nep-pub New Economics Papers
on Public Finance
Issue of 2020‒11‒16
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxation trends in the European Union: 2018 edition By European Commission
  2. Designing Direct Tax Reforms: Alternative Approaches By Alinaghi, Nazila; Creedy, John; Gemmell, Norman
  3. Time-Inconsistent Optimal Quantity of Debt By YiLi Chien; Yi Wen
  4. The Impact of Taxes and Wasteful Government Spending on Giving By Roman M. Sheremeta; Neslihan Uler
  5. Employment Effects of the Earned Income Tax Credit: Taking the Long View By Schanzenbach, Diane Whitmore; Strain, Michael R.
  6. Labour Tax and Child Benefits Reform in Lithuania: For Better or Worse? By Aurelija Anciūtė; Viginta Ivaškaitė-Tamošiūnė; Anamaria Maftei; Janos Varga
  7. Estimating Ghana's Tax Capacity and Effort By William Gabriel Brafu-Insaidoo; Camara K. Obeng

  1. By: European Commission
    Abstract: This report contains a detailed statistical and economic analysis of the tax systems of the Member States of the European Union, plus Iceland and Norway, which are Members of the European Economic Area. The data are presented within a unified statistical framework (the ESA2010 harmonised system of national and regional accounts), which makes it possible to assess the heterogeneous national tax systems on a fully comparable basis.
    Keywords: European Union, taxation
    JEL: H23 H24 H25 H27 H71
    Date: 2020–07
  2. By: Alinaghi, Nazila; Creedy, John; Gemmell, Norman
    Abstract: How high should the top personal income tax rate be? Is there an `optimal' structure of tax rates and thresholds? Despite numerous value judgements being required to answer such questions, this paper suggests that 'rational policy analysis' principles can nevertheless be applied to support policy advice on these and other direct tax design questions. It is argued that the economic models thought suitable as the basis for tax analysis vary according to the precise ways in which the policy question is formulated; the underlying behavioural responses to taxation expected across the taxpaying population; the precise definitions of key variables such as income inequality; and the specification of policy objectives such as redistribution, revenue-raising or tax efficiency.
    Keywords: Tax policy, Tax reform, Tax rates,
    Date: 2020
  3. By: YiLi Chien; Yi Wen
    Abstract: A key feature of the infinite-horizon heterogeneous-agents incomplete-markets (Inf-HAIM) framework is that the equilibrium interest rate of public debt lies below the time discount rate (regardless of capital). This happens because of a positive liquidity premium on asset returns due to imperfect risk sharing. This fundamental property of standard Inf-HAIM models, however, implies that the Ramsey planner's fiscal policy may be time-inconsistent---because the planner has a dominate incentive to issue plenty of debt such that all households are fully self-insured against idiosyncratic risk whenever the interest rate of government borrowing is lower than the household time discount rate. But such a full self-insurance allocation may be infeasible---because to achieve it the optimal quantity of debt may approach infinity or the optimal labor tax rate may approach 100%. This is puzzling from an intuitive perspective because near the point of full self-insurance the marginal gains of increasing debt should be less than the marginal costs of financing the debt under distortionary taxes. We show that this puzzling behavior originates from the assumption that the planner must commit to future plans at time zero. Under such a full commitment, the Ramsey planner opts to exploit the low interest cost of borrowing to front load consumption by sacrificing future consumption in the long run---because future utilities are heavily discounted compared to the inverse of the interest rate on government bonds. We demonstrate our points analytically using a tractable Inf-HAIM model featuring non-linear preferences and a well-defined distribution of household wealth.
    Keywords: Time Inconsistency; Optimal Debt; Ramsey Problem; Incomplete Markets
    JEL: E13 E62 H21 H30
    Date: 2020–10–29
  4. By: Roman M. Sheremeta (Weatherhead School of Management, Case Western Reserve University and Economic Science Institute, Chapman University); Neslihan Uler (Agricultural and Resource Economics, University of Maryland)
    Abstract: We examine how taxes impact charitable giving and how this relationship is affected by the degree of wasteful government spending. In our model, individuals make donations to charities knowing that the government collects a flat-rate tax on income (net of charitable donations) and redistributes part of the tax revenue. The rest of the tax revenue is wasted. The model predicts that a higher tax rate increases charitable donations. Surprisingly, the model shows that a higher degree of waste decreases donations (when the elasticity of marginal utility with respect to consumption is high enough). We test the model’s predictions using a laboratory experiment with actual donations to charities and find that the tax rate has an insignificant effect on giving. The degree of waste, however, has a large, negative and highly significant effect on giving.
    Keywords: charitable giving, tax, waste, redistribution, experiment, public goods provision, neutrality, income inequality
    JEL: C93 D64 H21
    Date: 2020
  5. By: Schanzenbach, Diane Whitmore (Northwestern University); Strain, Michael R. (American Enterprise Institute for Public Policy Research)
    Abstract: The Earned Income Tax Credit (EITC) is the cornerstone U.S. anti-poverty program, typically lifting over 5 million children out of poverty each year. Targeted to low-income households with children, and only available to those who work, the EITC contains strong incentives for non-workers to become employed. Most of the existing economics literature focuses on federal EITC expansions in the 1980s and 1990s. This paper takes a longer view, studying all federal expansions since the program's inception in 1975. We find robust evidence that EITC expansions increase the extensive margin of labor supply.
    Keywords: earned income tax credit, EITC, labor supply
    JEL: J22 J28 H31 I38
    Date: 2020–10
  6. By: Aurelija Anciūtė; Viginta Ivaškaitė-Tamošiūnė; Anamaria Maftei; Janos Varga
    Abstract: In 2019, Lithuania overhauled the country’s labour taxation. Social insurance contributions paid by employers and employees were consolidated, and were accompanied by adjustments in gross wages and personal income tax rates, and increases in the minimum gross wage and the tax-free allowance. Simultaneously, the government increased the universal child benefit. Simulations based on the EUROMOD and QUEST models are used to assess the fiscal, redistributive, equity and macroeconomic impact of these reforms. Overall, the set of simulated changes marginally decreases the tax wedge, poverty and income inequality. The labour taxation reform is estimated to be costly, with a small stimulating effect on the economy.
    Keywords: Lithuania, labour taxation, child benefits, social insurance contributions, minimum wage, tax wedge, disposable income, income inequality, poverty, growth, Anciūtė, Ivaškaitė-Tamošiūnė, Maftei, Varga.
    JEL: D04 D31 D63 E62 H23
    Date: 2020–09
  7. By: William Gabriel Brafu-Insaidoo; Camara K. Obeng (Department of Economics, University of Cape Coast, Ghana)
    Abstract: The main objective of the study is to estimate and analyse Ghana’s tax potential and effort and to determine how much more tax the country could generate based on its desired expenditure needs. To achieve this objective, a stochastic tax frontier model has been analysed using annual secondary data, covering the period 1985 to 2014. The analyses indicate that an increase in the taxable base and institutional improvements help to increase Ghana’s optimum tax potential. The study also reveals that political institutional improvement reduces inefficiency in Ghana’s tax system. In addition, the study finds that Ghana has enough of a tax gap to be exploited to meet its rising expenditure needs.
    Date: 2020

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