nep-pub New Economics Papers
on Public Finance
Issue of 2021‒11‒08
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Redistribution in the Presence of Signaling By Bastani, Spencer; Blumkin, Tomer; Micheletto, Luca
  2. The Distribution of Major Tax Expenditures in 2019 By Congressional Budget Office
  3. Public-Good Provision with Macro Uncertainty about Preferences: Efficiency, Budget Balance, and Robustness By Martin F. Hellwig
  4. How do investors value the publication of tax information? Evidence from the European public country-by-country reporting By Müller, Raphael; Spengel, Christoph; Weck, Stefan
  5. Who pays for a Value Added Tax Hike at an International Border? Evidence from Mexico By Emmanuel Chavez; Cristobal Dominguez

  1. By: Bastani, Spencer (Institute for Evaluation of Labour Market and Education Policy (IFAU), Uppsala); Blumkin, Tomer (Department of Economics, Ben Gurion University); Micheletto, Luca (Department of Law, University of Milan, and Dondena Centre for Research on Social Dynamics and Public Policy, Bocconi University; UCFS; CESifo, Germany)
    Abstract: We analyze optimal redistribution in the presence of labor market signaling where innate productive ability is not only unobserved by the government, but also by prospective employers. Our model features signaling in both one and two dimensions, where in the latter case firms have an informational advantage vis-a-vis the government. Focusing on signals in the context of educational attainment, we analyze the dual role of income taxation in redistributing income and affecting signaling incentives as well as the role of extended tax systems that combine income taxation with direct taxes on the signals in the form of education taxes/subsidies. We demonstrate how the government can achieve redistribution through wage compression and analyze the conditions under which such redistribution is feasible and socially desirable.
    Keywords: Nonlinear taxation; Education; Asymmetric information; Human capital
    JEL: D82 H21 H52 J31
    Date: 2021–11–01
  2. By: Congressional Budget Office
    Abstract: CBO examined how the benefits from major tax expenditures in the individual income tax and payroll tax systems were distributed among households in different income groups in 2019. The agency estimates that those tax expenditures totaled about $1.2 trillion, or 5.8 percent of gross domestic product, and accounted for roughly three-quarters of the total budgetary effects of all tax expenditures that year. The size and distribution of benefits across the income scale varied considerably among each of the major tax expenditures in 2019.
    JEL: H20 H24 H50
    Date: 2021–10–27
  3. By: Martin F. Hellwig (Max Planck Institute for Research on Collective Goods)
    Abstract: The paper studies efficient public-good provision in a model with private values whose distribution depends on a macro shock; conditionally on this shock, values are independent and identically distributed. A generalization of the Bayesian mechanism of d'Aspremont and Gérard-Varet is shown to implement an efficient provision rule with budget balance. However, first-best implementation and budget balance are incompatible with a reqruirement of weak robustness whereby incentive compatibility of the mechanism is independent of the stochastic specification within the class of specifications defined by the structure of the model. Budget imbalances with robust implementation are small if there are many participants, as surplus from the Clarke-Groves mechanism converges to zero in probability when the number of participants becomes large. In the limit, with a continuum of agents, a first-best provision rule with equal cost sharing is robustly incentive-compatible. In this limit, information about the macro shock, which is the only thing that matters for public-good provision, can be elicited without any efficiency loss.
    Keywords: Efficient public-good provision, incomplete information, conditionally independent private values, macro uncertainty, budget balance, weakly robust incentive compatibility
    Date: 2021–10–13
  4. By: Müller, Raphael; Spengel, Christoph; Weck, Stefan
    Abstract: We examine the capital market reaction to the announcement of the European Union (EU) to introduce a public tax country-by-country reporting (CbCR) regime. By employing an event study methodology, we find a significant cumulative average abnormal return (CAAR) of -0.699%, which translates into a monetary value drop of approximately EUR 65 billion. We conclude that investors evaluate reputational risks arising from public scrutiny and competitive disadvantages to outweigh potential benefits of an extended information environment or more sustainable corporate tax strategies. In cross-sectional tests, we find that the average investor reaction is more pronounced for firms with low effective book tax rates, indicating that reputational concerns play a significant role in the marginal investor's investment behavior. Furthermore, our cross-sectional results indicate that the market reaction is stronger for firms operating in industries with high growth in market participants, providing an initial indication for the role of the competitive environment as an additional channel. Our inferences are of particular importance in light of the current ongoing debates on similar disclosure rules (particularly in the United States; cf. "Disclosure of Tax Havens and Offshoring Act") as well as for sustainability standard setters.
    Keywords: tax transparency,tax disclosure,tax avoidance,event study,country-by-country reporting
    JEL: F23 G14 G38 H25 H26 M41
    Date: 2021
  5. By: Emmanuel Chavez (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Cristobal Dominguez (Comision Nacional Bancaria y de Valores)
    Abstract: This research studies the effects of a value added tax (VAT) reform at Mexico's international frontiers. The reform raised the VAT rate from 11 to 16 percent at localities close to the international borders. We use the traditional "static" difference-in-differences methodology as well as dynamic difference-in-differences. The treatment group is composed of municipalities in the area where the VAT increased, and the control group is composed of municipalities close to the treatment group. We nd that the VAT hike had a positive effect on prices of around half the size of the full pass-through conter-factual. In addition, the reform had a negative effect on workers' wages and no effect on employment. The negative e ect on workers' real incomes is not smoothed out with credits. We nd evidence of a negative effect on consumption at Mexico's northern border due to the reform. However, we nd no evidence of an increase in shopping at the United States side of the border.
    Keywords: Worker purchasing power,Value Added Tax,Taxation,Border Crossing
    Date: 2021–09

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