nep-pub New Economics Papers
on Public Finance
Issue of 2020‒01‒06
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Determinants of Wealth Inequality and Mobility in General Equilibrium By Fischer, Thomas
  2. Why do the poor vote for low tax rates? A (real-effort task) experiment on income redistribution. By Natalia Jimenez; Elena Molis-Bañales; Angel Solano-Garcia
  3. Employment Structure and the Rise of the Modern Tax System By Anders Jensen
  4. Nudging for tax compliance: A meta-analysis By Antinyan, Armenak; Asatryan, Zareh
  5. Public Goods Provision by a Private Cartel By Maarten Pieter Schinkel; Lukas Toth
  6. Long-run Effects of a Change in Institutions: Evidence on Tax Compliance By Antonio Acconcia; Marcello D'Amato; Riccardo Martina; Marisa Ratto
  7. Identifying network ties from panel data: theory and an application to tax competition By Áureo de Paula; Imran Rasul; Pedro CL Souza
  8. Options for retooling property taxation in Latin America By Ahmad, Ehtisham; Brosio, Giorgio; Jiménez, Juan Pablo
  9. An assessment of the social costs and benefits of vehicle tax reform in Ireland By Lisa Ryan; Ivan Petrov; Andrew Kelly; Yulu Guo; Sarah La Monaca
  10. Debt and Uncertainty: Managing Risks to the Public Finances By Conefrey, Thomas; Hickey, Rónán; Walsh, Graeme
  11. Progressive taxation and (in)stability in an exogenous growth model with Epstein-Zin recursive preferences By Aleksandar Vasilev

  1. By: Fischer, Thomas (Department of Economics, Lund University)
    Abstract: What determines inequality and mobility of wealth? This paper quantifies in closed form both the bottom and the top (Pareto) tail of the distribution for a rich continuous-time model. The distribution is especially shaped by bequest motives, demographics, and the asset portfolio composition under idiosyncratic wealth risk. Factors that increase inequality also reduce mobility. The model - enriched by a realistic income process and non-trivial portfolio constraints - is solved in general equilibrium and calibrated to match US evidence. A bequest tax is shown to reduce inequality and increase mobility. Several partial-equilibrium intuitions do not carry over into general equilibrium.
    Keywords: wealth inequality; mobility of wealth; portfolio selection; fat tails; bequest tax
    JEL: C68 D31 E21 G11 H23
    Date: 2019–12–19
  2. By: Natalia Jimenez (Department of Economics, Universidad Pablo de Olavide & Middlesex University); Elena Molis-Bañales (Departamento de Teoria e Historia Economica, University of Granada & Globe); Angel Solano-Garcia (Departamento de Teoria e Historia Economica, University of Granada & Globe)
    Abstract: The main purpose of this paper is to shed some light on the voting behavior of low-income voters over income redistribution. To this end, we test a model based on Meltzer and Richard’s (1981) framework through a lab experiment in which individuals vote over two exogenous tax rates and their pre-tax income is determined according to their performance in a real-effort task. We classify individuals into high-skilled and low-skilled participants according to their performance in a tournament at the beginning of the experiment. We find that a large proportion of low-skilled workers vote for the lowest tax rate (the one that gives them the lowest payoff), especially when the alternative tax rate is very high. However, this proportion is significantly reduced in treatments in which the subjects are given extra information about how the tax operates in redistributing income. This result suggests that the lack of information about the role of taxes in income redistribution may be an important factor in explaining the counter-intuitive voting behavior of low-income voters over income redistribution. We also find that both the prospect of upward mobility and the belief in the negative effect of taxes on productivity make low-income voters support low tax rates, especially when the alternative tax rate is very high.
    Keywords: income inequality, income redistribution, voting, taxation, real-effort task.
    JEL: C92 D72 H30 J41
    Date: 2019–12
  3. By: Anders Jensen
    Abstract: This paper shows how the increase in information trails through the long-run transition from self-employment to employee-jobs explains the rise of the modern income tax system. I construct a new database which covers 100 household surveys across countries at different income levels and 140 years of historical data within the US (1870-2010). Using these data, I first establish four new stylized facts: 1) within country, the share of employees increases over the income distribution, and increases at all levels of income as a country develops; 2) the income tax exemption threshold moves down the income distribution as a country develops, tracking employee growth; 3) the employee share above the exemption threshold is maximized and remains constantly high; 4) decreases in the exemption threshold are strongly associated with increases in tax collection. These findings are consistent with a model where a high employee share is a necessary condition for effective taxation and where the rise in income covered by information trails through increases in employee share drives expansion of the income tax base. To provide a causal estimate of employee share on income tax systems, I study a state-led US development program implemented in the 1950s-60s which increased the level of employee share. The identification strategy exploits within-state changes in court-litigation status which generate quasi-experimental variation in the effective implementation date of the program. I find that the exogenous increase in employee share is associated with an expansion of the state income tax base and an increase in state income tax revenue.
    Keywords: Economic Growth
    Date: 2019–10
  4. By: Antinyan, Armenak; Asatryan, Zareh
    Abstract: Taxpayer nudges - behavioral interventions that aim to increase tax compliance without changing the underlying economic incentives of taxpayers - are used increasingly by governments because of their potential cost-effectiveness in raising tax revenue. We collect about a thousand treatment effect estimates from over 40 randomized controlled trials, and in a meta-analytical framework show that non-deterrence nudges - interventions pointing to elements of individual tax morale - are on average ineffective in curbing tax evasion, while deterrence nudges - interventions emphasizing traditional determinants of compliance such as audit probabilities and penalty rates - are potent catalysts of compliance. These effects are, however, fairly small in magnitude. Deterrence nudges increase the probability of compliance by only 1.5-2.5 percentage points more than non-deterrence nudges, while the effects are likely to be bound to the short-run, and are somewhat inflated by selective reporting of results.
    Keywords: Tax compliance,Randomized control trials,Nudging,Meta-analysis
    JEL: C93 D91 H26
    Date: 2019
  5. By: Maarten Pieter Schinkel (University of Amsterdam); Lukas Toth (University of Amsterdam)
    Abstract: To stimulate companies to take corporate social responsibility collectively, for example for fair trade or the environment, their agreements may be exempted from cartel law. To qualify, the public benefits must compensate consumers for higher prices of the private good. We study the balancing involved in assessing a public interest-cartel in a public goods model. The required compensating public good level decreases in each consumer's willingness to pay, which is contrary to the Samuelson condition. The cartel will provide minimal public good for maximal overcharges. Nevertheless it is typically not sustainable, since those consumers that are damaged most by the cartel price increase, by self-selection also have the lowest appreciation for the public good. The information necessary to tell the rare genuine public interest-defense from cartel greenwashing allows the government to provide first-best itself.
    Keywords: cartel, public good, corporate social responsibility, sustainability, greenwashing
    JEL: H41 K21 L40
    Date: 2019–12–24
  6. By: Antonio Acconcia (Università di Napoli Federico II and CSEF); Marcello D'Amato (Università di Salerno, CELPE and CSEF); Riccardo Martina (Università di Napoli Federico II and CSEF); Marisa Ratto (Universitè Paris-Dauphine)
    Abstract: The unification of Italy in 1861 determined that all institutions of the pre-unitary states were replaced by those of the new-born Kingdom of Italy, thus implying common rules for agents formerly obeying to different ones. Moreover, a major tax reform was also set in that determined differential increments of the tax burden across provinces. We investigate the potential implications of these events for tax compliance. By comparing a province-level measure of tax evasion just after the reform with a corresponding recent one, we show a strong process of convergence in compliance. Non-negligible spatial differences in tax evasion, however, still persist nowadays. Further empirical evidence suggests that such differences can be at least in part traced back to the tax reform.
    Keywords: tax evasion dynamics, decentralization, local enforcement externality, learning.
    JEL: D62 D81 H26 K41 K42
    Date: 2019–12–18
  7. By: Áureo de Paula (Institute for Fiscal Studies and University College London); Imran Rasul (Institute for Fiscal Studies and University College London and IFS); Pedro CL Souza (Institute for Fiscal Studies)
    Abstract: We present results on the identification of social networks from observational panel data that contains no information on social ties between agents. In the context of a canonical social interactions model, we provide sufficient conditions under which the social interactions matrix, endogenous and exogenous social effect parameters are all globally identified. While this result is relevant across different estimation strategies, we then describe how high-dimensional estimation techniques can be used to estimate the interactions model based on the Adaptive Elastic Net GMM method. We employ the method to study tax competition across US states. We find the identified social interactions matrix implies tax competition differs markedly from the common assumption of competition between geographically neighboring states, providing further insights for the long-standing debate on the relative roles of factor mobility and yardstick competition in driving tax setting behavior across states. Most broadly, our identification and application show the analysis of social interactions can be extended to economic realms where no network data exists.
    Date: 2019–10–21
  8. By: Ahmad, Ehtisham; Brosio, Giorgio; Jiménez, Juan Pablo
    Abstract: There is growing recognition that expanded reliance on property taxation would facilitate the achievement of sustainable development goals, providing adequate funding of local services and access to credit for infrastructure. It would also generate more incentives for more accountable local governance. However, this instrument has a large and unexploited revenue potential in Latin America. Ambitions and reform policies are confronted with political and administration obstacles. Also Governments tend to worry about the political costs of taxing property. The paper suggests ways to improve the working of the tax and to avoid those features that make the tax disagreeable to taxpayers and unpopular for governments. The options include self-assessment of value by taxpayers and, in alternative depending of the circumstances of the country considered, the adoption of an area-based tax by specific localities with the participation of taxpayers to the determination of the tax base. The paper considers also the adoption of a banded system that serves to smooth the impact of tax base changes on the tax due.
    Date: 2019–12–19
  9. By: Lisa Ryan (University College, Dublin); Ivan Petrov (University College, Dublin); Andrew Kelly (EnvEcon Decision Support); Yulu Guo (University College, Dublin); Sarah La Monaca (Columbia University)
    Abstract: This paper presents the results of an ex post evaluation of the impacts of a vehicle tax reform in Ireland, by carrying out a full social cost benefit analysis of a vehicle tax reform that began in Ireland in 2008 and shows that whilst successful in improving the fuel economy of new passenger cars, it may also have caused unintended effects, such as an increased proliferation of diesel vehicles in the passenger car fleet. These outcomes have mitigated the overall benefits. In addition to quantifying the scale of the various effects and outcomes, this paper clearly demonstrates the importance of broad scope policy design.
    Keywords: benefit-cost analysis, economic policy instruments, environmental economics, environmental tax reform, vehicle taxation
    JEL: D61 H23 Q51 Q53 R48
    Date: 2019–12–20
  10. By: Conefrey, Thomas (Central Bank of Ireland); Hickey, Rónán (Central Bank of Ireland); Walsh, Graeme (Central Bank of Ireland)
    Abstract: The Irish public finances have improved significantly in recent years and favourable financing conditions have reduced debt servicing costs. In the absence of severe adverse shocks, government debt as a proportion of national income should continue to fall. At the same time, the crisis has left a legacy of high government debt that, in 2018, was larger than the level of national income (GNI*). Starting from this high stock of debt, there is a risk that a negative economic shock could cause the deficit and debt to start rising again, undoing the hard-won improvements of recent years. In this Letter, we analyse the exposure of the public finances to potential adverse shocks. Our analysis shows that a disorderly Brexit or a permanent loss of corporation tax revenue could result in the level of debt remaining above 90 per cent of national income well into the middle of the next decade. In an environment of elevated risks, reducing the level of public debt can help to improve the capacity of the public finances to withstand negative shocks.
    Date: 2019–09
  11. By: Aleksandar Vasilev
    Abstract: We show that in an exogenous growth model with Epstein-Zin (1989, 1991) recursive preferences calibrated to Bulgarian data under the progressive taxation regime (1993- 2007), the economy exhibits equilibrium indeterminacy. These results are in line with the findings in Benhabib and Farmer (1994, 1996) and Farmer (1999). Also, the findings in this paper are in contrast to Guo and Lansing (1988) who argue that progressive taxation works as an automatic stabilizer. In contrast, under the flat tax regime (2008- 16), the same economy calibrated to Bulgarian data now displays saddle-path stability. The decrease in the average effective tax rate addresses the indeterminacy issue and eliminates the ”sink” dynamics.
    Keywords: Progressive taxation; Epstein-Zin preferences; Equilibrium (In)determinacy; Bulgaria.
    JEL: H22 J46 D51 D91 O41
    Date: 2019–10–05

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