nep-pub New Economics Papers
on Public Finance
Issue of 2021‒12‒06
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Social Exclusion and Optimal Redistribution By Aronsson, Thomas; Bastani, Spencer; Tayibov, Khayyam
  2. Read My Lips? Taxes and Elections By Clemens Fuest; Klaus Gründler; Niklas Potrafke; Fabian Ruthardt; Fabian Ruthardt
  3. Tax Competition and Leviathan with decentralized leadership By Steve BILLON
  4. Tax us, if you can: a game theoretic approach to profit shifting within the European Union By Joana Andrade Vicente
  5. Differentiated Excise Taxation in the Beer Market By Seungjin Han; Josip Lesica
  6. No Regret Fiscal Reforms By Pierre-Edouard Collignon
  7. Media negativity bias and tax compliance: Experimental evidence By Milos FiÅ¡ar; Tommaso Reggiani; Fabio Sabatini; JiÅ™í Å palek
  8. Pay-as-you-go social security and educational subsidy in an overlapping generations model with endogenous fertility and endogenous retirement By Chen, Hung-Ju; Miyazaki, Koichi
  9. Maldives: Technical Assistance Report—Estimating Tax Expenditures By International Monetary Fund

  1. By: Aronsson, Thomas (Department of Economics, Umeå University); Bastani, Spencer (Institute for Evaluation of Labour Market and Education Policy (IFAU), Uppsala and Research Institute for Industrial Economics (IFN), Stockholm, Sweden; Uppsala Center for Fiscal Studies (UCFS), Uppsala Center for Labor Studies (UCLS), CESIfo, Germany.); Tayibov, Khayyam (Department of Economics and Statistics, School of Business and Economics, Linnaeus University, Växjö)
    Abstract: We integrate social exclusion, operationalized in terms of long-term unemployment, into the theory of optimal redistributive taxation. Our results show how an optimal mix of education policy, public employment, and support to the unemployed, in conjunction with optimal income taxation, contributes to redistribution and reduced long-term unemployment. The second-best optimum most likely implies overprovision of education relative to a policy rule that balances the direct marginal benefit and marginal cost, whereas public employment and unemployment benefits are underprovided. Our calibration shows how the policy mix varies with the government’s preferences for redistribution and the characteristics of those risking long-term unemployment.
    Keywords: long-term unemployment; education; optimal income taxation; public sector employment
    JEL: D82 H21 J31 J83
    Date: 2021–11–25
  2. 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.
    Date: 2021
  3. By: Steve BILLON (LaRGE Research Center, Université de Strasbourg)
    Abstract: The traditional approach of public choice suggests that decentralization in the form of a fiercer competition may play an efficient constraint on the growth of self-interested governments. This paper analyzes the effect of decentralization on Leviathan state governments in the presence of intergovernmental grants provided by a federal layer. Under decentralized leadership, state governments strategically set their tax policy and wasteful consumption of public expenditures by anticipating the reaction of the federal government in terms of grants. The transfer scheme eliminates any incentive to engage in tax competition. However, it also creates an opportunity for state policy-makers to pass the financing of a part of their inefficient expenditures onto other members of the federation. In contrast to the conventional wisdom of public choice that focuses on simultaneous central and local decisions, increased competition in the decentralized leadership equilibrium might reduce citizens' welfare. Decentralization enhances the sharing of wasteful expenditures and the incentives to extract rents from tax revenues. The conditions under which more competition leads to higher wasteful expenditures and welfare worsening are derived.
    Keywords: Federalism, Tax Competition, Decentralization, Government waste.
    JEL: H1 H3 H7
    Date: 2021
  4. By: Joana Andrade Vicente
    Abstract: In this paper we theoretically analyse the European Union’s ongoing political impasse regarding the choice of a single method to allocate multinational enterprises’ profits across countries and we find that this strategic situation resembles a coordination game with distributional consequences. The two Nash equilibria involve no efficiency trade-off (only a movement along the Pareto frontier), but the conflictual distribution of welfare gains and the presence of heterogeneous preferences have been preventing the implementation of a new long-term comprehensive tax policy reform. A unitary taxation approach with formulary apportionment in the European Union is better suited to tackle artificial profit shifting via transfer pricing and would mean an evolutionary change without disrupting the current international tax policy environment. It would restore faith in fairness in the European tax system and allow for further coordination of the transfer pricing policies of the two main international political forces – the United States and the European Union.
    Keywords: base erosion and profit shifting; Common Consolidated Corporate Tax Base; coordination games; European Union; transfer pricing.
    JEL: C7 F23 H25 H26
    Date: 2021–11
  5. By: Seungjin Han; Josip Lesica
    Abstract: This paper studies excise tax policy that applies different tax rates to differentiated products. We propose a general method, from the revealed preferences perspective, that allows the identification of the policy maker’s unobserved preferences when setting excise tax rates. We use it to evaluate excise beer tax policy in the Canadian province of Ontario, which differentially taxes local craft beer and large manufacturers’ beer. We identify the government’s preferences over the total surplus and net externalities associated with the production and consumption of different types of beer products. The results show that the government believes the positive externality associated with the production of local craft beer, outweighs the negative externality associated with its consumption, whereas it goes the other way around for large manufacturers’ beer. This means that the government’s subjective per-litre cost of reducing the equilibrium consumption through local craft beer is significantly higher than through the large manufacturers’ beer. The observed gap in excise taxes is aligned with the discrepancy in the percentage decreases in equilibrium quantities of two types of beer with respect to a dollar increase in own excise tax, respectively, given different beer market sizes. We also identify the increasing share of local craft beer consumption with respect to household income as a unique source of the regressiveness of the differentiated excise taxes. The regressiveness does not seem large in terms of the extra tax payment imposed on lower-income households even though the regressiveness of the effective tax rate itself is not insignificant.
    Keywords: beer; differentiated excise taxation; net externalities; optimal taxation; revealed preferences; regressiveness of taxation
    JEL: D12 D62 H21 H23
    Date: 2021–11
  6. By: Pierre-Edouard Collignon (CREST-Ecolepolytechnique, France)
    Abstract: How should fiscal policy react to shocks ex-post while preserving incentives to work and save ex-ante? The standard solution involves a commitment to a contingent policy, whereby the initial government sets all the policies for all future states of the world. Contingent policies are unrealistic. As an alternative, I introduce ”No Regret Fiscal Reforms”: the government has the discretion to change its fiscal policy provided households do not regret their past decisions. Hence flexibility is provided and incentives to work and save are preserved. Such reforms can be achieved by changing taxes on both capital and labor such that wealth effects exactly compensate substitution effects. In a representative agent framework, I study how a benevolent government uses No Regret fiscal reforms and I make comparisons to the optimal contingent policy. Both approaches yield very similar policies and allocations but No Regret reforms entail a small welfare loss. Second, I consider robustness to Near-Rational Expectations i.e the government is uncertain of the households’ beliefs about the distribution of shocks and implements a policy robust to this uncertainty. No Regret fiscal reforms are fully robust to this departure from rational expectations. Finally, I characterize No Regret fiscal reforms with wealth and skill heterogeneity.
    Keywords: Ramsey model, stochastic publics pending, fiscal rule, discretion
    JEL: E61 E62 H21 H63
    Date: 2021–11–08
  7. By: Milos FiÅ¡ar; Tommaso Reggiani; Fabio Sabatini; JiÅ™í Å palek
    Abstract: We study the impact of the media negativity bias on tax compliance. Through a framed laboratory experiment, we assess how the exposure to biased news about government action affects compliance in a repeated taxation game. Subjects treated with positive news are signicantly more compliant than the control group. Instead, the exposure to negative news does not prompt any signicant reaction compared to the neutral condition, suggesting that participants may perceive the media negativity bias in the selection and tonality of news as the norm rather than the exception. Overall, our results suggest that biased news provision is a constant source of psychological priming and plays a vital role in taxpayers' compliance decisions.
    Keywords: Tax compliance; Media bias; Taxation game; Laboratory experiment
    JEL: C91 D70 H26 H31
    Date: 2021–11
  8. By: Chen, Hung-Ju; Miyazaki, Koichi
    Abstract: This study analytically investigates the effects of pay-as-you-go social security and educational subsidies on the fertility rate, retirement age, and GDP per capita growth rate in an overlapping generations model, where parents invest resources toward their children's human capital. We find that an old agent retires fully when his or her labor productivity is low and retires later when the labor productivity is high. Under the unique balanced-growth-path (BGP) equilibrium, when an old agent is still engaged in work, tax rates are neutral to the fertility rate, higher tax rates encourage him or her to retire earlier, a higher social security tax rate depresses the GDP per capita growth rate, and a higher tax rate for educational subsidies can accelerate growth. However, when an old agent fully retires, higher tax rates increase the fertility rate, a higher social security tax rate lowers the GDP per capita growth rate, and a higher tax rate for educational subsidies boosts growth. Additionally, if an old agent's labor productivity increases, the fertility rate also increases. We also conduct numerical simulations and analyze how an old agent's labor productivity affects the retirement age, fertility rate, and GDP per capita growth rate under the BGP equilibrium.
    Keywords: Pay-as-you-go social security; educational subsidy; fertility; endogenous retirement; GDP per capita growth rate
    JEL: H55 I25 J13 J26
    Date: 2021–11–11
  9. By: International Monetary Fund
    Abstract: The Maldives has identified the estimation and regular reporting of tax expenditures (TEs) as one of the top priority areas in continuing its tax modernization process. TEs are alternative policy tools (e.g., to direct transfers and other spending measures) in the form of provisions in the tax legislation that modify the tax liability of individuals or companies. The cost of TEs should be identified, measured, and publicly reported to improve transparency in fiscal management.
    Keywords: business profit Tax Expenditure; Model structure; memo item; business profit taxpayer; business profit tax data; Value-added tax; Corporate income tax; Consumption taxes; Tax allowances; Personal income tax
    Date: 2021–10–20

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