nep-pub New Economics Papers
on Public Finance
Issue of 2020‒05‒11
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Reforming Tax and Welfare: Social Justice and Recovery after the Pandemic By FitzRoy, Felix; Jin, Jim
  2. Tax News Shocks and Consumption By Lorenz Kueng
  3. Corporate Taxes and Retail Prices By Scott R. Baker; Stephen Teng Sun; Constantine Yannelis
  4. Optimal Taxation in an Endogenous Fertility Model with Non-Cooperative Couples By Takuya Obara; Yoshitomo Ogawa
  5. Does the US Tax Code Favor Automation? By Daron Acemoglu; Andrea Manera; Pascual Restrepo
  6. Could Fiscal Policies Overcome a Deep Recession at the Zero Lower Bound? By Liu, Shih-fu; Huang, Wei-chi; Lai, Ching-chong
  7. The welfare effects of persuasion and taxation: Theory and evidence from the field By Rodemeier, Matthias; Löschel, Andreas
  8. Redistribution within the tax-benefit system in Austria By Christl, Michael; Köppl-Turyna, Monika; Lorenz, Hanno; Kucsera, Dénes

  1. By: FitzRoy, Felix (University of St. Andrews); Jin, Jim (University of St. Andrews)
    Abstract: Capital income subsidies, and reliance on indirect consumption taxes have created an increasingly regressive overall tax system in the UK, US and elsewhere, with proportionately much greater impact on the poor than on the rich, and welfare cuts under ten years of austerity have had the largest impact on the most vulnerable and poorest, now magnified by the Covid-19 pandemic. We show how a progressive wealth tax combined with a uniform, linear tax on all incomes and a modest basic income, with no exemptions or reliefs and no indirect taxes except excise taxes such as fuel duties, could be highly progressive overall, as well as much fairer and simpler than the present system. Such reform would render the economy much more resilient, and potentially devastating economic consequences of the pandemic could be mitigated by an emergency basic income and suspension of rental payments.
    Keywords: COVID-19, tax, welfare, policy, pandemic
    JEL: H2 I3
    Date: 2020–05
  2. By: Lorenz Kueng (University of Lugano - Faculty of Economics; Swiss Finance Institute; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Northwestern University - Kellogg School of Management)
    Abstract: How predictable are personal income tax rates in the U.S., and does household spending respond to news about future taxes even before the rates change? To answer these questions, this paper uses novel historical high-frequency data of tax-exempt municipal bonds and develops a model of the term structure of municipal yield spreads to taxable bonds as a function of future top income tax rates and a risk premium. Testing the model using the presidential elections of 1980, 1992 and 2000 shows that financial markets forecast future tax reforms remarkably well in both the short and long run. Combining these market-based tax expectations or "tax news shocks'' with data from the Consumer Expenditure Survey shows strong evidence of anticipation effects to future tax changes among higher-income consumers, well before the tax rates change. Consumer spending changes about one-for-one with changes in expected lifetime tax liabilities. These findings imply that ignoring anticipation effects can substantially bias estimates of the total effect of a tax change.
    Keywords: expected taxes, municipal yields, household consumption
    JEL: E21 G12 H31
    Date: 2020–04
  3. By: Scott R. Baker; Stephen Teng Sun; Constantine Yannelis
    Abstract: We study the impact of corporate taxes on barcode-level product prices using linked survey and administrative data. Our empirical strategy exploits the dichotomy between the location of production and the location of sales, providing estimates free from confounding demand shocks. We find significant effects of corporate taxes on prices with a net-of-tax elasticity of 0.17. The effects are larger for lower-price items and products purchased by low-income households and weaker for high-leverage firms. Approximately 31% of corporate tax incidence falls on consumers, suggesting that models used by policymakers significantly underestimate the incidence of corporate taxes on consumers.
    JEL: G38 H22 H25
    Date: 2020–04
  4. By: Takuya Obara (Faculty of Economics, Tohoku Gakuin University); Yoshitomo Ogawa (School of Economics, Kwansei Gakuin University)
    Abstract: This study examines the optimal tax structure in an endogenous fertility model with non-cooperative couples. In the model, both the quality and number of children are sub- optimal because of the non-cooperative behavior of couples. Moreover, we consider the external e?ects of children on society and center-based childcare services. In such a uni- fied model, we characterize the formulae for optimal income tax rates, child tax/subsidy rates, and tax/subsidy rates on center-based childcare services. We find that income taxation, but not a child subsidy, corrects the suboptimal low fertility rate caused by the non-cooperative behavior of couples. To alleviate the deadweight loss from income taxation, a child tax is useful. The child tax (subsidy) becomes optimal if the required tax revenue is larger (smaller) than the external e?ects. The subsidy for external child- care services corrects the external e?ect of children, not the non-cooperative behavior. These results are reinforced by the numerical analysis.
    Keywords: Non-Cooperative Couple, Endogenous Fertility, Optimal Income Tax, Opti- mal Child Tax/Subsidy
    JEL: H21 J13 J16
    Date: 2020–05
  5. By: Daron Acemoglu; Andrea Manera; Pascual Restrepo
    Abstract: We argue that the US tax system is biased against labor and in favor of capital and has become more so in recent years. As a consequence, it has promoted inefficiently high levels of automation. Moving from the US tax system in the 2010s to optimal taxation of capital and labor would raise employment by 4.02% and the labor share by 0.78 percentage points, and restore the optimal level of automation. If moving to optimal taxes is infeasible, more modest reforms can still increase employment by 1.14–1.96%, but in this case efficiency can be increased by imposing an additional automation tax to reduce the equilibrium level of automation. This is because marginal automated tasks do not bring much productivity gains but displace workers, reducing employment below its socially optimal level. We additionally show that reducing labor taxes or combining lower capital taxes with automation taxes can increase employment much more than the uniform reductions in capital taxes enacted between 2000 and 2018.
    JEL: J23 J24
    Date: 2020–04
  6. By: Liu, Shih-fu; Huang, Wei-chi; Lai, Ching-chong
    Abstract: This paper sets up a New Keynesian model in which the monetary authority implements a zero lower bound interest rate policy, and uses it to explore whether the supportive fiscal instruments (including expansionary government spending, a payroll tax cut, and a financial assets tax cut) are effective in overcoming a deep recession. The salient feature of this study is that it provides a new dynamic viewpoint of regime switching by evaluating each of several supportive fiscal policies in terms of their performance in alleviating a deep recession. Two main findings emerge from the analysis. First, when the monetary authority implements the zero lower bound interest rate policy to dampen the negative natural rate shock, the economy will sink into a deep recession with deflation. Second, to overcome the deep recession, of the three supportive fiscal tools (i.e., expansionary government spending, a payroll tax cut, and a financial assets tax cut), only expansionary government spending is effective in alleviating the deep recession. More specifically, the implementation of fiscal policy in the form of either the payroll tax cut or the financial assets tax cut will only further deepen the recession.
    Keywords: Zero lower bound, New Keynesian model, fiscal stimulus, regime switching
    JEL: E62 E63 H20
    Date: 2020–04–24
  7. By: Rodemeier, Matthias; Löschel, Andreas
    Abstract: How much information should governments reveal to consumers if consumption choices have uninternalized consequences to society? How does an alternative tax policy compare to information disclosure? We develop a price theoretic model of information design that allows empiricists to identify the welfare effects of any arbitrary information policy. Based on this model, we run a natural field experiment in cooperation with a large European appliance retailer and randomize information regarding the financial benefits of energy-efficient household lighting among more than 640,000 subjects. We find that full information disclosure strongly decreases demand for energy efficiency, while partial information disclosure increases demand. More information reduces social welfare because the increase in consumer surplus is outweighed by the rise in environmental externalities. By randomizing product prices, we identify the optimal tax vector as an alternative policy and show that sizable taxes on energy-inefficient products yield larger welfare gains than any information policy. We also document an important policy interaction: information provision dramatically reduces attention to pecuniary incentives and thereby limits the effectiveness of taxes.
    Keywords: persuasion,optimal taxation,internality taxes,field experiments,energy efficiency,behavioral public economics
    JEL: D61 D83 H21 Q41 Q48
    Date: 2020
  8. By: Christl, Michael; Köppl-Turyna, Monika; Lorenz, Hanno; Kucsera, Dénes
    Abstract: The aim of this study is to analyze redistribution within the Austrian tax-benefit system. In this work we take a comprehensive view and include not only direct taxation and cash benefits, but also indirect taxes and in-kind transfers. We look at two kinds of redistribution: between the households belonging to different income groups, and between generations, taking the life-cycle perspective. Our analysis shows that indirect taxes, as known from the previous literature, have a regressive effect on the tax-benefit system. On the contrary, in-kind benefit seem to have a progressive effect. To analyse the impact of both, we extend our income concept by both, indirect taxes and in-kind benefits. If we look on the distributional impact, we find that the inequality-enhancing effect of indirect taxes is more than off-set by the inequality-reducing effect of in-kind benefits. The Gini coefficient increases form 0.24 to 0.26 due to indirect taxes, but when adding in-kind ben- efits, the Gini coefficient is reduced to 0.23. The overall effect of both, indirect taxes and in-kind benefits is progressive.
    Keywords: tax-benefit model,EUROMOD,welfare state,Austria,in-kind benefits
    JEL: I38 H24 D31
    Date: 2020

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