nep-pub New Economics Papers
on Public Finance
Issue of 2021‒01‒25
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Stamping out stamp duty: Property or consumption taxes? By Yunho Cho; Shuyun May Li; Lawrence Uren
  2. The earned income tax credit: targeting the poor but crowding out wealth By Froemel, Maren; Gottlieb, Charles
  3. How well targeted are soda taxes? By Pierre Dubois; Rachel Griffith; Martin O'Connell
  4. Are incomes and property taxes effective instruments for tax transition? By Kodjo Adandohoin; Jean-Francois Brun
  5. Tax Evasion and Unions in a Cournot duopoly By Luciano Fanti; Domenico Buccella
  6. On Government Spending and Income Inequality under Monopolistic Competition By Juin-Jen Chang; Jang-Ting Guo; Wei-Neng Wang
  7. Subnational borrowing and bailouts: when the federal government looks at the votes (di¤erently) and its borrowing matters. By Diego Martínez-López
  8. Investment housing tax concessions and welfare: Evidence from Australia By Yunho Cho; Shuyun May Li; Lawrence Uren
  9. The Shifting of the Property Tax on Urban Renters: Evidence from New York State’s Homestead Tax Option By David J. Schwegman; John Yinger
  10. Consumption Tax Reform and the Real Economy: Evidence from India’s Adoption of a Value-Added Tax By Abhay Aneja; Nirupama Kulkarni; S.K. Ritadhi

  1. By: Yunho Cho; Shuyun May Li; Lawrence Uren
    Abstract: Property transaction taxes - also known as stamp duty - are widely viewed as an inefficient form of taxation. In this paper, we examine the welfare implications of removing stamp duty in a general equilibrium overlapping generation model with heterogeneous agents. Our model features an idiosyncratic shock to housing preferences which may create mismatch or induce household to move. When examining steady states we find that newborn households prefer entering an economy with a recurring property tax rather than one with stamp duty. In contrast, when examining transition dynamics we find that existing households prefer replacing stamp duty with a consumption tax.
    Keywords: Property transaction taxes, OLG model, Heterogeneous agents, Welfare
    JEL: E21 H24 R13 R2
    Date: 2021–01
  2. By: Froemel, Maren (Bank of England); Gottlieb, Charles (University of St Gallen)
    Abstract: This paper quantifies the individual, aggregate and welfare effects of the Earned Income Tax Credit (EITC) in the United States. In particular, we analyse the labour supply and saving responses to changes in tax credit generosity and their implications for prices and welfare. Our results show that the EITC is a subsidy on labour income and a tax on savings. An increase in EITC generosity raises labour force participation, reduces savings for many and provides insurance to working poor households. The EITC reduces earnings inequality but increases the skill premium and wealth inequality. A 10% increase in tax credit generosity increases welfare by 0.31% and benefits the majority of the population.
    Keywords: Heterogeneous agents; redistribution; welfare programs
    JEL: E60 E62 H23 H24 I38
    Date: 2021–01–15
  3. By: Pierre Dubois (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Rachel Griffith (IFS - Laboratory of the Institute for Fiscal Studies - Institute for Fiscal Studies); Martin O'Connell (IFS - Laboratory of the Institute for Fiscal Studies - Institute for Fiscal Studies)
    Abstract: Soda taxes aim to reduce excessive sugar consumption. Policymakers highlight the young, particularly from poor backgrounds, and high sugar consumers as groups whose behavior they would most like to influence. There are also concerns about the policy being regressive. We assess who are most impacted by soda taxes. We estimate demand using micro longitudinal data covering on-the-go purchases, and exploit the panel dimension to estimate individual specific preferences. We relate these preferences and counterfactual predictions to individual characteristics and show that soda taxes are relatively effective at targeting the sugar intake of the young, are less successful at targeting the intake of those with high total dietary sugar, and are unlikely to be strongly regressive especially if consumers benefit from averted internalities.
    Keywords: Preference heterogeneity,Discrete choice demand,Pass-through,Soda tax
    Date: 2020–11
  4. By: Kodjo Adandohoin (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Jean-Francois Brun (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 investigates second wave tax transition (transfer of tax pressure from border taxation towards domestic taxation) concerns in developing countries. It essentially focuses on the compensation effects of incomes and property taxes over international trade tax revenue losses in developing countries. Using a generalized method of moment estimator, we come to the evidence that, incomes and property taxes are poor instruments to balance trade tax revenue losses of trade liberalization in these countries. However, a mediating effect of financial development in the compensation nexus driven by corporate income taxes was found. We explain this result by the fact that the use of financial sector generates paper trails to government in order to enforce and raise corporate income taxes. Financial development may progressively crowd‐out informal sector and leads to business formalization. Surprising, we do not find any mediating effect of financial development in the compensation patterns with personal income taxes. Nevertheless, some heterogeneities were discovered. Financial development mediates the compensation patterns of personal income taxes in Latin American countries, while the effect holds on corporate income taxes in African countries. We conclude the paper by highlighting the important role of financial development in second generation tax transition concerns over developing countries.
    Keywords: Income taxes,Property tax,Developing countries
    Date: 2020–12
  5. By: Luciano Fanti; Domenico Buccella
    Abstract: In a Cournot duopoly with indirect taxes evasion, this paper counter-intuitively shows that, in the presence of unions, a higher taxation may increase profits because taxes reduce wage claims. This result is likely to occur if the market size is adequately large and the detection probability is not too high. Moreover, unionisation 1) leaves unaltered the absolute while reduces the relative tax evasion; and 2) increases tax revenue. Since consumer and social welfare are unaffected by taxation, the policy implication is that higher taxes (which are always revenue-enhancing) ultimately lead to a redistribution from wages to profits.
    Keywords: Tax Evasion, Sales Tax, Cournot duopoly, Unions
    JEL: H20 H25 H26 J5
    Date: 2020–12–01
  6. By: Juin-Jen Chang (Academia Sinica); Jang-Ting Guo (Department of Economics, University of California Riverside); Wei-Neng Wang (National Taichung University of Science and Technology)
    Abstract: This paper systematically examines the theoretical as well as quantitative interrelations between government spending and disposable-income inequality in a tractable monopolistically competitive Ramsey macroeconomy. Upon a higher government size, we analytically show that whether the long-run after-tax Gini coefficient rises or falls depends on the sign and magnitude of the wealth inequality effect versus those of the adjusted-labor effect. Under (i) a mild level of productive public expenditures and (ii) a sufficiently high intertemporal elasticity of consumption substitution, our calibrated model is able to generate qualitatively as well as quantitatively consistent income-inequality effects of government spending vis-Ã -vis recent estimation results.
    Keywords: Government Spending; Income Inequality; Monopolistic Competition.
    JEL: D31 E30 H50
    Date: 2021–01
  7. By: Diego Martínez-López
    Abstract: Sometimes it is dificult to find a rationale for episodes of bailouts in which the political motivations of the federal government are not clear cut. In other cases, the soft budget constraint of subnational governments (SNGs) seems to be based on unlimited federal resources. This paper aims to shed some light on both issues taking as a reference the workhorse model developed by Goodspeed (2002). The principal change in its basic assumptions lies in allowing the federal government to borrow to finance its grants to SNGs. The results indicate that the way in which the federal government translates voters preferences into electoral probabilities is crucial to determine grants. Moreover, the SNGs do not borrow excessively. When the model is extended to consider risk Premium spreads in the SNGs debt and the option of transferring part of their borrowing to the upper level, the main outcomes remain.
    Keywords: bailout, borrowing, federal government, political economy, intertemporal consistency.
    JEL: H72 H74 H77
    Date: 2021–01
  8. By: Yunho Cho; Shuyun May Li; Lawrence Uren
    Abstract: We build a general equilibrium overlapping generations model with heterogeneous agents to study the welfare implications of housing investment tax concessions in the Australian housing market . Comparing stationary equilibria, we find that removing these concessions significantly reduces housing investment. This lowers house prices and raises rents and the home ownership rate. The steady state welfare analysis suggests that eliminating concessions leads to a welfare gain of 1.7 per cent, for which increased redistribution is a key mechanism. Along the transition, a majority of households are better off, but younger landlords and landlords with higher incomes benefit the least.
    Keywords: Housing investment, Home ownership, Taxation, OLG model, Heterogeneous Agents, Welfare
    JEL: D15 E21 R21 R38
    Date: 2021–01
  9. By: David J. Schwegman; John Yinger
    Abstract: In 1981, New York State enabled their cities to adopt the Homestead Tax Option (HTO), which created a multi-tiered property tax system for rental properties in New York City, Buffalo, and Rochester. The HTO enabled these municipalities to impose a higher property tax rate on rental units in buildings with four or more units, compared to rental units in buildings with three or fewer units. Using restricted-use American Housing Survey data and historical property tax rates from each of these cities, we exploit within-unit across-time variation in property tax rates and rents to estimate the degree to which property taxes are shifted onto renters in the form of higher rents. We find that property owners shift approximately 14 percent of an increase in taxes onto renters. This study is the first to use within-unit across time variation in property taxes and rents to identify this shifting effect. Our estimated effect is measurably smaller than most previous studies, which often found shifting effects of over 60 percent.
    Date: 2020–12
  10. By: Abhay Aneja (UC Berkeley School of Law); Nirupama Kulkarni (CAFRAL); S.K. Ritadhi (Ashoka University)
    Abstract: We study the impact of a consumption tax reform on firm capital and productivity by examining India’s replacement of the sales tax with a value-added tax (VAT). Unlike the sales tax, the VAT allowed firms to offset their tax liability with VAT paid on capital inputs, effectively reducing the tax-related cost of capital. Exploiting the staggered adoption of the tax reform across Indian states, we show that VAT adoption increased firm capital by 3%. The effects are driven by financially-constrained firms – an important source of heterogeneity in a developing country context. We also document a corresponding improvement in the productivity of financially constrained firms. Our findings thus suggest that beyond revenue generation, consumption tax reforms can have the additional effect of stimulating investment and productivity in resource constrained environments.
    Keywords: Value-added taxes; financial constraints; consumption tax reform; capital misallocation
    Date: 2021–01

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