nep-pub New Economics Papers
on Public Finance
Issue of 2020‒04‒13
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Quantifying the Effect of Corporate Taxes on the Life Cycle of Firms By Neira, Julian; Singhania, Rish
  2. Employment Effects of Payroll Tax Subsidies By Collischon, Matthias; Cygan-Rehm, Kamila; Riphahn, Regina T.
  3. Social Security Contributions Distribution and Economic Activity By José L. Torres
  4. An Analysis of the President's 2021 Budget By Congressional Budget Office

  1. By: Neira, Julian; Singhania, Rish
    Abstract: How does corporate taxation affect the life cycle of firms? A change in profit-tax rates affects the life cycle of firms through wages and through firm selection. We quantify these effects by looking at the average size of young and mature US firms 30 years after the Reagan Tax Cuts. We disentangle the wage and the selection effects using a model of firm dynamics. We find that the wage effect of profit tax cuts is about six times stronger than the selection effect. A change in population growth affects average firm size by changing the composition of surviving firms. We find that the effect of declining population growth on average firm size is three times stronger for mature firms than for young firms.
    Keywords: Incidence; Corporate Taxation; Firm Lifecycle; Calibration
    JEL: E13 H22 H25 H32 L16 L26
    Date: 2020–03–19
  2. By: Collischon, Matthias (University of Erlangen-Nuremberg); Cygan-Rehm, Kamila (University of Erlangen-Nuremberg); Riphahn, Regina T. (University of Erlangen-Nuremberg)
    Abstract: This paper exploits several reforms of wage subsidies in the framework of the German Minijob program to investigate substitution and complementarity relationships between subsidized and non-subsidized labor demand. We apply an instrumental variables approach and use administrative data on German establishments for the period 1999-2014. Particularly in small establishments (0-9 employees), subsidized Minijob employment comprises large shares of the work force, on average over 40 percent. For these establishments, robust evidence shows that increasing the subsidization of Minijob employment crowds out non-subsidized employment. Our results imply that Minijob employment in 2014 may have eliminated more than 0.5 million unsubsidized employment relationships just in small establishments. This represents an unintended and harmful consequence of the Minijob subsidy.
    Keywords: wage subsidy, Minijob, labor demand, substitution effect, crowding out effect, displacement effect, employment, payroll tax
    JEL: J21 J23 J38 C26
    Date: 2020–03
  3. By: José L. Torres (Department of Economics, University of Málaga)
    Abstract: This paper studies the macroeconomic implications of the distribution of the social security tax between employees and employers using a general equilibrium framework. We calibrate a Dynamic General Equilibrium model for the average of OECD countries and find that increasing the share of social security contributions paid by employers has a positive effect on economic activity. Whereas raising the employer?s share increases the labor cost for ?firms and reduces the equilibrium gross wage, conversely, workers? net labor income increases, increasing employment and output. The response of the economy to the change in the distribution of social security contributions between employees and employers depends on how the total labor tax wedge changes, which is also affected by the labor income tax and the consumption tax, as distortionary effects from one tax are not independent from the other taxes driving wages? purchasing power.
    Keywords: Social Security Contributions; Employees Contributions; Employers Contributions; Dynamic General Equilibrium models
    JEL: E20 H20 H22 H55
    Date: 2020–01
  4. By: Congressional Budget Office
    Abstract: On February 10, the Administration transmitted its annual set of budgetary proposals to the Congress. CBO estimates that in the coming decade deficits under those proposals would be smaller and debt held by the public would be lower than amounts in CBO’s baseline projections—but larger than the Administration projected.
    JEL: H20 H30 H50 H51 H55 H60 H61 H62 H63 H68
    Date: 2020–03–30

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