nep-pub New Economics Papers
on Public Finance
Issue of 2020‒05‒25
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The spirit of capitalism and optimal capital taxation By Fanghui Li; Gaowang Wang; Heng-fu Zou
  2. Corporate taxes and firms' performance: A meta-frontier approach By Ana María Iregui-Bohórquez; Ligia Alba Melo-Becerra; Antonio José Orozco-Gallo
  3. Debt and Taxes in Eight U.S. Wars and Two Insurrections By George J. Hall; Thomas J. Sargent
  4. The Effect of Changes in Alcohol Tax Differentials on Alcohol Consumption By Markus Gehrsitz; Henry Saffer; Michael Grossman
  5. The Welfare Effects of Persuasion and Taxation: Theory and Evidence from the Field By Matthias Rodemeier; Andreas Löschel

  1. By: Fanghui Li (Center for Economic Research, Shandong University); Gaowang Wang (Center for Economic Research, Shandong University); Heng-fu Zou (China Economics and Management Academy, Central University of Finance and Economics)
    Abstract: The paper reexamines the famous Chamley-Judd zero capital tax theorem in model economies where the agents are endowed with the spirit of capitalism. It is shown that the limiting capital income tax is not zero in general and depends on the utility speciffications rather than the production technology. The similar formulas of optimal capital taxes are derived in more general settings with multiple physical capitals or heterogeneous agents (capitalists and workers).
    Date: 2020
  2. By: Ana María Iregui-Bohórquez (Banco de la República de Colombia); Ligia Alba Melo-Becerra (Banco de la República de Colombia); Antonio José Orozco-Gallo (Banco de la República de Colombia)
    Abstract: Corporate taxes play an important role in the firm's decision-making as they are part of the cost of capital. Thus, understanding the effect of taxes on the performance of firms in the context of frequent tax reforms, as is the case of Colombia, is of great relevance. We use meta-frontier stochastic techniques,which allow us to estimate in two-steps the technical effciency of firms within each economic sector and between economic sectors in relation to the set of firms in the country. Then, using quantile regression analysis, we estimate both the effect of corporate taxation on firm performance as well as the effect of efficiency on firms' tax payments. Results indicate that firms in some economic sectors could be benefiting form better production conditions and that the most effcient firms within each sector paid more taxes, as a share of assets. However, when compared to the meta-frontier, firms with higher effciency paid less taxes, suggesting differences in the tax burden of firms across economic sectors. **** RESUMEN: Los impuestos corporativos juegan un papel importante en la toma de decisiones de las empresas, ya que son parte del costo de uso del capital. Por lo tanto, estudiar la relación entre los impuestos corporativos y el desempeño de las empresas es de gran relevancia, en un contexto de frecuentes reformas tributarias, como es el caso de Colombia. Para el análisis se utilizan técnicas de meta-frontera estocástica que permiten estimar, en dos etapas, la eficiencia técnica de las empresas dentro de cada sector económico y entre sectores económicos en relación con el conjunto de empresas en el país. Luego, se utiliza el análisis de regresión cuantílica para estimar tanto el efecto de los impuestos corporativos sobre el desempeño de las empresas, como el efecto de la eficiencia sobre los pagos de impuestos. Los resultados indican que las empresas, en algunos sectores económicos, podrían beneficiarse de mejores condiciones de producción y que las más eficientes dentro de cada sector pagan más impuestos, como proporción de sus activos. Sin embargo, cuando se comparan con la frontera de producción global del país, las empresas con mayor eficiencia pagan menos impuestos, lo que sugiere diferencias en la carga tributaria entre sectores económicos.
    Keywords: Corporate taxes, Stochastic frontier analysis, firm performance, Impuestos corporativos, frontera estocástica, desempeño empresas
    JEL: C23 D22 H25
    Date: 2020–05
  3. By: George J. Hall; Thomas J. Sargent
    Abstract: From decompositions of U.S. federal fiscal accounts from 1790 to 1988, we describe differences and patterns in how expenditure surges were financed during 8 wars between 1812 and 1975. We also study two insurrections. We use two benchmark theories of optimal taxation and borrowing to frame a narrative of how government decision makers reasoned and learned about how to manage a common set of forces that bedeviled them during all of the wars, forces that included interest rate risks, unknown durations of expenditure surges, government creditors' debt dilution fears, and temptations to use changes in units of account and inflation to restructure debts. Ex post real rates of return on government securities are a big part of our story.
    JEL: E52 E62 H56 N41 N42
    Date: 2020–05
  4. By: Markus Gehrsitz; Henry Saffer; Michael Grossman
    Abstract: We show that tax-induced increases in alcohol prices can lead to substantial substitution and avoidance behavior that limits reductions in alcohol consumption. Causal estimates are derived from a natural experiment in Illinois where spirits and wine taxes were raised sharply and unexpectedly in 2009. Beer taxes were increased by only a trivial amount. We construct representative and consistent measures of alcohol prices and sales from scanner data collected for hundreds of products in several thousand stores across the US. Using several differences-in-differences models, we show that alcohol excise taxes are instantly over-shifted by a factor of up to 1.5. Consumers react by switching to less expensive products and increase purchases of low-tax alcoholic beverages, thus all but offsetting any moderate, tax-induced reductions in total ethanol consumption. Our study highlights the importance of tax-induced substitution, the implications of differential tax increases by beverage group and the impacts on public health of alternative types of tax hikes whose main aims are to increase revenue.
    JEL: I12 I18
    Date: 2020–05
  5. By: Matthias Rodemeier; Andreas Löschel
    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

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