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on Public Finance |
| By: | Ravi Kanbur (Cornell University); Matti Tuomala (Tampere University and Finnish Centre of Excellence in Tax Systems Research (FIT)) |
| Abstract: | This paper presents an analysis of the consequences for redistribution policies of achieving a more equal predistribution, that is, a more equal distribution of the predetermined income earning capabilities that individuals bring to the market. We show that optimal fiscal policies are less redistributive when the predistribution is more equal. We then quantify the value of a more equal predistribution. We show that total consumption is higher with a more equal predistribution. We also develop a money metric measure of social welfare and show that a more equal predistribution increases this measure for a Utilitarian and Prioritarian Social Welfare Function but may decrease it for the Maximin. |
| Keywords: | Predistribution, Redistribution, Optimal Non-linear Taxation, Marginal Tax Rates, Social Welfare Function |
| JEL: | D31 H21 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:fit:wpaper:19&r=pub |
| By: | Can, Ege (University of Nevada, Reno); Fossen, Frank M. (University of Nevada, Reno) |
| Abstract: | We investigate the effect of personal income tax (PIT) rates on the number of hours entrepreneurs work weekly. Using the rotating panel data from the Annual Social and Economic Supplement of the Current Population Survey from 2003 to 2019, we estimate instrumental variable regressions in first differences to exploit changes in the tax code for identification. We distinguish between self-employed owners of incorporated versus unincorporated businesses and examine their differential responses. The findings reveal that higher individual-specific marginal PIT rates increase the hours worked among entrepreneurs with incorporated businesses, which could be explained by the availability of tax avoidance strategies. Among unincorporated entrepreneurs, we find a significant response to PIT rates in hours worked only for those who work 50 or more hours per week. |
| Keywords: | income taxes, entrepreneurship, self-employment, labor supply, incorporated, unincorporated |
| JEL: | H24 H25 J22 J23 L26 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16683&r=pub |
| By: | Behringer, Jan; Dräger, Lena; Dullien, Sebastian; Gechert, Sebastian |
| Abstract: | We use novel German survey data to investigate how perceptions and information about public finances influence attitudes towards public debt and fiscal rules. On average, people strongly underestimate the debt-to-GDP ratio, overestimate the interest-to-tax-revenue ratio and favor a tighter German debt brake. In an information treatment experiment, people consider public debt to be a more (less) severe problem once they learn the actual debt-to-GDP or interest-to-tax-revenue ratio is higher (lower) than their estimates. However, the treatment effects partly vanish when anchoring respondents' beliefs with historical public debt figures. We find no treatment effects on attitudes towards the debt brake. |
| Keywords: | public debt, fiscal rules, information treatment, expectations |
| JEL: | E60 D83 H31 H60 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-715&r=pub |
| By: | Karen Eggleston |
| Abstract: | Nonprofits supply many tax-financed services like healthcare and education. Yet nonprofits are absent from the canonical property rights theory of ownership. Extending the government “make or buy” decision to nonprofits and ex post frictions based on contracts as reference points suggests that contracting out to a nonprofit can be optimal when “mission” alignment credibly signals adherence to the spirit and not just the letter of the contract in unforeseen contingencies. The model sheds light on differential nonprofit presence across the spectrum of basic services, as illustrated by an application to the health sector. |
| JEL: | H1 H4 H44 I0 I11 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32020&r=pub |
| By: | de Haan, Jakob; Ohnsorge, Franziska; Yu, Shu |
| Abstract: | The widening of fiscal deficits during democratic elections is well established. We examine a broader set of fiscal outcomes around elections for a large set of emerging and developing economies (EMDEs), probe for differences between democracies and non-democracies, and estimate the degree to which fiscal deteriorations are unwound after elections. We show three patterns. First, primary deficits rise statistically significantly during elections, by 0.6 percentage points of GDP. Primary spending, especially on the government wage bill, also rises statistically significantly, and indirect tax revenues fall. Second, these deteriorations occur in democracies and non-democracies alike. Third, the deterioration in primary deficits is not unwound after elections and the deterioration in primary spending is partially unwound after the election, mainly through cuts in capital spending. These patterns imply that deficits in EMDEs ratchet up over the course of several election cycles. Over time, this can threaten the sustainability of public finances. Finally, we find that better institutional quality (such as strong fiscal rules) and the presence of an IMF program partly mitigate the impact of elections on fiscal positions. |
| Keywords: | political budget cycles; emerging and developing countries; democracies; autocracies |
| JEL: | D72 E62 H62 O10 |
| Date: | 2023–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119551&r=pub |
| By: | Klara Kinnl (Department of Economics, Vienna University of Economics and Business); Urlich Wohak (Department of Economics, Vienna University of Economics and Business) |
| Abstract: | We study price and volume effects of VAT reductions for period products. We exploit varying treatment intensities and timing in several European countries and find that in response to a one percentage point reduction in the VAT, prices decrease by 0.55% in the following 12 months. Pass-through rates range from full pass-through to over-shifting 12 months post policy change, with low-income households benefiting the most. While the average effect on aggregate purchase volumes is statistically zero, low income households’ demand is stimulated. We find evidence that households purchase higher quality products as a result of the tax reform. |
| Keywords: | tax pass-through, VAT reduction, tampon tax, scanner data, tax incidence |
| JEL: | H2 H31 H22 D12 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp356&r=pub |
| By: | Asmae AQZZOUZ; Nathalie PICARD |
| Abstract: | This study examines the influence of local taxes on household migration behavior between French municipalities (“communes”). We group households into five tenure status categories and four categories of household head age. Our findings support Tiebout "voting with feet" theory, especially among young flat renters in the private sector and flat owners. A surprising result is related to the introduction of the municipality size in the regression which dramatically affects the coefficient measuring the effect of local tax rates on migration probability. This suggests that a large part of the “Tiebout effect” usually found in the literature is an artefact caused by the spurious correlation between municipality size and local tax rates. |
| Keywords: | Residential mobility, local taxes, local public expenditures, heterogeneity, local amenities, life cycle. |
| JEL: | H71 H72 R23 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2023-43&r=pub |
| By: | Christian M{\o}ller Dahl; Nadja van 't Hoff; Giovanni Mellace; Sinne Smed |
| Abstract: | In October 2011, Denmark introduced the world's first and, to date, only tax targeting saturated fat. However, this tax was subsequently abolished in January 2013. Leveraging exogenous variation from untaxed Northern-German consumers, we employ a difference-in-differences approach to estimate the causal effects of both the implementation and repeal of the tax on consumption and expenditure behavior across eight product categories targeted by the tax. Our findings reveal significant heterogeneity in the tax's impact across these products. During the taxed period, there was a notable decline in consumption of bacon, liver sausage, salami, and cheese, particularly among low-income households. In contrast, expenditure on butter, cream, margarine, and sour cream increased as prices rose. Interestingly, we do not observe any difference in expenditure increases between high and low-income households, suggesting that the latter were disproportionately affected by the tax. After the repeal of the tax, we do not observe any significant decline in consumption. On the contrary, there was an overall increase in consumption for certain products, prompting concerns about unintended consequences resulting from the brief implementation of the tax. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2312.11481&r=pub |