Value of Welfare Transfers By Giulia Giupponi
  8. Charitable Constributions by Businesses: A Tax Policy Perspective By Tomer Blumkin; Yoram Margalioth; Efraim Sadka; Adi Sharoni
  9. Taxes on Unhealthy Food and Externalities in the Parental Choice of Children's Diet By Zarko Kalamov; Marco Runkel
  10. On the Relationship between Trade Openness and Government Size By Mohammad Farhad; Michael Jetter

  1. By: Laurence Ales (Carnegie Mellon University); Christopher Sleet (Carnegie Mellon University)
    Abstract: In this paper we derive optimal tax equations for discrete choice economies with smooth underlying shock distributions and potentially unstructured choice sets. This approach expands the set of applications for which optimal tax equations are available, permits rich substitution patterns between choices, unifies existing results on income and commodity taxation and links optimal tax analysis to the large literature on estimating discrete choice models. The optimal tax equations that emerge highlight the role of semi-elasticities of choice probabilities to tax perturbations in shaping optimal taxes and, in particular, the implied willingness of agents to substitute from high to low taxed choices as a force dampening tax rates. We apply our approach to locational and hours choice settings.
    Date: 2019
  2. By: Hippolyte d'Albis (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Agnès Bénassy-Quéré (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: We revisit the standard theoretical model of tax competition to consider imperfect mobility of both capital and labor. We show that the mobility of one factor a_ects the taxation of both factors, and that the race-to-the-bottom narrative (with burden shifting) applies essentially to capital exporting countries. We test our predictions for a panel of 28 OECD countries over 1997-2014. We _nd capital taxation to be less sensitive to capital mobility in net capital importing countries than for net capital exporters. Various robustness checks support this conclusion. Qantitatively, though, rising capital mobility contributes much less than population ageing to the decline of capital tax rates over the period studied.
    Keywords: tax competition,globalization,imperfect factor mobility
    Date: 2019–09
  3. By: Nora Lustig (Stone Center for Latin American Studies, Department of Economics, Tulane University, Commitment to Equity Institute (CEQI))
    Abstract: Taxation and public spending are key policy levers the state has in its power to change the distribution of income. One of the most commonly used methods to measure the distributional impact of a country’s taxes and public spending is fiscal incidence analysis. Rooted in the field of Public Finance, fiscal incidence analysis is the method utilized to allocate taxes and public spending to households so that one can compare incomes before taxes and transfers with incomes after them. Standard fiscal incidence analysis just looks at what is paid and what is received without assessing the behavioral responses that taxes and public spending may trigger on individuals or households. This is often referred to as the “accounting approach.” Although the theory is quite straightforward, its application can be fraught with complications. The salient ones are discussed here. While ignoring behavioral responses and general equilibrium effects is a limitation of the accounting approach, the effects calculated with this method are considered a reasonable approximation of the short-run welfare impact. Fiscal incidence analysis, however, can be designed to include behavioral responses as well as general equilibrium and inter-temporal effects. This article focuses on the implementation of fiscal incidence analysis using the accounting approach.
    Keywords: Fiscal incidence, taxation, social spending, transfers, pensions, progressivity, distributional effects, inequality, poverty, marginal contribution, effectiveness, valuing in-kind transfers.
    JEL: D31 H22 I32 I38
    Date: 2019–09
  4. By: Mario Mansour; Jean-Luc Schneider
    Abstract: The purpose of this note is to provide a framework for improving tax policy design in fragile and conflict-affected states, which face political and institutional constraints. This note begins with an overview of experiences in revenue mobilization in fragile states, including relative to other country groups—in particular, nonfragile states and formerly fragile states; that is, countries that exited fragility during the period under study. A discussion follows of how the principles of tax policy design should be applied in fragile states, particularly the relative importance of the revenue objective vis-à-vis other objectives, such as equity and efficiency. The two sections that follow provide guidance on tax policy design in the emergency and consolidation phases, respectively, and discuss how governments can use tax policy to transition from one phase to another, eventually overcoming fragility. The note concludes with key lessons and a set of guiding principles for tax reform in fragile states.
    Keywords: Tax policy;Revenue mobilization;Efficiency of public spending;Equity and social spending;Tax policy;Revenue mobilization;Efficiency of public spending;Equity and social spending
    Date: 2019–09–20
  5. By: Satyajit Chatterjee (Federal Reserve Bank of Philadelphia); Amartya Lahiri (University of British Columbia)
    Abstract: Why are taxes higher in Europe than in the US? We propose that it stems from lesser competition across jurisdictions within Europe. We embed self-interested governments and tax competition into a standard neoclassical growth model with public goods. While greater jurisdictional competition reduces taxes it also reduces societal investment in public capital and thus often ends up reducing total factor productivity. We show that despite this deleterious effect on the level of productive public capital, tax competition ends up raising per capita output and welfare. We show evidence to support both our baseline assumption of lesser mobility in Europe relative to the US as well as for our predictions on productivity differences between the two.
    Date: 2019
  6. By: Robert Scherf; Matthew Weinzierl
    Abstract: The normative principle of benefit-based taxation has exerted substantial influence on many areas of public finance, but it has been largely set aside in the modern theoretical approach to optimal income taxation, where welfarist objectives dominate. A prerequisite for that gap to close is the clarification of what benefit-based income taxation would mean, specifically in a first-best setting. This paper seeks to provide clear, accessible descriptions and novel graphical representations of four major approaches to first-best benefit-based taxation, explain how these approaches relate to each other, and apply them within the Classical Benefit-Based framework for optimal income taxation of Smith (1776).
    JEL: H2 H41
    Date: 2019–09
  7. By: Giulia Giupponi
    Abstract: I estimate the long-run income effect of welfare transfers on individual labor supply. Using Italian administrative data on the universe of survivor insurance recipients, I implement a regression discontinuity design around a change in survivor insurance generosity based on the spouse's death date. I find that survivors fully offset the benefit loss with increases in earnings. Labor force participation and program substitution are the main margins of adjustment. I consider potential explanations for the large income effect. Evidence suggests that the value of additional income in the widowhood state is large, driving large participation responses to survivor benefit cuts.
    Keywords: income effect, labor supply, valuation of welfare transfers
    JEL: H55 I38 J22
    Date: 2019–10
  8. By: Tomer Blumkin; Yoram Margalioth; Efraim Sadka; Adi Sharoni
    Abstract: Empirical evidence suggests that charitable contributions to public goods by businesses may be driven not only by the familiar warm-glow of giving motive but also as a means for businesses to signal high product quality. Building on this finding, we present an analytical framework that demonstrates that the optimal degree of subsidization should decrease with the extent to which the signal is informative, and may even turn into a tax when the signal is sufficiently strong. Finally, we compare the current practice in the US, a charitable contribution deduction provided by Section 170 of the US Tax Code, with the design suggested by our normative analysis.
    Keywords: public goods, Pigouvian taxation, warm glow, signaling
    JEL: H20 H40 K30
    Date: 2019
  9. By: Zarko Kalamov; Marco Runkel
    Abstract: This paper addresses the question whether taxes on unhealthy food are suitable for internalizing intergenerational externalities inflicted by parents when they decide on their children’s diet. Within an OLG model with an imperfectly altruistic parent, the optimal steady state tax rate on unhealthy food is strictly positive. However, it is only second best since it not only reduces food consumption of the child but also distorts the parent's food consumption. Surprisingly, the optimal tax may under- or overinternalize the marginal damage.
    Keywords: obesity, fat tax, altruism
    JEL: D11 D62 H21 I12
    Date: 2019
  10. By: Mohammad Farhad; Michael Jetter
    Abstract: Does trade openness systematically imply bigger governments, as proposed by Rodrik (1998)? This paper presents a novel and more refined explanation for when and why international trade may enlarge the public sector. We propose that trade openness is associated with bigger governments if (i) the price volatility of a country’s export basket is substantial and (ii) the country is democratic. The first condition satisfies the prior that open trade barriers indeed introduce uncertainty and external risk – something that is not necessarily the case for all trade. The second condition ensures that the people’s desire for greater economic security can be realized through government spending. Empirical evidence for 143 countries (accounting for approximately 96 percent of world population) from 2000-2016 is consistent with this hypothesis. Exploring areas of public spending, we find intuitive patterns: Consistent with the compensation hypothesis, government spending on economic affairs and housing increases significantly with trade openness, whereas public spending on education, health care, and the military are not immediately concerned. As with our general result, this is only the case in democracies that are subject to high price volatility on the global market.
    Keywords: economic globalization, trade openness, government size, export price volatility, democracy
    JEL: F14 F41 H10
    Date: 2019

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