nep-pub New Economics Papers
on Public Finance
Issue of 2020‒04‒27
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Second-Best Taxation When Individuals Have Social Preferences By Aronsson, Thomas; Johansson-Stenman, Olof
  2. Income Taxation and Dual Job Labour Supply By Choe, Chung; Oaxaca, Ronald L.; Renna, Francesco
  3. Are Government Bonds Net Wealth or a Liability? ---Optimal Debt and Taxes in an OLG Model with Uninsurable Income Risk By YiLi Chien; Yi Wen; HsinJung Wu
  4. Decomposing the Fiscal Multiplier By James Cloyne; Òscar Jordà; Alan M. Taylor
  5. Unemployment-Insurance Taxes and Labor Demand: Quasi-Experimental Evidence from Administrative Data By Johnston, Andrew C.
  6. Presence and Persistence of Poverty in U.S. Tax Data By Jeff Larrimore; Jacob Mortenson; David Splinter
  7. Taxing Earnings from the Platform Economy: An EU Digital Single Window for Income Data? By Lehdonvirta, Vili; Ogembo, Daisy
  8. Tax effort in Sub-Saharan African countries : evidence from a new dataset By Emilie Caldeira; Ali Compaoré; Alou Dama; Mario Mansour; Grégoire Rota-Graziosi
  9. Can Tax Buoyancy in Sub-Saharan Africa Help Finance the Sustainable Development Goals? By Sanjeev Gupta; Jianhong Liu

  1. By: Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, University of Gothenburg)
    Abstract: Models where people derive well-being from motives other than material self-interest – including those rooted in status concerns – are surprisingly scarce in the study of optimal redistributive taxation. In fact, despite extensive evidence from experimental research, other-regarding behavior driven by prosocial preferences is more or less absent in this literature. The purpose of the present paper is to start filling this gap by analyzing the implications of prosocial preferences related to equality and efficiency for optimal income taxation. In doing so, we take a broad perspective by examining three well-known models of social preferences developed by Fehr and Schmidt (1999), Bolton and Ockenfels (2000), and Charness and Rabin (2002), respectively. Our contribution is to analyze the implications of these three social preference models for optimal redistributive income taxation based on a discrete version of the Mirrleesian (1971) framework of optimal nonlinear income taxation. We find that social preferences may have a considerable impact on the structure of marginal income taxation, and that interactions between externality correction and redistributive aspects of taxation are likely to play an important role for the optimal tax structure.
    Keywords: Optimal Taxation; Redistribution; Social Preferences; Inequality Aversion
    JEL: D62 D90 H21 H23
    Date: 2020–04–16
  2. By: Choe, Chung (Hanyang University); Oaxaca, Ronald L. (University of Arizona); Renna, Francesco (University of Akron)
    Abstract: This paper examines the effects of increasing marginal tax rates on labour supply in a setting in which workers may hold two jobs and may be constrained in their weekly hours on their main jobs. A panel data, multi-equation labour supply model is estimated with correction for tax system endogeneity and multi-sample selection in a correlated random effects framework. Data come from the British Household Panel Survey. The effects of counterfactual increases in marginal tax rates are obtained from Gauss-Seidel simulations of labour supply embedded in a tax system with allowances, tax credits, and child benefits. Labour supply to the main job is reduced by increased marginal tax rates while labour supply to the second job is increased. On net total labour supply is reduced. These effects diminish with increased marginal tax rates. In addition there are labour force withdrawal effects as well as transitions from dual job holding to unitary job holding in response to increased marginal tax rates.
    Keywords: dual job, labour supply, taxation, simulation
    JEL: J01 J22 H24
    Date: 2020–03
  3. By: YiLi Chien; Yi Wen; HsinJung Wu
    Abstract: The rapidly growing national debt in the U.S. since the 1970s has alarmed and intrigued the academic world. Consequently, the concept of dynamic (in)efficiency in an overlapping generations (OLG) world and the importance of the heterogeneous-agents and incomplete markets (HAIM) hypothesis to justify a high debt-to-GDP ratio have been extensively studied. Two important consensus emerge from this literature: (i) The optimal quantity of public debt is positive—due to insufficient private liquidity to support private saving and investment (see, e.g., Barro (1974), Woodford (1990), and Aiyagari and McGrattan (1998)); (ii) the optimal capital tax is positive—because of precautionary saving and the consequent failure of the modified golden rule (see, e.g., Aiyagari (1995)). But these two consensus views are seldom derived jointly in the same model, so the dynamic relationship between optimal debt and optimal taxation remains unclear in HAIM models, especially considering that the optimal quantity of debt must be judged by the golden-rule saving rate and any debt must be financed by future taxes. We use a primal Ramsey approach to analytically characterize optimal debt and tax policy in an OLG-HAIM model. We show that since precautionary saving and oversaving are not necessarily the same thing, they have different policy implications—the Ramsey planner opts to issue bonds to crowd out private savings if and only if a competitive equilibrium is dynamically inefficient regardless of precautionary savings. In other words, optimal debt can be negative even if households cannot insure themselves against idiosyncratic risk under borrowing constraints. The sign and magnitude of the optimal quantity of debt in turn dictate the sign and magnitude of optimal taxes as well as the priority order of tax tools such as a labor tax vs. a capital tax.
    Keywords: Role of Public Debt; Optimal Fiscal Policy; Ramsey Problem; Overlapping Generation; Incomplete Markets
    JEL: E13 E62 H21 H30
    Date: 2020–04–08
  4. By: James Cloyne; Òscar Jordà; Alan M. Taylor
    Abstract: Unusual circumstances often coincide with unusual fiscal policy actions. Much attention has been paid to estimates of how fiscal policy affects the macroeconomy, but these are typically average treatment effects. In practice, the fiscal “multiplier” at any point in time depends on the monetary policy response. Using the IMF fiscal consolidations dataset for identification and a new decomposition-based approach, we show how to evaluate these monetary-fiscal effects. In the data, the fiscal multiplier varies considerably with monetary policy: it can be zero, or as large as 2 depending on the monetary offset. We show how to decompose the typical macro impulse response function into (1) the direct effect of the intervention on the outcome; (2) the indirect effect due to changes in how other covariates affect the outcome when there is an intervention; and (3) a composition effect due to differences in covariates between treated and control subpopulations. This Blinder-Oaxaca-type decomposition provides convenient way to evaluate the effects of policy, state-dependence, and balance conditions for identification.
    Keywords: state-dependence; identification; fiscal policy; interest rates; Blinder-Oaxaca decomposition; balance; local projections
    JEL: H20 E32 C54 E62 H5 N10 C99
    Date: 2020–03–27
  5. By: Johnston, Andrew C. (University of California, Merced)
    Abstract: To finance unemployment insurance, states raise payroll tax rates on employers who engage in layoffs. Tax rates are, therefore, highest for firms after downturns, potentially hampering labor-market recovery. Using full-population, administrative records from Florida, I estimate the effect of these tax increases on firm behavior leveraging a regression kink design in the tax schedule. Tax hikes reduce hiring and employment substantially, with no effect on layoffs or wages. The results imply unanticipated costs of the financing regime which reduce the optimal benefit by a quarter and account for twelve percent of the unemployment in the wake of the Great Recession.
    Keywords: unemployment insurance, payroll taxes, recession
    JEL: D22 H22 H25 H71 J23 J32 J38 J65
    Date: 2020–04
  6. By: Jeff Larrimore; Jacob Mortenson; David Splinter
    Abstract: This paper presents new estimates of the level and persistence of poverty among U.S. households since the Great Recession. We build annual household data files using U.S. income tax filings between 2007 and 2018. These data allow us to track individuals over time and measure how tax policies affect poverty trends. Using an after-tax household income measure, we estimate that while roughly 1 in 10 people are in poverty in any given year, over 4 in 10 people spent at least one year in poverty between 2007 and 2018. This implies substantial mobility in and out of poverty—for example, 41 percent of those in poverty in 2007 were out of poverty in the following year. Others spend multiple years in poverty or escape poverty only to fall back into it. Of those in poverty in 2007, one-third were in poverty for at least half of the years through 2018.
    JEL: D31 H20 I32
    Date: 2020–04
  7. By: Lehdonvirta, Vili; Ogembo, Daisy
    Abstract: Income earned through gig platforms, letting platforms, and other digital intermediaries presents new challenges for taxation. This article evaluates the efforts of three European Union Member States – Denmark, Estonia, and France – to obtain data on platform users’ earnings directly from platform companies, including Uber, Airbnb, and domestic platforms. The authors furthermore assess the viability of scaling up the national initiatives into an EU-level “Digital Single Window” that would facilitate the automated reporting of income data by platforms, and the forwarding of that data to national tax and social security agencies for taxation and collection according to national rules. Acknowledgements: The authors gratefully acknowledge Dr Max Uebe, Ms Carola Bouton, Mr Istvan Vanyolos, and other European Commission experts who contributed valuable suggestions, the expert interviewees listed at the end of the article for being generous with their information and insights, and Professor Judith Freedman for her support and advice throughout the project. This research has received financial support from the European Union Programme for Employment and Social Innovation “EaSI” (2014-2020). For further information please consult: The information contained in this publication does not necessarily reflect the official position of the European Commission.
    Date: 2020–04–15
  8. By: Emilie Caldeira (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Ali Compaoré (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Alou Dama (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Mario Mansour (International Monetary Fund (IMF)); Grégoire Rota-Graziosi (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper proposes (i) a new database of tax revenue for 42 Sub-Saharan African countries (SSA) over the period 1980-2015, (ii) an estimate of tax effort for these countries, and (iii) some replication analyses of previous tax effort estimations. The database results from statistical information of the African Department of the International Monetary Fund (IMF). In particular, it allows distinguishing tax revenue from the natural resource sector from the other economic sectors. SSA countries collected on average 13.2 percent of GDP in non-resource tax revenue over the studied period and their average estimated tax effort is 0.58. In other words, SSA countries could raise 22.75 percent of GDP in non-resource taxes if they fully used their potential. In line with previous analyses, we find that countries' stage of development measured by per-capita income, financial development, and trade openness are important factors improving tax revenue in the region, while natural resource endowment and the importance of the agriculture sector reduce unambiguously the non-resource tax-to-GDP ratio. Finally, beyond the originality of the database itself and the empirical results, this work participates explicitly to the replication principle given its online development with R software (
    Keywords: Tax effort,Sub-Saharan Africa,Stochastic frontier analysis
    Date: 2020–04–15
  9. By: Sanjeev Gupta (Center for Global Development); Jianhong Liu (Center for Global Development)
    Abstract: In this paper, we estimate short- and long-term tax buoyancy for 44 sub-Saharan African (SSA) countries during 1980-2017 using time series and panel techniques. The buoyancy of the tax system captures the response of tax revenues to changes in national income including discretionary changes. We find that the long-term tax buoyancy is either one or slightly above one for most SSA countries. Fragile states have a lower short-term tax buoyancy reflecting their institutional weaknesses. Short-term buoyancy of personal income tax is significantly less than one. Both short- and long-run tax responses are lower than those reported in previous cross-country studies, which can be interpreted as a reduced power of both automatic stabilization in the short-run and fiscal sustainability in the long-run. Our results are robust to discretionary tax changes. We find that central government debt and shadow economy exert a downward pressure on tax buoyancy. An important implication of these results is that the current tax systems in SSA would not be able generate domestic revenues to the extend needed for financing the Sustainable Development Goals (SDGs). This is illustrated for the entire region and two SSA countries, Benin and Rwanda.
    Keywords: Tax buoyancy, Sustainable Development Goals, Error Correction Model, fiscal sustainability, sub-Saharan Africa
    JEL: E62 H20 H24 H25
    Date: 2020–04–15

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