nep-pub New Economics Papers
on Public Finance
Issue of 2020‒09‒28
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Size of Government By António Afonso; Ludger Schuknecht; Vito Tanzi
  2. Do Countries Really Deviate from the Optimal Tax System? By Cristian F. Sepulveda
  3. The Equal-Sacrifice Social Welfare Function with an Application to Optimal Income Taxation By Kristoffer Berg; Paolo Giovanni Piacquadio
  4. Increasing Hours Worked: Moonlighting Responses to a Large Tax Reform By Alisa Tazhitdinova
  5. The EITC and Maternal Time Use: More Time Working and Less Time with Kids? By Jacob Bastian; Lance Lochner
  6. Winners, Losers, and Near-Rationality: Heterogeneity in the MPC out of a Large Stimulus Tax Rebate By Cameron LAPOINT; UNAYAMA Takashi
  7. The U.S. tax-transfer system and low-income households: Savings, labor supply, and household formation By Ortigueira, Salvador; Siassi, Nawid
  8. Cash Thresholds, Cash Expenditure and Tax Evasion By Francesco Flaviano Russo
  9. Clearing the Bar: Improving Tax Compliance for Small Firms through Target Setting By Yazan Al-Karablieh; Evangelos Koumanakos; Stefanie Stantcheva
  10. Distributional effects of COVID-19 on spending: A first look at the evidence from Spain By José Garcia Montalvo; Marta Reynal-Querol
  11. Revisiting corporate income tax determinants in Southern Africa By Robinson, Zurika; de Beer, Jesse

  1. By: António Afonso; Ludger Schuknecht; Vito Tanzi
    Abstract: We discuss and provide an overview of the size and role of the government, notably in terms of what the government “should” do, how the government could spend and intervene in the economy, how much governments spend and what they spend their money on. This is done from a historical perspective and also in a stylized way via assessing total expenditure, the composition of public expenditure for advanced, emerging and developing countries.
    Date: 2020
  2. By: Cristian F. Sepulveda (Department of Economics, Farmingdale State College, State University of New York, USA)
    Abstract: One of the main goals of the literature on optimal tax systems is to reduce the gap between the highly stylized theory of optimal taxation and the practice of fiscal policy reform. Unfortunately, however, we know little about the extent to which the international experience follows the policy prescriptions derived from economic theory or how those policy prescriptions would change with economic development. Based on the standard theory of optimal tax systems, this paper predicts the possible effects of economic development on the optimal level and composition of tax revenue and empirically tests these predictions with yearly data on three tax instruments from countries at different stages of development. On average, as countries develop they are shown to collect more tax revenue and switch from regressive tax instruments, like the value added tax, to more progressive taxes that become more productive with development, like personal and corporate income taxes.
    Date: 2020–09
  3. By: Kristoffer Berg; Paolo Giovanni Piacquadio
    Abstract: We propose and axiomatically characterize a family of welfare criteria that prioritize individuals making larger sacrifices. By combining efficiency with a concern for equality of sacrifice, our criteria avoid serious shortcomings of utilitarianism. We illustrate our results within the Mirrleesian optimal taxation framework. Our simulated equal-sacrifice optimal tax schedule for the US has marginal tax rates in line with the US tax system and about 20 percentage points lower than the utilitarian recommendation.
    Keywords: equal-sacrifice principle, optimal income taxation, welfare criterion
    JEL: D63 H21 I31
    Date: 2020
  4. By: Alisa Tazhitdinova
    Abstract: Moonlighting is increasingly popular in OECD countries, with 5 to 10% of workers holding two or more jobs. However, little is known about the responsiveness of moonlighting to financial incentives due to the lack of identifying variation. This paper studies a unique reform in Germany that allowed workers to hold small secondary jobs tax-free, decreasing the marginal tax rate by between 19.5 to 66pp. I show that the reform resulted in a dramatic increase in moonlighting that was not offset by reductions in primary earnings, and that hours constraints is the key determinant of moonlighting.
    JEL: H2 J01
    Date: 2020–08
  5. By: Jacob Bastian; Lance Lochner
    Abstract: Parents spend considerable sums investing in their children's development, with their own time among the most important forms of investment. Given well-documented effects of the Earned Income Tax Credit (EITC) on maternal labor supply, it is natural to ask how the EITC affects other time allocation decisions, especially time with children. We use the American Time Use Surveys to study the effects of EITC expansions since 2003 on time devoted to a broad array of activities, with considerable attention to the amount and nature of time spent with children. Our results confirm prior evidence that the EITC increases maternal work and reduces time devoted to home production and leisure. More novel, we show that the EITC also reduces time spent with children; however, almost none of the reduction comes from time devoted to ``investment'' activities. Effects are concentrated among socioeconomically disadvantaged mothers, especially those that are unmarried. Results are also most apparent for mothers of young children. Altogether, our results suggest that the increased work associated with EITC expansions over time has done little to reduce the time mothers devote to active learning and development activities with their children.
    JEL: D13 H24 H31 H53 I31 I38 J13 J22
    Date: 2020–08
  6. By: Cameron LAPOINT; UNAYAMA Takashi
    Abstract: This paper documents heterogeneity in consumption responses to a large stimulus tax rebate based on household exposure to a housing price cycle. Linking geocoded household expenditure and financial transactions data to local housing price indices in Japan, we estimate a U-shaped pattern in the marginal propensity to consume with respect to housing price growth. Recipients living in areas with the smallest housing price gains during the 1980s spent 44% of the 1994 rebate within three months of payment, compared to 23% among recipients in areas which experienced the largest housing price gains. While we find limited heterogeneity in marginal propensities to consume among households in less-affected areas, MPCs are higher for younger, renter households with no debt residing in more-affected areas. These findings are consistent with near-rational households for which the pricing shock was small relative to permanent income spending a larger fraction of the tax rebate. Our analysis suggests fiscal stimulus payments primarily induce spending among "winner" households who face minimal exposure to housing price cycles.
    Date: 2020–08
  7. By: Ortigueira, Salvador; Siassi, Nawid
    Abstract: Eligibility and benefits for anti-poverty income transfers in the U.S. are based on both the means and the household characteristics of applicants, such as their filing status, living arrangement, and marital status. In this paper we develop a dynamic structural model to study the effects of the U.S. tax-transfer system on the decisions of non-college-educated workers with children. In our model workers face uninsurable idiosyncratic risks and make decisions on savings, labor supply, living arrangement, and marital status. We find that the U.S. anti-poverty policy distorts the cohabitation/marriage decision of single mothers, providing incentives to cohabit. We also find quantitatively important effects on savings, and on the labor supply of husbands and wives. Namely, the model yields a U-shaped relationship between the earnings of one spouse and the labor supply of the other spouse, a result that we also find in the data. We show that these U-shaped relationships stem in part from the current design of anti-poverty income programs, and that the introduction of an EITC deduction on the earnings of secondary earners-as proposed in the 21st Century Worker Tax Cut Act-would increase the employment rate of the spouses of workers earning between $15K and $35K, especially of female spouses.
    Keywords: anti-poverty income transfers,household decisions,cohabitation and marriage
    JEL: E21 H24 H31 J12
    Date: 2020
  8. By: Francesco Flaviano Russo (Università di Napoli Federico II and CSEF)
    Abstract: I investigate whether cash thresholds that forbid cash payments on big transactions are effective at reducing tax evasion. I find that the 1000 euros threshold implemented in Italy in 2011 induced a bigger cash expenditure reduction for the households with self employed members, and the more so in case they work in cash intensive sectors. With the help of a simple model, I show that this empirical evidence suggests a tax evasion reduction, and I compute the tax revenue increase implied by the empirical estimates. Calibrating the model, I also perform a counterfactual exercise to quantify the potential effects of lower thresholds.
    Keywords: Self-employed, Transactions, Payments
    JEL: H26 E42
    Date: 2020–09–18
  9. By: Yazan Al-Karablieh; Evangelos Koumanakos; Stefanie Stantcheva
    Abstract: We use a new dataset consisting of the universe of Greek corporate tax returns matched to financial statements to study a voluntary tax compliance program for small firms. This “self-assessment” program prescribed target taxable profit margins for different types of activity. Firms that reported profit margins above these targets in a given year were exempt from audits in that year. We find that the firms that take-up the program report significantly larger taxable profits than non-eligible firms, with some evidence of longer-lasting effects on tax reporting. Taxable profits increase by up to 70% of their pre-program levels. We also find that firms can easily and substantially manipulate reported revenue (decreasing it by up to 40%) to help meet prescribed profit margins. Overall, the program increased tax revenues collected from small firms, but points to a very large level of baseline under-reporting of profits and the ease of manipulating reported revenues.
    JEL: H20 H25 H26
    Date: 2020–09
  10. By: José Garcia Montalvo; Marta Reynal-Querol
    Abstract: We use data from a a large Spanish personal finance management fintech to have a first look at the heterogeneous effects of the COVID-19 on spending. We show a large reduction on spending since mid-March, coinciding with the shutdown of the economy and the strict confinement of population. Since the end of April the is a recovery of spending although, by the end of June, it is still 20% below the level of the previous year. Opposite to what has been observed in other countries, the recovery of spending is not more intense in low-income families than in their high-income counterparts. However, there is some evidence of differences in the intensity of rebound by age and account balance. This suggest differences in the intensity of government benefits for low-income families and financial difficulties for low-liquidity families.
    Keywords: spending, income, liquidity, COVID-19, administrative data, high frequency
    JEL: E21 E62 E65 H31
    Date: 2020–09
  11. By: Robinson, Zurika; de Beer, Jesse
    Abstract: The corporate income tax (CIT) systems in place in developing countries can potentially be contributors or impediments to their economic development. This is especially relevant in the SADC region that has a set agenda regarding regional integration goals (SADC, 2019). As part of economic integration, tax harmonisation benefiting all members through tax reform efforts is the central idea. Despite the importance of the topic, empirical literature remains scant, with Robinson (2005) being one of the few papers that directly models the determinants of CIT within SADC. This current paper is an attempt to revisit CIT determinants in the SADC region. With a larger data base at the disposal of the authors, existing empirical literature could be suitably updated. The sample period includes varying fortunes for developing countries in general and SADC specifically, namely, commodity booms and slumps following the global financial crises. Furthermore, given lower economic growth together with variable commodity prices since 2008, there is a concern that corporate tax revenue may continue to erode. A cross-section panel is utilised to find those factors that may best explain changes in corporate taxes in Southern Africa over time from 1980 to 2017.
    Keywords: Corporate income tax, Southern Africa JEL code: H25, H32
    Date: 2020–09

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