nep-pub New Economics Papers
on Public Finance
Issue of 2022‒10‒31
fourteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Determinants of Tax Incentive Effectiveness During Covid-19 Pandemic By Patricia Diana
  2. The Welfare Economics of Reference Dependence By Daniel Reck; Arthur Seibold
  3. Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms: Comment By Clément Malgouyres; Thierry Mayer; Clément Mazet-Sonilhac
  4. Property tax competition: A quantitative assessment By Rainald Borck; Jun Oshiro; Yasuhiro Sato
  5. Bequests and the estate tax. A review of theory and (new) evidence. By Pieter Van Rymenant; ;
  6. The Social Tax : Redistributive Pressure and Labor Supply By Carranza,Eliana; Donald,Aletheia Amalia; Grosset,Florian; Kaur,Supreet
  7. Inefficient at Any Level: A Comparative Efficiency Argument for Complete Elimination of Property Transfer Duties and Insurance Taxes By Jason Nassios; James Giesecke
  8. Taxing Households Energy Consumption in the EU: the Tax Burden and its Redistributive effect By AMORES Antonio F; MAIER Sofia; RICCI Mattia
  9. How Does the Progressivity of Taxes and Government Transfers Impact People’s Willingnessto Pay Tax ? Experimental Evidence across Developing Countries By Hoy,Christopher Alexander
  10. Oil Supply Shocks and Tax Policy Responses in Australia: Insights from a Dynamic CGE Framework By Xianglong Liu; Jason Nassios; James Giesecke
  11. Carbon Tax and its Impact on South African Households By Jessika A. Bohlmann; Roula Inglesi-Lotz; Heinrich R. Bohlmann
  12. Property Tax Compliance in Tanzania : Can Nudges Help ? By Collin,Matthew Edward; Di Maro,Vincenzo; Evans,David K.; Manang,Frederik
  13. The Distributional Impact of Taxes and Social Spending in Bhutan : An Application withLimited Income Data By Baquero,Juan Pablo; Gao,Jia; Kim,Yeon Soo
  14. Efficiency and Welfare Effects of Fiscal Policy in Emerging Economies: The Case of Morocco By El-Khalifi, Ahmed; Ouakil, Hicham; Torres, José L.

  1. By: Patricia Diana (Universitas Multimedia Nusantara, 15810, Tangerang, Indonesia Author-2-Name: Chermian Eforis Author-2-Workplace-Name: Universitas Multimedia Nusantara, 15810, Tangerang, Indonesia Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: " Objective - The paper aims to measure tax incentive effectiveness specifically for SMEs using internal government factors such as modernization and socialization of the tax system and internal personal taxpayers' factors using tax knowledge. Methodology/Technique - Using primary data collected by questionnaire. Respondent criteria prepare according to SMEs classification from the Regulation of the Minister of Finance of the Republic of Indonesia. Data in this study were analyzed using multiple linear regression with SPSS statistics. Findings - this research found that modernization, socialization, and taxpayer knowledge will improve tax incentive efficiency. Internal government factors consist of modernization of the tax system and frequent socialization, significantly encouraging taxpayers to utilize the incentive without having deep knowledge of taxation. Novelty - This study explains the determinants of tax incentives from both sides, government, and taxpayer, especially for SMEs during pandemic COVID 19 in the Indonesian market. Type of Paper - Empirical."
    Keywords: Tax Incentive, Fiscal Policy, Covid-19, Indonesia
    JEL: E62 E64 H25 D83
    Date: 2022–09–30
  2. By: Daniel Reck; Arthur Seibold
    Abstract: Empirical evidence suggests that individuals often evaluate options relative to a reference point, especially seeking to avoid losses. In this paper, we provide the first welfare analysis under reference-dependent preferences. We decompose the welfare impact of changes in reference points and prices into direct and behavioral effects, and describe how these effects depend on whether reference dependence reflects a bias or a normative preference. In a simple model of loss aversion grounded in common empirical findings, we find that lowering reference points robustly improves welfare, while the welfare effect of a price change depends critically on normative judgments. We also derive sufficient statistics characterizations of the welfare effects of changing reference points and prices. We illustrate these theoretical findings with an empirical application to reference dependence exhibited in German workers’ retirement decisions. Both simulation and sufficient statistics results suggest positive welfare effects of increasing the Normal Retirement Age, but ambiguous effects of financial incentives to postpone retirement. Finally, we study how adopting alternative models of reference dependent preferences modifies key welfare effects.
    Keywords: reference-dependent preferences, loss aversion, welfare, pension reform
    JEL: D91 D60 H55 J26
    Date: 2022
  3. By: Clément Malgouyres (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics); Thierry Mayer (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Clément Mazet-Sonilhac (Centre de recherche de la Banque de France - Banque de France)
    Abstract: Suárez Serrato and Zidar (2016) identify state corporate tax incidence in a spatial equilibrium model with imperfectly mobile firms. Their identification argument rests on comparative-statics omitting a channel implied by their model: the link between common determinants of a location's attractiveness and the average idiosyncratic productivity of firms choosing that location. This compositional margin causes the labor demand elasticity to be independent from the product demand elasticity, impeding the identification of incidence from the four estimated reduced-form effects. Assigning consensual values to the unidentified parameters, we find that the incidence share born by firm-owners is closer to 25% than 40%.
    Keywords: Incidence,Corporate income tax,Discrete/Continuous choice
    Date: 2022
  4. By: Rainald Borck (University of Potsdam); Jun Oshiro (University of the Ryukyus); Yasuhiro Sato (University of Tokyo)
    Abstract: We develop a model of property taxation and characterize equilibria under three alternative taxa-tion regimes often used in the public finance literature: decentralized taxation, centralized taxation, and “rent seeking” regimes. We show that decentralized taxation results in inefficiently high tax rates, whereas centralized taxation yields a common optimal tax rate, and tax rates in the rent-seeking regime can be either inefficiently high or low. We quantify the effects of switching from the observed tax system to the three regimes for Japan and Germany. The decentralized or rent-seeking regime best describes the Japanese tax system, whereas the centralized regime does so for Germany. We also quantify the welfare effects of regime changes.
    Keywords: property taxes, tax competition, efficiency
    JEL: H71 H72 R13 R51
    Date: 2022–10
  5. By: Pieter Van Rymenant; ; (-)
    Abstract: This paper studies the theoretical relationship between the estate tax and the size of pre-tax bequests of (wealthy) donors: the micro elasticity of bequests. I start from the two most popular bequest motives discussed in the literature where this elasticity may be different from zero: warm glow and altruism. For both motives, I study the effects of higher estate taxation across the distribution of wealth and over the entire range of plausible parameterizations regarding preferences over consumption and bequests. I consider a linear estate tax, as well as the case of a progressive estate tax characterized by a high exemption, as in the United States today. The first key result is that the micro elasticity of bequests exhibits several important heterogeneities across the distribution of wealth (endowments). Heterogeneous effects of estate taxation follow if bequests are modelled as a luxury good (warm glow), if the endowments of the children are significant (altruism), or if the estate tax system is progressive (warm glow and altruism). The second key result is that, for (very) wealthy donors, and under reasonable parameterizations of preferences, the micro elasticity of bequests is not typically negative and large but may well be positive. These results indicate that there are no reasons to expect large reductions in the pre-tax bequests of (very) wealthy donors, nor to expect large disincentive effects generated by the estate tax. The extra tax revenues generated by the estate tax, by contrast, may be large.
    Keywords: Estate tax, bequests, bequest motives, wealth distribution
    JEL: E00 E21 E62 H31
    Date: 2022–10
  6. By: Carranza,Eliana; Donald,Aletheia Amalia; Grosset,Florian; Kaur,Supreet
    Abstract: In low-income communities, pressure to share income with others may disincentivize work,distorting labor supply. This paper documents that across countries, social groups that undertake more interpersonaltransfers work fewer hours. Using a field experiment, the study enabled piece-rate factory workers in Côted'Ivoire to shield income using blocked savings accounts over 3-9 months. Workers could only depositearnings increases, relative to baseline, mitigating income effects on labor supply. The study varied whether theoffered account was private or known to the worker's network, altering the likelihood of transfer requestsagainst saved income. When accounts were private, take-up was substantively higher (60% vs. 14%). Offering privateaccounts sharply increased labor supply—raising work attendance by 10% and earnings by 11%. Outgoing transfersdid not decline, indicating no loss in redistribution. The estimates imply a 9–14% social tax rate. The welfarebenefits of informal redistribution may come at a cost, depressing labor supply and productivity.
    Date: 2022–08–30
  7. By: Jason Nassios; James Giesecke
    Abstract: Harberger (1962) coined the term excess burden to emphasise that taxes impose costs in addition to the revenue they collect. Reviews of Australia's tax system have used point estimates of the excess burden for a series of Australian taxes, among other measures, to motivate and prioritise the nation's reform agenda. In this paper we commence the work needed to elucidate what the optimal tax mix in Australia might look like under alternative revenue raising efforts, by studying how the excess burden of four Australian taxes change as we alter their tax-specific revenue-to-GDP ratios. This is achieved via simulation with a large-scale CGE model with high levels of tax-specific detail. We show that property transfer duties and insurance taxes are highly inefficient even at low levels, strengthening the case for their complete replacement with more efficient taxes.
    Keywords: CGE modelling, Immovable property tax, Recurrent property tax, Insurance tax, Value added tax, Personal income tax, Excess burden
    JEL: C68 E62 H2 H71 R38
    Date: 2022–10
  8. By: AMORES Antonio F (European Commission - JRC); MAIER Sofia (European Commission - JRC); RICCI Mattia (European Commission - JRC)
    Abstract: The taxation of energy consumption is a central topic in the current policy debate of the European Union. While raising energy taxation is part of the European Commission's strategy for achieving its 2030/50 climate targets, the ongoing dramatic increases in the price of energy products are raising calls for reducing their taxation. Therefore, a close consideration of the incidence and redistributive effects of energy taxation is crucial to design compensatory measures and to ensure support for the Green transition. In this paper, we employ the EUROMOD microsimulation model to estimate the burden and the redistributive impact of energy consumption taxation on households across Member States. In doing so, we break down the role played by differences in consumption patterns, rates of taxation and their regressivity. We find that countries where energy taxation is the highest are often not the ones where its incidence on household income is the strongest. At the same time, the highest inequality impact is not always taking place in countries with the most regressive energy taxation. We therefore stress the importance of considering, not only the level of energy consumption taxation, but also its regressivity and its incidence over household income when assessing its inequality cost.
    Keywords: Energy consumption taxation, regressivity, redistributive effects, EUROMOD, Europe
    Date: 2022–09
  9. By: Hoy,Christopher Alexander
    Abstract: This paper examines how the progressivity of taxes and government transfers impactspeople’s willingness to pay tax through a randomized survey experiment with over 30,000 respondents across eightdeveloping countries. Respondents increased (decreased) their willingness to pay taxes when they received accurateinformation that taxes in their country are progressive (not progressive). These effects were predominantly driven byrespondents in cases where the information they received was counter to their prior beliefs and/or consistent with theirpreferences. These results suggest changes in policies that increase (decrease) the progressivity of tax systems mayalso lead to increases (decreases) in tax compliance.
    Date: 2022–09–07
  10. By: Xianglong Liu; Jason Nassios; James Giesecke
    Abstract: Recent surges in global crude oil prices, caused by supply disruptions from Russia's invasion of Ukraine and associated sanctions, have increased the cost of living globally. In response, in the 2022/23 Australian Federal budget, the former Coalition government announced a halving of Australia's fuel excise from 44 cents per litre to 22 cents per litre for six months. This paper explores the impact of an oil supply shock on the Australian economy, and the effectiveness of a fuel excise reduction as a policy response. We adopt a single-country dynamic computable general equilibrium (CGE) framework. Because Australia is a net oil-importing economy, ceteris paribus, the rise in world oil prices puts downward pressure on the terms of trade and household consumption. The impact at the macro level on real GDP is damped by a rise in net exports and world LNG prices, a key Australian export. Our analysis unpacks the role played by the linkage between world oil and LNG prices. While this linkage attenuates the macroeconomic effects of an oil price rise in Australia, its capacity to mitigate the economic damage is muted because of the LNG sector's low labour intensity, high foreign ownership, and the associated rise in domestic gas prices, which hurt domestic gas users. We find a 50 percent reduction in fuel excise can help damp the overall fall in real GDP and employment, at the expense of larger budget deficits. Rather than strengthening calls for a cut in fuel tax excise rates, we show that higher oil prices compromise calls for its reduction from an allocative efficiency perspective, because it is a specific tax. Finally, we study an alternative policy response to higher world oil prices in Australia: adoption of a UK-style energy profits levy on LNG producers. We find that such a policy would promote household consumption without compromising the federal budget.
    Keywords: taxation policy, CGE modelling, dynamics, oil prices
    JEL: C68 E62 H25 Q43
    Date: 2022–09
  11. By: Jessika A. Bohlmann (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Roula Inglesi-Lotz (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Heinrich R. Bohlmann (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)
    Abstract: This paper focuses on evaluating the economy-wide impact of a carbon tax as a policy mechanism designed to reduce GHG emissions in South Africa, with a particular focus on households. Impacts of the carbon tax are evaluated across different households, including low-income households, who are often said to be the least responsible for climate change. A dynamic CGE model of the South African economy that includes detailed tax information allowing for accurate measurement of the effects of imposing a carbon tax is used to conduct the modelling simulations. Results show that the effects of the carbon tax on economic growth are minimised when the revenue collected is recycled back into the economy. Additionally, low-income households are shown to be more affected by the carbon tax implementation compared to high-income households. The results from this study confirm that policymakers need to be careful in introducing new taxes on goods that form a large part of the consumption bundle of vulnerable households, such as energy, and have mitigation policies ready to support such households.
    Keywords: CGE Modelling, Carbon Tax, Households, South Africa
    Date: 2022–10
  12. By: Collin,Matthew Edward; Di Maro,Vincenzo; Evans,David K.; Manang,Frederik
    Abstract: Low tax compliance in low- and middle-income countries around the world limits the abilityof governments to offer effective public services. This paper reports the results of a randomly rolled out textmessage campaign aimed at promoting tax compliance among landowners in Dar es Salaam, Tanzania. Landowners wererandomly assigned to one of four groups designed to test different aspects of tax morale. They received a simple textmessage reminder to pay their tax (a test of salience), a message highlighting the connection between taxes and publicservices (reciprocity), a message communicating that people who did not pay were not contributing to local or nationaldevelopment (social pressure), or no message (control). Recipients of any message were 18 percent (or 2 percentagepoints) more likely to pay any property tax by the end of the study period. Each type of message resulted in gains inpayment rates, although social pressure messages delivered the lowest gains. Total payment amounts were highest forthose who received reciprocity messages. Nudges were most effective in areas with lower initial rates of taxcompliance. The average estimated benefit-cost ratio across treatments is 36:1 due to the low cost of the intervention,with higher cost-effectiveness for reciprocity messages.
    Date: 2022–08–22
  13. By: Baquero,Juan Pablo; Gao,Jia; Kim,Yeon Soo
    Abstract: This paper analyzes the distributional impact of the tax-benefit system in Bhutan.It makes two main contributions: first, this is the first substantive study of this kind in Bhutan, and second, due tolimited information on incomes in the household survey, a consumption-based model is combined with Mincer-typeearnings to derive estimates of incomes. The results show that the combined impact of government taxes and socialspending is to reduce inequality and slightly increase poverty as of 2017. The increase in poverty is mainly due tothe burden of indirect taxes and social contributions that are not offset by other transfers. Households in the bottom80 percent are net receivers of fiscal interventions, with fiscal benefits primarily occurring through education andhealth benefits, which are both progressive. Most households did not pay much into the system as of 2017, as personalincome taxes have a high exemption threshold and sales taxes only apply to a selected number of goods that are mainlyconsumed by richer households. Due to the lack of direct transfers, the net cash position is negative for poorhouseholds, although the magnitude is very small. Simulations suggest that the recent personal income taxreduction leads direct taxes to be slightly more progressive; however, the inequality-reducing impact isdampened. The goods and services tax is expected to increase indirect taxes for households across the distribution and isless progressive than the sales tax. This could lead to a temporary increase in poverty, which could be offset throughdirect transfers financed by the additional revenues.
    Date: 2022–09–22
  14. By: El-Khalifi, Ahmed; Ouakil, Hicham; Torres, José L.
    Abstract: The welfare cost of fiscal policy does not only depend on distortions by taxation, but also on how public revenues are spent in the economy, and on wealth inequality. Many of the government's spending activities are related to the provision of consumption goods and services, and the provision of public inputs. Hence, optimal taxation policy is not independent of how fiscal revenues are spent. This paper uses a model with two types of agents: Active households (who behave as Ricardian agents) and non-active government-dependent households (who behave as hand-to-mouth agents). The model economy considers a detailed government for both fiscal revenues and public spending. We compute welfare changes of different tax rates and alternative spending policies and quantify the trade-off of fiscal policy across the two groups of agents. The main results can be presented as follows: i) Distortions from some taxes on economic activity can be positive due to the presence of public inputs. ii) Output efficiency can be gained by changing the tax mix while keeping constant fiscal revenues. iii) Total welfare gains can be obtained by increasing tax rates, except the capital income tax, at the cost of reducing the welfare of active households.
    Keywords: Fiscal policy; Active households; Government spending-dependent households; Taxes; Government Spending, Laffer curves; Welfare.
    JEL: H21 H3 H42
    Date: 2022–10–07

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