nep-pub New Economics Papers
on Public Finance
Issue of 2021‒11‒15
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal federal transfers during uncoordinated response to a pandemic By Jacek Rothert
  2. Boosting Tax Revenues with Mixed-Frequency Data in the Aftermath of Covid-19: The Case of New York By Kajal Lahiri; Cheng Yang
  3. Inequality and top incomes By Bartels, Charlotte; Waldenström, Daniel
  4. Working Paper 350 - Taming Private Leviathans: Regulation versus Taxation By Rabah Arezki; Asif Islam; Grégoire Rota-Graziosi
  5. Working Paper 349 - Revisiting the Relationship between Trade Liberalization and Taxation By Rabah Arezki; Alou Adesse Dama; Grégoire Rota-Graziosi
  6. Read My Lips? Taxes and Elections By Clemens Fuest; Klaus Gründler; Niklas Potrafke; Fabian Ruthardt; Fabian Ruthardt
  7. Democracy or Optimal Policy: Income Tax Decisions without Commitment By Jang, Youngsoo
  8. Working Paper 354 - Taxation, Foreign Direct Investment and Spillover Effects in the Mining Sector By Seydou Coulibaly; Abdramane Camara
  9. Determinants of tax morale: Cross-sectional evidence from Africa By Nyamapheni, Joseph; Robinson, Zurika

  1. By: Jacek Rothert (United States Naval Academy; Group for Research in Applied Economics (GRAPE))
    Abstract: An outbreak of a deadly disease pushes policymakers to depress economic activity due to externalities associated with individual behavior. Sometimes, these decisions are left to local authorities (e.g., states). This creates another externality, as the outbreak doesn't respect states' boundaries. A strategic Pigouvian subsidy that rewards states which depress their economies more than the average corrects that externality by creating a race-to-the-bottom type of response. In a symmetric equilibrium nobody receives a subsidy, but the allocation is efficient. If states are concerned about unequal burden of the lockdown costs, but cannot easily issue new debt to finance transfer payments, then lock-downs will be insufficient in some areas and excessive in others. When that's the case, federal stimulus checks can limit the extent of local outbreaks.
    Keywords: Covid-19; strategic Pigouvian taxation; fiscal federalism; free-riding; race-to-the-bottom
    JEL: H77 H21 H23 I19
    Date: 2021
  2. By: Kajal Lahiri; Cheng Yang
    Abstract: We forecast New York state tax revenues with a mixed-frequency model using a number of machine learning techniques. We found boosting with two dynamic factors extracted from a select list of New York and U.S. leading indicators did best in terms of correctly updating revenues for the fiscal year in direct multi-step out-of-sample forecasts. These forecasts were found to be informationally efficient over 18 monthly horizons. In addition to boosting with factors, we also studied the advisability of restricting boosting to select the most recent macro variables to capture abrupt structural changes. Since the COVID-19 pandemic upended all government budgets, our boosted forecasts were used to monitor revenues in real time for the fiscal year 2021. Our estimates showed a drastic year-over-year decline in real revenues by over 16% in May 2020, followed by several upward nowcast revisions that led to a recovery to -1% in March 2021, which was close to the actual annual value of -1.6%.
    Keywords: revenue forecasting, machine learning, real time forecasting, mixed frequency, fiscal policy
    JEL: C22 C32 C50 C53 E62
    Date: 2021
  3. By: Bartels, Charlotte; Waldenström, Daniel
    Abstract: This chapter comprises three main parts. The first part is about data sources, the definitions of income, and the methodologies used to estimate top income shares. Both the standard sources and methods used by the traditional top income studies are described. Further, new developments that employ new sources and estimation approaches are added, a detailed survey of the top-correction methods for surveys including reweighting and replacing top incomes is provided and approaches to align surveys, income tax data, and national accounts are contrasted. The second part of the chapter is a description of the main trends of top income shares that are the result of the previous studies. Different measures discussed in the methods section are presented and compared. The third part of the chapter surveys the literature on the determinants of top income shares. The focus of the third part is on studies that propose new methods to establish links between driving factors and top income shares.
    Keywords: Income inequality,top incomes
    JEL: D31 N3
    Date: 2021
  4. By: Rabah Arezki (African Development Bank); Asif Islam (The World Bank); Grégoire Rota-Graziosi (CERDI, Université Clermont Auvergne)
    Abstract: This paper explores the interplay between concentration of wealth and policies, namely regulation and taxation. The paper exploits variation in exposure to international commodity prices. Using a global panel data set of the net worth of billionaires, the results point to a positive relationship between commodity prices and the concentration of wealth at the top. Regulation especially pertaining to competition is found to limit the effects of commodity price shocks on the concentration of wealth, while taxation has little effect. Moreover, commodity price shocks crowd out non-resource tax revenue, hence limiting the scope for income transfers and redistribution. The results are consistent with the primacy of ex ante interventions over ex post ones for addressing wealth inequality.
    Keywords: Inequality, Wealth concentration, Competition, Tax, Natural Resources, Development JEL classification: D31, D63, H26, H20, O13
    Date: 2021–08–09
  5. By: Rabah Arezki (African Development Bank); Alou Adesse Dama (CERDI, Université Clermont Auvergne); Grégoire Rota-Graziosi (CERDI, Université Clermont Auvergne)
    Abstract: This paper explores the dynamic effects of trade liberalization on tax revenue using a worldwide panel dataset. Results point to statistically significant negative effect of liberalization on (non- resource) tax revenues in the short term and no significant effect in the medium term. Liberalization also alter the tax structure tilting revenues toward indirect taxes away from direct ones. Economies which have implemented value added taxes prior to liberalization have mitigated its negative effects on tax revenues. The evidence is supportive of the complementarity role of state capacity to reap the benefits of liberalization.
    Keywords: tax structure, openness, liberalization, natural resources JEL classification: H2, H87, F13
    Date: 2021–08–09
  6. By: Clemens Fuest; Klaus Gründler; Niklas Potrafke; Fabian Ruthardt; Fabian Ruthardt
    Abstract: We introduce a new dataset that includes quantitative harmonized indices of tax reforms based on qualitative information of about 900 Economic Surveys from the OECD and 37,000 tax-related news from the IBFD archives. The data set provides indicators on tax reforms for tax rates and tax bases, along with detailed sub-indices for six types of taxes (23 countries, 1960–2014). Relating tax reforms to the timing of elections, we examine electoral cycles in tax reforms. Our results show that politicians postpone tax rate increases to after elections. A key innovation of our data set is the coverage of harmonized indices for six tax types. Examining heterogeneity across tax types, we find that electoral cycles are particularly pronounced for value added tax rates and personal income tax rates.
    Keywords: tax reforms, tax systems, tax rates, tax bases, data set, electoral cycles
    JEL: D72 H20 H25 C23
    Date: 2021
  7. By: Jang, Youngsoo
    Abstract: How do differences in the government’s political and commitment structure affect the aggregate economy, inequality, and welfare? I analyze this question, using a calibrated Aiyagari’s (1994) economy with wealth effects of labor supply wherein a flat tax rate and transfers are endogenously determined according to its political and commitment structure. I compare four economies: a baseline economy, an economy with the optimal tax with commitment in all steady states, an economy with the optimal tax without commitment, and a political economy with sequential voting. I obtain two main findings. First, the commitment structure shifts the government’s weighting between redistribution and efficiency. A lack of commitment leads the government to pursue a more redistributive policy at the expense of efficiency. Second, given a lack of commitment, the political economy with voting yields greater welfare than the economy with the time-consistent optimal policy. In the latter case, a lack of commitment hinders the government from implementing a more frugal policy desirable in the long run; instead, it cares more for low-income and wealth households, resulting in a substantial efficient loss. However, in the political economy with voting, the government considers only the interests of the median voter, who is middle class and reluctant to bear larger distortions from a higher tax rate and larger transfers. These findings imply that in terms of welfare, policies targeting the middle class would possibly be better than those exquisitely designed for the general public.
    Keywords: Commitment, Time-Consistent Policy, Political Economy, Voting
    JEL: E61 H11 P16
    Date: 2021–10
  8. By: Seydou Coulibaly (African Development Bank); Abdramane Camara (CERDI, Université Clermont Auvergne)
    Abstract: African countries generally cut corporate income tax (CIT) rates in the hopes of attracting foreign direct investment (FDI), but the effectiveness of tax rate reductions in attracting extractive industries FDI is controversial. This paper estimates the impact of CIT rates, as applied to mining companies, on FDI inflows to the gold and silver sectors of African economies. The estimation results indicate that the impact of mining CIT rate on the host country’s gold and silver FDI inflows is negative, but not statistically significant, at the conventional levels of significance. These results indicate that cuts in CIT rates applied to mining companies will not necessarily attract FDI to gold and silver projects. Moreover, we find a strategic complementarity in gold and silver FDI inflows between countries, suggesting that an increase in the host country’s gold and silver FDI inflows may stimulate FDI to gold and silver projects in neighboring countries. Furthermore, the results show that infrastructure, government stability and gold and silver reserves positively affect gold and silver FDI inflows. The main findings of the paper suggest that, instead of granting corporate tax incentives, governments may consider improving the quality of socioeconomic infrastructure, the availability of geological information, and promoting political and economic stability for attracting mining investments.
    Keywords: : FDI in gold and silver, mining corporate tax rate, panel data, spatial econometrics, Africa JEL classification: C23, E62, F21, H25, L72
    Date: 2021–10–12
  9. By: Nyamapheni, Joseph; Robinson, Zurika
    Abstract: The article provides a comparative analysis of the determinants of tax morale in South Africa and Zimbabwe, as neighbouring countries. In this quantitative research, data were collected using questionnaires from the 2010?2014 and 2017?2020 World Values Survey. For Zimbabwe, Wave 6 and Wave 7 had a sample size of 1 500 and 1 200, respectively. The study concludes that governments must understand tax morale and its determinants to boost voluntary compliance. Despite their lower standards of living, Zimbabweans have higher tax morale than South Africans. The determinants of tax morale differ between economic situations and countries. Corruption, prevalent in both countries, influences tax morale. All the models show that demographic factors have little effect on tax morale. In the analysis of the determinants of tax morale, hunger was introduced as an important variable. Although this variable was insignificant for South Africa, the study showed that in Zimbabwe, there is a negative relationship between hunger and tax morale in both economic situations. Policy-makers should consider eradicating corruption and hunger to boost tax morale to improve tax compliance. Continued tax education and improvements to the perceptions of democracy should be included in the mix of tax compliance enhancement strategies.
    Keywords: Determinants; Tax morale; Order Logit Model; South Africa; Zimbabwe
    Date: 2021–10

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