nep-pub New Economics Papers
on Public Finance
Issue of 2022‒01‒31
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Role of Income and Property Taxes in Tax Transition and the Mediating Effect of Financial Development By Kodjo Adandohoin; Jean-Francois Brun
  2. A Welfare Analysis on Start-Up Decisions under Default Risk By Nicola Comincioli; Paolo Panteghini; Sergio Vergalli
  3. Fiscal Policy in a Networked Economy By Joel P. Flynn; Christina Patterson; John Sturm
  4. All It Takes Is One: The Effect of Weakest-Link and Summation Aggregation on Public Good Provision under Threshold Uncertainty By Fredrik Carlsson; Claes Ek; Andreas Lange
  5. Fiscal Decentralization and the Allocation of Public Spending of Subnational Governments. The Case of Ecuador By Henry Aray; Janeth Pacheco-Delgado

  1. By: Kodjo Adandohoin (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Jean-Francois Brun (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    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,Tax Transition,Developing Countries
    Date: 2021
  2. By: Nicola Comincioli; Paolo Panteghini; Sergio Vergalli
    Abstract: This short article studies the tax effects on a start-up investment decision under uncertainty. Since the representative firm can decide both when to invest and how much to borrow, the distortive effects are twofold. We thus show that the deadweight loss (namely, the ratio between the welfare loss and tax revenue) ranges from 25 to 32%, whereas mature firms face a lower distortion (as shown by Comincioli et al. (2021) the maximum deadweight loss is about 25%).
    Keywords: real options, business taxation, default risk
    JEL: H25 G33 G38
    Date: 2021
  3. By: Joel P. Flynn; Christina Patterson; John Sturm
    Abstract: Advanced economies feature complicated networks that connect households, firms, and regions. How do these structures affect the impact of fiscal policy and its optimal targeting? We study these questions in a model with input-output linkages, regional structure, and household heterogeneity in MPCs, consumption baskets, and shock exposures. Theoretically, we derive estimable formulae for the effects of fiscal policies on aggregate GDP, or fiscal multipliers, and show how network structures determine their size. Empirically, we find that multipliers vary substantially across policies, so targeting is important. Beneath these aggregate effects are large spatial and sectoral spillovers from policies directed to any one firm or household. However, virtually all variation in multipliers stems from differences in policies’ direct incidence onto households’ MPCs. Thus, while the distributional effects of fiscal policy depend on the detailed structure of the economy, maximally expansionary fiscal policy simply targets households’ MPCs.
    JEL: E62
    Date: 2021–12
  4. By: Fredrik Carlsson; Claes Ek; Andreas Lange
    Abstract: We report experimental evidence on the voluntary provision of public goods under threshold uncertainty. By explicitly comparing two prominent technologies, summation and weakest link, we show that uncertainty is particularly detrimental to threshold attainment under weakest link, where low contributions by one subject cannot be compensated by others. In contrast, threshold uncertainty does not affect contributions under summation. We demonstrate non-binding pledges as one mechanism to improve chances of threshold attainment under both technologies, yet in particular under weakest link.
    Keywords: public goods, threshold uncertainty, weakest link, coordination, experiment
    JEL: C91 H41 Q54
    Date: 2021
  5. By: Henry Aray (Department of Economic Theory and Economic History, University of Granada.); Janeth Pacheco-Delgado (Technical University of Manabí)
    Abstract: This article analyzes the relationship between fiscal decentralization and the growth rate of per capita public spending by subnational governments in Ecuador. A theoretical model is proposed to support the empirical strategy. Data at provincial level over the period 2001–2015 are used. The estimation results for the aggregation of subnational governments show that financial autonomy is positively correlated with the growth rates of per capita public investment and per capita current spending. However, the latter is also negatively correlated with tax autonomy. When using disaggregated data on provincial and local governments, results for financial autonomy hold in most of the cases. However, no evidence is found for tax autonomy. Evidence on a structural break following the passing of the Constitution of 2008 is also found and suggests that the Constitution has had an overall positive impact on public spending. Moreover, considering the structural break sheds light on the results found when it is not taken into account.
    Keywords: Subnational governments; Decentralization; Public spending; Ecuador.
    JEL: H53 H77 C23
    Date: 2022–01–18

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