nep-pub New Economics Papers
on Public Finance
Issue of 2022‒09‒19
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxing Moral Agents By Esteban Muñoz Sobrado
  2. Labor Supply Responsiveness to Tax Reforms By Hans Schytte Sigaard
  3. Public finances solvency in the Euro Area: true or false? By António Afonso; José Carlos Coelho
  4. Corporate Political Spending and State Tax Policy: Evidence from Citizens United By Cailin R. Slattery; Alisa Tazhitdinova; Sarah Robinson
  5. Income Taxes, Gross Hourly Wages, and the Anatomy of Behavioral Responses: Evidence from a Danish tax reform By SUMIYA Kazuhiko; Jesper BAGGER

  1. By: Esteban Muñoz Sobrado
    Abstract: Experimental and empirical findings suggest that non-pecuniary motivations play a significant role as determinants of taxpayers’ decision to comply with the tax authority and shape their perceptions and assessment of the tax code. By contrast, the canonical optimal income taxation model focuses on material sanctions as the primary motive for compliance. In this paper, I show how taxpayers equipped with evolutionary Kantian preferences can account for both these non-pecuniary and material motivations. I build a general model of income taxation in the presence of a public good, which agents value morally, and solve for the optimal linear and non-linear taxation problems.
    JEL: H21 H41 D91
    Date: 2022
  2. By: Hans Schytte Sigaard (Department of Economics and Business Economics, Aarhus University)
    Abstract: Labor supply responses constitute real responses to taxation and are central for policy analysis. This paper estimates the elasticity of labor supply at the intensive margin by applying conventional estimation strategies from the elasticity of taxable income (ETI) literature to administrative register data on performed hours of work. The elasticity is estimated to be 0.08, significant, and can be attributed to individuals changing main and secondary employment, a general increase in contract hours, and a reduction in paid absence. By also estimating ETI, which captures all responses to taxation, I show that a large part of total responses can be attributed to individuals adjusting work hours, capturing inherent labor responses, and I thereby provide a link between the labor and public finance literatures. These findings suggest that contextual factors such as labor market fluidity and flexibility are important to facilitate real responses to taxation and that labor supply responses are core underlying drivers of total responses to taxation.
    Keywords: Elasticity of labor supply, marginal tax rates, tax reforms, behavioral responses, public economics
    JEL: H21 H24 H30 J22 J24 J62
    Date: 2022–08–31
  3. By: António Afonso; José Carlos Coelho
    Abstract: We assess public finances solvency for Euro Area countries using quarterly data between 1999Q1 and 2020Q4. Through a country-by-country analysis, the answer to the title question is true. For most countries, (i) the primary budget balance reacts positively to the lagged public debt ratio and past primary government balances contribute to the reduction of the public debt ratio, indicating a Ricardian fiscal regime. Furthermore, in a panel framework: (ii) the response of revenues to government expenditures is higher from 2010 onwards, and, for higher average public debt ratios, the response is lower, while (iii) the response of the primary government balance to the lagged public debt ratio is lower from 2010 onwards and is higher for higher average public debt ratios; (iv) past primary budget balances allow the public debt ratio to be reduced, especially before 2010 and in countries whose average public debt ratio is between 60 and 90% of GDP. Using a rolling window method, we find that (v) fiscal sustainability coefficients are higher the higher the lagged public debt ratios, fiscal rule indexes and sovereign ratings. Conversely, after 2010 and in periods of legislative elections, those coefficients are lower.
    Keywords: fiscal sustainability; primary budget balance; public debt; panel data; rolling windows; Euro Area; quarterly fiscal data
    JEL: C23 H61 H63 E62
    Date: 2022–09
  4. By: Cailin R. Slattery; Alisa Tazhitdinova; Sarah Robinson
    Abstract: To what extent is U.S. state tax policy affected by corporate political contributions? The 2010 Supreme Court Citizens United v. Federal Election Commission ruling provides an exogenous shock to corporate campaign spending, allowing corporations to spend on elections in 23 states which previously had spending bans. Ten years after the ruling and for a wide range of outcomes, we are not able to identify economically or statistically significant effects of corporate independent expenditures on state tax policy, including tax rates, discretionary tax breaks, and tax revenues.
    JEL: D72 H20 H71
    Date: 2022–08
  5. By: SUMIYA Kazuhiko; Jesper BAGGER
    Abstract: This paper provides quasi-experimental evidence on the effects of income taxes on gross hourly wages by utilizing administrative data and a tax reform in Denmark. The reform introduced joint taxation to a middle tax bracket, bringing large changes to the tax system facing married couples. Using variation in spousal income for identification, we present non-parametric graphical evidence based on a difference-in-differences design among working married males. First, we find heterogeneous effects across income levels. For low-income workers, taxes have negative and dynamic effects on wages. Their elasticity of wages (with respect to net-of-marginal-tax rates) is close to one. For higher-income workers, the effects are small and static, with an elasticity of approximately 0.2. Second, wages respond to taxes through human capital accumulation and job changes. Finally, with smaller magnitudes than wages, daily hours worked also respond negatively to taxes, which contrasts with the prediction from a standard labor supply-and-demand model.
    Date: 2022–08

This nep-pub issue is ©2022 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.