nep-pub New Economics Papers
on Public Finance
Issue of 2022‒08‒22
nine papers chosen by

  1. Covid-19 supply-side fiscal policies to escape the health-vs-economy dilemma By Emanuele Colombo Azimonti; Luca Portoghese; Patrizio Tirelli
  2. Dynamic Tax Evasion and Capital Misallocation in General Equilibrium By Francesco Menoncin; Andrea Modena; Luca Regis
  3. Tax Reforms and Political Feasibility By Felix Bierbrauer; Pierre Boyer; Andrew Lonsdale; Andreas Peichl
  4. Morally Monotonic Choice in Public Good Games By James C. Cox; Vjollca Sadiraj; Susan Xu Tang
  5. HOW ELASTIC IS ALCOHOL CONSUMPTION? By Kenneth W Clements; Marc Jim M Mariano; George Verikios
  6. Exploring Border Effects: Sensitivity of Cigarette Consumption to Excise Tax By Aisha Baisalova
  7. The 2022 Long-Term Budget Outlook By Congressional Budget Office
  8. SWITCH: A tax-benefit model for Ireland linked to survey and register data By Keane, Claire; Doorley, Karina; Kakoulidou, Theano; O'Malley, Seamus
  9. Welfare Effects of Fuel Tax and Feebate Policies in the Japanese New Car Market By Tatsuya Abe

  1. By: Emanuele Colombo Azimonti (University of Pavia); Luca Portoghese (University of Pavia); Patrizio Tirelli (University of Pavia)
    Abstract: We develop a model that allows for online retail trade and for endogenous Covid related health expenditures. The market equilibrium at best imperfectly internalises the infection risk from contact-intensive retail trade, and the anticipation of health costs has large contractionary effects. The Ramsey planner exploits a subsidy to online trade to limit lockdown policies. Relative to the market equilibrium, the optimal policy stimulates consumption and contains the surge in health expenditures, mitigating both the recession and the persistence of the Covid-19 shock.
    JEL: E62 H21 H30 H51 I18
    Date: 2022–07
  2. By: Francesco Menoncin; Andrea Modena; Luca Regis
    Abstract: We study tax evasion in a tractable macroeconomic model with productive public expenditure financed by a fixed-rate income tax. Taxpayers are heterogeneous in their productivity and subject to borrowing constraints. They can lower their fiscal burden by evading taxes at the risk of being audited (and fined) by the government. We solve the model for its competitive equilibrium and characterize entrepreneurs’ optimal policies contingent on their individual productivity and the endogenous price levels. The model predicts that enforcing tax compliance stimulates the productivity of public expenditure, thus making less productive enterprises viable. At the same time, however, fewer evasion opportunities alleviate borrowing constraints by offsetting the advantage of low-productivity (and highly-evasive) entrepreneurs, thereby re-allocating capital to more productive users. On the demand side, decreasing tax evasion reduces consumption levels by curbing private capital accumulation. However, it fosters consumption rates by mitigating entrepreneurs’ precautionary motif against auditing risk.
    Keywords: Dynamic Tax Evasion; Financial Frictions; General Equilibrium; Misallocation
    Date: 2022
  3. By: Felix Bierbrauer (University of Cologne); Pierre Boyer (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, IPP - Institut des politiques publiques); Andrew Lonsdale (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); Andreas Peichl (LMU - Ludwig Maximilian University [Munich])
    Abstract: Questions linked to the design and implementation of redistributive tax policies have occupied a growing position on the public agenda over recent years. Moreover, the fiscal pressures brought upon by the current coronavirus crisis will ensure that these issues maintain considerable political significance for years to come. In light of this importance, we present novel research on reforms of income tax systems. Our approach shows that tax reforms wherein the changes in individual tax burdens are larger for taxpayers with higher incomes are of particular interest. We denote such reforms as "monotonic" and show that, under this condition, it is possible to determine the "winners" and "losers" of a given tax reform. One can then conclude whether the monotonic reform is politically feasible, depending on whether a majority of individuals will benefit financially from the policy. An empirical analysis of tax reforms with a focus on the United States and France reveals that past reforms have, by and large, been monotonic. Our approach therefore enables us to test whether a given tax system admits a politically feasible reform and has direct policy relevance for the common types of taxation reforms undertaken by government authorities.
    Date: 2021–09
  4. By: James C. Cox; Vjollca Sadiraj; Susan Xu Tang
    Abstract: Consequentialist rational choice theory, including models of (unconditional) social preferences, is challenged by decades of robust data from payoff-equivalent public good games with provision or appropriation as well as by robust data showing contributions to public goods, funded by lump-sum taxation, do not crowd out voluntary contributions on a one-for-one basis. This paper offers an extension of rational choice theory that incorporates observable moral reference points. This morally monotonic choice theory is consistent with robust data in the literature and has idiosyncratic features that motivate new experimental designs that introduce nonbinding quotas on appropriations or floors on provisions. Data, from three previous experiments and our new experiment, favor moral monotonicity over alternative theoretical models including rational choice theory, prominent belief-based models of kindness, and popular reference-dependent models with loss aversion.
    Keywords: choice theory, public goods, experiment, payoff equivalence, non-binding contractions, moral reference points, belief-based psychological models, reference-dependent choices
    JEL: C91 D03 H41
    Date: 2022–07
  5. By: Kenneth W Clements (Business School, The University of Western Australia); Marc Jim M Mariano (KPMG Economics); George Verikios (CSIRO and Griffith University)
    Abstract: Strange as it may seem, Treasury, brewers, winemakers, distillers and drinkers all share a common interest: The taxation of alcohol and its price elasticity of demand. Treasury needs this information to determine revenue, the industry for pricing purposes, and drinkers bear the burden of taxation. This paper presents new estimates of demand elasticities of beer, wine and spirits for Australia. The estimates are considerably lower than those of Srivastava et al. (2014), who used monthly, off-premise consumption. Frequency of purchase and location of drinking are most likely the source of the differences. The paper demonstrates the importance of demand elasticities with simulations of changes in the tax mix for alcoholic beverages with partial and general equilibrium approaches.
    Date: 2022
  6. By: Aisha Baisalova
    Abstract: Border effects can have a considerable influence on the effectiveness of excise tax policy measures. The opportunity to buy taxable goods in the nearest lower-tax state redistributes the tax burden among consumers and determines the treatment intensity of how an increase in the tax rate may affect consumption decision. Using Nielsen Consumer Panel data, we estimate the bias arising from border effects and investigate how sensitivity to cigarette excise tax and the size of bias vary for different demographic groups. We find that border effects create a bias in the estimate of consumption sensitivity to an increase in the excise tax rate, which is present for all demographic groups. Tax sensitivity increases with the average distance to the lower tax state border, implying that border residence decreases the impact of excise tax policy interventions on consumer choice.
    Keywords: excise taxation; cigarettes; cross-state purchasing; tax avoidance; border effects;
    JEL: D12 H26 H71 L66
    Date: 2022–07
  7. By: Congressional Budget Office
    Abstract: Federal deficits are projected to nearly triple over the next 30 years, from 4 percent of GDP in 2022 to 11 percent in 2052. Such persistently growing deficits would cause federal debt held by the public, which is already high, to continue to rise even further. In CBO’s projections, such debt reaches 185 percent of GDP in 2052.
    JEL: E20 E60 E61 E62 E66 H50 H51 H53 H55 H60 H61 H62 H63 H68
    Date: 2022–07–27
  8. By: Keane, Claire; Doorley, Karina; Kakoulidou, Theano; O'Malley, Seamus
    Date: 2022
  9. By: Tatsuya Abe
    Abstract: This paper examines the efficiency and distributional effects of fuel tax and feebate policies in the automobile market. I employ a model in which households make two-stage decisions on car ownership and utilization, and I estimate model parameters by combining micro-level data from a household survey and macro-level aggregate data on the Japanese new car market from 2006 through 2013. Interestingly, several system changes in the Japanese feebate created rich variations in vehicle prices across vehicles and over time during the sample period. I use such exogenous variation to overcome the vehicle price endogeneity associated with demand estimation. Counterfactual analyses show that the Japanese feebate results in a significant increase in social welfare while augmenting environmental externalities. In particular, the rebound effect induced by the feebate cancels out approximately 7% of the reduction in CO2 emissions that would originally have been attained by the improvement in fuel economy. In addition, I find that the fuel tax at the current tax rate in Japan is 1.7 times less costly than the product tax, an alternative feebate scheme considered in the counterfactuals. I also find that there is no difference in regressivity between the two policies in reducing negative environmental externalities by the same amount.
    Date: 2022–07

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