nep-pub New Economics Papers
on Public Finance
Issue of 2022‒05‒09
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Economic Effects of Waiting to Stabilize Federal Debt By Congressional Budget Office
  2. On the Effects of Taxation on Growth: an Empirical Assessment By Marco Alfò; Lorenzo Carbonari; Giovanni Trovato
  3. Effect of tax dynamics on linearly growing processes under stochastic resetting: a possible economic model By Ion Santra
  4. Taxpayer deductions and the endogenous probability of tax penalisation By Alex A. T. Rathke
  5. The political economy of big data leaks: Uncovering the skeleton of tax evasion By Pier Luigi Sacco; Alex Arenas; Manlio De Domenico
  6. Local Property Tax Reform and Municipality Spending Efficiency By António Afonso; Ana Venâncio
  7. Environmental, Redistributive and Revenue Effects of Policies Promoting Fuel Efficient and Electric Vehicles By Patrick Bigler; Doina Maria Radulescu
  8. Condorcet solutions in frugal models of budget allocation By Nehring, Klaus; Puppe, Clemens
  9. The "Robot Economy" and Optimal Tax-Transfer Reforms By Colombino, Ugo; Islam, Nizamul

  1. By: Congressional Budget Office
    Abstract: CBO analyzed the economic effects of waiting to stabilize federal debt using two simplified policy options—one that would raise federal income tax rates and one that would cut spending for certain government benefit programs. The longer policy action was delayed, the larger the policy changes needed to stabilize the debt would be. The timing and type of policy would determine its effects on the economic well-being of people of different generations and in different income groups.
    JEL: H20 H60 H63
    Date: 2022–04–28
  2. By: Marco Alfò (Sapienza Università di Roma, Italy); Lorenzo Carbonari (Dipartimento di Economia e Finanza, Università degli Studi di Roma “Tor Vergata”, Italy; CEIS); Giovanni Trovato (Dipartimento di Economia e Finanza, Università degli Studi di Roma “Tor Vergata”, Italy; CEIS)
    Abstract: We study the effects of taxation on the growth rate of the real per capita GDP in a sample of 21 OECD countries, over the period 1965-2010. To do this we estimate a version of the model proposed by Mankiw, Romer and Weil (1992) augmented to consider both direct and indirect effects of taxation on investment share parameters. We employ a semi-parametric technique – namely, a Finite Mixture Model – which combines features from mixed effect models for panel data and cluster analysis methods to account for country-specific unobserved heterogeneity. Our results suggest that taxes have a negative impact on growth: in the baseline model the coefficient estimates indicate that a 10% cut in personal income tax rate (respectively corporate income tax rate) may raise the GDP growth rate by 0.6% (respectively 0.3%).
    Keywords: Economic Growth, Taxation, Finite Mixture Model, Classification
    JEL: H30 O30 O40
    Date: 2022–04
  3. By: Ion Santra
    Abstract: We study a system of $N$ agents, whose wealth grows linearly, under the effect of stochastic resetting and interacting via a tax-like dynamics -- all agents donate a part of their wealth, which is, in turn, redistributed equally among all others. This mimics a socio-economic scenario where people have fixed incomes, suffer individual economic setbacks, and pay taxes to the state. The system always reaches a stationary state, which shows a trivial exponential wealth distribution in the absence of tax dynamics. The introduction of the tax dynamics leads to several interesting features in the stationary wealth distribution. In particular, we analytically find that an increase in taxation for a homogeneous system (where all agents are alike) results in a transition from a society where agents are most likely poor to another where rich agents are more common. We also study inhomogeneous systems, where the growth rates of the agents are chosen from a distribution, and the taxation is proportional to the individual growth rates. We find an optimal taxation, which produces a complete economic equality (average wealth is independent of the individual growth rates), beyond which there is a reverse disparity, where agents with low growth rates are more likely to be rich. We consider three income distributions observed in the real world and show that they exhibit the same qualitative features. Our analytical results are in the $N\to\infty$ limit and backed by numerical simulations.
    Date: 2022–02
  4. By: Alex A. T. Rathke
    Abstract: We propose a parametric specification of the probability of tax penalisation faced by a taxpayer, based on the amount of deduction chosen by her to reduce total taxation. Comparative analyses lead to a closed-form solution for the optimum tax deduction, and provide the maximising conditions with respect to the probability parameters.
    Date: 2022–02
  5. By: Pier Luigi Sacco; Alex Arenas; Manlio De Domenico
    Abstract: After the leak of 11.5 million documents from the Panamanian corporation Mossack Fonseca, an intricate network of offshore business entities has been revealed. The emerging picture is that of legal entities, either individuals or companies, involved in offshore activities and transactions with several tax havens simultaneously which establish, indirectly, an effective network of countries acting on tax evasion. The analysis of this network quantitatively uncovers a strongly connected core (a rich-club) of countries whose indirect interactions, mediated by legal entities, form the skeleton for tax evasion worldwide. Intriguingly, the rich-club mainly consists of well-known tax havens such as British Virgin Islands and Hong Kong, and major global powers such as China, Russia, United Kingdom and United States of America. The analysis provides a new way to rank tax havens because of the role they play in this network, and the results call for an international coordination on taxation policies that take into account the complex interconnected structure of tax evaders in a globalized economy.
    Date: 2022–02
  6. By: António Afonso; Ana Venâncio
    Abstract: We investigate the effect on municipality spending efficiency of a local property tax reform, which reduced in 2008 the upper limit of the property tax. We compute municipality efficiency scores via data Envelopment Analysis (DEA) from 2005 to 2011, and then we rely in a panel data set to estimate how the tax reform affected the efficiency scores. Results of the analysis show that average input efficiency scores declined from 0.575 before the tax reform to 0.488 after the tax reform. This change was transversal to municipalities that reduced the municipal property tax (IMI) and to the ones that maintained the tax rate. In addition, the IMI reform is linked to higher efficiency scores. In other words, the reduction in efficiency ends up being smaller for the municipalities that decreased the IMI tax rate.
    Keywords: public spending efficiency, local government, data envelopment analysis (DEA), local property tax reform
    JEL: C14 C23 H11 H21 H50
    Date: 2022
  7. By: Patrick Bigler; Doina Maria Radulescu
    Abstract: We analyze welfare implications of policies promoting environmentally friendly vehicles employing rich Swiss micro-data on 23,000 newly purchased cars and their buyers. Our estimates reveal substantial income heterogeneity in price elasticity and electric vehicle (EV) adoption. While CO2 levies secure road financing revenue, emissions of the new car fleet only slightly decrease. In contrast, subsidies support EV uptake, and lead to a more pronounced emission reduction. Both instruments have redistributive implications. We compute optimal subsidy - fuel tax combinations subject to a pre-specified EV target and to securing road financing in the presence or absence of equity concerns.
    Keywords: electric vehicles, mixed logit, welfare, fuel tax, subsidies, CO2 emissions
    JEL: C25 D12 H23 L62 Q48
    Date: 2022
  8. By: Nehring, Klaus; Puppe, Clemens
    Abstract: We study a voting model with incomplete information in which the evaluation of social welfare must be based on information about agents' top choices plus general qualitative background conditions on preferences. The former is elicited individually, while the latter is not. We apply this "frugal aggregation" model to multi-dimensional budget allocation problems, relying on the specific assumptions of convexity and separability of preferences. We propose a solution concept of ex-ante Condorcet winners which is widely and flexibly applicable and naturally incorporates the epistemic assumptions of particular frugal aggregation models. We show that for the case of convex preferences, the ex-ante Condorcet approach naturally leads to a refinement of the Tukey median. By contrast, in the case of separably convex preferences, the same approach leads to different solution, the 1-median, i.e. the minimization of the sum of the L1-distances to the agents' tops. An algorithmic characterization renders the latter solution analytically tractable and efficiently computable.
    Keywords: social choice under partial information,frugal aggregation,ex-ante Condorcetapproach,participatory budgeting,Tukey median
    JEL: D71
    Date: 2022
  9. By: Colombino, Ugo (University of Turin); Islam, Nizamul (LISER (CEPS/INSTEAD))
    Abstract: Globalization and automation might imply deep changes on the labour market. An important policy issue is whether and how the tax-transfer rules should be reformed to cope with those changes. While the prevailing response has consisted of more sophisticated designs of mean-testing and targeting, we also witness an increasing interest in policies inspired by simplicity and universality. In this paper we take the latter route. Using a combination of behavioural microsimulation and numerical optimization, we look for a social welfare optimal tax-transfer rule within a flexible class where total household disposable income is a 4th polynomial in total household taxable income. We use a model of household labour supply that makes it possible to account for equilibrium constraints and to evaluate the effects of exogenous labour demand shocks. We consider two stylized scenarios: the Jobless Economy (the robots take over 10% of jobs at every skill-level) and the Polarized Economy (the robots take over 10% of the unskilled jobs while skilled jobs increase by 10%). We compare the social welfare performance of the polynomial optimal rules and of the current rules under the Current Economy scenario and under the alternative Jobless Economy and the Polarized Economy scenarios. We present results using the 2015 EU-SILC data sets for France, Germany, Italy and Luxembourg. The polynomial optimal rules feature a universal basic income and an almost flat marginal tax rate profile and are social welfare-superior under the Current Economy scenario in all the countries and also under the alternative scenarios in France, Germany and Italy.
    Keywords: empirical optimal taxation, microsimulation, microeconometrics, evaluation of tax-transfer rules, equilibrium, robot economy
    JEL: H21 C18
    Date: 2022–03

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